-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FLOMR2L7ZtsvndoOwlRmGdGaszJQ8E2O0k5vixhmFMpyA6mUXBNLudcAaf5HYM0U QLYjmudTxUoOkeTQ9aOcZw== 0001092306-07-000072.txt : 20070221 0001092306-07-000072.hdr.sgml : 20070221 20070220190137 ACCESSION NUMBER: 0001092306-07-000072 CONFORMED SUBMISSION TYPE: SB-2/A PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 20070221 DATE AS OF CHANGE: 20070220 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RADIAL ENERGY, INC. CENTRAL INDEX KEY: 0001282496 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 721580091 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-138351 FILM NUMBER: 07636973 BUSINESS ADDRESS: STREET 1: 225 MARINE DRIVE STREET 2: SUITE 210 CITY: BLAINE STATE: WA ZIP: 98230 BUSINESS PHONE: 360-332-0905 MAIL ADDRESS: STREET 1: 225 MARINE DRIVE STREET 2: SUITE 210 CITY: BLAINE STATE: WA ZIP: 98230 FORMER COMPANY: FORMER CONFORMED NAME: BV PHARMACEUTICAL INC DATE OF NAME CHANGE: 20040303 SB-2/A 1 sba1.txt SB2/A #1 Registration No. 333-138351 ============================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------- FORM SB-2/A Registration Statement Under The Securities Act Of 1933 (Amendment No. 1) ----------------- RADIAL ENERGY INC. ---------------------------------------------- (Name of small business issuer in its charter) Nevada 1311 72-1580091 - -------------------------------------------------------------------------------- (State or jurisdiction of (Primary Standard Industrial (IRS Employer incorporation or organization) Classification Code Number) Identification No.) 1200 Smith Street, Suite 1600, Houston, Texas 77002 (713) 353-4963 ------------------------------------------------------------ (Address and telephone number of principal executive offices and principal place of business) Copies of all communications to: G. Leigh Lyons Raymond A. Lee, Esq. President, Chief Executive Greenberg Traurig, LLP Officer and Chief Financial Officer 650 Town Center Drive, Suite 1700 Radial Energy Inc. Costa Mesa, CA 92626 1200 Smith Street, Suite 1600 (714) 708-6500 Houston, Texas 77002 (713) 353-4963 (Name, address and telephone number of agent for service) ----------------- APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: FROM TIME TO TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
CALCULATION OF REGISTRATION FEE ================================================================================================ Title of each Amount to be Proposed maximum Proposed maximum Amount of class of securities register (1) offering price aggregate offering registration fee to be registered per unit price Common Stock 13,333,333 $0.94(2) $12,533,333 $1,341.07 ================================================================================================
(1) The 13,333,333 shares being registered for resale are for shares of our common stock issuable upon conversion of convertible debentures and upon exercise of warrants to the selling stockholders identified in the prospectus. (2) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(c) and 457(g) under the Securities Act of 1933, using the average of the high and low prices as reported on the OTCBB on October 30, 2006. SUBJECT TO COMPLETION, DATED FEBRUARY 20, 2007 PRELIMINARY PROSPECTUS 13,333,333 SHARES RADIAL ENERGY INC. COMMON STOCK ----------------- This prospectus relates to the resale of shares of our common stock by the selling stockholders of Radial Energy Inc. identified in this prospectus. These shares or interests therein may be offered and sold from time to time by the selling stockholders named herein or their transferees, and we will not receive any of the proceeds from the sale of these shares by the selling stockholders. We will bear the costs relating to the registration of these shares. The selling stockholders may dispose of their common stock through public or private transactions at prevailing market prices, prices related to prevailing market prices or at privately negotiated prices. The selling stockholders may include pledgees, donees, transferees, or other successors in interest. The selling stockholders will pay any sales commissions incurred in connection with the disposition of shares through this prospectus. We do not know when or in what amounts a selling stockholder may offer shares for sale. The selling stockholders may sell some, all or none of the shares offered by this prospectus. Our shares are quoted on the OTC Bulletin Board under the symbol "RENG." The closing price of the shares as quoted on the OTC Bulletin Board on February 7, 2007 was $0.525 per share. No underwriter or person has been engaged to facilitate the sale of shares of common stock in this offering. None of the proceeds from the sale of stock by the selling stockholders will be placed in escrow, trust or any similar account. ----------------- YOU SHOULD CAREFULLY CONSIDER "RISK FACTORS" BEGINNING ON PAGE 3 FOR IMPORTANT INFORMATION YOU SHOULD CONSIDER WHEN DETERMINING WHETHER TO INVEST IN OUR COMMON STOCK. ----------------- NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ----------------- THE DATE OF THIS PROSPECTUS IS [ ] TABLE OF CONTENTS Prospectus Summary................................................. 1 Risk Factors....................................................... 3 Forward-Looking Statements......................................... 9 Use of Proceeds.................................................... 10 Price Range of Common Stock........................................ 11 Dividend Policy.................................................... 11 About The Offering................................................. 12 Selling Stockholders............................................... 12 Plan of Distribution............................................... 13 Description of Business............................................ 15 Management's Plan of Operation..................................... 17 Legal Proceedings.................................................. 18 Management......................................................... 19 Related Party Transactions......................................... 22 Indemnification.................................................... 22 Security Ownership of Certain Beneficial Owners and Management..... 22 Description of Capital Stock....................................... 23 Legal Matters...................................................... 23 Experts............................................................. 23 Where You Can Find More Information................................ 23 Index To Financial Information..................................... F-1 i PROSPECTUS SUMMARY WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT RELY ON ANY UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THE SELLING STOCKHOLDERS ARE OFFERING TO SELL, AND SEEKING OFFERS TO BUY, ONLY THE SHARES OF COMMON STOCK COVERED BY THIS PROSPECTUS, AND ONLY UNDER CIRCUMSTANCES AND IN JURISDICTIONS WHERE IT IS LAWFUL TO DO SO. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CURRENT ONLY AS OF ITS DATE, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF THE SHARES. YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THE DOCUMENT. IN THIS PROSPECTUS, THE WORDS "RADIAL ENERGY," "COMPANY," "WE," "OUR," "OURS" AND "US" REFER ONLY TO RADIAL ENERGY INC. (UNLESS INDICATED OTHERWISE), AND NOT TO ANY OF THE SELLING STOCKHOLDERS. THE FOLLOWING SUMMARY CONTAINS BASIC INFORMATION ABOUT THIS OFFERING. YOU SHOULD READ CAREFULLY THIS ENTIRE PROSPECTUS, INCLUDING THE "RISK FACTORS," FINANCIAL INFORMATION AND RELATED NOTES, AS WELL AS THE DOCUMENTS WE HAVE INCORPORATED BY REFERENCE INTO THIS PROSPECTUS BEFORE MAKING AN INVESTMENT DECISION. COMPANY BACKGROUND Our company was incorporated in the State of Nevada on June 30, 2000, under the name of "All Printer Supplies.com." On April 17, 2003, we changed our name to "BV Pharmaceuticals, Inc." and became a provider of information and services in the areas of personal DNA collection, analysis, profiling, banking and DNA profile database maintenance. Effective as of April 3, 2006, through a statutory merger with our wholly owned subsidiary in which we were the surviving corporation, we changed our name to "Radial Energy Inc." Radial Energy Inc. is a Nevada corporation. Our common stock is quoted for trading on the OTC Bulletin Board under the symbol RENG. Our principal executive offices are located at 1200 Smith Street, Suite 1600, Houston, Texas 77002. Our telephone number is (713) 353-4963. Our fax number is (713) 353-8740. We maintain a website at www.radialenergyinc.com. BUSINESS OVERVIEW In March 2006, we began a new business plan concentrating on the acquisition, exploration, development, and production of domestic and international oil and gas projects. Radial Energy's primary focus is on identifying previously drilled but subsequently abandoned wells that encountered and/or tested live oil or natural gas indicating the presence of marketable hydrocarbons, reservoir, and trap. As of the date of filing of this prospectus, we hold the right to purchase interests in projects in South America and in Texas and are continuing to explore other opportunities in North America and Latin America. We are an exploration stage company that has not generated revenues from our current operations in the oil and gas industry. There is no historical financial information about Radial Energy upon which to base an evaluation of our performance. We cannot guarantee we will be successful in our new core business or in any business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources and in the exploration of oil and gas reserves. Future financing may not be available to us on acceptable terms. If financing is not available on satisfactory terms, we may be unable to continue with our current business plan. If equity financing is available to us on acceptable terms, it could result in additional dilution to our existing stockholders. PRIVATE PLACEMENT On October 2, 2006, we entered into a Securities Purchase Agreement with Cornell Capital Partners, LP for the private placement of secured convertible debentures (the "Debentures") in the aggregate principal amount of $5 million. We closed on the first $2 million on October 4, 2006; an additional $1.5 million will be funded on the date a registration statement covering the resale of the shares underlying the securities is filed with the Securities and Exchange Commission (the "SEC"); and the final $1.5 million will be funded within three business days after the registration statement is declared effective by the SEC. As part of the transaction, we issued to the purchaser warrants (the "Warrants") to purchase an aggregate of 8,166,666 shares of our common stock, and we are obligated to issue to the purchaser an additional Warrant to purchase 1,000,000 shares of our common stock when the final tranche is funded. This prospectus relates to the resale of an aggregate of 13,333,333 shares of common stock issuable upon the exercise of the Warrants and upon the conversion of the Debentures. 1 THE OFFERING This prospectus relates to the resale of shares of our common stock by the selling stockholders of Radial Energy Inc. identified in this prospectus. We are not selling any shares of common stock in this offering, and we will not receive any of the proceeds from the sale of these shares by the selling stockholders. All costs associated with this registration will be borne by us. The selling stockholders identified in this prospectus, or their pledgees, donees, transferees or other successors-in-interest, may offer the shares from time to time through public or private transactions at prevailing market prices, at prices related to prevailing market prices or at privately negotiated prices. We do not know when or in what amounts a selling stockholder may offer shares for sale. The selling stockholders may sell some, all or none of the shares offered by this prospectus. Common stock outstanding as of February 5, 2007 44,585,824 Common stock offered by selling stockholders Up to 13,333,333 shares Use of proceeds We will not receive any of the proceeds from the sale of the common stock by the selling stockholders under this prospectus. See "Use of Proceeds" for a complete description. OTCBB Trading symbol RENG Risk Factors The securities offered by this prospectus are speculative and involve a high degree of risk and investors purchasing securities should not purchase the securities unless they can afford the loss of their entire investment. See "Risk Factors" beginning on page 3. 2 RISK FACTORS AN INVESTMENT IN OUR COMMON STOCK IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK AND UNCERTAINTY. YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW, TOGETHER WITH THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, INCLUDING THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO OF OUR COMPANY, BEFORE DECIDING TO INVEST IN OUR COMMON STOCK. RISKS RELATED TO OUR COMPANY WE ARE AN EXPLORATION STAGE COMPANY AND THE LIKELIHOOD OF OUR REACHING THE DEVELOPMENT STAGE IS REMOTE. Our company has no revenues from operations and must be considered in the exploration stage. We have no ongoing oil and gas operations of any kind. Potential investors should be aware that the likelihood of our company reaching the development stage is remote. WE HAVE A LIMITED OPERATING HISTORY, AND IF WE ARE NOT SUCCESSFUL IN CONTINUING TO GROW OUR BUSINESS, THEN WE MAY HAVE TO SCALE BACK OR EVEN CEASE OUR ONGOING BUSINESS OPERATIONS. Our company has a limited operating history. The success of the company is significantly dependent on a successful acquisition, drilling, completion and production program. Our company's operations will be subject to all the risks inherent in the establishment of a developing enterprise and the uncertainties arising from the absence of a significant operating history. We may be unable to locate recoverable reserves and be forced to cease operations. We are in the exploration stage and potential investors should be aware of the difficulties normally encountered by enterprises in the exploration stage. If our business plan is not successful, and we are not able to operate profitably, investors may lose some or all of their investment in our company. OUR COMPANY'S INDEPENDENT AUDITORS HAVE EXPRESSED A RESERVATION THAT OUR COMPANY CAN CONTINUE AS A GOING CONCERN. Our company's operations have been limited to general administrative operations and a limited amount of exploration. Our company's ability to continue as a going concern is dependent on our ability to raise additional capital to fund future operations and ultimately to attain profitable operations. Accordingly, these factors raise substantial doubt as to the company's ability to continue as a going concern. WE DO NOT OPERATE PROFITABLY OR GENERATE POSITIVE CASH FLOW, AND AS A RESULT, WE MAY BE FORCED TO CURTAIL OR CLOSE OUR OPERATIONS. If we cannot generate positive cash flows in the future, or raise sufficient financing to continue our normal operations, then we may be forced to scale down or even close our operations. In particular, additional capital may be required in the event that: o we are unable to successfully explore and develop our current projects; o drilling and completion costs for further wells increase beyond our expectations; or o we encounter greater costs associated with general and administrative expenses or offering costs. The occurrence of any of the aforementioned events could adversely affect our ability to meet our business plans. We will depend almost exclusively on outside capital to pay for the continued exploration and development of our properties. Such outside capital may include the sale of additional stock and/or commercial borrowing. Capital may not continue to be available if necessary to meet these continuing exploration and development costs or, if the capital is available, that it will be on terms acceptable to us. The issuance of additional equity securities by us would result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments. If we are unable to obtain financing in the amounts and on terms deemed acceptable to us, we may be unable to continue our business and as a result may be required to scale back or cease operations for our business, the result of which would be that our stockholders would lose some or all of their investment. EXPANSION OF OUR OPERATIONS REQUIRES SIGNIFICANT CAPITAL EXPENDITURES AND WE MAY BE UNABLE TO OBTAIN SUFFICIENT FINANCING RESULTING IN THE ABANDONMENT OF OTHERWISE VALUABLE PROJECTS. Our business model contemplates expansion of our business by drilling on our existing properties and identifying and acquiring additional oil and gas properties. We intend to rely on external sources of financing to meet the capital requirements associated with the exploration and expansion of our oil and gas operations. We plan to obtain the future funding that we will need through debt and equity markets, but we cannot be assured that we will be able to obtain additional funding when it is required or that it will be available to us on commercially acceptable terms. 3 We also intend to make offers to acquire oil properties in the ordinary course of our business. If these offers are accepted, our capital needs will increase substantially. If we fail to obtain the funding that we need when it is required, we may have to forego or delay potentially valuable opportunities to acquire new oil and gas properties or default on existing funding commitments to third parties and forfeit or dilute our rights in existing oil property interests. OUR ABILITY TO CONTINUE OPERATIONS IS DEPENDENT UPON OUR ABILITY TO SUCCESSFULLY IDENTIFY, ACQUIRE AND DEVELOP OIL PROPERTIES. Our future performance depends upon our ability to find, develop and acquire oil and gas reserves that are economically recoverable. Without successful exploration, exploitation or acquisition activities, we will not be able to develop reserves or generate revenues. We may not be able to find and develop or acquire reserves on acceptable terms, or that commercial quantities of oil and gas deposits may not be discovered sufficient to enable us to recover our acquisition, exploration and development costs or sustain our business. The successful acquisition and development of oil and gas properties requires an assessment of recoverable reserves, future oil prices and operating costs, potential environmental and other liabilities and other factors. Such assessments are necessarily inexact and their accuracy inherently uncertain. In addition, no assurances can be given that our exploitation and development activities will result in the discovery of any reserves. Our operations may be curtailed, delayed or canceled as a result of lack of adequate capital and other factors, such as title problems, weather, compliance with governmental regulations or price controls, mechanical difficulties, or unusual or unexpected formations, pressures and/or work interruptions. In addition, the costs of exploitation and development may materially exceed initial estimates. We can provide no assurance that oil and gas will be discovered in commercial quantities in any of the properties we currently hold interests in or properties in which we may acquire interests in the future. Our success will depend upon our ability to acquire working and revenue interests in properties upon which oil reserves are ultimately discovered in commercial quantities. We do not have an established history of locating and developing properties that have oil and gas reserves. WE ARE MINORITY STAKEHOLDERS IN SOME OF OUR PROJECTS AND WE DO NOT CONTROL ALL OF OUR OPERATIONS. We are minority stakeholders in some of our projects and may be obligated to fulfill the interests of our majority partners. We do not operate all of our properties and we therefore have limited influence over the testing, drilling and production operations of our properties. Our lack of control could result in the following: o the operator might initiate exploration or development on a faster or slower pace than we prefer resulting in our company foregoing all of a portion of our exploration investment; o the operator might propose to drill more wells or build more facilities on a project than we have funds for or that we deem appropriate, which could mean that we are unable to participate in the project or share in the revenues generated by the project even though we paid our share of exploration costs; o we could have our working interest ownership in the related lands and petroleum reserves reduced as a result of our failure to participate in development expenditures despite having paid for the rights to these revenues; and o if an operator refuses to initiate a project, we may be unable to pursue the project as we have limited capital, no field personnel or equipment, and no existing field operations. Any of these events could materially reduce the value of our properties and could result in loss of our investment. OUR ABILITY TO ENGAGE IN AND TO COMPLETE THE FUTURE EXPLORATION AND DEVELOPMENT PROJECTS DESCRIBED IN THE PROSPECTUS ARE SUBJECT TO SEVERAL UNCERTAINTIES THAT MAY CAUSE US TO LOSE OUR INTEREST IN THOSE PROJECTS OR CAUSE US TO ABANDON THOSE PROJECTS BEFORE WE ARE ABLE TO RECOGNIZE ANY REVENUE FROM THEM. Our current exploitation and development plans are described in this prospectus under the sections title "Description of Business," and "Management's Plan of Operation." Whether we ultimately undertake or complete an exploitation or development project is dependent upon the following factors: o availability and cost of capital as our projects contain contractual obligations to fund operations on short notice and failure to fund may result in the termination of our participation; o receipt of additional seismic data or the reprocessing of existing data; o our decision to pursue our project was based on current and projected oil or natural gas prices and declining prices will reduce the economic feasibility of our exploration projects resulting in our decision to abandon such projects; o the costs and availability of drilling rigs and other equipment supplies and personnel necessary to conduct these operations; o success or failure of activities in similar areas; 4 o changes in the estimates of the costs to complete the projects; o our ability to attract other industry partners to acquire a portion of the working interest to reduce costs and exposure to risks; and o decisions of our joint working interest owners and partners. We will continue to gather data about our projects and it is possible that additional information will cause us to alter our schedule or determine that a project should not be pursued at all. Any one of the foregoing factors may cause our plan of operation to be materially changed from that described in this prospectus. OUR DECISION TO INVEST IN CERTAIN OIL AND GAS PROPERTIES RELIES HEAVILY UPON RESERVE, GEOLOGICAL AND ENGINEERING DATA, AND DISCREPANCIES BETWEEN ACTUAL RECOVERABLE RESERVES AND ESTIMATED RECOVERABLE RESERVES MAY OCCUR DUE TO DATA ERRORS, FAULTY ASSUMPTIONS AND MISINTERPRETATIONS. The reserve, geological and engineering data information that we use in evaluating oil and gas prospects is based on estimates involving a great deal of uncertainty. Different engineers may make different estimates of reserves and cash flows based on the same available data. Reserve estimates depend in large part upon the reliability of available geologic and engineering data, which is inherently imprecise. Geologic and engineering data are used to determine the probability that a reservoir of oil and gas exists at a particular location, and whether oil and/or gas and natural gas are recoverable from a reservoir. Recoverability is ultimately subject to the accuracy of data including, but not limited to, geological characteristics of the reservoir, structure, reservoir fluid properties, the size and boundaries of the drainage area, reservoir pressure, and the anticipated rate of pressure depletion. The evaluation of these and other factors is based upon available seismic data, computer modeling, well tests and information obtained from production of oil and gas from adjacent or similar properties, but the probability of the existence and recoverability of reserves is less than 100% and actual recoveries of proved reserves can differ from estimates. Reserve estimates also require numerous assumptions relating to operating conditions and economic factors, including the price at which recovered oil and gas can be sold, the costs of recovery, assumptions concerning future operating costs, severance and excise taxes, development costs and workover and remedial costs, prevailing environmental conditions associated with drilling and production sites, availability of enhanced recovery techniques, ability to transport oil and gas to markets and governmental and other regulatory factors, such as taxes and environmental laws. A negative change in any one or more of these factors could result in quantities of oil and gas previously estimated as proved reserves becoming uneconomic. For example, a decline in the market price of oil or gas to an amount that is less than the cost of recovery of such oil or gas in a particular location could make production commercially impracticable. The risk that a decline in price could have that effect is magnified in the case of reserves requiring sophisticated or expensive production enhancement technology and equipment, such as some types of heavy oil. Each of these factors, by having an impact on the cost of recovery and the rate of production, will also affect the present value of future net cash flows from estimated reserves. ESSENTIAL EQUIPMENT MIGHT NOT BE AVAILABLE WHICH WOULD RESTRICT OUR ABILITY TO EXPLORE IN THOSE AREAS CAUSING DELAY OR FAILURE IN THE IMPLEMENTATION OF OUR BUSINESS PLAN. Oil and gas exploitation and development activities depend upon the availability of drilling and related equipment in the particular areas where those activities will be conducted. Demand for that equipment or access restrictions may affect the availability of that equipment to us and delay our exploitation and development activities. Further, our operations are spread over a vast geographical location including multiple countries and remote locations making it difficult to ship, maintain and repair equipment. Extended delays in obtaining, repairing or maintaining our equipment could result in the expiration of leaseholds and/or the inability for our company to meet its contractual obligations resulting in the loss of our investment. THE LOSS OF KEY EMPLOYEES WOULD MATERIALLY ADVERSELY AFFECT OUR ABILITY TO OPERATE OUR BUSINESS AND IMPLEMENT OUR BUSINESS PLAN. Our business operations are managed by two key employees, G. Leigh Lyons, our President, Chief Executive Officer, and Chief Financial Officer, and Omar Hayes, our Chief Operating Officer. The loss of the services of such employees could seriously impair our business operations. We do not have key man life insurance on any of our executives. Our company relies heavily on external firms for consulting, engineering, accounting and legal services. Without positive cash flows or additional financing, we will not be able to continue to rely on external firms and we may be forced to scale down or even close our operations. OUR BYLAWS CONTAIN PROVISIONS INDEMNIFYING OUR OFFICERS AND DIRECTORS AGAINST ALL COSTS, CHARGES AND EXPENSES INCURRED BY THEM. Our bylaws contain provisions with respect to the indemnification of our officers and directors against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, actually and reasonably incurred by him, including an amount paid to settle an action or satisfy a judgment in a civil, criminal or administrative action or proceeding to which he is made a party by reason of his being or having been one of our directors or officers. 5 OUR BYLAWS DO NOT CONTAIN ANTI-TAKEOVER PROVISIONS, WHICH COULD RESULT IN A CHANGE OF OUR MANAGEMENT AND DIRECTORS IF THERE IS A TAKE-OVER OF OUR COMPANY. We do not currently have a shareholder rights plan or any anti-takeover provisions in our bylaws. Without any anti-takeover provisions, there is no deterrent for a take-over of our company, which may result in a change in our management and directors. RISKS RELATED TO OUR INDUSTRY THE SUCCESSFUL IMPLEMENTATION OF OUR BUSINESS PLAN IS SUBJECT TO RISKS INHERENT IN THE OIL AND GAS BUSINESS. Our oil and gas operations are subject to the economic risks typically associated with exploration, development and production activities, including the necessity of significant expenditures to locate and acquire properties and to drill exploratory wells. In addition, the cost and timing of drilling, completing and operating wells is often uncertain. In conducting exploration and development activities, the presence of unanticipated pressure or irregularities in formations, miscalculations or accidents may cause our exploration, development and production activities to be unsuccessful. This could result in a total loss of our investment in a particular property. If exploration efforts are unsuccessful in establishing proved reserves and exploration activities cease, the amounts accumulated as unproved costs will be charged against earnings as impairments. THE OIL AND GAS INDUSTRY IS HIGHLY COMPETITIVE AND MAY RESTRICT OUR ABILITY TO SUCCESSFULLY ACQUIRE, EXPLORE AND DEVELOP ADDITIONAL PROPERTIES. The oil and gas industry is highly competitive. We compete with oil and gas companies and other individual producers and operators, many of which have longer operating histories and substantially greater financial and other resources than we do, as well as companies in other industries supplying energy, fuel and other needs to consumers. Many of these companies not only explore for and produce crude oil and gas, but also carry on refining operations and market petroleum and other products on a worldwide basis. Our larger competitors, by reason of their size and relative financial strength, can more easily access capital markets than we can and may enjoy a competitive advantage in the recruitment of qualified personnel. They may be able to absorb the burden of any changes in laws and regulation in the jurisdictions in which we do business and handle longer periods of reduced prices of gas and oil more easily than we can. Our competitors may be able to pay more for productive oil and gas properties and may be able to define, evaluate, bid for and purchase a greater number of properties and prospects than we can. Our ability to acquire additional properties in the future will depend upon our ability to conduct efficient operations, evaluate and select suitable properties, implement advanced technologies and consummate transactions in a highly competitive environment. OIL AND GAS OPERATIONS ARE SUBJECT TO COMPREHENSIVE REGULATION WHICH MAY CAUSE SUBSTANTIAL DELAYS OR REQUIRE CAPITAL OUTLAYS IN EXCESS OF THOSE ANTICIPATED CAUSING AN ADVERSE EFFECT ON OUR COMPANY. Oil and gas operations are subject to federal, state, and local laws relating to the protection of the environment, including laws regulating removal of natural resources from the ground and the discharge of materials into the environment. Oil and gas operations are also subject to federal, state, and local laws and regulations which seek to maintain health and safety standards by regulating the design and use of drilling methods and equipment. Various permits from government bodies are required for drilling operations to be conducted; no assurance can be given that such permits will be received. Environmental standards imposed by federal, provincial, or local authorities may be changed and any such changes may have material adverse effects on our activities. Moreover, compliance with such laws may cause substantial delays or require capital outlays in excess of those anticipated, thus causing an adverse effect on us. Additionally, we may be subject to liability for pollution or other environmental damages which it may elect not to insure against due to prohibitive premium costs and other reasons. To date we have not been required to spend any material amount on compliance with environmental regulations. However, we may be required to do so in future and this may affect our ability to expand or maintain our operations. ANY CHANGE TO GOVERNMENT REGULATION/ADMINISTRATIVE PRACTICES MAY HAVE A NEGATIVE IMPACT ON OUR ABILITY TO CONTINUE OPERATIONS AND OUR ABILITY TO BECOME PROFITABLE IN THE FUTURE. The laws, regulations, policies or current administrative practices of any governmental body, organization or regulatory agency in the United States or any other jurisdiction, may be changed, applied or interpreted in a manner which will fundamentally alter the ability of our company to carry on our business. The actions, policies or regulations, or changes thereto, of any governmental body or regulatory agency, or other special interest groups, may have a detrimental effect on us. Any or all of these situations may have a negative impact on our ability to operate and/or our profitably. 6 THE MARKETABILITY OF NATURAL RESOURCES WILL BE AFFECTED BY NUMEROUS FACTORS BEYOND OUR CONTROL WHICH MAY RESULT IN US NOT RECEIVING AN ADEQUATE RETURN ON INVESTED CAPITAL TO BE PROFITABLE OR VIABLE. The marketability of natural resources which may be acquired or discovered by us will be affected by numerous factors beyond our control. These factors include market fluctuations in oil and gas pricing and demand, the proximity and capacity of natural resource markets and processing equipment, governmental regulations, land tenure, land use, regulation concerning the importing and exporting of oil and gas and environmental protection regulations. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in us not receiving an adequate return on invested capital to be profitable or viable. MARKET FLUCTUATIONS IN THE PRICES OF OIL AND GAS COULD ADVERSELY AFFECT OUR PROPERTIES REDUCING THE RETURN ON INVESTED CAPITAL BELOW LEVELS DEEMED NECESSARY TO CONTINUE OPERATIONS. Prices for oil and gas tend to fluctuate significantly in response to factors beyond our control. These factors include, but are not limited to, the continued war in the Middle East and actions of the Organization of Petroleum Exporting Countries and its maintenance of production constraints, the U.S. economic environment, weather conditions, the availability of alternate fuel sources, transportation interruption, the impact of drilling levels on crude oil and gas supply, and the environmental and access issues that could limit future drilling activities for the industry. Changes in commodity prices may significantly affect our capital resources, liquidity and expected operating results. Price changes directly affect revenues and can indirectly impact expected production by changing the amount of funds available to reinvest in exploration and development activities. Reductions in oil and gas prices not only reduce revenues and profits, but could also reduce the quantities of reserves that are commercially recoverable. Significant declines in prices could result in non-cash charges to earnings due to impairment. Changes in commodity prices may also significantly affect our ability to estimate the value of producing properties for acquisition and divestiture and often cause disruption in the market for oil and gas producing properties, as buyers and sellers have difficulty agreeing on the value of the properties. Price volatility also makes it difficult to budget for and project the return on acquisitions and development and exploitation of projects. We expect that commodity prices will continue to fluctuate significantly in the future. RISKS RELATED TO OUR STOCK TRADING IN OUR COMMON SHARES ON THE OTC BULLETIN BOARD IS LIMITED AND SPORADIC MAKING IT DIFFICULT FOR OUR SHAREHOLDERS TO SELL THEIR SHARES OR LIQUIDATE THEIR INVESTMENTS. Our common shares are currently quoted on the OTC Bulletin Board. The trading price of our common shares has been subject to wide fluctuations. Trading prices of our common shares may fluctuate in response to a number of factors, many of which will be beyond our control. The stock market has generally experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies with no current business operation. There can be no assurance that trading prices and price earnings ratios previously experienced by our common shares will be matched or maintained. These broad market and industry factors may adversely affect the market price of our common shares, regardless of our operating performance. In the past, following periods of volatility in the market price of a company's securities, securities class-action litigation has often been instituted. Such litigation, if instituted, could result in substantial costs for us and a diversion of management's attention and resources. WE PLAN TO ISSUE ADDITIONAL SHARES OR RAISE FUNDS THROUGH THE SALE OF EQUITY SECURITIES, AND IF WE ARE ABLE TO DO SO, YOUR INTERESTS IN OUR COMPANY WILL BE DILUTED AND YOU MAY SUFFER DILUTION IN YOUR NET BOOK VALUE PER SHARE. In the event that we are required to issue any additional shares or enter into private placements to raise financing through the sale of equity securities, your interests in our company will be diluted and you may suffer dilution in your net book value per share depending on the price at which such securities are sold. If we issue any such additional shares, such issuances also will cause a reduction in the proportionate ownership and voting power of all other shareholders. Further, any such issuance may result in a change in our control without your consent or the consent of a majority of the shareholders. 7 THE HOLDERS OF THE CONVERTIBLE DEBENTURES HAVE THE OPTION OF CONVERTING THE CONVERTIBLE DEBENTURES INTO SHARES OF OUR COMMON STOCK. THE HOLDERS OF THE CONVERTIBLE DEBENTURES MAY ALSO EXERCISE THEIR COMMON SHARE PURCHASE WARRANTS. IF THE CONVERTIBLE DEBENTURES ARE CONVERTED OR THE SHARE PURCHASE WARRANTS ARE EXERCISED, THERE WILL BE DILUTION OF YOUR SHARES OF OUR COMMON STOCK. The issuance of shares of our common stock upon conversion of the convertible debentures and upon exercise of the share purchase warrants will result in dilution to the interests of other holders of our common stock. The principal amount of the convertible debentures may be converted at the option of the holders into shares of our common stock at the lower of a fixed price of $1.0536 per share or 90% of the lowest daily volume weighted average trading price per share for the 15 trading days prior to conversion, subject to adjustment pursuant to the anti-dilution provisions as set forth in the convertible debentures. Each convertible debenture and each share purchase warrant is subject to anti-dilution protection upon the occurrence of certain events. If, among other things, we offer, sell or otherwise dispose of or issue any of our common stock (or any equity, debt or other instrument that is at any time over its life convertible into or exchangeable for our common stock) at an effective price per share that is less than the conversion price of the convertible debenture or the exercise price of the share purchase warrant, the conversion price of the convertible debentures or the exercise price of the warrants will be reduced, depending on the number of shares of common stock that we issue at that lower price, to a price which is less than the conversion price or the exercise price. THE HOLDER OF THE CONVERTIBLE DEBENTURES HAS THE OPTION OF CONVERTING THE PRINCIPAL OUTSTANDING UNDER THE CONVERTIBLE DEBENTURES INTO SHARES OF OUR COMMON STOCK. IF THE HOLDER CONVERTS THE CONVERTIBLE DEBENTURES, THERE WILL BE DILUTION OF YOUR SHARES OF OUR COMMON STOCK. At the conclusion of our private placement with Cornell Capital Partners, we will have issued convertible debentures in the aggregate principal amount of $5,000,000 to Cornell Capital Partners. Although the shares of common stock to be issued upon conversion of the debentures under the existing conversion price (prior to any potential adjustments according to the terms of the debentures) are included in this prospectus, they have not yet been issued, and in addition, the conversion of the debentures could be effected in whole or in part in respect of the then outstanding principal under the debentures. Further, the terms of the debenture provide that under certain circumstances, the conversion price will be reduced. The conversion of the convertible debentures will result in dilution to the interests of other holders of our common stock since the holder may ultimately convert the full amount of the convertible debentures and sell all of these shares into the public market. The following table sets forth the number and percentage of shares of our common stock that would be issuable if the holder of the debentures converted at the base fixed conversion price of $1.0536 and reduced conversion prices of $0.90, $0.80, $0.70, $0.60 and $0.50. ----------------------------------------------------------------------- Number of Shares Issuable on Conversion of Percentage of Issued Conversion Price Convertible Debentures(1) and Outstanding(2) ----------------------------------------------------------------------- $1.0536 4,745,634 9.6% ----------------------------------------------------------------------- $0.90 5,555,556 11.1% ----------------------------------------------------------------------- $0.80 6,250,000 12.3% ----------------------------------------------------------------------- $0.70 7,142,857 13.8% ----------------------------------------------------------------------- $0.60 8,333,333 15.7% ----------------------------------------------------------------------- $0.50 10,000,000 18.3% ----------------------------------------------------------------------- (1) Represents the number of shares issuable if all principal amounts of all of the convertible debentures were converted at the corresponding conversion price. (2) Represents the percentage of the total outstanding common stock that the shares issuable on conversion of the convertible debentures without regard to any contractual or other restriction on the number of securities the selling stockholder may own at any point in time. Based on 44,585,824 shares issued and outstanding on February 5, 2007. 8 BECAUSE OF THE EARLY STAGE OF DEVELOPMENT AND THE NATURE OF OUR BUSINESS, OUR SECURITIES ARE CONSIDERED HIGHLY SPECULATIVE. Our securities must be considered highly speculative, generally because of the nature of our business and the early stage of its development. We are engaged in the business of exploring and, if warranted, developing commercial reserves of oil and gas. Our properties are in the exploration stage only and are without known reserves of oil and gas. Accordingly, we have not generated any revenues nor have we realized a profit from our operations to date and there is little likelihood that we will generate any revenues or realize any profits in the short term. Any profitability in the future from our business will be dependent upon locating and developing economic reserves of oil and gas, which itself is subject to numerous risk factors as set forth herein. Since we have not generated any revenues, we will have to raise additional monies through the sale of our equity securities or debt in order to continue our business operations. A DECLINE IN THE PRICE OF OUR COMMON STOCK COULD AFFECT OUR ABILITY TO RAISE FURTHER WORKING CAPITAL AND ADVERSELY IMPACT OUR OPERATIONS. A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital. Because our operations have been primarily financed through the sale of equity securities, a decline in the price of our common stock could be especially detrimental to our liquidity and our continued operations. Any reduction in our ability to raise equity capital in the future would force us to reallocate funds from other planned uses and would have a significant negative effect on our business plans and operations, including our ability to develop new projects and continue our current operations. If our stock price declines, we may not be able to raise additional capital or generate funds from operations sufficient to meet our obligations. WE DO NOT EXPECT TO PAY DIVIDENDS. We have not paid dividends since inception on our common stock, and we do not contemplate paying dividends in the foreseeable future on our common stock in order to use all of our earnings, if any, to finance expansion of our business plans. IF WE FAIL TO REMAIN CURRENT ON OUR REPORTING REQUIREMENTS, WE COULD BE REMOVED FROM THE OTC BULLETIN BOARD, WE COULD BE INVESTIGATED BY THE SEC OR WE COULD INCUR LIABILITY TO OUR SHAREHOLDERS. Companies trading on the OTC Bulletin Board, such as us, must be reporting issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and must be current in their reports under Section 13, in order to maintain price quotation privileges on the OTC Bulletin Board. If we fail to remain current on our reporting requirements, we could be removed from the OTC Bulletin Board. As a result, the market liquidity for our securities could be severely adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market. Failure to remain current in our reporting obligations might also subject us to SEC investigation or private rights of action by our shareholders. OUR COMMON STOCK IS SUBJECT TO THE "PENNY STOCK" RULES OFF THE SEC AND THE TRADING MARKET IN OUR SECURITIES IS LIMITED, WHICH MAKES TRANSACTIONS IN OUR STOCK CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR STOCK. The SEC has adopted Rule 15g-9 which establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: o that a broker or dealer approve a person's account for transactions in penny stocks; and o the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person's account for transactions in penny stocks, the broker or dealer must: o obtain financial information and investment experience objectives of the person; and o make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. 9 The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form: o sets forth the basis on which the broker or dealer made the suitability determination; and o that the broker or dealer received a signed, written agreement from the investor prior to the transaction. Generally, brokers may be less willing to execute transactions in securities subject to the "penny stock" rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock. Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. NASD SALES PRACTICE REQUIREMENTS MAY ALSO LIMIT A STOCKHOLDER'S ABILITY TO BUY AND SELL OUR STOCK. In addition to the "penny stock" rules described above, the NASD has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, the NASD believes that there is a high probability that speculative, low-priced securities will not be suitable for at least some customers. The NASD requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares. CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION This prospectus contains forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Reference is made in particular to the description of our plans and objectives for future operations, assumptions underlying such plans and objectives, and other forward-looking statements included in this prospectus. Such statements may be identified by the use of forward-looking terminology such as "may," "will," "expect," "believe," "estimate," "anticipate," "intend," "continue," or similar terms, variations of such terms or the negative of such terms. Such statements are based on management's current expectations and are subject to a number of actors and uncertainties, which could cause actual results to differ materially from those described in the forward-looking statements. Such statements address future events and conditions concerning our plan of operation, liquidity and capital resources and accounting matters. Actual results in each case could differ materially from those anticipated in such statements by reason of factors such as future economic conditions, changes in consumer demand, legislative, regulatory and competitive developments in markets in which we operate, and other circumstances affecting anticipated revenues and costs, as more fully disclosed in our discussion of risk factors beginning on page 3. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Additional factors that could cause such results to differ materially from those described in the forward-looking statements are set forth in connection with the forward-looking statements. USE OF PROCEEDS All of the net proceeds from the sale of the shares offered pursuant to this prospectus will go to the stockholders who offer and sell them. We will not receive any proceeds from the sale of shares by the selling stockholders. A portion of the shares offered pursuant to this prospectus are issuable upon the exercise of warrants. If these warrants are fully exercised by payment of the exercise price in cash, we will receive gross proceeds of approximately $2,500,000 (based on warrants to purchase 3,333,333 shares of common stock at an exercise price of $0.75 per share), which will be used for general corporate purposes, including working capital. The actual allocation of proceeds realized from the exercise of these warrants will depend upon the amount and timing of such exercises, our operating revenues and cash position at such time and our working capital requirements. The outstanding warrants may not be exercised, at the discretion of the holder. 10 PRICE RANGE OF COMMON STOCK Our common stock, par value $.001, is currently quoted on the OTC Bulletin Board under the symbol "RENG"; however, active trading market in our common stock did not commence until February 2006. We completed a 4-for-1 forward stock split of our issued and outstanding shares of common stock on February 20, 2006. The following table sets forth the high and low bid prices for our common stock for the periods indicated. Such quotations are taken from information provided by Exshare and reflect inter-dealer prices, without retail mark-up, mark-down or commissions, and may not necessarily represent actual transactions. Bid -------------- High Low ---- ----- Fiscal year ending December 31, 2006: First Quarter.......................... $1.25 $0.25 Second Quarter......................... $1.02 $0.61 Third Quarter.......................... $1.14 $0.69 Fourth Quarter.......................... $1.065 $0.58 As of February 5, 2007, there were 44,585,824 shares of our common stock outstanding owned by approximately 46 holders of record. DIVIDEND POLICY We have never declared or paid any cash dividends on our common stock. We anticipate that any earnings will be retained for development and expansion of our business and do not anticipate paying any cash dividends in the near future. Our Board of Directors has sole discretion to pay cash dividends based on our financial condition, results of operation, capital requirements, contractual obligations and other relevant factors. ABOUT THE OFFERING On October 2, 2006, we entered into a Securities Purchase Agreement with Cornell Capital Partners, LP for the private placement of secured convertible debentures in the aggregate principal amount of $5 million. We closed on the first $2 million on October 4, 2006; an additional $1.5 million will be funded on the date a registration statement covering the resale of the shares underlying the securities is filed with the Securities and Exchange Commission (the "SEC"); and the final $1.5 million will be funded within three business days after the registration statement is declared effective by the SEC. The debentures accrue interest at a rate of 7.0% per annum, payable on the maturity date, and payable in cash or in shares of our common stock, at our option. The term of the debentures is three years, and the debentures will be convertible at a conversion price equal to the lesser of $1.0536 or 90% of the lowest daily volume weighted average price during the 15 trading days immediately preceding the conversion date, subject to a weighted average anti-dilution adjustment and other adjustments. As part of the transaction, we issued to the purchaser warrants to purchase an aggregate of 8,166,666 shares of our common stock, and we are obligated to issue to the purchaser an additional warrant to purchase 1,000,000 shares of our common stock when the final tranche is funded. The terms of the debentures and the warrants provide that no conversions of the debentures and no exercises of the warrants shall be effected to the extent that after giving effect to such conversion or exercise, as the case may be, the holder, together with any affiliate thereof, would beneficially own (as determined in accordance with Section 13(d) of the Exchange Act and the rules promulgated thereunder) in excess of 4.99% of the number of shares of our common stock outstanding immediately after giving effect to such conversion or exercise, as the case may be. As part of the private placement, we are registering an aggregate of 13,333,333 shares of our common stock issuable upon exercise of the warrants and upon conversion of the debentures. SELLING STOCKHOLDERS The table below lists the selling stockholders and the shares being registered for resale. The selling stockholders may sell all, some, or none of their shares of our common stock in this offering. After the offering is complete, assuming that the selling stockholders sell all of their shares of our common stock offered for resale, the selling stockholders will not own any shares of our common stock. The selling stockholders may not convert any of the secured convertible debentures and may not exercise any of their warrants. Other than as noted below, the selling stockholders have not had any material relationship with us within the past three years. 11
Percentage of Shares Shares Beneficially Beneficially Shares to be Percentage of Shares Owned Before Owned Before the Sold in the Beneficially Owned the Offering Offering (1) Offering Before the Offering _____________ ________________ ________________ ___________________ Cornell Capital Partners, L.P..... 2,341,682(2) 4.99% 13,333,333(3) 0% --------- ---------- Totals............................ 2,341,682 13,333,333 ========= ==========
- ---------------------------------------- (1) Applicable percentage of ownership is based on 44,585,824 shares of common stock outstanding as of October 30, 2006, together with securities exercisable or convertible into shares of common stock within 60 days of October 30, 2006, for the selling stockholder. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of common stock subject to securities exercisable or convertible into shares of common stock that are currently exercisable or exercisable within 60 days of October 30, 2006 are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Note that affiliates are subject to Rule 144 and Insider trading regulations - percentage computation is for form purposes only. (2) Includes 2,341,682 shares of common stock underlying convertible debentures and warrants held by Cornell Capital Partners that are convertible into shares of common stock within 60 days of October 30, 2006, such that the number of shares beneficially owned by Cornell Capital Partners, upon giving effect to the conversion under the convertible debentures and/or the exercise of the warrants, would not cause the aggregate number of shares beneficially owned by Cornell Capital Partners and its affiliates to exceed 4.99% of the total outstanding shares of Radial Energy. As of October 30, 2006, Cornell Capital Partners does not hold any shares of record. All investment decisions of, and control of, Cornell Capital Partners are held by its general partner, Yorkville Advisors, LLC. Mark Angelo, the managing member of Yorkville Advisors, makes the investment decisions on behalf of and controls Yorkville Advisors. The principal business address of Cornell is 101 Hudson Street - Suite 3700, Jersey City, NJ 07303. Cornell Capital Partners is not a registered broker-dealer or an affiliate of a registered broke- dealer. (3) Consists of shares of common stock underlying convertible debentures and warrants. PLAN OF DISTRIBUTION Each selling stockholder and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of common stock on the over-the-counter bulletin board or any other stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. A selling stockholder may use anyone or more of the following methods when selling shares: o ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; o block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; o purchases by a broker-dealer as principal and resale by the broker-dealer for its account; 12 o an exchange distribution in accordance with the rules of the applicable exchange; o privately negotiated transactions; o broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share; o a combination of any such methods of sale; o through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; or o any other method permitted pursuant to applicable law. The selling stockholders may also sell shares under Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"), if available, rather than under this prospectus. Broker-dealers engaged by the selling stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. Each selling stockholder does not expect these commissions and discounts relating to its sales of shares to exceed what is customary in the types of transactions involved. The selling stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be "underwriters" within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each selling stockholder has informed the Company that it does not have any agreement or understanding, directly or indirectly, with any person to distribute the common stock. The Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the shares. The Company has agreed to indemnify the selling stockholder against certain losses, claims, damages and liabilities, including liabilities under the Securities Act. Because selling stockholders may be deemed to be "underwriters" within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act. In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus. Each selling stockholder has advised us that they have not entered into any agreements, understandings or arrangements with any underwriter or broker-dealer regarding the sale of the resale shares. There is no underwriter or coordinating broker acting in connection with the proposed sale of the resale shares by the selling stockholders. We agreed to keep this prospectus effective until the earlier of (i) the date on which the shares may be resold by the selling stockholders without registration and without regard to any volume limitations by reason of Rule 144(e) under the Securities Act or any other rule of similar effect or (ii) all of the shares have been sold pursuant to the prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with. Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale shares may not simultaneously engage in market making activities with respect to our common stock for a period of two business days prior to the commencement of the distribution. In addition, the selling stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of our common stock by the selling stockholder or any other person. We win make copies of this prospectus available to the selling stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale. The selling stockholders may not sell the common stock included in this offering to cover short sales made prior to effectiveness of the registration statement. Upon closing the purchase of the secured convertible debentures, the selling stockholders represented and warranted to the company that they did not have an open short position in our common stock. 13 DESCRIPTION OF BUSINESS CORPORATE HISTORY Our company was incorporated in the State of Nevada on June 30, 2000, under the name of "All Printer Supplies.com." On April 17, 2003, we changed our name to "BV Pharmaceuticals, Inc." and became a provider of information and services in the areas of personal DNA collection, analysis, profiling, banking and DNA profile database maintenance. Effective as of April 3, 2006, through a statutory merger with our wholly owned subsidiary in which we were the surviving corporation, we changed our name to "Radial Energy Inc." GENERAL We are an exploration stage company that has not generated revenues from our current operations in the oil and gas industry. There is no historical financial information about Radial Energy upon which to base an evaluation of our performance. We cannot guarantee we will be successful in our new core business or in any business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources and in the exploration of oil and gas reserves. Future financing may not be available on acceptable terms. If financing is not available on satisfactory terms, we may be unable to continue with our current business plan. BUSINESS In March 2006, we began a new business plan concentrating on the acquisition, exploration, development, and production of domestic and international oil and gas projects. Radial Energy's primary focus is on identifying previously drilled but subsequently abandoned wells that encountered and/or tested live oil or natural gas indicating the presence of marketable hydrocarbons, reservoir, and trap. As of the date of filing of this report, we have acquired working interests in projects in South America and in Texas and are continuing to explore other opportunities in North and Latin America. BLOCK 100, HUAYA ANTICLINE, PERU Pursuant to a Letter of Intent dated April 19, 2006, and a related Joint Operating Agreement effective as of May 11, 2006, we have acquired rights to a 20% working interest and 18% revenue interest in the Huaya Anticline Project, Block 100 oil prospect located in the Ucayali Basin, Peru. The project encompasses a structural closure of approximately 500 acres, with the potential for up to 41 well locations. We acquired the interest in the Block 100 project from Ziegler-Peru, Inc., an American company based in Texas, which sold the interest to us and will retain a 10 percent interest. The majority interest is owned by the concession-holder, Compania Consultora de Petroleo, S.A., a consulting company based in Lima, Peru. While Compania Consultora is the operator of record for the concession, Ziegler-Peru will act as contract driller and operator for the block. On January 31, 2007, we entered into an agreement with Compania Consultora de Petroleo, S.A. and Ziegler-Peru, Inc., which modified certain terms of our prior agreement. The January 2007 agreement increased the interest we acquired in the Huaya Anticline Project from 20% to 23 percent. As consideration for this interest, which is only for one well, we agreed to pay a total of $2,100,000, which funds also cover the acquisition of certain equipment to be used for drilling, testing, and evaluation of the first well. As of the date of the filing of this prospectus, we have paid in full our total financial obligation for the first well. After drilling of the first well is complete, we will have the option to proceed with the project by funding the drilling, testing and evaluation of another two wells on the property. After drilling of the first well is complete, we will have the option to proceed with the project by funding the drilling, testing and evaluation of another two wells on the property for an additional $1,550,000, which funds are expected to cover the acquisition and installation of all production facilities required to bring the hydrocarbons produced to market. Thereafter, we will have the option to pay for our 23% working interest share of the development and operation of the project. In the event Radial Energy and the other participating parties decide that the project is not feasible, the equipment acquired will be sold and we will be entitled to 67% of the proceeds. In addition, we have agreed to pay 10% of any future revenues from the Huaya Anticline Project to cover all reasonable costs to date above the sum of $1,050,000 relating to the purchase of equipment, drilling, and contracting expenses incurred by Ziegler-Peru until this amount is paid in full. A third-party geological assessment conducted by Gustavson Associates of Boulder, Colorado, a consultant contracted by Radial Energy, classified the Block 100 project as proved undeveloped with 2.9 million barrels of oil net to Radial. While management believes this prospect provides the opportunity to discover and develop a field with production potential, there can be no assurance the prospect will achieve such potential. The first well is currently being drilled and is expected to be completed in February 2007, and if successful, production is anticipated by March 31, 2007. 14 CHEROKEE COUNTY, TEXAS Pursuant to an Assignment Agreement dated June 27, 2006, we acquired all of the rights and obligations of Pin Petroleum Partners Ltd., a Canadian company, under three leasehold assignment agreements to properties located in Cherokee County, Texas (collectively, the "Cherokee Agreements") with Skyline Energy LLC, a company based in Texas. The prospects involve three separate exploratory oil and gas prospects, known as the Junction Prospect, the Northwest Jacksonville Prospect, and the Highway 79 Prospect. As consideration for the assignment, we agreed to pay Pin Petroleum Partners a total of $700,000 by November 17, 2006 along with a four percent overriding royalty interest from our share of net revenue interest. Prior to the assignment, Pin Petroleum Partners had provided to the operator of the prospects, MLC Operating, LP, $443,790 to cover the original estimates for the drilling and completion costs for the initial well on each of the three prospects. This pre-payment by Pin Petroleum Partners has been assigned to Radial Energy. The funds will cover our share of the estimated capital expenditures to drill the first test wells on each of the three prospects. If one or more of these initial wells results in a successful discovery, the operator may request additional funds to cover completion costs if the original funds do not cover the current costs of completion. For each of the three prospects, we hold a 30% working interest before payout of initial investment, and a 22.5% working interest after payout, with payout determined on a project basis. The Junction Prospect is located in northwestern Cherokee County, approximately five miles southwest of Jacksonville, Texas. This oil and natural gas prospect's leasehold covers approximately 500 acres. The Northwest Jacksonville Prospect leasehold covers approximately 350 acres located in northern Cherokee County. The Highway 79 Prospect is located in northwestern Cherokee County, one mile west of Jacksonville, Texas, and the prospect leases cover approximately 340 net acres. While calculations based on preliminary geological analysis, reservoir studies and interpretation estimate that the prospects have oil and natural gas production potential, such potential may not be achieved. We have begun drilling and testing in the prospects. Our drilling and testing in the Highway 79 Prospect resulted in an unsuccessful test and we will not continue to explore in that prospect. We will continue to explore in the Junction Prospect and the Jacksonville Prospect. BOSQUE BLOCK, MIDDLE MAGDALENA VALLEY OF COLOMBIA Pursuant to a binding letter of intent dated August 23, 2006, Maxim Well Services Ltd. ("Maxim"), a company with its principal place of business in Bogota, Colombia, and we agreed to negotiate and enter into a joint operating agreement, the purpose of which is for Radial Energy to acquire a 20% working interest in the right to explore and develop oil reserves and production on the 9,000 hectare (22,239 acre) "Bosque Block" located in prolific Middle Magdalena Valley of Colombia. We will be required to contribute $2.2 million in cash in stages beginning on execution of the joint operating agreement. Three Hundred Fifty Thousand Dollars ($350,000) will be due upon signing the joint operating agreement and another $350,000 will be due sixty (60) days following the signing of the joint operating agreement. The remaining $1,500,000 will be due 15 days following any capital call made by Maxim at any time following the execution of the joint operating agreement. Until such time that we recoup $1,500,000 of our investment, we will receive a 33.33% participation in distributions. Following recoupment of $1.5 million of our investment, our interest will remain at 20 percent. The parties intend to enter into the joint operating agreement by November 22, 2006. If the parties fail to enter into the joint operating agreement by November 22, 2006, then Maxim will have no obligation to enter into the joint operating agreement or accept the investment from us on the terms expressed in the letter of intent. Further, if we fail to properly execute the joint operating agreement, we will be liable to Maxim for a termination fee of up to $200,000 as follows: (a) $50,000 if we terminate at any time on or before the date the Colombian government issues the appropriate authority to Maxim to begin operations at the site, (b) a total of $100,000 if we terminate following the date the Colombian government issues such authority, and (c) a total of $200,000 if we terminate more than thirty (30) days following the date the Colombian government issues such authority. ONGOING ACTIVITIES Additionally, management is currently investigating and in some cases is negotiations with various parties in both the U.S. and Colombia to acquire both producing and prospective assets, but as of the date of this report had not reached formal agreement on any of these opportunities. 15 PROPERTIES The agreements relating to the Block 100 prospect entitle us to a 20% working interest in oil and gas leases covering approximately 500 acres in the Huaya Anticline Project, Block 100 oil prospect located in the Ucayali Basin, Peru. The leases have a primary term of 30 years from and after March 2004. Pursuant to the Assignment Agreement and our resulting rights under the Cherokee Agreements, for each of the Junction Prospect, the Northwest Jacksonville Prospect, and the Highway 79 Prospect, we hold a 30% working interest before payout of initial investment, and a 22.5% working interest after payout. The leases have primary terms of three years and are renewable so long as drilling operations occur during the primary terms. Our principal office is located at 1200 Smith Street, Suite 1600, Houston, Texas 77002. The office is part of a shared business center and includes two private offices. We rent the 400 square foot space for $4,500 per month. The initial term of our lease expires on August 31, 2007 and the lease then becomes month-to-month. Our company rentals additional office space located at 1313 East Maple Street, Suite 223, Bellingham, Washington 98225. The office is part of a new office complex that offers a full range of office services. We rent a single office on a month-to-month lease at a rate of approximately $800 per month in rent and incidentals. MANAGEMENT'S PLAN OF OPERATION PLAN OF OPERATION Our business plan is to identify, acquire, and develop oil and gas exploration and development opportunities throughout North America and Latin America, with a primary focus on identifying previously drilled but subsequently abandoned exploratory wells that encountered and/or tested live oil or natural gas. We are flexible in our approach and will pursue opportunities as they arise both in North America and in countries throughout Latin America that are friendly to foreign investments, with factors such as lower production taxes and positive government incentives. We plan to become the operator of record in the majority of our future projects. To date, execution of our business plan has largely focused on acquiring prospective rights to oil and gas leases and properties. We intend to establish a going forward exploration and development plan. Since inception, we have funded our operations primarily from the private placement of common stock and warrants. Although we expect that, during the next 12 months, our operating capital needs will be met from our current economic resources and by additional private capital stock transactions, the funds required may not be available on terms acceptable to us or at all. In October 2006, we raised $5,000,000 through a convertible debenture with Cornell Capital Partners LP, of which we have received $3,500,000 to date and expect to receive an additional $1,500,000 in March 2007. The funds will be used to fund the Huaya Block 100 project in Peru, the NW Jacksonville and Junction prospects in Texas, and the Boques Block in Columbia. Further, management may use these funds to evaluate additional projects and/or pay general administration and overhead expenses. We expect that the convertible debenture financing will allow us to fund our operations through March 2007 and additional funds may be required to complete the exploration or development of our prospects. If we are unable to raise sufficient funds on terms acceptable to us, we may be unable to complete our business plan. If equity financing is available to us on acceptable terms, it could result in additional dilution to our stockholders. As of the date of this prospectus, we have yet to generate any revenues from operations of our new core business. From inception to September 30, 2006, we have accumulated losses of $1,970,471 and expect to incur further losses in the development of our business, all of which casts doubt about Radial Energy's ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to generate future profitable operations and/or to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they become due. COMPETITION The oil and gas industry is intensely competitive. We compete with numerous individuals and companies, including many major oil and gas companies, which have substantially greater technical, financial, and operational resources and staffs. Accordingly, there is a high degree of competition for desirable oil and gas leases, suitable properties for drilling operations, and necessary drilling equipment, as well as for access to funds. There are other competitors that have operations in South America and the Texas area and the presence of these competitors could adversely affect our ability to acquire additional leases and rights to properties. GOVERNMENT AND ENVIRONMENTAL REGULATION Our oil and gas operations are subject to various United States federal, state, and local governmental regulations. Matters subject to regulation include discharge permits for drilling operations, drilling and abandonment bonds, reports concerning operations, the spacing of wells, and pooling of properties and taxation. From time to time, regulatory agencies have imposed price controls and limitations on production by restricting the rate of flow of oil and gas wells below actual production capacity in order to conserve supplies of oil and gas. The production, handling, storage, transportation and disposal of oil and gas, by-products thereof, and other substances and materials produced 16 or used in connection with oil and gas operations are also subject to regulation under federal, state, provincial and local laws and regulations relating primarily to the protection of human health and the environment. To date, expenditures related to complying with these laws, and for remediation of existing environmental contamination, have not been significant in relation to the results of operations of our company. The requirements imposed by such laws and regulations are frequently changed and subject to interpretation, and we are unable to predict the ultimate cost of compliance with these requirements or their effect on our operations. NUMBER OF EMPLOYEES From our inception through the period ended December 31, 2006, we have relied on the services of outside consultants for services and a limited number of full-time employees. As of the date of the filing of this prospectus, we have two full-time employees, our Chief Executive Officer and our Chief Operating Officer. We do not expect any material changes in the number of employees over the next 12 months. However, if we are successful in our initial and any subsequent drilling programs, we may retain additional employees. We have relied on, and will continue to rely on, outside consultants for services. PRODUCT RESEARCH AND DEVELOPMENT We do not anticipate performing research and development for any products during the next 12 months. ACQUISITION OR DISPOSITION OF PLANT AND EQUIPMENT We do not anticipate the sale of any significant property, plant or equipment during the next twelve months. We do not anticipate the acquisition of any significant property, plant or equipment during the next 12 months, other than computer equipment and peripherals used in our day-to-day operations. We believe we have sufficient resources available to meet these acquisition needs. OFF BALANCE SHEET ARRANGEMENTS We do not maintain off-balance sheet arrangements nor do we participate in non-exchange traded contracts requiring fair value accounting treatment. LEGAL PROCEEDINGS We are not currently a party to any material legal proceedings. From time to time, we may receive claims of and become subject to commercial litigation related to the conduct of our business. Such litigation could be costly and time consuming and could divert our management and key personnel from our business operations. The uncertainty of litigation increases these risks. In connection with such litigation, we may be subject to significant damages or equitable remedies relating to the operation of our business. Any such litigation may materially harm our business, results of operations and financial condition. 17 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The following table sets forth certain information regarding our executive officers and directors as of February 5, 2007: Date first elected Name Age Position or appointed - ---- --- -------- ------------------ G. Leigh Lyons 48 President, Chief Executive Officer, February 10, 2006 Chief Financial Officer, Secretary, and Director Omar Hayes 41 Chief Operating Officer and Director June 1, 2006 Our directors are elected at each annual general meeting and hold office until the next annual general meeting or until their successors are appointed. BUSINESS EXPERIENCE The following is a brief account of the education and business experience during at least the past five years of each director and executive officer, indicating the principal occupation during that period, and the name and principal business of the organization in which such occupation and employment were carried out. G. LEIGH LYONS, PRESIDENT, CHIEF EXECUTIVE OFFICER, CHIEF FINANCIAL OFFICER, SECRETARY, AND DIRECTOR Mr. Lyons has over 22 years experience in the domestic and international oil and gas sector, specializing in general management, corporate governance, strategic planning, acquisitions and project management. He recently founded Sound Energy Advisors LLC, a consulting company dedicated to providing corporate management and governance services to start-up and emerging energy companies. Mr. Lyons has been a director of Benem Ventures Inc., an oil and gas company based in Canada, since December 2005 (BNM.H: NEX Exchange). From August 2005 to May 2006, Mr. Lyons was the Chief Executive Officer and a director of Digital Ecosytems Corp. (OTC BB: DGEO), a global oil and gas exploration company specializing in acquiring unconventional oil and gas prospects in North America and Australia. From 2000 to 2005, Mr. Lyons was Chief Operating Officer and Project Director for Gas TransBoliviano S.A., a Shell/Enron controlled gas transmission company headquartered in Bolivia. Other positions held by Mr. Lyons include President and Director of Can West Exploration Inc., a junior exploration company operating in Colombia (1998-2000), Vice President of Exploration and Production for Compania General de Combustibles S.A. in Buenos Aires, Argentina (1993-1998), and Vice President of Corporate Development for Global Natural Resources Inc., an oil and gas company based in Houston, Texas (1989-1993). Mr. Lyons received his Bachelor of Arts in Earth Science from the University of California, Santa Cruz in 1984 and is an Alumnus of the Harvard Business School having completed the Advanced Management Program in 2004. OMAR HAYES, CHIEF OPERATING OFFICER Prior to joining Radial Energy, Mr. Hayes had a nine-year career with Transredes S.A (TRSA) and Gas TransBoliviano S.A. (GTB), both Shell/Enron joint ventures located in Santa Cruz, Bolivia, and companies that together transport and export through their systems the majority of the oil and gas produced in Bolivia. From May 2005 to May 2006, Mr. Hayes was Vice President of Operations for GTB. Prior to that assignment, Mr. Hayes was the Gas Systems Manager for TRSA in charge of all operations on the company's gas transmission and distribution system from June 2003 to May 2005; Project Manager for TRSA's $125 million dollar GTB system gas compression expansion project from June 2001 to May 2003; and was TRSA's Manager of Gas System Expansion from May 2001 to September 2002. Prior to 2001, Mr. Hayes held various project engineering and management positions. Mr. Hayes received his Master of Science in Mechanical Engineering as part of a Fulbright Scholarship to Michigan State University in 1997. He also received a Master in Business Administration at the Universidad Catolica Boliviana in 2000, and a BS in Mechanical Engineering from the Universidad Mayor Real y Pontificia de San Francisco Xavier de Chuquisaca in 1989. He has attended many executive level programs at several universities including the Oxford Princeton Programme (UK), Harvard Business School and Stanford University. FAMILY RELATIONSHIPS There are no family relationships between any of our directors or executive officers. 18 INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS None of our directors, executive officers, promoters or control persons have been involved in any of the following events during the past five years: 1. any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; 2. any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); 3. being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or 4. being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated. EXECUTIVE COMPENSATION The following table sets forth certain information with respect to the compensation of our Chief Executive Officer and each of our other most highly compensated executive officers who earned more than $100,000 for the fiscal years ended December 31, 2005, 2004 and 2003.
SUMMARY EXECUTIVE COMPENSATION TABLE LONG TERM ANNUAL COMPENSATION COMPENSATION AWARDS -------------------------------------------- --------------------------- SECURITIES OTHER ANNUAL RESTRICTED UNDERLYING NAME & PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION STOCK AWARDS OPTIONS/SARS - -------------------------------- ------- -------- --------- ------------ ------------ ------------- G. Leigh Lyons(1)............... 2006 $180,000 -- $14,400 -- -- President, Chief Executive Officer, Chief Financial Officer, Secretary & Director Omar Hayes(2)................... 2006 $132,000 -- $14,400 $1,125,000 -- Chief Operating Officer & Director Art Bandenieks(1)(3)............ 2005 -- -- -- -- -- Former President, Chief 2004 -- -- -- -- -- Executive Officer, Secretary & Director 2003 -- -- -- -- -- Lee Southern(2)(3).............. 2005 -- -- -- -- -- Former Treasurer, Chief 2004 -- -- -- -- -- Financial Officer & Director 2003 -- -- -- -- -- - --------------------------------
(1) On February 10, 2006, Bandenieks resigned as a director, and as our President, Chief Executive Officer, and Secretary, and G. Leigh Lyons was appointed as director, and as our President, Chief Executive Officer, and Secretary, to replace the vacancies created by Mr. Bandenieks's resignation. In connection with his appointment, Mr. Lyons acquired 2,672,000 shares of our common stock from Mr. Bandenieks for which he paid $65. Mr. Lyons' employment agreement, which initial term commenced in April 2006, provides for an annual base salary of $180,000 per year, plus reimbursement of all company-related expenses incurred. In addition, Mr. Lyons is also eligible for a bonus and a stock grant, to be granted at the discretion of the Board of Directors, plus health benefits of approximately $800 per month and an auto allowance of $400 per month. Since Mr. Lyons joined our company after the completion of our last fiscal year, we are providing summary compensation information based on the terms of his employment agreement for the entire fiscal year 2006 so as to provide information regarding our Chief Executive Officer as of the date of this prospectus. 19 (2) On April 17, 2006, Lee Southern resigned as a director, and as our Treasurer and Chief Financial Officer, and Mr. Lyons was appointed as our Treasurer and Chief Financial Officer. On June 1, 2006, Omar Hayes was appointed to serve as our Chief Operating Officer. At the same time, Mr. Hayes was also appointed as a director, filling the vacancy created by Mr. Southern's resignation. Mr. Hayes' employment agreement, which initial term commenced in June 2006, provides for an annual base salary of $132,000, plus reimbursement of all company-related expenses incurred. In addition, Mr. Hayes is also eligible for a bonus and a stock grant, to be granted at the discretion of the Board of Directors, plus health benefits of approximately $800 per month and an auto allowance of $400 per month. Since Mr. Hayes joined our company after the completion of our last fiscal year, we are providing summary compensation information based on the terms of his employment agreement for the entire fiscal year 2006 so as to provide information regarding our Chief Operating Officer as of the date of this prospectus. (3) At the end of our last completed fiscal year, our Chief Executive Officer was Art Bandenieks, who was also our then President, Secretary, and a director, and our Chief Financial Officer was Lee Southern, who was also our then Treasurer and a director. We did not pay any executive compensation since our inception for their services. LONG-TERM INCENTIVE PLANS-AWARDS IN LAST FISCAL YEAR We do not have any long-term incentive plans. EMPLOYMENT AGREEMENTS We have employment agreements with our executives. In addition to salary and benefit provisions, the agreements include defined commitments in the event that the executives terminate the employment with or without cause. We entered into an employment agreement with G. Leigh Lyons in connection with Mr. Lyons' appointment as our Chief Executive Officer. The employment agreement has an initial term of three years, commencing on April 1, 2006, and will be extended for additional one-year terms unless either party elects to terminate the agreement at the end of the initial term or any additional terms before the expiration thereof. Pursuant to the terms of the agreement, we agreed to pay Mr. Lyons an annual base salary of $180,000, plus reimbursement of all company-related expenses incurred. Mr. Lyons also is eligible for a bonus and a stock grant, to be granted at the discretion of the Board of Directors, and is entitled to health benefits of approximately $800 per month and an auto allowance of $400 per month. We may terminate the agreement for "cause," as such term is defined in the agreement, upon 30 days' prior written notice, and Mr. Lyons may terminate the employment agreement for "good reason," as such term defined in the agreement, upon 30 days' prior written notice. If the agreement is terminated by Mr. Lyons for "good reason" or if we terminate the agreement for "cause," then we will be obligated pay Mr. Lyons a lump sum amount equal to 250% of Mr. Lyon's annual salary. We entered into an employment agreement with Omar Hayes in connection with Mr. Hayes' appointment as our Chief Operating Officer. The employment agreement has an initial term of three years, commencing on June 1, 2006, and will be extended for additional one-year terms unless either party elects to terminate the agreement at the end of the initial term or any additional terms before the expiration thereof. Pursuant to the terms of the agreement, we agreed to pay Mr. Hayes an annual base salary of $132,000, plus reimbursement of all company-related expenses incurred. Mr. Hayes also is eligible for a bonus and a stock grant, to be granted at the discretion of the Board of Directors, and is entitled to health benefits of approximately $800 per month and an auto allowance of $400 per month. We may terminate the agreement for "cause," as such term is defined in the agreement, upon 30 days' prior written notice, and Mr. Hayes may terminate the employment agreement for "good reason," as such term defined in the agreement, upon 30 days' prior written notice. If the agreement is terminated by Mr. Hayes for "good reason" or if we terminate the agreement for "cause," then we will be obligated pay Mr. Hayes a lump sum amount equal to 250% of Mr. Hayes' annual salary. COMPENSATION OF DIRECTORS Our directors were not compensated for their service during fiscal year 2005, and we do not currently compensate our directors in cash for their service as members of our board of directors. We do reimburse our directors for reasonable expenses in connection with attendance at board meetings. 20 COMMITTEES OF THE BOARD OF DIRECTORS We do not have standing audit, nominating or compensation committees of the Board of Directors, or committees performing similar functions, and therefore our entire Board of Directors performs such functions. We are not currently listed on any national exchange and are not required to maintain such committees by any self-regulatory agency. We do not believe it is necessary for our Board of Directors to appoint such committees because the volume of matters that come before our Board of Directors for consideration permits each director to give sufficient time and attention to such matters to be involved in all decision making. All directors participate in the consideration of director nominees. We do not have a policy with regard to attendance at board meetings. We do not have a policy with regard to consideration of nominations of directors. We accept nominations for directors from our security holders. There is no minimum qualification for a nominee to be considered by our directors. All of our directors will consider any nomination and will consider such nomination in accordance with his or her fiduciary responsibility to the company and its shareholders. Security holders may send communications to our Board of Directors by writing to Radial Energy Inc., 1200 Smith Street, Suite 1600, Houston, Texas 77002, attention Board of Directors or any specified director. Any correspondence received at the foregoing address to the attention of one or more directors is promptly forwarded to such director or directors. RELATED PARTY TRANSACTIONS We have not been a party to any transaction, proposed transaction, or series of transactions in which the amount involved exceeds $60,000, and in which, to our knowledge, any of our directors, officers, five percent beneficial security holders, or any member of the immediate family of the foregoing persons has had or will have a direct or indirect material interest. INDEMNIFICATION Our bylaws provide indemnification by the company of any individual made a party to proceeding because he is or was an officer, director, employee or agent of the company against liability incurred in the proceeding, to the fullest extent permissible under the laws of Nevada. The bylaws provide that the company advance the expenses of officers and directors incurred in defending any such proceeding, provided that the company received an undertaking from such person to repay the expenses advanced if it is ultimately determined that he is not entitled to be indemnified. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC that such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT BENEFICIAL OWNERS / MANAGEMENT The following table sets forth certain information regarding the beneficial ownership of our common stock held as of February 5, 2007, by: o each of the named executive officers; o each director; o all of our current directors and executive officers as a group; and o each person known to us to be the beneficial owner of more than 5% of the outstanding shares of our common stock. For purposes of this table, a person is deemed to be the "beneficial owner" of the number of shares of common stock that such person has the right to acquire within 60 days of February 5, 2007, through the exercise of any option, warrant or right, through the conversion of any security, through the power to revoke a trust, discretionary account, or similar arrangement, or through the automatic termination of a trust, discretionary account or similar arrangement. 21 Percentage ownership is based on an aggregate of 44,585,824 shares of our common stock outstanding on February 5, 2007. The table is based upon information provided by officers, directors and principal stockholders in documents filed with the Commission. Except as otherwise indicated, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all of the shares of our common stock beneficially owned by them. Unless otherwise indicated, the address for each person is c/o Radial Energy Inc., 1200 Smith Street, Suite 1600, Houston, Texas 77002. Name of Beneficial Owner Number of Shares Percent of Class - -------------------------------- ---------------- ---------------- DIRECTORS AND EXECUTIVE OFFICERS: G. Leigh Lyons 2,672,000 5.99% Omar Hayes 1,500,000 3.36% Art Bandenieks(1) 0 * Lee Southern(1) 0 * All directors and officers as a group 4,172,000 9.36% (2 persons)(1) - ----------------- * Less than 1% (1) As discussed above, Mr. Bandenieks resigned as director and from his executive office positions effective on February 10, 2006, and Mr. Southern resigned as a director and from his executive office positions effective on April 17, 2006. Since they are not executive officers and directors of Radial Energy as of October 30, 2006, for purposes of the beneficial ownership table above, they are not included in all directors and executive officers as a group but are listed to show their ownership of the company individually. Mr. Bandenieks's address is 2876 - 252 Street, Aldergrove, British Columbia, Canada, V4W 2R2. Mr. Southern's address is 2020 Bellevue Ave., West Vancouver, British Columbia, Canada, V7V 1B8. DESCRIPTION OF CAPITAL STOCK Our authorized capital stock consists of 75,000,000 shares of common stock, $0.001 par value. Our common stock is the only class of voting securities issued and outstanding. Each share of common stock is entitled to one vote. As of February 5, 2007 (after adjustment for the 4-for-1 forward stock split and the return to our treasury for cancellation of 29,000,000 shares of our common stock), there were 44,585,824 shares of our common stock issued and outstanding. LEGAL MATTERS The validity of the shares of common stock offered in this Prospectus will be passed upon by Greenberg Traurig, LLP, Costa Mesa, California. EXPERTS Amisano Hanson, an independent registered public accounting firm, has audited our financial statements for the years ended December 31, 2005 and 2004, as stated in their report appearing herein, and have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. WHERE YOU CAN FIND MORE INFORMATION We are subject to certain informational requirements of the Exchange Act. As a result, we file annual, quarterly and current reports, and other information with the SEC. We are not required to deliver an annual report to our stockholders but voluntarily send to our stockholders our annual report on Form 10-KSB in connection with our annual meeting, which includes audited financial statements. Here are ways you can reach and obtain copies of this information: WHAT IS AVAILABLE WHERE TO GET IT Paper copies of information SEC's Public Reference Room 100 F Street, N.E. Washington, D.C. 20549 On-line information, free of charge SEC's Internet website at http://www.sec.gov Information about the SEC's Call the SEC at 1-800-SEC-0330 Public Reference Rooms This prospectus is part of a Registration Statement on Form SB-2 we filed with the SEC. This prospectus does not contain all of the information set forth in the registration statement, certain parts of which are omitted in accordance with the rules and regulations of the SEC. You can get a copy of the registration statement from the sources listed above. 22 RADIAL ENERGY INC. INDEX TO FINANCIAL INFORMATION Page No. -------- Report of Independent Registered Certified Public Accountants.... F-2 Balance Sheets as of December 31, 2005 and 2004.................. F-3 Statements of Operations for the Years Ended December 31, 2005 and 2004 and for the period from June 30, 2000 (date of inception) to December 31, 2005............................................. F-4 Statements of Cash Flows for the Years Ended December 31, 2005 and 2004 and for the period from June 30, 2000 (date of inception) to December 31, 2005............................................. F-5 Statements of Stockholders' Equity (Deficiency) for the period from June 30, 2000 (date of inception) to December 31, 2005........ F-6 Notes to Financial Statements.................................... F-7 Balance Sheets as of September 30, 2006, and December 31, 2005... F-12 Interim Statement of Operations for the three months and nine months ended September 30, 2006 and 2005 and for the period from June 30, 2000 (date of inception) to September 30, 2006..................... F-13 Interim Statement of Cash Flows for the nine months ended September 30, 2006 and 2005 and for the period from June 30, 2000 (date of inception) to September 30, 2006 ........................................ F-14 Interim Statement of Stockholders' Equity (Deficiency) for the period June 30, 2000 (Date of Inception) to September 30, 2006 ...... F-15 Notes to Financial Statements.................................... F-17 BV PHARMACEUTICAL, INC. (A Development Stage Company) REPORT AND FINANCIAL STATEMENTS December 31, 2005 and 2004 (STATED IN US DOLLARS) AMISANO HANSON A PARTNERSHIP OF INCORPORATED PROFESSIONALS CHARTERED ACCOUNTANTS REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders, BV Pharmaceutical, Inc. (A Development Stage Company) We have audited the accompanying balance sheets of BV Pharmaceutical, Inc. (A Development Stage Company) as of December 31, 2005 and 2004 and the related statements of operations, cash flows and stockholders' equity (deficiency) for each of the years then ended and for the period June 30, 2000 (Date of Inception) to December 31, 2005. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, these financial statements referred to above present fairly, in all material respects, the financial position of BV Pharmaceutical, Inc. as of December 31, 2005 and 2004 and the results of its operations and its cash flows for each of the years then ended and for the period June 30, 2000 (Date of Inception) to December 31, 2005, in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements referred to above have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company is in the development stage, and has no established source of revenue and is dependent on its ability to raise capital from stockholders or other sources to sustain operations. These factors, along with other matters as set forth in Note 1, raise substantial doubt that the Company will be able to continue as a going concern. Management plans in regard to their planned financing and other matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Vancouver, Canada "AMISANO HANSON" February 28, 2006 Chartered Accountants 750 WEST PENDER STREET, SUITE 604 TELEPHONE: 604-689-0188 VANCOUVER CANADA FACSIMILE: 604-689-9773 V6C 2T7 E-MAIL: amishan@telus.net F-2
BV PHARMACEUTICAL, INC. (A Development Stage Company) BALANCE SHEETS December 31, 2005 and 2004 (STATED IN US DOLLARS) 2005 2004 _________ _________ ASSETS Current Cash $ 1,211 $ 24,964 Accounts receivable 1,000 2,000 _________ _________ $ 2,211 $ 26,694 ========= ========= LIABILITIES Current Accounts payable and accrued liabilities $ 8,435 $ 8,517 Unearned revenue 7,500 - Current portion of convertible debentures - Note 3 - 50,000 _________ _________ 15,935 58,517 Convertible debentures - Note 3 - 4,792 _________ _________ 15,935 63,309 _________ _________ STOCKHOLDERS' DEFICIENCY Capital stock - Notes 3, 4 and 7 Authorized: 75,000,000 common stock, $0.001 par value Issued: 151,065,824 common shares (2004:149,920,400) 151,066 149,920 Additional paid-in capital 6,180 (49,945) Deficit accumulated during the development stage (170,970) (136,320) _________ _________ (13,724) (36,345) _________ _________ $ 2,211 $ 26,964 ========= ========= Nature and Continuance of Operations - Note 1 Subsequent Events - Notes 4 and 7 SEE ACCOMPANYING NOTES
F-3
BV PHARMACEUTICAL, INC. (A Development Stage Company) STATEMENTS OF OPERATIONS for the years ended December 31, 2005 and 2004 and for the period from June 30, 2000 (Date of Inception) to December 31, 2005 (STATED IN US DOLLARS) June 30, 2000 (Date of Years ended Inception) to December 31, December 31, 2005 2004 2005 ____________ ____________ _____________ Revenue License fees $ - $ 14,000 $ 24,000 Other income 480 1,258 1,738 ____________ ____________ _____________ 480 15,258 25,738 ____________ ____________ _____________ Administrative expenses Advertising and promotion - - 1,001 Bad debt 1,000 - 1,000 Consulting fees 425 9,400 48,497 Filing fees 7,704 4,426 12,455 Interest and bank charges 2,609 5,005 7,614 Investor relations - - 9,996 Marketing research and development - 10,000 10,000 Office and miscellaneous 5,727 5,044 12,873 Professional fees 17,392 16,786 40,638 Rent - - 505 Intellectual property acquisition costs - - 50,000 Website maintenance 273 1,050 2,129 ____________ ____________ _____________ 35,130 51,711 196,708 ____________ ____________ _____________ Net loss for the period $ (34,650) $ (36,453) $ (170,970) ============ ============ ============= Basic loss per share $ (0.00) $ (0.00) ============ ============ Weighted average number of shares outstanding - Notes 2 and 4 150,353,464 149,920,400 ============ ============ SEE ACCOMPANYING NOTES
F-4
BV PHARMACEUTICAL, INC. (A Development Stage Company) STATEMENTS OF CASH FLOWS for the years ended December 31, 2005 and 2004 and for the period from June 30, 2000 (Date of Inception) to December 31, 2005 (STATED IN US DOLLARS) June 30, 2000 (Date of Years ended Inception) to December 31, December 31, 2005 2004 2005 _________ _________ _____________ Cash Flows used in Operating Activities Net loss for the period $ (34,650) $ (36,453) $ (170,970) Changes in non-cash working capital balances balances related to operations: Accounts receivable 1,000 (2,000) (1,000) Accounts payable and accrued liabilities (82) 4,917 8,435 Unearned revenue 7,500 - 7,500 _________ _________ __________ (26,232) (33,536) (156,035) _________ _________ __________ Cash flows from Financing Activities Capital stock issued - - 99,975 Convertible debentures 2,479 54,792 57,271 _________ _________ __________ 2,479 54,792 157,246 _________ _________ __________ Increase (decrease) in cash during the period (23,753) 21,256 1,211 Cash, beginning of the period 24,964 3,708 - _________ _________ __________ Cash, end of the period $ 1,211 $ 24,964 $ 1,211 ========= ========= ========== Non-cash Transaction - Note 8 SEE ACCOMPANYING NOTES
F-5
BV PHARMACEUTICAL, INC. (A Development Stage Company) STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY) for the period June 30, 2000 (Date of Inception) to December 31, 2005 (STATED IN US DOLLARS) Deficit Accumulated Additional During the Common Stock Paid-in Development *Shares **Par Value Capital Stage Total ___________ ___________ __________ ___________ _________ Capital stock subscribed pursuant to an offering memorandum for cash - at $0.0000002 122,172,000 $ 122,172 $ (121,968) $ - $ 204 ___________ _________ __________ ___________ _________ Balance, December 31, 2000 122,172,000 122,172 (121,968) - 204 Capital stock issued pursuant to a private placement - at $0.0025 27,108,400 27,108 40,663 - 67,771 - at $0.05 160,000 160 7,840 - 8,000 Net loss for the year - - - (69,885) (69,885) ___________ _________ __________ ___________ _________ Balance, December 31, 2001 149,440,400 149,440 (73,465) (69,885) 6,090 Capital stock issued pursuant to a private placement - at $0.05 480,000 480 23,520 - 24,000 Net loss for the year - - - (30,090) (30,090) ___________ _________ __________ ___________ _________ Balance, December 31, 2002 144,920,400 149,920 (49,945) (99,975) - Net income for the year - - - 108 108 ___________ _________ __________ ___________ _________ Balance, December 31, 2003 149,920,400 149,920 (49,945) (99,867) 108 Net loss for the period - - - (36,453) (36,453) ___________ _________ __________ ___________ _________ Balance, December 31, 2004 149,920,400 149,920 (49,945) (136,320) (36,345) Capital stock issued pursuant to conversion of convertible debentures - at $0.05 1,145,424 1,146 56,125 - 57,271 Net loss for the period - - - (34,650) (34,650) ___________ _________ __________ ___________ _________ Balance, December 31, 2005 151,065,824 $ 151,066 $ 6,180 $ (170,970) $ (13,724) =========== ========= ========== =========== ========= * The common stock issued has been retroactively restated to reflect a forward stock split of 1,500 new shares for one old share, effective on January 5, 2001, and a forward split of 4 new shares for one old share, effective February 20, 2006 (Note 4). ** The par value of common stock has been retroactively restated to reflect a change from no par value to a par value of $0.001 per share.
F-6 BV PHARMACEUTICAL, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS December 31, 2005 and 2004 (Stated in US Dollars) (UNAUDITED) Note 1 NATURE AND CONTINUANCE OF OPERATIONS The Company was incorporated as All Printer Supplies.com in the State of Nevada, U.S.A. on June 30, 2000. On April 17, 2003, the Company changed it name to BV Pharmaceutical, Inc. BV Pharmaceutical, Inc. is a DNA Profile Bank whose core business is to provide interested parties services, information and resources dealing with the collection, analysis, protection and banking of one's personal and unique DNA profile. The company's business has not yet developed significant revenue and consequently is considered to be a development stage company (Note 2). The Company intends to license the process for collection of DNA samples to marketing agents on a geographical basis in order to build revenue streams. These financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next fiscal year. Realization values may be substantially different from carrying values as shown and these financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern. At December 31, 2005, the Company had not yet achieved profitable operations, has accumulated losses of $170,970 since its inception, has a working capital deficiency of $13,724 and expects to incur further losses in the development of its business, all of which casts substantial doubt about the Company's ability to continue as a going concern. The Company's ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. The Company plans to obtain additional financing by the sale of its common stock through a private placement (Note 7). The Company's services require further development and there can be no assurance that it will be successful in selling its services. During the subsequent year, the cost of developing services for sale is likely to exceed their sale proceeds. Note 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America. Because a precise determination of many assets and liabilities is dependent upon future events, the preparation of financial statements for a period necessarily involves the use of estimates which have been made using careful judgement. Actual results may vary from these estimates. F-7 BV Pharmaceutical, Inc. (A Development Stage Company) Notes to the Financial Statements December 31, 2005 and 2004 (STATED IN US DOLLARS) - Page 2 Note 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (cont'd) The financial statements have, in management's opinion, been properly prepared within the framework of the significant accounting policies summarized below: DEVELOPMENT STAGE The Company is currently a development stage company as defined under Statement of Financial Accounting Standards ("SFAS") No. 7. As required for development stage enterprises, the statements of operations and cash flows include a total of all expenditures from inception, June 30, 2000 to December 31, 2005. INTANGIBLES The Company follows SFAS No 142, "Goodwill and Other Intangible Assets". SFAS No. 142 no longer permits the amortization of goodwill and indefinite-lived intangible assets. Instead, these assets must be reviewed annually (or more frequently under prescribed conditions) for impairment in accordance with this statement. If the carrying amount of the reporting unit's goodwill or indefinite-lived intangible assets exceeds the implied fair value, an impairment loss is recognized for an amount equal to that excess. Intangible assets that do not have indefinite lives are amortized over their useful lives. FINANCIAL INSTRUMENTS The carrying value of the Company's financial instruments, consisting of cash, accounts receivable and accounts payable and accrued liabilities approximates their fair value due to their short-term maturity. The carrying value of convertible debentures also approximates their fair value. Unless otherwise noted, it is management's opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments. INCOME TAXES The Company follows SFAS No. 109, "Accounting for Income Taxes" which requires the use of the asset and liability method for accounting for income taxes. Under the asset and liability method of SFAS No. 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and loss carryforwards and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. F-8 BV Pharmaceutical, Inc. (A Development Stage Company) Notes to the Financial Statements December 31, 2005 and 2004 (STATED IN US DOLLARS) - Page 3 Note 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (cont'd) BASIC AND DILUTED EARNINGS (LOSS) PER SHARE The Company reports basic earnings (loss) per share in accordance with the SFAS No. 128, "Earnings Per Share". Basic earnings (loss) per share is computed using the weighted average number of shares outstanding during the period. Diluted earnings (loss) per share includes the potentially dilutive effect of outstanding common stock options which are convertible into common shares. The weighted average number of shares outstanding during the periods has been retroactively restated to reflect a forward stock split of 1,500 new shares for one old share, effective on January 5, 2001, and a forward split of 4 new shares for one old share, effective February 20, 2006 (Note 4). FOREIGN CURRENCY TRANSLATION Monetary items denominated in a foreign currency are translated into US dollars, the reporting currency, at exchange rates prevailing at the balance sheet date and non-monetary items are translated at exchange rates prevailing when the assets were acquired or obligations incurred. Foreign currency denominated revenue and expense items are translated at exchange rates prevailing at the transaction date. Gains or losses arising from the translations are included in operations. REVENUE RECOGNITION POLICY The Company receives revenues consisting of DNA test kit sales and license fees. The Company recognizes revenues when persuasive evidence of an arrangement exists, the product is delivered or the services are rendered and collection is reasonably assured. WEBSITE MAINTENANCE Website maintenance costs are expensed as incurred. NEW ACCOUNTING STANDARDS Management does not believe that any recently issued, but not yet effective accounting standards if currently adopted could have a material effect on the accompanying financial statements. F-9 BV Pharmaceutical, Inc. (A Development Stage Company) Notes to the Financial Statements December 31, 2005 and 2004 (STATED IN US DOLLARS) - Page 4 Note 3 CONVERTIBLE DEBENTURES 2005 2004 ____ _________ On January 15, 2004 the Company issued two convertible debentures in the principal amount of $25,000 each, bearing interest at 10% per annum and secured by the general credit of the Company. These debentures were convertible into common shares of the Company on the basis of $0.20 per common share for each $1 of principal and interest accrued thereon, at the option of the debenture holder, up to January 15, 2006. During the year ended December 31, 2005, all of the outstanding principal and interest were converted into common shares of the Company at the prescribed price. $ - $ 54,792 Less: current portion - (50,000) ____ ________ $ - $ 4,792 ===== ======== Note 4 CAPITAL STOCK - Notes 3 and 7 Effective on January 5, 2001, the Company forward split its issued common stock on the basis of 1,500 new for one old. On May 25, 2004, the Company amended its authorized capital stock to 75,000,000 common shares with a par value of $0.001 per share. The number of authorized shares and the par value per share as referred to in these financial statements has been restated wherever applicable to give retroactive effect to this amendment. On February 10, 2006, the Company repurchased a total of 29,000,000 common shares from the President of the Company by the issuance of a promissory note for $29,000. The promissory note bears interest at 8% per annum and is due August 10, 2006. Effective on February 20, 2006, the Company forward split its issued common stock on the basis of four new for one old. The number of shares referred to in these financial statements has been restated wherever applicable to give retroactive effect on the forward stock splits. There was no effect on the Company's authorized share capital. The retroactive restatement of the issued common shares is required by the Securities and Exchange Commission's Staff Accounting Bulletin, Topic 4c. In actuality, the forward stock split, of four for one is effective after the Company's repurchase of 29,000,000 common shares. Consequently, the number of shares actually issued immediately prior to the split was 8,766,456 common shares. The actual number of common shares, both pre-forward split and post-forward split, are less than the number of common shares authorized of 75,000,000. F-10 BV Pharmaceutical, Inc. (A Development Stage Company) Notes to the Financial Statements December 31, 2005 and 2004 (STATED IN US DOLLARS) - Page 5 Note 5 FUTURE INCOME TAXES Future income tax assets and liabilities are recognized for temporary differences between the carrying amount of the balance sheet items and their corresponding tax values as well as for the benefit of losses available to be carried forward to future years for tax purposes that are more likely-than-not to be realized. Significant components of the Company's future tax assets and liabilities, after applying enacted corporate income tax rates, are as follows: 2005 2004 ________ ________ Future income tax assets Net tax losses carried forward $ 49,928 $ 36,415 Less: valuation allowance (49,928) (36,415) ________ ________ $ - $ - ======== ======== The Company recorded a valuation allowance against its future income tax assets based on the extent to which it is more likely than not that sufficient taxable income will be realized during the carryforward periods to utilize all the future income tax assets. Note 6 INCOME TAXES No provision for income taxes has been provided in these financial statements due to the net loss. At December 31, 2005 the Company has net operating loss carryforwards, which expire commencing in 2022, totalling approximately $170,970, the benefit of which has not been recorded in the financial statements. Note 7 SUBSEQUENT EVENTS - Note 4 On February 10, 2006, the Company approved a private placement offering of up to 8,000,000 units at $0.25 per unit for proceeds of $2,000,000. Each unit will consist of one post-forward split common share and one stock purchase warrant exercisable into one post-forward split common share at $0.30 per share for two years. Note 8 NON-CASH TRANSACTION Investing and financing activities that do not have a direct impact on current cash flows are excluded from the statements of cash flows. During the year ended December 31, 2005, the Company issued 1,145,424 common shares at $0.05 per share pursuant to the conversion of the convertible debenture of $57,271. F-11 PART I.--FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS RADIAL ENERGY INC. (formerly BV Pharmaceutical, Inc.) (An Exploration Stage Company) INTERIM FINANCIAL STATEMENTS September 30, 2006 (Stated in US Dollars) (UNAUDITED) ================================================================================
RADIAL ENERGY INC. (formerly BV Pharmaceutical, Inc.) (An Exploration Stage Company) INTERIM BALANCE SHEETS September 30, 2006 and December 31, 2005 (Stated in US Dollars) (UNAUDITED) September 30 December 31 2006 2005 ____________ ___________ ASSETS Current Cash $ - $ 1,211 Prepaid expenses and deposit 7,857 - Current assets of discontinued operations - Note 12 - 1,000 ____________ ___________ 7,857 2,211 Equipment - Note 4 1,980 - Oil and gas properties, unproven - Note 5 2,418,426 - ____________ ___________ $ 2,428,263 $ 2,211 ============ =========== LIABILITIES Current Bank indebtedness $ 2,529 $ - Accounts payable and accrued liabilities - Note 5 774,012 8,435 Due to related parties - Note 8 36,847 - Notes payable - Note 6 385,000 - Current liabilities of discontinued operations - Note 12 - 7,500 ____________ ___________ 1,198,388 15,935 ____________ ___________ STOCKHOLDERS' EQUITY (DEFICIENCY) Capital stock - Note 7 Authorized: 75,000,000 common stock, $0.001 par value Issued: 44,585,824 common stock (December 31, 2005: 151,065,824) 44,586 151,066 Additional paid-in capital - shares 2,250,810 6,180 - warrants 904,950 - Deficit accumulated during the development stage (194,472) (170,970) Deficit accumulated during the exploration stage (1,775,999) - ____________ ___________ 1,229,875 (13,724) ____________ ___________ $ 2,428,263 $ 2,211 ============ =========== SEE ACCOMPANYING NOTES
F-12
RADIAL ENERGY INC. (formerly BV Pharmaceutical, Inc.) (An Exploration Stage Company) INTERIM STATEMENTS OF OPERATIONS for the three and nine-month periods ended September 30, 2006 and 2005 and for the period April 1, 2006 (Date of Exploration Stage) to September 30, 2006 (Stated in US Dollars) (UNAUDITED) April 1, 2006 (Date of Three months ended Nine months ended Exploration Stage) September 30 September 30 to September 30, 2006 2005 2006 2005 2006 ___________ ____________ ___________ ____________ ___________ Administrative expenses Administration fees $ 5,831 $ - $ 14,331 $ - $ 14,331 Amortization 104 - 104 - 104 Consulting fees - Note 8 39,063 425 68,580 425 54,626 Executive compensation and benefits - Note 8 82,800 - 1,342,000 - 1,342,000 Filing fees 3,613 - 7,584 6,613 5,603 Financing fees - Note 9 11,250 - 11,250 - 11,250 Interest and bank charges 29,179 24 30,567 2,588 30,094 Investor relations 34,505 - 76,162 - 66,162 Marketing management services 17,460 - 46,610 - 46,610 Office and miscellaneous 1,733 473 4,384 3,898 1,671 Professional fees 63,281 3,399 88,693 11,009 81,825 Rent 5,097 - 7,419 - 7,419 Telephone 14,419 - 15,987 - 15,987 Transfer agent fees (recovery) 1,745 - 4,802 1,581 (618) Travel and related costs 67,493 - 84,944 - 84,944 Website maintenance 1,897 - 13,991 273 13,991 ___________ ____________ ___________ ____________ ___________ Loss before other items (379,470) (4,321) (1,817,408) (26,387) (1,775,999) Other items: Other income - - - - - Gain on note payable forgiven - Note 7 - - 9,407 - - ___________ ____________ ___________ ____________ ___________ Net loss from continuing operations (379,470) (4,321) (1,808,001) (26,387) (1,775,999) Income from discontinued operations - Note 12 - - 8,500 480 - ___________ ____________ ___________ ____________ ___________ Net loss for the period $ (379,470) $ (4,321) $(1,799,501) $ (25,907) $(1,775,999) =========== ============ =========== ============ =========== Basic loss per share from continuing operations $ (0.01) $ (0.00) $ (0.03) $ (0.00) =========== ============ =========== ============ Basic income per share from discontinued operations $ - $ - $ 0.00 $ 0.00 =========== ============ =========== ============ Weighted average number of shares outstanding 42,742,346 150,493,112 54,649,121 150,113,400 =========== ============ =========== ============ SEE ACCOMPANYING NOTES
F-13
RADIAL ENERGY INC. (formerly BV Pharmaceutical, Inc.) (An Exploration Stage Company) INTERIM STATEMENTS OF CASH FLOWS for the nine-month period ended September 30, 2006 and 2005 and for the period April 1, 2006 (Date of Exploration Stage) to September 30, 2006 (Stated in US Dollars) (UNAUDITED) A pril 1, 2006 (Date of Nine months ended Exploration Stage) September 30, to September 30, 2006 2005 2006 ___________ ____________ ___________ Cash Flows from (used in) Operating Activities Net loss for the period $(1,799,501) $ (26,387) $(1,775,999) Less Income from discontinued operations (8,500) (480) - Deduct items not affecting cash: Amortization 104 - 104 Gain on note payable forgiven (9,407) - - Stock issued for executive compensation 1,200,000 - 1,200,000 Stock issued for financing fee 19,600 - 19,600 Changes in non-cash working capital balances related to operations: Prepaid expenses (7,857) - 2,154 Accounts payable and accrued liabilities 765,984 (6,566) 756,531 ___________ ____________ ___________ Cash used in operating activities - continuing 160,423 (32,953) 202,390 Cash provided by operating activities - discontinued 2,000 7,980 - ___________ ____________ ___________ Net cash provided by (used in) Operating Activities 162,423 (24,973) 202,390 ___________ ____________ ___________ Cash Flows used in Investing Activities Acquisition of equipment (2,084) - (2,084) Oil and gas properties (2,418,426) - (2,418,426) ___________ ____________ ___________ Net cash used in Investing Activities (2,420,510) - (2,420,510) ___________ ____________ ___________ Cash Flows from Financing Activities Bank indebtedness 2,529 - 2,529 Increase in due to related parties 36,847 - 36,847 Capital stock issued 1,852,500 - 1,852,500 Share subscribed - - (250,000) Increase in note payable 365,000 - 385,000 Convertible debentures - 2,479 - ___________ ____________ ___________ Net cash provided by Financing Activities 2,256,876 2,479 2,026,876 ___________ ____________ ___________ Decrease in cash during the period (1,211) (22,494) (191,244) Cash, beginning of the period 1,211 24,964 191,244 ___________ ____________ ___________ Cash, end of the period $ - $ 2,470 $ - =========== ============ =========== Non-cash Transactions - Note 11 SEE ACCOMPANYING NOTES
F-14
RADIAL ENERGY INC. (formerly BV Pharmaceutical, Inc.) (An Exploration Stage Company) INTERIM STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) for the period June 30, 2000 (Date of Inception) to September 30, 2006 (Stated in US Dollars) (UNAUDITED) Deficit Deficit Accumulated Accumulated Additional Paid-in During the During the Common Stock Capital Development Exploration *Shares **ParValue Shares Warrants Stage Stage Total ___________ __________ __________ ________ ___________ ___________ _________ Capital stock subscribed pursuant to an offering memorandum for cash - at $0.0000002 122,172,000 $ 122,172 $(121,968) $ - $ - $ - $ 204 ___________ __________ _________ ________ ___________ ___________ _________ Balance, December 31, 2000 122,172,000 122,172 (121,968) - - - 204 Capital stock issued pursuant to a private placement - at $0.0025 27,108,400 27,108 40,663 - - - 67,771 - at $0.05 160,000 160 7,840 - - - 8,000 Net loss for the year - - - - (69,885) - (69,885) ___________ __________ _________ ________ ___________ ___________ _________ Balance, December 31, 2001 149,440,400 149,440 (73,465) - (69,885) - 6,090 Capital stock issued pursuant to a private placement - at $0.05 480,000 480 23,520 - - - 24,000 Net loss for the year - - - - (30,090) - (30,090) ___________ __________ _________ ________ ___________ ___________ _________ Balance, December 31, 2002 149,920,400 149,920 (49,945) - (99,975) - - Net income for the year - - - - 108 - 108 ___________ __________ _________ ________ ___________ ___________ _________ Balance, December 31, 2003 149,920,400 149,920 (49,945) - (99,867) - 108 Net loss for the year - - - (36,453) - (36,453) ___________ __________ _________ ________ ___________ ___________ _________ Balance, December 31, 2004 149,920,400 149,920 (49,945) - (136,320) - (36,345) .../cont'd SEE ACCOMPANYING NOTES F-15 RADIAL ENERGY INC. (formerly BV Pharmaceutical, Inc.) (An Exploration Stage Company) INTERIM STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) for the period June 30, 2000 (Date of Inception) to September 30, 2006 (Stated in US Dollars) (UNAUDITED) Deficit Deficit Accumulated Accumulated Additional Paid-in During the During the Common Stock Capital Development Exploration *Shares **ParValue Shares Warrants Stage Stage Total ___________ __________ __________ ________ ___________ ___________ _________ Capital stock issued pursuant to conversion of convertible debentures - at $0.05 1,145,424 1,146 56,125 - - - 57,271 Net loss for the year - - - - (34,650) - (34,650) ___________ __________ _________ ________ ___________ ___________ _________ Balance, December 31, 2005 151,065,824 151,066 6,180 - (170,970) - (13,724) Capital stock retired to the treasury (116,000,000) (116,000) 87,000 - - - (29,000) Capital stock issued for executive compensation - at $0.80 1,500,000 1,500 1,198,500 - - - 1,200,000 Capital stock issued for loan fee - at $0.98 20,000 20 19,580 - - - 19,600 Capital stock issued pursuant to a private placement - at $0.25 8,000,000 8,000 1,087,050 904,950 - - 2,000,000 Finders' fees on private placement - - (147,500) - - - (147,500) Net loss for the period - - - - (23,502) (1,775,999) (1,799,501) ___________ __________ _________ ________ ___________ ___________ _________ Balance, September 30, 2006 44,585,824 $ 44,586 $2,250,810 $904,950 $ (194,472) $(1,775,999) $1,229,875 =========== ========= ========= ======== =========== =========== ========== * The common stock issued has been retroactively restated to reflect a forward stock split of 1,500 new shares for one old share, effective January 5, 2001 and a forward split of four new shares for one old share, effective February 20, 2006 (Note 7). ** The par value of common stock has been retroactively restated to reflect a change from no par value to a par value of $0.001 per share. SEE ACCOMPANYING NOTES
F-16 RADIAL ENERGY INC. (formerly BV Pharmaceutical, Inc.) (An Exploration Stage Company) NOTES TO THE INTERIM FINANCIAL STATEMENTS September 30, 2006 (Stated in US Dollars) (UNAUDITED) Note 1 INTERIM REPORTING The accompanying unaudited interim financial statements have been prepared by Radial Energy Inc. (the "Company") pursuant to the rules and regulations of the United States Securities and Exchange Commission. Certain information and disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these financial statements have been included. Such adjustments consist of normal recurring adjustments. These interim financial statements should be read in conjunction with the audited financial statements of the Company for the fiscal year ended December 31, 2005. The results of operations for the nine months ended September 30, 2006 are not indicative of the results that may be expected for the full year. Note 2 CONTINUANCE OF OPERATIONS These interim financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next twelve months. Realization values may be substantially different from carrying values as shown and these financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern. At September 30, 2006, the Company had not yet achieved profitable operations, has accumulated losses of $1,970,471 since its inception, has a working capital deficiency of $1,190,531 and expects to incur further losses in the development of its business, all of which casts substantial doubt about the Company's ability to continue as a going concern. The Company's ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. The Company has arranged a financing of up to $5,000,000 pursuant to a securities purchase agreement to issue and sell to the purchaser secured convertible debentures which shall be convertible into shares of the Company's common stock and will issue to the purchaser warrants to purchase the Company's common stocks (Note 10). F-17 Radial Energy Inc. (formerly BV Pharmaceutical, Inc.) (An Exploration Stage Company) Notes to the Financial Statements September 30, 2006 (Stated in US Dollars) (UNAUDITED) Note 3 ADDITIONAL ACCOUNTING POLICIES EXPLORATION STAGE COMPANY The Company complies with Financial Accounting Standard Board Statement No. 7 the Securities and Exchange Commission Act Guide 7 for its characterization of the Company as an Exploration Stage Company. The Company is devoting substantially all of its present efforts to establish a new business and none of its planned principal operations have commenced. For the purpose of providing cumulative amounts for the statements of operations and cash flows, these amounts consider only those losses for the period from the Company's new exploration stage activity effective April 1, 2006. OIL AND GAS PROPERTIES The Company follows the full cost method of accounting for oil and gas operations whereby all costs of exploring for and developing oil and gas reserves are initially capitalized on a country-by-country (cost centre) basis. Such costs include land acquisition costs, geological and geophysical expenses, carrying charges on non-producing properties, costs of drilling and overhead charges directly related to acquisition and exploration activities. Costs capitalized, together with the costs of production equipment, are depleted and amortized on the unit-of-production method based on the estimated gross proved reserves. Petroleum products and reserves are converted to a common unit of measure, using 6 MCF of natural gas to one barrel of oil. Costs of acquiring and evaluating unproved properties are initially excluded from depletion calculations. These unevaluated properties are assessed periodically to ascertain whether impairment has occurred. When proved reserves are assigned or the property is considered to be impaired, the cost of the property or the amount of the impairment is added to costs subject to depletion calculations. If capitalized costs, less related accumulated amortization and deferred income taxes, exceed the "full cost ceiling" the excess is expensed in the period such excess occurs. The "full cost ceiling" is determined based on the present value of estimated future net revenues attributed to proved reserves, using current prices less estimated future expenditures plus the lower of cost and fair value of unproven properties within the cost centre. Proceeds from a sale of petroleum and natural gas properties are applied against capitalized costs, with no gain or loss recognized, unless such a sale would alter the relationship between capitalized costs and proved reserves of oil and gas attributable to a cost centre. Royalties paid net of any tax credits received are netted with oil and gas sales. F-18 Radial Energy Inc. (formerly BV Pharmaceutical, Inc.) (A Exploration Stage Company) Notes to the Financial Statements September 30, 2006 (Stated in US Dollars) (UNAUDITED) Note 3 ADDITIONAL ACCOUNTING POLICIES - (cont'd) EQUIPMENT AND DEPRECIATION Equipment is recorded at cost and depreciated over their estimated useful lives using the declining balance method. Additions are depreciated at half the annual rate in the year of acquisition. Note 4 EQUIPMENT
December 31, September 30, 2006 2005 ____________________________________________________ _________________ ACCUMULATED COST DEPRECIATION NET NET Computer equipment $ 2,084 $ 104 $ 1,980 $ - ============= ============= ============= ==============
Note 5 OIL AND GAS PROPERTIES
September 30, December 31, 2006 2005 ____ ____ Anticline Project Equipment and advance on exploration $ 1,650,000 $ - Geological consulting 68,426 - _______________ _______________ 1,718,826 - Cherokee County Project Advance 700,000 - _______________ _______________ $ 2,418,426 $ - =============== ===============
i) Anticline Project On May 11, 2006, the Company entered into a Joint Operating Agreement ("JOA") with Peruvian and American companies whereby the Company acquired a 20% working interest and 18% revenue interest in an oil project located in Peru by funding the acquisition of certain equipment, for the shipment of this equipment to the project site in Peru and for the drilling, testing and evaluation of the first exploratory well on the property in the total amount of $1,650,000. F-19 Radial Energy Inc. (formerly BV Pharmaceutical, Inc.) (A Exploration Stage Company) Notes to the Financial Statements September 30, 2006 (Stated in US Dollars) (UNAUDITED) Note 5 OIL AND GAS PROPERTIES - (cont'd) i) Anticline Project After the drilling of the first well is complete, the Company will have the option whether to proceed with the project by funding the drilling, testing and evaluation of another two wells on the property for an additional $1,650,000. This additional investment will also cover the costs to install production facilities, including pipeline and loading dock, tank batteries and pumping units as required to deliver the produced oil to market. Thereafter, the Company will have the option to pay for its 20% working interest share of the development and operation of the project. In the event the Company and the transacting parties decide that the project is not feasible, the equipment acquired will be sold and the Company will be entitled to 67% of the proceeds. At September 30, 2006, the Company had advanced $1,650,000 towards the acquisition of the equipment. ii) Cherokee County Project By an assignment agreement dated June 27, 2006 and amended September 29, 2006, the Company has agreed to acquire a working interest from a Canadian company in three separate exploratory oil and gas prospects located in Cherokee County, Texas, under three leasehold assignment agreements with a company in Texas. In consideration for the assignment, the Company has agreed to pay $700,000 on or before November 17, 2006, with the vendor retaining a 4% overriding royalty. The payment covers the Company's share of the estimated capital expenditures to drill and complete the first test wells on each of the three prospects. The leasehold agreement for all three prospects includes a 30% working interest before payout of initial investment of the Canadian company and a 22.5% working interest after payout, with payout determined on a per project basis. In the event that the Company fails to make the payment, the Canadian company has the option to have the rights of the agreement revert back or to receive from the Company a penalty payment in the amount of 120% of the $700,000 consideration and at its option, the amount shall be convertible into the securities of the Company at a price equal to the lowest offering price of the Company's securities to the general public during the year ended December 31, 2006. F-20 Radial Energy Inc. (formerly BV Pharmaceutical, Inc.) (A Exploration Stage Company) Notes to the Financial Statements September 30, 2006 (Stated in US Dollars) (UNAUDITED) Note 6 NOTES PAYABLE - Note 7 On July 12, 2006, the Company received $250,000 pursuant to a promissory note. The note is unsecured, bears interest at 12% per annum and is due July 12, 2007. On July 31, 2006, the Company received $100,000 pursuant to a promissory note. The note is unsecured, bears interest at 12% per annum and is due July 31, 2007. The Company paid a loan fee by the issuance of 20,000 shares of common stock valued at $19,600. On September 19, 2006, the Company received $35,000, pursuant to a promissory note. The note is unsecured, non-interest bearing and is due September 19, 2006. The note was paid in full subsequent to September 30, 2006. Note 7 CAPITAL STOCK - Notes 6 and 9 Effective on January 5, 2001, the Company forward split its issued common stock on the basis of 1,500 new for one old. On May 25, 2004, the Company amended its authorized capital stock to 75,000,000 common shares with a par value of $0.001 per share. The number of authorized shares and the par value per share as referred to in these financial statements has been restated wherever applicable to give retroactive effect to this amendment. On February 10, 2006, the Company repurchased a total of 29,000,000 common shares at $0.001 per share from the previous President of the Company by the issuance of a promissory note for $29,000 bearing interest at 8% per annum and due August 10, 2006. The Company repaid $20,000 of the promissory note on March 27, 2006, which was accepted as payment in full. Consequently the balance of the note and related interest was written off during the three months ended March 31, 2006. Effective on February 20, 2006, the Company forward split its issued common stock on the basis of four new for one old. The number of shares referred to in these financial statements has been restated wherever applicable to give retroactive effect on the forward stock splits. There was no effect on the Company's authorized share capital. The retroactive restatement of the issued common shares is required by the Securities and Exchange Commission's Staff Accounting Bulletin, Topic 4c. In actuality, the forward stock split, of four for one is effective after the Company's repurchase of 29,000,000 common shares. Consequently, the number of shares actually issued immediately prior to the split was 8,766,456 common shares. The actual number of common shares, both pre-forward split and post-forward split, are less than the number of common shares authorized of 75,000,000. F-21 Radial Energy Inc. (formerly BV Pharmaceutical, Inc.) (A Exploration Stage Company) Notes to the Financial Statements September 30, 2006 (Stated in US Dollars) (UNAUDITED) Note 7 CAPITAL STOCK - Notes 6 and 9 - (cont'd) n March 29, 2006, the officers of the Company approved a plan of merger between the Company and Radial Energy Inc. a wholly-owned inactive subsidiary of the Company incorporated in the State of Colorado on April 10, 2006 by the Company. Under the plan of merger, the shares of Radial Energy Inc. were cancelled and the shareholders of the Company received one share of the newly-merged company for every share of BV Pharmaceutical, Inc. held. The purpose of the merger was to facilitate a name change to Radial Energy Inc. On July 7, 2006, the Company issued 1,500,000 common shares at $0.80 per share to an officer of the Company pursuant to an employment agreement (Note 9). On July 21, 2006, the Company issued 8,000,000 units at $0.25 per unit for proceeds of $2,000,000 through the private placement offering approved by the Company on February 10, 2006. Each unit consists of one common share and one stock purchase warrant exercisable until August 4, 2008, into one common share at $0.30 per share. The Company recorded finders' fees totalling $147,500, $117,500 was paid at September 30, 2006 and the remaining $30,000 was paid subsequent to September 30, 2006. On July 31, 2006, the Company issued 20,000 common shares for a loan fee valued at $19,600 pursuant to a promissory note for $100,000. STOCK PURCHASE WARRANTS As of September 30, 2006, the Company had 8,000,000 warrants outstanding entitling the holder thereof the right to purchase one common share for each warrant held. The fair value of these warrants of $904,950 was determined using the Black-Scholes stock price valuation model with the following assumptions: Expected share price volatility 96% Risk free interest rate 4.91% Expected dividend yield 0.0% Expected term in years 2 F-22 Radial Energy Inc. (formerly BV Pharmaceutical, Inc.) (A Exploration Stage Company) Notes to the Financial Statements September 30, 2006 (Stated in US Dollars) (UNAUDITED) Note 8 RELATED PARTY TRANSACTIONS - Notes 7 and 9 The Company incurred the following amounts charged by a former director of the Company and directors and officers of the Company pursuant to employment agreements (Note 9):
April 1, 2006 (Date of Three months ended Nine months ended Exploration Stage) to September 30, September 30, September 30, 2006 2005 2006 2005 2006 ____ ____ ____ ____ ____ Consulting fees $ - $ - $ 9,000 $ - $ - Executive compensation and benefits 82,800 - 1,342,000 - 1,342,000 ____________ __________ ____________ ___________ ______________ $ 82,800 $ - $ 1,351,000 $ - $ 1,342,000 ============ ========== ============ =========== ==============
As at September 30, 2006, the due to related parties of $36,847 (December 31, 2005: $Nil) consists of expenses owing to the directors and officers of the Company. These amounts are unsecured, non-interest bearing and have no specific terms of repayment. Note 9 COMMITMENTS - Notes 7 and 10 i) By an employment agreement dated March 10, 2006 with the President of the Company, and effective April 1, 2006, the Company will pay $180,000 per year plus annual bonuses as determined by the Board of Directors of the Company. In addition, the President will receive a $400 per month auto allowance, $800 per month insurance reimbursement and a minimum $1,000 per month for rental and administrative expenses to maintain an office. The Company may also issue stock options to the President as deemed appropriate by the Board of Directors. The term of the agreement is 3 years. ii) By an employment agreement dated June 1, 2006, with the Chief Operating Officer of the Company, and effective June 1, 2006, the Company will pay $132,000 per year plus annual bonuses as determined by the Board of Directors of the Company. In addition, the Chief Operating Officer will receive a $400 per month auto allowance, $800 per month reimbursement of the costs of the medical insurance coverage and a minimum $1,000 per month for rental and administrative expenses to maintain an office. The Company may also issue stock options to the Chief Operating Officer as deemed appropriate by the Board of Directors. The term of the agreement is 3 years. In addition, during the nine months ended September 30, 2006, the Company issued 1,500,000 common shares restricted under the Securities and Exchange Commission Rule 144 for additional consideration for this agreement valued at $1,200,000. F-23 Radial Energy Inc. (formerly BV Pharmaceutical, Inc.) (A Exploration Stage Company) Notes to the Financial Statements September 30, 2006 (Stated in US Dollars) (UNAUDITED) Note 9 COMMITMENTS - Notes 7 and 10 - (cont'd) iii) By a business consulting agreement dated April 1, 2006, the Company will pay $10,000 per month for investor relations services for a term of two years. iv) On August 23, 2006, the Company entered into a Letter of Intent with a Columbian company, to enter into a joint operating agreement to acquire a twenty percent (20%) working interest in the right to explore and develop oil reserves and production located in Middle Magdalena Valley of Columbia. The Company's working interest will be subject to a joint operating agreement which is to be negotiated. The Company will be required to contribute $2,200,000 in cash upon execution of the joint operating agreement, $350,000 will be due upon signing the joint operating agreement and another $350,000 will be due sixty days following the signing of the joint operating agreement. The remaining $1,500,000 will be due fifteen days following any capital call made by the Columbian company at any time following the execution of the joint operating agreement. The Company will receive a 33.33% participation in distributions until payout of $1,500,000 of its investment, then after payout, the interest will remain at 20%. The Company has until November 22, 2006 to enter into the joint operating agreement. If the company fails to enter into the agreement by the deadline, then the Columbian company will have no obligation to enter into the joint operating agreement. Further, if the Company fails to properly execute the joint operating agreement, it shall be liable for a termination fee of up to $200,000 as follows: (a) $50,000, if the Company terminates at any time on or before the date the Colombian government issues the appropriate authority to the Columbian Company to begin operations at the site; (b) total of $100,000, if the Company terminates following the date the Colombian government issues such authority; and (c) total of $200,000, if the Company terminates more than 30 days following the date the Columbian government issues such authority. v) The Company has an office lease for a term of one year from September 1, 2006 to August 31, 2007 at a monthly lease of $1,300. It will automatically renew for the same term. The termination clause in the agreement requires a notice of three months. F-24 Radial Energy Inc. (formerly BV Pharmaceutical, Inc.) (A Exploration Stage Company) Notes to the Financial Statements September 30, 2006 (Stated in US Dollars) (UNAUDITED) Note 10 SUBSEQUENT EVENTS - Note 7 i) On October 2, 2006, the Company entered into a securities purchase agreement to issue up to $5,000,000 of secured convertible debentures which shall be convertible into common stock and stock purchase warrants to purchase common stock. Pursuant to the securities purchase agreement, the Company entered into an Investor Registration Rights Agreement, Security Agreement, and a Pledge and Escrow Agreement with the Purchaser. The Company will pay the purchaser a commitment fee of 10% of $5,000,000, which shall be paid proportionately upon each disbursement. In addition, the Company will pay the purchaser a non-refundable fee of $22,500 for structuring and due diligence in connection with this transaction ($11,250 paid during the nine months ended September 30, 2006). The Company received $3,500,000 and the remaining $1,500,000 shall be funded within three business days after a registration statement for this debenture is declared effective by the Securities and Exchange Commission. Pursuant to the securities purchase agreement, the Company issued to the purchaser 3,333,333 stock purchase warrants at an exercise price of $0.75 per share, 2,500,000 stock purchase warrants at an exercise price of $1.00 per share, 2,333,333 stock purchase warrants at an exercise price of $1.50 per share, and is obligated to issue to the purchaser an additional 1,000,000 stock purchase warrants at an exercise price of $1.50 per share when the final funding is received. The warrants will be exercisable for a term of five years. The Company has the option to force the purchaser to exercise the warrants within five days following the forced exercise notice assuming that there is sufficient number of shares of common stock to cover the underlying amount of warrants to be exercised and the daily Volume Weighted Average Price of the common stock for each of the five consecutive trading days prior to the forced exercised notice date is above the exercise price. The forced exercise notice shall be limited to 1/5 of the trading volume during the five day period. Any allowable forced exercise notice shall be reduced by any warrant amounts exercised by the purchaser during the five day period. The debentures bear interest at 7.0% per annum, are due on October 2, 2009, secured by the assets of the Company and a pledge of common stock which shall include common stock held by the Company's officers and directors and the remaining shares shall be delivered in the form of a stock certificate in the name of the Company, to be held in escrow and are convertible into the Company's common stock, at the option of the purchaser at any time prior to redemption by the Company. The debentures will be convertible at a conversion price equal to the lesser of $1.0536 or 90% of the lowest volume weighted average daily closing price of the Company's common stock, during the 15 trading days immediately prior to the conversion date. The notes contain a provision whereby no holder is able to convert any part of the note into shares of the Company's common stock, if such conversion would result in beneficial ownership of the holder and its affiliates of more than 4.99% of the Company's then outstanding shares of common stock. The Company has the right at its option to redeem a portion or all amounts outstanding under the debentures by paying the holder the principal amount being redeemed plus a redemption premium of 20 to 30%. F-25 Radial Energy Inc. (formerly BV Pharmaceutical, Inc.) (A Exploration Stage Company) Notes to the Financial Statements September 30, 2006 (Stated in US Dollars) (UNAUDITED) Note 10 SUBSEQUENT EVENTS - Note 7 - (cont'd) i) - (cont'd) The warrants are detachable from the convertible debentures and will been accounted for separately in accordance with APB 14 "Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants". The conversion features of the convertible debentures will be classified as equity instruments in accordance with EITF 00-19. The proceeds of the issuance will be allocated on a relative fair value basis between the convertible debentures and the detachable warrant in accordance with APB 14. Subsequent to the allocation of the proceeds of the convertible debenture financing and in accordance with EITF 00-27, the Company will record the beneficial conversion feature, if any, as additional paid-in capital. The Company will amortize the discount using the effective interest method from commitment date to the redemption date. ii) On October 6, 2006, the Company entered into a Letter of Intent with two companies in Denver, Colorado to participate in an Acreage Earning Agreement with a third party on acres of federal Wasatch/Mesa Verde formation leasehold interests which are located in Uintah County, Utah. Pursuant to the agreement, the Company shall commit to the drilling of a minimum of three wells in 2007 and three wells in 2008 to test the property. The Company will carry the parties for 37.5% interest in the first three wells and will carry the parties for 12.5% working interest in the second three wells. Upon completion of the respective drilling obligations, the parties shall bear their 37.5% interest of all further wells, with the Company bearing the remaining 62.5% working interest. In the event the parties enter into an area of mutual interest with respect to any additional related acreage, such acreage shall be owned 62.5% by the Company and 12.5% by the two Colorado companies with the remaining 25% being offered to the third party. Should the Company fail to fund its share of the required wells during the first 2 year-period, it shall earn interest only in the drillsite spacing units and all undrilled acreage will revert back to the two companies. The Company was required to enter into a Definitive Agreement setting out the final terms of the agreement by no later than October 25, 2006 and was required to pay to the two Colorado companies' finders' fees in the amount of $100,000. This amount was paid on October 19, 2006. This agreement has been extended to November 14, 2006. F-26 Radial Energy Inc. (formerly BV Pharmaceutical, Inc.) (A Exploration Stage Company) Notes to the Financial Statements September 30, 2006 (Stated in US Dollars) (UNAUDITED) Note 11 NON-CASH TRANSACTIONS Investing and financing activities that do not have a direct impact on current cash flows are excluded from the statements of cash flows. During the nine month period ended September 30, 2006: - the Company repurchased 116,000,000 common shares by the issuance of a promissory note for $29,000. - the Company issued 1,500,000 common shares at $0.80 totalling $1,200,000 to a director of the Company pursuant to an employment agreement. - the Company issued 20,000 common shares for a financing fee valued at $19,600 pursuant to a promissory note. During the period ended September 30, 2005 - the Company issued 286,356 common shares at $0.20 per share pursuant to the conversion of the $57,271 convertible debentures. These transactions have been excluded from the statements of cash flows. Note 12 DISCONTINUED OPERATIONS During the nine months ended September 30, 2006, concurrent with the name change of the Company (Note 7), the Company announced its intention to shift its direction of business towards the acquisition, exploration and development of oil and gas projects. Previously, the Company's business was the collection, analysis and banking of personal DNA data. Assets, liabilities and results of operations from the Company's previous business have been disclosed as discontinued operations for the nine months ended September 30, 2006 and prior periods have been restated to conform with the current presentation. The balance sheets include the following amounts related to discontinued operations:
September 30, December 31, 2006 2005 Current assets of discontinued operations: ____ ____ Accounts receivable $ - $ 1,000 =============== =============== Current liabilities of discontinued operations: Unearned revenue $ - $ 7,500 =============== ===============
F-27 Radial Energy Inc. (formerly BV Pharmaceutical, Inc.) (A Exploration Stage Company) Notes to the Financial Statements September 30, 2006 (Stated in US Dollars) (UNAUDITED) Note 12 DISCONTINUED OPERATIONS - (cont'd) Net income from discontinued operations are as follows:
April 1, 2006 (Date of Exploration Three months ended Nine months ended Stage) to September 30, September 30, September 30, 2006 2005 2006 2005 2006 ____ ____ ____ ____ ____ Revenues License fees $ - $ - $ - $ - $ - Other income - - 8,500 480 - ____________ ____________ ___________ ____________ ______________ - - 8,500 480 - ____________ ____________ ___________ ____________ ______________ Administrative expenses Bad debt - - - - - Intellectual property acquisition costs - - - - - Marketing research and development - - - - - ____________ ____________ ___________ ____________ ______________ - - - - - ____________ ____________ ___________ ____________ ______________ Income from discontinued operations $ - $ - $ 8,500 $ 480 $ - ============ ============ =========== ============ ==============
Cash flows from discontinued operations are as follows:
April 1, 2006 (Date of Exploration Nine months ended Stage) to September 30, September 30, 2006 2006 2006 Cash Flows used in Operating Activities ____ ____ ____ Net income from discontinued operations $ 8,500 $ 480 $ - Changes in non-cash working capital balances related to operations Accounts receivable 1,000 - - Unearned revenue (7,500) 7,500 - ______________ ___________ ______________ Increase in cash from discontinued operations $ 2,000 $ 7,980 $ - ============== =========== ==============
F-28 Radial Energy Inc. (formerly BV Pharmaceutical, Inc.) (A Exploration Stage Company) Notes to the Financial Statements September 30, 2006 (Stated in US Dollars) (UNAUDITED) Note 13 COMPARATIVE FIGURES Certain of the comparative figures for the nine months ended September 30, 2005, have been reclassified to conform with the current periods presentation. F-29 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24 INDEMNIFICATION OF DIRECTORS AND OFFICERS Our bylaws provide indemnification by the company of any individual made a party to proceeding because he is or was an officer, director, employee or agent of the company against liability incurred in the proceeding, to the fullest extent permissible under the laws of Nevada. The bylaws provide that the company advance the expenses of officers and directors incurred in defending any such proceeding, provided that the company received an undertaking from such person to repay the expenses advanced if it is ultimately determined that he is not entitled to be indemnified. The Nevada Revised Statutes ("NRS"), Chapter 78 provides: NRS 78.7502 provides for the discretionary and mandatory indemnification of officers, directors, employees and agents. NRS 78.7502 (1) provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee, or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. NRS 78.7502 (2) provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses, including amounts paid in settlement and attorneys' fees actually and reasonably incurred by him in connection with the defense or settlement of the action or suit if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation. Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper. NRS 78.7502 (3) To the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections 78.7502 (1) or 78.7502 (2), or in defense of any claim, issue or matter therein, the corporation shall indemnify him against expenses, including attorneys' fees, actually and reasonably incurred by him in connection with the defense. NRS 78.751 provides that authorization is required for discretionary indemnification of directors, officers, employees or agents, advancement of expenses to those parties and a limitation on indemnification and advancement of expenses. NRS 78.751 (1) provides that any discretionary indemnification under NRS 78.7502, unless ordered by a court or advancement pursuant to subsection 2, may be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances. The determination must be made: (a) By the stockholders; (b) By the board of directors by majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding; II-1 (c) If a majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding so orders, by independent legal counsel in a written opinion; or (d) If a quorum consisting of directors who were not parties to the action, suit or proceeding cannot be obtained, by independent legal counsel in a written opinion. NRS 78.751 (2) provides that the articles of incorporation, the bylaws or an agreement made by the corporation may provide that the expenses of officers and directors incurred in defending a civil or criminal action, suit or proceeding must be paid by the corporation as they are incurred or in advance of the final disposition of the action, suit or proceeding, upon receipt of an undertaking by or on behalf of the director or officer to repay the amount if it is ultimately determined by a court of competent jurisdiction that he is not entitled to be indemnified by the corporation. The provisions of this subsection do not affect any rights to advancement of expenses to which corporate personnel other than directors or officers may be entitled under any contract or otherwise by law. NRS 78.751 (3) provides that the indemnification and advancement of expenses authorized in or ordered by a court pursuant to NRS 78.751: (a) Does not exclude any other rights to which a person seeking indemnification or advancement of expenses may be entitled under the articles of incorporation or any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, for either an action in his official capacity or an action in another capacity while holding his office, except that indemnification, unless ordered by a court pursuant to NRS 78.7502 or for the advancement of expenses made pursuant to subsection 2, may not be made to or on behalf of any director or officer if a final adjudication establishes that his acts or omissions involved intentional misconduct, fraud or a knowing violation of the law and was material to the cause of action. (b) Continues for a person who has ceased to be a director, officer, employee or agent and inures to the benefit of the heirs, executors and administrators of such a person. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC that such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. ITEM 25 OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The expenses relating to the registration of shares of common stock will be borne by us. These expenses, except the SEC registration fee, are estimated to be as follows:* SEC Registration fee...................................... $ 1,341 Accounting fees and expenses.............................. $ 1,000 Legal fees and expenses................................... $ 40,000 Printing and engraving expenses........................... $ 2,000 Registrar and transfer agent's fees....................... $ 500 Miscellaneous fees and expenses........................... $ 1,000 --------- Total.................................................. $ 45,841 - --------------------- * The selling stockholders will pay any sales commissions or underwriting discounts incurred in connection with the sale of shares registered hereunder. ITEM 26 RECENT SALES OF UNREGISTERED SECURITIES From March 14, 2006 through August 2006, we sold to investors pursuant to subscription agreements an aggregate of 8,000,000 units, consisting of shares of our common stock and warrants to purchase our common stock in a private placement. Each unit consisted of one share of common stock and a warrant to purchase one share of common stock. The purchase price was $0.25 per unit and we received an aggregate of $2,000,000 in gross proceeds. The warrants have an exercise period of two years and an exercise price of $0.30 per share. The private placement had a minimum offering amount of $100,000 and a maximum offering amount of $2,000,000. In connection with the private placement, we paid an aggregate of $147,500 as finders' fee. The securities sold in the private placement were exempt from registration under the Securities Act of 1933, as II-2 amended, pursuant to Regulation S promulgated thereunder and pursuant to the exemption from provided by Section 4(2) of the Securities Act for issuances not involving a public offering. On October 2, 2006, we entered into a Securities Purchase Agreement with Cornell Capital Partners, LP for the private placement of secured convertible debentures in the aggregate principal amount of $5,000,000. We closed on the first $2,000,000 on October 4, 2006; an additional $1,500,000 was funded on the date this Registration Statement was filed with the SEC; and the final $1,500,000 will be funded within three business days after this Registration Statement is declared effective by the SEC. The debentures accrue interest at a rate of 7.0% per annum, payable on the maturity date, and payable in cash or in shares of our common stock, at our option. The term of the debentures is three years, and the debentures will be convertible at a conversion price equal to the lesser of $1.0536 or 90% of the lowest daily volume weighted average price during the 15 trading days immediately preceding the conversion date, subject to a weighted average anti-dilution adjustment and other adjustments. We have the right at our option to redeem a portion or all amounts outstanding under the debentures by paying the holder the principal amount being redeemed plus a redemption premium, which is either 20% or 30% of the principal amount being redeemed depending on what the fixed conversion price is at the time of redemption as compared to the closing bid price of our common Stock. We also issued to the purchaser 3,333,333 common stock purchase warrants at an exercise price of $0.75 per share, 2,500,000 common stock purchase warrants at an exercise price of $1.00 per share, 2,333,333 common stock purchase warrants at an exercise price of $1.50 per share, and we are obligated to issue to the purchaser an additional 1,000,000 common stock purchase warrants at an exercise price of $1.50 per share on the third closing date. The warrants will be exercisable for a term of five years. The issuance of the debentures and warrants are exempt from registration pursuant to Regulation D promulgated under the Securities Act of 1933, as amended. In connection with the private placement, we agreed to pay a commitment fee equal to 10% of the purchase price from each closing and a structuring fee of $22,500 to the general partner of the purchaser. ITEM 27 EXHIBITS Exhibit Number Description of Document - ------- --------------------------------------------------------------------- 3(i).1 Amended and Restated Articles of Incorporation filed with the Nevada Secretary of State effective as of April 17, 2003. (Incorporated by reference to Exhibit 3(i).1 of Radial Energy Inc.'s Registration Statement on Form SB-2 filed on April 19, 2004.) 3(i).2 Certificate of Amendment to Articles of Incorporation filed with the Nevada Secretary of State Effective as of September 23, 2003. (Incorporated by reference to Exhibit 3(i).2 of Radial Energy Inc.'s Registration Statement on Form SB-2 filed on April 19, 2004.) 3(i).3 Certificate of Amendment to Articles of Incorporation filed with the Nevada Secretary of State Effective as of June 21, 2004. (Incorporated by reference to Exhibit 3 of Radial Energy's Registration Statement on Form SB-2/A filed on July 15, 2004.) 3(i).4 Articles of Merger filed with the Nevada Secretary of State effective as of April 3, 2006. (Incorporated by reference to Exhibit 2 of Radial Energy Inc.'s Current Report on Form 8-K filed on April 21, 2006.) 3(i).5 Certificate of Correction filed with the Nevada Secretary of State effective as of September 26, 2006. (Filed herewith.) 3(ii) Bylaws (Incorporated by reference to Exhibit 3(ii) of Radial Energy Inc.'s Registration Statement on Form SB-2 filed on April 19, 2004.) 5.1 Opinion of Greenberg Traurig, LLP as to the legality of the securities being offered. (Filed herewith.) 10.1 Form of Subscription Agreement. (Incorporated by reference to Exhibit 10.1 of Radial Energy Inc.'s Quarterly Report on Form 10-QSB for the quarter ended June 30, 2006.) 10.2 Form of Common Stock Purchase Warrant. (Incorporated by reference to Exhibit 10.2 of Radial Energy Inc.'s Quarterly Report on Form 10-QSB for the quarter ended June 30, 2006.) 10.3 Letter of Intent by and between Radial Energy Inc. and Ziegler-Peru Inc. dated April 19, 2006. (Incorporated by reference to Exhibit 10.3 of Radial Energy Inc.'s Quarterly Report on Form 10-QSB for the quarter ended June 30, 2006.) 10.4 Joint Operating Agreement by and between Radial Energy Inc., Ziegler-Peru Inc., and Compania Consultora de Petroleo, S.A. effective as of May 11, 2006. (Incorporated by reference to Exhibit 10.4 of Radial Energy Inc.'s Quarterly Report on Form 10-QSB for the quarter ended June 30, 2006.) II-3 Exhibit Number Description of Document - ------- --------------------------------------------------------------------- 10.5 Employment Agreement by and between Radial Energy Inc. and G. Leigh Lyons dated March 10, 2006. (Incorporated by reference to Exhibit 10.5 of Radial Energy Inc.'s Quarterly Report on Form 10-QSB for the quarter ended June 30, 2006.) 10.6 Employment Agreement by and between Radial Energy Inc. and Omar Michel Hayes dated June 1, 2006. (Incorporated by reference to Exhibit 10.6 of Radial Energy Inc.'s Quarterly Report on Form 10-QSB for the quarter ended June 30, 2006.) 10.7 Assignment Agreement by and between Radial Energy Inc. and Pin Petroleum Partners Ltd. dated June 27, 2006. (Incorporated by reference to Exhibit 10.7 of Radial Energy Inc.'s Quarterly Report on Form 10-QSB for the quarter ended June 30, 2006.) 10.8 Letter of Intent by and between Radial Energy Inc. and Maxim Well Services Ltd. dated August 23, 2006. (Incorporated by reference to Exhibit 10.1 of Radial Energy Inc.'s Quarterly Report on Form 10-QSB for the quarter ended September 30, 2006.) 10.9 Amendment to Assignment Agreement by and between Radial Energy Inc. and Pin Petroleum Partners Ltd. dated September 29, 2006. (Incorporated by reference to Exhibit 10.2 of Radial Energy Inc.'s Quarterly Report on Form 10-QSB for the quarter ended September 30, 2006.) 10.10 Securities Purchase Agreement dated October 2, 2006 by and between Radial Energy Inc. and Cornell Capital Partners, L.P. (Filed herewith.) 10.11 Form of Secured Convertible Debentures. (Filed herewith.) 10.12 Form of Common Stock Purchase Warrant. (Filed herewith.) 10.13 Security Agreement dated October 2, 2006 by and between Radial Energy Inc. and Cornell Capital Partners, L.P. (Filed herewith.) 10.14 Pledge and Escrow Agreement dated October 2, 2006 by and between Radial Energy Inc. and Cornell Capital Partners, L.P. (Filed herewith.) 10.15 Investor Registration Rights Agreement dated October 2, 2006 by and between Radial Energy Inc. and Cornell Capital Partners, L.P. (Filed herewith.) 10.16 Letter Agreement with Maxim Well Services Ltd., dated November 14, 2006, amending Letter of Intent, dated August 23, 2006. (Incorporated by reference to Exhibit 10.1 of Radial Energy Inc.'s Current Report on Form 8-K filed on November 20, 2006.) 23.1 Consent of Amisano Hanson, Chartered Accountants (Filed herewith.) 23.2 Consent of Greenberg Traurig, LLP (included in Exhibit 5.1) 23.3 Consent of Gustavson Associates LLC ITEM 28 UNDERTAKINGS A. The undersigned small business issuer hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; notwithstanding the foregoing, any increase or decrease in the of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in this Registration Statement or any material change to such information in this Registration Statement; (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; and (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) That, to determine liability to any purchaser in the initial distribution of the securities, in a primary offering of securities of the undersigned small business issuer pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the II-4 undersigned small business issuer will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: (i) Any preliminary prospectus or prospectus of the undersigned small business issuer relating to the offering required to be filed pursuant to Rule 424 (ss.230.424 of this chapter); (ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned small business issuer or used or referred to by the undersigned small business issuer; (iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned small business issuer or its securities provided by or on behalf of the undersigned small business issuer; and (iv) Any other communication that is an offer in the offering made by the undersigned small business issuer to the purchaser. B. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the small business issuer of expenses incurred or paid by a director, officer or controlling person of the small business issuer in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the small business issuer will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. C. The undersigned small business issuer hereby undertakes that, for the purpose of determining liability under the Securities Act to any purchaser: (1) If the small business issuer is relying on Rule 430B (ss.230.430B of this chapter): (i) Each prospectus filed by the undersigned small business issuer pursuant to Rule 424(b)(3) (ss.230.424(b)(3) of this chapter) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and (ii) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) (ss.230.424(b)(2), (b)(5), or (b)(7) of this chapter) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) (ss.230.415(a)(1)(i), (vii), or (x) of this chapter) for the purpose of providing the information required by section 10(a) of the Securities Act shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date. II-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on the 20th day of February 2007. RADIAL ENERGY INC. By: /s/ G. LEIGH LYONS ------------------------------- G. Leigh Lyons, President, Chief Executive Officer, Chief Financial Officer, and Secretary Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title(s) Date /s/ G. LEIGH LYONS - ------------------- G. Leigh Lyons President, Chief Executive Officer, February 20, 2007 Chief Financial Officer, Secretary and Director (Principal Executive Officer, Principal Financial and Accounting Officer) /s/ OMAR HAYES - ---------------- Omar Hayes Chief Operating Officer and Director February 20, 2007 II-6 EX-5 2 ex5-1.txt EXHIBIT 5.1 EXHIBIT 5.1 [LETTERHEAD OF GREENBERG TRAURIG, LLP] February 20, 2007 Radial Energy Inc. 1200 Smith Street, Suite 1600 Houston, Texas 77002 Re: Registration Statement on Form SB-2/A Ladies and Gentlemen: At your request, we have examined the Registration Statement on Form SB-2/A to be filed with the Securities and Exchange Commission (the "SEC") in connection with the registration under the Securities Act of 1933, as amended, of an aggregate of 13,333,333 shares (the "Shares") of your common stock, $.001 par value ("Common Stock"). As your counsel in connection with this transaction, we have examined the proceedings taken and are familiar with the proceedings proposed to be taken by you in connection with the authorization, issuance and sale of the Shares. We express no opinion as to any jurisdiction other than federal securities laws and the Nevada Corporations Law (including, to the extent applicable, Nevada statutory and constitutional provisions and reported case law). Based on the foregoing, and subject to compliance with applicable state securities laws, it is our opinion that the Shares have been duly authorized by all necessary corporate action of Radial Energy, and, upon issuance, delivery and payment therefor in the manner contemplated by the Registration Statement and the prospectus which is a part of the Registration Statement (the "Prospectus"), will be validly issued, fully paid and nonassessable. We consent to the use of this opinion as an exhibit to the Registration Statement and to the use of our name under the caption "Legal Matters" in the Prospectus. Very truly yours, /s/ Greenberg Traurig, LLP ______________________ EX-10 3 ex10-10.txt EXHIBIT 10.10 EXHIBIT 10.10 SECURITIES PURCHASE AGREEMENT THIS SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of October 2, 2006, by and among RADIAL ENERGY, INC., a Nevada corporation (the "COMPANY"), and the Buyer listed on Schedule I attached hereto (the "BUYER"). WITNESSETH 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) and/or 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"); 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, and the Buyer shall purchase up to Five Million Dollars ($5,000,000) of secured convertible debentures (the "CONVERTIBLE DEBENTURES"), which shall be convertible into shares of the Company's common stock, par value $0.001 (the "COMMON STOCK") (as converted, the "CONVERSION SHARES") of which Two Million Dollars ($2,000,000) shall be funded within Five (5) business day following the date hereof (the "FIRST CLOSING"), One Million Five Hundred Thousand Dollars ($1,500,000) shall be funded on the date the registration statement (the "REGISTRATION STATEMENT") is filed, pursuant to the Investor Registration Rights Agreement dated the date hereof, with the United States Securities and Exchange Commission (the "SEC") (the "SECOND CLOSING"), and One Million Five Hundred Thousand Dollars ($1,500,000) shall be funded within three (3) business days after the date the Registration Statement is declared effective by the SEC (the "THIRD CLOSING") (individually referred to as a "CLOSING" collectively referred to as the "CLOSINGS"), for a total purchase price of up to Five Million Dollars ($5,000,000), (the "PURCHASE PRICE") in the respective amounts set forth opposite the Buyer's name on Schedule I (the "SUBSCRIPTION AMOUNT"); and WHEREAS, contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering a 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 and regulations promulgated there under, and applicable state securities laws; and WHEREAS, contemporaneously with the execution and delivery of this Agreement, the Company, the Buyers, and each wholly owned subsidiary of the Company are executing and delivering a Security Agreement (the "SECURITY AGREEMENT") pursuant to which the Company and its wholly owned subsidiaries agreed to provide the Buyers a security interest in Pledged Property (as this term is defined in the Security Agreement) to secure the Company's obligations under this Agreement, the Transaction Documents, or any other obligations of the Company to the Buyer; WHEREAS, contemporaneously with the execution and delivery of this Agreement, the Company and certain officers of the Company are executing and delivering Pledge and Escrow Agreements (collectively, the "PLEDGE AND ESCROW AGREEMENT") pursuant to which the Company and certain of its officers have agreed to provide the Buyer a security interest in Pledged Shares (as this term is defined in the Pledge and Escrow Agreement) to secure the Company's obligations under this Agreement, the Transaction Documents, or any other obligations of the Company to the Buyer; and WHEREAS, contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering Irrevocable Transfer Agent Instructions (the "IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"). NOW, THEREFORE, in consideration of the mutual covenants and other agreements contained in this Agreement the Company and the Buyer hereby agree as follows: 1. PURCHASE AND SALE OF CONVERTIBLE DEBENTURES. (a) PURCHASE OF CONVERTIBLE DEBENTURES. Subject to the satisfaction (or waiver) of the terms and conditions of this Agreement, the Buyer agrees to purchase at each Closing and the Company agrees to sell and issue to the Buyer at each Closing, Convertible Debentures in amounts corresponding with the Subscription Amount set forth opposite the Buyer's name on Schedule I hereto. (b) CLOSING DATE. The First Closing of the purchase and sale of the Convertible Debentures shall take place at 10:00 a.m. Eastern Standard Time on the fifth (5th) business day following the date hereof, subject to notification of satisfaction of the conditions to the First Closing set forth herein and in Sections 6 and 7 below (or such later date as is mutually agreed to by the Company and the Buyer) (the "FIRST CLOSING DATE"), the Second Closing of the purchase and sale of the Convertible Debentures shall take place at 4:00 p.m. Eastern Standard Time on the date the Registration Statement is filed with the SEC, subject to notification of satisfaction of the conditions to the Second Closing set forth herein and in Sections 6 and 7 below (or such later date as is mutually agreed to by the Company and the Buyer) (the "SECOND CLOSING DATE"), and the Third Closing of the purchase and sale of the Convertible Debentures shall take place at 10:00 a.m. Eastern Standard Time on the third (3rd) business day immediately following the date the Registration Statement is declared effective by the SEC, subject to notification of satisfaction of the conditions to the Third Closing set forth herein and in Sections 6 and 7 below (or such earlier date as is mutually agreed to by the Company and the Buyer) (the "THIRD CLOSING DATE") (collectively referred to a the "CLOSING DATES"). Each Closing shall occur on the respective Closing Dates at the offices of Yorkville Advisors, LLC, 3700 Hudson Street, Suite 3700, Jersey City, New Jersey 07302 (or such other place as is mutually agreed to by the Company and the Buyer). (c) FORM OF PAYMENT. Subject to the satisfaction of the terms and conditions of this Agreement, on each Closing Date, (i) the Buyers shall deliver to the Company such aggregate proceeds for the Convertible Debentures to be issued and sold to the Buyer, minus the fees to be paid directly from the proceeds of the Closings as set forth herein, and (ii) the Company shall deliver to the Buyer, Convertible Debentures which the Buyer is purchasing in amounts indicated opposite the Buyer's name on Schedule I, duly executed on behalf of the Company. 2 2. BUYER'S REPRESENTATIONS AND WARRANTIES. The Buyer represents and warrants, severally and not jointly, that: (a) INVESTMENT PURPOSE. The Buyer is acquiring the Convertible Debentures and, upon conversion of Convertible Debentures, the Buyer will acquire the Conversion Shares then issuable, for its own account for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof, except pursuant to sales registered or exempted under the Securities Act; provided, however, that by making the representations herein, such Buyer reserves the right to dispose of the Conversion Shares at any time in accordance with or pursuant to an effective registration statement covering such Conversion Shares or an available exemption under the Securities Act. (b) ACCREDITED INVESTOR STATUS. The Buyer is an "ACCREDITED INVESTOR" as that term is defined in Rule 501(a)(3) of Regulation D. (c) RELIANCE ON EXEMPTIONS. The Buyer understands that the Convertible Debentures are being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying in part upon the truth and accuracy of, and such Buyer's compliance with, the representations, warranties, agreements, acknowledgments and understandings of such Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of such Buyer to acquire such securities. (d) INFORMATION. The Buyer and its advisors (and his or, its counsel), if any, have been furnished with all materials relating to the business, finances and operations of the Company and information he deemed material to making an informed investment decision regarding his purchase of the Convertible Debentures and the Conversion Shares, which have been requested by such Buyer. The Buyer and its advisors, if any, have been afforded the opportunity to ask questions of the Company and its management. Neither such inquiries nor any other due diligence investigations conducted by such Buyer or its advisors, if any, or its representatives shall modify, amend or affect such Buyer's right to rely on the Company's representations and warranties contained in Section 3 below. The Buyer understands that its investment in the Convertible Debentures and the Conversion Shares involves a high degree of risk. The Buyer is in a position regarding the Company, which, based upon employment, family relationship or economic bargaining power, enabled and enables such Buyer to obtain information from the Company in order to evaluate the merits and risks of this investment. The Buyer has sought such accounting, legal and tax advice, as it has considered necessary to make an informed investment decision with respect to its acquisition of the Convertible Debentures and the Conversion Shares. (e) NO GOVERNMENTAL REVIEW. The Buyer understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Convertible Debentures or the Conversion Shares, or the fairness or suitability of the investment in the Convertible Debentures or the Conversion Shares, nor have such authorities passed upon or endorsed the merits of the offering of the Convertible Debentures or the Conversion Shares. 3 (f) TRANSFER OR RESALE. The Buyer understands that except as provided in the Investor Registration Rights Agreement: (i) the Convertible Debentures have not been and are not being registered under the Securities Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred unless (A) subsequently registered thereunder, or (B) such Buyer shall have delivered to the Company an opinion of counsel, in a generally acceptable form, to the effect that such securities to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an exemption from such registration requirements; (ii) any sale of such securities made in reliance on Rule 144 under the Securities Act (or a successor rule thereto) ("RULE 144") may be made only in accordance with the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of such securities under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the Securities Act) may require compliance with some other exemption under the Securities Act or the rules and regulations of the SEC thereunder; and (iii) neither the Company nor any other person is under any obligation to register such securities under the Securities Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder. The Company reserves the right to place stop transfer instructions against the shares and certificates for the Conversion Shares. (g) LEGENDS. The Buyer understands that the certificates or other instruments representing the Convertible Debentures and or the Conversion Shares shall bear a restrictive legend in substantially the following form (and a stop transfer order may be placed against transfer of such stock certificates): THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARD RESALE AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS. The legend set forth above shall be removed and the Company within two (2) business days shall issue a certificate without such legend to the holder of the Conversion Shares upon which it is stamped, if, unless otherwise required by state securities laws, (i) in connection with a sale transaction, provided the Conversion Shares are registered under the Securities Act or (ii) in connection with a sale transaction, after such holder provides the Company with an opinion of counsel, which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale, assignment or transfer of the Conversion Shares may be made without registration under the Securities Act. 4 (h) AUTHORIZATION, ENFORCEMENT. This Agreement has been duly and validly authorized, executed and delivered on behalf of such Buyer and is a valid and binding agreement of such Buyer enforceable in accordance with its terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors' rights and remedies. (i) RECEIPT OF DOCUMENTS. The Buyer and his or its counsel has received and read in their entirety: (i) this Agreement and each representation, warranty and covenant set forth herein and the Transaction Documents (as defined herein); (ii) all due diligence and other information necessary to verify the accuracy and completeness of such representations, warranties and covenants; (iii) the Company's Form 10-KSB for the fiscal year ended December 31, 2005; (iv) the Company's Form 10-QSB for the fiscal quarter ended June 30, 2006 and (v) answers to all questions the Buyer submitted to the Company regarding an investment in the Company; and the Buyer has relied on the information contained therein and has not been furnished any other documents, literature, memorandum or prospectus. (j) DUE FORMATION OF CORPORATE AND OTHER BUYERS. If the Buyer is a corporation, trust, partnership or other entity that is not an individual person, it has been formed and validly exists and has not been organized for the specific purpose of purchasing the Convertible Debentures and is not prohibited from doing so. (k) NO LEGAL ADVICE FROM THE COMPANY. The Buyer acknowledges, that it had the opportunity to review this Agreement and the transactions contemplated by this Agreement with his or its own legal counsel and investment and tax advisors. The Buyer is relying solely on such counsel and advisors and not on any statements or representations of the Company or any of its representatives or agents for legal, tax or investment advice with respect to this investment, the transactions contemplated by this Agreement or the securities laws of any jurisdiction. (l) NO SHORT POSITION. The Buyer, together with any of its affiliates, does not have an open short position in the Common Stock of the Company. 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants as of the date hereof to each of the Buyers that, except as set forth in the SEC Documents (as defined herein) or in the Disclosure Schedule attached hereto (the "DISCLOSURE SCHEDULE"): (a) ORGANIZATION AND QUALIFICATION. The Company and its subsidiaries are corporations duly organized and validly existing in good standing under the laws of the jurisdiction in which they are incorporated, and have the requisite corporate power to own their properties and to carry on their business as now being conducted. Each of the Company and its subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its subsidiaries taken as a whole. 5 (b) AUTHORIZATION, ENFORCEMENT, COMPLIANCE WITH OTHER INSTRUMENTS. (i) The Company has the requisite corporate power and authority to enter into and perform this Agreement, the Security Agreement, the Investor Registration Rights Agreement, the Irrevocable Transfer Agent Agreement, the Pledge and Escrow Agreement, and any related agreements (collectively the "TRANSACTION DOCUMENTS") and to issue the Convertible Debentures and the Conversion Shares in accordance with the terms hereof and thereof, (ii) the execution and delivery of the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby, including, without limitation, the issuance of the Convertible Debentures the Conversion Shares and the reservation for issuance and the issuance of the Conversion Shares issuable upon conversion or exercise thereof, have been duly authorized by the Company's Board of Directors and no further consent or authorization is required by the Company, its Board of Directors or its stockholders, (iii) the Transaction Documents have been duly executed and delivered by the Company, (iv) the Transaction Documents constitute the valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors' rights and remedies. The authorized officer of the Company executing the Transaction Documents knows of no reason why the Company cannot file the registration statement as required under the Investor Registration Rights Agreement or perform any of the Company's other obligations under such documents. (c) CAPITALIZATION. The authorized capital stock of the Company consists of 75,000,000 shares of Common Stock, of which 44,565,824 shares of Common Stock are issued and outstanding, and no shares of preferred stock. All of such outstanding shares have been validly issued and are fully paid and nonassessable. No shares of Common Stock are subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company. As of the date of this Agreement, (i) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its subsidiaries, (ii) there are no outstanding debt securities and (iii) there are no agreements or arrangements under which the Company or any of its subsidiaries is obligated to register the sale of any of their securities under the Securities Act (except pursuant to the Registration Rights Agreement) and (iv) there are no outstanding registration statements and there are no outstanding comment letters from the SEC or any other regulatory agency. There are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Convertible Debentures as described in this Agreement. The Company has furnished to the Buyer true and correct copies of the Company's Articles of Incorporation, as amended and as in effect on the date hereof (the "ARTICLES OF INCORPORATION"), and the Company's By-laws, as in effect on the date hereof (the "BY-LAWS"), and the terms of all securities convertible into or exercisable for Common Stock and the material rights of the holders thereof in respect thereto other than stock options issued to employees and consultants. 6 (d) ISSUANCE OF SECURITIES. The Convertible Debentures are duly authorized and, upon issuance in accordance with the terms hereof, shall be duly issued, fully paid and nonassessable, are free from all taxes, liens and charges with respect to the issue thereof. The Conversion Shares issuable upon conversion of the Convertible Debentures have been duly authorized and reserved for issuance. Upon conversion or exercise in accordance with the Convertible Debentures the Conversion Shares will be duly issued, fully paid and nonassessable. (e) NO CONFLICTS. The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby will not (i) result in a violation of the Articles of Incorporation, any certificate of designations of any outstanding series of preferred stock of the Company or the By-laws or (ii) conflict with or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its subsidiaries is a party, or result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and the rules and regulations of The National Association of Securities Dealers Inc.'s OTC Bulletin Board on which the Common Stock is quoted) applicable to the Company or any of its subsidiaries or by which any property or asset of the Company or any of its subsidiaries is bound or affected. Neither the Company nor its subsidiaries is in violation of any term of or in default under its Articles of Incorporation or By-laws or their organizational charter or by-laws, respectively, or any material contract, agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or order or any statute, rule or regulation applicable to the Company or its subsidiaries. The business of the Company and its subsidiaries is not being conducted, and shall not be conducted in violation of any material law, ordinance, or regulation of any governmental entity. Except as specifically contemplated by this Agreement and as required under the Securities Act and any applicable state securities laws, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under or contemplated by this Agreement or the Registration Rights Agreement in accordance with the terms hereof or thereof. All consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof. The Company and its subsidiaries are unaware of any facts or circumstance, which might give rise to any of the foregoing. (f) SEC DOCUMENTS: FINANCIAL STATEMENTS. Since January 1, 2005, the Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC under the Securities Exchange Act of 1934, as amended (the "EXCHANGE Act") (all of the foregoing filed prior to the date hereof or amended after the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein, being hereinafter referred to as the "SEC DOCUMENTS"). The Company has delivered to the Buyers or their representatives, or made available through the SEC's website at http://www.sec.gov., true and complete copies of the SEC Documents. As of their respective dates, the financial statements of the Company disclosed in the SEC Documents (the "FINANCIAL STATEMENTS") complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in 7 accordance with generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such Financial Statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and, fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). No other information provided by or on behalf of the Company to the Buyer which is not included in the SEC Documents, including, without limitation, information referred to in this Agreement, contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (g) 10(B)-5. The SEC Documents do not include any untrue statements of material fact, nor do they omit to state any material fact required to be stated therein necessary to make the statements made, in light of the circumstances under which they were made, not misleading. (h) ABSENCE OF LITIGATION. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending against or affecting the Company, the Common Stock or any of the Company's subsidiaries, wherein an unfavorable decision, ruling or finding would (i) have a material adverse effect on the transactions contemplated hereby (ii) adversely affect the validity or enforceability of, or the authority or ability of the Company to perform its obligations under, this Agreement or any of the documents contemplated herein, or (iii) have a material adverse effect on the business, operations, properties, financial condition or results of operations of the Company and its subsidiaries taken as a whole. (i) ACKNOWLEDGMENT REGARDING BUYER'S PURCHASE OF THE CONVERTIBLE DEBENTURES. The Company acknowledges and agrees that the Buyer is acting solely in the capacity of an arm's length purchaser with respect to this Agreement and the transactions contemplated hereby. The Company further acknowledges that the Buyer is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and any advice given by the Buyer or any of their respective representatives or agents in connection with this Agreement and the transactions contemplated hereby is merely incidental to such Buyer's purchase of the Convertible Debentures or the Conversion Shares. The Company further represents to the Buyer that the Company's decision to enter into this Agreement has been based solely on the independent evaluation by the Company and its representatives. (j) NO GENERAL SOLICITATION. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) in connection with the offer or sale of the Convertible Debentures or the Conversion Shares. (k) NO INTEGRATED OFFERING. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to 8 buy any security, under circumstances that would require registration of the Convertible Debentures or the Conversion Shares under the Securities Act or cause this offering of the Convertible Debentures or the Conversion Shares to be integrated with prior offerings by the Company for purposes of the Securities Act. (l) EMPLOYEE RELATIONS. Neither the Company nor any of its subsidiaries is involved in any labor dispute nor, to the knowledge of the Company or any of its subsidiaries, is any such dispute threatened. None of the Company's or its subsidiaries' employees is a member of a union and the Company and its subsidiaries believe that their relations with their employees are good. (m) INTELLECTUAL PROPERTY RIGHTS. The Company and its subsidiaries own or possess adequate rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and rights necessary to conduct their respective businesses as now conducted. The Company and its subsidiaries do not have any knowledge of any infringement by the Company or its subsidiaries of trademark, trade name rights, patents, patent rights, copyrights, inventions, licenses, service names, service marks, service mark registrations, trade secret or other similar rights of others, and, to the knowledge of the Company there is no claim, action or proceeding being made or brought against, or to the Company's knowledge, being threatened against, the Company or its subsidiaries regarding trademark, trade name, patents, patent rights, invention, copyright, license, service names, service marks, service mark registrations, trade secret or other infringement; and the Company and its subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing. (n) ENVIRONMENTAL LAWS. To the best of the Company's knowledge, the Company and its subsidiaries are (i) in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval. (o) TITLE. Any real property and facilities held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries. (p) INSURANCE. The Company and each of its subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its subsidiaries are engaged. Neither the Company nor any such subsidiary has been refused any insurance coverage sought or applied for and neither the Company nor any such subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not materially and adversely affect the condition, 9 financial or otherwise, or the earnings, business or operations of the Company and its subsidiaries, taken as a whole. (q) REGULATORY PERMITS. The Company and its subsidiaries possess all material certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct their respective businesses, and neither the Company nor any such subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit. (r) INTERNAL ACCOUNTING CONTROLS. The Company and each of its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, and (iii) the recorded amounts for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (s) NO MATERIAL ADVERSE BREACHES, ETC. Neither the Company nor any of its subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation which in the judgment of the Company's officers has or is expected in the future to have a material adverse effect on the business, properties, operations, financial condition, results of operations or prospects of the Company or its subsidiaries. Neither the Company nor any of its subsidiaries is in breach of any contract or agreement which breach, in the judgment of the Company's officers, has or is expected to have a material adverse effect on the business, properties, operations, financial condition, results of operations or prospects of the Company or its subsidiaries. (t) TAX STATUS. The Company and each of its subsidiaries has made and filed all federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject and (unless and only to the extent that the Company and each of its subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. (u) CERTAIN TRANSACTIONS. Except for arm's length transactions pursuant to which the Company makes payments in the ordinary course of business upon terms no less favorable than the Company could obtain from third parties and other than the grant of stock options disclosed in the SEC Documents, none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company (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 knowledge of the Company, any 10 corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner. (v) FEES AND RIGHTS OF FIRST REFUSAL. The Company is not obligated to offer the securities offered hereunder on a right of first refusal basis or otherwise to any third parties including, but not limited to, current or former shareholders of the Company, underwriters, brokers, agents or other third parties. 4. COVENANTS. (a) BEST EFFORTS. Each party shall use its best efforts to timely satisfy each of the conditions to be satisfied by it as provided in Sections 6 and 7 of this Agreement. (b) FORM D. The Company agrees to file a Form D with respect to the Conversion Shares as required under Regulation D and to provide a copy thereof to the Buyer promptly after such filing. The Company shall, on or before the Closing Date, take such action as the Company shall reasonably determine is necessary to qualify the Conversion Shares, or obtain an exemption for the Conversion Shares for sale to the Buyers at the Closing pursuant to this Agreement under applicable securities or "Blue Sky" laws of the states of the United States, and shall provide evidence of any such action so taken to the Buyers on or prior to the Closing Date. (c) REPORTING STATUS. Until the earlier of (i) the date as of which the Buyer may sell all of the Conversion Shares without restriction pursuant to Rule 144(k) promulgated under the Securities Act (or successor thereto), or (ii) the date on which (A) the Buyer shall have sold all the Conversion Shares and (B) none of the Convertible Debentures are outstanding (the "REGISTRATION Period"), the Company shall file in a timely manner all reports required to be filed with the SEC pursuant to the Exchange Act and the regulations of the SEC thereunder, and the Company shall not terminate its status as an issuer required to file reports under the Exchange Act even if the Exchange Act or the rules and regulations thereunder would otherwise permit such termination. (d) USE OF PROCEEDS. The Company will use the proceeds from the sale of the Convertible Debentures for general corporate and working capital purposes. (e) RESERVATION OF SHARES. On the date hereof, the Company shall reserve for issuance to the Buyers 16,000,000 shares for issuance upon conversions of the Convertible Dentures and 9,166,667 shares for issuance upon exercise of the Warrants (collectively, the "SHARE RESERVE"). The Company represents that it has sufficient authorized and unissued shares of Common Stock available to create the Share Reserve after considering all other commitments that may require the issuance of Common Stock. The Company shall take all action reasonably necessary to at all times have authorized, and reserved for the purpose of issuance, such number of shares of Common Stock as shall be necessary to effect the full conversion of the Convertible Debentures and the full exercise of the Warrants. If at any time the Share Reserve is insufficient to effect the full conversion of the Convertible Debentures or the full exercise of the Warrants, the Company shall increase the Share Reserve accordingly. If the 11 Company does not have sufficient authorized and unissued shares of Common Stock available to increase the Share Reserve, the Company 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 of shares authorized. The Company's management shall recommend to the shareholders to 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 number of authorized shares of Common Stock. (f) LISTINGS OR QUOTATION. The Company's 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) the Nasdaq Capital Market, or (e) the Nasdaq OTC Bulletin Board ("OTC") (each, a "PRIMARY MARKET") and the Company shall promptly secure the listing or quotation of the Conversion Shares and Warrant Shares for trading on the same Primary Market upon which the shares of Common Stock are then listed or quoted. (g) FEES AND EXPENSES. (i) Each of the Company and the Buyer shall pay all costs and expenses incurred by such party in connection with the negotiation, investigation, preparation, execution and delivery of the Transaction Documents. The Company shall pay Yorkville Advisors LLC a fee equal to ten percent (10%) of the Purchase Price directly from the proceeds of each Closing. (ii) The Company shall pay a structuring fee to Yorkville Advisors LLC of Twenty Two Thousand Five Hundred Dollars ($22,500), of which Eleven Thousand Two Hundred Fifty Thousand Dollars ($11,250) has been paid and the remaining Eleven Thousand Two Hundred Fifty Thousand Dollars ($11,250) shall be paid directly from the proceeds of the First Closing. (iii) The Company shall issue to the Buyer (a) on the First Closing Date the A Warrants, B Warrants, and C Warrants, in the amounts set forth next to the Buyer's name set forth below, and (b) on the Third Closing Date the D Warrants (the A, B, C, and D Warrants collectively, the "WARRANTS") in the amounts set forth next to the Buyer's name set forth below. Each of the Warrants shall be in the form of the Warrant attached hereto as Exhibit A. The shares of Common Stock issuable under the Warrants shall collectively be referred to as the "WARRANT SHARES". Warrant Warrant Warrant Exercise Buyer Series Shares Price ______________________________________________________________________ Cornell Capital Partners, LP. A Warrant 3,333,333 $0.75 ______________________________________________________________________ Cornell Capital Partners, LP. B Warrant 2,500,000 $1.00 ______________________________________________________________________ Cornell Capital Partners, LP. C Warrant 2,333,333 $1.50 ______________________________________________________________________ Cornell Capital Partners, LP. D Warrant 1,000,000 $1.50 ______________________________________________________________________ Total Warrant Shares 9,166,667 12 (h) CORPORATE EXISTENCE. So long as any of the Convertible Debentures remain outstanding, the Company shall not directly or indirectly, in one or more related transactions, (i) consolidate or merge with or into (whether or not the Company is the surviving corporation) another entity, or (ii) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company to another entity or person, or (iii) consummate a stock purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off) with another entity whereby such other entity acquires more than the 50% of the outstanding shares of Common Stock, or (iv) reorganize, recapitalize or reclassify its Common Stock (each such transaction, an "ORGANIZATIONAL CHANGE") unless, prior to the consummation an Organizational Change, the Company obtains the written consent of the Buyer. In any such case, the Company will make appropriate provision with respect to such holders' rights and interests to insure that the provisions of this Section 4(h) will thereafter be applicable to the Convertible Debentures. (i) TRANSACTIONS WITH AFFILIATES. So long as any Convertible Debentures are outstanding, the Company shall not, and shall cause each of its subsidiaries not to, enter into, amend, modify or supplement, or permit any subsidiary to enter into, amend, modify or supplement any agreement, transaction, commitment, or arrangement with any of its or any subsidiary's officers, directors, person who were officers or directors at any time during the previous two (2) years, stockholders who beneficially own five percent (5%) or more of the Common Stock, or Affiliates (as defined below) or with any individual related by blood, marriage, or adoption to any such individual or with any entity in which any such entity or individual owns a five percent (5%) or more beneficial interest (each a "RELATED PARTY"), except for (a) customary employment arrangements and benefit programs on reasonable terms, (b) any investment in an Affiliate of the Company, (c) any agreement, transaction, commitment, or arrangement on an arms-length basis on terms no less favorable than terms which would have been obtainable from a person other than such Related Party, (d) any agreement, transaction, commitment, or arrangement which is approved by a majority of the disinterested directors of the Company; for purposes hereof, any director who is also an officer of the Company or any subsidiary of the Company shall not be a disinterested director with respect to any such agreement, transaction, commitment, or arrangement. "AFFILIATE" for purposes hereof means, with respect to any person or entity, another person or entity that, directly or indirectly, (i) has a ten percent (10%) or more equity interest in that person or entity, (ii) has ten percent (10%) or more common ownership with that person or entity, (iii) controls that person or entity, or (iv) shares common control with that person or entity. "CONTROL" or "CONTROLS" for purposes hereof means that a person or entity has the power, direct or indirect, to conduct or govern the policies of another person or entity. (j) TRANSFER AGENT. The Company covenants and agrees that, in the event that the Company's agency relationship with the transfer agent should be terminated for any reason prior to a date which is two (2) years after the Closing Date, the Company shall immediately appoint a new transfer agent and shall require that the new transfer agent execute and agree to be bound by the terms of the Irrevocable Transfer Agent Instructions (as defined herein). (k) RESTRICTION ON ISSUANCE OF THE CAPITAL STOCK. Except for the issuance of Excluded Securities (as defined in the Convertible Debentures), so long as any Convertible Debentures are outstanding, the Company shall not, 13 without the prior written consent of the Buyer (i) issue or sell shares of Common Stock or Preferred Stock without consideration or for a consideration per share less than a twenty percent (20%) discount to the bid price of the Common Stock determined immediately prior to its issuance, (ii) issue any preferred stock, warrant, option, right, contract, call, or other security or instrument granting the holder thereof the right to acquire Common Stock without consideration or for a consideration per share less a twenty percent (20%) discount to the bid price of the Common Stock determined immediately prior to its issuance, or (iii) file any registration statement on Form S-8. (l) The Buyer agrees that it shall not, and that it will cause its affiliates not to, engage in any short sales of or hedging transactions with respect to the Common Stock as long as any Convertible Debentures shall remain outstanding. (m) RIGHTS OF FIRST NEGOTIATION. For a period of 18 months from the date hereof, if the Company intends to raise additional capital by the issuance or sale of capital stock of the Company, including without limitation shares of any class of common stock, any class of preferred stock, options, warrants or any other securities convertible or exercisable into shares of common stock (whether the offering is conducted by the Company, underwriter, placement agent or any third party) the Company shall be obligated to offer to the Buyers such issuance or sale of capital stock, by providing in writing the principal amount of capital it intends to raise and outline of the material terms of such capital raise, prior to the offering such issuance or sale of capital stock to any third parties including, but not limited to, current or former officers or directors, current or former shareholders and/or investors of the obligor, underwriters, brokers, agents or other third parties. The Buyers shall have five (5) business days from receipt of such notice of the sale or issuance of capital stock to accept or reject all or a portion of such capital raising offer. (n) LOCK UP AGREEMENTS. On the date hereof, the Company shall obtain from each officer and director a lock up agreement in the form attached hereto as EXHIBIT B. 5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue the Irrevocable Transfer Agent Instructions to its transfer agent irrevocably appointing David Gonzalez, Esq. as the Company's agent for purpose of having certificates issued, registered in the name of the Buyer or its respective nominee(s), for the Conversion Shares representing such amounts of Convertible Debentures as specified from time to time by the Buyer to the Company upon conversion of the Convertible Debentures, for interest owed pursuant to the Convertible Debenture, and for any and all Liquidated Damages (as this term is defined in the Investor Registration Rights Agreement). David Gonzalez, Esq. shall be paid a cash fee of Fifty Dollars ($50) for every occasion they act pursuant to the Irrevocable Transfer Agent Instructions. The Company shall not change its transfer agent without the express written consent of the Buyer, which may be withheld by the Buyer in its sole discretion. Prior to registration of the Conversion Shares under the Securities Act, all such certificates shall bear the restrictive legend specified in Section 2(g) of this Agreement. The Company warrants that no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 5, and stop transfer instructions to give effect to Section 2(g) hereof (in the case of the 14 Conversion Shares prior to registration of such shares under the Securities Act) will be given by the Company to its transfer agent and that the Conversion Shares shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and the Investor Registration Rights Agreement. Nothing in this Section 5 shall affect in any way the Buyer's obligations and agreement to comply with all applicable securities laws upon resale of Conversion Shares. If the Buyer provides the Company with an opinion of counsel, in form, scope and substance customary for opinions of counsel in comparable transactions to the effect that registration of a resale by the Buyer of any of the Conversion Shares is not required under the Securities Act, the Company shall within two (2) business days instruct its transfer agent to issue one or more certificates in such name and in such denominations as specified by the Buyer. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Buyer by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 5 will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section 5, that the Buyer shall be entitled, in addition to all other available remedies, to an injunction restraining any breach and requiring immediate issuance and transfer, without the necessity of showing economic loss and without any bond or other security being required. 6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of the Company hereunder to issue and sell the Convertible Debentures to the Buyer at the Closings is subject to the satisfaction, at or before the Closing Dates, of each of the following conditions, provided that these conditions are for the Company's sole benefit and may be waived by the Company at any time in its sole discretion: (a) The Buyer shall have executed the Transaction Documents and delivered them to the Company. (b) The Buyer shall have delivered to the Company the Purchase Price for Convertible Debentures in the amount set forth next to the Buyer's name as outlined on Schedule I attached hereto, minus any fees to be paid directly from the proceeds the Closings as set forth herein, by wire transfer of immediately available U.S. funds pursuant to the wire instructions provided by the Company. (c) The representations and warranties of the Buyer shall be true and correct in all material respects as of the date when made and as of the Closing Dates as though made at that time (except for representations and warranties that speak as of a specific date), and the Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Buyer at or prior to the Closing Dates. 7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE. (a) The obligation of the Buyer hereunder to purchase the Convertible Debentures at the First Closing is subject to the satisfaction, at or before the First Closing Date, of each of the following conditions: 15 (i) The Company shall have executed the Transaction Documents and delivered the same to the Buyer. (ii) The Common Stock shall be authorized for quotation on the OTCBB and trading in the Common Stock shall not have been suspended for any reason. (iii) The representations and warranties of the Company shall be true and correct in all material respects (except to the extent that any of such representations and warranties is already qualified as to materiality in Section 3 above, in which case, such representations and warranties shall be true and correct without further qualification) as of the date when made and as of the First Closing Date as though made at that time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the First Closing Date (iv) The Company shall have executed and delivered to the Buyer the Convertible Debentures in the respective amounts set forth opposite the Buyer's name on Schedule I attached hereto. (v) The Buyer shall have received an opinion of counsel from counsel to the Company in a form satisfactory to the Buyer. (vi) The Company shall have provided to the Buyer a certificate of good standing from the secretary of state from the state in which the company is incorporated. (vii) The Company or the Buyers shall have filed a form UCC-1 or such other forms as may be required to perfect the Buyer's interest in the Pledged Property as detailed in the Security Agreement dated the date hereof and provided proof of such filing to the Buyers. (viii) The Pledged Shares as well as executed and medallion guaranteed stock powers as required pursuant to the Pledge and Escrow Agreement shall have been delivered to the Escrow Agent. (ix) The Company shall have provided to the Buyer an acknowledgement, to the satisfaction of the Buyer, from the Company's independent certified public accountants as to its ability to provide all consents required in order to file a registration statement in connection with this transaction. (x) The Company shall have reserved out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Convertible Debentures, shares of Common Stock to effect the conversion of all of the Conversion Shares then outstanding. (xi) The Irrevocable Transfer Agent Instructions, in form and substance satisfactory to the Buyer, shall have been delivered to and acknowledged in writing by the Company's transfer agent. 16 (b) The obligation of the Buyer hereunder to accept the Convertible Debentures at the Second Closing is subject to the satisfaction, at or before the Second Closing Date, of each of the following conditions: (i) The Common Stock shall be authorized for quotation on the OTCBB and trading in the Common Stock shall not have been suspended for any reason. (ii) The representations and warranties of the Company shall be true and correct in all material respects (except to the extent that any of such representations and warranties is already qualified as to materiality in Section 3 above, in which case, such representations and warranties shall be true and correct without further qualification) as of the date when made and as of the Second Closing Date as though made at that time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Second Closing Date. (iii) The Company shall have executed and delivered to the Buyers the Convertible Debentures in the respective amounts set forth opposite the Buyer's name on Schedule I attached hereto. (iv) The Company shall have filed the registration statement with the SEC in compliance with the rules and regulations promulgated by the SEC for filing thereof on the Second Closing Date. (v) The Company shall have certified, in a certificate executed by two officers of the Company and dated as of the Second Closing Date, that all conditions to the Second Closing have been satisfied. (c) The obligation of the Buyer hereunder to accept the Convertible Debentures at the Third Closing is subject to the satisfaction, at or before the Third Closing Date, of each of the following conditions: (i) The Common Stock shall be authorized for quotation on the OTCBB and trading in the Common Stock shall not have been suspended for any reason. (ii) The representations and warranties of the Company shall be true and correct in all material respects (except to the extent that any of such representations and warranties is already qualified as to materiality in Section 3 above, in which case, such representations and warranties shall be true and correct without further qualification) as of the date when made and as of the Third Closing Date as though made at that time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Third Closing Date. 17 (iii) The Company shall have executed and delivered to the Buyers the Convertible Debentures in the respective amounts set forth opposite the Buyer's name on Schedule I attached hereto. (iv) The Registration Statement shall have been declared effective by the SEC. (v) The Company shall have certified, in a certificate executed by two officers of the Company and dated as of the Third Closing Date, that all conditions to the Third Closing have been satisfied. 8. INDEMNIFICATION. (a) In consideration of the Buyer's execution and delivery of this Agreement and acquiring the Convertible Debentures and the Conversion Shares hereunder, and in addition to all of the Company's other obligations under this Agreement, the Company shall defend, protect, indemnify and hold harmless the Buyer and each other holder of the Convertible Debentures and the Conversion Shares, and all of their officers, directors, employees and agents (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the "BUYER INDEMNITEES") from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Buyer Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys' fees and disbursements (the "INDEMNIFIED LIABILITIES"), incurred by the Buyer Indemnitees or any of them as a result of, or arising out of, or relating to (i) any misrepresentation or breach of any representation or warranty made by the Company in this Agreement, the Convertible Debentures or the Investor Registration Rights Agreement or any other certificate, instrument or document contemplated hereby or thereby, (ii) any breach of any covenant, agreement or obligation of the Company contained in this Agreement, or the Investor Registration Rights Agreement or any other certificate, instrument or document contemplated hereby or thereby, or (iii) any cause of action, suit or claim brought or made against such Indemnitee based on material misrepresentations or due to a material breach and arising out of or resulting from the execution, delivery, performance or enforcement of this Agreement or any other instrument, document or agreement executed pursuant hereto by any of the parties hereto, any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Convertible Debentures or the status of the Buyer or holder of the Convertible Debentures the Conversion Shares, as a Buyer of Convertible Debentures in the Company. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities, which is permissible under applicable law. (b) In consideration of the Company's execution and delivery of this Agreement, and in addition to all of the Buyer's other obligations under this Agreement, the Buyer shall defend, protect, indemnify and hold harmless the Company and all of its officers, directors, employees and agents (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the "COMPANY INDEMNITEES") from and against any and all Indemnified Liabilities incurred by the Indemnitees or any of them as a result of, or arising out of, or relating to (i) any 18 misrepresentation or breach of any representation or warranty made by the Buyer in this Agreement, instrument or document contemplated hereby or thereby executed by the Buyer, (ii) any breach of any covenant, agreement or obligation of the Buyer contained in this Agreement, the Investor Registration Rights Agreement or any other certificate, instrument or document contemplated hereby or thereby executed by the Buyer, or (iii) any cause of action, suit or claim brought or made against such Company Indemnitee based on material misrepresentations or due to a material breach and arising out of or resulting from the execution, delivery, performance or enforcement of this Agreement, the Investor Registration Rights Agreement or any other instrument, document or agreement executed pursuant hereto by any of the parties hereto. To the extent that the foregoing undertaking by the Buyer may be unenforceable for any reason, the Buyer shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities, which is permissible under applicable law. 9. GOVERNING LAW: MISCELLANEOUS. (a) GOVERNING LAW. This Agreement shall be governed by and interpreted in accordance with the laws of the State of New Jersey without regard to the principles of conflict of laws. The parties further agree that any action between them shall be heard in Hudson County, New Jersey, and expressly consent to the jurisdiction and venue of the Superior Court of New Jersey, sitting in Hudson County and the United States District Court for the District of New Jersey sitting in Newark, New Jersey for the adjudication of any civil action asserted pursuant to this Paragraph. (b) COUNTERPARTS. This Agreement may be executed in two or more identical counterparts, all of which 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. In the event any signature page is delivered by facsimile transmission, the party using such means of delivery shall cause four (4) additional original executed signature pages to be physically delivered to the other party within five (5) days of the execution and delivery hereof. (c) HEADINGS. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. (d) SEVERABILITY. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction. (e) ENTIRE AGREEMENT, AMENDMENTS. This Agreement supersedes all other prior oral or written agreements between the Buyer, the Company, their affiliates and persons acting on their behalf with respect to the matters discussed herein, and this Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor any Buyer makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be waived or amended other than by an instrument in writing signed by the party to be charged with enforcement. 19 (f) NOTICES. Any notices, consents, waivers, or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered (i) upon receipt, when delivered personally; (ii) upon confirmation of receipt, when sent by facsimile; (iii) three (3) days after being sent by U.S. certified mail, return receipt requested, or (iv) one (1) day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be: If to the Company, to: Radial Energy, Inc. 1313 East Maple Street, Suite 223 Bellingham, WA 98225 Attn: Chief Financial Officer Telephone: (360) 685-4240 Facsimile: With a copy (which copy shall not Greenberg Traurig, LLP constitute notice) to: 650 Town Center Drive, Suite 1700 Costa Mesa, CA 92626 Attn: Raymond Lee, Esq. Telephone: (714) 708-6510 If to the Buyer, to its address and facsimile number on Schedule I, with copies to the Buyer's counsel as set forth on Schedule I. Each party shall provide five (5) days' prior written notice to the other party of any change in address or facsimile number. (g) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns. Neither the Company nor any Buyer shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other party hereto. (h) NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person. (i) SURVIVAL. Unless this Agreement is terminated under Section 9(l), the representations and warranties of the Company and the Buyer contained in Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and 9, and the indemnification provisions set forth in Section 8, shall survive the Closing for a period of six (6) months following the date on which the Convertible Debentures are converted in full. The Buyer shall be responsible only for its own representations, warranties, agreements and covenants hereunder. (j) PUBLICITY. The Company and the Buyer shall have the right to approve, before issuance any press release or any other public statement with respect to the transactions contemplated hereby made by any party; provided, however, that the Company shall be entitled, without the prior approval of the 20 Buyer, to issue any press release or other public disclosure with respect to such transactions required under applicable securities or other laws or regulations (the Company shall use its best efforts to consult the Buyer in connection with any such press release or other public disclosure prior to its release and Buyer shall be provided with a copy thereof upon release thereof). (k) FURTHER ASSURANCES. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. (l) TERMINATION. In the event that the First Closing shall not have occurred with respect to the Buyers on or before five (5) business days from the date hereof due to the Company's or the Buyer's failure to satisfy the conditions set forth in Sections 6 and 7 above (and the non-breaching party's failure to waive such unsatisfied condition(s)), the non-breaching party shall have the option to terminate this Agreement with respect to such breaching party at the close of business on such date without liability of any party to any other party. (m) BROKERAGE. The Company represents that no broker, agent, finder or other party has been retained by it in connection with the transactions contemplated hereby and that no other fee or commission has been agreed by the Company to be paid for or on account of the transactions contemplated hereby. (n) NO STRICT CONSTRUCTION. The language used 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. [REMAINDER PAGE INTENTIONALLY LEFT BLANK] 21 IN WITNESS WHEREOF, the Buyer and the Company have caused their respective signature page to this Securities Purchase Agreement to be duly executed as of the date first written above. COMPANY: RADIAL ENERGY, INC. By: /s/ G. LEIGH LYONS ___________________ Name: G. Leigh Lyons Title: President 22 IN WITNESS WHEREOF, the Buyer and the Company have caused their respective signature page to this Securities Purchase Agreement to be duly executed as of the date first written above. BUYERS: CORNELL CAPITAL PARTNERS, LP By: Yorkville Advisors, LLC Its: General Partner By: /s/ MARK ANGELO _____________________________ Name: Mark Angelo Its: Portfolio Manager 23
SCHEDULE I SCHEDULE OF BUYERS (1) (2) (3) (4) (5) (6) BUYER SUBSCRIPTION AMOUNT TOTAL LEGAL REPRESENTATIVE'S PURCHASE ADDRESS AND FACSIMILE PRICE NUMBER FIRST CLOSING SECOND CLOSING THIRD CLOSING CORNELL CAPITAL PARTNERS, LP $2,000,000 $1,500,000 $1,500,000 $5,000,000 Troy Rillo, Esq. 101 Hudson Street, Suite 3700 101 Hudson Street, Suite 3700 Jersey City, New Jersey 07302 Jersey City, NJ 07303 Telephone: (201) 985-8300 Attention: Mark Angelo Facsimile: (201) 985-8266 Telephone: (201) 985-8300 Facsimile: (201) 985-8266 Residence: Delaware
DISCLOSURE SCHEDULE EXHIBIT A FORM OF WARRANTS 2 EXHIBIT B LOCK UP AGREEMENT The undersigned hereby agrees that for a period commencing on October 2, 2006 and expiring on the date thirty (30) days after the date that all amounts owed to Cornell Capital Partners, LP (the "INVESTOR"), under the Secured Convertible Debentures issued to the Investor pursuant to the Securities Purchase Agreement between Radial Energy, Inc. (the "COMPANY") and the Investor dated October 2, 2006 have been paid (the "LOCK-UP PERIOD"), he, she or it will not, directly or indirectly, without the prior written consent of the Investor, issue, offer, agree or offer to sell, sell, grant an option 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 securities underlying, convertible into, exchangeable or exercisable for or evidencing any right to purchase or subscribe for any common stock (whether or not beneficially owned by the undersigned), or any beneficial interest therein (collectively, the "SECURITIES") except in accordance with the volume limitations set forth in Rule 144(e) of the General Rules and Regulations under the Securities Act of 1933, as amended. In order to enable the aforesaid covenants to be enforced, the undersigned hereby consents to the placing of legends and/or stop-transfer orders with the transfer agent of the Company's securities with respect to any of the Securities registered in the name of the undersigned or beneficially owned by the undersigned, and the undersigned hereby confirms the undersigned's investment in the Company. Dated: _______________, 2006 Signature _______________________________________ Name: _________________________________ Address:_______________________________ City, State, Zip Code:_________________ _______________________________________ Print Social Security Number or Taxpayer I.D. Number 3 EX-10 4 ex10-11.txt EXHIBIT 10.11 EXHIBIT 10.11 DATED: SEPTEMBER ___, 2006 NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. No. RENG-1-1 $2,000,000 RADIAL ENERGY INC. SECURED CONVERTIBLE DEBENTURE DUE: SEPTEMBER ____, 2009 This Secured Convertible Debenture (the "DEBENTURE") is issued by RADIAL ENERGY INC., a Nevada corporation (the "COMPANY"), to CORNELL CAPITAL PARTNERS, LP (the "HOLDER"), pursuant to that certain Securities Purchase Agreement (the "SECURITIES PURCHASE AGREEMENT") dated September___, 2006. FOR VALUE RECEIVED, the Company hereby promises to pay to the Holder or its successors and assigns the principal sum of Two Million Dollars ($2,000,000) together with accrued but unpaid interest on or before September ___, 2009 (the "MATURITY DATE") in accordance with the following terms: SECTION 1. GENERAL TERMS (a) INTEREST. Interest shall accrue on the outstanding principal balance hereof at an annual rate equal to seven percent (7%). Interest shall be calculated on the basis of a 365-day year and the actual number of days elapsed, to the extent permitted by applicable law. Interest hereunder shall be paid on the Maturity Date (or sooner as provided herein) to the Holder or its assignee in whose name this Debenture is registered on the records of the Company regarding registration and transfers of Debentures in cash or in Common Stock (valued at the Closing Bid Price on the Trading Day immediately prior to the date paid) at the option of the Company. (b) SECURITY. This Debenture is secured by a Pledge and Escrow Agreement (the "PLEDGE AGREEMENT") dated September ___, 2006 among the Company, and the Holder, the Escrow Agent, a Pledge and Escrow Agreement (the "_______PLEDGE AGREEMENT") dated September ___, 2006 among __________, and the Holder, the Escrow Agent, and a Security Agreement (the "SECURITY AGREEMENT") dated September ___, 2006 between the Company, its wholly owned subsidiaries of the Company and the Holder. SECTION 2. EVENTS OF DEFAULT. (a) An "EVENT OF DEFAULT", wherever used herein, means any one of the following events (whatever the reason and whether it shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body): (i) Any default in the payment of the principal of, interest on or other charges in respect of this Debenture, free of any claim of subordination, as and when the same shall become due and payable whether upon a an Optional Redemption (as defined in SECTION 3(a)), the Maturity Date or by acceleration or otherwise; (ii) The Company or any subsidiary of the Company shall commence, or there shall be commenced against the Company or any subsidiary of the Company under any applicable bankruptcy or insolvency laws as now or hereafter in effect or any successor thereto, or the Company or any subsidiary of the Company commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Company or any subsidiary of the Company or there is commenced against the Company or any subsidiary of the Company any such bankruptcy, insolvency or other proceeding which remains undismissed for a period of ninety (90) days; or the Company or any subsidiary of the Company is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or the Company or any subsidiary of the Company suffers any appointment of any custodian, private or court appointed receiver or the like for it or any substantial part of its property which continues undischarged or unstayed for a period of ninety (90) days; or the Company or any subsidiary of the Company makes a general assignment for the benefit of creditors; or the Company or any subsidiary of the Company shall fail to pay, or shall state that it is unable to pay, or shall be unable to pay, its debts generally as they become due; or the Company or any subsidiary of the Company shall call a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts; or the Company or any subsidiary of the Company shall by any act or failure to act expressly indicate its consent to, approval of or acquiescence in any of the foregoing; or any corporate or other action is taken by the Company or any subsidiary of the Company for the purpose of effecting any of the foregoing; (iii) The Company or any subsidiary of the Company shall default in any of its obligations under any other debenture or any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement of the Company or any subsidiary of the Company in an amount exceeding $100,000, whether such indebtedness now exists or shall hereafter be created and such default shall result in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable; (iv) The Common Stock shall cease to be quoted for trading or listing for trading on any of (a) the American Stock Exchange, (b) New York Stock Exchange, (c) the Nasdaq National Market, (d) the Nasdaq Capital Market, or (e) the Nasdaq OTC Bulletin Board ("OTC") (each, a "PRIMARY MARKET") and shall not again be quoted or listed for trading on any Primary Market within five (5) Trading Days of such delisting; (v) The Company or any subsidiary of the Company shall be a party to any Change of Control Transaction (as defined in SECTION 6); (vi) The Company shall fail to file the Underlying Shares Registration Statement (as defined in SECTION 6) with the Commission (as defined in SECTION 6), or the Underlying Shares Registration Statement shall not have been declared effective by the Commission, in each case within the time periods set forth in the Investor Registration Rights Agreement ("REGISTRATION RIGHTS AGREEMENT") dated September ___, 2006 between the Company and the Holder; (vii) If while the Underlying Shares Registration Statement is required to be maintained effective pursuant to the terms of the Investor Registration Rights Agreement, the effectiveness of the Underlying Shares Registration Statement lapses for any reason (including, without limitation, the issuance of a stop order) or is unavailable to the Holder for sale of all of the Holder's Registrable Securities (as defined in the Investor Registration Rights Agreement) in accordance with the terms of the Investor Registration Rights Agreement, and such lapse or unavailability continues for a period of more than ten (10) consecutive Trading Days (other than days during an Allowable Grace Period (as defined in the Registration Rights Agreement)or for more than an aggregate of twenty (20) days (other than days during an Allowable Grace Period (as defined in the Registration Rights Agreement) in any 365-day period (which need not be consecutive); (viii) The Company shall fail for any reason to deliver Common Stock certificates to a Holder prior to the fifth (5th) Trading Day after a Conversion Date, or the Company shall provide notice to the Holder, including by way of public announcement, at any time, of its intention not to comply with requests for conversions, in accordance with the terms hereof; (ix) The Company shall fail for any reason to deliver the payment in cash pursuant to a Buy-In (as defined herein) within three (3) days after notice is claimed delivered hereunder; (x) The Company shall fail to observe or perform any other covenant, agreement or warranty contained in, or otherwise commit any breach or default of any provision of this Debenture (except as may be covered by SECTION 2(A)(I) THROUGH 2(A)(IX) hereof) or any Transaction Document (as defined in SECTION 6) which is not cured with in the time prescribed, or an Event of Default under any other debenture issued to the Holder in connection with the Securities Purchase Agreement shall occur; (b) During the time that any portion of this Debenture is outstanding, if any Event of Default has occurred, the full principal amount of this Debenture, together with interest and other amounts owing in respect thereof, to the date of acceleration shall become at the Holder's election, immediately due and payable in cash, PROVIDED HOWEVER, the Holder may request (but shall have no obligation to request) payment of such amounts in Common Stock of the Company. Furthermore, in addition to any other remedies, the Holder shall have the right (but not the obligation) to convert this Debenture at any time (x) after an Event of Default or (y) on or before the Maturity Date at the Conversion Price then in-effect. The Holder need not provide and the Company hereby waives any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such declaration may be rescinded and annulled by Holder at any time prior to payment hereunder. No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon. Upon an Event of Default, notwithstanding any other provision of this Debenture or any Transaction Document, the Holder shall have no obligation to comply with or adhere to any limitations, if any, on the conversion of this Debenture or the sale of the Underlying Shares except as may be provided under applicable securities laws. SECTION 3. REDEMPTIONS. (a) COMPANY'S OPTIONAL CASH REDEMPTION. The Company at its option shall have the right to redeem ("OPTIONAL Redemption") from time to time a portion or all amounts outstanding under this Debenture prior to the Maturity Date provided that as of the date of the Holder's receipt of a Redemption Notice (as defined herein) the Underlying Share Registration Statement is effective, and no Event of Default has occurred by (i) paying the Holder an amount equal to the principal amount being redeemed plus the applicable redemption premium as set forth below (the "REDEMPTION PREMIUM"), and accrued interest, (collectively referred to as the "REDEMPTION AMOUNT"), and (ii) providing the Holder with the applicable period of advanced written notice of its intention to make a redemption (the "REDEMPTION NOTICE PERIOD") as set forth below. If the Closing Bid Price of the of the Common Stock, as reported by Bloomberg, LP, is less than the Fixed Conversion Price on the date the Holder receives the Company's notice of its intention to make a redemption (the "REDEMPTION NOTICE") then the applicable Redemption Premium shall be twenty percent (20%) of the principal amount being redeemed and the Redemption Notice Period shall be three (3) Trading Days. If the Closing Bid Price of the of the Common Stock, as reported by Bloomberg, LP, is greater than or equal to the Fixed Conversion Price on the date the Holder receives a Redemption Notice then the applicable Redemption Premium shall be thirty percent (30%) of the principal amount being redeemed and the Redemption Notice Period shall be forty five (45) days. After receipt of a Redemption Notice and during the applicable Redemption Notice Period, the Holder shall have the absolute right, in its sole discretion, to convert all or any portion of this Debenture, subject to the limitations set forth in SECTION 4(B). Upon the expiration of the Redemption Notice Period, the Company shall pay to the Holder in immediately available funds the Redemption Amount after giving effect to conversions effected during the Redemption Notice Period. SECTION 4. CONVERSION. (a) CONVERSION AT OPTION OF HOLDER. (i) This Debenture shall be convertible into shares of Common Stock at the option of the Holder, in whole or in part at any time and from time to time, after the Original Issue Date (as defined in SECTION 6) (subject to the limitations on conversion set forth in SECTION 4(B) hereof). The number of shares of Common Stock issuable upon a conversion hereunder equals the quotient obtained by dividing (x) the outstanding amount of this Debenture to be converted by (y) the Conversion Price (as defined in SECTION 4(C)(I)). The Company shall deliver Common Stock certificates to the Holder prior to the Fifth (5th) Trading Day after a Conversion Date. (ii) Notwithstanding anything to the contrary contained herein, if on any Conversion Date: (1) the number of shares of Common Stock at the time authorized, unissued and unreserved for all purposes, or held as treasury stock, is insufficient to pay principal and interest hereunder in shares of Common Stock; (2) the Common Stock is not listed or quoted for trading on the OTC or on a Primary Market; or (3) the Company has failed to timely satisfy a conversion; then, at the option of the Holder, the Company, in lieu of delivering shares of Common Stock pursuant to SECTION 4(A)(I), shall deliver, within three (3) Trading Days of each applicable Conversion Date, an amount in cash equal to the product of the outstanding principal amount to be converted divided by the applicable Conversion Price, and multiplied by the highest Closing Bid Price of the stock from date of the conversion notice till the date that such cash payment is made. Further, if the Company shall not have delivered any cash due in respect of conversion of this Debenture by the fifth (5th) Trading Day after the Conversion Date, the Holder may, by notice to the Company, require the Company to issue shares of Common Stock pursuant to SECTION 4(C), except that for such purpose the Conversion Price applicable thereto shall be the lesser of the Conversion Price on the Conversion Date and the Conversion Price on the date of such Holder demand. Any such shares will be subject to the provisions of this Section. (iii) The Holder shall effect conversions by delivering to the Company a completed notice in the form attached hereto as Exhibit A (a "CONVERSION NOTICE"). The date on which a Conversion Notice is delivered is the "CONVERSION DATE." Unless the Holder is converting the entire principal amount outstanding under this Debenture, the Holder is not required to physically surrender this Debenture to the Company in order to effect conversions. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Debenture plus all accrued and unpaid interest thereon in an amount equal to the applicable conversion. The Holder and the Company shall maintain records showing the principal amount converted and the date of such conversions. In the event of any dispute or discrepancy, the records of the Holder, verified by an independent third party, shall be controlling and determinative in the absence of manifest error. (b) CERTAIN CONVERSION RESTRICTIONS. (i) The Company shall not effect any conversions of this Debenture and the Holder shall not have the right to convert any portion of this Debenture or receive shares of Common Stock as payment of interest hereunder to the extent that after giving effect to such such conversion or receipt of such interest payment, the Holder, together with any affiliate thereof, would beneficially own (as determined in accordance with Section 13(d) of the Exchange Act and the rules promulgated thereunder) in excess of 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to such conversion or receipt of shares as payment of interest. Since the Holder will not be obligated to report to the Company the number of shares of Common Stock it may hold at the time of a conversion hereunder, unless the conversion at issue would result in the issuance of shares of Common Stock in excess of 4.99% of the then outstanding shares of Common Stock without regard to any other shares which may be beneficially owned by the Holder or an affiliate thereof, the Holder shall have the authority and obligation to determine whether the restriction contained in this Section will limit any particular conversion hereunder and to the extent that the Holder determines that the limitation contained in this Section applies, the determination of which portion of the principal amount of this Debenture is convertible shall be the responsibility and obligation of the Holder. If the Holder has delivered a Conversion Notice for a principal amount of this Debenture that, without regard to any other shares that the Holder or its affiliates may beneficially own, would result in the issuance in excess of the permitted amount hereunder, the Company shall notify the Holder of this fact and shall honor the conversion for the maximum principal amount permitted to be converted on such Conversion Date in accordance with the periods described in SECTION 4(A)(I) and, any principal amount tendered for conversion in excess of the permitted amount hereunder shall remain outstanding under this Debenture. The provisions of this Section may be waived by a Holder (but only as to itself and not to any other Holder) upon not less than 65 days prior notice to the Company. Other Holders shall be unaffected by any such waiver. (c) CONVERSION PRICE AND ADJUSTMENTS TO CONVERSION PRICE. (i) The conversion price in effect on any Conversion Date shall be equal to the lesser of (a) [insert 120% of VWAP on the trading day immediately prior to the closing date] (the "FIXED CONVERSION PRICE") or (b) ninety percent (90%) of the lowest daily Volume Weighted Average Price during the fifteen (15) Trading Days immediately preceding the Conversion Date (the "MARKET CONVERSION PRICE"). The Fixed Conversion Price and the Market Conversion Price are collectively referred to as the "CONVERSION PRICE." The Conversion Price may be adjusted pursuant to the other terms of this Debenture. (ii) If the Company, at any time while this Debenture is outstanding, shall (a) pay a stock dividend or otherwise make a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock, (b) subdivide outstanding shares of Common Stock into a larger number of shares, (c) combine (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (d) issue by reclassification of shares of the Common Stock any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding before such event and of which the denominator shall be the number of shares of Common Stock outstanding after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification. (iii) If the Company, at any time while this Debenture is outstanding, shall issue rights, options or warrants to all holders of Common Stock (and not to the Holder) entitling them to subscribe for or purchase shares of Common Stock at a price per share less than the Conversion Price, then the Conversion Price shall be multiplied by a fraction, of which the denominator shall be the number of shares of the Common Stock (excluding treasury shares, if any) outstanding on the date of issuance of such rights or warrants (plus the number of additional shares of Common Stock offered for subscription or purchase), and of which the numerator shall be the number of shares of the Common Stock (excluding treasury shares, if any) outstanding on the date of issuance of such rights or warrants, plus the number of shares which the aggregate offering price of the total number of shares so offered would purchase at the Conversion Price. Such adjustment shall be made whenever such rights or warrants are issued, and shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights, options or warrants. However, upon the expiration of any such right, option or warrant to purchase shares of the Common Stock the issuance of which resulted in an adjustment in the Conversion Price pursuant to this Section, if any such right, option or warrant shall expire and shall not have been exercised, the Conversion Price shall immediately upon such expiration be recomputed and effective immediately upon such expiration be increased to the price which it would have been (but reflecting any other adjustments in the Conversion Price made pursuant to the provisions of this Section after the issuance of such rights or warrants) had the adjustment of the Conversion Price made upon the issuance of such rights, options or warrants been made on the basis of offering for subscription or purchase only that number of shares of the Common Stock actually purchased upon the exercise of such rights, options or warrants actually exercised. No adjustment under this Section shall be made as a result of issuances of Excluded Securities. (iv) If the Company or any subsidiary thereof, as applicable, at any time while this Debenture is outstanding, shall issue shares of Common Stock or rights, warrants, options or other securities or debt that are convertible into or exchangeable for shares of Common Stock ("COMMON STOCK EQUIVALENTS") entitling any Person to acquire shares of Common Stock, at a price per share less than the Conversion Price (if the holder of the Common Stock or Common Stock Equivalent so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which is issued in connection with such issuance, be entitled to receive shares of Common Stock at a price per share which is less than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price), then, at the sole option of the Holder, the Conversion Price shall be adjusted to mirror the conversion, exchange or purchase price for such Common Stock or Common Stock Equivalents (including any reset provisions thereof) at issue. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. The Company shall notify the Holder in writing, no later than one (1) business day following the issuance of any Common Stock or Common Stock Equivalent subject to this Section, indicating therein the applicable issuance price, or of applicable reset price, exchange price, conversion price and other pricing terms. No adjustment under this Section shall be made as a result of issuances of Excluded Securities. (v) If the Company, at any time while this Debenture is outstanding, shall distribute to all holders of Common Stock (and not to the Holder) evidences of its indebtedness or assets or rights or warrants to subscribe for or purchase any security, then in each such case the Conversion Price at which this Debenture shall thereafter be convertible shall be determined by multiplying the Conversion Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the Closing Bid Price determined as of the record date mentioned above, and of which the numerator shall be such Closing Bid Price on such record date less the then fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding share of the Common Stock as determined by the Board of Directors in good faith. In either case the adjustments shall be described in a statement provided to the Holder of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above. (vi) In case of any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is converted into other securities, cash or property, the Holder shall have the right thereafter to, at its option, (A) convert the then outstanding principal amount, together with all accrued but unpaid interest and any other amounts then owing hereunder in respect of this Debenture into the shares of stock and other securities, cash and property receivable upon or deemed to be held by holders of the Common Stock following such reclassification or share exchange, and the Holder of this Debenture shall be entitled upon such event to receive such amount of securities, cash or property as the shares of the Common Stock of the Company into which the then outstanding principal amount, together with all accrued but unpaid interest and any other amounts then owing hereunder in respect of this Debenture could have been converted immediately prior to such reclassification or share exchange would have been entitled, or (B) require the Company to prepay the outstanding principal amount of this Debenture, plus all interest and other amounts due and payable thereon. The entire prepayment price shall be paid in cash. This provision shall similarly apply to successive reclassifications or share exchanges. (vii) Whenever the Conversion Price is adjusted pursuant to SECTION 4 hereof, the Company shall promptly mail to the Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. (viii) If (A) the Company shall declare a dividend (or any other distribution) on the Common Stock; (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock; (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights; (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property; or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company; then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Debenture, and shall cause to be mailed to the Holder at its last address as it shall appear upon the stock books of the Company, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided, that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice. The Holder is entitled to convert this Debenture during the 20-day calendar period commencing the date of such notice to the effective date of the event triggering such notice. (ix) In case of any (1) merger or consolidation of the Company or any subsidiary of the Company with or into another Person, or (2) sale by the Company or any subsidiary of the Company of more than one-half of the assets of the Company in one or a series of related transactions, a Holder shall have the right to (A) exercise any rights under SECTION 2(B), (B) convert the aggregate amount of this Debenture then outstanding into the shares of stock and other securities, cash and property receivable upon or deemed to be held by holders of Common Stock following such merger, consolidation or sale, and such Holder shall be entitled upon such event or series of related events to receive such amount of securities, cash and property as the shares of Common Stock into which such aggregate principal amount of this Debenture could have been converted immediately prior to such merger, consolidation or sales would have been entitled, or (C) in the case of a merger or consolidation, require the surviving entity to issue to the Holder a convertible Debenture with a principal amount equal to the aggregate principal amount of this Debenture then held by such Holder, plus all accrued and unpaid interest and other amounts owing thereon, which such newly issued convertible Debenture shall have terms identical (including with respect to conversion) to the terms of this Debenture, and shall be entitled to all of the rights and privileges of the Holder of this Debenture set forth herein and the agreements pursuant to which this Debentures were issued. In the case of clause (C), the conversion price applicable for the newly issued shares of convertible preferred stock or convertible Debentures shall be based upon the amount of securities, cash and property that each share of Common Stock would receive in such transaction and the Conversion Price in effect immediately prior to the effectiveness or closing date for such transaction. The terms of any such merger, sale or consolidation shall include such terms so as to continue to give the Holder the right to receive the securities, cash and property set forth in this Section upon any conversion or redemption following such event. This provision shall similarly apply to successive such events. (d) OTHER PROVISIONS. (i) The Company shall at all times reserve and keep available out of its authorized Common Stock the full number of shares of Common Stock issuable upon conversion of all outstanding amounts under this Debenture; and within three (3) Business Days following the receipt by the Company of a Holder's notice that such minimum number of Underlying Shares is not so reserved, the Company shall promptly reserve a sufficient number of shares of Common Stock to comply with such requirement. (ii) All calculations under this SECTION 4 shall be rounded up to the nearest $0.0001 or whole share. (iiii) The Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock solely for the purpose of issuance upon conversion of this Debenture and payment of interest on this Debenture, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of persons other than the Holder, not less than such number of shares of the Common Stock as shall (subject to any additional requirements of the Company as to reservation of such shares set forth in this Debenture or in the Transaction Documents) be issuable (taking into account the adjustments and restrictions set forth herein) upon the conversion of the outstanding principal amount of this Debenture and payment of interest hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly and validly authorized, issued and fully paid, nonassessable and, if the Underlying Shares Registration Statement has been declared effective under the Securities Act, registered for public sale in accordance with such Underlying Shares Registration Statement. (iv) Upon a conversion hereunder the Company shall not be required to issue stock certificates representing fractions of shares of the Common Stock, but may if otherwise permitted, make a cash payment in respect of any final fraction of a share based on the Closing Bid Price at such time. If the Company elects not, or is unable, to make such a cash payment, the Holder shall be entitled to receive, in lieu of the final fraction of a share, one whole share of Common Stock. (v) The issuance of certificates for shares of the Common Stock on conversion of this Debenture shall be made without charge to the Holder thereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificate, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of such Debenture so converted and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. (vi) Nothing herein shall limit a Holder's right to pursue actual damages or declare an Event of Default pursuant to SECTION 2 herein for the Company 's failure to deliver certificates representing shares of Common Stock upon conversion within the period specified herein and such Holder shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief, in each case without the need to post a bond or provide other security. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law. (vii) In addition to any other rights available to the Holder, if the Company fails to deliver to the Holder such certificate or certificates pursuant to SECTION 4(A)(I) by the fifth (5th) Trading Day after the Conversion Date, and if after such fifth (5th) Trading Day the Holder purchases (in an open market transaction or otherwise) Common Stock to deliver in satisfaction of a sale by such Holder of the Underlying Shares which the Holder anticipated receiving upon such conversion (a "BUY-IN"), then the Company shall (A) pay in cash to the Holder (in addition to any remedies available to or elected by the Holder) the amount by which (x) the Holder's total purchase price (including brokerage commissions, if any) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that such Holder anticipated receiving from the conversion at issue multiplied by (2) the market price of the Common Stock at the time of the sale giving rise to such purchase obligation and (B) at the option of the Holder, either reissue a Debenture in the principal amount equal to the principal amount of the attempted conversion or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its delivery requirements under SECTION 4(A)(I). For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of Debentures with respect to which the market price of the Underlying Shares on the date of conversion was a total of $10,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In. SECTION 5. NOTICES. Any notices, consents, waivers or other communications required or permitted to be given under the terms hereof must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one (1) Trading Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be: If to the Company, to: Radial Energy Inc. Attention: Telephone: Facsimile: With a copy to: Telephone: Facsimile: If to the Holder: Cornell Capital Partners, LP 101 Hudson Street, Suite 3700 Jersey City, NJ 07303 Attention: Mark Angelo Telephone: (201) 985-8300 With a copy to: Troy Rillo, Esq. 101 Hudson Street - Suite 3700 Jersey City, NJ 07302 Telephone: (201) 985-8300 Facsimile: (201) 985-8266 or at such other address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by written notice given to each other party three (3) business days prior to the effectiveness of such change. Written confirmation of receipt (i) given by the recipient of such notice, consent, waiver or other communication, (ii) mechanically or electronically generated by the sender's facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (iii) provided by a nationally recognized overnight delivery service, shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively. SECTION 6. DEFINITIONS. For the purposes hereof, the following terms shall have the following meanings: "APPROVED STOCK PLAN" means a stock option plan that has been approved by the Board of Directors of the Company prior to the date of the Securities Purchase Agreement, pursuant to which the Company's securities may be issued only to any employee, officer or director for services provided to the Company. "BUSINESS DAY" means any day except Saturday, Sunday and any day which shall be a federal legal holiday in the United States or a day on which banking institutions are authorized or required by law or other government action to close. "CHANGE OF CONTROL TRANSACTION" means the occurrence of (a) an acquisition after the date hereof by an individual or legal entity or "group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of fifty percent (50%) of the voting securities of the Company (except that the acquisition of voting securities by the Holder shall not constitute a Change of Control Transaction for purposes hereof), (b) a replacement at one time or over time of more than one-half of the members of the board of directors of the Company which is not approved by a majority of those individuals who are members of the board of directors on the date hereof (or by those individuals who are serving as members of the board of directors on any date whose nomination to the board of directors was approved by a majority of the members of the board of directors who are members on the date hereof), (c) the merger, consolidation or sale of fifty percent (50%) or more of the assets of the Company or any subsidiary of the Company in one or a series of related transactions with or into another entity, or (d) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth above in (a), (b) or (c). "CLOSING BID PRICE" means the price per share in the last reported trade of the Common Stock on a Primary Market or on the exchange which the Common Stock is then listed as quoted by Bloomberg, LP. "COMMISSION" means the Securities and Exchange Commission. "COMMON STOCK" means the common stock, par value $.001, of the Company and stock of any other class into which such shares may hereafter be changed or reclassified. "CONVERSION DATE" shall mean the date upon which the Holder gives the Company notice of their intention to effectuate a conversion of this Debenture into shares of the Company's Common Stock as outlined herein. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "EXCLUDED SECURITIES" means, (a) shares issued or deemed to have been issued by the Company pursuant to an Approved Stock Plan (b) shares of Common Stock issued or deemed to be issued by the Company upon the conversion, exchange or exercise of any right, option, obligation or security outstanding on the date prior to date of the Securities Purchase Agreement, provided that the terms of such right, option, obligation or security are not amended or otherwise modified on or after the date of the Securities Purchase Agreement, and provided that the conversion price, exchange price, exercise price or other purchase price is not reduced, adjusted or otherwise modified and the number of shares of Common Stock issued or issuable is not increased (whether by operation of, or in accordance with, the relevant governing documents or otherwise) on or after the date of the Securities Purchase Agreement, and (c) the shares of Common Stock issued or deemed to be issued by the Company upon conversion of this Debenture. "ORIGINAL ISSUE DATE" shall mean the date of the first issuance of this Debenture regardless of the number of transfers and regardless of the number of instruments, which may be issued to evidence such Debenture. "PERSON" means a corporation, an association, a partnership, organization, a business, an individual, a government or political subdivision thereof or a governmental agency. "SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "TRADING DAY" means a day on which the shares of Common Stock are quoted on the OTC or quoted or traded on such Primary Market on which the shares of Common Stock are then quoted or listed; provided, that in the event that the shares of Common Stock are not listed or quoted, then Trading Day shall mean a Business Day. "TRANSACTION DOCUMENTS" means the Securities Purchase Agreement or any other agreement delivered in connection with the Securities Purchase Agreement, including, without limitation, the Security Agreement, the Irrevocable Transfer Agent Instructions, and the Registration Rights Agreement, the Pledge Agreement, and the ______ Pledge Agreement. "UNDERLYING SHARES" means the shares of Common Stock issuable upon conversion of this Debenture or as payment of interest in accordance with the terms hereof. "UNDERLYING SHARES REGISTRATION STATEMENT" means a registration statement meeting the requirements set forth in the Registration Rights Agreement, covering among other things the resale of the Underlying Shares and naming the Holder as a "selling stockholder" thereunder. SECTION 7. Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligations of the Company, which are absolute and unconditional, to pay the principal of, interest and other charges (if any) on, this Debenture at the time, place, and rate, and in the coin or currency, herein prescribed. This Debenture is a direct obligation of the Company. This Debenture ranks pari passu with all other Debentures now or hereafter issued under the terms set forth herein. As long as this Debenture is outstanding, the Company shall not and shall cause their subsidiaries not to, without the consent of the Holder, (i) amend its certificate of incorporation, bylaws or other charter documents so as to adversely affect any rights of the Holder; (ii) repay, repurchase or offer to repay, repurchase or otherwise acquire shares of its Common Stock or other equity securities other than as to the Underlying Shares to the extent permitted or required under the Transaction Documents; or (iii) enter into any agreement with respect to any of the foregoing. SECTION 8. This Debenture shall not entitle the Holder to any of the rights of a stockholder of the Company, including without limitation, the right to vote, to receive dividends and other distributions, or to receive any notice of, or to attend, meetings of stockholders or any other proceedings of the Company, unless and to the extent converted into shares of Common Stock in accordance with the terms hereof. SECTION 9. If this Debenture is mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of the mutilated Debenture, or in lieu of or in substitution for a lost, stolen or destroyed Debenture, a new Debenture for the principal amount of this Debenture so mutilated, lost, stolen or destroyed but only upon receipt of evidence of such loss, theft or destruction of such Debenture, and of the ownership hereof, and indemnity, if requested, all reasonably satisfactory to the Company. SECTION 10. Excepted for any Permitted Indebtedness (as defined in the Security Agreement) no indebtedness of the Company is senior to this Debenture in right of payment, whether with respect to interest, damages or upon liquidation or dissolution or otherwise. Without the Holder's consent, the Company will not and will not permit any of their subsidiaries to, directly or indirectly, enter into, create, incur, assume or suffer to exist any indebtedness of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits there from that is senior in any respect to the obligations of the Company under this Debenture. SECTION 11. This Debenture shall be governed by and construed in accordance with the laws of the State of New Jersey, without giving effect to conflicts of laws thereof. Each of the parties consents to the jurisdiction of the Superior Courts of the State of New Jersey sitting in Hudson County, New Jersey and the U.S. District Court for the District of New Jersey sitting in Newark, New Jersey in connection with any dispute arising under this Debenture and hereby waives, to the maximum extent permitted by law, any objection, including any objection based on FORUM NON CONVENIENS to the bringing of any such proceeding in such jurisdictions. SECTION 12. If the Company fails to strictly comply with the material terms of this Debenture, then the Company shall reimburse the Holder promptly for all fees, costs and expenses, including, without limitation, attorneys' fees and expenses incurred by the Holder in any action in connection with this Debenture, including, without limitation, those incurred: (i) during any workout, attempted workout, and/or in connection with the rendering of legal advice as to the Holder's rights, remedies and obligations, (ii) collecting any sums which become due to the Holder, (iii) defending or prosecuting any proceeding or any counterclaim to any proceeding or appeal; or (iv) the protection, preservation or enforcement of any rights or remedies of the Holder. SECTION 13. Any waiver by the Holder of a breach of any provision of this Debenture shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Debenture. The failure of the Holder to insist upon strict adherence to any term of this Debenture on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Debenture. Any waiver must be in writing. SECTION 14. If any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture shall remain in effect, and if any provision is inapplicable to any person or circumstance, it shall nevertheless remain applicable to all other persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder shall violate applicable laws governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum permitted rate of interest. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or interest on this Debenture as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this indenture, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impeded the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted. SECTION 15. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day. SECTION 16. This Debenture is exchangeable for an equal aggregate principal amount of Debentures of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be made for such registration of transfer or exchange. SECTION 17. THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION DOCUMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES' ACCEPTANCE OF THIS AGREEMENT. [REMAINDER OF PAGE INTENTIONLLY LEFT BLANK] IN WITNESS WHEREOF, the Company has caused this Secured Convertible Debenture to be duly executed by a duly authorized officer as of the date set forth above. COMPANY: RADIAL ENERGY INC. By:_________________________________________ Name: Title: EXHIBIT A CONVERSION NOTICE (TO BE EXECUTED BY THE HOLDER IN ORDER TO CONVERT THE DEBENTURE) TO: The undersigned hereby irrevocably elects to convert $_________________ of the principal amount of Debenture No. RENG-1-1 into Shares of Common Stock of RADIAL ENERGY INC., according to the conditions stated therein, as of the Conversion Date written below. CONVERSION DATE: _________________________________________________ AMOUNT TO BE CONVERTED: $________________________________________________ CONVERSION PRICE: $________________________________________________ NUMBER OF SHARES OF COMMON STOCK TO BE ISSUED: _________________________________________________ AMOUNT OF DEBENTURE UNCONVERTED: $________________________________________________ PLEASE ISSUE THE SHARES OF COMMON STOCK IN THE FOLLOWING NAME AND TO THE FOLLOWING ADDRESS: ISSUE TO: AUTHORIZED SIGNATURE: _________________________________________________ NAME: _________________________________________________ TITLE: _________________________________________________ BROKER DTC PARTICIPANT CODE: ACCOUNT NUMBER: EX-10 5 ex10-12.txt EXHIBIT 10.12 EXHIBIT 10.12 WARRANT THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN A FORM REASONABLY SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. RADIAL ENERGY INC. WARRANT TO PURCHASE COMMON STOCK Warrant No.: RENG-1-1 Number of Shares: [ ] Warrant Exercise Price: $_______ Expiration Date: September ___, 2011 Date of Issuance: September __, 2006 Radial Energy Inc., a Nevada corporation (the "COMPANY"), hereby certifies that, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, CORNELL CAPITAL PARTNERS, LP (the "HOLDER"), the registered holder hereof or its permitted assigns, is entitled, subject to the terms set forth below, to purchase from the Company upon surrender of this Warrant, at any time or times on or after the date hereof, but not after 11:59 P.M. Eastern Time on the Expiration Date (as defined herein) [ ] fully paid and nonassessable shares of Common Stock (as defined herein) of the Company (the "WARRANT SHARES") at the exercise price per share provided in Section 1(b) below or as subsequently adjusted; provided, however, that in no event shall the holder be entitled to exercise this Warrant or be forced to exercise this Warrant for a number of Warrant Shares in excess of that number of Warrant Shares which, upon giving effect to such exercise, would cause the aggregate number of shares of Common Stock beneficially owned by the holder and its affiliates to exceed 4.99% of the outstanding shares of the Common Stock following such exercise, except within sixty (60) days of the Expiration Date (however, such restriction may be waived by Holder (but only as to itself and not to any other holder) upon not less than 65 days prior notice to the Company). For purposes of the foregoing proviso, the aggregate number of shares of Common Stock beneficially owned by the holder and its affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which the determination of such proviso is being made, but shall exclude shares of Common Stock which would be issuable upon (i) exercise of the remaining, unexercised Warrants beneficially owned by the holder and its affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company beneficially owned by the holder and its affiliates (including, without limitation, any convertible notes or preferred stock) subject to a 1 limitation on conversion or exercise analogous to the limitation contained herein. Except as set forth in the preceding sentence, for purposes of this paragraph, beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended. For purposes of this Warrant, in determining the number of outstanding shares of Common Stock a holder shall rely on the number of outstanding shares of Common Stock as reflected in (1) the Company's most recent Form 10-QSB or Form 10-KSB, as the case may be, (2) a more recent public announcement by the Company or (3) any other notice by the Company or its transfer agent setting forth the number of shares of Common Stock outstanding. Upon the written request of any holder, the Company shall promptly, but in no event later than one (1) Business Day following the receipt of such notice, confirm in writing to any such holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the exercise of Warrants (as defined below) by such holder and its affiliates since the date as of which such number of outstanding shares of Common Stock was reported. Section 1. (a) This Warrant is one of the warrants issued pursuant to Section 4(g) of the Securities Purchase Agreement ("SECURITIES PURCHASE AGREEMENT") dated the date hereof between the Company and the Buyers listed on Schedule I thereto or issued in exchange or substitution thereafter or replacement thereof. Each Capitalized term used, and not otherwise defined herein, shall have the meaning ascribed thereto in the Securities Purchase Agreement. (b) DEFINITIONS. The following words and terms as used in this Warrant shall have the following meanings: (i) "APPROVED STOCK PLAN" means a stock option plan that has been approved by the Board of Directors of the Company prior to the date of the Securities Purchase Agreement, pursuant to which the Company's securities may be issued only to any employee, officer or director for services provided to the Company. (ii) "BUSINESS DAY" means any day other than Saturday, Sunday or other day on which commercial banks in the City of New York are authorized or required by law to remain closed. (iii) "CLOSING BID PRICE" means the closing bid price of Common Stock as quoted on the Principal Market (as reported by Bloomberg Financial Markets ("BLOOMBERG") through its "Volume at Price" function). (iv) "COMMON STOCK" means (i) the Company's common stock, par value $0.001 per share, and (ii) any capital stock into which such Common Stock shall have been changed or any capital stock resulting from a reclassification of such Common Stock. (v) "EVENT OF DEFAULT" means an event of default under the Convertible Debentures issued in connection with the Securities Purchase Agreement. (vi) "EXCLUDED SECURITIES" means, (a) shares issued or deemed to have been issued by the Company pursuant to an Approved Stock Plan, (b) shares of Common Stock issued or deemed to be issued by the Company upon the 2 conversion, exchange or exercise of any right, option, obligation or security outstanding on the date prior to date of the Securities Purchase Agreement, provided that the terms of such right, option, obligation or security are not amended or otherwise modified on or after the date of the Securities Purchase Agreement, and provided that the conversion price, exchange price, exercise price or other purchase price is not reduced, adjusted or otherwise modified and the number of shares of Common Stock issued or issuable is not increased (whether by operation of, or in accordance with, the relevant governing documents or otherwise) on or after the date of the Securities Purchase Agreement, and (c) the shares of Common Stock issued or deemed to be issued by the Company upon conversion of the Convertible Debentures or exercise of the Warrants. (vii) "EXPIRATION DATE" means September ____, 2011. (viii) "ISSUANCE DATE" means the date hereof. (ix) "OPTIONS" means any rights, warrants or options to subscribe for or purchase Common Stock or Convertible Securities. (x) "PERSON" means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof. (xi) "PRINCIPAL MARKET" means on any of (a) the American Stock Exchange, (b) New York Stock Exchange, (c) the Nasdaq National Market, (d) the Nasdaq Capital Market, or (e) the Nasdaq OTC Bulletin Board ("OTCBB") (xii) "SECURITIES ACT" means the Securities Act of 1933, as amended. (xiii) "VOLUME WEIGHTED AVERAGE PRICE" means, for any security as of any date, the daily dollar volume-weighted average price for such security on the Principal Market as reported by Bloomberg through its "Volume at Price" functions, or, if no dollar volume-weighted average price is reported for such security by Bloomberg, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the "pink sheets" by Pink Sheets LLC. (xiv) "WARRANT" means this Warrant and all Warrants issued in exchange, transfer or replacement thereof. (xv) "WARRANT EXERCISE PRICE" shall be [ ] or as subsequently adjusted as provided in Section 8 hereof. (c) Other Definitional Provisions. (i) Except as otherwise specified herein, all references herein (A) to the Company shall be deemed to include the Company's successors and (B) to any applicable law defined or referred to herein shall be deemed references to such applicable law as the same may have been or may be amended or supplemented from time to time. 3 (ii) When used in this Warrant, the words "HEREIN", "HEREOF", and "HEREUNDER" and words of similar import, shall refer to this Warrant as a whole and not to any provision of this Warrant, and the words "SECTION", "SCHEDULE", and "EXHIBIT" shall refer to Sections of, and Schedules and Exhibits to, this Warrant unless otherwise specified. (iii) Whenever the context so requires, the neuter gender includes the masculine or feminine, and the singular number includes the plural, and vice versa. Section 2. EXERCISE OF WARRANT. (a) Subject to the terms and conditions hereof, this Warrant may be exercised by the holder hereof then registered on the books of the Company, pro rata as hereinafter provided, at any time on any Business Day on or after the opening of business on such Business Day, commencing with the first day after the date hereof, and prior to 11:59 P.M. Eastern Time on the Expiration Date (i) by delivery of a written notice, in the form of the subscription notice attached as EXHIBIT A hereto (the "EXERCISE NOTICE"), of such holder's election to exercise this Warrant, which notice shall specify the number of Warrant Shares to be purchased, payment to the Company of an amount equal to the Warrant Exercise Price(s) applicable to the Warrant Shares being purchased, multiplied by the number of Warrant Shares (at the applicable Warrant Exercise Price) as to which this Warrant is being exercised (plus any applicable issue or transfer taxes) (the "AGGREGATE EXERCISE PRICE") in cash or wire transfer of immediately available funds and the surrender of this Warrant (or an indemnification undertaking with respect to this Warrant in the case of its loss, theft or destruction) to a common carrier for overnight delivery to the Company as soon as practicable following such date ("CASH BASIS") or (ii) if at the time of exercise, the Warrant Shares are not subject to an effective registration statement (after taking into account the timeliness for obtaining effectiveness of the registration statement and any allowable grace periods as set forth in the Registration Rights Agreement dated September ___, 2006 between the Company and the Investors set fort on Scheduled I attached thereto) or if an Event of Default has occurred, by delivering an Exercise Notice and in lieu of making payment of the Aggregate Exercise Price in cash or wire transfer, elect instead to receive upon such exercise the "Net Number" of shares of Common Stock determined according to the following formula (the "CASHLESS EXERCISE"): Net Number = (A X B) - (A X C) ________________ B For purposes of the foregoing formula: A = the total number of Warrant Shares with respect to which this Warrant is then being exercised. B = the Closing Bid Price of the Common Stock on the date of exercise of the Warrant. C = the Warrant Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise. 4 In the event of any exercise of the rights represented by this Warrant in compliance with this Section 2, the Company shall on or before the fifth (5th) Business Day following the date of receipt of the Exercise Notice, the Aggregate Exercise Price and this Warrant (or an indemnification undertaking with respect to this Warrant in the case of its loss, theft or destruction) and the receipt of the representations of the holder specified in Section 6 hereof, if requested by the Company (the "EXERCISE DELIVERY DOCUMENTS"), and if the Common Stock is DTC eligible, credit such aggregate number of shares of Common Stock to which the holder shall be entitled to the holder's or its designee's balance account with The Depository Trust Company; provided, however, if the holder who submitted the Exercise Notice requested physical delivery of any or all of the Warrant Shares, or, if the Common Stock is not DTC eligible then the Company shall, on or before the fifth (5th) Business Day following receipt of the Exercise Delivery Documents, issue and surrender to a common carrier for overnight delivery to the address specified in the Exercise Notice, a certificate, registered in the name of the holder, for the number of shares of Common Stock to which the holder shall be entitled pursuant to such request. Upon delivery of the Exercise Notice and Aggregate Exercise Price referred to in clause (i) or (ii) above the holder of this Warrant shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised. In the case of a dispute as to the determination of the Warrant Exercise Price, the Closing Bid Price or the arithmetic calculation of the Warrant Shares, the Company shall promptly issue to the holder the number of Warrant Shares that is not disputed and shall submit the disputed determinations or arithmetic calculations to the holder via facsimile within one (1) Business Day of receipt of the holder's Exercise Notice. (b) If the holder and the Company are unable to agree upon the determination of the Warrant Exercise Price or arithmetic calculation of the Warrant Shares within one (1) day of such disputed determination or arithmetic calculation being submitted to the holder, then the Company shall immediately submit via facsimile (i) the disputed determination of the Warrant Exercise Price or the Closing Bid Price to an independent, reputable investment banking firm or (ii) the disputed arithmetic calculation of the Warrant Shares to its independent, outside accountant. The Company shall cause the investment banking firm or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the holder of the results no later than forty-eight (48) hours from the time it receives the disputed determinations or calculations. Such investment banking firm's or accountant's determination or calculation, as the case may be, shall be deemed conclusive absent manifest error. (c) Unless the rights represented by this Warrant shall have expired or shall have been fully exercised, the Company shall, as soon as practicable and in no event later than five (5) Business Days after any exercise and at its own expense, issue a new Warrant identical in all respects to this Warrant exercised except it shall represent rights to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant exercised, less the number of Warrant Shares with respect to which such Warrant is exercised. (d) No fractional Warrant Shares are to be issued upon any pro rata exercise of this Warrant, but rather the number of Warrant Shares issued upon such exercise of this Warrant shall be rounded up or down to the nearest whole number. 5 (e) If the Company or its Transfer Agent shall fail for any reason or for no reason to issue to the holder within ten (10) days of receipt of the Exercise Delivery Documents, a certificate for the number of Warrant Shares to which the holder is entitled or to credit the holder's balance account with The Depository Trust Company for such number of Warrant Shares to which the holder is entitled upon the holder's exercise of this Warrant, the Company shall, in addition to any other remedies under this Warrant or otherwise available to such holder, pay as additional damages in cash to such holder on each day the issuance of such certificate for Warrant Shares is not timely effected an amount equal to 0.025% of the product of (A) the sum of the number of Warrant Shares not issued to the holder on a timely basis and to which the holder is entitled, and (B) the Closing Bid Price of the Common Stock for the trading day immediately preceding the last possible date which the Company could have issued such Common Stock to the holder without violating this Section 2. (f) If within ten (10) days after the Company's receipt of the Exercise Delivery Documents, the Company fails to deliver a new Warrant to the holder for the number of Warrant Shares to which such holder is entitled pursuant to Section 2 hereof, then, in addition to any other available remedies under this Warrant, or otherwise available to such holder, the Company shall pay as additional damages in cash to such holder on each day after such tenth (10th) day that such delivery of such new Warrant is not timely effected in an amount equal to 0.25% of the product of (A) the number of Warrant Shares represented by the portion of this Warrant which is not being exercised and (B) the Closing Bid Price of the Common Stock for the trading day immediately preceding the last possible date which the Company could have issued such Warrant to the holder without violating this Section 2. (g) [INSERT IN WARRANT A AND B ONLY] The Company shall have the option to force the Holder to exercise this Warrant (subject to the limitations set forth below) by delivering to the Holder a notice in the form of the forced exercise notice attached as EXHIBIT B hereto (the "FORCED EXERCISE NOTICE") PROVIDED that the following conditions are satisfied: (i) the Volume Weighted Average Price of the Common Stock exceeds [ ] for each of the five (5) consecutive Trading Days prior to the date of the Forced Exercise Notice, (ii) the Registration Statement relating to the resale of all the shares issuable in connection with a Forced Exercise Notice is effective as of the date of such Forced Exercise Notice, (iii) at least ten (10) Trading Days has elapsed from any prior forced exercised (if any) by the Company under any class of Warrants issued to the Holder in connection with the Securities Purchase Agreement. The number of shares that the Company can force the Holder to exercise pursuant to any Forced Exercised Notice shall be limited to the difference between (i) one fifth (1/5) of the trading volume for the Common Stock during the five (5) consecutive Trading Days immediately prior to the date of such Forced Exercise Notice, and (ii) the number of shares of Common Stock acquired by the Holder during the previous five (5) Trading Days through the exercise (either voluntarily or forced) of any class of Warrants issued to the Holder pursuant to the Securities Purchase Agreement. Section 3. COVENANTS AS TO COMMON STOCK. The Company hereby covenants and agrees as follows: (a) This Warrant is, and any Warrants issued in substitution for or replacement of this Warrant will upon issuance be, duly authorized and validly issued. 6 (b) All Warrant Shares which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof. (c) During the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved at least one hundred percent (100%) of the number of shares of Common Stock needed to provide for the exercise of the rights then represented by this Warrant and the par value of said shares will at all times be less than or equal to the applicable Warrant Exercise Price. If at any time the Company does not have a sufficient number of shares of Common Stock authorized and available, then the Company shall call and hold a special meeting of its stockholders within sixty (60) days of that time for the sole purpose of increasing the number of authorized shares of Common Stock. (d) If at any time after the date hereof the Company shall file a registration statement, the Company shall include the Warrant Shares issuable to the holder, pursuant to the terms of this Warrant and shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all Warrant Shares from time to time issuable upon the exercise of this Warrant; and the Company shall so list on each national securities exchange or automated quotation system, as the case may be, and shall maintain such listing of, any other shares of capital stock of the Company issuable upon the exercise of this Warrant if and so long as any shares of the same class shall be listed on such national securities exchange or automated quotation system. (e) The Company will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed by it hereunder, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may reasonably be requested by the holder of this Warrant in order to protect the exercise privilege of the holder of this Warrant against dilution or other impairment, consistent with the tenor and purpose of this Warrant. The Company will not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Warrant Exercise Price then in effect, and (ii) will take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant. (f) This Warrant will be binding upon any entity succeeding to the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets. Section 4. TAXES. The Company shall pay any and all taxes, except any applicable withholding, which may be payable with respect to the issuance and delivery of Warrant Shares upon exercise of this Warrant. Section 5. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically provided herein, no holder, as such, of this Warrant shall be entitled to vote or receive dividends or be deemed the holder of shares of capital stock of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the holder hereof, as such, any of the 7 rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the holder of this Warrant of the Warrant Shares which he or she is then entitled to receive upon the due exercise of this Warrant. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on such holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company except as set forth in the forced exercise privisions, whether such liabilities are asserted by the Company or by creditors of the Company. Notwithstanding this Section 5, the Company will provide the holder of this Warrant with copies of the same notices and other information given to the stockholders of the Company generally, contemporaneously with the giving thereof to the stockholders. Section 6. REPRESENTATIONS OF HOLDER. The holder of this Warrant, by the acceptance hereof, represents that it is acquiring this Warrant and the Warrant Shares for its own account for investment only and not with a view towards, or for resale in connection with, the public sale or distribution of this Warrant or the Warrant Shares, except pursuant to sales registered or exempted under the Securities Act; provided, however, that by making the representations herein, the holder does not agree to hold this Warrant or any of the Warrant Shares for any minimum or other specific term and reserves the right to dispose of this Warrant and the Warrant Shares at any time in accordance with or pursuant to a registration statement or an exemption under the Securities Act. The holder of this Warrant further represents, by acceptance hereof, that, as of this date, such holder is an "accredited investor" as such term is defined in Rule 501(a)(1) of Regulation D promulgated by the Securities and Exchange Commission under the Securities Act (an "ACCREDITED INVESTOR"). Upon exercise of this Warrant the holder shall, if requested by the Company, confirm in writing, in a form satisfactory to the Company, that the Warrant Shares so purchased are being acquired solely for the holder's own account and not as a nominee for any other party, for investment, and not with a view toward distribution or resale and that such holder is an Accredited Investor. If such holder cannot make such representations because they would be factually incorrect, it shall be a condition to such holder's exercise of this Warrant that the Company receive such other representations as the Company considers reasonably necessary to assure the Company that the issuance of its securities upon exercise of this Warrant shall not violate any United States or state securities laws. Section 7. OWNERSHIP AND TRANSFER. (a) The Company shall maintain at its principal executive offices (or such other office or agency of the Company as it may designate by notice to the holder hereof), a register for this Warrant, in which the Company shall record the name and address of the person in whose name this Warrant has been issued, as well as the name and address of each transferee. The Company may treat the person in whose name any Warrant is registered on the register as the owner and holder thereof for all purposes, notwithstanding any notice to the contrary, but in all events recognizing any transfers made in accordance with the terms of this Warrant. Section 8. ADJUSTMENT OF WARRANT EXERCISE PRICE AND NUMBER OF SHARES. The Warrant Exercise Price and the number of shares of Common Stock issuable upon exercise of this Warrant shall be adjusted from time to time as follows: 8 (a) ADJUSTMENT OF WARRANT EXERCISE PRICE AND NUMBER OF SHARES UPON ISSUANCE OF COMMON STOCK. If and whenever on or after the Issuance Date of this Warrant, the Company issues or sells, or is deemed to have issued or sold, any shares of Common Stock (other than Excluded Securities) for a consideration per share less than a price (the "APPLICABLE PRICE") equal to the Warrant Exercise Price in effect immediately prior to such issuance or sale, then immediately after such issue or sale the Warrant Exercise Price then in effect shall be reduced to an amount equal to such consideration per share. Upon each such adjustment of the Warrant Exercise Price hereunder, the number of Warrant Shares issuable upon exercise of this Warrant shall be adjusted to the number of shares determined by multiplying the Warrant Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares issuable upon exercise of this Warrant immediately prior to such adjustment and dividing the product thereof by the Warrant Exercise Price resulting from such adjustment. (b) EFFECT ON WARRANT EXERCISE PRICE OF CERTAIN EVENTS. For purposes of determining the adjusted Warrant Exercise Price under Section 8(a) above, the following shall be applicable: (i) ISSUANCE OF OPTIONS. Except with respect to Excluded Securities, if after the date hereof, the Company in any manner grants any Options and the lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion or exchange of any convertible securities issuable upon exercise of any such Option is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price per share. For purposes of this Section 8(b)(i), the lowest price per share for which one share of Common Stock is issuable upon exercise of such Options or upon conversion or exchange of such Convertible Securities shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the granting or sale of the Option, upon exercise of the Option or upon conversion or exchange of any convertible security issuable upon exercise of such Option. No further adjustment of the Warrant Exercise Price shall be made upon the actual issuance of such Common Stock or of such convertible securities upon the exercise of such Options or upon the actual issuance of such Common Stock upon conversion or exchange of such convertible securities. (ii) ISSUANCE OF CONVERTIBLE SECURITIES. Except with respect to Excluded Securities, if the Company in any manner issues or sells any convertible securities and the lowest price per share for which one share of Common Stock is issuable upon the conversion or exchange thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale of such convertible securities for such price per share. For the purposes of this Section 8(b)(ii), the lowest price per share for which one share of Common Stock is issuable upon such conversion or exchange shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to one share of Common Stock upon the issuance or sale of the convertible security and upon conversion or exchange of such convertible security. No further adjustment of the Warrant Exercise Price shall be made upon the actual issuance of such Common Stock upon conversion or exchange of such convertible securities, and if any such issue or sale of such convertible securities is made upon exercise of any Options for which adjustment 9 of the Warrant Exercise Price had been or are to be made pursuant to other provisions of this Section 8(b), no further adjustment of the Warrant Exercise Price shall be made by reason of such issue or sale. (iii) CHANGE IN OPTION PRICE OR RATE OF CONVERSION. Except with respect to Excluded Securities, if the purchase price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion or exchange of any convertible securities, or the rate at which any convertible securities are convertible into or exchangeable for Common Stock changes at any time, the Warrant Exercise Price in effect at the time of such change shall be adjusted to the Warrant Exercise Price which would have been in effect at such time had such Options or convertible securities provided for such changed purchase price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold and the number of Warrant Shares issuable upon exercise of this Warrant shall be correspondingly readjusted. For purposes of this Section 8(b)(iii), if the terms of any Option or convertible security that was outstanding as of the Issuance Date of this Warrant are changed in the manner described in the immediately preceding sentence, then such Option or convertible security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such change. No adjustment pursuant to this Section 8(b) shall be made if such adjustment would result in an increase of the Warrant Exercise Price then in effect. (iv) CALCULATION OF CONSIDERATION RECEIVED. If any Common Stock, Options or convertible securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefore will be deemed to be the gross amount received by the Company therefore. If any Common Stock, Options or convertible securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Company will be the fair value of such consideration, except where such consideration consists of marketable securities, in which case the amount of consideration received by the Company will be the market price of such securities on the date of receipt of such securities. If any Common Stock, Options or convertible securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefore will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Common Stock, Options or convertible securities, as the case may be. The fair value of any consideration other than cash or securities will be determined jointly by the Company and the holders of Warrants representing at least two-thirds (b) of the Warrant Shares issuable upon exercise of the Warrants then outstanding. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the "VALUATION EVENT"), the fair value of such consideration will be determined within five (5) Business Days after the tenth (10th) day following the Valuation Event by an independent, reputable appraiser jointly selected by the Company and the holders of Warrants representing at least two-thirds (b) of the Warrant Shares issuable upon exercise of the Warrants then outstanding. The determination of such appraiser shall be final and binding upon all parties and the fees and expenses of such appraiser shall be borne jointly by the Company and the holders of Warrants. (v) INTEGRATED TRANSACTIONS. In case any Option is issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction in which no specific consideration is 10 allocated to such Options by the parties thereto, the Options will be deemed to have been issued for a consideration of $.01. (vi) TREASURY SHARES. The number of shares of Common Stock outstanding at any given time does not include shares owned or held by or for the account of the Company, provided however, the disposition of any shares so owned or held will be considered an issue or sale of Common Stock. (vii) RECORD DATE. If the Company takes a record of the holders of Common Stock for the purpose of entitling them (1) to receive a dividend or other distribution payable in Common Stock, Options or in convertible securities or (2) to subscribe for or purchase Common Stock, Options or convertible securities, then such record date will be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. (c) ADJUSTMENT OF WARRANT EXERCISE PRICE UPON SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Company at any time after the date of issuance of this Warrant subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, any Warrant Exercise Price in effect immediately prior to such subdivision will be proportionately reduced and the number of shares of Common Stock obtainable upon exercise of this Warrant will be proportionately increased. If the Company at any time after the date of issuance of this Warrant combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, any Warrant Exercise Price in effect immediately prior to such combination will be proportionately increased and the number of Warrant Shares issuable upon exercise of this Warrant will be proportionately decreased. Any adjustment under this Section 8(c) shall become effective at the close of business on the date the subdivision or combination becomes effective. (d) DISTRIBUTION OF ASSETS. If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement or other similar transaction) (a "Distribution"), at any time after the issuance of this Warrant, then, in each such case: (i) any Warrant Exercise Price in effect immediately prior to the close of business on the record date fixed for the determination of holders of Common Stock entitled to receive the Distribution shall be reduced, effective as of the close of business on such record date, to a price determined by multiplying such Warrant Exercise Price by a fraction of which (A) the numerator shall be the Closing Sale Price of the Common Stock on the trading day immediately preceding such record date minus the value of the Distribution (as determined in good faith by the Company's Board of Directors) applicable to one share of Common Stock, and (B) the denominator shall be the Closing Sale Price of the Common Stock on the trading day immediately preceding such record date; and 11 (ii) either (A) the number of Warrant Shares obtainable upon exercise of this Warrant shall be increased to a number of shares equal to the number of shares of Common Stock obtainable immediately prior to the close of business on the record date fixed for the determination of holders of Common Stock entitled to receive the Distribution multiplied by the reciprocal of the fraction set forth in the immediately preceding clause (i), or (B) in the event that the Distribution is of common stock of a company whose common stock is traded on a national securities exchange or a national automated quotation system, then the holder of this Warrant shall receive an additional warrant to purchase Common Stock, the terms of which shall be identical to those of this Warrant, except that such warrant shall be exercisable into the amount of the assets that would have been payable to the holder of this Warrant pursuant to the Distribution had the holder exercised this Warrant immediately prior to such record date and with an exercise price equal to the amount by which the exercise price of this Warrant was decreased with respect to the Distribution pursuant to the terms of the immediately preceding clause (i). (e) CERTAIN EVENTS. If any event occurs of the type contemplated by the provisions of this Section 8 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company's Board of Directors will make an appropriate adjustment in the Warrant Exercise Price and the number of shares of Common Stock obtainable upon exercise of this Warrant so as to protect the rights of the holders of the Warrants; provided, except as set forth in section 8(c),that no such adjustment pursuant to this Section 8(e) will increase the Warrant Exercise Price or decrease the number of shares of Common Stock obtainable as otherwise determined pursuant to this Section 8. (f) NOTICES. (i) Immediately upon any adjustment of the Warrant Exercise Price, the Company will give written notice thereof to the holder of this Warrant, setting forth in reasonable detail, and certifying, the calculation of such adjustment. (ii) The Company will give written notice to the holder of this Warrant at least ten (10) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any pro rata subscription offer to holders of Common Stock or (C) for determining rights to vote with respect to any Organic Change (as defined below), dissolution or liquidation, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to such holder. (iii) The Company will also give written notice to the holder of this Warrant at least ten (10) days prior to the date on which any Organic Change, dissolution or liquidation will take place, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to such holder. Section 9. PURCHASE RIGHTS; REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. 12 (a) In addition to any adjustments pursuant to Section 8 above, if at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the "PURCHASE RIGHTS"), then the holder of this Warrant will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such holder could have acquired if such holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. (b) Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Company's assets to another Person or other transaction in each case which is effected in such a way that holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock is referred to herein as an "ORGANIC CHANGE." Prior to the consummation of any (i) sale of all or substantially all of the Company's assets to an acquiring Person or (ii) other Organic Change following which the Company is not a surviving entity, the Company will secure from the Person purchasing such assets or the successor resulting from such Organic Change (in each case, the "ACQUIRING ENTITY") a written agreement (in form and substance satisfactory to the holders of Warrants representing at least two-thirds (iii) of the Warrant Shares issuable upon exercise of the Warrants then outstanding) to deliver to each holder of Warrants in exchange for such Warrants, a security of the Acquiring Entity evidenced by a written instrument substantially similar in form and substance to this Warrant and satisfactory to the holders of the Warrants (including an adjusted warrant exercise price equal to the value for the Common Stock reflected by the terms of such consolidation, merger or sale, and exercisable for a corresponding number of shares of Common Stock acquirable and receivable upon exercise of the Warrants without regard to any limitations on exercise, if the value so reflected is less than any Applicable Warrant Exercise Price immediately prior to such consolidation, merger or sale). Prior to the consummation of any other Organic Change, the Company shall make appropriate provision (in form and substance satisfactory to the holders of Warrants representing a majority of the Warrant Shares issuable upon exercise of the Warrants then outstanding) to insure that each of the holders of the Warrants will thereafter have the right to acquire and receive in lieu of or in addition to (as the case may be) the Warrant Shares immediately theretofore issuable and receivable upon the exercise of such holder's Warrants (without regard to any limitations on exercise), such shares of stock, securities or assets that would have been issued or payable in such Organic Change with respect to or in exchange for the number of Warrant Shares which would have been issuable and receivable upon the exercise of such holder's Warrant as of the date of such Organic Change (without taking into account any limitations or restrictions on the exercisability of this Warrant). Section 10. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this Warrant is lost, stolen, mutilated or destroyed, the Company shall promptly, on receipt of an indemnification undertaking (or, in the case of a mutilated Warrant, the Warrant), issue a new Warrant of like denomination and tenor as this Warrant so lost, stolen, mutilated or destroyed. 13 Section 11. NOTICE. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Warrant must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of receipt is received by the sending party transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one Business Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be: If to Holder: Cornell Capital Partners, LP 101 Hudson Street - Suite 3700 Jersey City, NJ 07302 Attention: Mark A. Angelo Telephone: (201) 985-8300 Facsimile: (201) 985-8266 With Copy to: Troy Rillo, Esq. 101 Hudson Street - Suite 3700 Jersey City, NJ 07302 Telephone: (201) 985-8300 Facsimile: (201) 985-8266 If to the Company, to: With a copy to: If to a holder of this Warrant, to it at the address and facsimile number set forth on EXHIBIT C hereto, with copies to such holder's representatives as set forth on EXHIBIT C, or at such other address and facsimile as shall be delivered to the Company upon the issuance or transfer of this Warrant. Each party shall provide five days' prior written notice to the other party of any change in address or facsimile number. Written confirmation of receipt (A) given by the recipient of such notice, consent, facsimile, waiver or other communication, (or (B) provided by a nationally recognized overnight delivery service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively. 14 Section 12. DATE. The date of this Warrant is set forth on page 1 hereof. This Warrant, in all events, shall be wholly void and of no effect after the close of business on the Expiration Date, except that notwithstanding any other provisions hereof, the provisions of Section 8(b) shall continue in full force and effect after such date as to any Warrant Shares or other securities issued upon the exercise of this Warrant. Section 13. AMENDMENT AND WAIVER. Except as otherwise provided herein, the provisions of the Warrants may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the holders of Warrants representing at least two-thirds of the Warrant Shares issuable upon exercise of the Warrants then outstanding; provided that, except for Section 8(d), no such action may increase the Warrant Exercise Price or decrease the number of shares or class of stock obtainable upon exercise of any Warrant without the written consent of the holder of such Warrant. Section 14. DESCRIPTIVE HEADINGS; GOVERNING LAW. The descriptive headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. The corporate laws of the State of Nevada shall govern all issues concerning the relative rights of the Company and its stockholders. All other questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of New Jersey, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New Jersey or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New Jersey. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in Hudson County and the United States District Court for the District of New Jersey, for the adjudication of any dispute hereunder or in connection herewith or therewith, or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. 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 to such party at the address for such 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. Section 15. WAIVER OF JURY TRIAL. AS A MATERIAL INDUCEMENT FOR EACH PARTY HERETO TO ENTER INTO THIS WARRANT, THE PARTIES HERETO HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS WARRANT AND/OR ANY AND ALL OF THE OTHER DOCUMENTS ASSOCIATED WITH THIS TRANSACTION. REMAINDER OF PAGE INTENTIONALLY LEFT BLANK 15 IN WITNESS WHEREOF, the Company has caused this Warrant to be signed as of the date first set forth above. RADIAL ENERGY INC. By:_________________________________ Name: Title: 16 EXHIBIT A TO WARRANT EXERCISE NOTICE TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT RADIAL ENERGY INC. The undersigned holder hereby exercises the right to purchase ______________ of the shares of Common Stock ("WARRANT SHARES") of Radial Energy Inc. (the "COMPANY"), evidenced by the attached Warrant (the "Warrant"). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant. Specify Method of exercise by check mark: 1. ___ Cash Exercise (a) PAYMENT OF WARRANT EXERCISE PRICE. The holder shall pay the Aggregate Exercise Price of $______________ to the Company in accordance with the terms of the Warrant. (b) DELIVERY OF WARRANT SHARES. The Company shall deliver to the holder _________ Warrant Shares in accordance with the terms of the Warrant. 2. ___ Cashless Exercise (a) PAYMENT OF WARRANT EXERCISE PRICE. In lieu of making payment of the Aggregate Exercise Price, the holder elects to receive upon such exercise the Net Number of shares of Common Stock determined in accordance with the terms of the Warrant. (b) DELIVERY OF WARRANT SHARES. The Company shall deliver to the holder _________ Warrant Shares in accordance with the terms of the Warrant. Date: _______________ __, ______ Name of Registered Holder By: __________________________________________ Name: __________________________________________ Title: __________________________________________ EXHIBIT B TO WARRANT FORCED EXERCISE NOTICE TO BE EXECUTED BY THE COMPANY TO FORCE EXERCISE OF THIS AMENDED AND RESTATED WARRANT RADIAL ENERGY INC. Radial Energy Inc. a Delaware corporation (the "COMPANY"), hereby exercises its right to force the holder of the attached Warrant to purchase ___________________________ shares of the Company's Common Stock, evidenced by the attached Warrant.(1) Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant. Specify Method of exercise by check mark: 1. ___ Cash Exercise (a) PAYMENT OF WARRANT EXERCISE PRICE. The holder shall pay the Aggregate Exercise Price of $______________ to the Company in accordance with the terms of the Amended and Restated Warrant. (b) DELIVERY OF WARRANT SHARES. The Company shall deliver to the holder _________ Warrant Shares in accordance with the terms of the Amended and Restated Warrant. Date: _______________ __, ______ Name of Registered Holder By: __________________________________________ Name: __________________________________________ Title: __________________________________________ B-1 EXHIBIT B TO WARRANT FORM OF WARRANT POWER FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to ________________, Federal Identification No. __________, a warrant to purchase ____________ shares of the capital stock of Radial Energy Inc. represented by warrant certificate no. _____, standing in the name of the undersigned on the books of said corporation. The undersigned does hereby irrevocably constitute and appoint ______________, attorney to transfer the warrants of said corporation, with full power of substitution in the premises. Dated:_________________________________ ____________________________________ By:_________________________________ Name:_______________________________ Title:_______________________________ C-1 EX-10 6 ex10-13.txt EXHIBIT 10.13 EXHIBIT 10.13 SECURITY AGREEMENT THIS SECURITY AGREEMENT (the "AGREEMENT"), is entered into and made effective as of October 2, 2006, by and between RADIAL ENERGY INC., a Nevada corporation with its principal place of business located at 1313 East Maple Street, Bellingham, WA 98225 (the "PARENT"), and the each subsidiary of the Parent listed on Schedule I attached hereto (each a "SUBSIDIARY") and collectively and together with the Parent, the "COMPANY"), in favor of the BUYER(S) (the "SECURED PARTY") listed on Schedule I attached to the Securities Purchase Agreement (the "SECURITIES PURCHASE AGREEMENT") dated the date hereof between the Company and the Secured Party. WHEREAS, The Parent shall issue and sell to the Secured Party, as provided in the Securities Purchase Agreement, and the Secured Party shall purchase, up to Five Million Dollars ($5,000,000) of secured convertible debentures (the "CONVERTIBLE DEBENTURES"), which shall be convertible into shares of the Parent's common stock, par value $0.001, in the respective amounts set forth opposite each Buyer(s) name on Schedule I attached to the Securities Purchase Agreement; WHEREAS, to induce the Secured Party to enter into the transaction contemplated by the Securities Purchase Agreement, the Convertible Debentures, the Investor Registration Rights Agreement of even date herewith between the Parent and the Secured Party (the "INVESTOR REGISTRATION RIGHTS AGREEMENT"), and the Irrevocable Transfer Agent Instructions among the Parent, the Secured Party, the Parent's transfer agent, and David Gonzalez, Esq. (the "TRANSFER AGENT INSTRUCTIONS") (collectively referred to as the "TRANSACTION DOCUMENTS"), each Company hereby grants to the Secured Party a security interest in and to the pledged property of each Company identified on EXHIBIT A hereto (collectively referred to as the "PLEDGED PROPERTY") to secure all of the Obligations (as defined below). NOW, THEREFORE, in consideration of the promises and the mutual covenants herein contained, and for other good and valuable consideration, the adequacy and receipt of which are hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE 1. DEFINITIONS AND INTERPRETATIONS Section 1.1. RECITALS. The above recitals are true and correct and are incorporated herein, in their entirety, by this reference. Section 1.2. INTERPRETATIONS. Nothing herein expressed or implied is intended or shall be construed to confer upon any person other than the Secured Party any right, remedy or claim under or by reason hereof. Section 1.3. OBLIGATIONS SECURED. The security interest created hereby in the Pledged Property constitutes continuing collateral security for all of the following obligations, whether now existing or hereafter incurred (collectively, the "OBLIGATIONS"): (a) for so long as the Convertible Debentures are outstanding, the payment by the Parent, as and when due and payable (by scheduled maturity, acceleration, demand or otherwise), of all amounts from time to time owing by it in respect of the Securities Purchase Agreement, the Convertible Debentures and the other Transaction Documents; and (b) for so long as the Convertible Debentures are outstanding, the due performance and observance by the Company of all of its other obligations from time to time existing in respect of any of the Transaction Documents, including without limitation, the Parent's obligations with respect to any conversion or redemption rights of the Secured Party under the Convertible Debentures. ARTICLE 2. PLEDGED PROPERTY; EVENT OF DEFAULT Section 2.1. PLEDGED PROPERTY. (a) As collateral security for all of the Obligations, the Company hereby pledges to the Secured Party, and creates in the Secured Party for its benefit, a continuing security interest in and to all of the Pledged Property whether now owned or hereafter acquired. (b) Simultaneously with the execution and delivery of this Agreement, the Company shall make, execute, acknowledge, file, record and deliver to the Secured Party any documents reasonably requested by the Secured Party to perfect its security interest in the Pledged Property. Simultaneously with the execution and delivery of this Agreement, the Company shall make, execute, acknowledge and deliver to the Secured Party such documents and instruments, including, without limitation, financing statements, certificates, affidavits and forms as may, in the Secured Party's reasonable judgment, be necessary to effectuate, complete or perfect, or to continue and preserve, the security interest of the Secured Party in the Pledged Property, and the Secured Party shall hold such documents and instruments as secured party, subject to the terms and conditions contained herein. Section 2.2. EVENT OF DEFAULT An "EVENT OF DEFAULT" shall be deemed to have occurred under this Agreement upon an Event of Default under and as defined in the Convertible Debentures. 2 ARTICLE 3. ATTORNEY-IN-FACT; PERFORMANCE Section 3.1. SECURED PARTY APPOINTED ATTORNEY-IN-FACT. Upon the occurrence and during the continuance of an Event of Default: (a) the Company hereby appoints the Secured Party as its attorney-in-fact, with full authority in the place and stead of the Company and in the name of the Company or otherwise, from time to time in the Secured Party's discretion to take any action and to execute any instrument which the Secured Party may reasonably deem necessary to accomplish the purposes of this Agreement, including, without limitation, to receive and collect all instruments made payable to the Company representing any payments in respect of the Pledged Property or any part thereof and to give full discharge for the same; (b) the Secured Party may demand, collect, receipt for, settle, compromise, adjust, sue for, foreclose, or realize on the Pledged Property as and when the Secured Party may determine, and (c) to facilitate collection, the Secured Party may notify account debtors and obligors on any Pledged Property to make payments directly to the Secured Party. Section 3.2. SECURED PARTY MAY PERFORM. If the Company fails to perform any agreement contained herein, the Secured Party, at its option, may itself perform, or cause performance of, such agreement, and the expenses of the Secured Party incurred in connection therewith shall be included in the Obligations secured hereby and payable by the Company under Section 8.3. ARTICLE 4. REPRESENTATIONS AND WARRANTIES Section 4.1. AUTHORIZATION; ENFORCEABILITY. Each of the parties hereto represents and warrants that it has taken all action necessary to authorize the execution, delivery and performance of this Agreement and the transactions contemplated hereby; and upon execution and delivery, this Agreement shall constitute a valid and binding obligation of the respective party, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights or by the principles governing the availability of equitable remedies. Section 4.2. OWNERSHIP OF PLEDGED PROPERTY. The Company represents and warrants that it is the legal and beneficial owner of the Pledged Property free and clear of any lien, security interest, option or other charge or encumbrance (each, a "Lien") except for the security interest created by this Agreement and other Permitted Liens. For purposes of this Agreement, "Permitted Liens" means: (1) the security interest created by this Agreement, (2) existing Liens disclosed by the Company to the Secured Party; (3) inchoate Liens for taxes, assessments or governmental charges or levies not yet due, as to which the grace period, if any, related thereto has not yet expired, or being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with GAAP; (4) 3 Liens of carriers, materialmen, warehousemen, mechanics and landlords and other similar Liens which secure amounts which are not yet overdue by more than 60 days or which are being contested in good faith by appropriate proceedings; (5) licenses, sublicenses, leases or subleases granted to other Persons not materially interfering with the conduct of the business of the Company; (6) Liens securing capitalized lease obligations and purchase money indebtedness incurred solely for the purpose of financing an acquisition or lease; (7) easements, rights-of-way, restrictions, encroachments, municipal zoning ordinances and other similar charges or encumbrances, and minor title deficiencies, in each case not securing debt and not materially interfering with the conduct of the business of the Company and not materially detracting from the value of the property subject thereto; (8) Liens arising out of the existence of judgments or awards which judgments or awards do not constitute an Event of Default; (9) Liens incurred in the ordinary course of business in connection with workers compensation claims, unemployment insurance, pension liabilities and social security benefits and Liens securing the performance of bids, tenders, leases and contracts in the ordinary course of business, statutory obligations, surety bonds, performance bonds and other obligations of a like nature (other than appeal bonds) incurred in the ordinary course of business (exclusive of obligations in respect of the payment for borrowed money); (10) Liens in favor of a banking institution arising by operation of law encumbering deposits (including the right of set-off) and contractual set-off rights held by such banking institution and which are within the general parameters customary in the banking industry and only burdening deposit accounts or other funds maintained with a creditor depository institution; (11) usual and customary set-off rights in leases and other contracts; and (12) escrows in connection with acquisitions and dispositions. ARTICLE 5. DEFAULT; REMEDIES; SUBSTITUTE COLLATERAL Section 5.1 METHOD OF REALIZING UPON THE PLEDGED PROPERTY: OTHER REMEDIES. If any Event of Default shall have occurred and be continuing: (a) The Secured Party may exercise in respect of the Pledged Property, in addition to any other rights and remedies provided for herein or otherwise available to it, all of the rights and remedies of a secured party upon default under the Uniform Commercial Code (whether or not the Uniform Commercial Code applies to the affected Pledged Property), and also may (i) take absolute control of the Pledged Property, including, without limitation, transfer into the Secured Party's name or into the name of its nominee or nominees (to the extent the Secured Party has not theretofore done so) and thereafter receive, for the benefit of the Secured Party, all payments made thereon, give all consents, waivers and ratifications in respect thereof and otherwise act with respect thereto as though it were the outright owner thereof, (ii) require the Company to assemble all or part of the Pledged Property as directed by the Secured Party and make it available to the Secured Party at a place or places to be designated by the Secured Party that is reasonably convenient to both parties, and the Secured Party may enter into and occupy any premises owned or leased by the Company where the Pledged Property or any part thereof is located or assembled for a reasonable period in order to effectuate the Secured Party's rights and remedies hereunder or under law, without obligation to the Company in respect of such occupation, and (iii) without notice except as specified below and without any obligation to prepare or process the Pledged Property for sale, (A) sell the Pledged Property or any part thereof in one or more parcels at 4 public or private sale, at any of the Secured Party's offices or elsewhere, for cash, on credit or for future delivery, and at such price or prices and upon such other terms as the Secured Party may deem commercially reasonable and/or (B) lease, license or dispose of the Pledged Property or any part thereof upon such terms as the Secured Party may deem commercially reasonable. The Company agrees that, to the extent notice of sale or any other disposition of the Pledged Property shall be required by law, at least ten (10) days' notice to the Company of the time and place of any public sale or the time after which any private sale or other disposition of the Pledged Property is to be made shall constitute reasonable notification. The Secured Party shall not be obligated to make any sale or other disposition of any Pledged Property regardless of notice of sale having been given. The Secured Party may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. The Company hereby waives any claims against the Secured Party arising by reason of the fact that the price at which the Pledged Property may have been sold at a private sale was less than the price which might have been obtained at a public sale or was less than the aggregate amount of the Obligations, even if the Secured Party accepts the first offer received and does not offer such Pledged Property to more than one offeree, and waives all rights that the Company may have to require that all or any part of such Pledged Property be marshaled upon any sale (public or private) thereof. The Company hereby acknowledges that (i) any such sale of the Pledged Property by the Secured Party may be made without warranty, (ii) the Secured Party may specifically disclaim any warranties of title, possession, quiet enjoyment or the like, and (iii) such actions set forth in clauses (i) and (ii) above shall not adversely affect the commercial reasonableness of any such sale of Pledged Property. (b) Any cash held by the Secured Party as Pledged Property and all cash proceeds received by the Secured Party in respect of any sale of or collection from, or other realization upon, all or any part of the Pledged Property shall be applied (after payment of any amounts payable to the Secured Party pursuant to Section 8.3 hereof) by the Secured Party against, all or any part of the Obligations in such order as the Secured Party shall elect, consistent with the provisions of the Securities Purchase Agreement. Any surplus of such cash or cash proceeds held by the Secured Party and remaining after the indefeasible payment in full in cash of all of the Obligations shall be paid over to whomsoever shall be lawfully entitled to receive the same or as a court of competent jurisdiction shall direct. (c) In the event that the proceeds of any such sale, collection or realization are insufficient to pay all amounts to which the Secured Party is legally entitled, the Company shall be liable for the deficiency, together with interest thereon at the rate specified in the Convertible Debentures for interest on overdue principal thereof or such other rate as shall be fixed by applicable law, together with the costs of collection and the reasonable fees, costs, expenses and other client charges of any attorneys employed by the Secured Party to collect such deficiency. (d) The Company hereby acknowledges that if the Secured Party complies with any applicable state, provincial, or federal law requirements in connection with a disposition of the Pledged Property, such compliance will not adversely affect the commercial reasonableness of any sale or other disposition of the Pledged Property. 5 (e) The Secured Party shall not be required to marshal any present or future collateral security (including, but not limited to, this Agreement and the Pledged Property) for, or other assurances of payment of, the Obligations or any of them or to resort to such collateral security or other assurances of payment in any particular order, and all of the Secured Party's rights hereunder and in respect of such collateral security and other assurances of payment shall be cumulative and in addition to all other rights, however existing or arising. To the extent that the Company lawfully may, the Company hereby agrees that it will not invoke any law relating to the marshaling of collateral which might cause delay in or impede the enforcement of the Secured Party's rights under this Agreement or under any other instrument creating or evidencing any of the Obligations or under which any of the Obligations is outstanding or by which any of the Obligations is secured or payment thereof is otherwise assured, and, to the extent that it lawfully may, the Company hereby irrevocably waives the benefits of all such laws. Section 5.2 DUTIES REGARDING PLEDGED PROPERTY. The Secured Party shall have no duty as to the collection or protection of the Pledged Property or any income thereon or as to the preservation of any rights pertaining thereto, beyond the safe custody and reasonable care of any of the Pledged Property actually in the Secured Party's possession. ARTICLE 6. AFFIRMATIVE COVENANTS The Company covenants and agrees that, from the date hereof and until the Obligations have been fully paid and satisfied or the Convertible Debentures have been fully converted, unless the Secured Party shall consent otherwise in writing (as provided in Section 8.4 hereof): Section 6.1. EXISTENCE, PROPERTIES, ETC. (a) The Company shall do, or cause to be done, all things, or proceed with due diligence with any actions or courses of action, that may be reasonably necessary (i) to maintain Company's due organization, valid existence and good standing under the laws of its state of incorporation, and (ii) to preserve and keep in full force and effect all qualifications, licenses and registrations in those jurisdictions in which the failure to do so could have a Material Adverse Effect (as defined below); and (b) the Company shall not do, or cause to be done, any act impairing the Company's corporate power or authority (i) to carry on the Company's business as now conducted, and (ii) to execute or deliver this Agreement or any other document delivered in connection herewith, including, without limitation, any UCC-1 Financing Statements required by the Secured Party (which other loan instruments collectively shall be referred to as the "LOAN INSTRUMENTS") to which it is or will be a party, or perform any of its obligations hereunder or thereunder. For purpose of this Agreement, the term "MATERIAL ADVERSE EFFECT" shall mean any material and adverse affect as determined by Secured Party in its reasonable discretion, whether individually or in the aggregate, upon (a) the Company's assets, business, operations, properties or condition, financial or otherwise; (b) the Company's ability to make payment as and when due of all or any part of the Obligations; or (c) the Pledged Property. 6 Section 6.2. FINANCIAL STATEMENTS AND REPORTS. The Company shall furnish to the Secured Party within a reasonable time such financial data as the Secured Party may reasonably request. Section 6.3. ACCOUNTS AND REPORTS. The Company shall maintain a standard system of accounting in accordance with generally accepted accounting principles consistently applied ("GAAP") and provide, at its sole expense, to the Secured Party the following: (a) as soon as available, a copy of any notice or other communication alleging any nonpayment or other material breach or default, or any foreclosure or other action respecting any material portion of its assets and properties, received respecting any of the indebtedness of the Company in excess of $250,000 (other than the Obligations), or any demand or other request for payment under any guaranty, assumption, purchase agreement or similar agreement or arrangement respecting the indebtedness or obligations of others in excess of $250,000; and (b) within fifteen (15) days after the making of each submission or filing, a copy of any report, financial statement, notice or other document, whether periodic or otherwise, submitted to the shareholders of the Company, or submitted to or filed by the Company with any governmental authority involving or affecting (i) the Company that could reasonably be expected to have a Material Adverse Effect; (ii) the Obligations; (iii) any part of the Pledged Property; or (iv) any of the transactions contemplated in this Agreement or the Loan Instruments (except, in each case, to the extent any such submission, filing, report, financial statement, notice or other document is posted on EDGAR Online). Section 6.4. MAINTENANCE OF BOOKS AND RECORDS; INSPECTION. The Company shall maintain its books, accounts and records in accordance with GAAP, and permit the Secured Party, its officers and employees and any professionals designated by the Secured Party in writing, at any time during normal business hours and upon reasonable notice to visit and inspect any of its properties (including but not limited to the collateral security described in the Transaction Documents and/or the Loan Instruments), corporate books and financial records, and to discuss its accounts, affairs and finances with any employee, officer or director thereof (it being agreed that, unless an Event of Default shall have occurred and be continuing, there shall be no more than two (2) such visits and inspections in any Fiscal Year). Section 6.5. MAINTENANCE AND INSURANCE. (a) The Company shall maintain or cause to be maintained, at its own expense, all of its material assets and properties in good working order and condition, ordinary wear and tear excepted, making all necessary repairs thereto and renewals and replacements thereof. (b) The Company shall maintain or cause to be maintained, at its own expense, insurance in form, substance and amounts (including deductibles), which the Company deems reasonably necessary to the Company's business, (i) adequate to insure all assets and properties of the Company of a 7 character usually insured by persons engaged in the same or similar business against loss or damage resulting from fire or other risks included in an extended coverage policy; (ii) against public liability and other tort claims that may be incurred by the Company; (iii) as may be required by the Transaction Documents and/or applicable law and (iv) as may be reasonably requested by Secured Party, all with financially sound and reputable insurers. Section 6.6. CONTRACTS AND OTHER COLLATERAL. The Company shall perform all of its obligations under or with respect to each instrument, receivable, contract and other intangible included in the Pledged Property to which the Company is now or hereafter will be party on a timely basis and in the manner therein required, including, without limitation, this Agreement, except to the extent the failure to so perform such obligations would not reasonably be expected to have a Material Adverse Effect. Section 6.7. DEFENSE OF COLLATERAL, ETC. The Company shall defend and enforce its right, title and interest in and to any part of: (a) the Pledged Property; and (b) if not included within the Pledged Property, those assets and properties whose loss would reasonably be expected to have a Material Adverse Effect, each against all manner of claims and demands on a timely basis to the full extent permitted by applicable law (other than any such claims and demands by holders of Permitted Liens). Section 6.8. TAXES AND ASSESSMENTS. The Company shall (a) file all material tax returns and appropriate schedules thereto that are required to be filed under applicable law, prior to the date of delinquency (taking into account any extensions of the original due date), (b) pay and discharge all material taxes, assessments and governmental charges or levies imposed upon the Company, upon its income and profits or upon any properties belonging to it, prior to the date on which penalties attach thereto, and (c) pay all material taxes, assessments and governmental charges or levies that, if unpaid, might become a lien or charge upon any of its properties; PROVIDED, HOWEVER, that the Company in good faith may contest any such tax, assessment, governmental charge or levy described in the foregoing clauses (b) and (c) so long as appropriate reserves are maintained with respect thereto if and to the extent required by GAAP. Section 6.9. COMPLIANCE WITH LAW AND OTHER AGREEMENTS. The Company shall maintain its business operations and property owned or used in connection therewith in compliance with (a) all applicable federal, state and local laws, regulations and ordinances governing such business operations and the use and ownership of such property, and (b) all agreements, licenses, franchises, indentures and mortgages to which the Company is a party or by which the Company or any of its properties is bound, except where the failure to so comply would not reasonably be expected to have a Material Adverse Effect. 8 Section 6.10. NOTICE OF DEFAULT. The Company shall give written notice to the Secured Party of the occurrence of any Event of Default. Section 6.11. NOTICE OF LITIGATION. The Company shall give notice, in writing, to the Secured Party of (a) any actions, suits or proceedings wherein the amount at issue is in excess of $250,000, instituted by any persons against the Company, or affecting any of the assets of the Company, and (b) any dispute, not resolved within fifteen (15) days of the commencement thereof, between the Company on the one hand and any governmental or regulatory body on the other hand, which might reasonably be expected to have a Material Adverse Effect on the business operations or financial condition of the Company. Section 6.13. FUTURE SUBSIDIARIES. If the Company shall hereafter create or acquire any subsidiary, simultaneously with the creation or acquisition of such subsidiary, the Company shall cause such subsidiary to grant to the Secured Party a security interest of the same tenor as created under this Agreement. ARTICLE 7. NEGATIVE COVENANTS The Company covenants and agrees that, from the date hereof until the Obligations have been fully paid and satisfied, the Company shall not, unless the Secured Party shall consent otherwise in writing: Section 7.1. LIENS AND ENCUMBRANCES. Directly or indirectly make, create, incur, assume or permit to exist any Lien in, to or against any part of the Pledged Property other than Permitted Liens. Section 7.2. RESTRICTION ON REDEMPTION AND CASH DIVIDENDS Directly or indirectly, redeem, repurchase or declare or pay any cash dividend or distribution on its capital stock without the prior express written consent of the Secured Party. Section 7.3. INCURRENCE OF INDEBTEDNESS. Directly or indirectly, incur or guarantee, assume or suffer to exist any indebtedness, other than the indebtedness evidenced by the Convertible Debentures and other Permitted Indebtedness. "PERMITTED INDEBTEDNESS" means: (i) indebtedness evidenced by Convertible Debentures; (ii) indebtedness described on the Disclosure Schedule to the Securities Purchase Agreement; (iii) indebtedness incurred solely for the purpose of financing the acquisition or lease of any equipment by the Company, including capital lease obligations with no recourse other than to such equipment; (iv) indebtedness (A) the repayment of which has been subordinated to the payment of the Convertible Debentures on terms and conditions acceptable to the Secured Party, including with regard to interest 9 payments and repayment of principal, (B) which does not mature or otherwise require or permit redemption or repayment prior to or on the 91st day after the maturity date of any Convertible Debentures then outstanding; and (C) which is not secured by any assets of the Company; (v) indebtedness solely between the Company and/or one of its domestic subsidiaries, on the one hand, and the Company and/or one of its domestic subsidiaries, on the other which indebtedness is not secured by any assets of the Company or any of its subsidiaries, provided that (x) in each case a majority of the equity of any such domestic subsidiary is directly or indirectly owned by the Company, such domestic subsidiary is controlled by the Company and such domestic subsidiary has executed a security agreement in the form of this Agreement and (y) any such loan shall be evidenced by an intercompany note that is pledged by the Company or its subsidiary, as applicable, as collateral pursuant to this Agreement; (vi) reimbursement obligations in respect of letters of credit issued for the account of the Company or any of its subsidiaries for the purpose of securing performance obligations of the Company or its subsidiaries incurred in the ordinary course of business so long as the aggregate face amount of all such letters of credit does not exceed $500,000 at any one time; and (vii) renewals, extensions and refinancing of any indebtedness described in clauses (i) or (iii) of this subsection. Section 7.4. PLACES OF BUSINESS. Change the location of its chief place of business, chief executive office or any place of business disclosed to the Secured Party, unless such change in location is to a different location within the United States and the Company provides notice to the Secured Party of new location within 10 days' of such change in location. ARTICLE 8. MISCELLANEOUS Section 8.1. NOTICES. All notices or other communications required or permitted to be given pursuant to this Agreement shall be in writing and shall be considered as duly given on: (a) the date of delivery, if delivered in person or by nationally recognized overnight delivery service or (b) five (5) days after mailing if mailed from within the continental United States by certified mail, return receipt requested to the party entitled to receive the same: If to the Secured Party: Cornell Capital Partners, LP 101 Hudson Street-Suite 3700 Jersey City, New Jersey 07302 Attention: Mark Angelo Portfolio Manager Telephone: (201) 986-8300 Facsimile: (201) 985-8266 10 With a copy to: Troy Rillo, Esq. 101 Hudson Street, Suite 3700 Jersey City, NJ 07302 Telephone: (201) 985-8300 Facsimile: (201) 985-8266 And if to the Company: Radial Energy Inc. 1313 East Maple Street, Suite 223 Bellingham, WA 98225 Attention: Chief Financial Officer Telephone: (360) 685-4240 Facsimile: With a copy to: Greenberg Traurig, LLP 650 Town Center Drive, Suite 1700 Costa Mesa, CA 92626 Attention: Raymond Lee, Esq. Telephone: (714) 708-6510 Any party may change its address by giving notice to the other party stating its new address. Commencing on the tenth (10th) day after the giving of such notice, such newly designated address shall be such party's address for the purpose of all notices or other communications required or permitted to be given pursuant to this Agreement. Section 8.2. SEVERABILITY. If any provision of this Agreement shall be held invalid or unenforceable, such invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render invalid or unenforceable any other severable provision of this Agreement, and this Agreement shall be carried out as if any such invalid or unenforceable provision were not contained herein. Section 8.3. EXPENSES. In the event of an Event of Default, the Company will pay to the Secured Party the amount of any and all reasonable out-of-pocket expenses, including the reasonable fees and expenses of its counsel, which the Secured Party may incur in connection with: (i) the custody or preservation of, or the sale, collection from, or other realization upon, any of the Pledged Property; (ii) the exercise or enforcement of any of the rights of the Secured Party hereunder or (iii) the failure by the Company to perform or observe any of the provisions hereof. 11 Section 8.4. WAIVERS, AMENDMENTS, ETC. The Secured Party's delay or failure at any time or times hereafter to require strict performance by Company of any undertakings, agreements or covenants shall not waive, affect, or diminish any right of the Secured Party under this Agreement to demand strict compliance and performance herewith. Any waiver by the Secured Party of any Event of Default shall not waive or affect any other Event of Default, whether such Event of Default is prior or subsequent thereto and whether of the same or a different type. None of the undertakings, agreements and covenants of the Company contained in this Agreement, and no Event of Default, shall be deemed to have been waived by the Secured Party, nor may this Agreement be amended, changed or modified, unless such waiver, amendment, change or modification is evidenced by an instrument in writing specifying such waiver, amendment, change or modification and signed by the Secured Party in the case of any such waiver, and signed by the Secured Party and the Company in the case of any such amendment, change or modification. SECTION 8.5. CONTINUING SECURITY INTEREST; PARTIAL RELEASE. (a) This Agreement shall create a continuing security interest in the Pledged Property and shall: (i) remain in full force and effect until payment or conversion in full of the Convertible Debentures; (ii) be binding upon the Company and its successors and assigns; and (iii) inure to the benefit of the Secured Party and its successors and assigns. Upon the payment or satisfaction in full or conversion in full of the Convertible Debentures, this Agreement and the security interest created hereby shall terminate, and, in connection therewith, the Company shall be entitled to the return, at its expense, of such of the Pledged Property as shall not have been sold in accordance with Section 5.2 hereof or otherwise applied pursuant to the terms hereof and the Secured Party shall deliver to the Company such documents as the Company shall reasonably request to evidence such termination. (b) Effective upon the closing of a disposition of any Pledged Property, provided the Secured Party consents in writing prior to such disposition or such disposition is made in the ordinary course of business, the security interest granted hereunder in the Pledged Property so disposed of shall terminate and the Secured Party shall deliver such documents as the Company shall reasonably request to evidence such termination; provided, however, the security interest granted hereunder in all remaining Pledged Property shall remain in full force and effect. Section 8.6. INDEPENDENT REPRESENTATION. Each party hereto acknowledges and agrees that it has received or has had the opportunity to receive independent legal counsel of its own choice and that it has been sufficiently apprised of its rights and responsibilities with regard to the substance of this Agreement. Section 8.7. APPLICABLE LAW: JURISDICTION. This Agreement shall be governed by and interpreted in accordance with the laws of the State of New Jersey without regard to the principles of conflict of laws. The parties further agree that any action between them shall be heard in Hudson County, New Jersey, and expressly consent to the jurisdiction and venue of the Superior Court of New Jersey, sitting in Hudson County and the 12 United States District Court for the District of New Jersey sitting in Newark, New Jersey for the adjudication of any civil action asserted pursuant to this Paragraph. Section 8.8. WAIVER OF JURY TRIAL. AS A FURTHER INDUCEMENT FOR THE SECURED PARTY TO ENTER INTO THIS AGREEMENT AND TO MAKE THE FINANCIAL ACCOMMODATIONS TO THE COMPANY, THE COMPANY HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS AGREEMENT AND/OR ANY AND ALL OTHER DOCUMENTS RELATED TO THIS TRANSACTION. Section 8.9. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement among the parties and supersedes any prior agreement or understanding among them with respect to the subject matter hereof. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 13 IN WITNESS WHEREOF, the parties hereto have executed this Security Agreement as of the date first above written. COMPANY: RADIAL ENERGY INC. By: /s/ G. LEIGH LYONS ________________________________ Name: G. Leigh Lyons Title: President 14 IN WITNESS WHEREOF, the parties hereto have executed this Security Agreement as of the date first above written. SECURED PARTY: CORNELL CAPITAL PARTNERS, LP BY: YORKVILLE ADVISORS, LLC ITS: GENERAL PARTNER By: /s/ MARK ANGELO ________________________________ Name: Mark Angelo Title: Portfolio Manager 15 SCHEDULE I LEGAL NAMES; ORGANIZATIONAL IDENTIFICATION NUMBERS; STATES OF ORGANIZATION ________________________________________________________________________________ STATE OF EMPLOYER ORGANIZATIONAL COMPANY'S NAME ORGANIZATION ID ID ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ 16 EXHIBIT A DEFINITION OF PLEDGED PROPERTY For the purpose of securing prompt and complete payment and performance by the Company of all of the Obligations, the Company unconditionally and irrevocably hereby grants to the Secured Party a continuing security interest in and to, and lien upon, the following Pledged Property of the Company: (a) all goods of the Company, including, without limitation, machinery, equipment, furniture, furnishings, fixtures, signs, lights, tools, parts, supplies and motor vehicles of every kind and description, now or hereafter owned by the Company or in which the Company may have or may hereafter acquire any interest, and all replacements, additions, accessions, substitutions and proceeds thereof, arising from the sale or disposition thereof, and where applicable, the proceeds of insurance and of any tort claims involving any of the foregoing; (b) all inventory of the Company, including, but not limited to, all goods, wares, merchandise, parts, supplies, finished products, other tangible personal property, including such inventory as is temporarily out of Company's custody or possession and including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing; (c) all contract rights and general intangibles of the Company, including, without limitation, goodwill, trademarks, trade styles, trade names, leasehold interests, partnership or joint venture interests, patents and patent applications, copyrights, deposit accounts whether now owned or hereafter created; (d) all documents, warehouse receipts, instruments and chattel paper of the Company whether now owned or hereafter created; (e) all accounts and other receivables, instruments or other forms of obligations and rights to payment of the Company (herein collectively referred to as "ACCOUNTS"), together with the proceeds thereof, all goods represented by such Accounts and all such goods that may be returned by the Company's customers, and all proceeds of any insurance thereon, and all guarantees, securities and liens which the Company may hold for the payment of any such Accounts including, without limitation, all rights of stoppage in transit, replevin and reclamation and as an unpaid vendor and/or lienor; (f) to the extent assignable, all of the Company's rights under all present and future authorizations, permits, licenses and franchises issued or granted in connection with the operations of any of its facilities; (g) all equity interests, securities or other instruments in other companies, including, without limitation, any subsidiaries, investments or other entities (whether or not controlled); and 17 (h) all products and proceeds (including, without limitation, insurance proceeds) from the above-described Pledged Property. 18 EX-10 7 ex10-14.txt EXHIBIT 10.14 EXHIBIT 10.14 PLEDGE AND ESCROW AGREEMENT PLEDGE AND ESCROW AGREEMENT (the "AGREEMENT") made by each of the undersigned (each a "PLEDGOR", and collectively, the "PLEDGORS"), in favor of CORNELL CAPITAL PARTNERS, LP, in its capacity as collateral agent (in such capacity, the "COLLATERAL AGENT") for the "Buyers" (as defined below) party to the Securities Purchase Agreement, of even date herewith (the "SECURITIES PURCHASE AGREEMENT"). RECITALS: WHEREAS, Radial Energy, Inc., a Delaware corporation (the "COMPANY"), and each party listed as a "Buyer" on the Schedule of Buyers attached thereto (each a "BUYER", and collectively, the "BUYERS") are parties to the Securities Purchase Agreement, pursuant to which the Company shall issue and sell to the Buyers, as provided in the Securities Purchase Agreement and the Buyers shall purchase secured convertible debentures (the "CONVERTIBLE DEBENTURES"), which shall be convertible into shares of the Company's common stock, par value $0.001 per share (the "COMMON STOCK") (as converted, the "CONVERSION SHARES"); WHEREAS, it is a condition precedent to the Buyers purchasing the Convertible Debentures that the Pledgors execute and deliver to the Collateral Agent a pledge agreement securing all of the obligations of the Company under the Securities Purchase Agreement, the Convertible Debentures and the Transaction Documents (as defined in the Securities Purchase Agreement, the "TRANSACTION DOCUMENTS"); WHEREAS, each Pledgor has determined that the execution, delivery and performance of this Agreement directly benefits, and is in the best interest of, such Pledgor; and WHEREAS, the parties to this Agreement desire to appoint DAVID GONZALEZ, ESQ., as escrow agent ("ESCROW AGENT") to hold in escrow the Pledged Shares (as defined below) pursuant to the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the mutual covenants, agreements, warranties, and representations herein contained, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: TERMS AND CONDITIONS 1. OBLIGATIONS SECURED. The security interest created hereby in the Pledged Shares constitutes continuing collateral security for all obligations of the Company now existing or hereinafter incurred to the Buyers, whether oral or written and whether arising before, on or after the date hereof including, without limitation of the following obligations (collectively, the "Obligations"): (a) for so long as the Convertible Debentures are outstanding, the payment by the Company, as and when due and payable (by scheduled maturity, acceleration, demand or otherwise), of all amounts from time to time owing by it in respect of the Securities Purchase Agreement, the Convertible Debentures and the other Transaction Documents; and (b) for so long as the Convertible Debentures are outstanding, the due performance and observance by the Company of all of its other obligations from time to time existing in respect of any of the Transaction Documents, including without limitation, the Company's obligations with respect to any conversion or redemption rights of the Secured Party under the Convertible Debentures. 2. PLEDGE AND TRANSFER OF PLEDGED SHARES. Each Pledgor hereby grants to the Collateral Agent an irrevocable, first priority security interest in all the securities set forth next to such Pledgor's name on Schedule I attached hereto (the "PLEDGED SHARES") as security for the Obligations. Simultaneously with the execution of this Agreement, each Pledgor shall deliver to the Escrow Agent, and the Escrow Agent shall hold in escrow pursuant to the terms of this Agreement, stock certificates made out in favor of the Pledgor representing the Pledged Shares, together with duly executed stock powers or other appropriate transfer documents with medallion bank guarantees and executed in blank by each Pledgor (the "TRANSFER DOCUMENTS"), and such stock certificates and Transfer Documents shall be held by the Escrow Agent until the satisfaction in full of all the Obligations. 3. RIGHTS RELATING TO PLEDGED SHARES. Upon the occurrence of an Event of Default (as defined herein), the Collateral Agent shall be entitled to vote the Pledged Shares, receive dividends and other distributions thereon, and enjoy all other rights and privileges incident to the ownership of the number of Pledged Shares actually released from escrow in accordance with Section 6.1 hereof on behalf of the Buyers. 4. RELEASE OF PLEDGED SHARES FROM PLEDGE. a. Upon the satisfaction in full of all the Obligations the parties hereto shall notify the Escrow Agent to such effect in writing. Promptly upon receipt of such written notice, the Escrow Agent shall return to each Pledgor the Transfer Documents and the certificates representing the Pledged Shares (collectively the "PLEDGED MATERIALS"), whereupon any and all rights of Collateral Agent in the Pledged Shares shall be terminated. b. Upon the satisfaction of the following conditions (i) the registration statement with respect to the resale of the Common Stock underlying the Convertible Debentures shall have been declared effective by the Securities and Exchange Commission, (ii) the Common Stock shall be traded on a Principal Market (as defined in the Convertible Debentures), and (iv) no Event of Default shall have occurred, the security interest created hereunder solely with respect to one half of the Pledged Shares pledged hereunder by each Pledgor shall terminate. Promptly upon the satisfaction of such conditions, the parties hereto shall notify the Escrow Agent to such effect in writing. Promptly upon receipt of such written notice, the Escrow Agent shall return to each Pledgor the Pledged Materials with respect to one half of each Pledgors' Pledged Shares, and all rights of Collateral Agent in such Pledged Shares returned shall be terminated. 2 5. EVENT OF DEFAULT. An "EVENT OF DEFAULT" shall be deemed to have occurred under this Agreement upon an Event of Default under the Convertible Debentures. 6. REMEDIES. a. Upon and anytime after the occurrence of an Event of Default, the Collateral Agent shall have the right acquire the Pledged Shares in accordance with the following procedure: (a) the Collateral Agent shall provide written notice of such Event of Default (the "DEFAULT NOTICE") to the Escrow Agent, with a copy to the Pledgors; (b) in a Default Notice the Collateral Agent shall specify the number of Pledged Shares to be issued to the Collateral Agent, PROVIDED HOWEVER, that neither the Collateral Agent, nor any Buyer shall not have the right to acquire such number of Pledged Shares which would cause the Collateral Agent or such Buyer, together with its affiliates, to beneficially own in excess of 4.99% of the outstanding capital of the Company (unless the Collateral Agent or such Buyer waives such limitation by providing 65 days' advance written notice); and (c) as soon as practicable after receipt of a Default Notice, the Escrow Agent shall deliver the specified number of Pledged Shares along with the applicable Transfer Documents to the Company's Transfer Agent with instructions to issue such Pledged Shares to the Collateral Agent in accordance with the Irrevocable Transfer Agent Instructions of even date herewith. b. Upon receipt of the Pledged Shares issued to a the Collateral Agent, the Collateral Agent shall have the right to (i) sell the Pledged Shares and to apply the proceeds of such sales, net of any selling commissions, to the Obligations owed to the Buyers by the Company under the Transaction Documents, including, without limitation, outstanding principal, interest, legal fees, and any other amounts owed to the Buyers, and exercise all other rights and (ii) any and all remedies of a secured party with respect to such property as may be available under the Uniform Commercial Code as in effect in the State of New Jersey. To the extent that the net proceeds received by the Buyers are insufficient to satisfy the Obligations in full, the Buyers shall be entitled to a deficiency judgment against each Pledgor for such amount. the Collateral Agent shall have the absolute right to sell or dispose of the Pledged Shares in any manner it sees fit and shall have no liability to any Pledgor or any other party for selling or disposing of such Pledged Shares even if other methods of sales or dispositions would or allegedly would result in greater proceeds than the method actually used. Each Pledgor shall remain liable for shortfalls, if any, that may exist after the Collateral Agent has exhausted all remedies hereunder. The Collateral Agent shall return any Pledged Shares issued to it and instruct the Escrow Agent to return any Pledged Shares it is holding in escrow after the full satisfaction of the Obligations. c. Each right, power and remedy of the Collateral Agent provided for in this Agreement or any other Transaction Document shall be cumulative and concurrent and shall be in addition to every other such right, power or remedy. The exercise or beginning of the exercise by the Collateral Agent of any one or more of the rights, powers or remedies provided for in this Agreement or any other Transaction Document or now or hereafter existing at law or in equity or by statute or otherwise shall not preclude the simultaneous or later exercise by the Collateral Agent or any Buyer of all such other rights, powers or remedies, and no failure or delay on the part of the Collateral Agent or any Buyer to 3 exercise any such right, power or remedy shall operate as a waiver thereof. No notice to or demand on any Pledgor in any case shall entitle any Pledgor to any other or further notice or demand in similar or other circumstances or constitute a waiver of any of the rights of the Collateral Agent to any other further action in any circumstances without demand or notice. The Collateral Agent shall have the full power to enforce or to assign or contract is rights under this Agreement to a third party. 7. REPRESENTATIONS, WARRANTIES AND COVENANTS. a. Each Pledgor represents, warrants and covenants that: (i) Pledgor is, and at the time when pledged hereunder will be, the legal, beneficial and record owner of, and has (and will have) good and valid title to, all Pledged Shares pledged by it hereunder, subject to no pledge, lien, mortgage, hypothecation, security interest, charge, option or other encumbrance whatsoever; (ii) Pledgor has full power, authority and legal right to pledge all the Pledged Shares pledged pursuant to this Agreement; and (iii) all the Pledged Shares have been duly and validly issued, are fully paid and non-assessable and are subject to no options to purchase or similar rights. b. Each Pledgor covenants and agrees to take all reasonable steps to defend the Collateral Agent's right, title and security interest in and to the Pledged Shares and the proceeds thereof against the claims and demands of all persons whomsoever (other than the Collateral Agent and the Escrow Agent); and each Pledgor covenants and agrees that it will have like title to and right to pledge any other property at any time hereafter pledged to the Collateral Agent as collateral hereunder and will likewise take all reasonable steps to defend the right thereto and security interest therein of the Collateral Agent. c. Each Pledgor covenants and agrees to take no action which would violate or be inconsistent with any of the terms of any Transaction Document, or which would have the effect of impairing the position or interests of the Collateral Agent under any Transaction Document. d. Each Pledgor represents, warrants and covenants that (i) unless otherwise indicated on Schedule II attached hereto, Pledgor has been the beneficial owner of the Pledged Shares for a period of not less than two (2) years as computed in accordance with Rule 144(d) promulgated under the Securities Act of 1933, as amended, and (ii) this Agreement is made with recourse. Upon an Event of Default, the Collateral Agent shall be deemed to have acquired the Pledged Shares on the date they were acquired by the Pledgor. Unless otherwise indicated on the Schedule II attached hereto, each Pledgor is an "affiliate" of the Company, as such term is defined in Rule 144(a) promulgated under the Securities Act of 1933, as amended. 8. CONCERNING THE ESCROW AGENT. a. The Escrow Agent undertakes to perform only such duties as are expressly set forth herein and no implied duties or obligations shall be read into this Agreement against the Escrow Agent. 4 b. The Escrow Agent may act in reliance upon any writing or instrument or signature which it, in good faith, believes to be genuine, may assume the validity and accuracy of any statement or assertion contained in such a writing or instrument, and may assume that any person purporting to give any writing, notice, advice or instructions in connection with the provisions hereof has been duly authorized to do so. The Escrow Agent shall not be liable in any manner for the sufficiency or correctness as to form, manner, and execution, or validity of any instrument deposited in this escrow, nor as to the identity, authority, or right of any person executing the same; and its duties hereunder shall be limited to the safekeeping of such certificates, monies, instruments, or other document received by it as such escrow holder, and for the disposition of the same in accordance with the written instruments accepted by it in the escrow. c. The Collateral Agent and the Pledgors hereby agree, to defend and indemnify the Escrow Agent and hold it harmless from any and all claims, liabilities, losses, actions, suits, or proceedings at law or in equity, or any other expenses, fees, or charges of any character or nature which it may incur or with which it may be threatened by reason of its acting as Escrow Agent under this Agreement; and in connection therewith, to indemnify the Escrow Agent against any and all expenses, including attorneys' fees and costs of defending any action, suit, or proceeding or resisting any claim (and any costs incurred by the Escrow Agent pursuant to Sections 6.4 or 6.5 hereof). The Escrow Agent shall be vested with a lien on all property deposited hereunder, for indemnification of attorneys' fees and court costs regarding any suit, proceeding or otherwise, or any other expenses, fees, or charges of any character or nature, which may be incurred by the Escrow Agent by reason of disputes arising between the makers of this escrow as to the correct interpretation of this Agreement and instructions given to the Escrow Agent hereunder, or otherwise, with the right of the Escrow Agent, regardless of the instructions aforesaid, to hold said property until and unless said additional expenses, fees, and charges shall be fully paid. Any fees and costs charged by the Escrow Agent for serving hereunder shall be paid by the Pledgors. d. If any of the parties shall be in disagreement about the interpretation of this Agreement, or about the rights and obligations, or the propriety of any action contemplated by the Escrow Agent hereunder, the Escrow Agent may, at its sole discretion deposit the Pledged Materials with the Clerk of the United States District Court of New Jersey, sitting in Newark, New Jersey, and, upon notifying all parties concerned of such action, all liability on the part of the Escrow Agent shall fully cease and terminate. The Escrow Agent shall be indemnified by the Pledgors, the Company and the Collateral Agent for all costs, including reasonable attorneys' fees in connection with the aforesaid proceeding, and shall be fully protected in suspending all or a part of its activities under this Agreement until a final decision or other settlement in the proceeding is received. e. The Escrow Agent may consult with counsel of its own choice (and the costs of such counsel shall be paid by the Pledgors, the Company, and Collateral Agent) and shall have full and complete authorization and protection for any action taken or suffered by it hereunder in good faith and in accordance with the opinion of such counsel. The Escrow Agent shall not be liable for any mistakes of fact or error of judgment, or for any actions or omissions of any kind, unless caused by its willful misconduct or gross negligence. 5 f. The Escrow Agent may resign upon ten (10) days' written notice to the parties in this Agreement. If a successor Escrow Agent is not appointed within this ten (10) day period, the Escrow Agent may petition a court of competent jurisdiction to name a successor. 9. CONFLICT WAIVER. The Pledgors hereby acknowledges that the Escrow Agent is general counsel to the Collateral Agent, a partner in the general partner of the Collateral Agent, and counsel to the Collateral Agent in connection with the transactions contemplated and referred herein. The Pledgors agrees that in the event of any dispute arising in connection with this Agreement or otherwise in connection with any transaction or agreement contemplated and referred herein, the Escrow Agent shall be permitted to continue to represent the Collateral Agent and the Pledgors will not seek to disqualify such counsel and waives any objection Pledgors might have with respect to the Escrow Agent acting as the Escrow Agent pursuant to this Agreement. 10. NOTICES. Unless otherwise provided herein, all demands, notices, consents, service of process, requests and other communications hereunder shall be in writing and shall be delivered in person or by overnight courier service, or mailed by certified mail, return receipt requested, addressed: If to the Company, to: Radial Energy, Inc. 1313 East Maple Street, Suite 223 Bellingham, WA 98225 Attn: Chief Financial Officer Telephone: (360) 685-4240 With a copy to: Greenberg Traurig, LLP 650 Town Center Drive, Suite 1700 Costa Mesa, CA 92626 Attn: Raymond Lee, Esq. Telephone: (714) 708-6510 If to the Collateral Agent: Cornell Capital Partners LP 101 Hudson Street, Suite 3700 Jersey City, NJ 07302 Attention: Mark A. Angelo Telephone: (201) 985-8300 Facsimile: (201) 985-8744 With copy to: Cornell Capital Partners, LP 101 Hudson Street, Suite 3700 Jersey City, NJ 07302 Attention: Troy Rillo, Esq. Telephone: (201) 985-8300 Facsimile: (201) 985-1964 If to the Pledgors, to: To the addresses provided on the signature pages attached hereto 6 Any such notice shall be effective (a) when delivered, if delivered by hand delivery or overnight courier service, or (b) five (5) days after deposit in the United States mail, as applicable. 11. BINDING EFFECT. All of the covenants and obligations contained herein shall be binding upon and shall inure to the benefit of the respective parties, their successors and assigns. 12. GOVERNING LAW; VENUE; SERVICE OF PROCESS. The validity, interpretation and performance of this Agreement shall be determined in accordance with the laws of the State of New Jersey applicable to contracts made and to be performed wholly within that state except to the extent that Federal law applies. The parties hereto agree that any disputes, claims, disagreements, lawsuits, actions or controversies of any type or nature whatsoever that, directly or indirectly, arise from or relate to this Agreement, including, without limitation, claims relating to the inducement, construction, performance or termination of this Agreement, shall be brought in the state superior courts located in Hudson County, New Jersey or Federal district courts located in Newark, New Jersey, and the parties hereto agree not to challenge the selection of that venue in any such proceeding for any reason, including, without limitation, on the grounds that such venue is an inconvenient forum. The parties hereto specifically agree that service of process may be made, and such service of process shall be effective if made, pursuant to Section 8 hereto. 13. ENFORCEMENT COSTS. If any legal action or other proceeding is brought for the enforcement of this Agreement, or because of an alleged dispute, breach, default or misrepresentation in connection with any provisions of this Agreement, the successful or prevailing party or parties shall be entitled to recover reasonable attorneys' fees, court costs and all expenses even if not taxable as court costs (including, without limitation, all such fees, costs and expenses incident to appeals), incurred in that action or proceeding, in addition to any other relief to which such party or parties may be entitled. 14. REMEDIES CUMULATIVE. No remedy herein conferred upon any party is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law, in equity, by statute, or otherwise. No single or partial exercise by any party of any right, power or remedy hereunder shall preclude any other or further exercise thereof. 15. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute the same instrument. 16. NO PENALTIES. No provision of this Agreement is to be interpreted as a penalty upon any party to this Agreement. 17. JURY TRIAL. EACH OF THE COLLATERAL AGENT AND THE PLEDGOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT WHICH IT MAY HAVE TO A TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION BASED HEREON, OR ARISING OUT OF, UNDER OR IN ANY WAY CONNECTED WITH THE DEALINGS BETWEEN COLLATERAL AGENT AND PLEDGOR, THIS PLEDGE AND ESCROW AGREEMENT OR ANY DOCUMENT EXECUTED IN 7 CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. [REMAINDER OF PAGE INTENTIALLY LEFT BLANK] 8 IN WITNESS WHEREOF, each Pledgor has caused this Pledge and Escrow Agreement to be executed by its respective duly authorized officer, as of the date first above written. By: /s/ GREGORY LEIGH LYONS _______________________ Name: Gregory Leigh Lyons Address: 1313 E. Maple Street, Suite 223 Bellingham, WA 98225 FOR VALUE RECEIVED, the Pledgor hereby unconditionally and absolutely guarantees the Company's Obligations (as defined above). This Agreement is made with recourse. BY: /s/ GREGORY LEIGH LYONS _______________________ NAME: Gregory Leigh Lyons 9 IN WITNESS WHEREOF, each Pledgor has caused this Pledge and Escrow Agreement to be executed by its respective duly authorized officer, as of the date first above written. By: /s/ OMAR MICHAEL HAYES ______________________ Name: Omar Michael Hayes Address: FOR VALUE RECEIVED, the Pledgor hereby unconditionally and absolutely guarantees the Company's Obligations (as defined above). This Agreement is made with recourse. BY: /s/ OMAR MICHAEL HAYES ______________________ NAME: Omar Michael Hayes 10 IN WITNESS WHEREOF, each Pledgor has caused this Pledge and Escrow Agreement to be executed by its respective duly authorized officer, as of the date first above written. GUILDHALL LIMITED By: /s/ RICHARD SMITH _________________________________________ Name: Richard Smith Title: Authorized Signatory Address: 35 Barrack Road Belize City, Belize FOR VALUE RECEIVED, the Pledgor hereby unconditionally and absolutely guarantees the Company's Obligations (as defined above). This Agreement is made with recourse. GUILDHALL LIMITED BY: /s/ RICHARD SMITH ______________________ NAME: Richard Smith 11 IN WITNESS WHEREOF, each Pledgor has caused this Pledge and Escrow Agreement to be executed by its respective duly authorized officer, as of the date first above written. LLORIA CORPORATION LIMITED By: /s/ ROBERT SEELEY _____________________________ Name: Robert Seeley Title: Authorized Signatory Address: Suite 906 Ocean Centre Harbour City 5 Canton Road, TST Kowloon, Hong Kong FOR VALUE RECEIVED, the Pledgor hereby unconditionally and absolutely guarantees the Company's Obligations (as defined above). This Agreement is made with recourse. LLORIA CORPORATION LIMITED BY: /s/ ROBERT SEELEY ___________________ NAME: Robert Seeley 12 IN WITNESS WHEREOF, each Pledgor has caused this Pledge and Escrow Agreement to be executed by its respective duly authorized officer, as of the date first above written. PROPHETIC LIMITED By: /s/ CHRIS SMITH ___________________________ Name: Chris Smith Title: Authorized Signatory Address: Suite 100 The Studio St. Nicholas Close Elstree, Hertfordshire U.K. WD6 3EW FOR VALUE RECEIVED, the Pledgor hereby unconditionally and absolutely guarantees the Company's Obligations (as defined above). This Agreement is made with recourse. PROPHETIC LIMITED BY: /s/ CHRIS SMITH __________________________ NAME: Chris Smith 13
SCHEDULE I PLEDGED SHARES ___________________________________________________________________________________ PLEDGOR PLEDGED SHARES ___________________________________________________________________________________ Gregory Leigh Lyons 2,672,000 Shares of Common Stock of Radial Energy, Inc. (certificate numbers: _______, ________) ___________________________________________________________________________________ Omar Michael Hayes 1,500,000 Shares of Common Stock of Radial Energy, Inc. (certificate numbers: _______, ________) ___________________________________________________________________________________ Guildhall Ltd. 1,160,000 Shares of Common Stock of Radial Energy, Inc. (certificate numbers: _______, ________) ___________________________________________________________________________________ Lloria Corporation Limited 1,100,000 Shares of Common Stock of Radial Energy, Inc. (certificate numbers: _______, ________) ___________________________________________________________________________________ Prophetic Limited 1,240,000 Shares of Common Stock of Radial Energy, Inc. (certificate numbers: _______, ________) ___________________________________________________________________________________
14 SCHEDULE II EXCEPTIONS 15 EX-10 8 ex10-15.txt EXHIBIT 10.15 EXHIBIT 10.15 INVESTOR REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of October 2, 2006, by and among RADIAL ENERGY, INC., a Nevada corporation (the "COMPANY"), and the undersigned investors listed on Schedule I attached hereto (each, an "INVESTOR" and collectively, the "INVESTORS"). WHEREAS: A. In connection with the Securities Purchase Agreement by and among the parties hereto of even date herewith (the "SECURITIES PURCHASE AGREEMENT"), the Company has agreed, upon the terms and subject to the conditions of the Securities Purchase Agreement, to issue and sell to the Investors secured convertible debentures (the "CONVERTIBLE DEBENTURES") which shall be convertible into that number of shares of the Company's common stock, par value $0.001 per share (the "COMMON STOCK"), pursuant to the terms of the Securities Purchase Agreement for an aggregate purchase price of up to Five Million Dollars ($5,000,000). Capitalized terms not defined herein shall have the meaning ascribed to them in the Securities Purchase Agreement. B. To induce the Investors to execute and deliver the Securities Purchase Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the "SECURITIES ACT"), and applicable state securities laws. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Investors hereby agree as follows: 1. DEFINITIONS. As used in this Agreement, the following terms shall have the following meanings: (a) "ALLOWABLE BLACKOUT PERIOD" means each Blackout Period provided that the Company promptly (i) notifies the Investors in writing that a Blackout Event has occurred (provided that in each notice the Company will not disclose material, non-public information to the Investors) and the date on which the Blackout Period will begin, and (ii) notify the Investors in writing of the date on which the Blackout Period ends; and, provided further, that during any three hundred sixty five (365) day period such Blackout Period does not exceed an aggregate of one hundred twenty (120) days and the first day of any such Blackout Period must be at least twenty five (25) Trading Days after the last day of any prior Blackout Period. (b) "BLACKOUT EVENT" means the happening of an event or development that in the sole, good faith discretion of the Company requires the amendment or supplement of the Registration Statement or prospectus included therein, including without limitation the filing of a periodic report under the Securities and Exchange Act of 1934, the happening of an event giving rise to an Allowable Grace Period, or the happening of any other event as a result of which the prospectus included in a Registration Statement, as then in effect, includes an untrue statement of a material fact or omission to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (c) "BLACKOUT PERIOD" means the period between the time the Company provides written notice to the Investor of the happening of a Blackout Event and the delivery to the Investors of a prospectus supplement and, if applicable, amended registration statement declared effective by the SEC. (d) "EFFECTIVE DATE" means the date the Registration Statement is first declared effective. (e) "PERSON" means a corporation, a limited liability company, an association, a partnership, an organization, a business, an individual, a governmental or political subdivision thereof or a governmental agency. (f) "REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration effected by preparing and filing one or more Registration Statements (as defined below) in compliance with the Securities Act and pursuant to Rule 415 under the Securities Act or any successor rule providing for offering securities on a continuous or delayed basis ("RULE 415"), and the declaration or ordering of effectiveness of such Registration Statement(s) by the United States Securities and Exchange Commission (the "SEC"). (g) "REGISTRABLE SECURITIES" means the shares of Common Stock issuable to the Investors upon conversion of the Convertible Debentures pursuant to the Securities Purchase Agreement and the Warrant Shares, as this term is defined in the Securities Purchase Agreement. (h) "REGISTRATION STATEMENT" means a registration statement under the Securities Act which covers the Registrable Securities. 2. REGISTRATION. (a) Subject to the terms and conditions of this Agreement, the Company shall prepare and file, no later than thirty (30) days from the date hereof (the "SCHEDULED FILING DEADLINE"), with the SEC a registration statement on Form S-1 or SB-2 (or, if the Company is then eligible, on Form S-3) under the Securities Act (the "INITIAL REGISTRATION STATEMENT") for the resale by the Investors of the Registrable Securities, which includes at least 300% of the number of shares underlying the Convertible Debentures as of the last trading date prior to the date filed and 100% of the Warrant Shares. The Company shall cause the Registration Statement to remain effective until the earlier of (a) two (2) years following the Effective Date, or (b) the date all of the Registrable Securities have been sold by the Investors (the "REGISTRATION PERIOD"). Prior to the filing of the Registration Statement with the SEC, the Company shall furnish a copy of the Initial Registration Statement to the Investors for their review and comment. The Investors shall furnish comments on the Initial Registration Statement to the Company within twenty-four (24) hours of the receipt thereof from the Company. (b) EFFECTIVENESS OF THE INITIAL REGISTRATION STATEMENT. The Company shall use its best efforts (i) to have the Initial Registration Statement declared effective by the SEC no later than one hundred fifty (150) days from the date hereof (the "SCHEDULED EFFECTIVE DEADLINE") and (ii) to insure that the Initial Registration Statement and any subsequent Registration Statement remains in effect until the Registration Period has expired, subject to the terms and conditions of this Agreement. (c) FAILURE TO FILE OR OBTAIN EFFECTIVENESS OF THE REGISTRATION STATEMENT. In the event the Registration Statement is not filed by the Scheduled Filing Deadline or is not declared effective by the SEC on or before the Scheduled Effective Date, or if after the Registration Statement has been declared effective by the SEC, sales cannot be made pursuant to the Registration Statement beyond any Allowable Blackout Period because the Company failed to keep the Registration Statement effective or current, then as partial relief for the damages to any holder of Registrable Securities by reason of any such delay in or reduction of its ability to sell the underlying shares of Common Stock (which remedy shall not be exclusive of any other remedies at law or in equity), the Company will pay as liquidated damages (the "LIQUIDATED DAMAGES") to the holder, at the holder's option, either a cash amount or shares of the Company's Common Stock within three (3) business days, after demand therefore, equal to one percent (1%) of the liquidated value of the Convertible Debentures outstanding as Liquidated Damages for each thirty (30) day period after the Scheduled Filing Deadline or the Scheduled Effective Date as the case may be. Notwithstanding anything herein to the contrary, in no event shall Liquidated Damages exceed twenty percent (20%) of the aggregate Purchase Price for all Investors. Common Stock issued as Liquidated Damages shall not be deemed Registrable Securities. (d) LIQUIDATED DAMAGES. The Company and the Investor hereto acknowledge and agree that the sums payable under subsection 2(c) above shall constitute liquidated damages and not penalties and are in addition to all other rights of the Investor, including the right to call a default. The parties further acknowledge that (i) the amount of loss or damages likely to be incurred is incapable or is difficult to precisely estimate, (ii) the amounts specified in such subsections bear a reasonable relationship to, and are not plainly or grossly disproportionate to, the probable loss likely to be incurred in connection with any failure by the Company to obtain or maintain the effectiveness of a Registration Statement, (iii) one of the reasons for the Company and the Investor reaching an agreement as to such amounts was the uncertainty and cost of litigation regarding the question of actual damages, and (iv) the Company and the Investor are sophisticated business parties and have been represented by sophisticated and able legal counsel and negotiated this Agreement at arm's length. 3. RELATED OBLIGATIONS. (a) Subject to any Allowable Blackout Period, the Company shall keep the Registration Statement effective pursuant to Rule 415 at all times during the Registration Period, which Registration Statement (including any amendments or supplements thereto and prospectuses contained therein) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading. (b) The Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to a Registration Statement and the prospectus used in connection with such 3 Registration Statement, which prospectus is to be filed pursuant to Rule 424 promulgated under the Securities Act, as may be necessary to keep such Registration Statement effective at all times during the Registration Period, and, during such period, comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities of the Company covered by such Registration Statement. In the case of (i) amendments and supplements to a Registration Statement which are required to be filed pursuant to this Agreement (including pursuant to this Section 3(b)) by reason of the Company's filing a report on Form 10-KSB, Form 10-QSB or Form 8-K or any analogous report under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), the Company shall, if not automatically incorporated by reference into the Registration Statement if applicable, shall file such amendments or supplements with the SEC necessary to incorporate such report into the Registration Statement or prospectus within one Trading Day (except as otherwise provided in subpart (iii) below) following the day on which the Exchange Act report is filed which created the requirement for the Company to amend or supplement the Registration Statement or prospectus (ii) the filing of any post-effective amendment to the Registration Statement the Company shall use its best efforts to have the amended Registration Statement declared effective by the SEC no later than ninety (90) days from filing thereof, (iii) amendments and supplements to a Registration Statement which are required to be filed pursuant to this Agreement (including pursuant to this Section 3(b)) by reason of any event which requires the Company to file a current report on From 8-K that requires financial information under Item 9.01(a) or (b), the Company shall, if not automatically incorporated by reference into the Registration Statement if applicable, shall file such amendments or supplements with the SEC necessary to incorporate such report into the Registration Statement or prospectus within seventy five (75) days following the happening of such event. (c) The Company shall furnish to each Investor whose Registrable Securities are included in any Registration Statement, without charge, (i) at least one (1) copy of such Registration Statement as declared effective by the SEC and any amendment(s) thereto, including financial statements and schedules, all documents incorporated therein by reference, all exhibits and each preliminary prospectus, (ii) ten (10) copies of the final prospectus included in such Registration Statement and all amendments and supplements thereto (or such other number of copies as such Investor may reasonably request) and (iii) such other documents as such Investor may reasonably request from time to time in order to facilitate the disposition of the Registrable Securities owned by such Investor. (d) The Company shall use its best efforts to (i) register and qualify the Registrable Securities covered by a Registration Statement under such other securities or "blue sky" laws of such jurisdictions in the United States as any Investor reasonably requests, (ii) prepare and file in those jurisdictions, such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (w) make any change to its articles of incorporation or by-laws, (x) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), (y) subject itself to general 4 taxation in any such jurisdiction, or (z) file a general consent to service of process in any such jurisdiction. The Company shall promptly notify each Investor who holds Registrable Securities of the receipt by the Company of any notification with respect to the suspension of the registration or qualification of any of the Registrable Securities for sale under the securities or "blue sky" laws of any jurisdiction in the United States or its receipt of actual notice of the initiation or threat of any proceeding for such purpose. (e) As promptly as practicable after becoming aware of a Blackout Event, the Company shall notify each Investor in writing of the happening of the Blackout Event (provided that in no event shall such notice contain any material, nonpublic information), and promptly prepare a supplement or amendment to such Registration Statement to correct such untrue statement or omission or to make such prospectus current, and deliver ten (10) copies of such supplement or amendment to each Investor. Each Investor shall not sell or transfer any Registrable Securities pursuant to the Registration Statement during the Blackout Period, provided however, the Company shall cause its transfer agent to deliver unlegended shares of Common Stock to a transferee of an Investor in accordance with the terms of the Securities Purchase Agreement in connection with any sale of Registrable Securities with respect to which an Investor has entered into a contract for sale and delivered a copy of the prospectus included as part of the applicable Registration Statement (unless an exemption from such prospectus delivery requirement exists) prior to the Investor's receipt of the notice of a Blackout Event and for which the Investor has settled . The Company shall also promptly notify each Investor in writing (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed, and when a Registration Statement or any post-effective amendment has become effective, (ii) of any request by the SEC for amendments or supplements to a Registration Statement or related prospectus or related information, and (iii) of the Company's reasonable determination that a post-effective amendment to a Registration Statement would be appropriate. (f) The Company shall use its best efforts to prevent the issuance of any stop order or other suspension of effectiveness of a Registration Statement, or the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction within the United States of America and, if such an order or suspension is issued, to obtain the withdrawal of such order or suspension at the earliest possible moment and to notify each Investor who holds Registrable Securities being sold of the issuance of such order and the resolution thereof or its receipt of actual notice of the initiation or threat of any proceeding for such purpose. (g) The Company shall make available for inspection by (i) any Investor and (ii) one (1) firm of accountants or other agents retained by the Investors (collectively, the "INSPECTORS") all pertinent financial and other records, and pertinent corporate documents and properties of the Company (collectively, the "RECORDS"), as shall be reasonably deemed necessary by each Inspector, and cause the Company's officers, directors and employees to supply all information which any Inspector may reasonably request; provided, however, that each Inspector shall agree, and each Investor hereby agrees, to hold in strict confidence and shall not make any disclosure (except to an Investor) or use any Record or other information which the Company determines in good faith to be confidential, and of which determination the Inspectors are so notified, unless (a) the disclosure of such Record is necessary to avoid or correct a misstatement or omission in any Registration Statement or is otherwise required under the Securities Act, (b) the release of such Record is ordered pursuant to 5 a final, non-appealable order from a court or governmental body of competent jurisdiction the information in such Records has been made generally available to the public in accordance with Regulation FD other than by disclosure in violation of this or any other agreement of which the Inspector and the Investor has knowledge. Each Investor agrees that it shall, upon learning that disclosure of such Records is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, the Records deemed confidential. (h) The Company shall hold in confidence and not make any disclosure of information concerning an Investor provided to the Company unless in the sole, good faith determination of the Company (i) disclosure of such information is necessary to comply with federal or state securities laws, (ii) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of such information is ordered pursuant to a subpoena or other final, non-appealable order from a court or governmental body of competent jurisdiction, or (iv) such information has been made generally available to the public other than by disclosure in violation of this Agreement or any other agreement. The Company agrees that it shall, upon learning that disclosure of such information concerning an Investor is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt written notice to such Investor and allow such Investor, at the Investor's expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information. (i) The Company shall use its best efforts either to cause all the Registrable Securities covered by a Registration Statement (i) to be listed on each securities exchange on which securities of the same class or series issued by the Company are then listed, if any, if the listing of such Registrable Securities is then permitted under the rules of such exchange or (ii) the inclusion for quotation on the National Association of Securities Dealers, Inc. OTC Bulletin Board for such Registrable Securities. The Company shall pay all fees and expenses in connection with satisfying its obligation under this Section 3(j). (j) The Company shall cooperate with the Investors who hold Registrable Securities being offered and, to the extent applicable, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legend) representing the Registrable Securities to be offered pursuant to a Registration Statement and enable such certificates to be in such denominations or amounts, as the case may be, as the Investors may reasonably request and registered in such names as the Investors may request. (k) The Company shall otherwise use its best efforts to comply with all applicable rules and regulations of the SEC in connection with any registration hereunder. (l) Within two (2) business days after a Registration Statement which covers Registrable Securities is declared effective by the SEC, the Company shall deliver, and shall cause legal counsel for the Company to deliver, to the transfer agent for such Registrable Securities (with copies to the Investors whose Registrable Securities are included in such Registration Statement) confirmation that such Registration Statement has been declared effective by the SEC in the form attached hereto as EXHIBIT A. 6 (m) The Company shall take all other reasonable actions necessary to expedite and facilitate disposition by the Investors of Registrable Securities pursuant to a Registration Statement. (n) Notwithstanding anything to the contrary herein, at any time after the Effective Date, the Company may delay the disclosure of material, non-public information concerning the Company the disclosure of which at the time is not, in the good faith opinion of the Board of Directors of the Company (following consultation with its counsel), in the best interest of the Company (a "GRACE PERIOD"); provided, that the Company shall promptly (i) notify the Investors in writing that such determination has been made (provided that in each notice the Company will not disclose the content of such material, non-public information to the Investors) and the date on which the Grace Period will begin, and (ii) notify the Investors in writing of the date on which the Grace Period ends; and, provided further, that during any three hundred sixty five (365) day period such Grace Periods shall not exceed an aggregate of twenty (20) days and the first day of any Grace Period must be at ten (10) trading days after the last day of any prior Grace Period (each, an "ALLOWABLE GRACE PERIOD"). For purposes of determining the length of a Grace Period above, the Grace Period shall begin on and include the date the Investors receive the notice referred to in clause (i) and shall end on and include the later of the date the Investors receive the notice referred to in clause (ii) and the date referred to in such notice. Upon expiration of the Grace Period, the Company shall again be bound by the first sentence of Section 3(e) with respect to the information giving rise thereto unless such material, non-public information is no longer applicable. Notwithstanding anything to the contrary, the Company shall cause its transfer agent to deliver unlegended shares of Common Stock to a transferee of an Investor in accordance with the terms of the Securities Purchase Agreement in connection with any sale of Registrable Securities with respect to which an Investor has entered into a contract for sale and delivered a copy of the prospectus included as part of the applicable Registration Statement (unless an exemption from such prospectus delivery requirement exists) prior to the Investor's receipt of the notice of a Grace Period and for which the Investor has settled. 4. OBLIGATIONS OF THE INVESTORS. Each Investor agrees that, upon receipt of any notice from the Company of a Blackout Event or any stop order or other suspension of the effectiveness of the registration Statement, such Investor will immediately discontinue disposition of Registrable Securities pursuant to any Registration Statement(s) covering such Registrable Securities until such Investor's receipt of the copies of the supplemented or amended prospectus contemplated by Section 3(e) or receipt of notice that no supplement or amendment is required. Notwithstanding anything to the contrary, the Company shall cause its transfer agent to deliver unlegended certificates for shares of Common Stock to a transferee of an Investor in accordance with the terms of the Securities Purchase Agreement in connection with any sale of Registrable Securities with respect to which an Investor has entered into a contract for sale prior to the Investor's receipt of a notice from the Company of the happening of any event of the kind described in Section 3(f) or the first sentence of 3(e) and for which the Investor has settled. 5. EXPENSES OF REGISTRATION. 7 All expenses incurred in connection with registrations, filings or qualifications pursuant to Sections 2 and 3, including, without limitation, all registration, listing and qualifications fees, printers, legal and accounting fees shall be paid by the Company. 6. INDEMNIFICATION. With respect to Registrable Securities which are included in a Registration Statement under this Agreement: (a) To the fullest extent permitted by law, the Company will, and hereby does, indemnify, hold harmless and defend each Investor, the directors, officers, partners, employees, agents, representatives of, and each Person, if any, who controls any Investor within the meaning of the Securities Act or the Exchange Act (each, an "INDEMNIFIED PERSON"), against any losses, claims, damages, liabilities, judgments, fines, penalties, charges, costs, reasonable attorneys' fees, amounts paid in settlement or expenses, joint or several (collectively, "Claims") incurred in investigating, preparing or defending any action, claim, suit, inquiry, proceeding, investigation or appeal taken from the foregoing by or before any court or governmental, administrative or other regulatory agency, body or the SEC, whether pending or threatened, whether or not an indemnified party is or may be a party thereto ("INDEMNIFIED DAMAGES"), to which any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in a Registration Statement or any post-effective amendment thereto or in any filing made in connection with the qualification of the offering under the securities or other "blue sky" laws of any jurisdiction in which Registrable Securities are offered ("BLUE SKY FILING"), or the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) any untrue statement or alleged untrue statement of a material fact contained in any final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading; or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any other law, including, without limitation, any state securities law, or any rule or regulation there under relating to the offer or sale of the Registrable Securities pursuant to a Registration Statement (the matters in the foregoing clauses (i) through (iii) being, collectively, "VIOLATIONS"). The Company shall reimburse the Investors and each such controlling person promptly as such expenses are incurred and are due and payable, for any legal fees or disbursements or other reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a): (x) shall not apply to a Claim by an Indemnified Person arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by such Indemnified Person expressly for use in connection with the preparation of the Registration Statement or any such amendment thereof or supplement thereto; (y) shall not be available to the extent such Claim is based on a failure of the Investor to deliver or to cause to be delivered the prospectus made available by the Company, if such prospectus was timely made available by the Company pursuant to Section 3(c); and (z) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be 8 unreasonably withheld. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of the Registrable Securities by the Investors pursuant to Section 9 hereof. (b) In connection with a Registration Statement, each Investor agrees to severally and not jointly indemnify, hold harmless and defend, to the same extent and in the same manner as is set forth in Section 6(a), the Company, each of its directors, each of its officers, employees, representatives, or agents and each Person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act (each an "INDEMNIFIED PARTY"), against any Claim or Indemnified Damages to which any of them may become subject, under the Securities Act, the Exchange Act or otherwise, insofar as such Claim or Indemnified Damages arise out of or is based upon any Violation, in each case to the extent, and only to the extent, that such Violation occurs in reliance upon and in conformity with written information furnished to the Company by such Investor expressly for use in connection with such Registration Statement; and, subject to Section 6(d), such Investor will reimburse any legal or other expenses reasonably incurred by them in connection with investigating or defending any such Claim; provided, however, that the indemnity agreement contained in this Section 6(b) and the agreement with respect to contribution contained in Section 7 shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of such Investor, which consent shall not be unreasonably withheld; provided, further, however, that the Investor shall be liable under this Section 6(b) for only that amount of a Claim or Indemnified Damages as does not exceed the net proceeds to such Investor as a result of the sale of Registrable Securities pursuant to such Registration Statement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party and shall survive the transfer of the Registrable Securities by the Investors pursuant to Section 9. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(b) with respect to any prospectus shall not inure to the benefit of any Indemnified Party if the untrue statement or omission of material fact contained in the prospectus was corrected and such new prospectus was delivered to each Investor prior to such Investor's use of the prospectus to which the Claim relates. (c) Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6 of notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party, as the case may be; provided, however, that an Indemnified Person or Indemnified Party shall have the right to retain its own counsel with the fees and expenses of not more than one (1) counsel for such Indemnified Person or Indemnified Party to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified Person or Indemnified Party and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person or Indemnified Party and any other party represented by such counsel in such proceeding. The Indemnified Party or Indemnified Person shall cooperate fully with the indemnifying party in 9 connection with any negotiation or defense of any such action or claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the Indemnified Party or Indemnified Person which relates to such action or claim. The indemnifying party shall keep the Indemnified Party or Indemnified Person fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. No indemnifying party shall be liable for any settlement of any action, claim or proceeding effected without its prior written consent; provided, however, that the indemnifying party shall not unreasonably withhold, delay or condition its consent. No indemnifying party shall, without the prior written consent of the Indemnified Party or Indemnified Person, consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party or Indemnified Person of a release from all liability in respect to such claim or litigation. Following indemnification as provided for hereunder, the indemnifying party shall be subrogated to all rights of the Indemnified Party or Indemnified Person with respect to all third parties, firms or corporations relating to the matter for which indemnification has been made. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Section 6, except to the extent that the indemnifying party is prejudiced in its ability to defend such action. (d) The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or Indemnified Damages are incurred. (e) The indemnity agreements contained herein shall be in addition to (i) any cause of action or similar right of the Indemnified Party or Indemnified Person against the indemnifying party or others, and (ii) any liabilities the indemnifying party may be subject to pursuant to the law. 7. CONTRIBUTION. To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however, that: (i) no seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of fraudulent misrepresentation; and (ii) contribution by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities. 8. REPORTS UNDER THE EXCHANGE ACT. With a view to making available to the Investors the benefits of Rule 144 promulgated under the Securities Act or any similar rule or regulation of 10 the SEC that may at any time permit the Investors to sell securities of the Company to the public without registration ("RULE 144") the Company agrees to: (a) make and keep public information available, as those terms are understood and defined in Rule 144; (b) file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act so long as the Company remains subject to such requirements (it being understood that nothing herein shall limit the Company's obligations under Section 4(c) of the Securities Purchase Agreement) and the filing of such reports and other documents as are required by the applicable provisions of Rule 144; and (c) furnish to each Investor so long as such Investor owns Registrable Securities, promptly upon request, (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the Securities Act and the Exchange Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested to permit the Investors to sell such securities pursuant to Rule 144 without registration. 9. AMENDMENT OF REGISTRATION RIGHTS. Provisions of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and Investors who then hold at least two-thirds (2/3) of the Registrable Securities. Any amendment or waiver effected in accordance with this Section 9 shall be binding upon each Investor and the Company. No such amendment shall be effective to the extent that it applies to fewer than all of the holders of the Registrable Securities. No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of this Agreement unless the same consideration also is offered to all of the parties to this Agreement. 10. MISCELLANEOUS. (a) A Person is deemed to be a holder of Registrable Securities whenever such Person owns or is deemed to own of record such Registrable Securities or owns the right to receive the Registrable Securities. If the Company receives conflicting instructions, notices or elections from two (2) or more Persons with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities. (b) Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one (1) business day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be: 11 If to the Company, to: Radial Energy, Inc. 1313 East Maple Street, Suite 223 Bellingham, WA 98225 Attn: Chief Financial Officer Telephone: (360) 685-4240 Facsimile: With Copy to: Greenberg Traurig, LLP 650 Town Center Drive, Suite 1700 Costa Mesa, CA 92626 Attn: Raymond Lee, Esq. Telephone: (714) 708-6510 If to an Investor, to its address and facsimile number on the Schedule of Investors attached hereto, with copies to such Investor's representatives as set forth on the Schedule of Investors or to such other address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by written notice given to each other party five (5) days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender's facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by a courier or overnight courier service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively. (c) Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof. (d) The laws of the State of New Jersey shall govern all issues concerning the relative rights of the Company and the Investors as its stockholders. All other questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of New Jersey, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New Jersey or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New Jersey. Each party hereby irrevocably submits to the non-exclusive jurisdiction of the Superior Courts of the State of New Jersey, sitting in Hudson County, New Jersey and federal courts for the District of New Jersey sitting Newark, New Jersey, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. 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 to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained 12 herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. (e) This Agreement, the Irrevocable Transfer Agent Instructions, the Securities Purchase Agreement and related documents including the Convertible Debenture and the Security Agreement dated the date hereof (the "SECURITY AGREEMENT") constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein. This Agreement, the Irrevocable Transfer Agent Instructions, the Securities Purchase Agreement and related documents including the Convertible Debenture, and the Security Agreement supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof and thereof. (f) This Agreement shall inure to the benefit of and be binding upon the permitted successors and assigns of each of the parties hereto. (g) The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (h) This Agreement may be executed in identical counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement. (i) Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. The language used 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. (j) This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 13 IN WITNESS WHEREOF, each Investor and the Company have caused their signature page to this Investor Registration Rights Agreement to be duly executed as of the date first above written.. COMPANY: RADIAL ENERGY, INC. By:/s/ G. LEIGH LYONS _______________________ Name: G. Leigh Lyons Title: President 14 IN WITNESS WHEREOF, each Investor and the Company have caused their signature page to this Investor Registration Rights Agreement to be duly executed as of the date first above written. INVESTOR: CORNELL CAPITAL PARTNERS, LP By: Yorkville Advisors, LLC Its: General Partner By: /s/ MARK ANGELO Name: Mark Angelo Title: Portfolio Manager 15 EX-23 9 ex23-1.txt EXHIBIT 23.1 EXHIBIT 23.1 A PARTNERSHIP OF INCORPORATED PROFESSIONALS AMISANO HANSON CHARTERED ACCOUNTANTS CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the use in the Form SB-2/A of Radial Energy Inc. (the "Company"), of our report of February 28, 2006, on the financial statements as of December 31, 2005 and 2004 and for the years then ended and for the period from June 30, 2000 (Date of Inception) to December 31, 2005. We also consent to the reference to our firm under the heading "Experts" in the Form SB-2/A. Our report dated February 28, 2006, contains additional comments that state that conditions and events exist that cast substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of the uncertainty. Vancouver, Canada "AMISANO HANSON" February 20, 2007 CHARTERED ACCOUNTANTS 750 WEST PENDER STREET, SUITE 604 TELEPHONE: 604-689-0188 VANCOUVER CANADA FACSIMILE: 604-689-9773 V6C 2T7 E-MAIL: amishan@telus.net EX-23 10 ex23-3.txt EXHIBIT 23.3 EXHIBIT 23.3 [GUSTAVSON ASSOCIATES LOGO APPEARS HERE] GUSTAVSON ASSOCIATES GEOLOGISTS o ENGINEERS o APPRAISERS December 14, 2006 Securities and Exchange Commission Dear Sirs: Re: RADIAL ENERGY, INC. The undersigned hereby consents to the inclusion of or references to by Radial Energy, Inc., any of our reserves evaluation reports prepared for them, including reports Bosques Block in Colombia and the Huaya Anticline in Peru, in any SEC filings. Sincerely, GUSTAVSON ASSOCIATES, LLC /s/ LETHA C. LENCIONI, P.E. Letha C. Lencioni, P.E. Vice President Petroleum Sector & Chief Reservoir Engineer 5757 Central Ave. Suite D Boulder, CO 80301 USA 1-303-443-2209 FAX 1-303-443-3156 http: //www.gustavson.com -----END PRIVACY-ENHANCED MESSAGE-----