NOTE AND WARRANT PURCHASE AGREEMENT

Exhibit 4.2

NOTE AND WARRANT PURCHASE AGREEMENT

by and among

Genoil Inc., as Issuer and Seller

and

the parties named herein, as Purchasers

with respect to Seller’s

Convertible Promissory Notes and Warrants to Purchase Common Shares

December 23, 2004

Table of Exhibits and Schedules

     THIS NOTE AND WARRANT PURCHASE AGREEMENT (the “ Agreement ”) dated as of December 23, 2004, by and among Genoil Inc., a corporation governed by the Canada Business Corporations Act (the “ Seller ”), and each of the persons listed on Schedule 1 hereto (each is individually referred to as a “ Purchaser ” and collectively, the “ Purchasers ”).

RECITALS:

     WHEREAS, each of the Purchasers is willing to purchase from the Seller, and the Seller desires to sell to the Purchasers, up to an aggregate of Cdn.$5,638,220 million in principal amount of its Convertible Promissory Notes due December 23, 2014 (the “ Notes ”), convertible into Common Shares (the “ Note Conversion Shares ”) and Common Share Purchase Warrants in respect of 3,203,534 Common Shares (the “ Warrants ”) entitling the holders thereof to purchase Common Shares of the Seller (the “ Warrant Shares ”), as more fully set forth herein.

     NOW THEREFORE, in consideration of the mutual promises and representations, warranties, covenants and agreements set forth herein, the parties hereto, intending to be legally bound, hereby agree as follows:

ARTICLE I — PURCHASE AND SALE

      1.1 Purchase and Sale . On the terms and subject to the conditions set forth in this Agreement, at the Closing (as defined in Section 2.2), the Seller will sell and each of the Purchasers will purchase the Notes in the principal amounts and the Warrants in respect of the specified number of Warrant Shares as set forth on Schedule 1 .

      1.2 Terms of the Notes and Warrants . The terms and provisions of the Notes are set forth in the Form of Convertible Promissory Note attached hereto as Exhibit A . The terms and provisions of the Warrants are more fully set forth in the form of Common Share Purchase Warrant, attached hereto as Exhibit B .

      1.3 Transfers; Legends .

     (a) (i) Except as required by applicable securities laws in Canada and the securities law of any other country, state or other jurisdictions, the Notes, the Note Conversion Shares, the Warrants, and Warrant Shares (collectively, the “ Securities ”) may be transferred, in whole or in part, by any of the Purchasers at any time. In the case of Notes, a transfer may be effected by delivering written transfer instructions to the Seller, and the Seller shall reflect such transfer on its books and records and reissue certificates evidencing the Notes upon surrender of certificates evidencing the Notes being transferred. Any such transfer shall be made by a Purchaser in accordance with applicable law. Any transferee shall agree to be bound by the terms of this Agreement. The Seller shall reissue certificates evidencing the Securities upon surrender of certificates evidencing the Securities being transferred in accordance with this Section 1.3(a).

          (ii) In connection with any transfer of Securities other than pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “ Securities Act ”), or to the Seller, the Seller may require the transferor thereof to furnish to the Seller an opinion of counsel selected by the transferor, such counsel and the form and substance of which opinion shall be reasonably satisfactory to the Seller and Seller’s counsel, to the effect that such

1

transfer does not require registration under the Securities Act; provided, however , that in the case of a transfer pursuant to Rule 144 under the Securities Act, no opinion shall be required if the transferor provides the Seller with a customary seller’s representation letter, and if such sale is not pursuant to subsection (k) of Rule 144, a customary broker’s representation letter and Form 144. Notwithstanding the foregoing, the Seller hereby consents to and agrees to register on the books of the Seller and with any transfer agent for the securities of the Seller, without any such legal opinion, any transfer of Securities by a Purchaser to an Affiliate of such Purchaser, provided that the transferee certifies to the Seller that it is an “ accredited investor ” as defined in Rule 501(a) under the Securities Act and that it is acquiring the Securities solely for investment purposes (subject to the qualifications hereof) and not with a view to, or for, resale, distribution or fractionalization thereof in whole or in part in violation of the Securities Act.

          (iii) An “ Affiliate ” means any Person (as such term is defined below) that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 144 under the Securities Act. With respect to a Purchaser, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as such Purchaser will be deemed to be an Affiliate of such Purchaser. A “ Person ” means any individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision of any thereof) or other entity of any kind.

     (b) The certificates representing the Notes, Note Conversion Shares or Warrants shall bear the following legends:

“UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE APRIL 24, 2005.

THE SHARES REPRESENTED BY, OR ISSUABLE UPON CONVERSION OR EXERCISE OF SECURITIES EVIDENCED BY, THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED OR SOLD IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT UNLESS, IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, SUCH REGISTRATION IS NOT REQUIRED.”

ARTICLE II — PURCHASE PRICE AND CLOSING

      2.1 Purchase Price . The aggregate purchase price (the “ Purchase Price ”) to be paid by the Purchasers to the Seller to acquire the Notes and the Warrants at the Closing shall be the total of the amounts payable by each Purchaser, respectively, set forth beside the name of each Purchaser on Schedule 1 hereto. The parties covenant and agree that the Purchase price shall be allocated as follows: the aggregate fair market value of the Warrants on issue is Cdn.$0.15 per underlying Warrant Share, for an aggregate issue price of Cdn.$480,530.10 and the aggregate fair market value of the Notes (in the aggregate principal amount of Cdn.$5,638,220) on issuance

2

is Cdn.$5,157,689.90 (yielding a discount on issue of Cdn.$480,530.10). The parties agree to prepare and file their respective income tax and other governmental and regulatory filings on a basis consistent with the foregoing and to notify each other in the event that any applicable governmental or regulatory authority were to challenge such purchase price allocation.

      2.2 The Closing . The closing of the transactions contemplated under this Agreement (the “ Closing ”) will take place as promptly as practicable, but no later than five (5) business days following satisfaction or waiver of the conditions set forth in Article 6.1(a) and (b) and 6.2(a) (other than those conditions which by their terms are not to be satisfied or waived until the Closing), at the offices of Ogilvy Renault, 200 Bay Street, Suite 3800, Toronto, Ontario. The date on which the Closing occurs is the “ Closing Date .”

ARTICLE III — REPRESENTATIONS AND WARRANTIES OF THE SELLER

     The Seller represents and warrants to the Purchasers as follows and shall be deemed to have represented to the Purchasers on the Closing Date that:

      3.1 Corporate Existence and Power; Subsidiaries . The Seller and its Subsidiaries are corporations duly incorporated, validly existing and in good standing under the laws of the jurisdictions in which they are incorporated, and have all corporate powers required to carry on their business as now conducted. The Seller and its Subsidiaries are duly qualified to do business as a foreign corporation and are in good standing in each jurisdiction where the character of the property owned or leased by them or the nature of their activities makes such qualification necessary, except for those jurisdictions where the failure to be so qualified would not have a Material Adverse Effect on the Seller or any of its Subsidiaries. For purposes of this Agreement, the term “ Material Adverse Effect ” means, with respect to any person or entity, a material adverse effect on its and its Subsidiaries’ condition (financial or otherwise), business, properties, assets, liabilities (including contingent liabilities), results of operations or current prospects, taken as a whole. True and complete copies of the Seller’s Articles of Incorporation, as amended (the “ Articles ”), and Bylaws, as amended (the “ Bylaws ”), as currently in effect and as will be in effect on the Closing Date (collectively, the “ Articles and Bylaws ”), have previously been provided to the Purchasers. For purposes of this Agreement, the term “ Subsidiary ” or “ Subsidiaries ” means, with respect to any entity, any corporation or other organization of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are directly or indirectly owned by such entity or of which such entity is a partner or is, directly or indirectly, the beneficial owner of 50% or more of any class of equity securities or equivalent profit participation interests. The Seller has no Subsidiaries other than Velox Corporation, which is approximately 50% owned by the Seller..

      3.2 Corporate Authorization . The execution, delivery and performance by the Seller of this Agreement, the Notes, the Warrants and each of the other documents executed pursuant to and in connection with this Agreement (collectively, the “ Related Documents ”), and the consummation of the transactions contemplated hereby and thereby (including, but not limited to, the sale and delivery of the Notes and the Warrants and the subsequent issuance of the Note Conversion Shares upon conversion of the principal amounts of the Notes and the Warrant Shares upon exercise of the Warrants) have been duly authorized, and no additional corporate or

3

Shareholder action is required for the approval thereof. The Note Conversion Shares, and the Warrant Shares have been duly reserved for issuance by the Seller. This Agreement and the Related Documents have been or, to the extent contemplated hereby or by the Related Documents, will be duly executed and delivered and constitute the legal, valid and binding agreement of the Seller, enforceable against the Seller in accordance with their terms, except as may be limited by bankruptcy, reorganization, insolvency, moratorium and similar laws of general application relating to or affecting the enforcement of rights of creditors, and except as enforceability of its obligations hereunder are subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

      3.3 Charter, Bylaws and Corporate Records . The minute books of the Seller and its Subsidiaries contain complete and accurate records of all meetings and other corporate actions of the board of directors, committees of the board of directors, incorporators and Shareholders of the Seller and its Subsidiaries to the date hereof. All material corporate decisions and actions have been validly made or taken. All corporate books, including without limitation the share transfer register, comply with applicable laws and regulations and have been regularly updated. Such books fully and correctly reflect all the decisions of the Shareholders.

      3.4 Governmental Authorization . Except as otherwise specifically contemplated in this Agreement and the Related Documents, and except for: (i) the filings referenced in Section 5.11; (ii) the filing of a report of trade on Form 45-103F4 within 10 days of closing ; (iii) the application(s) to each trading market for the listing of the Note Conversion Shares and the Warrant Shares for trading thereon; and (iv) any other filings required under provincial or United States federal or state securities laws that are permitted to be made after the date hereof, the execution, delivery and performance by the Seller of this Agreement and the Related Documents, and the consummation of the transactions contemplated hereby and thereby (including, but not limited to, the sale and delivery of the Notes and the Warrants and the subsequent issuance of the Note Conversion Shares and Warrant Shares) by the Seller require no action (including, without limitation, Shareholder approval) by or in respect of, or filing with, any governmental or regulatory body, agency, official or authority (including, without limitation, the TSX Venture Exchange).

      3.5 Non-Contravention . The execution, delivery and performance by the Seller of this Agreement and the Related Documents, and the consummation by the Seller of the transactions contemplated hereby and thereby (including the issuance of the Note Conversion Shares and Warrant Shares) do not and will not (a) contravene or conflict with the Articles (as amended by the Articles of Amendment) and Bylaws of the Seller and its Subsidiaries or any material agreement to which the Seller is a party or by which it is bound; (b) contravene or conflict with or constitute a violation of any provision of any law, regulation, judgment, injunction, order or decree binding upon or applicable to the Seller or its Subsidiaries; (c) constitute a default (or would constitute a default with notice or lapse of time or both) under or give rise to a right of termination, cancellation or acceleration or loss of any benefit under any material agreement, contract or other instrument binding upon the Seller or its Subsidiaries or under any material license, franchise, permit or other similar authorization held by the Seller or its Subsidiaries; or (d) result in the creation or imposition of any Lien (as defined below) on any asset of the Seller or its Subsidiaries. For purposes of this Agreement, the term “ Lien ” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest, claim or

4

encumbrance of any kind in respect of such asset.

      3.6 SEC and CSA Documents . The Seller is obligated under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”) to file reports pursuant to Sections 13 or 15(d) thereof and the Seller is obligated, as a reporting issuer under applicable Canadian provincial securities laws, regulations, Rules and similar Instruments (“ Canadian Requirements” ) to file continuous disclosure materials with the securities administrators in those provinces and territories in which it is a reporting issuer (all such reports filed or required to be filed by the Seller, including all exhibits thereto or incorporated therein by reference, and all documents filed by the Seller under the Securities Act or under the Canadian Requirements are hereinafter called the “ Securities Filings ”). The Seller has filed all reports or other documents required to be filed under the Exchange Act and the Canadian requirements. All Securities Filings filed by the Seller (i) were prepared in all material respects in accordance with the requirements of the Exchange Act and the Canadian requirements and (ii) did not at the time they were filed (or, if amended or superseded by a filing prior to the date hereof, then on the date of such filing) contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The Seller has previously delivered, or made available through its SEDAR and EDGAR filings, to the Purchaser a correct and complete copy of each report which the Seller filed with the Securities and Exchange Commission (the “ SEC ” or the “ Commission ”) under the Exchange Act or with the Canadian Securities Administrators for any period (including interim periods and including material event disclosure) ending on or after December 31, 2003 (the “ Recent Reports ”). None of the information about the Seller or any of its Subsidiaries which has been disclosed to the Purchasers herein or in the course of discussions and negotiations with respect hereto that is not disclosed in the Recent Reports is or was required to be so disclosed, and no material non-public information has been disclosed to the Purchasers.

      3.7 Financial Statements . Each of the Seller’s (i) audited consolidated balance sheet as of December 31, 2003, and the related consolidated statements of operations, cash flows and changes in Shareholders’ equity (including the related notes) for the 2003 fiscal year and (ii) the Seller’s unaudited consolidated balance sheets and related consolidated statements of operations and cash flows as of and for the three month periods ended March 31, 2004, June 30, 2004 and September 30, 2004 as contained in the Recent Reports (both of (i) and (ii), collectively, the “ Seller’s Financial Statements ” or the “ Financial Statements ”) (x) present fairly in all material respects the financial position of the Seller and its Subsidiaries on a consolidated basis as of the dates thereof and the results of operations, cash flows and Shareholders’ equity as of and for each of the periods then ended, except that the unaudited financial statements are subject to normal year-end adjustments, and (y) were prepared in accordance with Canadian generally accepted accounting principles (“ GAAP ”) applied on a consistent basis throughout the periods involved, in each case, except as otherwise indicated in the notes thereto.

      3.8 Compliance with Law . The Seller and its Subsidiaries are in compliance and have conducted their business so as to comply with all laws, rules and regulations, judgments, decrees or orders of any court, administrative agency, commission, regulatory authority or other governmental authority or instrumentality, domestic or foreign, applicable to their operations, the violation of which would cause a Material Adverse Affect. There are no judgments or orders, injunctions, decrees, stipulations or awards (whether rendered by a court or administrative

5

agency or by arbitration), including any such actions relating to affirmative action claims or claims of discrimination, against the Seller or its Subsidiaries or against any of their properties or businesses.

      3.9 No Defaults . The Seller and its Subsidiaries are not, nor have they received notice that they would be with the passage of time, giving of notice, or both, (i) in violation of any provision of their Articles and Bylaws or (ii) in default or violation of any term, condition or provision of (A) any judgment, decree, order, injunction or stipulation applicable to the Seller or its Subsidiaries or (B) any material agreement, note, mortgage, indenture, contract, lease or instrument, permit, concession, franchise or license to which the Seller or its Subsidiaries are a party or by which the Seller or its Subsidiaries or their properties or assets may be bound, and no circumstances exist which would entitle any party to any material agreement, note, mortgage, indenture, contract, lease or instrument to which such Seller or its Subsidiaries are a party, to terminate such as a result of such Seller or its Subsidiaries, having failed to meet any material provision thereof including, but not limited to, meeting any applicable milestone under any material agreement or contract; except in the case of clause (ii) as would not have a Material Adverse Effect on the Seller or any of its Subsidiaries or any material adverse effect on the transactions contemplated by this Agreement or by any of the Related Documents.

      3.10 Litigation . Except as disclosed in the Recent Reports or on Schedule 3.10 , there is no action, suit, proceeding, judgment, claim or investigation pending or, to the best knowledge of the Seller, threatened against the Seller and its Subsidiaries which could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Seller or its Subsidiaries or which in any manner challenges or seeks to prevent, enjoin, alter or materially delay any of the transactions contemplated hereby, and there is no basis for the assertion of any of the foregoing.

      3.11 Absence of Certain Changes . Since December 31, 2003, the Seller has conducted its business only in the ordinary course and there has not occurred, except as set forth in the Recent Reports or any exhibit thereto or incorporated by reference therein:

     (a) Any event that could reasonably be expected to have a Material Adverse Effect on the Seller or any of its Subsidiaries;

     (b) Any amendments or changes in the Articles or Bylaws of the Seller and its Subsidiaries, other than on account of the filing of the Articles of Amendment;

     (c) Any damage, destruction or loss, whether or not covered by insurance, that would, individually or in the aggregate, have or would be reasonably likely to have, a Material Adverse Effect on the Seller and its Subsidiaries;

     (d) Except as set forth on Schedule 3.11(d) , any

     (i) incurrence, assumption or guarantee by the Seller or its Subsidiaries of any debt for borrowed money other than for equipment leases;

     (ii) issuance or sale of any securities convertible into or exchangeable for securities of the Seller including to directors, employees and consultants pursuant to

6

existing equity compensation or share purchase plans of the Seller;

     (iii) issuance or sale of options or other rights to acquire from the Seller or its Subsidiaries, directly or indirectly, securities of the Seller or any securities convertible into or exchangeable for any such securities, including options issued to directors, employees and consultants in the ordinary course of business in accordance with past practice;

     (iv) issuance or sale of any shares, bonds or other corporate security;

     (v) discharge or satisfaction of any material Lien, other than current liabilities incurred since December 31, 2003 in the ordinary course of business;

     (vi) declaration or making any payment or distribution to Shareholders or purchase or redemption of any share in its capital or other security;

     (vii) sale, assignment or transfer of any of its intangible assets except in the ordinary course of business, or cancellation of any debt or claim except in the ordinary course of business;

     (viii) waiver of any right of substantial value whether or not in the ordinary course of business;

     (ix) material change in officer compensation except in the ordinary course of business and consistent with past practices; or

     (x) other commitment (contingent or otherwise) to do any of the foregoing.

     (e) Except as set forth on Schedule 3.11(e), any creation, sufferance or assumption by the Seller or any of its Subsidiaries of any Lien on any asset (other than Liens in connection with equipment leases) or any making of any loan, advance or capital contribution to or investment in any Person in an aggregate amount which exceeds $25,000 outstanding at any time;

     (f) Any entry into, amendment of, relinquishment, termination or non-renewal by the Seller or its Subsidiaries of any material contract, license, lease, transaction, commitment or other right or obligation, other than in the ordinary course of business; or

     (g) Any transfer or grant of a right with respect to the trademarks, trade names, service marks, trade secrets, copyrights or other intellectual property rights owned or licensed by the Seller or its Subsidiaries, except as among the Seller and its Subsidiaries.

      3.12 No Undisclosed Liabilities . Except as set forth in the Recent Reports, and except for liabilities and obligations incurred in the ordinary course of business since December 31, 2003, as of the date hereof, (i) the Seller and its Subsidiaries do not have any material liabilities or obligations (absolute, accrued, contingent or otherwise) which, and (ii) there has not been any aspect of the prior or current conduct of the business of the Seller or its Subsidiaries which may form the basis for any material claim by any third party which if asserted could result in any such material liabilities or obligations which, are not fully reflected, reserved against or disclosed in

7

the balance sheet of the Seller as at December 31, 2003.

      3.13 Taxes . All tax returns and tax reports required to be filed with respect to the income, operations, business or assets of the Seller and its Subsidiaries have been timely filed (or appropriate extensions have been obtained) (save for Canadian federal and provincial income tax returns due for the year ended December 31, 2004, which will be timely filed) with the appropriate governmental agencies in all jurisdictions in which such returns and reports are required to be filed, and all of the foregoing as filed are correct and complete and, in all material respects, reflect accurately all liability for taxes of the Seller and its Subsidiaries for the periods to which such returns relate, and all amounts shown as owing thereon have been paid. All income, capital, profits, franchise, sales, use, goods and services, value added, health, occupancy, property, excise, payroll, withholding, and other taxes, levies and premiums (including interest and penalties), if any, collectible or payable by the Seller and its Subsidiaries or relating to or chargeable against any of its material assets, revenues or income or relating to any employee, independent contractor, creditor, Shareholder or other third party through the Closing Date, were fully collected and paid by such date if due by such date or provided for by adequate reserves in the Financial Statements as of and for the periods ended December 31, 2003 (other than taxes accruing after such date) and all similar items due through the Closing Date will have been fully paid by that date or provided for by adequate reserves, whether or not any such taxes were reported or reflected in any tax returns or filings. The Canadian federal and provincial income tax liability of the Seller and its Subsidiaries has been assessed for all fiscal years up to and including its fiscal year ended on December 31, 2003. No taxation authority has sought to audit or investigate the records of the Seller or any of its Subsidiaries for the purpose of verifying or disputing any tax returns, reports or related information and disclosures provided to such taxation authority, or for the Seller’s or any of its Subsidiaries’ alleged failure to provide any such tax returns, reports or related information and disclosure. No material claims or deficiencies have been asserted against or inquiries raised with the Seller or any of its Subsidiaries with respect to any taxes or other governmental charges or levies which have not been paid or otherwise satisfied, including claims that, or inquiries whether, the Seller or any of its Subsidiaries has not filed a tax return that it was required to file, and, to the best of the Seller’s knowledge, there exists no reasonable basis for the making of any such claims or inquiries. Neither the Seller nor any of its Subsidiaries has waived any restrictions on assessment or collection of taxes or consented to the extension of any statute of limitations relating to taxation. There are no liens for any taxes upon any assets of the Seller or its Subsidiaries.

      3.14 Interests of Officers, Directors and Other Affiliates . The description of any interest held, directly or indirectly, by any officer, director or other Affiliate of the Seller or its Subsidiaries (other than the interests of the Seller and its Subsidiaries in such assets) in any property, real or personal, tangible or intangible, used in or pertaining to Seller’s business, including any interest in the Intellectual Property (as defined in Section 3.15 hereof), as set forth in the Recent Reports, is true and complete, and no officer, director or other Affiliate of the Seller or its Subsidiaries has any interest in any property, real or personal, tangible or intangible, used in or pertaining to the Seller’s business, including the Seller’s Intellectual Property, other than as set forth in the Recent Reports.

8

      3.15 Intellectual Property . Other than as set forth in the Recent Reports:

     (a) the Seller or a Subsidiary thereof has the right to use or is the sole and exclusive owner of all right, title and interest in and to all foreign and domestic patents, patent rights, trademarks, service marks, trade names, brands and copyrights (whether or not registered and, if applicable, including pending applications for registration) owned, used or controlled by the Seller and its Subsidiaries (collectively, the “ Rights ”) and in and to each material invention, software, trade secret, technology, product, composition, formula, method of process used by the Seller or its Subsidiaries (the Rights and such other items, the “ Intellectual Property ”), and, to the Seller’s knowledge, has the right to use the same, free and clear of any claim or conflict with the rights of others;

     (b) no royalties or fees (license or otherwise) are payable by the Seller or its Subsidiaries to any Person by reason of the ownership or use of any of the Intellectual Property except as set forth on Schedule 3.15 ;

     (c) there have been no claims made against the Seller or its Subsidiaries asserting the invalidity, abuse, misuse, or unenforceability of any of the Intellectual Property, and, to its knowledge, there are no reasonable grounds for any such claims;

     (d) neither the Seller nor its Subsidiaries have made any claim of any violation or infringement by others of its rights in the Intellectual Property, and to the best of the Seller’s knowledge, no reasonable grounds for such claims exist; and

     (e) neither the Seller nor its Subsidiaries have received notice that it is in conflict with or infringing upon the asserted rights of others in connection with the Intellectual Property.

      3.16 Restrictions on Business Activities . Other than as set forth in the Recent Reports, there is no agreement, judgment, injunction, order or decree binding upon the Seller or its Subsidiaries which has or could reasonably be expected to have the effect of prohibiting or materially impairing any business practice of the Seller or its Subsidiaries, any acquisition of property by the Seller or its Subsidiaries or the conduct of business by the Seller or its Subsidiaries as currently conducted or as currently proposed to be conducted by the Seller.

      3.17 Preemptive Rights . Except as set forth in Schedule 3.17 , none of the shareholders of the Seller possess any preemptive rights in respect of the Notes, the Note Conversion Shares or the Warrant Shares to be issued to the Purchasers upon conversion of the Notes or exercise of the Warrants, as applicable.

      3.18 Insurance . The insurance policies providing insurance coverage to the Seller or its Subsidiaries are adequate for the business conducted by the Seller and its Subsidiaries and are sufficient for compliance by the Seller and its Subsidiaries with all requirements of law and all material agreements to which the Seller or its Subsidiaries are a party or by which any of their assets are bound. All of such policies are in full force and effect and are valid and enforceable in accordance with their terms, and the Seller and its Subsidiaries have complied with all material terms and conditions of such policies, including premium payments. None of the insurance carriers has indicated to the Seller or its Subsidiaries an intention to cancel any such policy.

9

      3.19 Subsidiaries and Investments . Except as set forth in the Recent Reports or on Schedule 3.19 , the Seller has no Subsidiaries or Investments. For purposes of this Agreement, the term “ Investments ” shall mean, with respect to any Person, all advances, loans or extensions of credit to any other Person, all purchases or commitments to purchase any shares, bonds, notes, debentures or other securities of any other Person, and any other investment in any other Person, including partnerships or joint ventures (whether by capital contribution or otherwise) or other similar arrangement (whether written or oral) with any Person, including but not limited to arrangements in which (i) the Person shares profits and losses, (ii) any such other Person has the right to obligate or bind the Person to any third party, or (iii) the Person may be wholly or partially liable for the debts or obligations of such partnership, joint venture or other arrangement.

      3.20 Capitalization . (a) The authorized capital of the Seller consists solely of an unlimited number of Common Shares, of which 180,814,029 shares are issued and outstanding as of the date hereof.

     (b) All shares of the Seller’s issued and outstanding capital have been duly authorized, are validly issued and outstanding, and are fully paid and nonassessable. No securities issued by the Seller from the date of its incorporation to the date hereof were issued in violation of any statutory or common law preemptive rights. There are no dividends which have accrued or been declared but are unpaid on the Common Shares of the Seller or any other securities of Seller. All taxes required to be paid by Seller in connection with the issuance and any transfers of the Seller’s share capital have been paid. All permits or authorizations required to be obtained from or registrations required to be effected with any Person in connection with any and all issuances of securities of the Seller from the date of the Seller’s incorporation to the date hereof have been obtained or effected, and all securities of the Seller have been issued and are held in accordance with the provisions of all applicable securities or other laws.

      3.21 Options, Warrants, Rights . Except as set forth on Schedule 3.21 , there are no outstanding (a) securities, notes or instruments convertible into or exercisable for any of the Common Shares or other equity securities or other equity interests of the Seller or its Subsidiaries; (b) options, warrants, subscriptions or other rights to acquire Common Shares or other equity securities or equity interests of the Seller or its Subsidiaries; or (c) commitments, agreements or understandings of any kind, including employee benefit arrangements, relating to the issuance or repurchase by the Seller or its Subsidiaries of any Common Shares or other equity securities or equity interests of the Seller or its Subsidiaries, any such securities or instruments convertible or exercisable for securities or any such options, warrants or rights. Other than the rights of the Purchasers under the Notes and the Warrants, and except as set forth on Schedule 3.21 , neither the Seller nor the Subsidiaries have granted anti-dilution rights to any person or entity in connection with any outstanding option, warrant, subscription or any other instrument convertible or exercisable for the securities of the Seller or any of its Subsidiaries. There are no outstanding rights which permit the holder thereof to cause the Seller or the Subsidiaries to file a prospectus or registration statement under Canadian securities laws or the United States Securities Act or which permit the holder thereof to include securities of the Seller or any of its Subsidiaries in a prospectus or registration statement filed by the Seller or any of its Subsidiaries under the Securities Act, and there are no outstanding agreements or other commitments which otherwise relate to the qualification for distribution or registration of any

10

securities of the Seller or any of its Subsidiaries for sale or distribution in any jurisdiction, except as set forth on Schedule 3.21 .

      3.22 Employees, Employment Agreements and Employee Benefit Plans . Except as set forth in the Recent Reports or on Schedule 3.22 , there are no employment, consulting, severance or indemnification arrangements, agreements, or understandings between the Seller and any officer, director, consultant or employee of the Seller or its Subsidiaries (the “ Employment Agreements ”). No Employment Agreement provides for the acceleration or change in the award, grant, vesting or determination of options, warrants, rights, severance payments, or other contingent obligations of any nature whatsoever of the Seller or its Subsidiaries in favor of any such parties in connection with the transactions contemplated by this Agreement. Except as disclosed in the Recent Reports or on Schedule 3.22 , the terms of employment or engagement of all directors, officers, employees, agents, consultants and professional advisors of the Seller and its Subsidiaries are such that their employment or engagement may be terminated upon notice given in accordance with applicable statutory requirements without liability for payment of compensation or damages and the Seller and its Subsidiaries have not entered into any agreement or arrangement for the management of their business or any part thereof other than with their directors or employees.

      3.23 Absence of Certain Business Practices . Neither the Seller, nor any Affiliate of the Seller, nor to the knowledge of the Seller, any agent or employee of the Seller, any other Person acting on behalf of or associated with the Seller, or any individual related to any of the foregoing Persons, acting alone or together, has: (a) received, directly or indirectly, any rebates, payments, commissions, promotional allowances or any other economic benefits, regardless of their nature or type, from any customer, supplier, trading company, shipping company, governmental employee or other Person with whom the Seller has done business directly or indirectly; or (b) directly or indirectly, given or agreed to give any gift or similar benefit to any customer, supplier, trading company, shipping company, governmental employee or other Person who is or may be in a position to help or hinder the business of the Seller (or assist the Seller in connection with any actual or proposed transaction) which (i) may subject the Seller to any damage or penalty in any civil, criminal or governmental litigation or proceeding, (ii) if not given in the past, may have had an adverse effect on the Seller or (iii) if not continued in the future, may adversely affect the assets, business, operations or prospects of the Seller or subject the Seller to suit or penalty in any private or governmental litigation or proceeding.

      3.24 Environmental Matters . Except as described in the Recent Reports or on Schedule 3.24, none of the premises or any properties owned, occupied or leased by the Seller or its Subsidiaries (the “ Premises ”) has been used by the Seller or the Subsidiaries or, to the Seller’s knowledge, by any other Person, to manufacture, treat, store, or dispose of any substance that has been designated to be a “ hazardous substance ” under applicable Environmental Laws (hereinafter defined) (“ Hazardous Substances ”) in violation of any applicable Environmental Laws. To its knowledge, the Seller and its Subsidiaries have not disposed of, discharged, emitted or released any Hazardous Substances which would require, under applicable Environmental Laws, remediation, investigation or similar response activity. No Hazardous Substances are present as a result of the actions of the Seller or its Subsidiaries or, to the Seller’s knowledge, any other Person, in, on or under the Premises which would give rise to any liability or clean-up obligations of the Seller or its Subsidiaries under applicable Environmental Laws.

11

The Seller and, to the Seller’s knowledge, any other Person for whose conduct it may be responsible pursuant to an agreement or by operation of law, are in compliance with all laws, regulations and other Canadian or foreign federal, provincial, state or local governmental requirements, and all applicable judgments, orders, writs, notices, decrees, permits, licenses, approvals, consents or injunctions in effect on the date of this Agreement relating to the generation, management, handling, transportation, treatment, disposal, storage, delivery, discharge, release or emission of any Hazardous Substance (the “ Environmental Laws ”). Neither the Seller nor, to the Seller’s knowledge, any other Person for whose conduct it may be responsible pursuant to an agreement or by operation of law has received any written complaint, notice, order, or citation of any actual, threatened or alleged noncompliance with any of the Environmental Laws, and there is no proceeding, suit or investigation pending or, to the Seller’s knowledge, threatened against the Seller or, to the Seller’s knowledge, any such Person with respect to any violation or alleged violation of the Environmental Laws, and, to the knowledge of the Seller, there is no basis for the institution of any such proceeding, suit or investigation.

      3.25 Licenses; Compliance With Regulatory Requirements . Except as disclosed in the Recent Reports, the Seller holds all material authorizations, consents, approvals, franchises, licenses and permits required under applicable law or regulation for the operation of the business of the Seller and its Subsidiaries as presently operated (the “ Governmental Authorizations ”). All the Governmental Authorizations have be