Exhibit 10.15

EXECUTION COPY

SERIES A NOTE PURCHASE AGREEMENT

THIS SERIES A NOTE PURCHASE AGREEMENT (this “ Agreement ”) is made and entered into as of this 19th day of January, 2007 (the “ Execution Date ”) by and among Storm Cat Energy Corporation, a company incorporated under the laws of the Province of British Columbia, Canada (the “ Company ”), and each of the purchasers set forth on Schedule I affixed hereto (each a “ Purchaser ” and collectively the “ Purchasers ”).

Recitals:

A.            The Company is engaged in the exploration and development of large unconventional gas reserves from fractured shales, coal beds and tight sand formations and is seeking capital to fund its drilling program and repay its existing mezzanine debt;

B.            The Company desires to sell and issue to each Purchaser, and each Purchaser desires to purchase from the Company, upon the terms and conditions stated in this Agreement, the Series A Subordinated Convertible Notes due March 31, 2012 (the “ Notes ”) in the aggregate principal amount of US$18,535,000, substantially in the form attached hereto as Exhibit A (the “ Private Placement ”);

C.            The Company has engaged Banc of America Securities LLC, Coker & Palmer, Inc. and First Albany Capital Inc. as its placement agents (the “ Placement Agents ”) for the Private Placement on a “best efforts” basis;

D.            The Notes shall be convertible into the Company’s common shares, without par value per share (the “ Common Shares ”) and contemporaneous with the purchase and sale of the Notes, the parties hereto will enter into a Convertible Notes Registration Rights Agreement, substantially in the form attached hereto as Exhibit B (the “ Registration Rights Agreement ”), pursuant to which, among other things, the Company will agree to provide certain registration rights with respect to the Common Shares issuable upon conversion of the Notes under the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (the “ 1933 Act ”), and applicable state securities laws;

E.             Concurrently with this Private Placement, the Company intends to commence an offering of Series B Subordinated Convertible Notes due March 31, 2012 (the “ Series B   Notes ”) in the aggregate principal amount of US$31,660,000 (the “ Series B Note Offering ”);

F.             The Company and the Purchasers are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by the provisions of Regulation D (“ Regulation D ”), as promulgated by the U.S. Securities and Exchange Commission (the “ SEC ”) under the 1933 Act, and in reliance on the exemption from Canadian prospectus and registration requirements contained in Canadian National Instrument 45-106 as adopted by the British Columbia Securities Commission, the Alberta Securities Commission and the Ontario Securities Commission (“ NI 45-106 ”); and

G.            The parties desire to set forth the terms and conditions of and to provide for the issuance by the Company of the Notes as described herein.

NOW, THEREFORE, in consideration of the mutual promises made herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

1.             Definitions .  In addition to those terms defined above and elsewhere in this Agreement, for the purposes of this Agreement, the following terms shall have the meanings set forth in this Section 1 :

“ Affiliate ” means, with respect to any Person, any other Person which directly or indirectly Controls, is Controlled by, or is under common Control with, such Person.

“ Allocation Percentage ” means a fraction, the numerator of which is the aggregate principal amount of Notes issued to a Purchaser on the Closing Date and the denominator of which is the aggregate principal amount of all Notes issued on the Closing Date.

“ AMEX ” means the American Stock Exchange.

“ Approved Shares Plan ” means any employee benefit plan currently existing or hereinafter created which has been approved by the Board of Directors of the Company, pursuant to which the Company’s securities may be issued to any employee, consultant, officer or director for services provided to the Company.

“ Bloomberg ” means Bloomberg Financial Markets.

“ Business Day ” means a day, other than a Saturday or Sunday, on which banks in New York City are open for the general transaction of business.

“ Capital Shares ” means: (1)  in the case of a corporation, corporate stock; (2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock;  (3) in the case of a partnership or limited liability company, partnership interests (whether general or limited) or membership interests; and (4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person.

“ Change of Control ” means any Fundamental Transaction other than (i) any reorganization, recapitalization or reclassification of the Common Shares in which holders of the Company’s voting power immediately prior to such reorganization, recapitalization or reclassification continue after such reorganization, recapitalization or reclassification to hold publicly traded securities and, directly or indirectly, the voting power of the surviving entity or entities necessary to elect a majority of the members of the board of directors (or their equivalent if other than a corporation) of such entity or entities, or (ii) pursuant to a migratory merger effected solely for the purpose of changing the jurisdiction of incorporation of the Company.

“ Change of Control Prepayment Premium ” means (i) for Change of Control Notice delivered or required to be delivered in connection with a Change of Control prior to the first (1st) anniversary of the Closing Date, 115%, (ii) for Change of Control Notice delivered or required to be delivered in connection with a Change of Control on or following the first (1st) anniversary of the Closing Date but prior to the second (2nd) anniversary of the Closing Date,

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112%, and (iii) for any Change of Control Notice delivered or required to be delivered in connection with a Change of Control on or following the second (2nd) anniversary of the Closing Date, 110%.

“ Closing Sale Price ” means, for any security as of any date, the last closing trade price for such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing trade price then the last trade price of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security the last trade price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last trade price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no last trade price is reported for such security by Bloomberg, the average of the ask prices of any market makers for such security as reported in the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.).  If the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Sale Price of such security on such date shall be the fair market value as mutually determined by the Company and the Requisite Holders.  If the Company and the Requisite Holders are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 4.1(b)(iii) .  All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period.

“ Common Shares ” has the meaning set forth in the Recitals, and also includes any securities into which the Common Shares may be reclassified, which in all cases shall be prescribed securities under Regulation 6208 of the Income Tax Act (Canada).

“ Company’s Knowledge ” means the actual knowledge of the officers of the Company, after reasonable due inquiry and investigation.

“ Confidential Information ” means trade secrets, confidential information and know-how (including but not limited to ideas, formulae, compositions, processes, procedures and techniques, research and development information, computer program code, performance specifications, support documentation, drawings, specifications, designs, business and marketing plans, and customer and supplier lists and related information).

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

“ Conversion Amount ” means the sum of (1) accrued interest since the last payment of interest and Additional Amounts, if any, and (2) the aggregate principal amount of the Note being converted or redeemed.

“ Conversion Price ” means US$1.17, subject to adjustment as provided herein.

“ Convertible Securities ” means any stock or securities (other than Options) directly or indirectly convertible into or exchangeable or exercisable for Common Shares.

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“ Cumulative Dividend Adjustment ” means, for each Note, as of any date of determination, the sum of all Dividend Adjustments for such Note made in respect of all dividends or distributions declared or paid on the Common Shares (other than a dividend or distribution in Common Shares) prior to such date of determination.

“ Dividend Adjustment ” means, for each Note, an amount equal to the quotient of (x) the aggregate amount of any dividend or distribution (other than a dividend or distribution in Common Shares) that the Purchaser of such Note would have received had such Purchaser converted the entire amount of such Note into Common Shares at the Conversion Rate in effect immediately prior to the record date for such dividend or distribution, divided by (y) the average of the Weighted Average Price of the Common Shares for the five consecutive Trading Days ended on such record date.

“ Eligible Market ” means the TSX, New York Stock Exchange, The NASDAQ Global Select Market, The NASDAQ Global Market or The NASDAQ Capital Market.

“ Equity Conditions ” means:  (i) on each day during the period beginning six (6) months prior to the applicable date of determination and ending on and including the applicable date of determination (the “ Equity Conditions Measuring Period ”), either (x) the Registration Statement (as defined in the Registration Rights Agreement) filed pursuant to the Registration Rights Agreement shall be effective and available for the resale of all of the Registrable Securities in accordance with the terms of the Registration Rights Agreement or (y) all Common Shares issuable upon conversion of the Notes shall be eligible for sale without restriction and without the need for registration under any applicable federal or state securities laws; (ii) on each day during the Equity Conditions Measuring Period, the Common Shares are designated for quotation on a Principal Market or any applicable Eligible Market and shall not have been suspended from trading on such exchange or market (other than suspensions of not more than three (3) days and occurring prior to the applicable date of determination due to business announcements by the Company) nor shall proceedings for such delisting or suspension be pending or threatened in writing by such exchange or market nor shall such proceeding have been commenced as a result of falling below the minimum listing maintenance requirements of such exchange or market; (iii) on each day during the Equity Conditions Measuring Period, the Company shall have delivered Common Shares upon conversion of the Notes to the Purchasers on a timely basis as set forth in Section 4.1(b)(ii) hereof, respectively; (iv) any applicable Common Shares to be issued in connection with the event requiring determination may be issued in full without violating Section 4.5 hereof or the rules or regulations of the exchange or market upon which the Company’s Common Shares are then listed or quoted and from and after the Shareholder Meeting Deadline, the Company shall have obtained the Shareholder Approval; (v) during the Equity Conditions Measuring Period, the Company shall not have failed to timely make any payments within five (5) Business Days of when such payment is due pursuant to any Note Document; (vi) during the Equity Conditions Measuring Period, there shall not have occurred either (A) the public announcement of a pending, proposed or intended Fundamental Transaction which has not been abandoned, terminated or consummated or (B) a Event of Default or an event that with the passage of time or giving of notice would constitute a Event of Default; (vii) the Company shall have no knowledge of any fact that would cause (x) the Registration Statements required pursuant to the Registration Rights Agreement not to be effective and available for the resale of at least all of the Registrable Securities in accordance

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with the terms of the Registration Rights Agreement or (y) any Common Shares issuable upon conversion of the Notes not to be eligible for sale without restriction pursuant to Rule 144(k) and any applicable state or Canadian provincial securities laws; and (viii) the Company otherwise shall have been in material compliance with and shall not have materially breached any provision, covenant, representation or warranty of any Note Document.

“ Equity Interests ” means Capital Shares and all warrants, options or other rights to acquire Capital Shares.

“ Excluded Securities ” means any Common Shares issued or issuable or deemed to be issued in accordance with Section 4.4 hereof by the Company: (i) in connection with any Approved Shares Plan; (ii) upon conversion of the Notes; (iii) upon conversion of the Series B Notes; (iv) upon conversion, exercise or exchange of any Options or Convertible Securities which are outstanding on the day immediately preceding the Execution Date, provided that such issuance of Common Shares upon exercise of such Options or Convertible Securities is made pursuant to the terms of such Options or Convertible Securities in effect on the date immediately preceding the Execution Date and such Options or Convertible Securities are not amended, modified or changed on or after the Execution Date; and (v) in connection with any stock split, stock dividend, recapitalization or similar transaction by the Company for which adjustment is made pursuant to Section 4.4(b) .

“ Fundamental Transaction ” means that the Company shall (or in the case of clause (v) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the 1934 Act)), directly or indirectly, in one or more related transactions, (i) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company to another Person, or (ii) allow another Person or Persons (other than a Person or Persons already holding more than 50% of the aggregate ordinary voting power represented by issued and outstanding common shares) to make a purchase, tender or exchange offer that is accepted by the holders of more than the 50% of the outstanding shares of Voting Shares (not including any shares of Voting Shares held by the Person or Persons making or party to, or associated or Affiliated with the Person or Persons making or party to, such purchase, tender or exchange offer), or (iii) consummate a share purchase agreement or other business combination (including, without limitation, a merger, consolidation, reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than the 50% of the outstanding shares of Voting Shares (not including any shares of Voting Shares held by the other Person or other Persons making or party to, or associated or Affiliated with the other Persons making or party to, such stock purchase agreement or other business combination), or (iv) reorganize, recapitalize or reclassify its Common Shares, or (v) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate ordinary voting power represented by issued and outstanding Common Shares.

“ Indebtedness ” means, without duplication (i) all indebtedness for borrowed money, (ii) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (including, without limitation, “capital leases” in accordance with generally accepted accounting principles) (other than trade payables entered into in the ordinary course of business), (iii) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (iv) all obligations evidenced by notes, bonds, debentures or

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similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses, (v) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (vi) all monetary obligations under any leasing or similar arrangement which, in connection with generally accepted accounting principles, consistently applied for the periods covered thereby, is classified as a capital lease, (vii) all indebtedness referred to in clauses (i) through (vi) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights) owned by any Person, even though the Person which owns such assets or property has not assumed or become liable for the payment of such indebtedness, and (viii) all contingent obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (i) through (vii) above.

“ Intellectual Property ” means all of the following: (i) patents and patent applications, patent disclosures and inventions (whether or not patentable and whether or not reduced to practice); (ii) trademarks, service marks, trade dress, trade names, corporate names, logos, slogans and Internet domain names, together with all goodwill associated with each of the foregoing; (iii) copyrights; (iv) registrations, applications and renewals for any of the foregoing; (v) Confidential Information; and (vi) computer software (including, but not limited to, data, data bases and documentation).

“ Material Adverse Effect ” means a material adverse effect on (i) the assets, liabilities, results of operations, condition (financial or otherwise), or business of the Company or any Subsidiary; or (ii) the ability of the Company to issue and sell the securities contemplated hereby and to perform its obligations under the Note Documents.

“ Material Contract ” means any contract of the Company or any Subsidiary that was actually filed, or required to be filed, (i) as an exhibit to the SEC Filings pursuant to Item 601(b)(4) or Item 601(b)(10) of Regulation S-K; or (ii) with the securities regulatory authorities in the provinces and territories of Canada through the System for Electronic Document Analysis and Retrieval (“ SEDAR ”) under applicable Canadian securities laws.

“ Maturity Date ” means, with respect to each Note, March 31, 2012.

“ Note ” or “ Notes ” has the meaning set forth in the Recitals, and also includes any securities into which the Notes may be reclassified.

“ Note Documents ” means this Agreement, the Notes, the Subordination Agreement and the Registration Rights Agreement.

“ Options ” means any rights, warrants or options to subscribe for or purchase Common Shares or Convertible Securities.

“ Person ” means an individual, corporation, partnership, limited liability company, trust, business trust, association, joint stock company, joint venture, sole

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proprietorship, unincorporated organization, governmental authority or any other form of entity not specifically listed herein.

“ Placement Agents Agreement ”   means that certain Letter Agreement, dated as of November 17, 2006, by and among the Company, Banc of America Securities LLC, and Coker & Palmer, Inc., as amended on November 22, 2006, to join First Albany Capital Inc. and to amend the terms of compensation to be paid to the Placement Agents.

“ Principal Market ” means AMEX, or if the Common Shares are not traded on the Principal Market, an Eligible Market.

“ Redemption Date ” means any Event of Default Redemption Date and any Change of Control Redemption Date.

“ Requisite Holders ” means, with respect to any consent, vote or other action, (i) prior to the Closing Date (as defined in Section 2.2 ), the Purchasers who have subscribed to purchase a majority of the aggregate principal amount of the Notes; and (ii) following the Closing Date, the Purchasers holding a majority of the aggregate principal amount of the Notes then outstanding.

“ SEC Filings ” has the meaning set forth in Section 5.7 .

“ SEDAR Filings ” has the meaning set forth in Section 5.7 .

“ Senior Debt ” means the principal of (and premium, if any), interest on, and all fees and other amounts (including, without limitation, any out-of-pocket costs, enforcement expenses (including out-of-pocket legal fees and disbursements), collateral protection expenses and other reimbursement or indemnity obligations relating thereto) whether now or hereafter outstanding and payable by Company and/or its Subsidiaries under or in connection with the (i) Credit Agreement, dated as of July 28, 2006, as amended by the First Amendment to Credit Agreement dated as of August 29, 2006, among the Company, Storm Cat Energy (USA) Corporation, a Colorado corporation, various financial institutions party thereto as lenders and JPMorgan Chase Bank, N.A., as Global Administrative Agent, (ii) Credit Agreement, dated as of July 28, 2006, among the Company, various financial institutions party thereto as lenders, JPMorgan Chase Bank, N.A., Toronto Branch, as Canadian Administrative Agent, and JPMorgan Chase Bank, N.A., as Global Administrative Agent, as the same may be further amended, supplemented, restated, refinanced, or otherwise modified from time to time; and (iii) any other Indebtedness ranking senior in right of payment to the Notes incurred in the future by the Company.

“ Series B Note Purchase Agreement ” means that certain Series B Note Purchase Agreement, dated as  January 19, 2007, by and among the Company and each of the purchasers party thereto.

“ Subordination Agreement ” means that certain Subordination and Intercreditor Agreement, dated as of the Closing Date, among the Company, Storm Cat Energy (USA) Corporation, a Colorado corporation, JPMorgan Chase Bank, N.A., as Global Administrative

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Agent, JPMorgan Chase Bank, N.A., Toronto Branch, as Canadian Administrative Agent, and any other Person thereto.

“ Subsidiary ”   of any Person means another Person, an amount of the voting securities of which, other voting ownership or voting partnership interests of which is sufficient to elect at least a majority of its Board of Directors or other governing body (or, if there are no such voting interests, 50% or more of the equity interests of which), is owned directly or indirectly by such first Person.

“ Successor Entity ” means the Person, which may be the Company, formed by, resulting from or surviving any Fundamental Transaction or the Person with which such Fundamental Transaction shall have been made.

“ Tax ” means any tax, levy, impost, duty or other charge or withholding of a similar nature (including any related penalty or interest).

“ Tax Deduction ” means a deduction or withholding for or on account of Tax from a payment under the Notes.

“ TSX ” means the Toronto Stock Exchange.

“ Trading Day ” means any day on which the Common Shares are traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Shares, then on the principal securities exchange or securities market on which the Common Shares are then traded; provided that “Trading Day” shall not include any day on which the Common Shares are scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Shares are suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York Time).

“ Voting Shares ” of a Person means Capital Shares of such Person of the class or classes pursuant to which the holders thereof have the general voting power to elect, or the general power to appoint, at least a majority of the board of directors, managers or trustees of such Person (irrespective of whether or not at the time Capital Shares of any other class or classes shall have or might have voting power by reason of the happening of any contingency).

“ Weighted Average Price ” means, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market during the period beginning at 9:30:01 a.m., New York City Time, and ending at 4:00:00 p.m., New York City Time, as reported by Bloomberg through its “Volume at Price” function or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30:01 a.m., New York City Time, and ending at 4:00:00 p.m., New York City Time, as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, 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 (formerly the National Quotation Bureau, Inc.).  If the Weighted Average

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Price cannot be calculated for such security on such date on any of the foregoing bases, the Weighted Average Price of such security on such date shall be the fair market value as mutually determined by the Company and the Requisite Holders.  If the Company and the Requisite Holders are unable to agree upon the fair market value of the Common Shares, then such dispute shall be resolved pursuant to Section 4.1(b)(iii) below with the term “Weighted Average Price” being substituted for the term “Closing Sale Price.” All such determinations shall be appropriately adjusted for any share dividend, share split or other similar transaction during such period.

“ 1934 Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

2.             Purchase and Sale of the Notes; Closing .

2.1           Purchase and Sale of the Notes .  The Company has duly authorized US$18,535,000 in aggregate principal amount of the Notes, for issuance to the Purchasers on the terms and subject to the conditions set forth in this Agreement, and will be in substantially the form of Exhibit A attached hereto, with such changes thereto, if any, as may be approved by the Requisite Holders.  Subject to the terms and conditions of this Agreement, on the Closing Date (as defined below), each of the Purchasers shall severally, and not jointly, purchase, and the Company shall sell and issue to the Purchasers, the Notes in the respective amounts set forth opposite the Purchasers’ names on Schedule I attached hereto in exchange for the cash consideration set forth opposite their respective names on Schedule I .

2.2           Closing .

(a)           The closing (the “ Closing ”) of the purchase and sale of the Notes to the Purchasers shall take place at the offices of King & Spalding LLP, 1185 Avenue of the Americas, New York, New York 10036, or at such other location and on such other date as the Company and the Requisite Holders shall mutually agree. The date and time of the Closing (the “ Closing Date ”) shall take place on 10:00 AM, Eastern Standard Time, one (1) Business day following the confirmation that the conditions to Closing specified herein have been satisfied or duly waived by the Requisite Holders or the Company, as applicable (or such other time and date mutually agreed to by the Company and the Requisite Holders).

(b)           On the Closing Date, each Purchaser shall (i) pay by wire transfer of immediately available funds (U.S. dollars) an amount representing such Purchaser’s “ Aggregate Purchase Price ”, as set forth on such Purchaser’s signature page and opposite such Purchaser’s name on Schedule I attached hereto, in accordance with the Company written wire instructions set forth on Schedule II attached hereto; and (ii) deliver to the Placement Agents and the Company a duly executed counterpart to the Registration Rights Agreement and Subordination Agreement.

(c)           On the Closing Date, (i) the Company shall deliver to the King & Spalding LLP, in trust, the Notes, registered in such name or names and such denomination or denominations as the Purchasers may designate, with instructions that such Notes are to be held for release to the Purchasers only upon payment in full of the Aggregate Purchase Price to the

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Company and (ii) the Company shall wire in immediately available funds following receipt of the Aggregate Purchase Price (A) the Cash Placement Agents Fee to the Placement Agents and (C) the Placement Agents Counsel Fees to King & Spalding LLP and Osler, Hoskin & Harcourt LLP (collectively, “ Placement Agents Counsel ”) .

3.             Interest and Repayment .  With respect to each Note:

3.1.          Interest on the Notes .  Interest will accrue on the Notes from and including the issue date until such principal is paid in full (whether at maturity or by redemption or conversion) and be payable in arrears on each of March 31, June 30, September 30, December 31 of each year, commencing June 30, 2007, and on the date on which such principal is repaid in full (whether at maturity or by redemption or conversion).  The Notes will bear interest on the outstanding principal amount thereof at a rate equal to 9 1/4% per annum.  Each payment of principal or interest on the Notes will be made to each Purchaser by certified or bank cashier’s check or wire transfer of immediately available funds, at such address or to such account as such Purchaser specifies in writing to the Company at least five Business Days before such payment is to be made.

3.2.          Interest after Maturity .  In the event the Company shall fail to make any payment of the principal amount of, or interest on, any Note when due, the Company shall pay interest on such unpaid amount, payable from time to time on demand, from the date such amount shall have become due to the date of payment thereof (after as well as before judgment), accruing on a daily basis, at a per annum rate of 12%.

3.3.          Payments and Computations .

(a)           The Company will pay all sums becoming due on each Note for interest or principal, without the presentation or surrender of the Note or the making of any notation thereon, except that if a Note is paid in full (either in cash or upon conversion), following such payment, the Note shall be surrendered to the Company at their principal office for cancellation.

(b)           Interest on each Note shall be calculated for the actual number of days (including the first day but excluding the last day of any relevant period) elapsed and shall be computed on the basis of a 360-day year of twelve 30-day months.  Each interest rate which is calculated under this Agreement and the Note on any basis other than the actual number of days in a calendar year (the “deemed interest period”) is, for purposes of the Interest Act (Canada), equivalent to a yearly rate calculated by dividing such interest rate by the number of day in the deemed interest period, then multiplying such result by the actual number of days in the calendar year (365 or 366).

(c)           If a payment date is not a Business Day at a place of payment, then (notwithstanding any other provision of this Agreement or the Notes) payment of interest, premium or principal otherwise due on such date shall instead be made at that place on the next succeeding Business Day and no interest shall accrue on such payment for the intervening period.

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3.4.          Payment at Maturity or Upon Conversion .

(a)           The outstanding principal amount of each Note, together with any accrued interest thereon, shall be due and payable in full in cash on the earlier of:  (i) the Maturity Date, or (ii) such other date as the Note becomes due and payable or purchasable pursuant to this Agreement.  Payment of principal on the Notes will be made to each Purchaser by certified or bank cashier’s check or wire transfer of immediately available funds, at such address and to such account as the Purchaser shall specify in writing to the Company at least five Business Days before such payment is to be made.

(b)           Upon any conversion of any Note in accordance with the terms of Section 4 hereunder, the Conversion Amount shall be converted into a number of whole Common Shares at the Conversion Rate (as defined below), with any fractional shares that may result treated in the manner set forth in Section 4.1(a) of this Agreement.

4.             Conversion of Notes .  The Notes shall be convertible into Common Shares on the terms and conditions set forth in this Section 4 .

4.1.          Purchaser’s Conversion Right .  Subject to the provisions of Section 4.5 , at any time or times on or after the Closing Date, any Purchaser shall be entitled to convert the Conversion Amount into fully paid and nonassessable Common Shares in accordance with Section 4.1(a) at the Conversion Rate (as defined below):

(a)           Conversion .  The number of Common Shares issuable upon conversion of each Note pursuant to this Section 4.1 shall be determined according to the following formula (the “ Conversion Rate ”):

(Conversion Amount/Conversion Price) + the Cumulative Dividend Adjustment for that Note

No fractional Common Shares are to be issued upon the conversion of any Note, but rather the Company, at its option, shall either (a) round up such fraction to the nearest whole share, or (b) pay an amount in cash equal to the product of (i) such fraction, multiplied by (ii) the Closing Sale Price of a Common Share on the date of the Conversion Notice (as defined below), computed to the nearest whole cent, in lieu of issuing a fractional share.

(b)           Mechanics of Conversion .  The conversion of Notes shall be conducted in the following manner:

(i)            Purchaser’s Delivery Requirements .  To convert Notes into Common Shares on any date (a “ Conversion Date ”), the Purchaser shall (A) transmit by facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m., New York City Time, on such date, a copy of a properly completed notice of conversion executed by the registered Purchaser of the Notes subject to such conversion in the form attached hereto as Exhibit C (the “ Conversion Notice ”) to the Company and the Company’s designated transfer agent (the “ Transfer Agent ”) and (B) surrender to a common carrier for delivery to the Company as soon as practicable following such date the original Notes being converted (or compliance with the procedures set forth in Section 10.3 ).

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(ii)           Company’s Response .  Upon receipt by the Company of copy of the later of a Conversion Notice and the original Note, the Company shall (I) as soon as practicable, but in any event within two (2) Trading Days, send, via facsimile, a confirmation of receipt of such Conversion Notice to such Purchaser and the Transfer Agent, which confirmation shall constitute an instruction to the Transfer Agent to process such Conversion Notice in accordance with the terms herein and (II) on or before the third (3rd) Trading Day following the date of receipt by the Company of the later of such Conversion Notice and the original Note (the “ Share Delivery Date ”), (A) provided the Transfer Agent is participating in the DTC Fast Automated Securities Transfer Program and the Registration Statement (as defined in the Registration Rights Agreement) upon which the Common Shares issuable upon conversion of the Notes has been declared effective by the SEC, credit such aggregate number of Common Shares to which the Purchaser shall be entitled to the Purchaser’s or its designee’s balance account with DTC through its Deposit Withdrawal Agent Commission system, or (B) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver to the address as specified in the Conversion Notice, a certificate, registered in the name of the Purchaser or its designee, for the number of Common Shares to which the Purchaser shall be entitled.  If the aggregate principal amount of the Note that is being converted in accordance with the Conversion Note is less than that aggregate principal amount of such Note being converted, then the Company shall, as soon as practicable and in no event later than three (3) Business Days after receipt of the original Note  (the “ Note Delivery Date ”) and at its own expense, issue and deliver to the Purchaser a new Note representing the aggregate principal amount of the Note not converted.

(iii)          Dispute Resolution .  In the case of a dispute as to the determination of the Closing Sale Price or the arithmetic calculation of the Conversion Rate, the Company shall instruct the Transfer Agent to issue to the Purchaser the number of Common Shares that is not disputed and shall transmit an explanation of the disputed determinations or arithmetic calculations to the Purchaser via facsimile within two (2) Business Days of receipt of such Purchaser’s Conversion Notice or other date of determination.  If such Purchaser and the Company are unable to agree upon the determination of the Closing Sale Price or arithmetic calculation of the Conversion Rate within two (2) Business Days of such disputed determination or arithmetic calculation being transmitted to the Purchaser, then the Company shall within two (2) Business Days submit via facsimile (A) the disputed determination of the Closing Sale Price to an independent, reputable investment bank selected by the Company and approved by the Requisite Holders or (B) the disputed arithmetic calculation of the Conversion Rate to the Company’s independent, outside accountant.  The Company shall cause, at the Company’s expense, the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Purchasers of the results no later than two (2) Business Days from the time it receives the disputed determinations or calculations.  Such investment bank’s or accountant’s determination or calculation, as the case may be, shall be binding upon all parties absent error.

(iv)          Record Holder .  The Person or Persons entitled to receive the Common Shares issuable upon a conversion of Notes shall be treated for all purposes as the record holder or holders of such Common Shares on the Conversion Date.

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(v)           Pro Rata Conversion; Disputes .  In the event the Company receives a Conversion Notice from more than one Purchaser for the same Conversion Date and the Company can convert some, but not all, of such Notes, the Company shall convert from each Purchaser electing to have Notes converted at such time a pro rata amount of such Purchaser’s Notes submitted for conversion based on the number of Notes submitted for conversion on such date by such Purchaser relative to the number of Notes submitted for conversion on such date.  In the event of a dispute as to the number of Common Shares issuable to a Purchaser in connection with a conversion of Notes, the Company shall issue to such Purchaser the number of Common Shares not in dispute and resolve such dispute in accordance with Section 4.1(b)(iii) .

4.2.          Conversion at the Company’s Election .  On any date (the “ Conversion Election Date ”) after the eighteen (18) month anniversary of the Closing Date, so long as (A) the Equity Conditions shall have been satisfied or waived in writing by the applicable Purchaser from and including the date of the Company Conversion Election Notice (as defined below) through and including the Company Election Conversion Date (as defined below) and (B) on any twenty (20) out of thirty (30) consecutive Trading Days immediately preceding the date of the Company Conversion Election Notice, the Weighted Average Price of the Common Shares exceeds 175% of the Conversion Price (as adjusted for any stock dividend, stock split, stock combination or other similar transaction during such period), the Company shall have the right, in its sole discretion, to require that some or all of the outstanding Notes be converted (the “ Company Conversion Election ”) at the applicable Conversion Rate; provided , however , that the Company may not consummate more than one (1) Company Conversion in any thirty (30) Trading Day period. The Company shall exercise its right to Company Conversion Election by providing each Purchaser written notice (“ Company Conversion Notice ”) by facsimile and overnight courier on the Conversion Election Date. The date on which each of such Purchasers actually receives the Company Conversion Election Notice is referred to herein as the “ Company Conversion Election Notice Date .”  If the Company elects to require conversion of some, but not all, of such Notes then outstanding, the Company shall require conversion of an amount from each Purchaser equal to the product of (I) the total number of Notes which the Company has elected to convert multiplied by (II) such Purchaser’s Allocation Percentage (such amount with respect to each Purchaser of such Notes being referred to herein as its “ Pro Rata Conversion Amount ”). In the event that any initial Purchaser of the Notes shall sell or otherwise transfer any of such Purchaser’s Notes, the transferee shall be allocated a pro rata portion of such Purchaser’s Allocation Percentage. The Company Conversion Election Notice shall indicate (x) the aggregate principal amount of such Notes the Company has selected for conversion, (y) the date selected by the Company for conversion (the “ Company Delivery Date ”), which date shall be not less than twenty (20) Trading Days or more than sixty (60) Trading Days after the Company Conversion Election Notice Date, and (z) each Purchaser’s Pro Rata Conversion Amount. Subject to the satisfaction of all the conditions of this Section 4.2 , on the Company Election Conversion Date each Purchaser of Notes selected for conversion will be deemed to have submitted a Conversion Notice in accordance with Section 4.1(b)(i) for a the aggregate principal amount of Notes equal to such Purchaser’s Pro Rata Conversion Amount. Notwithstanding the above, any Purchaser may convert such Notes selected for conversion hereunder which shall reduce such Purchaser’s Pro Rata Conversion Amount into Common Shares pursuant to Section 4.1 on or prior to the date immediately preceding the Company Election Conversion Date.

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4.3.          Taxes .

(a)           Any and all payments made by the Company hereunder, including any amounts received on a conversion or redemption of the Notes and any amounts on account of interest payments or deemed interest payments, must be made by it without any Tax Deduction, unless a Tax Deduction is required by law.  If the Company is aware that it must make a Tax Deduction (or that there is a change in the rate or the basis of a Tax Deduction), it must notify the affected Purchasers promptly.

(b)           If a Tax Deduction is required by law to be made by the Company as it applies on the Closing Date and to the affected Purchaser or Purchasers according to their legal status and domicile as at the Closing Date, then the amount of the payment due from the Company will be increased to an amount which (after making the Tax Deduction including any Tax Deduction applicable to additional sums payable pursuant to this Section 4.3(b) ) leaves an amount equal to the payment which would have been due if no Tax Deduction had been required (“ Additional Amount ”).

(c)           If the Company is required to make a Tax Deduction, it must make the minimum Tax Deduction allowed by law and must make any payment required in connection with that Tax Deduction within the time allowed by law.  As soon as practicable after making a Tax Deduction or a payment required in connection with a Tax Deduction, the Company must deliver to the Purchaser any official receipt or form, if any, provided by or required by the taxing authority to whom the Tax Deduction was paid.

(d)           In the event that the Company fails to make a required Tax Deduction or fails to remit a Tax Deduction to the applicable taxing authority, the Company shall indemnify and hold harmless each Purchaser for the full amount of any taxes, interest payments and penalties assessed against such Purchaser, including the amount of any taxes payable by such Purchaser in respect of payments received pursuant to this Section 4.3(d) .

(e)           In addition, the Company agrees to pay in accordance with applicable law any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies that arise from any payment made hereunder or in connection with the execution, delivery, registration or performance of, or otherwise with respect to, the Notes (“ Other Taxes ”). As soon as practicable after making a payment of Other Taxes, the Company must deliver to such Purchaser any official receipt or form, if any, provided by or required by the taxing authority to whom the Tax Deduction was paid.

(f)            The obligations of the Company under this Section 4.3 shall survive the Maturity Date of the Notes and the payment for the Notes and all other amounts payable hereunder.

4.4.          Adjustments to Conversion Price . The Conversion Price will be subject to adjustment from time to time as provided in this Section 4.4 .

(a)           Adjustment of Conversion Price upon Issuance of Common Shares . If and whenever on or after the Execution Date, the Company issues or sells, or in accordance with this Section 4.4(a) is deemed to have issued or sold, any Common Shares

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(including the issuance or sale of Common Shares owned or held by or for the account of the Company, but excluding Common Shares deemed to have been issued or sold by the Company in connection with any Excluded Security) for a consideration per share (the “ New Issuance Price ”) less than the Conversion Price in effect immediately prior to such issue or sale (the foregoing a “ Dilutive Issuance ”), then immediately after such Dilutive Issuance, the Conversion Price then in effect shall be reduced to an amount equal to the product of (x) the Conversion Price in effect immediately prior to such issuance or sale, and (y) the following fraction:

N(0) + N(1)
---------------
N(0) + N(2)

where:

N(0) =                   the number of Common Shares of the Company outstanding immediately prior to such Dilutive Issuance (without taking into account the conversion, exercise or exchange of any Convertible Securities, including the Notes);

N(1) =                   the number of Common Shares of such the Company for which the aggregate consideration, if any, received or receivable by the Company for the total number of such additional Common Shares so issued, sold or deemed issued or sold in such dilutive issuance would be convertible or exchangeable at the Conversion Price for such Common Shares in effect immediately prior to such Dilutive Issuance; and

N(2) =                   the number of such additional Common Shares of the Company so issued, sold or deemed issued or sold in such Dilutive Issuance.

For purposes of determining the adjusted Conversion Price under this Section 4.4(a) , the following shall be applicable:

(i)            Issuance of Options . If the Company in any manner grants or sells any Options and the lowest price per share for which one Common Share is issuable upon the exercise of any such Option or upon conversion or exchange or exercise of any Convertible Securities issuable upon exercise of such Option is less than the Conversion Price in effect immediately prior to such issue or sale, then each such Common Share underlying such Option 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 4.4(a)(i) , the “lowest price per share for which one Common Share is issuable upon the exercise of any such Option or upon conversion or exchange or exercise of any Convertible Securities issuable upon exercise of such Option” 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 Common Share upon granting or sale of the Option, upon exercise of the Option and upon conversion or exchange or exercise of any Convertible Security issuable upon exercise of such Option. No further adjustment of the Conversion Price shall be made upon the actual issuance of such Common Share or of such Convertible Securities upon the exercise of such Options or

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upon the actual issuance of such Common Shares upon conversion or exchange or exercise of such Convertible Securities.

(ii)           Issuance of Convertible Securities . If the Company in any manner issues or sells any Convertible Securities and the lowest price per share for which one Common Share is issuable upon such conversion or exchange or exercise thereof is less than the Conversion Price in effect immediately prior to such issue or sale, then each such Common Share underlying such Convertible Securities 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 4.4(a)(ii) , the “lowest price per share for which one Common Share is issuable upon such conversion or exchange or exercise” 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 Common Share upon the issuance or sale of the Convertible Security and upon the conversion or exchange or exercise of such Convertible Security. No further adjustment of the Conversion Price shall be made upon the actual issuance of such Common Share upon conversion or exchange or exercise 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 of the Conversion Price had been or are to be made pursuant to other provisions of this Section 4.4(a) , no further adjustment of the Conversion Price shall be made by reason of such issue or sale.

(iii)          Change in Option Price or Rate of Conversion . If the purchase price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion,  exchange or exercise of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exchangeable or exercisable for Common Shares changes at any time, the Conversion Price in effect at the time of such change shall be adjusted to the Conversion 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. For purposes of this Section 4.4(a)(iii) , if the terms of any Option or Convertible Security that was outstanding as of the Execution Date are changed in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the Common Shares deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such change. No adjustment shall be made if such adjustment would result in an increase of the Conversion Price then in effect.

(iv)          Calculation of Consideration Received . 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 allocated to such Options by the parties thereto, the Options will be deemed to have been issued for a consideration of $0.01. If any Common Shares, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount received by the Company therefor. If any Common Shares, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Company will be the fair value of such consideration, except where such consideration consists of publicly traded securities, in which case the amount of consideration received by the Company will be the Closing Sale Price of such

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securities on the date of receipt of such securities. If any Common Shares, 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 therefor 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 Shares, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash or publicly traded securities will be determined jointly by the Company and the Requisite Holders. 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 ten (10) Business Days after the tenth (10th) day following the Valuation Event by an independent, reputable appraiser jointly selected by the Company and the Requisite Holders. The determination of such appraiser shall be deemed binding upon all parties absent manifest error and the fees and expenses of such appraiser shall be borne by the Company.

(v)           Record Date . If the Company takes a record of the holders of Common Shares for the purpose of entitling them (I) to receive a dividend or other distribution payable in Common Shares, Options or in Convertible Securities or (II) to subscribe for or purchase Common Shares, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the Common Shares 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.

(b)           Adjustment of Conversion Price upon Subdivision or Combination of Common Shares . If the Company at any time after the Execution Date subdivides (by any share split, share dividend, recapitalization or otherwise) its outstanding Common Shares into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision will be proportionately reduced. If the Company at any time after the Execution Date combines (by combination, reverse share split or otherwise) its outstanding Common Shares into a smaller number of shares and the Conversion Price in effect immediately prior to such combination will be proportionately increased.

(c)           Other Events . If any event occurs of the type contemplated by the provisions of this Section 4.4 but not expressly provided for by such provisions (including, without limitation, the granting of share 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 Conversion Price so as to protect the rights of the Purchasers; provided that no such adjustment will increase the Conversion Price as otherwise determined pursuant to this Section 4.4 .

(d)           Notices .

(i)            Immediately upon any adjustment of the Conversion Price pursuant to Section 4.4 , the Company will give written notice thereof to each Purchaser, setting forth in reasonable detail, and certifying, the calculation of such adjustment. In the case of a dispute as to the determination of such adjustment, then such dispute shall be resolved in accordance with the procedures set forth in Section 4.1(b)(iii) .

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(ii)           The Company will give written notice to each Purchaser at least ten (10) Business Days prior to the date on which the Company closes its books or takes a record (I) with respect to any dividend or distribution upon the Common Shares, (II) with respect to any pro rata subscription offer to holders of Common Shares or (III) for determining rights to vote with respect to any Fundamental Transaction, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to such Purchaser.

(iii)          The Company will also give written notice to each Purchaser at least ten (10) Business Days prior to the date on which any Fundamental Transaction 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 Purchaser.

(e)           Additional Notes; Variable Securities; Dilutive Issuances . For so long as any Notes are outstanding, the Company will not, without the prior written consent of the Requisite Holders, issue any Notes and the Company shall not issue any other securities that would cause a breach or default under this Agreement other than those issued pursuant to the Series B Note Purchase Agreement. For so long as any Notes remain outstanding, the Company shall not, in any manner, issue or sell any rights, warrants or options to subscribe for or purchase Common Shares or directly or indirectly convertible into or exchangeable or exercisable for Common Shares at a conversion, exchange or exercise price which varies or may vary after issuance with the market price of the Common Shares, including by way of one or more reset(s) to any fixed price unless the conversion, exchange or exercise price of any such security cannot be less than the then applicable Conversion Price with respect to the Common Shares into which any Notes are convertible.

4.5.          Limitation on Beneficial Ownership . The Company shall not effect any conversion of Notes, and no Purchaser shall have the right to convert any Notes, to the extent that after giving effect to such conversion, the beneficial owner of such shares (together with such Person’s Affiliates) would have acquired, through conversion of Notes or otherwise, beneficial ownership of a number of Common Shares that exceeds 9.99% (“ Maximum Percentage ”) of the number of Common Shares outstanding immediately after giving effect to such conversion.  For purposes of the foregoing, the number of Common Shares beneficially owned by a Person and its Affiliates shall include the number of Common Shares issuable upon conversion of the Notes with respect to which the determination of such sentence is being made, but shall exclude the number of Common Shares which would be issuable upon (A) conversion of the remaining, nonconverted Notes beneficially owned by such Person or any of its Affiliates and (B) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company (including, without limitation, any other notes, preferred shares or warrants) subject to a limitation on conversion or exercise analogous to the limitation contained in this Section beneficially owned by such Person or any of its Affiliates. Except as set forth in the preceding sentence, for purposes of this Section 4.5 , beneficial ownership shall be calculated in accordance with Section 13(d) of the 1934 Act. For purposes of this Section 4.5 , in determining the number of outstanding Common Shares, a Purchaser may rely on the number of outstanding Common Shares as reflected in (1) the Company’s most recent Form 10-K, Form 10-KSB, Form 10-Q, Form 10-QSB or Form 8-K, as the case may be, (2) a more recent public announcement by the Company, or (3) any other notice by the Company or the Transfer Agent setting forth the number of Common Shares outstanding. For any reason at any time, upon the written request of

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any Purchaser, the Company shall within one (1) Business Day following the receipt of such notice, confirm orally and in writing to any such Purchaser the number of Common Shares then outstanding. In any case, the number of outstanding Common Shares shall be determined after giving effect to the conversion or exercise of securities of the Company, including the Notes, by such Purchaser and its Affiliates since the date as of which such number of outstanding Common Shares was reported. By written notice to the Company, any Purchaser may from time to time increase or decrease the Maximum Percentage to any other percentage not in excess of 19.99% nor below 9.99% as specified in such notice; provided , that (I) any such increase or decrease will not be effective until the sixty-first (61 st ) day after such written notice is delivered to the Company, and (II) any such increase or decrease will apply only to the Purchaser providing such written notice and not to any other Purchaser.

4.6.          Limitation on Number of Common Shares Issuable Upon Conversion of Notes . Notwithstanding anything to the contrary contained herein, the Company shall not issue any Common Shares upon conversion of the Notes if the issuance of such Common Shares would:

(a)           exceed that number Common Shares which the Company may issue upon conversion of the Notes without breaching the Company’s obligations under the rules or regulations of the Principal Market, or any other the market or exchange where the Common Shares are then traded (the “ Exchange Cap ”); or

(b)           be an issuance of Common Shares at an effective issue price per Common Share that is less than the market price for the Common Shares (as defined pursuant to Section 601 of the Toronto Stock Exchange Company Manual) as at the date on which the Company entered into this Agreement, less a discount of twenty percent (20%), except that such limitations shall not apply in the event that the Company (c) obtains Shareholder Approval as required by the applicable rules of both the Principal Market and the Toronto Stock Exchange (and any successor rules or regulations) for issuances of Common Shares in excess of such number of Common Shares, or at an effective price per Common Share that is less than such discount from the market price, or (d) obtains a written opinion from outside counsel to the Company that such approval is not required, which opinion shall be reasonably satisfactory to the Required Holders. Until such approval or written opinion is obtained, no Purchaser shall be issued, in the aggregate, upon conversion of the Notes, Common Shares in an amount greater than the product of (i) the Exchange Cap amount multiplied by (ii) their Allocation Percentage (the “ Exchange Cap Allocation ”) nor shall the Company issue any Common Shares at an effective price per Common Share that is less than such discount from the market price. In the event that any Purchaser shall sell or otherwise transfer any of such Purchaser’s Notes, the transferee shall be allocated a pro rata portion of such Purchaser’s Exchange Cap Allocation. In the event that any Purchaser shall convert all of such Purchaser’s Notes into a number of Common Shares which, in the aggregate, is less than such Purchaser’s Exchange Cap Allocation, then the difference between such Purchaser’s Exchange Cap Allocation and the number of Common Shares actually issued to such Purchaser shall be allocated to the respective Exchange Cap Allocations of the remaining Purchasers on a pro rata basis in proportion to the number of Notes then held by each such Purchaser.

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5.             Representations and Warranties of the Company .  The Company hereby represents and warrants to the Purchasers and the Placement Agents that, except as set forth in the schedules delivered herewith (collectively, the “ Disclosure Schedules ”):

5.1.          Organization, Good Standing and Qualification .  The Company is a company validly existing and in good standing under the Business Corporations Act (British Columbia) and has all requisite power and authority to carry on its business as now conducted and to own its properties.  Each Subsidiary is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. The Company and each Subsidiary is duly qualified to do business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or its leasing of property makes such qualification necessary, unless the failure to so qualify would have a Material Adverse Effect.  The Company is presently a reporting issuer in the Canadian provinces of British Columbia, Alberta and Ontario and is not in default of the applicable securities legislation of such provinces.

5.2.          Authorization .  The Company has full power and authority and has taken all requisite action on the part of the Company, its officers, directors and shareholders necessary for (i) the authorization, execution and delivery of the Note Documents; (ii) authorization of the performance of all obligations of the Company hereunder or thereunder; and (iii) the authorization, issuance and delivery of the Notes and the Common Shares upon conversion of the Notes in accordance with the terms thereof  The Note Documents constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability, relating to or affecting creditors’ rights generally.

5.3.          Capitalization .

(a)           Schedule 5.3 sets forth (i) the authorized capital shares of the Company on the date hereof, (ii) the number of capital shares issued and outstanding as of December 31, 2006, (iii) the number of capital shares issuable pursuant to the Company’s share plans as of December 31, 2006, and (iv) the number of capital shares issuable and reserved for issuance pursuant to securities exercisable for, or convertible into or exchangeable for any capital shares of the Company as of December 31, 2006.  All of the issued and outstanding Company capital shares have been duly authorized and validly issued and are fully paid, nonassessable and free of pre-emptive rights.  Other than the Purchasers upon Closing, no Person is entitled to pre-emptive or similar statutory or contractual rights with respect to any securities of the Company.  Except as described on Schedule 5.3 or pursuant to this Agreement, (i) there are no outstanding warrants, options, convertible securities or other rights, agreements or arrangements of any character under which the Company is or may be obligated to issue any equity securities of any kind and, except as contemplated by this Agreement, (ii) there are no outstanding debt securities, notes, indentures, credit agreements, or credit facilities of the Company or any of its Subsidiaries or by which the Company or any of its Subsidiaries is or may become bound, (iii) there are no outstanding securities or instruments of the Company or any of its Subsidiaries which contain any redemption or similar provisions, and there are no contracts, commitments, understandings

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or arrangements by which the Company or any of its Subsidiaries is or may become bound to redeem a security of the Company or any of its Subsidiaries, (iv) the Company does not have any stock appreciation rights or “phantom stock” plans or agreements or any similar plan or agreement, and (v) the Company is not currently in negotiations for the issuance of any equity securities of any kind.  Except as described on Schedule 5.3 , there are no voting agreements, buy-sell agreements, option or right of first purchase agreements or other agreements of any kind among the Company and any of the security holders of the Company relating to the securities of the Company.  Except as described on Schedule 5.3 , the Company has not granted any Person the right to require the Company to register any securities of the Company under the 1933 Act, or qualify the distribution of any securities of the Company by prospectus under any Canadian securities laws whether on a demand basis or in connection with the registration or qualification by prospectus of securities of the Company for its own account or for the account of any other Person, except as contemplated by the Registration Rights Agreement.

(b)           Except as described on Schedule 5.3 and in this Agreement, the issuance and sale of the Notes hereunder will not obligate the Company to issue Common Shares or other securities to any other Person (other than the Purchasers) and will not result in the adjustment of the exercise, conversion, exchange or reset price of any outstanding security.

(c)           Except as set forth on Schedule 5.3 and in this Agreement, the Company does not have outstanding shareholder purchase rights or any similar arrangement in effect giving any Person the right to purchase any equity interest in the Company upon the occurrence of certain events or otherwise.

5.4.          Subsidiaries .  Schedule 5.4 sets forth the direct and indirect subsidiaries of the Company.  The Company owns, directly or indirectly, all of the capital stock of each Subsidiary free and clear of any and all liens, encumbrances and restrictions, and all the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, nonassessable and free of preemptive and similar rights.  The Company or one of its Subsidiaries has the unrestricted right to vote, and (subject to limitations imposed by applicable law) to receive dividends and distributions on, all capital securities of its Subsidiaries as owned by the Company or such Subsidiary.  Neither the Company nor any Subsidiary is party to any material joint venture, nor has any ownership interest in any other entity that is material to the Company and not disclosed in the SEC Filings and the SEDAR Filings.

5.5.          Valid Issuance .

(a)           The Notes have been duly and validly authorized and, when issued and paid for pursuant to this Agreement, will be validly issued, fully paid and nonassessable, and shall be free and clear of all liens, encumbrances and restrictions, except for restrictions on transfer set forth in the Note Documents or imposed by applicable securities laws.

(b)           Upon conversion of the Notes in accordance with this Agreement, the Common Shares will be validly issued, fully paid and nonassessable free and clear of all encumbrances and restrictions, except for restrictions on transfers and preemptive rights set forth in the Note Documents or imposed by applicable securities laws. The Company has reserved sufficient number of Common Shares for issuance upon the conversion of the Notes, free and

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clear of all encumbrances and restrictions, except for restrictions on transfers and preemptive rights set forth  in the Note Documents or imposed by applicable securities laws.

5.6.          Consents .  The execution, delivery and performance by the Company of the Note Documents and the offer, issuance and sale of the Notes require no consent of, action by or in respect of, or filing with, any Person, governmental body, agency, or official other than those filings and consents set forth on Schedule 5.6 , consents or filings that have already been obtained, filings with and approval by AMEX and TSX, the filings with the SEC of one or more registration statements in accordance with the Registration Rights Agreement, filings required by Section 12.7 hereof, and filings that have been made pursuant to applicable state securities laws and post-sale filings pursuant to applicable state and federal securities laws and applicable laws of the securities regulatory authorities in the provinces and territories of Canada which the Company undertakes to file within the applicable time periods.

5.7.          Delivery of SEC Filings and SEDAR Filings; Business .  All reports and other documents filed by the Company since January 1, 2004 (i) pursuant to the 1934 Act through the SEC’s Electronic Data Gathering, Analysis and Retrieval (“ EDGAR ”) system and prior to the date hereof (collectively, the “ SEC Filings ”) and (ii) with the securities regulatory authorities in the provinces and territories of Canada through the System for Electronic Document Analysis and Retrieval and prior to the date hereof (collectively, the “ SEDAR Filings ”) are publicly available for viewing by Purchasers.  The SEC Filings are the only filings required of the Company pursuant to the 1934 Act for such period and the SEDAR Filings are the only filings required of the Company pursuant to the laws, rules and regulations of the securities regulatory authorities in the provinces and territories of Canada for such period.

5.8.          Use of Proceeds .  The proceeds of the sale of the Notes hereunder shall be used by the Company to repay debt and for general corporate and working capital purposes .

5.9.          No Material Adverse Change .  Except as identified and described in the SEC Filings or the SEDAR Filings or as described on Schedule 5.9(a) , since September 30, 2006, there has not been:

(a)           any change in the consolidated assets, liabilities, financial condition or operating results of the Company from that reflected in the financial statements included in the SEC Filings or the SEDAR Filings, except for changes in the ordinary course of business which would not have a Material Adverse Effect, individually or in the aggregate;

(b)           any declaration or payment of any dividend, or any authorization or payment of any distribution, on any of the capital shares of the Company, or any redemption or repurchase of any securities of the Company;

(c)           any material damage, destruction or loss, whether or not covered by insurance to any assets or properties of the Company;

(d)           any waiver, not in the ordinary course of business, by the Company of a material right or of a material debt owed to it;

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(e)           any satisfaction or discharge of any lien, claim or encumbrance or payment of any obligation by the Company, except in the ordinary course of business and which is not material to the assets, properties, financial condition, operating results or business of the Company;

(f)            any change or amendment to the Company’s Notice of Articles and Articles or material change to any Material Contract by which the Company is bound or to which any of their respective assets or properties is subject;

(g)           any material labor difficulties or labor union organizing activities with respect to employees of the Company;

(h)           any transaction entered into by the Company other than in the ordinary course of business (other than as contemplated by the Note Documents);

(i)            the loss of the services of any key employee, or material change in the composition or duties of the senior management of the Company;

(j)            the loss or threatened loss of any customer which had or would have a Material Adverse Effect;

(k)           sold any assets, individually or in the aggregate, in excess of US$500,000 outside of the ordinary course of business;

(l)            had capital expenditures, individually or in the aggregate, in excess of US$1,500,000; or

(m)          any other event or condition of any character that had or would have a Material Adverse Effect; provided , however , any decline in the market price of the Company’s Common Shares as a result of the transactions contemplated by the Note Documents, the public announcement thereof, or change in the general economic or industry conditions shall not be deemed to be such an event or condition.

5.10.        SEC Filings; SEDAR Filings .  At the time of filing thereof, (i) the SEC Filings complied as to form in all material respects with the requirements of the 1934 Act; and (ii) the SEDAR Filings complied as to form in all material respects with the laws, rules and regulations of the securities regulatory authorities in the provinces and territories of Canada, and neither the SEC Filings nor the SEDAR Filings contained any untrue statement of a material fact or omitted to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading.  The SEDAR Filings did not contain any “misrepresentation” within the meaning of Canadian securities laws.  The Company is not (with or without the lapse of time or the giving of notice, or both) in material breach or default of any Material Contract and, to the Company’s Knowledge, no other party to any Material Contract is (with or without the lapse of time or the giving of notice, or both) in material breach or default of any Material Contract.  The Company has not received any notice of the intention of any party to terminate any Material Contract.

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5.11.        No Conflict, Breach, Violation or Default .  The execution, delivery and performance of the Note Documents by the Company and the issuance and sale of the Notes will not conflict with or result in a breach or violation of any of the terms and provisions of, or constitute a default under (i) the Company’s Notice of Articles and Articles, both as in effect on the date hereof, or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, each as in effect on the date hereof; or (ii)(a) any statute, rule, regulation or order of any governmental agency or body or any court, domestic or foreign, having jurisdiction over the Company, any Subsidiary or any of their respective assets or properties, or (b) except as set forth on Schedule 5.11, any Material Contract to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary is bound or to which any of its assets or properties is subject.

5.12.        Tax Matters .  The Company and each of its Subsidiaries has timely prepared and filed all tax returns required to have been filed by the Company and each of its Subsidiaries with all appropriate governmental agencies and timely paid all taxes shown thereon or otherwise owed by them, except to the extent being disputed in good faith or would not have a Material Adverse Effect.  The charges, accruals and reserves on the books of the Company in respect of taxes for all fiscal periods are adequate in all material respects, and there are no material unpaid assessments against the Company nor, to the Company’s Knowledge, any basis for the assessment of any additional taxes, penalties or interest for any fiscal period or audits by any foreign, federal, state or local taxing authority except for any assessment that is not material to the Company.  All taxes and other assessments and levies that the Company is required to withhold or to collect for payment have been duly withheld and collected and paid to the proper governmental entity or third party when due, except to the extent being disputed in good faith or would not have a Material Adverse Effect.  There are no tax liens or claims pending or, to the Company’s Knowledge, threatened against the Company, any of its Subsidiaries or any of its assets or property.  Except as described on Schedule 5.12 , there are no outstanding tax sharing agreements or other such arrangements between the Company or any Subsidiary and any other entity and neither the Company nor any Subsidiary is presently undergoing any audit by a taxing authority, or has waived or extended any statute of limitations at the request of any taking authority.

5.13.        Title to Properties .

(a)           Except as disclosed in the SEC Filings or the SEDAR Filings, each of the Company and its Subsidiaries has good title to all real properties and all other properties and assets owned by it, in each case free from liens, encumbrances and defects, except as would not individually or in the aggregate would have a Material Adverse Effect; and except as disclosed in the SEC Filings or the SEDAR Filings, the Company and each Subsidiary holds any leased real or personal property under valid and enforceable leases with no exceptions that would materially interfere with the use made or currently planned to be made thereof by them, except as would not individually or in the aggregate would have a Material Adverse Effect.

(b)           All interests in natural resource properties of the Company and its Subsidiaries as disclosed in the SEC Filings and the SEDAR Filings are in all material respects: (i) owned or held by the Company or a Subsidiary as owner thereof with good title; (ii) valid and enforceable; and (iii) free and clear of any liens, charges or encumbrances, and no royalty is

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payable in respect of any of them except as disclosed in the SEC Filings and the SEDAR Filings, except as would not individually or in the aggregate would have a Material Adverse Effect; no other material property rights are necessary for the conduct of the Company’s and each Subsidiary’s business, and there are no material restrictions on the ability of the Company or any Subsidiary to use, transfer or otherwise exploit any such property rights except as disclosed in the SEC Filings and the SEDAR Filings, and the Company does not know of any claim or basis for a claim that may adversely affect such rights in any material respects except as disclosed in the SEC Filings and the SEDAR Filings.

5.14.        Certificates, Authorities and Permits .  The Company and its Subsidiaries possess adequate certificates, authorities or permits issued by appropriate governmental agencies or bodies necessary to conduct the business now operated by it, and neither the Company nor any of its Subsidiaries has received any notice of proceedings relating to the revocation or modification of any such certificate, authority or permit that, if determined adversely to the Company or any Subsidiary, would have a Material Adverse Effect, individually or in the aggregate.

5.15.        Employee Relations .

(a) Neither the Company nor any of its Subsidiaries is a party to any collective bargaining agreement or employs any member of a union. The Company and its Subsidiaries believe that their relations with their employees are good. No executive officer of the Company or any of its Subsidiaries has notified the Company or any such Subsidiary that such officer intends to leave the Company or any such Subsidiary or otherwise terminate such officer’s employment with the Company or any such Subsidiary. No executive officer of the Company or any of its Subsidiaries is to the Company’s Knowledge, or is to the Company’s Knowledge expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement, non-competition agreement, or any other contract or agreement or any restrictive covenant, and the continued employment of each such executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters.

(b)           The Company and its Subsidiaries are in compliance with all U.S. and Canadian federal, state, provincial, local and foreign laws and regulations respecting labor, employment and employment practices and benefits, terms and conditions of employment and wages and hours, except where failure to be in compliance would not, either individually or in the aggregate, have a Material Adverse Effect.

5.16.        Intellectual Property .

(a)           All Intellectual Property of the Company is currently in compliance with all legal requirements (including timely filings, proofs and payments of fees) and is valid and enforceable, except to the extent that any non-compliance would not individually or in the aggregate have a Material Adverse Effect.  No Intellectual Property of the Company that is necessary for the conduct of Company’s business as currently conducted or as currently proposed to be conducted has been or is now involved in any cancellation, dispute or litigation,

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and, to the Company’s Knowledge, no such action is threatened.  No patent of the Company has been or is now involved in any interference, reissue, re-examination or opposition proceeding.

(b)           All of the licenses and sublicenses and consent, royalty or other agreements concerning Intellectual Property that are necessary for the conduct of the Company’s business as currently conducted or as currently proposed to be conducted to which the Company is a party or by which any of its assets are bound (other than  generally commercially available, non-custom, off-the-shelf software application programs having a retail acquisition price of less than US$10,000 per license) (collectively, “ License Agreements ”) are valid and binding obligations of the Company that are parties thereto and, to the Company’s Knowledge, the other parties thereto, enforceable in accordance with their terms, except to the extent that enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws affecting the enforcement of creditors’ rights generally, and to the Company’s Knowledge there exists no event or condition that would result in a material violation or breach of or constitute (with or without due notice or lapse of time or both) a default by the Company under any such License Agreement.

(c)           The Company owns or has the valid right to use all of the Intellectual Property that is necessary for the conduct of the Company’s business as currently conducted or as currently proposed to be conducted, free and clear of all liens, encumbrances, adverse claims or obligations to license all such owned Intellectual Property and Confidential Information, other than licenses entered into in the ordinary course of the Company’s business, except that any such invalidity or liens, encumbrances, or obligations would not have a Material Adverse Effect.  The Company has a valid and enforceable right to use all third party Intellectual Property and Confidential Information used or held for use in the business of the Company as currently conducted or as currently proposed to be conducted, except such invalidity or unenforceable right shall not have a Material Adverse Effect.

(d)           To the Company’s Knowledge, the conduct of the Company’s business as currently conducted and as currently proposed to be conducted does not and will not infringe any Intellectual Property rights of any third party or any confidentiality obligation owed to a third party. To the Company’s Knowledge, the Intellectual Property and Confidential Information of the Company that are necessary for the conduct of Company’s business as currently conducted or as currently proposed to be conducted are not being infringed by any third party.  There is no litigation or order pending or outstanding or, to the Company’s Knowledge, threatened or imminent, that seeks to limit or challenge or that concerns the ownership, use, validity or enforceability of any Intellectual Property or Confidential Information of the Company and the Company’s use of any Intellectual Property or Confidential Information owned by a third party, and, to the Company’s Knowledge, there is no valid basis for the same.

(e)           The consummation of the transactions contemplated hereby will not result in the alteration, loss, impairment of or restriction on the Company’s ownership or right to use any of the Intellectual Property or Confidential Information that is necessary for the conduct of the Company’s business as currently conducted or as currently proposed to be conducted, except as would not have a Material Adverse Effect.

5.17.        Environmental Matters .

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(a)           The Company and each of its Subsidiaries has been and is in compliance with all applicable U.S. and Canadian federal, state, provincial, municipal and local laws, statutes, ordinances, bylaws and regulations and orders, directives and decisions rendered by any ministry, department or administrative or regulatory agency, domestic or foreign, (“ Environmental Laws ”) relating to the protection of the environment, occupational health and safety or the processing, use, treatment, storage, disposal, discharge, transport or handling of any pollutants, contaminants, chemicals or industrial, toxic or hazardous wastes or substance except where such non-compliance would not have a Material Adverse Effect on the Company on a consolidated basis.

(b)           The Company and each of its Subsidiaries has obtained all licenses, permits, approvals, consents, certificates, registrations and other authorizations under Environmental Laws (the “ Environmental Permits ”) necessary for the operation of its projects as currently operated and each Environmental Permit is valid, subsisting and in good standing and the holders of the Environmental Permits are not in default or breach thereof and no proceeding is pending or threatened to revoke or limit any Environmental Permit, except in each case where the result would not have a Material Adverse Effect on the Company and its Subsidiaries, on a consolidated basis.

(c)           Neither the Company (including, if applicable, any predecessor companies thereof) nor any of its Subsidiaries has received any notice of, or been prosecuted for an offence alleging, material non-compliance with any Environmental Laws, and neither the Company nor any of its Subsidiaries has settled any allegation of material non-compliance short of prosecution.  There are no order or directions relating to environmental matters requiring any material work, repairs, construction or capital expenditures to be made with respect to any of the assets of the Company or its Subsidiaries, nor has the Company or any of its Subsidiaries received notice of any of the same and which orders directions or notices remain outstanding as unresolved, that if adversely determined would have a Material Adverse Effect.

5.18.        Litigation .  Except as disclosed in the SEC Filings or the SEDAR Filings, there are no pending investigations, actions, suits or proceedings against or affecting the Company, any Subsidiary or any of their respective properties before or by any court or governmental or regulatory agency, authority or body; and except as disclosed in the SEC Filings or the SEDAR Filings, to the Company’s Knowledge, no such legal, governmental or regulatory investigations, actions, suits or proceedings are threatened or contemplated that if adversely determined would have a Material Adverse Effect.

5.19.        Financial Statements .  The financial statements included in each SEC Filing and each SEDAR Filing fairly present the financial position of the Company and its Subsidiaries as