Document:

POSITRON CORPORATION
                             NOTE PURCHASE AGREEMENT

     THIS  NOTE PURCHASE AGREEMENT (the "Agreement") is made as of May 21, 2004,
                                         ---------
by  and  between  Positron Corporation, a Texas corporation (the "Company"), and
                                                                  -------
IMAGIN  Diagnostic  Centres,  Inc., an Ontario, Canada corporation ("Investor").
                                                                     --------
All  numbers  expressed herein as "$" or "dollars" are in United States dollars.

                                R E C I T A L S:
                                ---------------

     WHEREAS,  the Company desires to issue Secured Convertible Promissory Notes
in  the  aggregate  principal  amount  of  $700,000,  subject  to  the terms and
conditions  set  forth  in  this  Agreement.

     WHEREAS,  the  Investor  desires  to  purchase  the  Secured  Convertible
Promissory  Notes,  subject  to  the  terms  and  conditions  set  forth in this
Agreement.

     NOW,  THEREFORE, in consideration of the respective undertakings, covenants
and  agreements  of  the  parties  set forth herein, the parties hereby agree as
follows:

     SECTION 1  PURCHASE AND SALE OF THE NOTE.

     1.1  Issuance  of  the  Notes.  The Company has authorized the issuance and
          ------------------------
sale  to  the  Investor  of,  and,  subject  to  and  in  reliance  upon  the
representations,  warranties,  terms  and  conditions  of  this  Agreement,  the
Investor  the  have  agreed  to  purchase,  the  Company's  Secured  Convertible
Promissory  Notes (individually, a "Note" and collectively, the "Notes"), in the
                                    ----                         -----
original  aggregate  principal  amount  of  $700,000.  Each  Note  shall  be
substantially  in  the  form  set  forth  in  Exhibit  A  hereto.
                                              ----------

     1.2  Closing.  The  Company  agrees to issue and sell to the Investor, and,
          -------
subject  to  and  in  reliance  upon  the representations, warranties, terms and
conditions of this Agreement, the Investor agrees to purchase, the Notes for the
aggregate  purchase  price of $700,000.  Such purchase and sale shall take place
(a)  at  the  initial closing (the "First Closing") to be held at the offices of
                                    -------------
the  Company,  1304  Langham  Creek Drive, #300, Houston, Texas 77084 on May 21,
2004,  at  10:00  A.M. (the "First Closing Date"), or on such other dates and at
                             ------------------
such  times  as  may  be  mutually  agreed upon and (b) at a second closing (the
"Second  Closing")  to be held at the offices of the Company, 1304 Langham Creek
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Drive,  #300,  Houston,  Texas 77084 on May 28, 2004, at 10:00 A.M. (the "Second
                                                                          ------
Closing  Date"),  or  on  such  other dates and at such times as may be mutually
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agreed  upon.  At  the  First  Closing, the Company will issue a Note, dated the
First Closing Date, payable to the order of Investor, in the principal amount of
$400,000  in exchange for cash.  At the Second Closing, the Company will issue a
Note,  dated  the  Second Closing Date, payable to the order of Investor, in the
principal  amount  of  $300,000 in exchange for cash.  The First Closing and the
Second Closing shall be referred to individually and collectively hereinafter as
the  "Closing".
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     1.3  Payments  and  Endorsements.  Payments  of  principal,  interest  and
          ---------------------------
premium,  if  any,  on  the Notes, shall be made directly by wire transfer or by
checks  duly  mailed  or delivered to the Investor at addresses specified in the
Note  without  any  presentment or notation of payment, except that prior to any
transfer  of  any Note, the holder of record shall endorse on such Note a record
of  the date to which interest has been paid and all payments made on account of
principal  of  such  Note.

     1.4  Payment  on  Non-Business Days.  Whenever any payment to be made shall
          ------------------------------
be  due  on  a  day which is not a Business Day, such payment may be made on the
next  succeeding  Business Day, and such extension of time shall in such case be
included  in  the  computation  of  payment  of  interest  due.

     1.5  Registration, etc.  The Company shall maintain at its principal office
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a  register  of  the  Notes and shall record therein the name and address of the
registered  holder of the Notes, the address to which notices are to be sent and
the  address  to  which  payments are to be made as designated by the registered
holder  if  other  than  the  address  of the holder, and the particulars of all
transfers,  exchanges and replacements of Notes.  No transfer of a Note shall be
valid unless made on such register for the registered holder or his executors or
administrators  or his or their duly appointed attorney, upon surrender therefor
for  exchange  as hereinafter provided, accompanied by an instrument in writing,
in  form and execution reasonably satisfactory to the Company.  Each Note issued
hereunder,  whether  originally  or  upon transfer, exchange or replacement of a
Note  or  Notes,  shall  be  registered  on the date of execution thereof by the
Company and shall be dated the date to which interest has been paid on such Note
or  Notes.  The  registered  holder of a Note shall be that Person in whose name
the  Note  has  been so registered by the Company.  A registered holder shall be
deemed  the  owner  of a Note for all purposes of this Agreement and, subject to
the  provisions hereof, shall be entitled to the principal, premium, if any, and
interest  evidenced  by such Note free from all equities or rights of set-off or
counterclaim  among  the Company and the transferor of such registered holder or
any  previous  registered  holder  of  such  Note.

     1.6  Limitations  on  Transferability.  The  Investor  covenants that in no
          --------------------------------
event will it dispose of any Note or any shares of capital stock into which such
Note  is convertible unless and until Investor shall have complied with Sections
4.7  and  4.8 hereof and (a) the Investor shall have notified the Company of the
proposed  disposition  and  shall have furnished the Company with a statement of
the  circumstances surrounding the proposed disposition, and (b) if requested by
the  Company,  the  Investor shall have furnished the Company with an opinion of
counsel  satisfactory  in  form  and  substance to the Company and the Company's
counsel  to  the  effect that (x) such disposition will not require registration
under  the  Securities  Act  and (y) appropriate action necessary for compliance
with the Securities Act and any applicable state, local, or foreign law has been
taken.

     1.7  Replacement  of  Notes.  Upon  receipt of evidence satisfactory to the
          ----------------------
Company  of  the  loss,  theft,  destruction  or  mutilation of any Note and, if
requested  in  the case of any such loss, theft or destruction, upon delivery of
an  indemnity bond or other agreement or security reasonably satisfactory to the
Company, or, in the case of any such mutilation, upon surrender and cancellation
of  such  Note,  the Company will issue a new Note, of like tenor and amount and
dated  the  date  to which interest has been paid, in lieu of such lost, stolen,
destroyed  or  mutilated

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Note;  provided,  however, if any Note of which an Investor, its nominee, or any
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of  its  partners  or  affiliates  is  the  registered holder is lost, stolen or
destroyed,  the  affidavit  of  the  registered  holder  setting  forth  the
circumstances  with respect to such loss, theft or destruction shall be accepted
as  satisfactory evidence thereof, and no indemnification bond or other security
shall be required as a condition to the execution and delivery by the Company of
a  new Note in replacement of such lost, stolen or destroyed Note other than the
                                                                  ----------
registered  holder's  written  agreement  to  indemnify  the  Company.

     1.8  Conversion  of  Notes.  All or any portion of the principal amounts of
          ---------------------
the Notes, may be converted at the option of the Investor, into shares of Series
C Preferred Stock (as defined herein) at a conversion price and on such terms as
are  provided  in  the  Notes.

     SECTION 2  DEFINITIONS.

     For purposes of this Agreement the following terms shall have the following
meanings:

     2.1  "ARTICLES"  shall  mean  the  Company's  Articles of Incorporation, as
amended, as of the First Closing, and including the Series A Statement, Series C
Statement  and  Series  D  Statement  thereto.

     2.2  "BUSINESS  DAY"  shall  mean  a  day  other than Saturday, Sunday or a
public  holiday  under  the  laws  of  the  State  of  Texas.

     2.3  "COMMISSION"  shall  mean  the  Securities  and  Exchange  Commission.

     2.4  "COMMON  STOCK"  shall mean the Common Stock of the Company, par value
$0.01  per  share.

     2.5  "EQUIPMENT  PURCHASE  AGREEMENT"  shall  mean  the  Equipment Purchase
Agreement dated as of the First Closing by and between the Company and Investor.

     2.6  "FINANCIAL  STATEMENTS"  shall  mean the Company's (a) audited balance
sheet  as  of  March  31,  2004  and  (b)  audited  statement  of  operations,
shareholders'  equity  and cash flows for the twelve months and year ended March
31,  2004.

     2.7  "GAAP"  shall  mean  United  States  generally  accepted  accounting
principles.

     2.8  "INDEBTEDNESS"  shall  mean all obligations, contingent and otherwise,
which  should,  in accordance with GAAP consistently applied, be classified upon
the  obligor's balance sheet as liabilities, but in any event including, without
limitation,  liabilities  secured  by any mortgage on property owned or acquired
subject  to  such  mortgage,  whether or not the liability secured thereby shall
have  been  assumed, and also including, without limitation, (i) all guaranties,
endorsements  and  other  contingent  obligations, in respect of Indebtedness of
others,  whether  or  not the same are or should be so reflected in said balance
sheet, except guaranties by endorsement of negotiable instruments for deposit or
collection  or  similar transactions in the ordinary course of business and (ii)
the  present  value  of  any  lease  payments  due  under  leases required to be
capitalized  in  accordance  with  applicable Statements of Financial Accounting

                                      -3-
<PAGE>
Standards,  determined  in  accordance  with  applicable Statements of Financial
Accounting  Standards.

     2.9  "INTELLECTUAL  PROPERTY"  shall  mean  patents,  patent  applications,
trademarks,  service  marks, mask works, trade names, copyrights, trade secrets,
information,  proprietary  rights  and  processes.

     2.10 "LOAN  AGREEMENT"  shall mean the Loan Agreement dated as of the First
Closing  by  and between the Company and Investor providing for borrowing by the
Company  of  up  to  $1,300,000.

     2.11 "MATERIAL  ADVERSE EVENT"  shall mean any change, event or effect that
is  materially  adverse  to  the  general affairs, business, operations, assets,
condition  (financial  or otherwise) or results of operations of the Company and
its  subsidiaries  taken as a whole; provided, however, that the following shall
not  be  taken  into account in determining a "Material Adverse Event":  (a) any
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adverse  change,  event  or  effect  that is directly attributable to conditions
affecting  the  United States economy generally unless such conditions adversely
affect  the Company in a materially disproportionate manner, and (b) any adverse
change,  event  or  effect that is directly attributable to conditions affecting
the  Company's  industry  generally, unless such conditions adversely affect the
Company  in  a  materially  disproportionate  manner.

     2.12 "PERSON"  shall  mean  an  individual, corporation, partnership, joint
venture,  limited liability company, trust, or unincorporated organization, or a
government  or  any agency or political subdivision thereof, or any other entity
or  business  form.

     2.13 "PREFERRED  STOCK"  shall mean the Company's Series A Preferred Stock,
Series  C  Preferred  and  Series  D  Preferred  Stock.

     2.14 "PREPAYMENT"  shall  mean any payment of any Indebtedness prior to the
scheduled  date  of  payment  therefor.

     2.15 "REGISTRATION  RIGHTS  AGREEMENT"  shall  mean the Registration Rights
Agreement  dated  as  of  the  First  Closing by and between the Company and the
Investor  in  the  form  attached  hereto  as  Exhibit  B.
                                               ----------

     2.16 "SCHEDULE OF EXCEPTIONS"  shall mean the schedule of exceptions to the
representations  and  warranties  of  the Company in Section 3.  The Schedule of
Exceptions  is  attached  as  Schedule  1  hereto.
                              -----------

     2.17 "SECURITIES ACT" shall mean the Securities Act of 1933, as amended and
the  rules  and  regulations  of  the  Commission  promulgated  thereunder.

     2.18 "SECURITY AGREEMENT" shall mean the Security Agreement dated as of the
First  Closing  by and between the Company and the Investor in the Form attached
hereto  as  Exhibit  C.
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     2.19 "SERIES A PREFERRED STOCK"  shall mean the Series A Preferred Stock of
the  Company,  par  value  $1.00  per  share.

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<PAGE>
     2.20 "SERIES  A  STATEMENT"  shall  mean  the  Statement  of  Designation
Establishing  Series  A  8% Cumulative Convertible Redeemable Preferred Stock of
Position  Corporation,  filed  with the Texas Secretary of State on February 29,
1996.

     2.21 "SERIES C PREFERRED STOCK"  shall mean the Series C Preferred Stock of
the  Company,  par  value  $1.00  per  share.

     2.22 "SERIES  C  STATEMENT"  shall  mean  the  Statement  of  Designation
Establishing  Series  C  Preferred Stock of Positron Corporation, filed with the
Texas  Secretary  of  State  on  May  21,  2004.

     2.23 "SERIES D PREFERRED STOCK"  shall mean the Series D Preferred Stock of
the  Company,  par  value  $1.00  per  share.

     2.24 "SERIES  D  STATEMENT"  shall  mean  the  Statement  of  Designation
Establishing  Series  D  Preferred Stock of Positron Corporation, filed with the
Texas  Secretary  of  State  on  May  21,  2004.

     2.25 "SUBSIDIARY"  shall mean any corporation, partnership or other entity,
more than 50% of whose equity interests (measured by virtue of voting rights) in
the  aggregate  is  owned  by  the  Company.

     2.26 "TAX"  or  "TAXES"  shall  mean  any federal,  state, local or foreign
income,  gross receipts, license, payroll, employment, excise, severance, stamp,
occupation,  premium,  property,  windfall,  profits,  environmental,  customs,
capital  stock,  franchise,  employees'  income withholding, foreign or domestic
withholding,  social security, unemployment, disability, real property, personal
property,  sales,  use,  transfer, value added, alternative or add-on minimum or
other  similar  tax,  governmental  fee, governmental assessment or governmental
charge of any kind whatsoever, including any interest, penalties or additions or
additional  amounts  with  respect  to  the  foregoing.

     2.27 "TRANSACTIONAL  AGREEMENTS"  shall mean this Agreement, the Notes, the
Security  Agreement,  and  the  Registration  Rights  Agreement.

     2.28 "VOTING  AGREEMENT"  shall  mean  the Voting Agreement dated as of the
First  Closing  by  and  between  the  Company and Investor in the form attached
hereto  as  Exhibit  D.
            ----------

     2.29 "WARRANTS"  shall  mean  the  outstanding  warrants  of  the  Company
immediately prior to the date of this Agreement, exercisable for an aggregate of
25,120,000  shares  of  the  Company's  Common  Stock.

     SECTION 3  REPRESENTATIONS  AND  WARRANTIES  OF  THE  COMPANY.

     Except  as  set  forth in the Schedule of Exceptions (as noted herein), the
Company  hereby  represents  and  warrants  to  the  Investor  that:

     3.1  Corporate  Organization  and  Authority.  The  Company:
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<PAGE>
          3.1.1     is  a  corporation  duly  organized,  validly  existing,
authorized  to  exercise all its corporate powers, rights and privileges, and in
good  standing  in  the  State  of  Texas;

          3.1.2     has  the  corporate power and corporate authority to own and
operate  its  properties  and  to  carry on its business as now conducted and as
proposed  to  be  conducted;

          3.1.3     has  made  available to the Investor or their counsel a copy
of  the  minute  books  of  the  Company, and said copies are true, correct, and
complete  and  contain  all  amendments  and all minutes of meetings and actions
taken  by the shareholders and directors of the Company through the date of this
Agreement.

     3.2  Capitalization.  The  authorized  capital  of the Company consists of:
          --------------

          3.2.1     Preferred  Stock.  10,000,000  shares  of  Preferred  Stock,
                    ----------------
$1.00  par  value,  of  which:  (i)  5,450,000 shares are designated as Series A
Preferred Stock, 510,219 shares of which are issued and outstanding prior to the
First  Closing;  (ii) 840,000 shares are designated as Series C Preferred Stock,
no  shares  of  which  are issued or outstanding prior to the First Closing; and
(iii)  1,560,000 shares are designated as Series D Preferred Stock, no shares of
which  are  issued  or  outstanding  prior  to  the  First  Closing;

          3.2.2     Common  Stock.  100,000,000 shares of Common Stock, of which
                    -------------
53,245,959  shares  are  issued  and  outstanding  prior  to  the  First Closing
(including  treasury  shares);

          3.2.3     Other  Securities.  Except  as  set forth on Schedule 3.8 of
                    -----------------                            ------------
the  Schedule  of  Exceptions,  the Company has reserved:  (a) 840,000 shares of
Series  C  Preferred  Stock  for  issuance  upon  conversion  of  the Notes; (b)
1,560,000 shares of Series D Preferred Stock for issuance upon conversion of the
notes  issued  by  the  Company  to Investor pursuant to the Loan Agreement; (c)
510,219  shares  of  Common  Stock  for issuance upon conversion of the Series A
Preferred  Stock;  (d)  subject  to  stockholder  approval, 42,000,000 shares of
Common  Stock  for issuance upon conversion of the Series C Preferred Stock; (e)
subject  to stockholder approval, 62,400,000 shares of Common Stock for issuance
upon  conversion of the Series D Preferred Stock; (f) 6,100,000 shares of Common
Stock  for  issuance  upon  exercise  of  the  Warrants; and (g) an aggregate of
1,746,654  shares of Common Stock for issuance under the Company's 1999 Employee
Stock  Option  Plan,  1999 Non-Employee Directors' Stock Option Plan, 1999 Stock
Bonus  Incentive  Plan  and  1999 Employee Stock Purchase Plan (collectively the
"Plans"),  prior  to  the First Closing.  Except as set forth above, in Schedule
                                                                        --------
3.8  of  the  Schedule  of  Exceptions, and in the Articles and the Registration
---
Rights  Agreement, there are no outstanding (and no commitments to issue) rights
of  first  refusal,  preemptive rights or other rights, warrants, options, stock
appreciation rights, phantom stock rights, conversion privileges, subscriptions,
or  other  rights  or  agreements, either directly or indirectly, to purchase or
otherwise  acquire,  sell  or  issue  any  equity  securities  of  the  Company.

          3.2.4     The  outstanding  shares of Preferred Stock and Common Stock
(i)  are  all  duly  and  validly  authorized  and  issued,  fully  paid  and
non-assessable  and (ii) were issued in compliance with all applicable state and
federal  securities  laws.

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<PAGE>
     3.3  Subsidiaries.  The  Company  does  not  presently own, have any equity
          ------------
interest  or  investment  in,  or  control,  directly  or  indirectly, any other
corporation,  partnership  or  entity.  The  Company is not a participant in any
joint  venture  or  partnership.

     3.4  Financial  Statements;  Liabilities.
          -----------------------------------

          3.4.1     Financial Statements.  The Financial Statements are accurate
                    --------------------
and  complete in all material respects, consistent with the books and records of
the  Company (which are accurate and complete in all material respects) and have
been  prepared  in  accordance  with  GAAP  consistently applied.  The Financial
Statements  fairly  present the financial condition and operating results of the
Company  as  of  the  dates  and  for  the  periods  indicated  therein.

          3.4.2     Liabilities.  As  of  the  date  hereof,  the Company has no
                    -----------
material  liabilities,  debts  or  obligations,  whether  accrued,  absolute,
contingent  or otherwise, whether known or unknown, and whether due or to become
due,  regardless of when asserted, including, but not limited to, liabilities on
account of taxes, other governmental charges or lawsuits, other than liabilities
incurred  since  the  incorporation  of  the  Company  in the ordinary course of
business and properly reflected in the Financial Statements.  The Company is not
a  guarantor  or  indemnitor  of any indebtedness of any other person or entity.

     3.5  Corporate  Power.  Except as set forth on Schedule 3.5 of the Schedule
          ----------------                          ------------
of Exceptions, the Company will have at the Closing Date all requisite legal and
corporate  power  and  authority  to  execute  and  deliver  the  Transactional
Agreements,  to  sell  and  issue  the  Notes  hereunder,  to issue the Series C
Preferred  Stock  upon  conversion of the Notes, subject to stockholder approval
(as  set  forth  in Section 7.1 hereof), to issue the Common Stock issuable upon
conversion  of  the  Series  C Preferred Stock, and to carry out and perform its
obligations  under  the  terms  of  the  Transactional  Agreements.

     3.6  Authorization.  Except as set forth on Schedule 3.6 of the Schedule of
          -------------                          ------------
Exceptions,  all  corporate  action  on  the  part of the Company, its officers,
directors,  and  stockholders  necessary  for  the  authorization,  execution,
delivery, and performance of all obligations under the Transactional Agreements,
and  for the authorization, issuance, and delivery of the Notes, of the Series C
Preferred  Stock  issuable upon conversion of the Notes, and of the Common Stock
issuable  upon  conversion  of the Series C Preferred Stock has been taken.  The
Transactional Agreements constitute legally binding and valid obligations of the
Company  enforceable  in  accordance  with their respective terms, except to the
extent  that  such  enforcement  may  be  subject  to  applicable  bankruptcy,
insolvency,  reorganization,  moratorium,  or  other laws of general application
relating  to  or  affecting enforcement of creditors' rights and laws concerning
equitable  remedies.

     3.7  Validity  of  Shares.  The  Series  C  Preferred  Stock  issuable upon
          --------------------
conversion  of  the  Notes has been duly and validly reserved and, assuming such
Series C Preferred Stock is issued in accordance with the Articles and the terms
of  this  Agreement,  will  be  duly  and  validly  issued  (including,  without
limitation,  issued  in  compliance with applicable federal and state securities
laws)  and  non-assessable  and  will be free of any liens or encumbrances other
than  any  liens  or  encumbrances  created  by  or  imposed  thereon under this
Agreement,  the  Notes,  or  the  Registration  Rights  Agreement.  Subject  to
stockholder  approval,  as  set  forth  in  Section  7.1

                                      -7-
<PAGE>
hereof,  the  Common  Stock  issuable  upon conversion of the Series C Preferred
Stock  has  been  duly  and  validly reserved and, assuming such Common Stock is
issued  in  accordance  with  the  Articles,  will  be  duly  and validly issued
(including, without limitation, issued in compliance with applicable federal and
state  securities  laws)  and  non-assessable  and  will be free of any liens or
encumbrances  other than any liens or encumbrances created by or imposed thereon
by  the  holders;  provided, however, that the Series C Preferred Stock (and the
Common  Stock issuable upon conversion thereof) shall be subject to restrictions
on  transfer  under state and/or federal securities laws. Except as set forth on
Schedule  3.7  of  the Schedule of Exceptions, the Notes, the Series C Preferred
-------------
Stock  issuable  upon conversion of the Notes and the Common Stock issuable upon
conversion  of the Series C Preferred Stock are not subject to any preemptive or
other  similar  statutory  or  contractual rights and will not conflict with any
provisions  of any agreement or instrument to which the Company is a party or by
which  it  is  bound.

     3.8  Litigation.  Except  as  set  forth on Schedule 3.8 of the Schedule of
          ----------                             ------------
Exceptions,  there is no action, proceeding, or investigation pending or, to the
Company's  knowledge,  threatened  by  or  against  the  Company,  or any of its
employees,  officers,  directors  and/or  stockholders,  or affecting any of its
properties  or  assets,  and  there  is  no basis therefor known to the Company.
There  is  no  judgment,  decree,  or  order  of any court in effect against the
Company  and  the  Company  is  not  in default with respect to any order of any
governmental  authority to which the Company is a party or by which it is bound.
There  is no action, suit, proceeding, or investigation by the Company currently
pending  or  which  the  Company  presently  intends  to  initiate.

     3.9  Title  to  Properties; Liens and Encumbrances.  Except as set forth on
          ---------------------------------------------
Schedule  3.9 of the Schedule of Exceptions, the Company has good and marketable
-------------
title  to all of its properties and assets, both real and personal, and has good
title  to  all  its  leasehold  interests,  in each case subject to no mortgage,
pledge,  lien,  security  interest,  conditional sale agreement, encumbrance, or
charge,  other  than  (a) the lien of current taxes not yet due and payable, and
(b) liens and encumbrances which do not materially detract from the value of the
property  subject  thereto  or  materially impair the operations of the Company.

     3.10  Patents  and  Other  Proprietary  Rights.
           ----------------------------------------

          3.10.1    (i)  To  the  knowledge  of  the  Company,  the  Company has
sufficient  title  and  ownership of all Intellectual Property necessary for its
business  as  now  conducted,  and  believes  it  can  obtain,  on  commercially
reasonable  terms,  any  additional  rights  necessary  for  its  business  as
contemplated  at  the Closing, and (ii) the Company's Intellectual Property does
not, and would not, conflict with or constitute an infringement of the rights of
others;

          3.10.2    The  Company  has  not  received any communications alleging
that  the  Company  or its employees has violated or infringed or, by conducting
its  business  as  proposed, would violate or infringe any Intellectual Property
rights  of  any  other  person  or  entity;

          3.10.3    To  the  knowledge  of the Company, no employee is obligated
under any contract (including licenses, covenants, or commitments of any nature)
or other agreement, or subject to any judgment, decree, or order of any court or
administrative  agency,  that  would

                                      -8-
<PAGE>
interfere  with the use of such employee's best efforts to promote the interests
of  the  Company  or  that  would  conflict  with  the  Company's  business  as
contemplated  at  the  Closing;  and

          3.10.4    Neither  the  execution  nor  delivery  of any Transactional
Agreement, nor the carrying on of the Company's business by the employees of the
Company,  nor  the  conduct  of  the  Company's  business as contemplated at the
Closing,  will, to the Company's knowledge, conflict with the terms, conditions,
or  provisions  of,  or  constitute  a default under, any contract, covenant, or
instrument under which any of such employees is now obligated.  The Company does
not believe it is, or will be, necessary to utilize any inventions of any of its
employees  (or  people  it  currently  intends  to  hire)  made  prior  to their
employment  by  the  Company.

     3.11 Compliance  With  Other  Agreements.  Except  as set forth on Schedule
          -----------------------------------                           --------
3.11  of the Schedule of Exceptions, the Company is not in violation of any term
----
or  provision of its Articles or Bylaws, each as in effect as of the Closing, or
any  term  or  provision  of  any  indebtedness,  mortgage, indenture, contract,
agreement,  judgment or, to the Company's knowledge, any decree, order, statute,
rule or regulation applicable to the Company, in each case, or in the aggregate,
the  violation  of  which  would  constitute  a  Material  Adverse  Event.  The
execution,  delivery  and  performance  of  the  Transactional Agreements by the
Company  will not result in any violation of, be in conflict with, or constitute
a default under, with or without the passage of time or the giving of notice, in
each  case,  or  in  the  aggregate,  the  violation,  conflict or default would
constitute  a  Material  Adverse  Event:

          3.11.1    any  provision  of  the  Company's  Articles  or  Bylaws;

          3.11.2    any  provision of any judgment, decree or order to which the
Company  is  a  party  or  by  which  it  is  bound;

          3.11.3    any material contract, obligation or commitment to which the
Company  is  a  party  or  by  which  it  is  bound;  or

          3.11.4    any  statute,  rule or governmental regulation applicable to
the  Company.

     3.12 Employee  Relations and Compensation Plans.  The  Company believes its
          ------------------------------------------
relations  with its employees are satisfactory.  The Company's employees are not
represented  by  any  labor unions nor, to the Company's knowledge, is any union
organization  campaign  in  progress.  The  Company is not aware that any of its
officers  or employees intends to terminate employment nor does the Company have
any  present  intention  to  terminate  the  employment of any of the foregoing.
Subject  to general principles related to wrongful termination of employees, the
employment of each officer and employee of the Company is terminable at the will
of  the  Company.  Except  as  set  forth  on  Schedule  3.12 of the Schedule of
                                               --------------
Exceptions,  the  Company  is  not  party to or bound by any currently effective
employment  contracts,  severance  agreements, deferred compensation agreements,
bonus  plans,  incentive  plans, profit sharing plans, retirement agreements, or
other  employee  compensation  agreements,  arrangements  or  understandings.

     3.13 Employee  Confidential  Information  and  Inventions  Agreement.  Each
          ---------------------------------------------------------------
officer,  employee,  and consultant of the Company has executed and delivered to
the  Company  an employee confidential information and inventions agreement, the
form  of  which  has  been

                                      -9-
<PAGE>
delivered  to  Investors.  The  Company,  after reasonable investigation, is not
aware  that  any  of  its  employees,  officers,  or consultants is in violation
thereof.

     3.14 Governmental and Third Party Consents.  Subject to the accuracy of the
          -------------------------------------
Investor'  representations in Section 4 of this Agreement, no consent, approval,
order,  or  authorization  of,  or  registration,  qualification,  designation,
declaration,  or  filing  with,  any  federal,  state,  local,  or  provincial
governmental authority on the part of the Company is required in connection with
the  consummation of the transactions contemplated by this Agreement, except for
the  timely  filing  of  such  filings as are required by the securities laws of
those  jurisdiction  of  which  the  Investor  is  resident.

     3.15 Brokers  and  Finders.  The  Company  has  not retained any investment
          ---------------------
banker,  broker,  or  finder in connection with the transactions contemplated by
this  Agreement.

     3.16 No  Adverse  Changes.  Since  March  31,  2004,  there  has  not been:
          --------------------

          3.16.1    any  adverse  change  in  the assets, liabilities, financial
condition  or  operating  results  of  the  Company  from  that reflected in the
Financial  Statements,  except  changes  in the ordinary course of business that
have  not  resulted,  individually  or  in  the aggregate, in a Material Adverse
Event;

          3.16.2    any  waiver  by the Company of a valuable right or of a debt
owed  to  it;

          3.16.3    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  that  did  not  result  in  a Material Adverse Event;

          3.16.4    any  termination, change or amendment to a material contract
or  arrangement by which the Company or any of its assets or properties is bound
or  subject;

          3.16.5    any change in any compensation arrangement or agreement with
any  employee;

          3.16.6    any  sale,  assignment  or  transfer  of  any  Intellectual
Property  or  other  intangible  assets,  or  disclosure  of  any  proprietary
confidential  information  to  any  person;

          3.16.7    any  resignation  or termination of employment (or notice of
intent  thereof)  of  any  key  officer  of  the  Company;

          3.16.8    any  declaration,  payment,  setting  aside  or  other
distribution  of  cash or other property to its stockholders with respect to its
capital  stock  or  other  equity securities (including, without limitation, any
warrants,  options  or other rights to acquire its capital stock or other equity
securities);

          3.16.9    made  any  capital expenditures or commitments therefor that
aggregate  in  excess  of  $100,000;

                                      -10-
<PAGE>
          3.16.10   made  any  loans  or advances to, guarantees for the benefit
of,  or  any investments in, any person (including but not limited to any of the
Company's  employees,  officers  or directors, or any members of their immediate
families),  corporation,  partnership,  joint  venture  or  other  entity;

          3.16.11   the  knowledge  of the Company, any other event or condition
of  any  character  that  might  result  in  a  Material  Adverse  Event;  or

          3.16.12   any  agreement or commitment by the Company to do any of the
things  described  in  this  Section  3.16.

     3.17 Taxes.  Except  as  set  forth  on  Schedule  3.17  of the Schedule of
          -----                               --------------
Exceptions,  the  Company  has  timely filed all tax returns (federal, state and
local)  required  to  be  filed  by  it,  and  all  Taxes, assessments and other
government  charges  imposed upon the Company, or upon any of the assets, income
or  franchises of the Company, have been timely paid or, if not yet payable, are
adequately  accrued  on the Company's books and records.  Except as set forth on
Schedule 3.17 of the Schedule of Exceptions, there are no actual or proposed Tax
-------------
deficiencies,  assessments  or  adjustments  with  respect to the Company or any
assets  or operations of the Company.  No consent has been given with respect to
the  Company to extend the time in which any Tax may be assessed or collected by
any  taxing authority.  There are no ongoing or pending Tax audits by any taxing
authority  against  the  Company.

     3.18 Insurance.  The  Company  has in full force and effect fire, casualty,
          ---------
business  interruption  and  other  insurance  policies, with extended coverage,
sufficient  in amount to allow it to replace any of its properties that might be
damaged or destroyed or to cover liabilities to which the Company may reasonably
become  subject,  and  such types and amounts of other insurance with respect to
its business and properties, on both a per occurrence and an aggregate basis, as
the  Company's  management  considers reasonable.  The Company is not in default
with respect to its obligations under any insurance policy maintained by it, and
the  Company  is not aware of any event which could give rise to a default under
any  such  policy.  The  Company  has  not  been  denied  insurance  coverage.

     3.19 Disclosure.  The  Company has fully provided the Investor with all the
          ----------
information  that  the  Investor have requested for deciding whether to purchase
the  Notes and all information that the Company believes is reasonably necessary
to  enable  such  Investor  to  make  such  decision.

     3.20 Environmental  and  Safety Laws.  To the knowledge of the Company, the
          -------------------------------
Company  is  not  in  violation  of  any  applicable  statute, law or regulation
relating  to  the environment or occupational health and safety, and no material
expenditures  are  or will be required in order to comply with any such existing
statute,  law  or  regulation.

     SECTION 4 REPRESENTATIONS AND WARRANTIES OF THE INVESTOR.

     The Investor represents and warrants to the Company as follows:

     4.1  Authorization.  When  executed  and  delivered  by  the  Investor, and
          -------------
assuming  execution  and  delivery  by the Company, the Transactional Agreements
will  each  constitute  a

                                      -11-
<PAGE>
valid  obligation  of  the  Investor,  enforceable in accordance with its terms,
except  to  the  extent  that  such  enforcement  may  be  subject to applicable
bankruptcy,  insolvency,  reorganization,  moratorium,  or other laws of general
application  relating  to or affecting enforcement of creditors' rights and laws
concerning  equitable  remedies.

     4.2  Brokers  and  Finders.  The  Investor  has not retained any investment
          ---------------------
banker,  broker,  or  finder in connection with the transactions contemplated by
this  Agreement.

     4.3  Investment.  This Agreement is made with the Investor in reliance upon
          ----------
the  Investor's representation to the Company, which by the Investor's execution
of  this  Agreement  the  Investor  hereby  confirms,  that the Notes (including
capital  stock  issuable  upon  conversion  thereunder)  to  be  received by the
Investor  will be acquired for investment for the Investor's own account, not as
a  nominee or agent, and not with a view to the sale or distribution of any part
thereof, and that the Investor has no present intention of selling, granting any
participation  in, or otherwise distributing any of the Notes (including capital
stock  issuable  upon  conversion thereunder).  By executing this Agreement, the
Investor  further represents that it has no contract, undertaking, agreement, or
arrangement  with  any  person to sell, transfer, or grant participation to such
person  or  to  any  third  person,  with respect to any of the Notes (including
capital  stock  issuable  upon  conversion  thereunder).

     4.4  No  Public Market.  The Investor understands that no public market now
          -----------------
exists  for  the  Series  C  Preferred  Stock  and that the Company has given no
assurances  that  a  public  market  will  ever exist for the Series C Preferred
Stock.  The  investor  understands  that the Company's Common Stock is currently
quoted  by  the Nasdaq OTC Bulletin Board and that although the Company will use
its  best  efforts  to  obtain listing on the Nasdaq SmallCap Market and Toronto
Street Exchange, no assurance can be given that the Company's securities will be
approved  for  listing  on  such  exchanges.

     4.5  Experience.  The  Investor represents that:  (a) it has such knowledge
          ----------
and  experience in financial and business matters as to be capable of evaluating
the merits and risks of its prospective investment in the Notes; (b) it believes
it  has  received  all  the  information  it  has requested from the Company and
considers necessary or appropriate for deciding whether to obtain the Notes; (c)
it  has  had  the opportunity to discuss the Company's business, management, and
financial affairs with the Company's management; (d) it understands the economic
implications  of the transactions contemplated by this Agreement and confronting
the  Company;  (e) it has had the full opportunity to seek advice of counsel and
any  other  appropriate  advice with respect to the transactions contemplated by
this  Agreement;  (f)  it  has  the  ability  to  bear the economic risks of its
prospective  investment;  and  (g)  it is able, without materially impairing its
financial  condition,  to hold the Notes for an indefinite period of time and to
suffer  a  complete  loss  on  its  investment.

     4.6  Accredited  Investor.  The Investor presently qualifies and will as of
          --------------------
the Closing qualify as an "accredited investor" within the meaning of Regulation
D  of  the  rules  and  regulations  promulgated  under  the  Securities  Act.

     4.7  Investment  by  Non-U.S.  Person.  The  Investor hereby represents and
          --------------------------------
warrants  to  the  Company  as  follows:

                                      -12-
<PAGE>
          4.7.1     This Agreement is made by the Company with such Investor who
is  a  Non-U.S.  person  in  reliance  upon  such  Investor's  representations,
warranties  and  covenants  made  in  this  Section  4.7.
                                            ------------

          4.7.2     Investor  has  been  advised  and  acknowledges  that:

                    (a)  the  Notes  and  shares of Series C Preferred Stock and
Common  Stock  issuable  upon conversion thereof have not been, and when issued,
will  not  be  registered  under  the Securities Act, the securities laws of any
state  of  the  United  States  or  the  securities  laws  of any other country;

                    (b)  in  issuing  and  selling  the  Notes,  and  Series  C
Preferred  Stock  and  Common  Stock  issuable  upon  conversion  thereof to the
Investor pursuant hereto, the Company is relying upon the "safe harbor" provided
by  Regulation  S  and/or  on  Section  4(2)  under  the  Securities  Act;

                    (c)  it is a condition to the availability of the Regulation
S  "safe  harbor"  that the Notes, and Series C Preferred Stock and Common Stock
issuable  upon conversion thereof not be offered or sold in the United States or
to a U.S. person until the expiration of a period of one year following the date
of  the  Closing  Date;  and

                    (d)  notwithstanding  the foregoing, prior to the expiration
of  one year after Closing Date (the "Restricted Period"), the Notes, and Series
                                      -----------------
C  Preferred Stock and Common Stock issuable upon conversion thereof, subject to
Section  4.8  below,  may be offered and sold by the holder thereof only if such
offer  and  sale  is  made  in  compliance  with the terms of this Agreement and
either:  (a)  if  the offer or sale is within the United States or to or for the
account  of  a  U.S.  person, the securities are offered and sold pursuant to an
effective  registration  statement  or pursuant to Rule 144 under the Securities
Act  or  pursuant  to  an  exemption  from  the registration requirements of the
Securities  Act;  or  (b) the offer and sale is outside the United States and to
other  than  a  U.S.  person.

          4.7.3     As  used herein, the term "United States" means and includes
the  United States of America, its territories and possessions, any State of the
United  States,  and  the  District  of Columbia, and the term "U.S. person" (as
defined  in  Regulation  S)  means:

                    (a)  a  natural  person  resident  in  the  United  States;

                    (b)  any  partnership  or  corporation  organized  or
incorporated  under  the  laws  of  the  United  States;

                    (c)  any  estate of which any executor or administrator is a
U.S.  person;

                    (d)  any  trust  of  which  any  trustee  is  a U.S. person;

                    (e)  any agency or branch of a foreign entity located in the
United  States;

                                      -13-
<PAGE>
                    (f)  any  nondiscretionary account or similar account (other
than  an estate or trust) held by a dealer or other fiduciary for the benefit or
account  of  a  U.S.  person;

                    (g)  any  discretionary  account  or  similar account (other
than  an  estate  or  trust)  held  by  a  dealer  or other fiduciary organized,
incorporated  and  (if  an  individual)  resident  in  the  United  States;  and

                    (h)  a  corporation  or partnership organized under the laws
of  any  foreign  jurisdiction  and  formed by a U.S. person principally for the
purpose  of  investing  in  securities  not registered under the Securities Act,
unless  it  is organized or incorporated, and owned, by accredited investors (as
defined  in  Rule  501(a) under the Securities Act) who are not natural persons,
estates  or  trusts.

     As  used  herein,  the term "Non-U.S. person" means any person who is not a
U.S.  person  or  is  deemed not to be a U.S. person under Rule 902(k)(2) of the
Securities  Act.

          4.7.4     Investor agrees that with respect to the Notes, and Series C
Preferred  Stock  and  Common Stock issuable upon conversion thereof, subject to
Section  4.8  below  and  until  the  expiration  of  the  Restricted  Period:

                    (a)  Investor,  its  agents  or its representatives have not
and will not solicit offers to buy, offer for sale or sell any of the Notes, and
Series  C  Preferred Stock and Common Stock issuable upon conversion thereof, or
any beneficial interest therein in the United States or to or for the account of
a  U.S.  person  during  the  Restricted  Period;

                    (b)  notwithstanding  the foregoing, prior to the expiration
of  the  Restricted  Period,  the Notes, and Series C Preferred Stock and Common
Stock  issuable  upon  conversion thereof, may be offered and sold by the holder
thereof only if such offer and sale is made in compliance with the terms of this
Agreement  and  either:  (a) if the offer or sale is within the United States or
to  or for the account of a U.S. person (as such terms are defined in Regulation
S),  the  securities  are offered and sold pursuant to an effective registration
statement  or  pursuant  to  Rule 144 under the Securities Act or pursuant to an
exemption  from  the registration requirements of the Securities Act; or (b) the
offer and sale is outside the United States and to other than a U.S. person; and

                    (c)  Investor  shall not engage in hedging transactions with
regard to the Notes, and Series C Preferred Stock and Common Stock issuable upon
conversion  thereof  unless  in  compliance  with  the  Securities  Act.

The foregoing restrictions are binding upon subsequent transferees of the Notes,
and  Series C Preferred Stock and Common Stock issuable upon conversion thereof,
except for transferees pursuant to an effective registration statement.  Subject
to  Section  4.8  below,  Investor  agrees that after the Restricted Period, the
Notes,  and  Series  C Preferred Stock and Common Stock issuable upon conversion
thereof may be offered or sold within the United States or to or for the account
of  a  U.S.  person  only  pursuant  to  applicable  securities  laws.

          4.7.5     Investor has not engaged, nor is it aware that any party has
engaged, and Investor will not engage or cause any third party to engage, in any
directed  selling  efforts  (as

                                      -14-
<PAGE>
such  term  is defined in Regulation S) in the United States with respect to the
Notes,  and  Series  C Preferred Stock and Common Stock issuable upon conversion
thereof.

          4.7.6     Investor:  (i)  is  domiciled and has its principal place of
business  outside the United States; (ii) certifies it is not an Investor and is
not  acquiring the Notes, and Series C Preferred Stock and Common Stock issuable
upon conversion thereof for the account or benefit of any U.S. person; and (iii)
at  the time of the Closing, the Investor or persons acting on Investor's behalf
in  connection  therewith  will  be  located  outside  the  United  States.

          4.7.7     At the time of offering to the Investor and communication of
Investor's  order to purchase the Notes, and Series C Preferred Stock and Common
Stock  issuable  upon  conversion  thereof  and  at  the  time of the Investor's
execution of this Agreement, the Investor or persons acting on Investor's behalf
in  connection  therewith  were  located  outside  the  United  States.

          4.7.8     Investor is not a "distributor" (as defined in Regulation S)
or  a  "dealer"  (as  defined  in  the  Securities  Act).

          4.7.9     Investor  acknowledges that that the Company shall refuse to
instruct  its  transfer agent to register any transfer of any Note, and Series C
Preferred  Stock  and  Common Stock issuable upon conversion thereof not made in
accordance  with  (i) Section 4.8 below and (ii) the provisions of Regulation S,
pursuant  to  registration  under the Securities Act or pursuant to an available
exemption  from  registration.

          4.7.10    Investor  is satisfied as to the full observance of the laws
of its jurisdiction in connection with any invitation to purchase the Notes, and
Series  C  Preferred  Stock and Common Stock issuable upon conversion thereof or
any  use  of  the  Agreements,  including  (i) the legal requirements within its
jurisdiction  for  the  purchase of such Notes, and Series C Preferred Stock and
Common  Stock  issuable  upon  conversion  thereof,  (ii)  any  foreign exchange
restrictions  applicable  to  such  purchase,  (iii)  any  governmental or other
consents  that  may  need  to  be obtained and (iv) the income tax and other tax
consequences, if any, that may be relevant to the purchase, holding, redemption,
sale  or  transfer  of such Notes, and Series C Preferred Stock and Common Stock
issuable  upon  conversion  thereof.  The  Investor's  payment  for,  and  the
Investor's  continued beneficial ownership of, the Notes, and Series C Preferred
Stock  and  Common  Stock  issuable upon conversion thereof will not violate any
applicable  laws  of  such  Investor's  jurisdiction.

          4.7.11    Investor  has  satisfied  in  full all applicable securities
laws of Canada and the United States in connection with the issuance by Investor
of  securities  the  proceeds from the sale and issuance of which are or will be
used  in  whole  or  in part to purchase the Notes or make loans pursuant to the
Loan  Agreement,  and  has  or  will provide to the Company such information and
documents  as the Company shall reasonably request concerning such transactions,
including  an  opinion  of  counsel regarding the legality of such transactions.

          4.7.12    The  Investor  understands  and agrees that each certificate
held  by  the  Investor  representing  a  Note, and Series C Preferred Stock and
Common Stock issuable upon conversion thereof, or any other securities issued in
respect  of  a  Note,  and  Series  C  Preferred

                                      -15-
<PAGE>
Stock  and  Common  Stock issuable upon conversion thereof upon any stock split,
stock  dividend, recapitalization, merger, consolidation or similar event, shall
bear  the  following  legend  (in  addition  to any legend required by the other
Agreements  or  under  applicable  state  securities  laws):

          "THE  SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
          SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT
                                                   --------------
          BE  SOLD,  TRANSFERRED,  ASSIGNED,  PLEDGED  OR HYPOTHECATED EXCEPT IN
          ACCORDANCE  WITH  THE PROVISIONS OF REGULATION S PROMULGATED UNDER THE
          SECURITIES  ACT,  PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT OR
          PURSUANT  TO  AN  AVAILABLE  EXEMPTION  FROM  REGISTRATION."

     4.8  Ownership  Change  Under  Section  382  of  the Internal Revenue Code;
          ----------------------------------------------------------------------
Special  Restrictions  Upon  Transfer.
-------------------------------------

          4.8.1     Special  Restrictions  Upon  Transfer.  The  following
                    -------------------------------------
restrictions  shall  apply  to  the transfer of shares of Common Stock, issuable
directly  or  indirectly  upon  the  conversion  of  any  Note.

          4.8.2     Definitions.  For purposes of this Section 4.8 the following
                    -----------
terms  shall  have  the  following  meanings:

                    "BOARD"  means  the  Company's  Board  of  Directors.

                    "COMMON  STOCK"  shall mean the Common Stock of the Company,
par  value  $0.01  per  share.

                    "SECTION 382" means Section 382 of the Internal Revenue Code
of  1986,  as  amended,  and  the  regulations  thereunder.

                    "SPECIAL  BOARD  APPROVAL"  shall  mean  the approval by the
Board  of  Directors  of  the  Company acting in accordance with applicable law.

          4.8.3     Purported  Transfers  Not  Effective.  Unless  such transfer
                    ------------------------------------
shall  have  been  preceded by Special Board Approval, any purported transfer of
Common Stock into which any Note is directly or indirectly convertible in excess
of  the  number  of  shares  that  can  be  transferred  without  increasing the
transferee's  ownership  interest  percentage  above  4.5%  is  not effective to
transfer  ownership  of  such  excess  shares (the "Prohibited Shares") from the
                                                    -----------------
transferor  (the "Initial Transferor") to the purported acquiror (the "Purported
                  ------------------                                   ---------
Acquiror").  For this purpose a transferee's ownership interest percentage shall
--------
be  calculated  pursuant  to  Section 382.  By way of explanation, a transferees
ownership  interest  is  generally  the sum of the transferee's direct ownership
interest  percentage  as calculated pursuant to Section 382 and the transferee's
indirect  ownership  interest  as  calculated  pursuant  to  Section  382,  with
adjustments  made  to  include  ownership  interests  that,  under  ordinary
circumstances,  are not included in measuring ownership interests.  In the event
a  Initial  Transferor  seeks  a  Special Board Approval, to the extent that the
transaction  reflected in the proposed request for a Special Board Approval does
not  result  in  an

                                      -16-
<PAGE>
"ownership  shift" in excess of 40% and does not result in an "ownership change"
as  those  terms  are used in Section 382, the approval of the Board will not be
unreasonably  withheld.  Moreover,  to  the  extent  that  the  proceeds  of any
"ownership  shift" of up to 40% results directly or indirectly in the receipt of
cash  by  the Company, the transaction will be presumed to be in the interest of
the  Company  unless  it  results  in  an  "ownership  change".

          4.8.4     Transfer  to  Agent  of  Prohibited  Shares;  Sale by Agent;
                    ------------------------------------------------------------
Payment of Proceeds.  On demand by the Company (which demand must be made within
-------------------
30  days  of  the  time  Company learns of the transfer of Prohibited Shares), a
Purported  Acquiror must transfer any certificate or other evidence of ownership
of  the Prohibited Shares within the Purported Acquiror's possession or control,
together  with  any  dividends  or other distributions that were received by the
Purported  Acquiror  from  Company  with  respect  to  the  Prohibited  Shares
("Prohibited  Distributions"),  to an agent designated by Company (the "Agent").
  -------------------------                                             -----
The  Agent will sell the Prohibited Shares in an arms-length transaction (over a
public  exchange,  if  reasonable  possible),  and  the  Purported Acquiror will
receive  an  amount  of  sales  proceeds  not  in  excess  of  the price paid or
consideration  surrendered  by  the Purported Acquiror for the Prohibited Shares
(or  the  fair market value of the Prohibited Shares at the time of an attempted
transfer to the Purported Acquiror by gift, inheritance, or a similar transfer).
If  the  Purported  Acquiror has resold the Prohibited Shares prior to receiving
the  Company's  demand  to  surrender  the  Prohibited  Shares to the Agent, the
Purported  Acquiror  shall be deemed to have sold the Prohibited Shares as agent
for  the  Initial  Transferor and shall be required to transfer to the Agent any
Prohibited  Distributions  and  the  proceeds of such sale, except to the extent
that  the  Agent grants written permission to the Purported Acquiror to retain a
portion  of  such  sales  proceeds  not  exceeding the amount that the Purported
Acquiror  would  have  received  from  the  Agent  if  the Agent rather than the
Purported  Acquiror had resold the Prohibited Shares.  If the Initial Transferor
can  be  identified,  the  Agent  will  pay  to the Initial Transferor any sales
proceeds  in  excess  of  those due to the Purported Acquiror, together with any
amounts  received by the Agent from the Purported Acquiror that are attributable
to  Prohibited  Distributions.  If  the  Initial Transferor cannot be identified
within 90 days, the Agent may pay any amounts due to the Initial Transferor into
a  court  or  governmental agency, if applicable law permits, and otherwise must
transfer  such  amounts  to  a charity designated by Company.  In no event shall
amounts  due  to the Initial Transferor pursuant to Article inure to the benefit
of Company or the Agent, but such amounts may be used to cover expenses incurred
by  Agent  in  attempting  to identify the initial Transferor.  If the Purported
Acquiror  fails  to  surrender the Prohibited Shares within the next 30 business
days  from  demand by Company, then the Company will institute legal proceedings
to  compel  the  surrender.

          4.8.5     Legend.  The  Investor  understands  and  agrees  that  each
                    ------
certificate  held  by  the  Investor representing a Note, and Series C Preferred
Stock and Common Stock issuable upon conversion thereof, or any other securities
issued  in  respect  of  a  Note,  and Series C Preferred Stock and Common Stock
issuable  upon  conversion  thereof  upon  any  stock  split,  stock  dividend,
recapitalization,  merger,  consolidation  or  similar  event,  shall  bear  the
following  legend  ((in  addition  to any legend required by this Agreement, the
other  Agreements  or  under  applicable  state  securities  laws):

          "THE  SHARES  REPRESENTED  BY  THIS  CERTIFICATE ARE RESTRICTED BY THE
          TERMS  OF,  AND  ARE  SUBJECT  TO  RESTRICTIONS  ON

                                      -17-
<PAGE>
          TRANSFER  AND  RIGHTS OF SALE AS PROVIDED IN A NOTE PURCHASE AGREEMENT
          BETWEEN THE COMPANY AND THE HOLDER HEREOF, OR ITS SUCCESSOR, A COPY OF
          WHICH  IS  AVAILABLE  FROM  THE  COMPANY."

     SECTION 5 CONDITIONS OF INVESTOR'S OBLIGATIONS AT CLOSING.

     The  obligations  of  the  Investor  under  Section 1 of this Agreement are
subject  to  the  fulfillment at or before each of the Closings of the following
conditions,  any  of  which  may  be  waived  in  writing  by  such  Investor:

     5.1  Representations and Warranties.  The representations and warranties of
          ------------------------------
the  Company  contained  in Section 3 shall be true in all respects on and as of
the  Closing  with  the  same  effect  as  if  made  on  and  as of the Closing.

     5.2  Performance.  The  Company  shall  have  performed or fulfilled in all
          -----------
material  respects  all agreements, obligations, and conditions contained herein
required  to  be  performed  or  fulfilled  by  the  Company before the Closing.

     5.3  Qualifications.  All authorizations, approvals, or permits, if any, of
          --------------
any  governmental authority or regulatory body of the United States or any state
that  are  required in connection with the lawful issuance and sale of the Notes
pursuant  to  this Agreement shall be duly obtained effective as of the Closing.

     5.4  Compliance  Certificate.  The  Company  shall  have  delivered  to the
          -----------------------
Investor  a  certificate  dated  as  of  the  Closing,  signed  by the Company's
Secretary,  certifying  as  to  (a)  the  Company's  Articles, (b) the Company's
Bylaws, (c) the resolutions adopted by, and other consents and approvals of, the
Company's  Board  of  Directors  and  stockholders  in  connection  with  the
Transactional  Agreements  and the transactions contemplated hereby and thereby,
and  (d)  the  names  of  the  officers  of  the  Company authorized to sign the
Transactional Agreements and the other documents or certificates to be delivered
pursuant to this Agreement by the Company, or any of its officers, together with
the  true  signatures of such officers.  The Company shall have delivered to the
Investor  a  certificate  dated  as  of  the  Closing,  signed  by the Company's
President, certifying that the conditions set forth in Sections 5.1, 5.2 and 5.3
have  been  satisfied.

     5.5  Articles.  The  Company  shall  have  filed the Series C Statement and
          --------
Series  D  Statement  with  the  Secretary of State of the State of Texas, which
shall  be in full force and effect on the Closing, and delivered to the Investor
a  certified  copy  of  the  Series  C  Statement  and  Series  D  Statement.

     5.6  Equity  Compensation Plans. As of the First Closing, the Company shall
          --------------------------
have reserved and authorized for issuance under the Plans an amount of shares of
its  Common  Stock  equal  to  10%  of the fully diluted, as converted shares of
capital  stock  of  the  Company  (assuming  the conversion of all option shares
reserved  for  issuance  under  the  Plans and conversion of all preferred stock
issuable  under  the  Notes  and  notes  issuable  under  the  Loan  Agreement).

     5.7  Note.  The  Company  shall have executed and delivered to Investor the
          ----
original  Note.

                                      -18-
<PAGE>
     5.8  Security  Agreement.  The Company shall have executed and delivered to
          -------------------
Investor  the  Security  Agreement.

     5.9  Registration  Rights  Agreement.  The  Company shall have executed and
          -------------------------------
delivered  to  Investor  the  Registration  Rights  Agreement.

     5.10 Loan  Agreement.  The  Company  shall  have  executed and delivered to
          ---------------
Investor  the  Loan  Agreement.

     5.11 Equipment  Purchase  Agreement.  The  Company  shall have executed and
          ------------------------------
delivered  to  Investor  the  Equipment  Purchase  Agreement.

     5.12 Voting  Agreement.  The  Company  shall have executed and delivered to
          -----------------
Investor  the  Voting  Agreement.

     SECTION 6 CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING.

     The  obligations  of  the  Company  under  Section  1 of this Agreement are
subject to the fulfillment at or before the Closing of the following conditions,
any  of  which  may  be  waived  in  writing  by  the  Company:

     6.1  Representations and Warranties.  The representations and warranties of
          ------------------------------
the  Investor  contained in Section 4 shall be true in all respects on and as of
the  Closing  with the same effect as though said representations and warranties
had  been  made  on  and  as  of  the  Closing.

     6.2  Blue  Sky  Compliance.  The  Company  shall  have  complied  with  the
          ---------------------
securities  laws  of  the  State  of  Texas  and  any other applicable states as
necessary  to  offer  and  sell  the  Notes  to  the  Investor.

     6.3  Articles.  The  Series  C  Statement and Series D Statement shall have
          --------
been  filed  with  the  Secretary of State of the State of Texas and shall be in
full  force  and  effect  on  the  Closing.

     6.4  Legal  Matters.  All  material matters of a legal nature which pertain
          --------------
to  the  Transactional  Agreements  and the transactions contemplated hereby and
thereby  shall  have  been  reasonably  approved  by  counsel  to  the  Company.

     6.5  Registration  Rights  Agreement.  Investor  shall  have  executed  and
          -------------------------------
delivered  to  the  Company  the  Registration  Rights  Agreement.

     6.6  Security Agreement.  Investor shall have executed and delivered to the
          ------------------
Company  the  Security  Agreement.

     6.7  Loan  Agreement.  Investor shall executed and delivered to the Company
          ---------------
the  Loan  Agreement.

                                      -19-
<PAGE>
     6.8  Equipment  Purchase  Agreement.  Investor  shall  have  executed  and
          ------------------------------
delivered  to  the  Company  the  Equipment  Purchase  Agreement.

     6.9  Voting  Agreement.  Investor  shall have executed and delivered to the
          -----------------
Company  the  Voting  Agreement.

     SECTION 7 POST-CLOSING COVENANTS OF THE COMPANY.

     7.1  Stockholder  Approval.  The  Company  shall  use reasonable efforts to
          ---------------------
obtain all required stockholder approval of the transactions contemplated by the
Transactional Agreements, including amending the Articles to increase the number
of  shares  of authorized Common Stock to account for conversion of the Series C
Preferred  Stock  and  Series  D  Preferred  Stock.

     7.2  Securities  Laws  Compliance.  Within  15  days  after the Closing the
          ----------------------------
Company  shall  make any filings necessary under the securities or blue sky laws
of  any  applicable  jurisdiction.

     7.3  Private  Offering.  The  Company  agrees  that neither the Company nor
          -----------------
anyone  acting  on  its  behalf  will  offer  any  of  the  Notes or any similar
securities  for  issuance or sale to, or solicit any offer to acquire any of the
same  from,  anyone or take any other action so as to make the issuance and sale
of  the  Notes  subject  to  the  registration  requirements of Section 5 of the
Securities  Act.

     7.4  Properties,  Business,  Insurance.  The  Company  shall  maintain, and
          ---------------------------------
cause  each  of  its subsidiaries to maintain, as to their respective properties
and  business,  insurance  against such casualties and contingencies and of such
types  and  in such amounts as is customary for companies similarly situated, of
similar  size, scope and financial condition, which insurance shall be deemed by
the  Company  to  be  sufficient.

     7.5  Restrictive Agreements Prohibited.  Neither the Company nor any of its
          ---------------------------------
subsidiaries  shall become a party to any agreement which by its terms restricts
the  Company's  performance  of  the  Transactional  Agreements or the Articles.

     7.6  Use  of Proceeds. The Company agrees to use the proceeds from the sale
          ----------------
of  the  Notes  for  (i)  payment  of  expenses  related  to  the  transactions
contemplated  by  the  Transactional  Agreements,  (ii)  payment  of outstanding
accounts  payable,  and  (iii)  current  operating  expenses.

     7.7  Material  Changes  and  Litigation.  The Company shall promptly notify
          ----------------------------------
the Investor of any Material Adverse Event and of any litigation or governmental
proceeding  or  investigation brought or, to the Company's knowledge, threatened
in  writing  against  the  Company, officer, director, key employee or principal
stockholder  of  the  Company  which, if adversely determined, would result in a
Material  Adverse  Event.

     7.8  Punctual Payment.  The Company shall pay the principal of, premium, if
          ----------------
any, and interest on the Notes at the times and place and in the manner provided
in  the  Notes  and  herein.

     7.9  Preservation  of  Corporate Existence.  The Company shall preserve and
          -------------------------------------
maintain  its  corporate  existence and all rights, franchises and privileges in
the  jurisdiction  of  its  organization,  and qualify and remain qualified as a
foreign  corporation  in  each  jurisdiction  in

                                      -20-
<PAGE>
which  such  qualification is necessary or desirable in view of its business and
operations  or  the  ownership  of  its  properties, except where the failure to
qualify  would  not  constitute  a  Material  Adverse  Event.  The Company shall
preserve  and  maintain all licenses and other rights to use patents, processes,
licenses,  trademarks,  trade names, inventions, intellectual property rights or
copyrights  owned  or  possessed  by  it,  and  material  to  the conduct of its
business.

     7.10 Compliance  with  Laws.  The  Company  shall  comply,  and  cause each
          ----------------------
Subsidiary to comply, with all applicable laws, rules, regulations and orders of
any  governmental authority, noncompliance with which could materially adversely
affect  its  business  or  condition,  financial  or  other.

     7.11 Keeping  of  Records  and  Books  of Account.  The  Company shall keep
          --------------------------------------------
adequate records and books of account, in which complete entries will be made in
accordance  with  GAAP  consistently  applied, reflecting all material financial
transactions  of  the  Company  and  in  which, for each fiscal year, are proper
reserves  for  depreciation,  depletion,  obsolescence, amortization, taxes, bad
debts  and  other  purposes  in  connection  with  its  business  shall be made.

     7.12 Compliance  with  ERISA.  The  Company  shall  comply with all minimum
          -----------------------
funding  requirements  applicable  to  any  pension or other employee benefit or
employee  contribution  plans  which  are  subject  to ERISA or to the Code, and
comply  in  all material respects with the provisions of ERISA and the Code, and
the  rules  and  regulations  thereunder, which are applicable to any such plan.
The  Company  will not permit any event or condition to exist which could permit
any  such  plan  to be terminated under circumstances which would cause the lien
provided  for  in  Section 4068 of ERISA to attach to the assets of the Company.

     7.13 Foreign  Corrupt  Practices  Act.  The  Company shall comply and cause
          --------------------------------
each  officer,  director,  partner,  employee  and  agent  of  the Company, each
Subsidiary  to  comply,  at  all times with the prohibitions on certain acts and
practices  set forth in the Foreign Corrupt Practices Act of 1977, and any rules
or  regulations  promulgated  thereunder.

     7.14 Issuance  of Warrants to Investor.  The  Company shall issue after the
          ---------------------------------
First Closing Date to Investor a number of warrants exercisable for Common Stock
equal  to the number of outstanding warrants surrendered to the Company within 3
months  of  the date hereof by holders of warrants of the Company outstanding as
of  the  date  hereof.  The warrants issued to Investor shall be exercisable for
$0.02  per  share  and  shall  expire  five  years  from  the  date  hereof.

     7.15 Repricing  of  Options.  The  Company  shall  exchange all outstanding
          ----------------------
options  held  by  the  employees  listed on Exhibit F, attached hereto, for new
                                             ---------
options  exercisable  for  Common  Stock at a price per share of $0.02.  The new
options  shall  be  subject  to four year vesting in equal monthly installments.

     7.16 Exchange Relisting.  The  Company shall use its best efforts to obtain
          ------------------
listing  of its Common Stock on the Nasdaq SmallCap Market and the Toronto Stock
Exchange.

     7.17 Board  of Directors.  Within  10 days following the First Closing, the
          -------------------
Board  of  Directors  shall  be  composed  of  the  persons  listed on Exhibit E
                                                                       ---------

                                      -21-
<PAGE>
     7.18 Bylaw  Amendment.  Within  10  days  following  the First Closing, the
          ----------------
Company  shall  adopt an amendment to its Bylaws which restricts the transfer of
the  Common  Stock  issuable  upon  conversion  of the Notes, in accordance with
Section  4.8  hereof.

     7.19 Negative  Covenants.  Without  limiting  any  other  covenants  and
          -------------------
provisions  hereof, the Company covenants and agrees that, as long as any of the
Notes  remain  outstanding,  it  will  comply  with  and  observe  the following
covenants  and  provisions,  and  will  cause each Subsidiary to comply with and
observe such of the following covenants and provisions as are applicable to such
Subsidiary,  and  will  not,  without the prior written consent of the holder or
holders  of at least one-half in principal amount of all Notes then outstanding:

          7.19.1    Distributions.  Except  as  required  by  the  Notes and the
                    -------------
Articles,  declare  or pay any dividends, purchase, redeem, retire, or otherwise
acquire  for  value  any of its capital stock (or rights, options or warrants to
purchase  such  shares)  now or hereafter outstanding, return any capital to its
stockholders  as such, or make any distribution of assets to its stockholders as
such,  or  permit  any  Subsidiary to do any of the foregoing (such transactions
being  hereinafter referred to as "Distributions"), except that the Subsidiaries
                                   -------------
may  declare  and  make  payment of cash and stock dividends, return capital and
make  distributions  of  assets  to the Company; and, except that nothing herein
                                                 ---  ------
contained shall prevent the Company from effecting a stock split or declaring or
paying  any dividend consisting of shares of any class of capital stock pro rata
to  the  holders  of  shares  of  such  class  of  capital  stock.

          7.19.2    Extraordinary  Corporate  Transactions.  Take  any corporate
                    --------------------------------------
action, enter into any agreement to take such action, or obligate itself to take
any  such  action,  if  such  action  would:  (i)  provide  for  the  voluntary
liquidation,  dissolution  or  winding  up  of  the Company; (ii) enter into any
transaction  that  expressly  prohibits or limits the Company's right to perform
its  obligations  under  this Agreement or the Notes; or (iii) transfer, sell or
license  any  material amount of its assets other than in the ordinary course of
business  or  other  than  obsolete  equipment  or  unsaleable  inventory.

          7.19.3    Dealings with Affiliates.  Except for transactions involving
                    ------------------------
the  Company  and  Investor,  enter  or  permit any Subsidiary to enter into any
transaction with any holder of five percent (5%) or more of any class of capital
stock  of  the  Company,  or  any member of their families or any corporation or
other  entity  in  which anyone or more of such stockholders or members of their
immediate  families,  directly  or indirectly holds five percent (5%) or more of
any  class  of capital stock or other ownership interest, except in the ordinary
course  of  business  and  on  terms  not  less  favorable to the Company or any
Subsidiary  than  it  would  obtain  in a transaction between unrelated parties.

          7.19.4    Change  in  Nature of Business.  Make any material change in
                    ------------------------------
the  nature  of the Company's business as carried on at the date hereof, without
the  prior  approval  of  its  Board  of  Directors.

                                      -22-
<PAGE>
     SECTION 8  MISCELLANEOUS.

     8.1  Governing  Law.  This Agreement shall be governed by, and construed in
          --------------
accordance  with,  the  laws  of  the  State of Texas, excluding those laws that
direct  the  application  of  the  laws  of  another  jurisdiction.

     8.2  Counterparts.  This  Agreement  may  be  executed  in  two  or  more
          ------------
counterparts,  each  of  which  shall  be  deemed  an original, but all of which
together  shall  constitute  one  and  the  same  instrument.

     8.3  Headings.  The  headings  of  the  sections  of this Agreement are for
          --------
convenience  and  shall  not  by themselves determine the interpretation of this
Agreement.

     8.4  Notices.  Any notice required or permitted hereunder shall be given in
          -------
writing  and  shall  be  conclusively  deemed  effectively  given  upon personal
delivery or delivery by courier, or on the first business day after transmission
if  sent by confirmed facsimile transmission or electronic mail transmission, or
five  days  after  deposit in the United States mail, by registered or certified
mail,  postage  prepaid, addressed (i) if to the Company, as set forth below the
Company's  name  on  the  signature  page  of  this Agreement, and (ii) if to an
Investor,  at such Investor's address as set forth on the Signature page of this
Agreement,  or  at  such  other  address  as  the  Company or such  Investor may
designate  by  10  days'  advance  written  notice  to the other parties hereto.

     8.5  Survival  of  Warranties.  The  warranties  and representations of the
          ------------------------
parties  contained  in  or made pursuant to this Agreement shall survive for two
years  after the execution and delivery of this Agreement and the First Closing;
provided,  however,  that  such  representations  and  warranties  need  only be
accurate  as  of  the date of such execution and delivery and as of the Closing.

     8.6  Amendments,  Waivers  and Consent.  Any provision in this Agreement or
          ---------------------------------
the  Notes  to  the  contrary  notwithstanding,  changes in or additions to this
Agreement  may  be made, and compliance with any covenant or provision herein or
therein  set forth may be omitted or waived, if the Company shall obtain consent
thereto  in  writing  from the holder or holders of at least two-thirds (2/3) in
principal  amount  of  all Notes then outstanding; provided that no such consent
                                                   --------
shall  be  effective (a) to reduce or to postpone the date fixed for the payment
of  the principal (including any required redemption) or interest payable on any
Note, without the consent of the holder thereof; or (b) to reduce the percentage
of the Notes the consent of the holders of which is required under this section.
Any  waiver or consent may be given subject to satisfaction of conditions stated
therein  and  any  waiver  or  consent  shall  be effective only in the specific
instance  and  for  the specific purpose for which given.  Written notice of any
waiver  or consent effected under this subsection shall promptly be delivered by
the Company to any holders who did not execute the same.  No failure or delay on
the  part  of  the  Investor, or any other holder of the Notes in exercising any
right,  power  or  remedy hereunder shall operate as a waiver thereof, nor shall
any  single  or partial exercise of any such right, power or remedy preclude any
other  or  further exercise thereof or the exercise of any other right, power or
remedy hereunder.  The remedies herein provided are cumulative and not exclusive
of  any  remedies  provided  by  law.

                                      -23-
<PAGE>
     8.7  Finders'  Fees.  The Company and the Investor will indemnify the other
          --------------
against  all  liabilities  incurred  by  the  indemnifying party with respect to
claims  related  to  investment  banking or finders' fees in connection with the
transactions contemplated by this Agreement, arising out of arrangements between
the  party  asserting  such claims and the indemnifying party, and all costs and
expenses  (including  reasonable fees of counsel) of investigating and defending
such  claims.

     8.8  Expenses.  The  Company  and  the  Investor will bear their respective
          --------
legal  and  other  fees  and  expenses  with  respect  to this Agreement and the
transactions  contemplated  hereby.

     8.9  Confidentiality.  Each party hereto agrees that, except with the prior
          ---------------
written  permission  of the Company, it shall at all times keep confidential and
not divulge or furnish or make accessible to anyone any confidential information
concerning  or  relating  to the business or financial affairs of the Company to
which  such  party  has become privy by reason of this Agreement, discussions or
negotiations  relating  to  this  Agreement  or  the exhibits to this Agreement,
provided  that  an  Investor  may  disclose  confidential information if (i) the
information  is  publicly  known  through  publication  or  otherwise through no
wrongful  act  of  the  Investor;  (ii) the information is received from a third
party  who  rightfully  discloses  it to the Investor without restriction on its
subsequent disclosure; (iii) the information is disclosed pursuant to the lawful
requirement  of  a  governmental  agency  or  by  order  of  court  of competent
jurisdiction,  provided  that in such event, Investor will provide prior written
notice  of  such  proposed disclosure to the Company; or (iv) the information is
reasonably  required  to  be  disclosed  in  order  for  the  Investor  or their
transferee  to  market an interest in the capital stock of the Company, provided
that  in  such  instance the person to whom the information is provided shall be
required  to  hold  such  information  in  confidence.

     8.10 Further  Assurances.  From  and after the date of this Agreement, upon
          -------------------
the  request  of the Investor, the Company and each Subsidiary shall execute and
deliver  such  instruments,  documents and other writings as may be necessary or
desirable  to  confirm  and  carry  out  and  to effectuate fully the intent and
purposes  of  this  Agreement  and  the  Notes.

     8.11 Jury Waiver.  THE  COMPANY AND THE INVESTOR AGREE THAT NEITHER OF THEM
          -----------
NOR  ANY  ASSIGNEE  OR  SUCCESSOR  SHALL  (A)  SEEK A JURY TRIAL IN ANY LAWSUIT,
PROCEEDING,  COUNTERCLAIM,  OR  ANY  OTHER ACTION BASED UPON, OR ARISING OUT OF,
THIS AGREEMENT OR ANY OF THE OTHER FINANCING DOCUMENTS, ANY RELATED INSTRUMENTS,
ANY COLLATERAL OR THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG ANY OF THEM,
OR (B) SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY
TRIAL  CANNOT  BE  OR HAS NOT BEEN WAIVED; PROVIDED, HOWEVER, THAT THE FOREGOING
SHALL  NOT  PRECLUDE ANY PARTY OR ITS SUCCESSORS FROM ASSERTING ANY COUNTERCLAIM
WHICH WOULD OTHERWISE BE BARRED OR FORFEITED.  EXCEPT AS STATED IN THE PRECEDING
SENTENCE,  THE  PROVISIONS  OF  THIS  SECTION SHALL BE SUBJECT TO NO EXCEPTIONS.
NEITHER  THE  COMPANY  NOR ANY OF THE INVESTOR HAS AGREED WITH OR REPRESENTED TO
THE  OTHER THAT THE PROVISIONS OF THIS SECTION WILL NOT BE FULLY ENFORCED IN ALL
INSTANCES.

                                      -24-
<PAGE>
     8.12 Entire  Agreement;  Successors  and Assigns.  This  Agreement (and the
          -------------------------------------------
exhibits  hereto)  constitutes  the  entire contract between the Company and the
Investor  relative  to the subject matter hereof.  Any prior and contemporaneous
agreement,  discussion,  understanding or correspondence between the Company and
the  Investor  regarding  the  purchase  of  the  Notes  is  superseded  by this
Agreement.  Subject  to the exceptions specifically set forth in this Agreement,
the  terms and conditions of this Agreement shall inure to the benefit of and be
binding  upon  the  respective executors, administrators, heirs, successors, and
assigns  of  the  parties.  All  subsequent  transferees or assigns of the Notes
shall  be  deemed a party to this Agreement and bound by the obligations imposed
upon  Investor  herein.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                      -25-
<PAGE>
     IN  WITNESS  WHEREOF,  the  parties hereto have executed this Note Purchase
Agreement  as  of  the  date  first  above  written.

COMPANY:                      POSITRON CORPORATION

                              By:  /s/ Gary H. Brooks
                                 -----------------------------------------------
                                   Gary H. Brooks, President

                              Address:  1304 Langham Creek Drive, #300,
                                        Houston, Texas 77084

INVESTOR:                     IMAGIN Diagnostic Centres, Inc.,

                              By:  /s/  Cynthia R. Jordan
                                 -----------------------------------------------
                                   Name: Cynthia R. Jordan
                                   Its: Chief Executive Officer

                              Address:  1835 Yonge St., Suite 500
                                        Toronto, Ontario, Canada M4S 1XB

                                      -26-
<PAGE>
                             SCHEDULES AND EXHIBITS
                             ----------------------

Schedule 1  Schedule of Exceptions

Exhibit A   Secured Convertible Promissory Notes

Exhibit B   Registration Rights Agreement

Exhibit C   Security Agreement

Exhibit D   Voting Agreement

Exhibit E   Board of Directors

Exhibit F   Repricing of Options

                                      -27-
<PAGE>
                                   SCHEDULE 1
                                   ----------

                             SCHEDULE OF EXCEPTIONS

<PAGE>
                               BOARD OF DIRECTORS

                             SCHEDULE OF EXCEPTIONS

                                       TO

                             NOTE PURCHASE AGREEMENT

                                 BY AND BETWEEN

                              POSITRON CORPORATION

                                       AND

                         IMAGIN DIAGNOSTIC CENTRES, INC.

                            DATED AS OF MAY 21, 2004

CAPITALIZED  TERMS  USED  HEREIN  AND  NOT OTHERWISE DEFINED SHALL HAVE THE SAME
MEANING  AS  IN  THE  AGREEMENT  TO  WHICH  THESE  SCHEDULES  ARE  ATTACHED  AND
INCORPORATED  BY  REFERENCE.

<PAGE>
                                  SCHEDULE 3.5

Corporate Power.
---------------

As of the date of this Agreement, there are insufficient shares of Common Stock
to allow for the exercise of all outstanding options and warrants, and
conversion of all outstanding convertible securities, including the Company's
Series C Preferred Stock and Series D Preferred Stock, to Common Stock.  The
Company will use its reasonable efforts to obtain stockholder approval to amend
the Articles to increase the number of shares of authorized Common Stock to
account for conversion of the Series C Preferred Stock and Series D Preferred
Stock.

                                        1
<PAGE>
                                  SCHEDULE 3.6

Authorization.
-------------

As of the date of this Agreement, there are insufficient shares of Common Stock
to allow for the exercise of all outstanding options and warrants, and
conversion of all outstanding convertible securities, including the Company's
Series C Preferred Stock and Series D Preferred Stock, to Common Stock.  The
Company will use its reasonable efforts to obtain stockholder approval to amend
the Articles to increase the number of shares of authorized Common Stock to
account for conversion of the Series C Preferred Stock and Series D Preferred
Stock.

                                        2
<PAGE>
                                  SCHEDULE 3.7

Validity of Shares.
------------------

The Series C Preferred Stock issuable upon conversion of the Note and the Common
Stock issuable upon conversion of the Series C Preferred Stock are subject to
the contractual rights and restrictions set forth in the Articles, Series A
Statement, Series C Statement and Series D Statement.

                                        3
<PAGE>
                                  SCHEDULE 3.8

Litigation.
----------

The Company received a warning letter ("Warning Letter") dated April 26, 2004
from the Department of Health and Human Services regarding various alleged
deficiencies under the Current Good Manufacturing Practice requirements of the
Quality System regulations for medical devices, a copy of which has been
provided to Investor.

The Company is subject to the following legal proceedings:

PROFUTURES CAPITAL BRIDGE FUND, L.P.

On September 26, 2000, ProFutures Bridge Capital Fund, L.P. ("ProFutures") filed
a complaint against the Company in Colorado state court for declaratory relief
and breach of contract (the "Complaint").  The Complaint alleged that the
Company breached four stock purchase warrants issued to ProFutures on the basis
that the Company failed to notify ProFutures of dilutive events and failed to
register the full number of shares ProFutures was allegedly entitled to purchase
under the warrants when, on February 14, 2000, the Company registered 1,500,000
shares of stock underlying ProFutures' warrants instead of 4,867,571.  The
Complaint further alleged that the Company's issuance of shares of common stock
to Imatron, Inc. on or about January 22, 1999, (the "Imatron Transaction") was a
dilutive event pursuant to the anti-dilution provisions contained in the four
stock purchase warrants.  The Complaint sought declarations that the
consideration received by the Company in the Imatron Transaction increased the
number of shares issuable under the warrants, the Company breached the warrants
by failing to notify ProFutures of the Imatron Transaction and its effect on
ProFutures' warrants at the time of the Imatron Transaction and that the Company
further breached the warrants by failing to register the number of shares
ProFutures alleged were purchasable under its warrants.  The Complaint sought an
unspecified amount of monetary damages.

The Colorado State level case of ProFutures v. Positron, District Court, City
and County of Denver, Colorado, Case No. 00CV7146, was tried before the Court in
June 2002.  The Court issued its Findings of Fact, Conclusions of Law and
Judgment on November 13, 2002.  The Court agreed with the Company's
determination of the value of the consideration paid for the shares issued to
Imatron and that there was no evidence of fraud by Company.  The Court agreed
with ProFutures that the Company breached the 1996 stock purchase warrant with
ProFutures by failing to give ProFutures written notice stating the adjusted
exercise price and the new number of shares deliverable as a result of the
Imatron Transaction and by failing to register the shares to which ProFutures
was entitled under the warrant as a result of the Imatron Transaction.
Nevertheless, the Court also found that ProFutures' alleged damages were
uncertain and speculative and that ProFutures was not entitled to recover actual
damages.  Therefore ProFutures was awarded $1 in nominal damages.  ProFutures
has appealed the trial Court's findings and The Company has cross-appealed.
Those appeals are presently pending before the Court of Appeals, State of
Colorado.

In the federal case of ProFutures v. Positron, et al., United States District
Court for the District of Colorado, Case No. 02-N-0154, the Complaint alleged
two causes of action against the Company: fraudulent transfer and injunctive
relief.  The allegations arose out of a June 2001 loan agreement between The
Company and Imatron.  The action was dismissed in 2002 without prejudice.

                                        4
<PAGE>
                             SCHEDULE 3.8 CONTINUED

10P10, L.P.

In December 2001, 10P10, L.P., the Company's previous landlord for its premises
located at 16350 Park Ten Place, Suite 150, Houston, Texas, filed a complaint
(Cause No. 2001-65534 in the 165th Judicial District Court of Harris County,
Texas) against the Company alleging breach of lease agreement.  The Company
disputes the amount of lease commissions and construction costs charged by
10P10, L.P. in conjunction with the subleasing of the premises.  Although 10P10,
L.P. asserted a claim in excess of $150,000, a subsequent analysis of the
transactions under the lease has resulted in the reduction of the lease
obligation alleged by 10P10, L.P. to approximately $97,000.  Although the
Company disputes the amount of the claim, due to the pending lawsuit,
approximately $97,000 is recorded as an accrued liability as of December 31,
2003.  The case is set for trial on a two week docket beginning in September
2004.

Radiology Corporation of America, Inc.

A judgment in the amount of $75,000 has been entered against the Company in
Texas state court in favor of Radiology Corporation of America, Inc., a vendor
to the Company.  In satisfaction of the judgment the Company and the creditor
have agreed that the judgment may be satisfied by five monthly payments of
$15,000 each commencing March 10, 2004.

                                        5
<PAGE>
                                  SCHEDULE 3.9

Title to Properties; Liens and Encumbrances.
-------------------------------------------

The following taxes are due and payable:

Sales Tax:
     New York                                        $94,881.78
     Florida                                          $7,875.00
     Alabama                                         $31,250.00
     Texas                                            $2,894.81

Property Tax:                                       $321,884.17

                                        6
<PAGE>
                                  SCHEDULE 3.11

Compliance With Other Agreements.
--------------------------------

See Schedule 3.8.

                                        7
<PAGE>
                                  SCHEDULE 3.12

Employee Relations and Compensation Plans.
-----------------------------------------

The Company has the following equity and incentive compensation plans which are
more fully described in its filings with the Securities and Exchange Commission:

1999 Non-employee Directors' Stock Option Plan

1999 Employee Stock Option Plan

1999 Stock Bonus Incentive Plan

1999 Employee Stock Purchase Plan

401(K) Retirement Plan and Trust

Key Employee Incentive Compensation Plan

Employment Contracts/Severance Arrangements:

The Company has entered into an employment agreement with Gary H. Brooks.
Pursuant to the agreement, Mr. Brooks was appointed initially as President of
the Company with an initial employment term ending June 15, 2000, with a rolling
six month basis thereafter.  From January 22, 1999 until June 15, 1999, and then
from June 15, 1999 through August 31, 1999, his base salary was $1,000 and
$3,417 per month respectively, reflecting his less than full-time commitments to
the office during these periods.  Effective September 1, 1999 and with his
full-time assignment with the Company, his salary increased to $185,000 on an
annualized basis.  In addition to participation in the Company's group benefit
plans and a monthly automobile allowance, Mr. Brooks was given the opportunity
to purchase for $20,000 a warrant to purchase 3,000,000 shares of the Company's
common stock exercisable at $0.30 per share.  The warrant, and the underlying
common stock, are subject to the Company's repurchase right, which lapses 25%
immediately and the remainder annual over the next three years. The base salary
for Mr. Brooks was increased to $205,000 effective June 15, 2000 and was
increased again to $217,000 effective January 1, 2002.  The Board can terminate
Mr. Brooks' employment without cause on thirty days' written notice and the
payment of base salary for the remainder of the employment term or six months,
whichever is greater.

                                        8
<PAGE>
                                  SCHEDULE 3.16

No Adverse Changes.
------------------

See Warning Letter on Schedule 3.8.

                                        9
<PAGE>
                                  SCHEDULE 3.17

Taxes.
-----

The following taxes are due and payable:

Sales Tax:
     New York                                        $94,881.78
     Florida                                          $7,875.00
     Alabama                                         $31,250.00
     Texas                                            $2,894.81

Property Tax:                                       $321,884.17

                                       10
<PAGE>
                                  SCHEDULE 3.20

Environmental and Safety Laws.
-----------------------------

See Warning Letter on Schedule 3.8.

                                       11
<PAGE>
                                    EXHIBIT A
                                    ---------

                      SECURED CONVERTIBLE PROMISSORY NOTES

                                    EXHIBIT A
                                      -1-
<PAGE>
                                    EXHIBIT B
                                    ---------

                          REGISTRATION RIGHTS AGREEMENT

                                    EXHIBIT B
                                      -1-
<PAGE>
                                    EXHIBIT C
                                    ---------

                               SECURITY AGREEMENT

                                    EXHIBIT C
                                      -1-
<PAGE>
                                    EXHIBIT D
                                    ---------

                                VOTING AGREEMENT

                                    EXHIBIT D
                                      -1-
<PAGE>
                                    EXHIBIT E
                                    ---------

                               BOARD OF DIRECTORS

The Board of Directors shall consist of:

Gary H. Brooks

Sachio Okamura

Mario Silva

Patrick Rooney

John E. McConnaughy, Jr.

                                    EXHIBIT E
                                      -1-
<PAGE>
                                    EXHIBIT F
                                    ---------

                              REPRICING OF OPTIONS

The  option grants listed below shall be exchanged for new options in accordance
with  Section  7.15  of  the  Agreement:

<TABLE>
<CAPTION>
                                           GRANTS       VESTED
                        GRANT    OPTION  OUTSTANDING      AT
                         DATE    PRICE   12/31/2003   12/31/2003
                       --------  ------  -----------  ----------
<S>                    <C>       <C>     <C>          <C>

Hartz, R.              02/23/95   2.625       11,189      11,189
Hartz, R.              02/23/95   2.625        7,500       7,500
Hartz, R.              02/23/95   2.625       11,311      11,311
                                         -----------  ----------
                                              30,000      30,000

Liu, I.                09/22/95   3.750          628         628
Matoska, K.            09/22/95   3.750          188         188
                                                 816         816

1999 PLAN
Hartz, R.              06/15/99   0.280      300,000     300,000
Liu, I.                06/15/99   0.280       10,000      10,000
Matoska, K.            06/15/99   0.280       60,000      60,000
Miller, G.             10/11/99   0.630       40,000      40,000
                                             410,000     410,000

Burdette, W.           02/14/00   0.940       26,250      26,250
Tran, C.T.             01/10/00   0.560       10,000       9,375
Zeb, A.                01/18/00   0.630       10,000       9,375
                                              46,250      45,000

Director - S. Okamura  04/01/01   0.111       25,000      25,000
                                              25,000      25,000

Director - S. Okamura  01/02/02   0.077       25,000      25,000
Director - M. Silva    05/10/02   0.068       25,000      25,000
                                         -----------  ----------
                                              50,000      50,000

Director - S. Okamura  01/01/03   0.010       25,000      25,000
Director - M. Silva    01/01/03   0.010       25,000      25,000

Brooks, G.             04/30/03   0.050      500,000     250,000
Burdette, W.           04/30/03   0.050       20,834      20,834
Comegys, Paul          04/30/03   0.050      100,000      50,002
Hartz, R.              04/30/03   0.050      300,000     150,000
Liu, I.                04/30/03   0.050       10,000       5,002
Matoska, K.            04/30/03   0.050       25,000      12,502
Miller, G.             04/30/03   0.050       50,000      25,001
Ngo, C.                04/30/03   0.050        4,168       4,168
Prather, Shelly        04/30/03   0.050       20,000      10,001
Tran, C.T.             04/30/03   0.050       10,000       5,002
Zeb, A.                04/30/03   0.050       20,000      10,001
                                         -----------  ----------
                                           1,110,002     592,513

                                           1,672,068   1,153,329
</TABLE>

                                    EXHIBIT F
                                      -1-
<PAGE>

    ________________________________________________________________________

    ________________________________________________________________________

                              POSITRON CORPORATION

                             NOTE PURCHASE AGREEMENT

    ________________________________________________________________________

    ________________________________________________________________________

                                  May 21, 2004

<PAGE>THE  SECURITIES  REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
     SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT
     BE  SOLD,  TRANSFERRED,  ASSIGNED,  PLEDGED  OR HYPOTHECATED EXCEPT IN
     ACCORDANCE  WITH  THE PROVISIONS OF REGULATION S PROMULGATED UNDER THE
     SECURITIES  ACT,  PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT OR
     PURSUANT  TO  AN  AVAILABLE  EXEMPTION  FROM  REGISTRATION.

     THIS  NOTE  IS  RESTRICTED  BY  THE  TERMS  OF,  AND  IS  SUBJECT  TO
     RESTRICTIONS  ON  TRANSFER  AND  RIGHTS  OF SALE AS PROVIDED IN A NOTE
     PURCHASE  AGREEMENT  BETWEEN THE COMPANY AND THE HOLDER HEREOF, OR ITS
     SUCCESSOR,  A  COPY  OF  WHICH  IS  AVAILABLE  FROM  THE  COMPANY.

                              POSITRON CORPORATION

                       SECURED CONVERTIBLE PROMISSORY NOTE

$400,000.00                                                       Houston, Texas
                                                                    May 21, 2004

     POSITRON  CORPORATION,  a  Texas corporation (the "Company"), the principal
                                                        -------
office  of  which  is  located at 1304 Langham Creek Drive, #300, Houston, Texas
77084,  for  value received hereby promises to pay to IMAGIN Diagnostic Centres,
Inc., located at 1835 Yonge St., Suite 500, Toronto, Ontario, Canada M4S 1XB, or
its  registered assigns (the "Holder"), the sum of Four Hundred Thousand dollars
                              ------
($400,000),  or such lesser amount as shall then equal the outstanding principal
amount  hereof on the terms and conditions set forth hereinafter.  The principal
hereof  and any unpaid accrued interest hereon, as set forth below, shall be due
and payable on the earlier to occur of (i) May 21, 2006 (the "Maturity Date") or
                                                              -------------
(ii) when declared due and payable by the Holder upon the occurrence of an Event
of  Default  (as defined below).  Commencing on the Maturity Date, all principal
and  accrued  interest  hereunder shall be payable upon demand.  Payment for all
amounts  due  hereunder  shall  be made by mail to the registered address of the
Holder.  All  numbers  expressed herein as "$" or "dollars" are in United States
dollars.

     The  following  is a statement of the rights of the Holder of this Note and
the conditions to which this Note is subject, and to which the Holder hereof, by
the  acceptance  of  this  Note,  agrees:

          1.   Definitions.  Except  as  otherwise  defined  herein,  each
               -----------
capitalized  term  used herein shall have the meaning assigned to it in the Note
Purchase Agreement dated as of May 21, 2004 (the "Purchase Agreement").  As used
                                                  ------------------
in  this  Note, the following terms, unless the context otherwise requires, have
the  following  meanings:

                                      - 1 -
<PAGE>
                    (a)  "Business  Day"  shall  mean a day other than Saturday,
                          -------------
Sunday  or  a  public  holiday  under  the  laws  of  the  State  of  Texas.

                    (b)  "Company"  includes  any corporation that shall succeed
                          -------
to  or  assume  the  obligations  of  the  Company  under  this  Note.

                    (c)  "Holder,"  when  the context refers to a holder of this
                          ------
Note,  shall  mean  any person who shall at the time be the registered holder of
this  Note.

                    (d)  "Loan Agreement" shall mean the Loan Agreement between
                          --------------
the Company and Holder, dated as of May 21, 2004.

                    (e)  "Operating Cash Flow" shall mean the sum of net income,
                          -------------------
depreciation, change in accruals and change in accounts payable, minus change in
accounts receivable, minus change in inventories.

          2.   Interest.  Simple  interest  shall  accrue  at  the  rate  of ten
               --------
percent  (10%)  per  annum  on the principal of this Note outstanding during the
period beginning the date of this Note and ending on the date that the principal
amount  of  this Note is repaid.  Interest shall be calculated on the basis of a
365-day  year  for the actual number of days elapsed.  Accrued interest shall be
payable in cash annually on the anniversary date of this note; provided however,
that  in the event the accrued interest on this Note together with the aggregate
accrued  interest  on  all  outstanding  notes  issued  pursuant to the Purchase
Agreement  and  pursuant  to  the  Loan Agreement (such notes collectively being
hereinafter  referred  to  as  the  "Imagin Notes") exceeds 50% of the Company's
                                     ------------
Operating  Cash Flow during the twelve month period ending on the last completed
calendar  quarter  which  preceded the interest payment date by at least 60 days
("50%  of  cash  flow"),  at the Company's option, the accrued interest shall be
  -------------------
payable  (i)  in  cash pro-rata among the Imagin Notes up to an aggregate amount
equal  to  50%  of  cash  flow,  and  (ii)  by  issuance to Holder of a new note
identical  in  form  to this Note and in an amount equal to the accrued interest
not  otherwise  paid  in  cash.  In  the  event  that  a payment date falls on a
non-Business  Day,  payment shall be made on the next Business Day, while taking
into  account such extra days in calculating the accrued interest.  In the event
of an earlier conversion, acceleration or payment of the Note, interest shall be
payable  in  cash  on  such  date.

          3.   Events  of  Default.  If  any  of  the  events  specified in this
               -------------------
Section  3  shall  occur  (herein  individually  referred  to  as  an  "Event of
                                                                        --------
Default"), the Holder of the Note may, so long as such condition exists, declare
-------
the  entire  principal  and  unpaid  accrued interest hereon immediately due and
payable,  by  notice  in  writing  to  the  Company:

                    (a)  The Company shall default in the payment of any part of
the  principal or accrued and unpaid interest on this Note after it shall become
due  and  payable,  whether  at maturity or at a date fixed for prepayment or by
acceleration  or  otherwise;  or

                    (b)  The  institution  by  the  Company of proceedings to be
adjudicated  as  bankrupt  or  insolvent, or the consent by it to institution of
bankruptcy  or  insolvency  proceedings  against  it  or  the  filing by it of a
petition  or  answer  or  consent  seeking  reorganization  or release under the
federal  Bankruptcy  Act,  or  any other applicable federal or state law, or the
consent  by  it  to  the  filing  of  any  such petition or the appointment of a
receiver,

                                      - 2 -
<PAGE>
liquidator,  assignee,  trustee  or other similar official of the Company, or of
any  substantial  part of its property, or the making by it of an assignment for
the  benefit  of  creditors, or the taking of corporate action by the Company in
furtherance  of  any  such  action;  or

                    (c)  If, within sixty (60) days after the commencement of an
action  against  the Company, without the consent or acquiescence of the Company
(and  service  of  process  in  connection therewith on the Company) seeking any
bankruptcy,  insolvency,  reorganization,  liquidation,  dissolution  or similar
relief under any present or future statute, law or regulation, such action shall
not  have  been  resolved  in  favor of the Company or all orders or proceedings
thereunder affecting the operations or the business of the Company stayed, or if
the  stay  of any such order or proceeding shall thereafter be set aside, or if,
within sixty (60) days after the appointment without the consent or acquiescence
of  the  Company of any trustee, receiver or liquidator of the Company or of all
or any substantial part of the properties of the Company, such appointment shall
not  have  been  vacated;  or

                    (d)  Any  material  breach  by  the  Company  of  any
representation, warranty or covenant contained in the Purchase Agreement or this
Note.

                    (e)  As  of  January  1,  2005,  the  Company shall not have
obtained stockholder approval to amend its Articles of Incorporation to increase
the  number  of  shares  of  its  authorized  Common  Stock  to  account for the
conversion  of  Series  C Preferred Stock issuable upon conversion of this Note.

In  the  case  of  an Event of Default pursuant to (b) or (c) above, all amounts
shall  automatically,  without  notice,  become  immediately due and payable and
collectible  by  Holder  pursuant  to  applicable  law.

          4.   Conversion.
               ----------

     4.1  Conversion.  The principal amount of this Note, or any portion thereof
          ----------
may  be converted by the Holder at any time prior to Maturity into the number of
fully  paid shares of the Company's Series C Preferred Stock as is determined by
dividing  the  unpaid  principal  under  the  Note  by  the Conversion Price (as
hereinafter  defined)  in  effect at the time of conversion.  Accrued but unpaid
interest  shall  be  payable  in  cash  at  the  time  of  conversion.

     4.2  Conversion  Price.  The  Conversion  Price  (the  "Conversion  Price")
          -----------------                                  -----------------
applicable  per  share  of  Series C Preferred Stock shall initially be equal to
$1.00,  subject  to  adjustment from time to time in accordance with Section 4.3
below.

     4.3  Adjustments  to  the  Conversion  Price. The Conversion Price shall be
          ---------------------------------------
subject  to  adjustment  from  time  to  time  as  follows:

          4.3.1     Adjustment  Upon  Stock  Dividends,  Subdivisions or Splits.
                    -----------------------------------------------------------
If, at any time, the number of shares of Series C Preferred Stock outstanding is
increased  by  a stock dividend payable in shares of Series C Preferred Stock or
by  a  subdivision  or  split-up  of  shares  of Series C Preferred Stock, then,
following the record date for the determination of holders of Series C Preferred
Stock  entitled  to  receive  such  stock  dividend,  or  to be affected by such
subdivision  or  split-up, the Conversion Price shall be appropriately decreased
so  that  the  number  of  shares  of

                                      - 3 -
<PAGE>
Series  C  Preferred  Stock issuable on conversion of Note shall be increased in
proportion  to  such  increase  in  outstanding  shares.

          4.3.2     Adjustment  Upon  Combinations.  If, at any time, the number
                    ------------------------------
of  shares of Series C Preferred Stock outstanding is decreased by a combination
of  the  outstanding shares of Series C Preferred Stock into a smaller number of
shares of Series C Preferred Stock, then, following the record date to determine
shares affected by such combination, the Conversion Price shall be appropriately
increased  so  that the number of shares of Series C Preferred Stock issuable on
conversion  of  the  Note  shall  be decreased in proportion to such decrease in
outstanding  shares.

          4.3.3     Adjustment  Upon  Reclassifications,  Reorganizations,
                    ------------------------------------------------------
Consolidations  or  Mergers.  If,  at  any  time  when  the  Note  is issued and
---------------------------
outstanding,  there  shall  be  any  merger,  consolidation,  share  exchange,
recapitalization,  reorganization, business combination, or other similar event,
as  a  result  of which shares of Series C Preferred Stock shall be changed into
the same or a different number of shares of another class or classes of stock or
securities  of  the  Company  or  another  entity,  or  in  case  of any sale or
conveyance  of  all  or  substantially all of the assets of the Company then the
Holder  shall  thereafter have the right to receive upon conversion of the Note,
upon the basis and upon the terms and conditions specified herein and in lieu of
the  shares  of  Series  C Preferred Stock immediately theretofore issuable upon
conversion,  such  stock,  securities,  cash or other assets which the Holder of
would  have  been  entitled  to  receive  in  such transaction had the Note been
converted  in  full immediately prior to such transaction (without regard to any
limitations  on  conversion  contained herein), and in any such case appropriate
provisions  shall be made with respect to the rights and interests of the Holder
to the end that the provisions hereof (including, without limitation, provisions
for adjustment of the applicable Conversion Price and of the number of shares of
Series  C Preferred Stock issuable upon conversion of the Note) shall thereafter
be  applicable, as nearly as may be practicable in relation to any securities or
assets  thereafter  deliverable  upon  the  conversion  of  the Note.  The above
provisions  shall  similarly  apply to successive mergers, consolidations, share
exchanges,  recapitalizations,  reorganizations,  business combinations or other
similar  events  or  sales  of  assets.

          4.3.4     Deferral in Certain Circumstances.  In any case in which the
                    ---------------------------------
provisions  of  this  Section  4.3 shall require that an adjustment shall become
effective  immediately  after  a  record date of an event, the Company may defer
until  the occurrence of such event issuing to the Holder of the Note, converted
after  such  record  date and before the occurrence of such event, the shares of
capital stock issuable upon such conversion by reason of the adjustment required
by  such  event  and  issuing  to  such  Holder only the shares of capital stock
issuable  upon  such  conversion  before  giving  effect  to  such  adjustments;
provided,  however, that the Company shall deliver to such Holder an appropriate
instrument  or  due  bills  evidencing  such  holder's  right  to  receive  such
additional  shares.

          4.3.5     Notice  of  Adjustment  of  Conversion  Price.  Whenever the
                    ---------------------------------------------
Conversion  Price  is adjusted as herein provided: (i) the Company shall compute
the  adjusted  Conversion  Price  in  accordance with this Section 4.3 and shall
prepare  a  certificate  signed  by  the  Chief Financial Officer of the Company
setting forth the adjusted Conversion Price and showing in reasonable detail the
facts  upon  which  such  adjustment  is  based,  and  such  certificate  shall

                                      - 4 -
<PAGE>
forthwith  be  filed  at  each  office  or agency maintained for such purpose of
conversion  of the Note; and (ii) a notice stating that the Conversion Price has
been adjusted and setting forth the adjusted Conversion Price shall forthwith be
prepared  by  the Company, and as soon as practicable after it is prepared, such
notice  shall  be  mailed  by  the  Company  at its expense to the Holder at the
Holder's  last  addresses  as  it  shall  appear  in  the  Company's  records.

     4.4  Conversion  Procedure.

          4.4.1     Notice  of  Conversion.  In  order  to convert this Note (in
                    ----------------------
whole or in part) into full shares of Series C Preferred Stock, the Holder shall
surrender  the  Note,  duly endorsed, by either overnight courier or by hand, to
the  principal  office  of  the  Company,  and  shall  give  written notice (the
"Conversion  Notice")  by  facsimile (with the original of such notice forwarded
 ------------------
with  the  foregoing  courier)  to  the  Company at such office that the Company
elects  to  convert the amount specified therein, which such notice and election
shall be irrevocable by the Holder; provided however, that the Company shall not
be  obligated  to  issue  certificates  evidencing  the  shares  of the Series C
Preferred  Stock issuable upon such conversion unless either the Note evidencing
the  principal  amount  is  delivered  to  the Company as provided above, or the
Holder  notifies  the  Company  that  such  Note(s)  have  been  lost, stolen or
destroyed  and  promptly  executes  an  agreement reasonably satisfactory to the
Company  to  indemnify the Company from any loss incurred by its connection with
such  Note(s).

          4.4.2     Delivery  of  Stock  Certificates.  Upon  receipt  of  such
                    ---------------------------------
Conversion Notice, the Company shall immediately verify the Holder's calculation
of  the  conversion  rate  and  shall use its best efforts to cause its transfer
agent  to  issue  and  deliver  as  promptly as practical to the Company of such
Note(s),  or after receipt of such agreement and indemnification, to such Holder
of  Note(s)  at  the address of the Holder, or to its designee, a certificate or
certificates  for  the number of shares of Series C Preferred Stock to which the
Holder shall be entitled, together with a Note or Notes for the principal amount
of  Notes  not submitted for conversion.  The issuance of such certificates upon
conversion  of this Note shall be made without charge to the Holder of this Note
for any issuance tax in respect thereof or other cost incurred by the Company in
connection  with  such  conversion  and  the  related  issuance  of the Series C
Preferred  Stock.  Upon  the conversion of this Note, the Company shall take all
such  actions  as  are  necessary in order to insure that the Series C Preferred
Stock issuable with respect to such conversion shall be validly issued and fully
paid.

          4.4.4     Effect  of  Conversion.  The  date  on  which the Conversion
                    ----------------------
Notice is given shall be deemed to be the date the Company received by facsimile
the  Conversion Notice, and the person or persons entitled to receive the shares
of  Series  C Preferred Stock issuable upon such conversion shall be treated for
all  purposes  as  the  record  holder  or  holders  of  such shares of Series C
Preferred  Stock on such date.  No fractional shares of Series C Preferred Stock
shall  be  issued  upon conversion of this Note.  In lieu of the Company issuing
any  fractional  shares  to  the  Holder  upon  the conversion of this Note, the
Company  shall pay to the Holder the amount of outstanding principal that is not
converted  because  its conversion would require fractional shares, such payment
to  be in the form as provided below.  Upon conversion of this Note, the Company
shall be forever released from all of its obligations and liabilities under this
Note,  except  that the Company shall be obligated to pay the Holder, within ten
(10)  days  after  the  date

                                      - 5 -
<PAGE>
of  such  conversion,  any  interest  accrued  and  unpaid or unconverted to and
including  the  date  of  such  conversion,  and  no  more.

     4.5  Notices  of  Record  Date,  etc.  In  the  event  of:

          4.5.1     Any  taking by the Company of a record of the holders of any
class  of  securities  of the Company for the purpose of determining the holders
thereof  who  are  entitled  to receive any dividend (other than a cash dividend
payable  out  of  earned  surplus at the same rate as that of the last such cash
dividend theretofore paid) or other distribution, or any right to subscribe for,
purchase  or  otherwise  acquire  any  shares of stock of any class or any other
securities  or  property,  or  to  receive  any  other  right;  or

          4.5.2     Any  capital  reorganization  of  the  Company,  any
reclassification  or recapitalization of the capital stock of the Company or any
transfer  of  all or substantially all of the assets of the Company to any other
person  or  any  consolidation  or  merger  involving  the  Company;  or

          4.5.3     Any  voluntary  or  involuntary  dissolution, liquidation or
winding-up  of  the  Company,

the Company will mail to the holder of this Note at least five (5) days prior to
the  earliest  date  specified  therein,  a  notice  specifying:

                    4.5.3.1   The  date  on which any such record is to be taken
for  the  purpose  of  such  dividend, distribution or right, and the amount and
character  of  such  dividend,  distribution  or  right;  and

                    4.5.3.2   The  date  on  which  any  such  reorganization,
reclassification,  transfer,  consolidation, merger, dissolution, liquidation or
winding-up  is  expected to become effective and the record date for determining
shareholders  entitled  to  vote  thereon.

     4.6  Notice  of  Prepayment.  The  Company shall mail to the holder of this
          ----------------------
Note at least sixty (60) days prior to repayment of any principal due hereunder.

     4.7  Reservation  of  Stock  Issuable  Upon Conversion.  The Company shall,
          -------------------------------------------------
prior to conversion of this Note into Series C Preferred Stock, reserve and keep
available  out of its authorized but unissued shares of Series C Preferred Stock
solely  for  the  purpose of effecting the conversion of the Note such number of
its  shares of Series C Preferred Stock as shall from time to time be sufficient
to  effect  the  conversion of the Note.  The Company shall at all times reserve
and  keep available out of its authorized but unissued Common Stock, such number
of  its  duly  authorized  Common  Stock  as  shall  be sufficient to effect the
conversion  of the Series C Preferred Stock into Common Stock in accordance with
its  Articles.  If  at  any  relevant time the number of authorized but unissued
shares  of  Series C Preferred Stock (and shares of Common Stock for issuance on
conversion  of  such Series C Preferred Stock) shall not be sufficient to effect
the  conversion  of  the  entire  outstanding  principal amount of this Note, in
addition  to  such  other  remedies  as shall be available to the holder of this
Note,  the  Company  will  use  its  reasonable  efforts  to forthwith take such
corporate  action  as  may  be necessary to increase its authorized but unissued
shares  of Series C Preferred Stock (and shares of its Common Stock for issuance
on

                                      - 6 -
<PAGE>
conversion  of  such Series C Preferred Stock) to such number of shares as shall
be  sufficient  for  such  purposes.

          5.   Assignment.  Subject to the restrictions on transfer described in
               ----------
Section  8  below,  the  rights and obligations of the Company and the Holder of
this  Note  shall  be  binding  upon and benefit the successors, assigns, heirs,
administrators  and  transferees  of  the  parties.

          6.   Waiver and Amendment.  Any provision of this Note may be amended,
               --------------------
waived  or  modified  (either  generally  or  in  a  particular instance, either
retroactively  or  prospectively,  and  either for a specified period of time or
indefinitely),  upon  the  written  consent  of  the  Company and of the Holder.

          7.   Waiver of Notice.  The Company hereby waives notice, presentment,
               ----------------
demand,  protest  and  notice  of  dishonor.

          8.   Transfer  of  this  Note  or  Securities  Issuable  on Conversion
               -----------------------------------------------------------------
Hereof.  Transfer  of this Note or the Series C Preferred Stock and Common Stock
------
issuable  upon  conversion thereof shall only be made in accordance with Section
4.7 and 4.8 of the Purchase Agreement.  All transferees of this Note agree to be
bound  by  the  obligations set forth under Sections 1.6, 1.7 and Section 4 (and
related  definitions)  of the Purchase Agreement, which Sections are incorporate
herein  by  reference.  In  connection  with  any such transfer, such transferee
shall  sign  an acknowledgment stating that it will become bound by the terms of
such  sections  Purchase  Agreement.  Holder  understands  and  agrees that each
certificate  held  by  Holder  representing  Series C Preferred Stock and Common
Stock  issuable  upon conversion of this Note, or any other securities issued in
respect  of  this  Note  issuable  upon conversion thereof upon any stock split,
stock  dividend, recapitalization, merger, consolidation or similar event, shall
bear  the  following legend (in addition to any legend required under applicable
federal  or  state  securities  laws):

     "THE  SHARES  REPRESENTED  BY  THIS  CERTIFICATE ARE RESTRICTED BY THE
     TERMS  OF,  AND  ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND RIGHTS OF
     SALE  AS PROVIDED IN A NOTE PURCHASE AGREEMENT BETWEEN THE COMPANY AND
     THE HOLDER HEREOF, OR ITS SUCCESSOR, A COPY OF WHICH IS AVAILABLE FROM
     THE  COMPANY."

          9.   Notices.  Any  notice, request or other communication required or
               -------
permitted  hereunder  shall  be in writing and shall be deemed to have been duly
given  if  personally  delivered  or  if  sent  by nationally recognized courier
service  or  mailed  by  registered  or  certified mail, postage prepaid, to the
respective  addresses of the parties as set forth herein or if sent by facsimile
to  the respective facsimile numbers of the parties set forth herein.  Any party
hereto  may  by  notice so given change its address for future notice hereunder.
Notice  shall  conclusively  be  deemed  to  have  been  given and received when
personally  delivered  or three (3) Business Days after deposited in the mail or
one  Business  Day  after  sent  by  courier  or  upon confirmation of facsimile
delivery  in  the  manner  set  forth  above.

          10.  Loss,  Theft or Destruction of Note.  Upon receipt by the Company
               -----------------------------------
of  evidence  reasonably satisfactory to it of the loss, theft or destruction of
this  Note  and  of

                                      - 7 -
<PAGE>
indemnity  or  security reasonably satisfactory to it, the Company will make and
deliver  a new Note which shall carry the same rights to interest (unpaid and to
accrue) carried by this Note, stating that such Note is issued in replacement of
this  Note, making reference to the original date of issuance of this Note, (and
any  successors hereto) and dated as of such cancellation, in lieu of this Note.

          11.  Usury  Disclosure.  Regardless of any provision contained in this
               -----------------
Note,  it  is  expressly stipulated and agreed that the intent of the Holder and
the  Company is to comply at all times with all usury and other laws relating to
this  Note.  If  the  laws  of  the State of Texas would now or hereafter render
usurious,  or  are  revised,  repealed  or  judicially  interpreted as to render
usurious,  the  indebtedness evidenced by this Note, or if any prepayment by the
Company  results  in  the  Company's  having paid any interest in excess of that
permitted  by law, then it is the Holder's and the Company's express intent that
all  excess  amounts  theretofore  collected  by  the  Holder be credited to the
principal balance of this Note (or, if this Note has been paid in full, refunded
to  the Company), and the provisions of this Note immediately be deemed reformed
the  amounts  therefor  collectible  hereunder reduced, without the necessity of
execution of any new document, so as to comply with the then applicable law, but
so  as  to  permit  the  recovery  of  the  fullest  amount otherwise called for
hereunder.

          12.  No  Shareholder  Rights.  Nothing contained in this Note shall be
               -----------------------
construed as conferring upon the Holder or any other person the right to vote or
to  consent  or  to  receive  notice  as a shareholder in respect of meetings of
shareholders  for  the election of directors of the Company or any other matters
or  any  rights  whatsoever  as  a  shareholder  of  the  Company.

          13.  Impairment  of  Rights.  The Company shall not amend or otherwise
               ----------------------
modify  the terms of the Series C Preferred Stock without the written consent of
the  Holder.

          14.  Security.  This  Note  is  secured  pursuant  to the terms of the
               --------
Security  Agreement.

          15.  Governing Law.  This Agreement shall be governed by and construed
               -------------
in  accordance  with  the laws of the State of Texas, excluding that body of law
relating  to  conflict  of  laws.

          16.  Heading;  References.  All  headings  used  herein  are  used for
               --------------------
convenience  only  and  shall  not  be  used to construe or interpret this Note.
Except  as  otherwise  indicated,  all  references  herein  to Sections refer to
Sections  hereof.

                  [Remainder of page intentionally left blank]

                                      - 8 -
<PAGE>
     IN WITNESS WHEREOF, the Company has caused this Note to be issued as of the
date  first  set  forth  above.
COMPANY:                             POSITRON CORPORATION, a Texas corporation

                                     By:  /s/ Gary H. Brooks
                                        ----------------------------------------
                                          Gary H. Brooks, President

                                        Address:  1304 Langham Creek Drive, #300
                                                  Houston, Texas 77084
                                                  Facsimile:  281-492-2961

                                      - 9 -
<PAGE>
                              NOTICE OF CONVERSION
                              --------------------
                   (To Be Signed Only Upon Conversion of Note)

TO POSITRON CORPORATION

     The  undersigned,  the holder of the foregoing Note, hereby surrenders such
Note  for  conversion  into  ___  shares of Series C Preferred Stock of POSITRON
CORPORATION,  to  the extent of ________________________ dollars ($____________)
unpaid  principal  amount  of  such Note, and requests that the certificates for
such  shares  be  issued  in  the  name  of,  and  delivered  to,
_________________________________________,  whose  address  is
__________________________________________________.

     Dated:  ________________________.

                              --------------------------------------------------
                              (Signature must conform in all respects to name of
                              holder as specified on the face of the Note)

                              Address
                                              ----------------------------------

                                              ----------------------------------

                                              ----------------------------------

<PAGE>

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