EXHIBIT 10.13 NOTE PURCHASE AGREEMENT

Note Purchase Agreement

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Title: EXHIBIT 10.13 NOTE PURCHASE AGREEMENT
Governing Law: Delaware Date: 5/19/2005
Industry: Oil and Gas Operations Sector: Energy

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EXHIBIT 10.13

NOTE PURCHASE AGREEMENT

THIS NOTE PURCHASE AGREEMENT is entered into as of November 30, 2004 among

NGAS RESOURCES, INC., a British Colombia corporation (the "Company"), and the

NOTE HOLDERS listed in Schedule 1.

The Company agrees as follows for the ratable benefit of the holders of

its 7% Convertible Notes due March 31, 2010.

ARTICLE ONE

DEFINITIONS

SECTION 1.01 CERTAIN TERMS DEFINED. Except as otherwise expressly provided

or unless the context otherwise requires, the following terms shall have the

respective meanings specified in this Section 1.01.

"Affiliate" means any Person directly or indirectly controlling or

controlled by or under direct or indirect common control with a specified

Person, and "control" when used with respect to any specified Person means the

power to direct the management and policies of that Person, directly or

indirectly, whether through the ownership of voting securities, by contract or

otherwise.

"Agreement" means this Note Purchase Agreement as originally executed or,

if amended or supplemented as herein provided, as so amended or supplemented.

The term "applicant" has the meaning set forth in Section 7.02(a).

"Board of Directors" means the Board of Directors of the Company, any

authorized committee of the Board of Directors or any Person performing similar

functions for any successor of the Company lawfully empowered for that purpose.

"Business Day" means any day other than a Saturday, a Sunday or a day on

which banking institutions in the City of New York are authorized or obligated

by law or executive order to be closed.

"Capital Stock" means any and all shares of capital stock of a corporation

or any and all equivalent ownership interests in a Person other than a

corporation.

"Commission" means the United States Securities and Exchange Commission.

"Common Stock" means the Common Stock, no par value, of the Company.

"Company" means NGAS Resources, Inc., a British Colombia corporation,

unless a successor replaces it in accordance with the terms of this Agreement,

and thereafter the successor.

The term "conversion rate" has the meaning set forth in Section 4.01(b).

"Conversion Shares" means the shares of Common Stock or other securities

issuable upon conversion of the Notes.

"Current Market Price" means, on any particular date, the average of the

Quoted Prices of the Common Stock for 30 consecutive trading days commencing 45

trading days before the date in question. For purposes of this determination,

the term "Quoted Prices" means the closing sales price of the Common Stock (or

if no sale price is reported, the average of the high and low bid prices) as

reported by the principal national or regional stock exchange on which the

Common Stock is listed or, if the Common Stock is not listed on a national or

regional stock exchange, as reported by The Nasdaq Small Cap Market, the OTC

Bulletin Board or, if not so reported, then as reported by the National

Quotation Bureau Incorporated. In the absence of one or more quotations, the

Company shall determine

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the Current Market Price on a basis it considers appropriate. The Company's

determination of the Current Market Price shall be conclusive.

"Event of Default" means any event specified in Section 8.01, continued

for the period of time, if any, and after the giving of notice, if any, therein

designated.

"Exchange Act" means the United States Securities Exchange Act of 1934, as

amended.

"Holder" means any Person who shall at the time be the registered holder

of any Note or Notes on the registry books of the Company kept for that purpose

in accordance with the provisions of this Agreement.

"Holder List" has the meaning set forth in Section 7.01(a).

"Holder Representative" has the meaning set forth in Section 8.02.

"Note" or "Notes" means any Note or Notes executed and delivered under

this Agreement.

"Note Issuance Date" means, with respect to each Note covered by this

Agreement, the date on which such Note was issued hereunder in accordance with

Section 2.01.

The term "outstanding" when used with reference to Notes means, subject to

the provisions of Section 10.04, all Notes executed and delivered by the Company

under this Agreement as of any particular time, except: (a) Notes theretofore

canceled by the Company or delivered to the Company for cancellation and Notes

converted pursuant to Article Five; (b) Notes, or portions thereof, for the

payment or redemption of which moneys in the necessary amount shall have been

deposited in trust with the Company or with any paying agent (other than the

Company) or shall have been set aside and segregated in trust by the Company (if

the Company shall act as its own paying agent), provided that the Notes shall

have reached their stated maturity or, if the Notes are to be redeemed or

purchased prior to the maturity thereof, notice of the redemption or purchase

shall have been given as provided in Article Four, or provision shall have been

made for giving that notice; and (c) Notes in lieu of or in substitution for

which other Notes shall have been executed and delivered pursuant to the terms

of Section 2.07, unless proof satisfactory to the Company is presented that any

such Notes are held by bona fide holders in due course.

"Officers' Certificate" means a certificate signed by the President or any

Vice President and by the Chief Financial Officer or Treasurer or an Assistant

Treasurer or the Secretary or an Assistant Secretary of the Company, provided it

includes the statements required under Section 16.05.

"Opinion of Counsel" means an opinion in writing signed by legal counsel,

who may be an employee of, or of counsel to, the Company. Each Opinion of

Counsel shall include the statements required under Section 16.05.

"Periodic Reports" has the meaning set forth in Section 7.03.

"Person" means an individual, any form of business enterprise, including a

corporation, limited liability company, partnership or limited partnership, and

any other juridical entity or its representative, including a trust, Company,

estate, custodian, administrator, personal representative, nominee or any other

entity acting on its own behalf or in a representative capacity.

"Principal" or "principal amount" of a Note means the principal amount of

the Note as set forth on the face of the Note.

The term "record date" has the meaning set forth in Section 2.03(a).

"Registration Statement" means a registration statement under the

Securities Act of 1933 registering the Conversion Shares thereunder for resale

for resale by the Holders.

"Responsible Officer" means, when used with respect to the Company, the

chairman of the board of directors, the president, every vice president, every

assistant vice president, the treasurer, every trust officer and

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every other officer and assistant officer, in addition to those specifically

above mentioned, to whom any corporate trust matter is referred because of his

knowledge of and familiarity with the particular subject.

"Securities Act of 1933" means the United States Securities Act of 1933,

as amended.

"Subsidiary" means any corporation a majority of whose outstanding Capital

Stock with voting power, under ordinary circumstances, to elect directors is at

the time, directly or indirectly, owned by the Company.

"Subscription Agreement" means the Subscription Agreement executed by each

Holder to evidence the Holder's Note subscription and the Company's undertaking

to register for resale under the Securities Act of 1933 all shares of Common

Stock issuable upon conversion thereof.

SECTION 1.02 REFERENCES ARE TO AGREEMENT. Unless the context otherwise

requires, all references herein to "Articles," "Sections" and other subdivisions

refer to the corresponding Articles, Sections and other subdivisions of this

Agreement, and the words "herein," "hereof," hereby," "hereunder" and words of

similar import refer to this Agreement as a whole and not to any particular

Article, Section or other subdivision hereof.

ARTICLE TWO

ISSUE, DESCRIPTION, EXECUTION AND REGISTRATION OF NOTES

SECTION 2.01 DESIGNATION, AMOUNT, EXECUTION AND DELIVERY OF NOTES. The

Notes shall be designated as 7% Convertible Notes due March 31, 2010. Notes for

the aggregate principal amount of up to Eight-Million Dollars ($8,000,000), upon

the execution of this Agreement or from time to time thereafter, may be

executed, issued and delivered as herein provided.

SECTION 2.02 FORM OF NOTES AND COMPANY'S CERTIFICATE. The Notes shall be

substantially in the form set forth in Exhibit A, and may have letters, numbers

or other marks of identification or designation and legends or endorsements

printed, lithographed or engraved thereon as the officers executing the same may

deem appropriate and as are not inconsistent with the provisions of this

Agreement, or as may be required to comply with any law or with any rule or

regulation made pursuant thereto or with any rule or regulation of any stock

exchange on which the Notes may be listed, or to conform to usage.

SECTION 2.03 (a) DATE OF NOTES AND DENOMINATIONS. Each Note shall mature

on March 31, 2010, shall bear interest from the Note Issuance Date thereof at

the rate per annum set forth therein, payable on the last day of each month,

commencing on December 31, 2004 or at the end of any subsequent month during

which the Note was issued hereunder, and at maturity, and shall be issuable as a

registered Note without coupons in a denomination of $1,000 and any integral

multiple thereof. The Person in whose name any Note is registered at the close

of business on any record date with respect to any interest payment date shall

be entitled to receive the interest payment on that interest payment date

notwithstanding the cancellation of the Note upon any registration of transfer,

conversion or exchange thereof subsequent to the record date and prior to the

interest payment date, unless the Note shall have been called for redemption on

a date fixed for redemption subsequent to the record date and prior to the

interest payment date, or unless an Event of Default shall have occurred and be

continuing as the result of a default in the payment of interest due on the

interest payment date on any Note, in which case the defaulted interest shall be

paid to the Person in whose name the Note (or any Notes issued upon registration

of transfer or exchange thereof) is registered on the record date for the

payment of the defaulted interest. The principal of and interest on the Notes

shall be payable at the office or agency to be maintained by the Company in

accordance with the provisions of Section 6.02; provided, however, that payment

of interest may be made at the option of the Company by check mailed by

first-class mail to the address of the Person entitled thereto as the address

appearing on the registry books of the Company. The term "record date" as used

in this Section 2.03 with respect to any interest payment date means the close

of business on 15th day of the month in which the interest payment date or

maturity date occurs, whether or not the record date is a Business Day, and that

term, as used in this Section 2.03, with respect to the payment of any defaulted

interest means the tenth day next preceding the date fixed by the Company for

the payment of defaulted interest, whether or not a Business Day, but in no case

shall that record date be less than ten days after notice thereof shall have

been mailed by or on behalf of the Company to all registered Holders of Notes at

their respective addresses.

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(b) Each Note shall be dated the date of its issuance hereunder.

Interest shall accrue on each Note from the most recent date to which interest

has been paid thereon or duly provided for or, if no interest has been paid or

duly provided for, from the Note Issuance Date thereof.

360-day year comprised of twelve 30-day months.

SECTION 2.04 EXECUTION OF NOTES. The Notes shall be signed on behalf of

the Company, manually or in facsimile, by its President or a Vice President and

attested, manually or in facsimile, by the Secretary or an Assistant Secretary

of the Company. Only Notes so executed shall be entitled to the benefits of this

Agreement or be valid or obligatory for any purpose. The Company's execution and

delivery of any Note shall be conclusive evidence that the Note so executed and

delivered has been duly executed and delivered hereunder and that the Holder is

entitled to the benefits of this Agreement.

SECTION 2.05 (a) EXCHANGE AND TRANSFER OF NOTES. Notes may be exchanged

for a like aggregate principal amount of Notes of other authorized

denominations. The Notes to be exchanged shall be surrendered at the office or

agency to be maintained by the Company in accordance with the provisions of

Section 6.02, and the Company shall execute and deliver in exchange therefor the

Note or Notes that the Holder making the exchange shall be entitled to receive.

(b) The Company shall keep, at the office or agency to be maintained

by it in accordance with the provisions of Section 6.02, a register or registers

in which it shall register Notes and shall register the transfer of Notes as

provided in this Article Two. Upon surrender for registration of transfer of any

Note at that office or agency, the Company shall execute and deliver in the name

of the transferee or transferees a new Note or Notes for a like aggregate

principal amount.

purchase or payment shall, if so required by the Company or any Note registrar,

be accompanied by a written instrument or instruments, in form satisfactory to

the Company or the Note registrar, duly executed by the registered Holder or by

his duly authorized attorney and, in every case, each Note presented or

surrendered for registration of transfer or for conversion shall be accompanied

by the assignment form and conversion notice attached to the Notes, duly

executed by the registered Holder or by his duly authorized attorney.

(d) No service charge shall be made for any exchange or registration

of transfer of Notes, but the Company may require payment of a sum sufficient to

cover any tax or other governmental charge that may be imposed in relation

thereto.

(e) The Company shall not be required to issue, register the

transfer of or exchange any Notes for a period of fifteen days next preceding

any date for the selection of Notes to be redeemed, except in connection with a

conversion pursuant to Article Five. The Company shall not be required to

redemption except, in the case of any Note to be redeemed in part, the portion

thereof not to be so redeemed.

SECTION 2.06 (a) MUTILATED, DESTROYED, LOST OR STOLEN NOTES. In case any

Note shall become mutilated or be destroyed, lost or stolen, the Company, in the

case of any mutilated Note shall, and in the case of any destroyed, lost or

stolen Note in its discretion may, execute and deliver a new Note bearing a

number, letter or other distinguishing symbol not contemporaneously outstanding

in exchange and substitution for the mutilated Note, or in lieu of and in

substitution for the Note so destroyed, lost or stolen. In every case the

applicant for a substituted Note shall furnish to the Company such security or

indemnity as it may require to save it harmless and, in every case of

destruction, loss or theft, the applicant shall also furnish to the Company

evidence to its satisfaction of the destruction, loss or theft of the Note and

of the ownership thereof. Upon the issue of any substituted Note, the Company

may require the payment of a sum sufficient to cover any tax or other

governmental charge that may be imposed in relation thereto and any other

expenses connected therewith.

(b) Every substituted Note issued pursuant to the provisions of this

Section 2.06 in substitution for any destroyed, lost or stolen Note shall

constitute an additional contractual obligation of the Company, whether or not

the destroyed, lost or stolen Note shall be found at any time, and shall be

entitled to all the benefits of this

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Agreement equally and proportionately with any and all other Notes duly issued

hereunder.

that the foregoing provisions are exclusive with respect to the replacement of

mutilated, destroyed, lost or stolen Notes, and shall preclude (to the extent

lawful) any and all other rights or remedies, notwithstanding any law or statute

existing or hereafter enacted to the contrary with respect to the replacement of

negotiable instruments or other securities without their surrender.

SECTION 2.07 CANCELLATION OF SURRENDERED NOTES. All Notes surrendered for

the purpose of payment, redemption, conversion, exchange, substitution or

registration of transfer shall, if surrendered to the Company or any paying

agent or conversion agent or registrar, be delivered to the Company and the

same, together with Notes surrendered to the Company for cancellation, shall be

canceled by it, and no Notes shall be issued in lieu thereof except as expressly

permitted by any of the provisions of this Agreement.

ARTICLE THREE

REDEMPTION OF NOTES

SECTION 3.01 REDEMPTION AT OPTION OF THE COMPANY. The Company may elect to

redeem the Notes at any time after the Registration Statement becomes effective

under the Securities Act of 1933 at a redemption price equal to 100% of the

principal amount of the Notes to be redeemed, plus accrued interest thereon

through the date fixed for redemption. To exercise its election, the Company

shall provide the notice specified in Section 3.03, accompanied by an Officers'

Certificate and an Opinion of Counsel to the effect that the redemption will

comply with the conditions contained herein, at least 60 days before the

redemption date. The Company may at any time or from time to time purchase Notes

directly from Holders, and any such purchases shall not be considered

redemptions for purposes hereof if the action of the seller is volitional and

not compelled.

SECTION 3.02 SELECTION OF NOTES TO BE REDEEMED. If less than all the

outstanding Notes are to be redeemed, the Company shall select the Notes to be

redeemed pro rata or by lot or other method deemed fair and appropriate by the

Board of Directors. The Company shall make the selection not more than 75 days

before the redemption date from Notes outstanding not previously called for

redemption. The Company may select for redemption portions of the principal of

Notes that have denominations larger than $1,000. Notes and portions of them it

selects shall be in amounts of $1,000 or integral multiples of $1,000.

Provisions of this Agreement that apply to Notes called for redemption also

apply to portions of Notes called for redemption.

SECTION 3.03 NOTICE OF REDEMPTION. At least 20 days but not more than 60

days before a redemption date, the Company shall cause to be mailed a notice of

redemption to each Holder whose Notes are to be redeemed. The notice shall

identify the Notes to be redeemed and shall state: (a) the redemption date; (b)

the redemption price; (c) the name and address of the paying agent; (d) if less

than all the outstanding Notes are to be redeemed, the identification (and in

the case of partial redemptions, principal amounts) of the particular Notes to

be redeemed as selected in accordance with Section 3.02; (e) that Notes called

for redemption may be converted at any time before the close of business on the

redemption date, specifying the conversion rate then in effect and the place

where Notes may be surrendered for conversion; (f) that Holders who want to

convert Notes must satisfy the requirements for conversion set forth in the

Notes; (g) that Notes called for redemption must be surrendered to the paying

agent to collect the redemption price; (h) that, unless the Company defaults in

making the redemption payment, interest on Notes called for redemption ceases to

accrue on and after the redemption date, and the only remaining right of the

Holder is to receive payment of the redemption price upon surrender of the

Notes; and (i) if any Note is being redeemed in part, the portion of the

principal amount of the Note to be redeemed and that, after the redemption date,

upon surrender of the Note, a new Note or Notes in principal amount equal to the

unredeemed portion thereof will be issued.

SECTION 3.04 EFFECT OF NOTICE OF REDEMPTION. Once notice of redemption is

mailed, Notes called for redemption become due and payable on the redemption

date at the redemption price, unless previously converted. Upon surrender to the

paying agent, such Notes shall be redeemed at the redemption price stated in the

notice of reception, plus accrued interest to the redemption date.

SECTION 3.05 DEPOSIT OF REDEMPTION PRICE; DEPOSIT RECEIPT. On or before

the redemption date, the Company shall deposit with any third-party paying agent

money sufficient to pay the redemption price of and accrued interest on all

Notes to be redeemed on that date, and the paying agent shall return to the

Company any money not

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required for that purpose. Upon the deposit of a Note to be redeemed in

accordance with the provisions therefor in the Notes, the Holder of the Note

shall be entitled to receive a non-transferable receipt evidencing the deposit.

SECTION 3.06 NOTES REDEEMED IN PART. Upon surrender of a Note that is

redeemed in part, the Company shall execute and deliver to the Holder a new Note

equal in principal amount to the unredeemed portion of the Note surrendered.

ARTICLE FOUR

CONVERSION OF NOTES

SECTION 4.01 CONVERSION PRIVILEGE. (a) A Note may be converted by the

Holder into Common Stock at any time prior to the close of business on March 31,

2010. If a Note is called for redemption by the Company, the Holder may convert

it at any time before the close of business on the Business Day immediately

preceding the redemption date.

(b) The conversion rate (the "conversion rate") as of the date of

this Agreement is 166.6667 shares of Common Stock per each $1,000 principal

amount of the Notes. The conversion rate is subject to adjustment as provided in

this Article Four.

$1,000 or a whole multiple of $1,000. Provisions of this Agreement that apply to

a conversion of all of a Note also apply to conversion of a portion of it.

SECTION 4.02 CONVERSION PROCEDURE. (a) To convert a Note, a Holder must

(i) complete and sign the conversion notice attached to the Note, (ii) surrender

the Note to the Company at the office or agency to be maintained by the Company

in accordance with the provisions of Section 6.02, (iii) furnish appropriate

endorsements and transfer documents if required by the Company and (iv) pay any

transfer or similar tax if required. The date on which the Holder satisfies all

those requirements is the conversion date. As soon as practical after the

conversion date, the Company shall cause its transfer agent to deliver a

certificate to the Holder for the number of full Conversion Shares issuable upon

the conversion of the Note or portion thereof so converted, together with a

check for any fractional share of Common Stock resulting from the conversion.

The Person in whose name the Conversion Shares are registered shall be treated

as a shareholder of record of the Company on and after the conversion date.

(b) No payment or adjustment will be made for accrued interest on a

converted Note. If any Note is converted between a record date for the payment

of interest and the next succeeding interest payment date, the Note must be

accompanied by funds equal to the interest payable on the interest payment date

on the principal amount so converted (unless the Note shall have been called for

redemption, in which case no payment shall be required).

number of full shares of Common Stock issuable upon the conversion shall be

based on the total principal amount of the Notes converted.

(d) Upon surrender of a Note that is converted in part, the Company

upon Company Order shall issue to the Holder a new Note equal in principal

amount to the unconverted portion of the Note surrendered.

SECTION 4.03 FRACTIONAL SHARES. (a) The Company will not issue a

fractional share upon conversion of a Note. Instead, in lieu of any fractional

share of Common Stock otherwise issuable, the Company will deliver its check for

the current market value of the fractional share of Common Stock, determined by

multiplying the Current Market Price of a full share of Common Stock by the

fraction and rounding the result to the nearest cent.

(b) For purposes of this Section 4.03 but not any other provision of

this Agreement, the current market price of a share of Common Stock is the

Quoted Price of the Common Stock on the last trading day prior to the conversion

date. In the absence of a quotation, the Company shall determine the current

market price on the basis of such quotations as it considers appropriate.

SECTION 4.04 TAXES ON CONVERSION. If a Holder of a Note converts it, the

Company shall pay any documentary, stamp or similar issue or transfer tax due on

the issue of the Conversion Shares, and the Holder shall pay any tax that is due

because the Conversion Shares are issued in a name other than the Holder's name.

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SECTION 4.05 COMPANY TO RESERVE SHARES. The Company shall reserve enough

shares of Common Stock to permit the conversion of all the Notes at the

applicable conversion rate. All shares of Common Stock that may be issued upon

conversion of the Notes shall be fully paid and nonassessable.

SECTION 4.06 ADJUSTMENT FOR CHANGE IN COMPANY STRUCTURE. (a) If the

Company (i) makes a distribution on its Common Stock in shares of Common Stock;

(ii) subdivides its outstanding Common Stock into a greater number of shares of

Common Stock; (iii) combines its outstanding Common Stock into a smaller number

of shares of Common Stock, (iv) makes a distribution on its Common Stock of

equity interests in the Company other than shares of Common Stock (other than

rights or warrants referred to in Sections 4.07 and 4.08) or (v) issues by

reclassification of its Common Stock any equity interests in the Company, then

the conversion privilege and the conversion rate in effect immediately prior to

that action shall be adjusted so that the Holder of a Note thereafter converted

may receive the number of equity interests in the Company that he would have

owned immediately following the action if he had converted the Note immediately

prior to the action. The adjustment shall become effective immediately after the

record date in the case of a distribution and immediately after the effective

date in the case of a subdivision, combination or reclassification.

(b) If after an adjustment a Holder of a Note would be entitled upon

its conversion to receive equity securities of two or more classes of securities

of the Company, the Company shall determine the allocation of the adjusted

conversion rate between the classes of securities. After the allocation, the

conversion privilege and the conversion rate of each class of security shall

thereafter be subject to adjustment on terms comparable to those applicable to

Common Stock in this Article Four.

SECTION 4.07 ADJUSTMENT FOR RIGHTS ISSUE. If the Company distributes any

rights or warrants to all of its shareholders entitling them for a period

expiring within 60 days after the record date mentioned below to purchase Common

Stock at a price per share less than the Current Market Price on that record

date, the conversion rate shall be adjusted in accordance with the following

formula:

O + N

-------

N X P

C' = C x -----

where:

C' = the adjusted conversion rate

C = the current conversion rate

O = the number of shares of Common Stock outstanding on the record date

N = the number of additional shares of Common Stock offered

P = the offering price per additional share of Common Stock

M = the Current Market Price per share of Common Stock on the record

date.

The adjustment shall become effect immediately after the record date for the

determination of shareholders entitled to receive the rights or warrants.

SECTION 4.08 ADJUSTMENT FOR OTHER DISTRIBUTIONS. (a) If the Company

distributes to all shareholders any of its assets or debt securities or any

rights or warrants to purchase securities or other equity interests of the

Company, the conversion rate shall be adjusted in accordance with the following

formula:

C' = C x -------

M - F

where:

C' = the adjusted conversion rate

C = the current conversion rate

M = the Current Market Price per share of Common Stock on the record

date.

F = the fair market value on the record date of the assets, securities,

rights or warrants applicable to one share of Common Stock, to be

determined by the Company

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The adjustment shall become effective immediately after the record date for the

determination of shareholders entitled to receive the distribution.

(b) This Section 4.08 does not apply to cash dividends payable on

the Common Stock, distributions of equity interests in the Company referred to

in Section 4.06 or distributions of rights or warrants referred to in Section

4.07.

SECTION 4.09 CONSIDERATION RECEIVED. For purposes of any computation

respecting consideration received pursuant to Section 4.07, the following shall

apply:

(a) In the case of issuance of Common Stock for cash, the

consideration shall be the amount of cash, provided that in no case shall any

deduction be made for commissions, discounts or other expenses incurred by the

Company for any underwriting of the issue or otherwise in connection therewith.

(b) In the case of the issuance of Common Stock for a consideration

in whole or in part other than cash, the consideration other than cash shall be

deemed to be the fair market value thereof as determined in good faith by the

Board of Directors (irrespective of the accounting treatment thereof), whose

determination shall be conclusive, and described in a resolution of the Board of

Directors that shall be filed with the Company.

exchangeable or exercisable for shares of Common Stock, the aggregate

consideration received therefor shall be deemed to be the consideration received

by the Company for the issuance of the securities plus the additional minimum

consideration, if any, to be received by the Company upon the conversion or

exchange thereof (the consideration in each case to be determined in the same

manner as provided in paragraphs (a) and (b) of this Section).

SECTION 4.10 WHEN ADJUSTMENT MAY BE DEFERRED. No adjustment in a

conversion rate need be made unless the adjustment would require an increase or

a decrease (to the extent permitted by Section 4.12) of at least 1% in the

conversion rate. Any adjustments that are not made shall be carried forward and

taken into account in any subsequent adjustment. All calculations of the

conversion rates under this Article Four shall be made to the fourth decimal

place.

SECTION 4.11 WHEN NO ADJUSTMENT REQUIRED. No adjustment need be made for a

transaction referred to in Section 4.06, 4.07 or 4.08 if all Note Holders are

entitled to participate in the transaction on the basis and with notice that the

Board of Directors determines to be fair and appropriate in light of the basis

and notice on which shareholders participate in the transaction. To the extent

the Notes become convertible into cash, no adjustment need be made thereafter as

to the cash. Interest will not accrue on the cash.

SECTION 4.12 NOTICE OF ADJUSTMENT. Whenever a conversion rate is adjusted,

the Company shall promptly mail to Holders a notice of the adjustment,

accompanied by an Officers' Certificate briefly stating the facts requiring the

adjustment and the manner of computing it. The certificate shall be conclusive

evidence that the adjustment is correct.

SECTION 4.13 VOLUNTARY INCREASE. The Company from time to time may, in its

sole discretion, increase the conversion rate by any amount for any period of

time if the period is at least 20 days and if the increase is irrevocable during

the period. Whenever the conversion rate is increased, the Company shall mail to

Holders a notice of the increase at least fifteen days before the date the

increased conversion rate takes effect. The notice shall state the increased

conversion rate and the period it will be in effect. An increase of the

conversion rate does not change or adjust the conversion rate otherwise in

effect for purposes of calculating the adjustments required by Section 4.06,

4.07 or 4.08.

SECTION 4.14 NOTICE OF CERTAIN TRANSACTIONS. If: the Company takes any

action that would (a) require an adjustment in the conversion rate pursuant to

Section 4.06, 4.07 or 4.08, (b) require a supplement to this Agreement pursuant

to Section 4.15 or (c) result in its dissolution, the Company shall mail to

Holders a notice stating the proposed record date for a dividend or distribution

or the proposed effective date of a subdivision, combination, reclassification,

consolidation, merger, transfer, termination or dissolution. The Company shall

mail the notice at least fifteen days before that date. Failure to mail the

notice or any defect in it shall not affect the

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validity of the transaction.

SECTION 4.15 REORGANIZATION OF THE COMPANY. (a) If the Company is a party

to a transaction subject to Section 13.01 or a merger that reclassifies or

changes its outstanding shares of Common Stock, the Person obligated to deliver

securities, cash or other assets upon conversion of Notes shall enter into a

supplement to this Agreement. If the issuer of securities deliverable upon

conversion of Notes is an Affiliate of the surviving or transferee corporation,

that issuer shall join in the supplement to this Agreement.

(b) The supplement to this Agreement shall provide that the Holder

of a Note may convert it into the kind and amount of securities, cash or other

assets that the Holder would have owned immediately after the consolidation,

merger or transfer if the Holder had converted the Note immediately before the

effective date of the transaction. The supplement shall also provide for

adjustments that shall be as nearly equivalent as may be practical to the

adjustments provided for in this Article Four. The successor company shall mail

to Holders a notice briefly describing the supplement.

SECTION 4.16 COMPANY DETERMINATION FINAL. Any determination that the

Company must make pursuant to Section 4.03, 4.06, 4.07, 4.08, 4.09 or 4.11 shall

be conclusive.

ARTICLE FIVE

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company hereby represents and warrants to the Holders as follows:

SECTION 5.01 ORGANIZATION AND QUALIFICATION. The Company has been duly

incorporated and is validly existing as a corporation in good standing under the

laws of the province of British Columbia, Canada and has all requisite corporate

power and authority to conduct its business as presently conducted.

SECTION 5.02 AUTHORIZATION. As of September 30, 2004, there were there

were 15,009,940 shares of Common Stock validly issued and outstanding, all of

which have been fully paid and are non-assessable. There were no shares of the

Company's preferred stock, no par value, issued or outstanding as of that date.

The Company has duly authorized the issuance and sale of the Notes and the

issuance of the Conversion Shares upon conversion thereof.

SECTION 5.03 DUE EXECUTION, DELIVERY AND PERFORMANCE. The execution,

delivery and performance of this Agreement, the Subscription Agreements and the

Notes (a) have been duly authorized by all requisite action by the Company and

(b) will not violate any law or the charter documents of the Company or any

indenture, mortgage, agreement, contract or other material instrument to which

it is a party or by which it or any of its properties or assets is bound, or

result in a breach of or constitute (upon notice or lapse of time or both) a

default under any such indenture, mortgage, agreement, contact or other material

instrument or result in the creation or imposition of any lien, security

interest, mortgage, pledge, charge or other encumbrance, of any material nature

whatsoever, upon any properties or assets of the Company. Upon execution and

delivery, this Agreement, the Subscription Agreements and the Notes will

constitute valid and binding obligations of the Company, enforceable in

accordance with their respective terms.

SECTION 5.04 SALE AND DELIVERY OF NOTES. The offer, sale and delivery of

the Notes to the Holders in accordance with this Agreement and the Subscription

Agreements have been duly authorized by Company. The Notes, as and when issued

and delivered to the Holders pursuant to this Agreement and the Subscription

Agreements, and upon payment by the Holders of the purchase price therefor, will

be validly issued and outstanding. Upon conversion of the Notes, the underlying

Conversion Shares will be validly issued and outstanding, fully paid and

nonassessable.

<PAGE>

ARTICLE SIX

COVENANTS OF THE COMPANY

The Company covenants as follows:

SECTION 6.01 PAYMENTS ON THE NOTES. The Company will duly and punctually

pay or cause to be paid the principal of and interest on each of the Notes at

the time and place due and payable and in the manner provided in the Notes and

this Agreement.

SECTION 6.02 OFFICE OR AGENCY FOR TRANSFER, EXCHANGE, CONVERSION AND

PAYMENT OF NOTES. So long as any of the Notes shall remain outstanding, the

Company will maintain an office or agency at its principal corporate offices

where the Notes may be surrendered for exchange or registration of transfer as

provided in this Agreement, where notices and demands to or upon the Company in

respect to the Notes or of this Agreement may be served, where the Notes may be

presented or surrendered for redemption or purchase and where the Notes may be

presented for conversion. The Company may also from time to time designate one

or more other offices or agencies where the Notes may be presented or

surrendered for any or all such purposes and may from time to time rescind those

designations; provided, however, that no designation or rescission shall in any

manner relieve the Company of its obligation to maintain an office or agency at

its principal corporate offices for those purposes. The Company will give to the

Holders prompt notice of any change in the location of such office or agency.

SECTION 6.03 PAYING AGENT. (a) If the Company appoints a paying agent, it

will cause the paying agent to execute and deliver to the Company an instrument

in which the agent shall agree with the Company that, subject to the provisions

of this Section 6.03, (i) it will hold all sums held by it as agent for the

payment of the principal of or interest on the Notes whether those sums have

been paid to it by the Company in trust for the benefit of the Holders or (ii)

it will give the Holders notice of any failure by the Company to make any

payment of the principal of or interest on the Notes when the same shall be due

and payable.

(b) If the Company shall not act as its own paying agent, it will,

prior to each due date of the principal of or interest on any Notes, deposit

with the paying agent a sum sufficient to pay the principal or interest so

becoming due, to be held in trust for the benefit of the Holders entitled

thereto.

before each due date of the principal of or interest on the Notes, set aside,

segregate and hold in trust for the benefit of the Holders entitled thereto, a

sum sufficient to pay the principal or interest so becoming due and will

promptly so notify the Company.

(d) Anything in this Section 6.03 to the contrary notwithstanding,

the Company may, at any time, for the purpose of obtaining a satisfaction and

discharge of its obligations under this Agreement and the Notes, or for any

other reason, pay or cause to be paid to a paying agent appointed in accordance

with this Section 6.03 all sums held in trust by it, or as required by this

Section 6.03, such sums to be held by the paying agent upon the terms herein

contained.

SECTION 6.04 LIMITATIONS ON PAYING AGENT. Anything in Section 6.03 to the

contrary notwithstanding, the agreement by a paying agent to hold sums in trust

as provided in Section 6.03 is subject to the provisions of Sections 14.03 and

14.04.

SECTION 6.05 MAINTENANCE OF EXISTENCE. So long as any of the Notes shall

remain outstanding, the Company will at all times (except as otherwise provided

or permitted in this Agreement) do or cause to be done all things necessary to

preserve and keep in full force and effect its existence and franchises.

SECTION 6.06 FURTHER ASSURANCE. From time to time whenever reasonably

demanded by the Holders of at least a majority in aggregate principal amount of

the Notes at the time outstanding, the Company will make, execute and deliver or

cause to be made, executed and delivered any and all further and other

instruments and assurances as may be reasonably necessary or proper to carry out

the intention of or to facilitate the performance of the terms of this Agreement

or to secure the rights and remedies hereunder of the Holders.

SECTION 6.07 OFFICERS' CERTIFICATE OF DEFAULT. The Company will, so long

as any of the Notes are outstanding:

<PAGE>

(a) deliver to the Holders, forthwith upon becoming aware of any

default or defaults in the performance of any covenant, agreement or condition

contained in this Agreement, an Officers' Certificate specifying the default or

defaults; and

(b) deliver to the Holders within five days after becoming aware of

the occurrence thereof written notice of any acceleration which, with the giving

of notice and the lapse of time, would be an Event of Default within the meaning

of Section 8.01(a).

SECTION 6.08 USURY LAWS. The Company, to the extent it may lawfully do so,

will not voluntarily claim, and will actively resist any attempts to claim, the

benefit of any usury laws against any Holder of the Notes.

SECTION 6.09 MAINTENANCE OF RECORDS. The Company shall keep true books and

records and accounts in which full and correct entries will be made of all its

business transactions, in accordance with sound business practices, and reflect

in its financial statements adequate accruals and appropriations to reserves,

all in accordance with generally accepted accounting principles.

SECTION 6.10 PAYMENT OF TAXES AND OTHER CLAIMS. The Company shall pay or

discharge or cause to be paid or discharged, before the same shall become

delinquent, (a) all taxes, assessments and governmental charges levied or

imposed upon the Company or upon the income, profits or property of the Company

and (b) all

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