Exhibit 10.1


LOAN MODIFICATION AGREEMENT


          THIS LOAN MODIFICATION AGREEMENT (the “Agreement”),
is made and entered into as of August 31, 2009 by and between Whispering Oaks
International, Inc., a Texas corporation, d/b/a Biocurex, Inc. (the “Company”)
on the one hand and CAMOFI Master LDC, a Cayman Islands limited duration
company (“Fund One”) and CAMHZN Master LDC a Cayman Islands limited duration
company (“Fund Two” and together with Fund One hereinafter collectively called
the “Funds”), on the other hand,


          WHEREAS, the Company on the one hand and
the Funds on the other hand, are parties to a Securities Purchase Agreement
dated as of June 25, 2007, as amended on January 30, 2009 (the “Purchase
Agreement”); and


          WHEREAS, pursuant to the Purchase
Agreement, the Company issued to (i) Fund One a Senior Secured Convertible
Promissory Note in the principal amount of $2,400,000 (the “Fund One Note”) and
(ii) Fund Two a Senior Secured Convertible Promissory Note in the principal
amount of $600,000 (the “Fund Two Note”, and together with the Fund One Note
hereinafter collectively called, the “Notes”); and


          WHEREAS, the Company and Fund One, as agent
for the Funds, have entered into a Security Agreement, wherein the Company has
granted to the Funds a security interest in substantially all of its assets
(the “Security Agreement”, and together with the Purchase Agreement and the
Notes hereinafter collectively called the “Loan Agreements”) to secure its
Obligations (as defined in the Security Agreement) to the Funds; and


          WHEREAS, the Company is in default of
certain of its Obligations; and





          WHEREAS, the Company is a party to a
non-binding letter of intent with a registered broker-dealer for the sale of
Units (“Units”), each Unit consisting of shares of common stock, par value
$.001 of the Company (“Common Stock”) and warrants to purchase shares of Common
Stock, wherein the Company is expected to receive gross proceeds of between $3
million and $4 million (the “Public Offering”); and


          WHEREAS, in order to pay the expenses
associated with the Public Offering and to fund working capital, the Company is
proposing to borrow between $350,000 and $450,000 and to issue to the lenders,
promissory notes in the principal amount of such loans (the “Lender Notes”) and
that number of shares of Common Stock as is equal to the principal amount of
the Lender Notes divided by $0.07; and


          WHEREAS, as a condition to the Public
Offering as set forth in the letter of intent the Company and the Funds must
enter into an agreement modifying certain terms of the Loan Agreements.


          NOW THEREFORE, the parties hereto agree as
follows:


	
  

 	
  

 	
  

 
	
  

 	
 1.

 	
 Waiver of
 Defaults. 

 



                    (a)
     Subject to and expressly conditioned upon all of
the terms and conditions contained in this Agreement, the Funds hereby waive
any and all defaults under the Notes, the Purchase Agreement and/or the
Security Agreement, existing on the date hereof. 


                    (b)
     The waiver of default contained in Section 1(a)
above shall become null and void and of no further force or effect whatsoever
in the event that (i) the Bridge Transaction does not close on or before
October 1, 2009, or at any time prior to October 1, 2009, the Company or the
placement agent for the Bridge Transaction determine not to proceed with the
Bridge Transaction, (ii) the Public Offering does not close by February 19,
2010, or at any time 


2





prior to
February 19, 2010 the Company or the lead managing underwriter for the Public
Offering determine not to proceed with the Public Offering.


                    (c)
     Notwithstanding
anything contained herein to the contrary, the Company acknowledges and agrees
that upon the occurrence of (i) any breach by it of any of its obligations
under this Agreement or any Loan Agreement, or (ii) any of the events specified
in Section 1(b) above, any such breach or event shall immediately reinstate all
defaults under the applicable Loan Agreement being waived hereby, and this
Agreement shall immediately terminate, and interest on each of the Notes shall
be deemed to have accrued at the rate of 18% per annum from and after July 1,
2009, whereupon either Fund shall have the right immediately to pursue any
remedy which may be available to it under any applicable Loan Agreement,
including without limitation its right to enforce payment of all of the
Obligations and, in connection therewith, without further notice, to enforce
its liens on, and security interests in, the Collateral. The Company hereby
acknowledges and agrees that in the event of any breach of this Agreement by
the Company, or the occurrence of any of the events set forth in Section 1(b)
above, any payments made by the Company through the date of such breach or event
shall be applied in the following order: (i) first, to the payment of any and
all liquidated damages, penalties and Late Fees (as such term is defined in the
Notes) due and owing to the Funds, (ii) second, to the payment of interest due
and owing to the Funds, and (iii) third, to the payment of principal due and
owing to the Funds. 


	
  

 	
  

 	
  

 
	
  

 	
 2.

 	
 Amendment of
 Notes.

 



                    (a)
     The Fund One Note is amended and restated in its
entirety as is set forth on Exhibit A hereto.


3





                    (b)
          The Fund Two Note
is amended and restated in its entirety as set forth on Exhibit B hereto.


	
  

 	
  

 	
  

 
	
  

 	
 3.

 	
 Amendment of
 Purchase Agreement. 

 



                    (a)
          Article 1 of the
Purchase Agreement is hereby amended to amend and restate in its entirety the
following defined term:


	
  

 	
  

 
	
  

 	
 “Exempt
 Issuance” means the issuance of (a) shares of Common Stock or options to
 employees of the Company, for services rendered, pursuant to any stock or
 option plan in existence on the date hereof, not to exceed 500,000 shares of
 Common Stock and/or options per year in the aggregate; (b) options to
 officers or directors of the Company pursuant to any option plan in existence
 on the date hereof, not to exceed 500,000 options per year in the aggregate;
 (c) restricted shares or options issued at fair market value for services
 rendered during any year to independent consultants (including attorneys and
 investment advisors) in an amount not to exceed 500,000 shares of Common
 Stock and/or options per year in the aggregate; (d) restricted equity
 securities sold for cash in an amount not to exceed 500,000 equity securities
 per year in the aggregate, provided the restricted equity securities cannot
 be registered for public sale, the price of such equity securities shall be
 no less than 75% of the VWAP of the Common Stock for the ten Business Days
 prior to the closing of such sale and any warrants issued in connection
 therewith shall have an exercise price at least equal to the VWAP of the
 Common Stock for the ten Business Days prior to the closing of such sale
 (except for any placement agent warrants, 

 


4









	
  

 	
  

 
	
  

 	
 which
 exercise price shall be at least 75% of the VWAP of the Common Stock for the
 ten Business Days prior to the closing of such sale); (e) shares issued to
 any Note Holder in payment of principal or interest; (f) shares sold to any
 Note Holder pursuant to Section 4.17; and (g) securities upon the exercise of
 any securities issued hereunder, or convertible securities, options or
 warrants issued and outstanding on June 25, 2007, provided that such
 securities have not been amended since June 25, 2007 to increase the number
 of such securities or to decrease the exercise, exchange or conversion price
 of any such securities. 

 



                    (b)
     Notwithstanding anything contained in Section
3(a)(1) above to the contrary, the Company shall not include in any document
executed or delivered in connection with any issuance of securities by the
Company, any definition of “Exempt Issuance”, or any definition having a
similar meaning, which is more favorable to any investor or security holder
than the definition set forth in Section 3(a)(1) above.


                    (c)     Article
1 of the Purchase Agreement is hereby amended to amend and restate in its
entirety the following defined term:


	
  

 	
  

 
	
  

 	
 “Notes”
 shall mean the Amended and Restated Senior Secured Convertible Notes due
 December 31, 2012 of the Company, as the same may be amended, amended and
 restated, supplemented or modified from time to time.”

 



          4.       Lender
Notes; Public Offering. Notwithstanding anything to the contrary that may
be contained herein or in any of the Loan Agreements, the consummation of a
Bridge 


5





Transaction or
the consummation of a Public Offering (all as defined in the Fund One Note)
shall not be deemed to violate any of the provisions of any of the Loan
Agreements.


          5.       Short
Selling. The Funds agree that they will not “sell short” any Common Stock
prior to the earlier of (i) the consummation of the Public Offering or (ii)
February 19, 2010.


          6.       Defeasance.
The Company shall have the right to deposit with a bank or trust company,
incorporated under the laws of the United States of America or any state
thereof (the “Escrow Agent”) an amount at least equal to the sum of (i) the
then outstanding principal amount of the Notes, (ii) all interest required to
be paid on the Notes from the first day of the month following the deposit of
such amount through December 31, 2012, and (iii) any other amounts outstanding
under the Notes, whether of penalties, default interest, or otherwise (the
“Defeasance Amount”), to be held in escrow pursuant to the provisions of an
agreement substantially in the form of Exhibit C annexed hereto (the “Cash
Collateral Agreement”). Upon the deposit of the Defeasance Amount, the
acknowledgment of receipt thereof by the Escrow Agent and the execution of the
Cash Collateral Agreement by the Company and the Escrow Agreement, (i) the
Security Agreement shall be terminated and of no further force and effect, (ii)
the provisions of Section 7 of the Note shall be of no further force and effect
and (iii) the interest rate on the Notes shall be reduced to Prime (as defined
in the Notes).


          7.       
Reimbursement. The Company shall pay to Centrecourt Asset Management LLC,
the investment advisor for the Funds, the amount of $20,000 to compensate it
for the fees and expenses of its legal counsel incurred in negotiating and
delivering this Agreement and the documents executed and delivered in
connection herewith in the following manner: 


                    (a)
     $10,000 to be paid simultaneously with the
closing of the first sale of the Lender Notes; and 


6





                    (b)
     $10,000 to be paid simultaneously with the
closing of the Public Offering


	
  

 	
  

 	
  

 
	
  

 	
 8.

 	
 Miscellaneous.
 

 



                    (a)
      This Agreement including the Exhibits hereto
constitutes the entire agreement of the parties with respect to the subject
matter hereof and is intended to supersede all prior negotiations,
understandings and agreements with respect thereto. No provision of this
Agreement may be modified or amended except by a written agreement specifically
referring to this Agreement and signed by the parties hereto.


                    (b)
     In the event any provision of this Agreement is
held to be invalid, prohibited or unenforceable in any jurisdiction for any
reason, unless such provision is narrowed by judicial construction, this
Agreement shall, as to such jurisdiction, be construed as if such invalid,
prohibited or unenforceable provision had been more narrowly drawn so as not to
be invalid, prohibited, or unenforceable. If, notwithstanding the foregoing,
any provision of this Agreement is held to be invalid, prohibited or
unenforceable in any jurisdiction, such provision, as to such jurisdiction,
shall be ineffective to the extent of such invalidity, prohibition or
unenforceability without invalidating the remaining portion of such provision
or other provisions of this Agreement and without affecting the validity or
enforceability of such provision or the other provisions of this Agreement in
any other jurisdiction.


                    (c)
     This Agreement shall be binding upon and inure to
the benefit of each party hereto and its successors and assigns.


                    (d)      Each
party shall take such further action and execute and deliver such further
documents as may be necessary or appropriate in order to carry out the
provisions and purposes of this Agreement.


7





                    (e)     All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement, and any claim, controversy or dispute arising under or
related to this Agreement, or the relationship of the parties, shall be
governed by and construed and enforced in accordance with the internal laws of
the State of New York, without regard to the principles of conflicts of law
thereof. Each party agrees that all proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement
(whether brought against a party hereto or its respective affiliates,
directors, officers, shareholders, partners, members, employees or agents)
shall be commenced exclusively in the state or federal courts sitting in the
City of New York, Borough of Manhattan. Each party hereby irrevocably submits
to the exclusive jurisdiction of the state and federal courts sitting in the
City of New York, Borough of Manhattan for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any proceeding, any claim that it is not personally subject to the jurisdiction
of any such court, that such proceeding is improper. Each party hereto hereby
irrevocably waives personal service of process and consents to process being
served in any such proceeding my mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under the Purchase Agreement and
agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit
in any way any right to serve process in any manner permitted by law. Each
party hereto hereby irrevocably waives, to the fullest extent permitted by law,
any and all right to trial by jury in any legal proceeding arising out of or
relating to this Agreement or the transactions contemplated hereby. If any
party shall commence a proceeding to enforce any provisions of this Agreement, 


8





then the
prevailing party in such proceeding shall be reimbursed by the other party for
its reasonable attorney’s fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such proceeding.


                    (f)
     This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement.
In the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and
effect as if such facsimile signature were the original thereof.


9





          IN WITNESS WHEREOF, the Parties have caused
this Agreement to be executed as of the date first above indicated.


	
  

 	
  

 	
  

 	
  

 
	
  

 	
 Whispering
 Oaks International, Inc.

 	
  

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
 By:

 	
  

 	
  

 
	
  

 	
  

 	 

 	
  

 
	
  

 	
 Name:

 	
  

 
	
  

 	
 Title:

 	
  

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
 CAMOFI
 Master LDC

 	
  

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
 By:

 	
  

 	
  

 
	
  

 	
  

 	 

 	
  

 
	
  

 	
 Name:

 	
  

 
	
  

 	
 Title:

 	
  

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
 CAMHZN
 Master LDC

 	
  

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
 By:

 	
  

 	
  

 
	
  

 	
  

 	 

 	
  

 
	
  

 	
 Name:

 	
  

 
	
  

 	
 Title:

 	
  

 






10







EXHIBIT A


NEITHER THIS SECURITY NOR
THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL
OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH
SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES
ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.


Original Issue Date: June
25, 2007 

Date of this Amended and Restated Note: July 1, 2009

Conversion Price of this Amended and Restated Note (subject to adjustment
herein): $0.14


$1,720,000


AMENDED AND RESTATED

SENIOR SECURED CONVERTIBLE NOTE

DUE DECEMBER 31, 2012


          THIS
NOTE is one of a series of duly authorized and issued Senior Secured
Convertible Notes of Whispering Oaks International, Inc. d/b/a BioCurex Inc., a Texas
corporation, having a principal place of business at 7080 River Road, Suite
215, Richmond, British Columbia, Canada V6X 1X5 (the “Company”), designated as
its Senior Secured Convertible Note, due December 31, 2012 (the “Note(s)”).


          FOR
VALUE RECEIVED, the Company promises to pay to CAMOFI Master LDC or its
registered assigns (the “Holder”), the principal sum of $1,720,00 on December 31,
2012 or such earlier date as the Notes are required or permitted to be repaid
as provided hereunder (the “Maturity Date”), and to pay interest to the Holder
on the aggregate unconverted and then outstanding principal amount of this Note
in accordance with the provisions hereof. This Note is subject to the following
additional provisions:


Section
1.     Definitions. For the purposes hereof, in addition to the terms defined
elsewhere in this Note: (a) capitalized terms not otherwise defined herein have
the meanings given to such terms in the Purchase Agreement, and (b) the
following terms shall have the following meanings:


                      “Alternate
Consideration” shall have the meaning set forth in Section 5(e)(iii).


                      “Amended
Issue Date” shall mean July 1, 2009.


                      “Bridge
Notes” shall mean promissory notes issued in a “Bridge Transaction.” 


11









	
  

 	
  

 
	
  

 	
           “Bridge
 Transaction” shall mean a transaction wherein the Company sells to
 certain persons at any time on or before October 1, 2009 promissory notes and
 shares of its Common Stock and receives gross proceeds therefor of at least
 $350,000, on the terms substantially similar to those set forth on Exhibit A
 hereto.

 
	
  

 	
  

 
	
  

 	
           “Business
 Day” means any day except Saturday, Sunday and any day which shall be a
 federal legal holiday in the United States or a day on which banking
 institutions in the State of New York are authorized or required by law or
 other government action to close.

 
	
  

 	
  

 
	
  

 	
           “Change
 of Control Transaction” means the occurrence of any of (i) an acquisition
 after the date hereof by an individual or legal entity or “group” (as
 described in Rule 13d-5(b)(l) promulgated under the Exchange Act) of
 effective control (whether through legal or beneficial ownership of capital
 stock of the Company, by contract or otherwise) of in excess of 33% of the
 voting securities of the Company, or (ii) a replacement at one time or within
 a two year period of more than one-half of the members of the Company’s board
 of directors who are serving on February 19, 2010 which is not approved by a
 majority of those individuals who are members of the board of directors on
 the date hereof (or by those individuals who are serving as members of the
 board of directors on any date whose nomination to the board of directors was
 approved by a majority of the members of the board of directors who are
 members on the date hereof), or (iii) Dr. Ricardo Moro shall no longer be
 employed by the Company as Chief Executive Officer on a full time basis, or
 (iv) the execution by the Company of an agreement to which the Company is a
 party or by which it is bound, providing for any of the events set forth
 above in (i) or (ii).

 
	
  

 	
  

 
	
  

 	
           “Common
 Stock” means the common stock, par value $0.01 per share, of the Company
 and stock of any other class into which such shares may hereafter have been
 reclassified or changed.

 
	
  

 	
  

 
	
  

 	
           “Conversion
 Date” shall have the meaning set forth in Section 4(a) hereof.

 
	
  

 	
  

 
	
  

 	
           “Conversion
 Price” shall have the meaning set forth in Section 4(b).

 
	
  

 	
  

 
	
  

 	
           “Conversion
 Shares” means the shares of Common Stock issuable upon conversion of
 Notes, as payment of interest or as payment of the Monthly Redemption, all in
 accordance with the terms hereof.

 
	
  

 	
  

 
	
  

 	
           “Equity
 Conditions” shall mean, during the period in question, (i) the Company
 shall have duly honored all conversions and redemptions scheduled to occur or
 occurring by virtue of one or more Notice of Conversions, if any, (ii) all
 liquidated damages and other amounts owing in respect of the Notes shall have
 been paid; (iii) there is an effective Registration Statement (or, in the
 case of the shares issuable upon conversion of the Notes, the Holder may
 resell such shares without regard to the volume limitations under Rule 144)
 pursuant to which the Holder is permitted to utilize the prospectus
 thereunder to resell all of the shares issuable pursuant to the Transaction
 Documents (and the Company believes, in good faith, that such effectiveness
 will continue uninterrupted for the foreseeable future), (iv) the Common
 Stock is trading on the Trading Market and all of the shares issuable
 pursuant to the Transaction Documents are listed for trading on a Trading
 Market (and the Company believes, in good faith, that trading of the Common
 Stock on a Trading Market will continue uninterrupted for the foreseeable
 future), (v) there is a sufficient number of authorized but unissued and
 otherwise unreserved shares of Common Stock for the issuance of all of the
 shares issuable pursuant to the Transaction Documents, (vi) there is then
 existing no Event of Default or event which, with the passage of time or the
 giving of notice, would constitute an Event of Default, (vii) all of the
 shares issued or 

 


12









	
  

 	
  

 
	
  

 	
 issuable pursuant to the
 transaction proposed would not violate the limitations set forth in Section
 4(c) and (viii) no public announcement of a pending or proposed Fundamental
 Transaction, Change of Control Transaction or acquisition transaction has occurred
 that has not been consummated.

 
	
  

 	
  

 
	
  

 	
           “Event
 of Default” shall have the meaning set forth in Section 9.

 
	
  

 	
  

 
	
  

 	
           “Exchange
 Act” means the Securities Exchange Act of 1934, as amended.

 
	
  

 	
  

 
	
  

 	
           “Fundamental
 Transaction” shall have the meaning set forth in Section 5(e)(iii)
 hereof.

 
	
  

 	
  

 
	
  

 	
           “Interest
 Conversion Rate” means the lesser of (i) the Conversion Price and (ii)
 80% of the VWAP for the 10 Trading Days immediately prior to the applicable
 Interest Payment Date.

 
	
  

 	
  

 
	
  

 	
           “Late
 Fees” shall have the meaning set forth in the second paragraph to this
 Note.

 
	
  

 	
  

 
	
  

 	
           “Mandatory
 Prepayment Amount” for any Notes shall equal the sum of (i) the principal
 amount of Notes to be prepaid, plus all accrued and unpaid interest thereon,
 and (ii) all other amounts, costs, expenses and liquidated damages due in
 respect of such Notes.

 
	
  

 	
  

 
	
  

 	
           “Original
 Issue Date” shall mean the date of the first issuance of the Notes
 regardless of the number of transfers of any Note and regardless of the
 number of instruments which may be issued to evidence such Note.

 
	
  

 	
  

 
	
  

 	
           “Person”
 means a corporation, an association, a partnership, organization, a business,
 an individual, a government or political subdivision thereof or a governmental
 agency.

 
	
  

 	
  

 
	
  

 	
           “Prime”
 shall mean the Prime Rate as reported in the Wall Street Journal on any day.

 
	
  

 	
  

 
	
  

 	
           “Public
 Offering” shall mean a transaction wherein the Company shall have issued
 shares of its Common Stock (including a transaction where such shares are
 part of a Unit which includes warrants to purchase Common Stock) in a firm
 commitment underwritten registered public offering and receives gross
 proceeds therefrom of at least $3,000,000.

 
	
  

 	
  

 
	
  

 	
           “Purchase
 Agreement” means the Securities Purchase Agreement, dated as of June 25,
 2007 to which the Company and the original Holder are parties, as amended,
 modified or supplemented from time to time in accordance with its terms.

 
	
  

 	
  

 
	
  

 	
           “Securities
 Act” means the Securities Act of 1933, as amended, and the rules and
 regulations promulgated thereunder.

 
	
  

 	
  

 
	
  

 	
           “Subsidiary”
 shall have the meaning given to such term in the Purchase Agreement.

 
	
  

 	
  

 
	
  

 	
           “Trading
 Day” means a day on which the Common Stock is traded on a Trading Market.

 
	
  

 	
  

 
	
  

 	
           “Trading
 Market” means the following markets or exchanges on which the Common
 Stock is listed or quoted for trading on the date in question: the Nasdaq
 SmallCap Market, the American Stock Exchange, the New York Stock Exchange,
 the Nasdaq National Market, the OTC Bulletin Board, or the Pink Sheets.

 
	
  

 	
  

 
	
  

 	
           “Transaction
 Documents” shall have the meaning set forth in the Purchase Agreement.

 


13









	
  

 	
  

 
	
  

 	
           “VWAP”
 means, for any date, the price determined by the first of the following
 clauses that applies: (a) if the Common Stock is then listed or quoted on a
 Trading Market, the daily volume weighted average price of the Common Stock
 for such date (or the nearest preceding date) on the primary Trading Market
 on which the Common Stock is then listed or quoted as reported by Bloomberg
 Financial L.P. (based on a Trading Day from 9:30 a.m. EST to 4:02 p.m.
 Eastern Time) using the VAP function; (b) if the Common Stock is not then
 listed or quoted on the Trading Market and if prices for the Common Stock are
 then reported in the “Pink Sheets” published by the Pink Sheets, LLC (or a
 similar organization or agency succeeding to its functions of reporting
 prices), the most recent bid price per share of the Common Stock so reported;
 or (c) in all other cases, the fair market value of a share of Common Stock
 as determined by a nationally recognized-independent appraiser selected in
 good faith by Holders holding a majority of the principal amount of Notes
 then outstanding.

 



Section
2.     Interest;
Principal Repayment


          a)        Payment
of Interest in Cash or Kind. The Company shall pay interest to the Holder
on the aggregate unconverted and then outstanding principal amount of this Note
at the rate of Prime (as adjusted monthly on the first Business Day of each
month) plus 2.75% per annum, payable as follows: (i) provided that the Bridge
Transaction shall have closed on or before October 1, 2009, then the first such
payment shall be due on the first day of the month following the month in which
the Bridge Notes shall have been issued (the “First Interest Payment Date”) and
shall be for the period from the Amended Issue Date to the last day of the
month in which the first of the Bridge Notes shall have been issued; (ii)
thereafter monthly in arrears beginning on the first day of the month following
the First Interest Payment Date; and (iii) on each Conversion Date (as to that
principal amount then being converted), on the Maturity Date (except that, if
any such date is not a Business Day, then such payment shall be due on the next
succeeding Business Day) (each such date, an “Interest Payment Date”), in cash
or shares of Common Stock at the Interest Conversion Rate, or a combination
thereof; provided, however, payment in shares of Common Stock may
only occur if during the 10 Trading Days immediately prior to the applicable
Interest Payment Date all of the Equity Conditions have been met, the payment
in shares of Common Stock (combined with all payments to other Note holders)
would not exceed 25% of the aggregate volume for the previous 10 Trading Days
and the Company shall have given the Holder notice in accordance with the
notice requirements set forth below. Notwithstanding anything contained herein
to the contrary, in the event that (i) the Bridge Transaction shall not have
closed on or before October 1, 2009, or at any time prior to October 1, 2009
the Company or its placement agent determines not to proceed with the Bridge
Transaction, or (ii) the Public Offering shall not have closed by February 19,
2010, or at any time prior to February 19, 2010 the Company or the lead
underwriter determines not to proceed with the Public Offering, then interest
on this Note shall be deemed to have accrued at the rate of eighteen percent
(18%) per annum from the Amended Issue Date through and including the date on
which all interest which is due and owing hereunder has been paid in full.


          b)        Company’s
Election to Pay Interest in Kind. Subject to the terms and conditions
herein, the decision whether to pay interest hereunder in shares of Common
Stock or cash shall be at the discretion of the Company. Should the Company
elect to pay interest in kind, it shall be paid in registered shares of Common
Stock at the Interest Conversion Rate. Not less than 10 Trading Days prior to
each Interest Payment Date, the Company shall provide the Holder with written
notice of its election to pay interest hereunder either in cash or shares of
Common Stock (the Company may indicate in such notice that the election
contained in such notice shall continue for later periods until revised).
Within 10 Trading Days prior to an Interest Payment Date, the Company’s
election (whether specific to an Interest Payment Date or continuous) shall be
irrevocable as to such Interest Payment Date. Subject to the aforementioned 


14





conditions, failure to
timely provide such written notice shall be deemed an election by the Company
to pay the interest on such Interest Payment Date in cash.


          c)        Interest
Calculations. Interest shall be calculated on the basis of a 360-day year
and shall accrue daily commencing on the Amended Issue Date until payment in
full of the principal sum, together with all accrued and unpaid interest and
other amounts which may become due hereunder, has been made. Interest shall be
compounded monthly. Payment of interest in shares of Common Stock shall
otherwise occur pursuant to Section 4(d)(ii) and only for purposes of the
payment of interest in shares, the Interest Payment Date shall be deemed the
Conversion Date. Interest shall cease to accrue with respect to any principal
amount converted, provided that the Company in fact delivers the Conversion
Shares within the time period required by Section 4(d)(ii) and if not so
delivered, interest will accrue until delivery of the Conversion Shares.
Interest hereunder will be paid to the Person in whose name this Note is
registered on the records of the Company regarding registration and transfers
of Notes (the “Note Register”). Except as otherwise provided herein, if at any
time the Company pays interest partially in cash and partially in shares of
Common Stock, then such payment shall be distributed ratably among the Holders
based upon the principal amount of Notes held by each Holder.


          d)        Late
Fee. All overdue accrued and unpaid interest to be paid hereunder shall
entail a late fee at the rate of 18% per annum (or such lower maximum amount of
interest permitted to be charged under applicable law) (“Late Fee”) which will
accrue daily, from the date such interest is due hereunder through and
including the date of payment. Notwithstanding anything to the contrary
contained herein, if on any Interest Payment Date the Company has elected to
pay interest in Common Stock and is not able to pay accrued interest in the
form of Common Stock because it does not then satisfy the conditions for
payment in the form of Common Stock set forth above, then, the Company shall
pay cash.


          e)        Optional Prepayment. The
Company shall not have the right to prepay any portion of the Notes without the
written consent of the Holders.


          f)        Mandatory
Repayment. 


                     (i)       If
the Company shall (x) be a party to any Change of Control Transaction or
Fundamental Transaction or (y) agree to sell or dispose of any of its assets in
one or more transactions, other than in the ordinary course of business
consistent with past practice (whether or not such sale would constitute a
Change of Control Transaction), then simultaneously with the execution of the
term sheet, letter of intent, memorandum of understanding or other document
outlining the terms of such Change of Control Transaction or Fundamental
Transaction, the Company will be required to offer to repay the then outstanding
aggregate principal amount of the Notes at 115% of the principal amount
thereof. 


                     (ii)      Simultaneously
with the closing of the Public Offering, the Company shall offer to pay to the
Holder as a repayment of the principal amount of this Note an amount equal to
the greater of (x) 16% of the net proceeds from the Public Offering as shall be
set forth in the Use of Proceeds section of the Prospectus used by the Company
in connection with the Public Offering or (y) $480,000, plus all accrued and
unpaid interest thereon to the date of such payment. 


                     (iii)     In
connection with the Public Offering, if the underwriter(s) of such Public
Offering elects to exercise all or any portion of the option granted to it to
cover over-allotments (the “Green Shoe Transaction”), then within one Business
Day of the Company being notified that the underwriter(s) intend to proceed
with the Green Shoe Transaction, the Company shall offer to pay to the Holder
as a repayment of the principal amount of this Note an amount equal to 40% of
the gross proceeds from the Green Shoe Transaction, plus all accrued and unpaid
interest thereon to the date of such payment. 


15





                     (iv)      In
connection with the sale by the Company of any equity or debt securities other
than the Bridge Transaction or the Public Offering, then within one Business
Day of the Company’s determination to proceed with such sale of securities, the
Company shall offer to pay to the Holder as a repayment of the principal amount
of this Note an amount equal to 24% of the gross proceeds thereof, plus all
accrued and unpaid interest thereon to the date of such payment. 


                    
(v)       The Company shall offer to pay to the Holder
as a prepayment of the principal amount of this Note plus all accrued and
unpaid interest thereon to the date of such payment, an amount equal to 8% of
the gross revenues received by it from each licensing agreement entered into by
the Company, such offer to be made within three Business Days of the Company’s
receipt of such revenues. All such payments shall be made by the Company within
three Business Days of the actual receipt thereof by the Company.


                    
(vi)      The offers of repayment as set forth in Sections 2(f)(i)
thru 2(f)(v) shall be made in writing (a “Repayment Offer”). If the Holder has
not advised the Company that it elects to receive the repayment provided for in
the Repayment Offer within ten Business Days of the giving of such Repayment
Offer, then the Holder shall no longer have any right to receive any prepayment
from the transaction to which such Repayment Offer applied. If the Holder
should elect to receive any repayment pursuant to Sections 2(f)(i) thru
2(f)(iv) such payments shall be made on the later of (A) one Business Day of
the Holder’s election or (B) the closing of such transaction.


Section
3.     Registration
of Transfers and Exchanges.


          a)        Different
Denominations. This Note is exchangeable for an equal aggregate principal
amount of Notes of different authorized denominations as requested by the
Holder surrendering the same, No service charge will be made for such
registration of transfer or exchange.


          b)        Investment
Representations, This Note has been issued subject to certain investment
representations of the original Holder set forth in the Purchase Agreement and
may be transferred or exchanged only in compliance with the Purchase Agreement
and applicable federal and state securities laws and regulations.


          c)        Reliance
on Note Register. Prior to due presentment to the Company for transfer of
this Note, the Company and any agent of the Company may treat the Person in
whose name this Note is duly registered on the Note Register as the owner hereof
for the purpose of receiving payment as herein provided and for all other
purposes, whether or not this Note is overdue, and neither the Company nor any
such agent shall be affected by notice to the contrary.


Section
4.      Conversion.


          a)        Voluntary
Conversion. At any time after the Original Issue Date until this Note is no
longer outstanding, this Note shall be convertible into shares of Common Stock
at the option of the Holder, in whole or in part at any time and from time to
time (subject to the limitations on conversion set forth in Section 4(c)
hereof), provided, however, that the Holder shall not convert the Note into a
number of shares that would exceed 25% of the aggregate volume for the previous
10 Trading Days. The Holder shall effect conversions by delivering to the
Company the form of Notice of Conversion attached hereto as Annex A (a “Notice
of Conversion”), specifying therein the principal amount of Notes to be
converted and the date on which such conversion is to be effected (a
“Conversion Date”). If no Conversion Date is specified in a Notice of
Conversion, the Conversion Date shall be the date that such Notice of
Conversion is provided hereunder. To effect conversions hereunder, the Holder
shall not be required to physically 


16





surrender Notes to the
Company unless the entire principal amount of this Note plus all accrued and
unpaid interest thereon has been so converted. Conversions hereunder shall have
the effect of lowering the outstanding principal amount of this Note in an
amount equal to the applicable conversion. The Holder and the Company shall
maintain records showing the principal amount converted and the date of such
conversions. The Company shall deliver any objection to any Notice of
Conversion within 3 Business Days of receipt of such notice. In the event of
any dispute or discrepancy, the records of the Holder shall be controlling and
determinative in the absence of manifest error. The Holder and any assignee, by
acceptance of this Note, acknowledge and agree that, by reason of the
provisions of this paragraph, following conversion of a portion of this Note,
the unpaid and unconverted principal amount of this Note may be less than the
amount stated on the face hereof. However, at the Company’s request, the Holder
shall surrender the Note to the Company within five (5) Trading Days following
such request so that a new Note reflecting the correct principal amount may be
issued to Holder.


          b)         Conversion
Price. The conversion price in effect on any Conversion Date (subject to
adjustment herein) shall be equal to $0.14 per share.


          c)         Conversion
Limitations; Holder’s Restriction on Conversion. The Company shall
not effect any conversion of this Note, and the Holder shall not have the right
to convert any portion of this Note, pursuant to Section 4(a) or otherwise, to
the extent that after giving effect to such conversion, the Holder (together
with the Holder’s affiliates), as set forth on the applicable Notice of
Conversion, would beneficially own in excess of 4.99% of the number of shares
of the Common Stock outstanding immediately after giving effect to such
conversion. For purposes of the foregoing sentence, the number of shares of
Common Stock beneficially owned by the Holder and its affiliates shall include
the number of shares of Common Stock issuable upon conversion of this Note with
respect to which the determination of such sentence is being made, but shall
exclude the number of shares of Common Stock which would be issuable upon (A)
conversion of the remaining, nonconverted portion of this Note beneficially
owned by the Holder or any of its affiliates and (B) conversion of the
nonconverted portion of any other securities of the Company (including, without
limitation, any other Notes or the Warrants) subject to a limitation on
conversion or Conversion analogous to the limitation contained herein
beneficially owned by the Holder or any of its affiliates. Except as set forth
in the preceding sentence, for purposes of this Section 4(c), beneficial
ownership shall be calculated in accordance with Section 13(d) of the Exchange
Act. To the extent that the limitation contained in this section applies, the
determination of whether this Note is convertible (in relation to other securities
owned by the Holder) and of which a portion of this Note is convertible shall
be in the sole discretion of such Holder. To ensure compliance with this
restriction, the Holder will be deemed to represent to the Company each time it
delivers a Notice of Conversion that such Notice of Conversion has not violated
the restrictions set forth in this paragraph and the Company shall have no
obligation to verify or confirm the accuracy of such determination. For
purposes of this Section 4(c), in determining the number of outstanding shares
of Common Stock, the Holder may rely on the number of outstanding shares of
Common Stock as reflected in (x) the Company’s most recent Form 10-QSB or Form
10-KSB, as the case may be, (y) a more recent public announcement by the Company
or (z) any other notice by the Company or the Company’s Transfer Agent setting
forth the number of shares of Common Stock outstanding. Upon the written or
oral request of the Holder, the Company shall within two Trading Days confirm
orally and in writing to the Holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common Stock
shall be determined after giving effect to the conversion or Conversion of
securities of the Company, including this Note, by the Holder or its affiliates
since the date as of which such number of outstanding shares of Common Stock
was reported. The provisions of this Section 4(c) may be waived by the Holder
upon, at the election of the Holder, not less than 61 days’ prior notice to the
Company, and the provisions of this Section 4(c) shall continue to apply until
such 61st day (or such later date, as determined by the Holder, as may be
specified in such notice of waiver).


17





          d)         Mechanics
of Conversion


	
  

 	
  

 
	
  

 	
       i.             Conversion
 Shares Issuable Upon Conversion of Principal Amount. The number of
 shares of Common Stock issuable upon a conversion hereunder shall be
 determined by the quotient obtained by dividing (x) the amount of this Note
 (whether principal, accrued but unpaid interest or other amounts payable
 hereunder) to be converted by (y) the Conversion Price.

 
	
  

 	
  

 
	
  

 	
       ii.            Delivery
 of Certificate Upon Conversion. Not later than five Trading Days after
 any Conversion Date, the Company will deliver to the Holder at an address in
 the United States (A) a certificate or certificates representing the
 Conversion Shares which shall be free of restrictive legends and trading
 restrictions representing the number of shares of Common Stock being acquired
 upon the conversion of Notes (including, if so timely elected by the Company,
 shares of Common Stock representing the payment of accrued interest) and (B)
 a bank check or wire transfer in the amount of accrued and unpaid interest
 (if the Company is required to pay accrued interest in cash). The Company
 shall, if available and if allowed under applicable securities laws, use its
 best efforts to deliver any certificate or certificates required to be
 delivered by the Company under this Section electronically through the
 Depository Trust Corporation or another established clearing corporation
 performing similar functions.

 
	
  

 	
  

 
	
  

 	
       iii.           Failure
 to Deliver Certificates. If in the case of any Notice of Conversion such
 certificate or certificates are not delivered to or as directed by the
 applicable Holder by the fifth Trading Day after a Conversion Date, the
 Holder shall be entitled by written notice to the Company at any time on or
 before its receipt of such certificate or certificates thereafter, to rescind
 such conversion, in which event the Holder shall immediately return the
 certificates representing the principal amount of Notes tendered for
 conversion.

 
	
  

 	
  

 
	
  

 	
       iv.            Obligation
 Absolute: Partial Liquidated Damages. If the Company fails for any reason
 to deliver to the Holder such certificate or certificates pursuant to Section
 4(d)(ii) by the fifth Trading Day after the Conversion Date, the Company
 shall pay to such Holder, in cash, as liquidated damages and not as a
 penalty, for each $1000 of principal amount being converted, $5 per Trading
 Day (increasing to $10 per Trading Day after five Trading Days after such
 damages begin to accrue) for each Trading Day after such fifth Trading Day
 until such certificates are delivered. The Company’s obligations to issue and
 deliver the Conversion Shares upon conversion of this Note in accordance with
 the terms hereof are absolute and unconditional, irrespective of any action
 or inaction by the Holder to enforce the same, any waiver or consent with
 respect to any provision hereof, the recovery of any judgment against any
 Person or any action to enforce the same, or any setoff, counterclaim,
 recoupment, limitation or termination, or any breach or alleged breach by the
 Holder or any other Person of any obligation to the Company or any violation
 or alleged violation of law by the Holder or any other person, and
 irrespective of any other circumstance which might otherwise limit such
 obligation of the Company to the Holder in connection with the issuance of
 such Conversion Shares; provided, however, such delivery shall not operate as
 a waiver by the Company of any such action the Company may have against the
 Holder. In the event a Holder of this Note shall elect to convert any or all
 of the outstanding principal amount hereof, the Company may not refuse
 conversion based on any claim that the Holder or any one associated or
 affiliated with the Holder of has been engaged in any violation of law,
 agreement or for any other reason, unless, an injunction from a court, on
 notice, restraining and or enjoining conversion of all or part of this Note
 shall have been sought and obtained and the Company posts a surety bond for
 the benefit of the Holder in the amount of 150% of the principal amount of
 this Note outstanding, which is subject to the injunction, which bond shall
 remain in effect until the completion of arbitration/litigation of the
 dispute and the proceeds of which shall be payable to such Holder to the
 extent it obtains judgment. In the 

 


18









	
  

 	
  

 
	
  

 	
 absence of an injunction
 precluding the same, the Company shall issue Conversion Shares or, if
 applicable, cash, upon a properly noticed conversion. Nothing herein shall
 limit a Holder’s right to pursue actual damages or declare an Event of
 Default pursuant to Section 9 herein for the Company’s failure to deliver
 Conversion Shares within the period specified herein and such Holder shall
 have the right to pursue all remedies available to it at law or in equity
 including, without limitation, a decree of specific performance and/or
 injunctive relief. The Conversion of any such rights shall not prohibit the
 Holders from seeking to enforce damages pursuant to any other Section hereof
 or under applicable law.

 
	
  

 	
  

 
	
  

 	
       v.             Compensation
 for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In
 addition to any other rights available to the Holder, if the Company fails
 for any reason to deliver to the Holder such certificate or certificates
 pursuant to Section 4(d)(ii) by the fifth Trading Day after the Conversion
 Date, and if after such fifth Trading Day the Holder is required by its
 brokerage firm to purchase (in an open market transaction or otherwise)
 Common Stock to deliver in satisfaction of a sale by such Holder of the
 Conversion Shares which the Holder anticipated receiving upon such conversion
 (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in
 addition to any remedies available to or elected by the Holder) the amount by
 which (x) the Holder’s total purchase price (including brokerage commissions,
 if any) for the Common Stock so purchased exceeds (y) the product of (1) the
 aggregate number of shares of Common Stock that such Holder anticipated
 receiving from the conversion at issue multiplied by (2) the actual sale
 price of the Common Stock at the time of the sale (including brokerage
 commissions, if any) giving rise to such purchase obligation and (B) at the
 option of the Holder, either reissue Notes in principal amount equal to the
 principal amount of the attempted conversion or deliver to the Holder the
 number of shares of Common Stock that would have been issued had the Company
 timely complied with its delivery requirements under Section 4(d)(ii). For
 example, if the Holder purchases Common Stock having a total purchase price
 of $11,000 to cover a Buy-In with respect to an attempted conversion of Notes
 with respect to which the actual sale price of the Conversion Shares at the
 time of the sale (including brokerage commissions, if any) giving rise to
 such purchase obligation was a total of $10,000 under clause (A) of the
 immediately preceding sentence, the Company shall be required to pay the
 Holder $1,000. The Holder shall provide the Company written notice indicating
 the amounts payable to the Holder in respect of the Buy-In and all supporting
 brokerage statements. Notwithstanding anything contained herein to the
 contrary;

 
	
  

 	
  

 
	
  

 	
       vi.           Reservation of Shares Issuable Upon Conversion. The Company covenants
 that it will at all times reserve and keep available out of its authorized and
 unissued shares of Common Stock solely for the purpose of issuance upon
 conversion of the Notes and payment of interest on the Note, each as herein
 provided, free from preemptive rights or any other actual contingent purchase
 rights of persons other than the Holders, not less than such number of shares
 of the Common Stock as shall (subject to any additional requirements of the
 Company as to reservation of such shares set forth in the Purchase Agreement)
 be issuable (taking into account the adjustments and restrictions of Section
 5) upon the conversion of the outstanding principal amount of the Notes and
 payment of interest hereunder. The Company covenants that all shares of
 Common Stock that shall be so issuable shall, upon issue, be duly and validly
 authorized, issued and fully paid and nonassessable.

 
	
  

 	
  

 
	
  

 	
       vii.          Fractional
 Shares. Upon a conversion hereunder the Company shall not be required to
 issue stock certificates representing fractions of shares of the Common
 Stock, but may if otherwise permitted, make a cash payment in respect of any
 final fraction of a share based on the VWAP at such time. If the Company
 elects not, or is unable, to make such a cash payment, 

 


19









	
  

 	
  

 
	
  

 	
 the Holder shall be
 entitled to receive, in lieu of the final fraction of a share, one whole
 share of Common Stock.

 
	
  

 	
  

 
	
  

 	
       viii.            Transfer
 Taxes. The issuance of certificates for shares of the Common Stock on
 conversion of the Notes shall be made without charge to the Holders thereof
 for any documentary stamp or similar taxes that may be payable in respect of
 the issue or delivery of such certificate, provided that the Company shall
 not be required to pay any tax that may be payable in respect of any transfer
 involved in the issuance and delivery of any such certificate upon conversion
 in a name other than that of the Holder of such Notes so converted and the
 Company shall not be required to issue or deliver such certificates unless or
 until the person or persons requesting the issuance thereof shall have paid
 to the Company the amount of such tax or shall have established to the
 satisfaction of the Company that such tax has been paid.

 



Section
5.      Certain
Adjustments.


          a)         Stock
Dividends and Stock Splits. If the Company, at any time after the Amended
Issue Date while the Notes are outstanding: (A) shall pay a stock dividend or
otherwise make a distribution or distributions on shares of its Common Stock or
any other equity or equity equivalent securities payable in shares of Common
Stock (which, for avoidance of doubt, shall not include any shares of Common
Stock issued by the Company pursuant to this Note, including as interest
thereon), (B) subdivide outstanding shares of Common Stock into a larger number
of shares, or (C) combine (including by way of reverse stock split) outstanding
shares of Common Stock into a smaller number of shares, then the Conversion
Price shall be multiplied by a fraction of which the numerator shall be the
number of shares of Common Stock (excluding treasury shares, if any)
outstanding before such event and of which the denominator shall be the number
of shares of Common Stock outstanding after such event, excluding any shares
issued to the Holder as a stock dividend. Any adjustment made pursuant to this
Section shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of
a subdivision, combination or re-classification.


          b)
        Subsequent Equity
Sales. If the Company, at any time after the Amended Issue Date while the
Note is outstanding shall offer, sell, grant any option to purchase or offer,
sell or grant any right to re-price its securities, or otherwise dispose of or
issue (or announce any offer, sale, grant or any option to purchase or other
disposition) any Common Stock or Common Stock Equivalents entitling any Person
to acquire shares of Common Stock, at an effective price per share less than the
then Conversion Price (such lower price, the “Base Share Price” and such
issuances collectively, a “Dilutive Issuance”), as adjusted hereunder (if the
holder of the Common Stock or Common Stock Equivalents so issued shall at any
time, whether by operation of purchase price adjustments, reset provisions,
floating conversion, Conversion or exchange prices or otherwise, or due to
warrants, options or rights per share which is issued in connection with such
issuance, be entitled to receive shares of Common Stock at an effective price
per share which is less than the Conversion Price, such issuance shall be
deemed to have occurred for less than the Conversion Price), then, the
Conversion Price shall be reduced to an amount equal to the product of (A) the
Conversion Price in effect immediately prior to such Dilutive Issuance and (B)
the quotient determined by dividing (1) the sum of (I) the product derived by
multiplying the Conversion Price in effect immediately prior to such Dilutive
Issuance and the number of shares of Common Stock outstanding immediately prior
to such Dilutive Issuance plus (II) the consideration, if any, received by the
Company upon such Dilutive Issuance, by (2) the product derived by multiplying
(I) the Conversion Price in effect immediately prior to such Dilutive Issuance
by (II) the number of shares of Common Stock outstanding immediately after such
Dilutive Issuance. Such adjustment shall be made whenever such Common Stock or
Common Stock Equivalents are issued. The
Company shall notify the Holder in writing, no later than the Trading Day
following the issuance of any Common Stock or Common Stock 


20





Equivalents subject
to this section, indicating therein the applicable issuance price, or of
applicable reset price, exchange price, conversion price and other pricing
terms (such notice the “Dilutive Issuance Notice”). For purposes of
clarification, whether or not the Company provides a Dilutive Issuance Notice
pursuant to this Section 5(b), upon the occurrence of any Dilutive Issuance, after
the date of such Dilutive Issuance the Holder is entitled to receive a number
of Conversion Shares based upon the Base Share Price regardless of whether the
Holder accurately refers to the Base Share Price in the Notice of Conversion.


          c)         Pro
Rata Distributions. If the Company, at any time while Notes are
outstanding, shall distribute to all holders of Common Stock (and not to
Holders) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security, then in each such case the Conversion
Price shall be determined by multiplying such Conversion Price in effect
immediately prior to the record date fixed for determination of stockholders
entitled to receive such distribution by a fraction of which the denominator
shall be the VWAP determined as of the record date mentioned above, and of
which the numerator shall be such VWAP on such record date less the then fair
market value at such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of the Common
Stock as determined by the Board of Directors in good faith. In either case the
adjustments shall be described in a statement provided to the Holders of the
portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.


          d)
        Calculations. All
calculations under this Section 5 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. The number of shares of Common
Stock outstanding at any given time shall not includes shares of Common Stock
owned or held by or for the account of the Company, and the description of any
such shares of Common Stock shall be considered on issue or sale of Common
Stock. For purposes of this Section 5, the number of shares of Common Stock
deemed to be issued and outstanding as of a given date shall be the sum of the
number of shares of Common Stock (excluding treasury shares, if any) issued and
outstanding.


          e)         Notice
to Holders.


	
  

 	
  

 
	
  

 	
           i.          Adjustment
 to Conversion Price. Whenever the Conversion Price is adjusted pursuant
 to any of this Section 5, the Company shall promptly mail to each Holder a
 notice setting forth the Conversion Price after such adjustment and setting
 forth a brief statement of the facts requiring such adjustment. If the
 Company issues a variable rate security, despite the prohibition thereon in
 the Purchase Agreement, the Company shall be deemed to have issued Common
 Stock or Common Stock Equivalents at the lowest possible conversion or
 Conversion price at which such securities may be converted in the case of a
 Variable Rate Transaction (as defined in the Purchase Agreement), or the
 lowest possible adjustment price in the case of an MFN Transaction (as
 defined in the Purchase Agreement).

 
	
  

 	
  

 
	
  

 	
           ii.         Notice
 to Allow Conversion by Holder. If (A) the Company shall declare a
 dividend (or any other distribution) on the Common Stock; (B) the Company
 shall declare a special nonrecurring cash dividend on or a redemption of the
 Common Stock; (C) the Company shall authorize the granting to all holders of
 the Common Stock rights or warrants to subscribe for or purchase any shares
 of capital stock of any class or of any rights; (D) the approval of any
 stockholders of the Company shall be required in connection with any
 reclassification of the Common Stock, any consolidation or merger to which
 the Company is a party, any sale or transfer of all or substantially all of
 the assets of the Company, of any compulsory share exchange whereby the
 Common Stock is converted into other securities, cash or property; (E) the
 Company shall authorize the voluntary or involuntary dissolution, liquidation
 or winding up of the affairs of 

 


21









	
  

 	
  

 
	
  

 	
 the Company; then, in each
 case, the Company shall cause to be filed at each office or agency maintained
 for the purpose of conversion of the Notes, and shall cause to be mailed to
 the Holders at their last addresses as they shall appear upon the stock books
 of the Company, at least 20 calendar days prior to the applicable record or
 effective date hereinafter specified, a notice stating (x) the date on which
 a record is to be taken for the purpose of such dividend, distribution,
 redemption, rights or warrants, or if a record is not to be taken, the date
 as of which the holders of the Common Stock of record to be entitled to such
 dividend, distributions, redemption, rights or warrants are to be determined
 or (y) the date on which such reclassification, consolidation, merger, sale,
 transfer or share exchange is expected to become effective or close, and the
 date as of which it is expected that holders of the Common Stock of record
 shall be entitled to exchange their shares of the Common Stock for
 securities, cash or other property deliverable upon such reclassification,
 consolidation, merger, sale, transfer or share exchange; provided, that the
 failure to mail such notice or any defect therein or in the mailing thereof
 shall not affect the validity of the corporate action required to be
 specified in such notice. Holders are entitled to convert Notes during the
 20-day period commencing the date of such notice to the effective date of the
 event triggering such notice.

 
	
  

 	
  

 
	
  

 	
           iii.       Fundamental
 Transaction. If, at any time while this Note is outstanding, (A) the
 Company effects any merger or consolidation of the Company with or into
 another Person, (B) the Company effects any sale of all or substantially all
 of its assets in one or a series of related transactions, (C) any tender
 offer or exchange offer (whether by the Company or another Person) is
 completed pursuant to which holders of Common Stock are permitted to tender
 or exchange their shares for other securities, cash or property, or (D) the
 Company effects any reclassification of the Common Stock or any compulsory
 share exchange pursuant to which the Common Stock is effectively converted
 into or exchanged for other securities, cash or property (in any such case, a
 “Fundamental Transaction”), then upon any subsequent conversion of this Note,
 the Holder shall have the right to receive, for each Conversion Share that
 would have been issuable upon such conversion absent such Fundamental
 Transaction, the same kind and amount of securities, cash or property as it
 would have been entitled to receive upon the occurrence of such Fundamental
 Transaction if it had been, immediately prior to such Fundamental
 Transaction, the holder of one share of Common Stock (the “Alternate
 Consideration”). For purposes of any such conversion, the determination of
 the Conversion Price shall be appropriately adjusted to apply to such
 Alternate Consideration based on the amount of Alternate Consideration
 issuable in respect of one share of Common Stock in such Fundamental
 Transaction, and the Company shall apportion the Conversion Price among the
 Alternate Consideration in a reasonable manner reflecting the relative value
 of any different components of the Alternate Consideration, If holders of
 Common Stock are given any choice as to the securities, cash or property to
 be received in a Fundamental Transaction, then the Holder shall be given the
 same choice as to the Alternate Consideration it receives upon any conversion
 of this Note following such Fundamental Transaction. To the extent necessary
 to effectuate the foregoing provisions, any successor to the Company or surviving
 entity in such Fundamental Transaction shall issue to the Holder a new note
 consistent with the foregoing provisions and evidencing the Holder’s right to
 convert such note into Alternate Consideration. The terms of any agreement
 pursuant to which a Fundamental Transaction is effected shall include terms
 requiring any such successor or surviving entity to comply with the
 provisions of this paragraph (c) and insuring that this Note (or any such
 replacement security) will be similarly adjusted upon any subsequent
 transaction analogous to a Fundamental Transaction.

 



          f)          Exempt
Issuance. Notwithstanding the foregoing, no adjustment will be made under
this Section 5 in respect of an Exempt Issuance or the issuance of the Primary
Equity Consideration in connection with the Bridge Transaction.


22





          g)          Public
Offering. Notwithstanding anything to the contrary contained herein, if a
Public Offering is closed on or before February 19, 2010, then and in such
event the Conversion Price shall be increased or decreased, as the case may be
to an amount equal to two times the price of a share of Common Stock sold in
such Public Offering; it being understood that if the Public Offering takes the
form of a sale of Units containing shares of Common Stock and warrants to
purchase Common Stock the price shall be increased or decreased, as the case
may be, to a price equal to two times (i) the price of the Unit sold in such
Public Offering divided by the number of shares of Common Stock included in
such Unit (the “Base Per Share Stock Price”), minus (ii) the value of that
number of warrants, if any, included in such Unit in excess of 150% of the
number of shares of Common Stock included in such Unit, divided by the number
of shares of Common Stock included in such Unit. (For example, assume (i) a
Unit consists of 70 shares of Common Stock and 140 warrants, (ii) the price at
which the Unit is sold in the Public Offering is $4.90 and (iii) the value of a
warrant is $0.01; then the Conversion Price would be adjusted as follows: two
times (i) the price of a Unit $4.90, divided by 70 (the number of shares of
Common Stock included in the Unit) = a Base Per Share Stock Price of $0.07,
minus (ii) the number of warrants included in the Unit in excess of 150% of the
number of shares would be 35, times $0.01 (the value of a warrant) = $0.35
divided by 70 (the number of shares of Common Stock included in the Unit) =
$0.005. Therefore the Conversion Price would be $0.13 ($0.07 minus $0.005 =
$0.065 times 2)). Notwithstanding the above, if the exercise price of the
warrants included in the Unit is less than the Base Per Share Stock Price, then
the Conversion Price will be equal to two times (i) the Base Per Share Stock
Price minus (ii) the value of the total number of warrants included in such
Unit divided by the number of shares of Common Stock included in such Unit. For
purposes of this Section 5(g) the value of a warrant shall be equal to the
average of the closing price of a warrant for the first three Trading Days that
the warrant is separately traded following the effectiveness of the
registration statement covering the Public Offering.


Section
6.        INTENTIONALLY
OMITTED


Section
7.        Negative
Covenants. 


          So
long as any portion of this Note is outstanding, the Company will not and will
not permit any of its Subsidiaries to directly or indirectly:


          a)           enter
into, create, incur, assume or suffer to exist any liens of any kind, on or
with respect to any of its property or assets now owned or hereafter acquired
or any interest therein or any income or profits therefrom that is senior to,
subordinated to or pari passu, in any respect, the Company’s obligations
under the Notes;


          b)           amend
its certificate of incorporation, bylaws or charter documents so as to
adversely affect any rights of the Holder;


          c)           repay,
repurchase, redeem or offer to repay, repurchase, redeem, make any payment in
respect of or otherwise acquire any of its Common Stock, Preferred Stock, or
other equity securities other than as to the Conversion Shares to the extent
permitted or required under the Transaction Documents or as otherwise permitted
by the Transaction Documents;


          d)           incur
any indebtedness for borrowed money unless such indebtedness is subordinated in
right of payment, in a manner satisfactory to the Holder in its sole
discretion, to the obligations of the Company under the Notes; provided,
however, that any such subordination will not prohibit the Company from
repaying any such debt from the proceeds of a future sale of equity securities
by the Company;


          e)           prepay
any indebtedness for borrowed money (whether now existing or hereafter 


23





incurred);


          f)           create
or acquire any Subsidiary after the date hereof unless (i) such Subsidiary is a
wholly-owned Subsidiary of the Company and (ii) such Subsidiary becomes party
to the Security Agreement and the Subsidiary Guaranty (either by executing a
counterpart thereof or an assumption or joinder agreement in respect thereof)
and, to the extent required by the Purchaser, satisfied each condition of this
Note, the Purchase Agreement and the other Transaction Documents as if such
Subsidiary were a Subsidiary on the Closing Date; 


          g)           engage
in any transaction with any officer, director, employee or any affiliate of the
Company, including any contract, agreement or other arrangement providing for
the furnishing of services to by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner, in each case in excess of $10,000
other than (i) for payment of salary, director fees (of which the cash portion
thereof may not exceed $10,000 per year, per director) or consulting fees for
services rendered, (ii) reimbursement for expenses incurred on behalf of the
Company, and (iii) for other employee benefits, including stock option
agreements under any stock option plan of the Company; provided that the
foregoing shall not apply to any transactions between the Company and
Pacific BioSciences Research Centre (“PBRC”) or any affiliated successor to
PBRC, wherein PBRC provides to the Company, those research and development
services, technical services and/or administrative services which PBRC is
providing to the Company on the terms and conditions in effect on the Amended
Issue Date; and further provided that any agreement between the Company and
PBRC with respect to such services entered into subsequent to the Amended Issue
Date shall be approved by a majority of the independent members of the
Company’s Board of Directors, in each case at a cost to the Company not to
exceed 115% of the fully absorbed cost thereof to PBRC and provided that such
services are not available to the Company on terms more favorable to it from
any other party; or


          h)           enter
into any agreement with respect to any of the foregoing.


Section
8.        Events of Default.


	
  

 	
  

 
	
           a)           Event
 of Default. Wherever used herein, means any one of the following events (whatever
 the reason and whether it shall be voluntary or involuntary or effected by
 operation of law or pursuant to any judgment, decree or order of any court,
 or any order, rule or regulation of any administrative or governmental body):

 
	
  

 	
  

 
	
  

 	
              i.          any
 default in the payment of (A) the principal amount of any Note, or (B)
 interest (including Late Fees) on, or liquidated damages in respect of, any
 Note, in each case free of any claim of subordination, as and when the same
 shall become due and payable (whether on a Conversion Date or the Maturity
 Date or by acceleration or otherwise) which default, solely in the case of an
 interest payment or other default under clause (B) above, is not cured,
 within five Trading Days;

 
	
  

 	
  

 
	
  

 	
              ii.         the
 Company shall fail to observe or perform any other covenant or agreement
 contained in this Note or any of the other Transaction Documents (other than
 a breach by the Company of its obligations to deliver shares of Common Stock
 to the Holder upon conversion which breach is addressed in clause (xii)
 below) which failure is not cured, if possible to cure, within the earlier to
 occur of (A) 5 Trading Days after notice of such default sent by the Holder
 or by any other Holder and (B) 10 Trading Days after the Company shall become
 or should have become aware of such failure;

 


24









	
  

 	
  

 
	
  

 	
             iii.          a
 default or event of default (subject to any grace or cure period provided for
 in the applicable agreement, document or instrument) shall occur under (A)
 any of the [Transaction Documents] other than the Notes, or (B) any other
 material agreement, lease, document or instrument to which the Company or any
 Subsidiary is bound, which default, solely in the case of a default under
 clause (B) above, is not cured, within 10 Trading Days;

 
	
  

 	
  

 
	
  

 	
             iv.          any
 representation or warranty made herein, in any other Transaction Document, in
 any written statement pursuant hereto or thereto, or in any other report,
 financial statement or certificate made or delivered to the Holder or any
 other holder of Notes shall be untrue or incorrect in any material respect as
 of the date when made or deemed made;

 
	
  

 	
  

 
	
  

 	
             v.           (i)
 the Company or any of its Subsidiaries shall commence, or there shall be commenced
 against the Company or any such Subsidiary, a case under any applicable
 bankruptcy or insolvency laws as now or hereafter in effect or any successor
 thereto, or the Company or any Subsidiary commences any other proceeding
 under any reorganization, arrangement, adjustment of debt, relief of debtors,
 dissolution, insolvency or liquidation or similar law of any jurisdiction
 whether now or hereafter in effect relating to the Company or any Subsidiary
 thereof or (ii) there is commenced against the Company or any Subsidiary
 thereof any such bankruptcy, insolvency or other proceeding which remains
 undismissed for a period of 60 days; or (iii) the Company or any Subsidiary
 thereof is adjudicated by a court of competent jurisdiction insolvent or
 bankrupt; or any order of relief or other order approving any such case or
 proceeding is entered; or (iv) the Company or any Subsidiary thereof suffers
 any appointment of any custodian or the like for it or any substantial part
 of its property which continues undischarged or unstayed for a period of 60
 days; or (v) the Company or any Subsidiary thereof makes a general assignment
 for the benefit of creditors; or (vi) the Company shall fail to pay, or shall
 state that it is unable to pay, or shall be unable to pay, its debts
 generally as they become due; or (vii) the Company or any Subsidiary thereof
 shall call a meeting of its creditors with a view to arranging a composition,
 adjustment or restructuring of its debts; or (viii) the Company or any
 Subsidiary thereof shall by any act or failure to act expressly indicate its
 consent to, approval of or acquiescence in any of the foregoing; or (ix) any
 corporate or other action is taken by the Company or any Subsidiary thereof
 for the purpose of effecting any of the foregoing;

 
	
  

 	
  

 
	
  

 	
             vi.         the
 Company or any Subsidiary shall default in any of its obligations under any
 mortgage, credit agreement or other facility, indenture agreement, factoring
 agreement or other instrument under which there may be issued, or by which there
 may be secured or evidenced any indebtedness for borrowed money or money due
 under any long term leasing or factoring arrangement of the Company in an
 amount exceeding $50,000, whether such indebtedness now exists or shall
 hereafter be created and such default shall result in such indebtedness
 becoming or being declared due and payable prior to the date on which it
 would otherwise become due and payable;

 
	
  

 	
  

 
	
  

 	
             vii.        the
 Common Stock shall not be eligible for quotation on or quoted for trading on
 a Trading Market and shall not again be eligible for and quoted or listed for
 trading thereon within five Trading Days;

 
	
  

 	
  

 
	
  

 	
             viii.        the
 Company shall redeem or repurchase more than a de minimis number of its
 outstanding shares of Common Stock or other equity securities of the Company
 (other than redemptions of Conversion Shares and repurchases of shares of
 Common Stock or other equity securities of departing officers and directors
 of the Company; provided such repurchases shall not exceed $50,000, in the
 aggregate, for all officers and directors during the term of this Note);

 


25









	
  

 	
  

 
	
  

 	
              ix.        the
 Company shall fail for any reason to deliver certificates to a Holder prior
 to the fifth Trading Day after a Conversion Date pursuant to and in
 accordance with Section 4(d) or the Company shall provide notice to the
 Holder, including by way of public announcement, at any time, of its
 intention not to comply with requests for conversions of any Notes in
 accordance with the terms hereof;

 
	
  

 	
  

 
	
  

 	
              x.          the
 Company shall fail for any reason to pay in full the amount of cash due
 pursuant to a Buy-In within 5 Trading Days after notice therefor is delivered
 hereunder or shall fail to pay all amounts owed on account of an Event of
 Default within five days of the date due;

 
	
  

 	
  

 
	
  

 	
              xi.         the
 Company shall not have closed a Bridge Transaction on or before October 1,
 2009 or at any time prior to October 1, 2009, the Company or its placement
 agent determines not to proceed with the Bridge Transaction; or

 
	
  

 	
  

 
	
  

 	
              xii.        the
 Company shall not have closed a Public Offering on or before February 19,
 2010 or at any time prior to February 19, 2010, the Company or the lead
 underwriter determines not to proceed with the Public Offering.

 



          b)           Remedies
Upon Event of Default. If any Event of Default occurs, the full principal
amount of this Note, together with interest and other amounts owing in respect
thereof, to the date of acceleration shall become, at the Holder’s election,
immediately due and payable in cash. The aggregate amount payable upon an Event
of Default shall be equal to the Mandatory Prepayment Amount. Commencing 5 days
after the occurrence of any Event of Default that results in the eventual
acceleration of this Note, the interest rate on this Note shall accrue at the
rate of 18% per annum, or such lower maximum amount of interest permitted to be
charged under applicable law. All Notes for which the full Mandatory Prepayment
Amount hereunder shall have been paid in accordance herewith shall promptly be
surrendered to or as directed by the Company. The Holder need not provide and
the Company hereby waives any presentment, demand, protest or other notice of
any kind, and the Holder may immediately and without expiration of any grace
period enforce any and all of its rights and remedies hereunder and all other
remedies available to it under applicable law. Such declaration may be
rescinded and annulled by Holder at any time prior to payment hereunder and the
Holder shall have all rights as a Note holder until such time, if any, as the
full payment under this Section shall have been received by it. No such
rescission or annulment shall affect any subsequent Event of Default or impair
any right consequent thereon.


Section
9.          Miscellaneous.


           a)            Notices,
Any and all notices or other communications or deliveries to be provided by the
Holders hereunder, including, without limitation, any Notice of Conversion,
shall be in writing and delivered personally, by facsimile, sent by a
nationally recognized overnight courier service, addressed to the Company, at
the address set forth above, facsimile number (604) 207-9165 Attn: Dr. Ricardo
Moro, Chief Executive Officer, or such other address or facsimile number as the
Company may specify for such purposes by notice to the Holders delivered in
accordance with this Section. Any and all notices or other communications or
deliveries to be provided by the Company hereunder shall be in writing and
delivered personally, by facsimile, sent by a nationally recognized overnight
courier service addressed to each Holder at the facsimile, telephone number or
address of such Holder appearing on the books of the Company, or if no such
facsimile telephone number or address appears, at the principal place of
business of the Holder. Any notice or other communication or deliveries
hereunder shall be deemed given and effective on the earliest of (i) the date
of transmission, if such notice or communication is delivered via facsimile at
the facsimile telephone number specified in this Section prior to 5:30 p.m.
(New York City time), (ii) the date after the date of transmission, if such
notice or communication is delivered via


26





facsimile at the facsimile
telephone number specified in this Section later than 5:30 p.m. (New York City
time) on any date and earlier than 11:59 p.m. (New York City time) on such
date, (iii) the second Business Day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iv) upon actual receipt by
the party to whom such notice is required to be given.


          b)           Absolute
Obligation. Except as expressly provided herein, no provision of this Note
shall alter or impair the obligation of the Company, which is absolute and
unconditional, to pay the principal of, interest and liquidated damages (if
any) on, this Note at the time, place, and rate, and in the coin or currency,
herein prescribed. This Note is a direct debt obligation of the Company. This
Note ranks pari passu with all other Notes now or hereafter issued under
the terms set forth herein.


          c)           Lost
or Mutilated Note. If this Note shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of a mutilated Note, or in lieu of or in substitution
for a lost, stolen or destroyed Note, a new Note for the principal amount of
this Note so mutilated, lost, stolen or destroyed but only upon receipt of
evidence of such loss, theft or destruction of such Note, and of the ownership
hereof; and indemnity, if requested, all reasonably satisfactory to the
Company.


          d)           Security
Interest. This Note is a direct debt obligation of the Company and,
pursuant to the Security Agreement is secured by a first priority perfected
security interest in all of the assets of the Company for the benefit of the
Holders.


          e)           Governing
Law. All questions concerning the construction, validity, enforcement and
interpretation of this Note, and any claim, controversy or dispute arising
under or related to this Note, the relationship of the parties, and/or the
interpretation and enforcement of the rights and duties of the parties hereunder
shall be governed by and construed and enforced in accordance with the internal
laws of the State of New York, without regard to the principles of conflicts of
law thereof. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
any of the Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or agents)
shall be commenced in the state or federal courts sitting in the City of New
York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby
irrevocably submits to the exclusive jurisdiction of the New York Courts for
the adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim that
it is not personally subject to the jurisdiction of any such court, or such New
York Courts are improper or inconvenient venue for such proceeding. Each party
hereby irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by mailing a copy thereof
via registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it under this
Note and agrees that such service shall constitute good and sufficient service
of process and notice thereof Nothing contained herein shall be deemed to limit
in any way any right to serve process in any manner permitted by law. Each
party hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding
arising out of or relating to this Note or the transactions contemplated
hereby. If either party shall commence an action or proceeding to enforce any
provisions of this Note, then the prevailing party in such action or proceeding
shall be reimbursed by the other party for its attorney’s fees and other costs
and expenses incurred with the investigation, preparation and prosecution of
such action or proceeding.


          (f)           Waiver.
Any waiver by the Company or the Holder of a breach of any provision of this
Note shall not operate as or be construed to be a waiver of any other breach of
such provision or of any 


27





breach of any other
provision of this Note. The failure of the Company or the Holder to insist upon
strict adherence to any term of this Note on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist
upon strict adherence to that term or any other term of this Note. Any waiver
must be in writing.


          g)           Severability.
If any provision of this Note is invalid, illegal or unenforceable, the balance
of this Note shall remain in effect, and if any provision is inapplicable to
any person or circumstance, it shall nevertheless remain applicable to all
other persons and circumstances. If it shall be found that any interest or
other amount deemed interest due hereunder violates applicable laws governing
usury, the applicable rate of interest due hereunder shall automatically be
lowered to equal the maximum permitted rate of interest. The Company covenants
(to the extent that it may lawfully do so) that it shall not at any time insist
upon, plead, or in any manner whatsoever claim or take the benefit or advantage
of, any stay, extension or usury law or other law which would prohibit or
forgive the Company from paying all or any portion of the principal of or
interest on this Note as contemplated herein, wherever enacted, now or at any
time hereafter in force, or which may affect the covenants or the performance
of this indenture, and due Company (to the extent it may lawfully do so) hereby
expressly waives all benefits or advantage of any such law, and covenants that
it will not, by resort to any such law, binder, delay or impeded the execution
of any power herein granted to the Holder, but will suffer and permit the
execution of every such as though no such law has been enacted.


          h)           Next
Business Day. Whenever any payment or other obligation hereunder shall be
due on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day.


          i)           Headings.
The headings contained herein are for convenience only, do not constitute a
part of this Note and shall not be deemed to limit or affect any of the
provisions hereof.


          j)           Seniority.
This Note is senior in right of payment to any and all other indebtedness of
the Company; except for the Note issued by the Company in favor of CAMHZN
Master LDC, which note shall rank pari passu with this Note.


28







          IN
WITNESS WHEREOF, the Company has caused this Note to be duly executed by a duly
authorized officer as of the date first above indicated.


	
  

 	
  

 	
  

 
	
  

 	
 Whispering
 Oaks International, Inc.

 	
  

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 
	
  

 	 

 	
  

 
	
  

 	
 By:

 	
  

 


29





GRID
OF PRINCIPAL PAYMENTS


	
  

 	
  

 	
  

 	
  

 
	
 Date

 	
 Amount of Principal

 Payment

 	
 Remaining Unpaid

 Principal Balance

 	
  

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
  

 


30








EXHIBIT A TO PROMISSORY NOTE


	
  

 	
  

 	
  

 
	
 Securities:

 	
  

 	
 10% Unsecured Promissory Notes (“Notes”) plus the Equity
 Consideration described below. 

 
	
  

 	
  

 	
  

 
	
 Offering:

 	
  

 	
 Minimum — $350,000 aggregate principal amount of Notes.

 
	
  

 	
  

 	
 Maximum — $450,000 aggregate principal amount of Notes.

 
	
  

 	
  

 	
  

 
	
 Offering Termination:

 	
  

 	
 Close of business (Pacific time) August 31, 2009, unless extended by
 mutual agreement of the Company and the Placement Agent.

 
	
  

 	
  

 	
  

 
	
 Interest on Note:

 	
  

 	
 10% per annum, payable monthly, commencing six months from the date of
 issue. Default interest will be 12% per annum commencing from the date of
 default until the Notes are either repaid or the default is cured.

 
	
  

 	
  

 	
  

 
	
 Maturity of Note:

 	
  

 	
 The entire aggregate unpaid principal balance of the Notes and all
 accrued and unpaid interest thereon are due and payable on earlier of (i)
 August 31, 2010 or (ii) the closing of an underwritten public offering or a
 private placement (other than this Offering) resulting in gross proceeds to
 the Company of at least $3.0 million (a “Qualified Offering”) (either, the
 “Maturity Date”). 

 
	
  

 	
  

 	
  

 
	
 Equity Consideration:

 	
  

 	
 (a)     Each
 Investor shall receive the “Primary Equity Consideration” and, to the extent
 the Notes or any portion thereof remains outstanding immediately after the
 Maturity Date, the “Additional Equity Consideration,” both as defined below
 and sometimes referred to herein as the “Equity Consideration.” The Equity
 Consideration shall consist of shares of the Company’s common stock, par
 value $.001 per share (“Common Stock”), which shall have the same CUSIP
 number as the shares of Common Stock that are quoted on the Over the Counter
 Bulletin Board. 

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (b)     Primary
 Equity Consideration. The number of shares of Common Stock to be received by
 an Investor as Primary Equity Consideration shall equal the result obtained
 by dividing 100% of the original principal amount of the Note or Notes held
 by such Investor by $0.07. The Primary Equity Consideration shall be
 delivered to the Investors within ten business days following the closing in which
 such Notes are issued. 

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (c)     Additional
 Equity Consideration. To the extent the Notes, or any portion thereof, remain
 outstanding immediately after the Maturity Date, the Investors shall receive,
 in addition to the Primary Equity Consideration, the Additional Equity
 Consideration with respect to such Notes or portion thereof. The 

 



31







	
  

 	
  

 	
  

 
	
  

 	
  

 	
 number of shares of Common
 Stock to be received by an Investor as Additional Equity Consideration shall
 equal the result obtained by dividing 100% of the outstanding principal
 balance of the Note or Notes held by such Investor, and the accrued interest
 thereon, by $0.07. The number of shares of Common Stock included in the
 Additional Equity Consideration shall be adjusted, pro rata, on account of
 any stock splits, reverse stock splits, stock dividends paid on Common Stock,
 etc., which occur after the date of issuance of the Note and prior to the
 issuance of the Additional Equity Consideration.

 
	
  

 	
  

 	
  

 
	
 Minimum Investment:

 	
  

 	
 $25,000 per Investor.

 
	
  

 	
  

 	
  

 
	
 Placement Agent Compensation:

 	
  

 	
 Commissions. An amount equal to (i) 12% of the aggregate principal
 amount of Notes sold to Investors introduced to the Company by the Placement
 Agent or any subagent and (ii) 6% of the aggregate principal amount of the
 Notes sold to Investors introduced by someone other than the Placement Agent
 or a subagent.

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 Nonaccountable expense allowance. A amount equal to 3% of the
 aggregate principal amount of the Notes sold in the Offering.

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 The Commissions and the non-accountable expense allowance shall be
 payable in cash on the Closing Date or Closing Dates as defined below.

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 In addition, the Company will indemnify the Placement Agent and the
 subagents, and their respective officers, directors, agents, employees and
 controlling persons, against certain liabilities.

 
	
  

 	
  

 	
  

 
	
 Closing Date:

 	
  

 	
 The Offering contemplated hereby shall be consummated on the second
 business day following the date on which the Escrow Agent shall have received
 at least $350,000 from Investors subscribing for Notes (the “First Closing
 Date”). In the event the First Closing Date has not occurred by August 31,
 2009, the Escrow Agent shall return all of the subscription amounts then in
 its possession unless the Company and the Placement Agent have agreed to extend
 the offering period for up to an additional 30 days. After the First Closing
 Date covering the minimum offering amount, there may be additional closings
 from time to time as mutually agreed to by the Company and the Placement
 Agent. 

 
	
  

 	
  

 	
  

 
	
 Closing Conditions:

 	
  

 	
 In addition to the other terms and conditions herein, the Offering is
 conditioned upon the Company having obtained all necessary consents and
 approvals to the issuance of the Notes.

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 At or prior to the Closing of the Offering, the Company shall have
 entered into a Loan Modification Agreement with the 

 



32







	
  

 	
  

 	
  

 
	
  

 	
  

 	
 current secured lender of the Company (“Secured Lender”) on terms
 acceptable to the Placement Agent.

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 At or prior to the Closing, the Investors shall have executed a
 Lock-Up Agreement under which they will agree to not sell or otherwise
 dispose or transfer any shares of Common Stock for a period expiring 90 days
 after the closing of a Qualified Offering without the consent of the
 underwriter of the Qualified Offering and containing such other on terms and
 conditions identical in all material respects to the Lock-Up Agreement to be
 signed by the officers, directors and significant shareholders of the Company
 in connection with the Qualified Offering. 

 



33






ANNEX A


NOTICE OF CONVERSION


          The
undersigned hereby elects to convert principal under the Senior Secured
Convertible Note of Whispering Oaks International, Inc., a Texas corporation
(the “Company”), due on December 31, 2012, into shares of common stock, par
value $0.01 per share (due “Common Stock”), of the Company according to the
conditions hereof, as of the date written below. If shares are to be issued in
the name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto and is delivering herewith such
certificates and opinions as reasonably requested by due Company in accordance
therewith. No fee will be charged to the holder for any conversion, except for
such transfer taxes, if any.


          By the
delivery of this Notice of Conversion the undersigned represents and warrants
to Whispering Oaks International, Inc. that its ownership of the Common Stock
does not exceed the amounts determined in accordance with Section 13(d) of the
Exchange Act, specified under Section 4 of this Note.


          The
undersigned agrees to comply with the prospectus delivery requirements under
the applicable securities laws in connection with any transfer of the aforesaid
shares of Common Stock.


	
  

 	
  

 	
  

 
	
 Conversion
 calculations:

 	
  

 	
  

 
	
  

 	
 Date to Effect
 Conversion:

 
	
  

 	
  

 	
  

 
	
  

 	
 Principal
 Amount of Notes to be Converted:

 
	
  

 	
  

 	
  

 
	
  

 	
 Payment of Interest in Common Stock_ yes — no

 
	
  

 	
  

 	
 If yes, $______ of Interest Accrued on Account of Conversion at
 Issue.

 
	
  

 	
  

 	
  

 
	
  

 	
 Number of
 shares of Common Stock to be issued:

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
      Signature:

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
      Name:

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
       Address:

 










Schedule 1


CONVERSION SCHEDULE


The Senior
Secured Convertible Notes due on December 31, 2012, in the aggregate principal
amount of $___________ issued by Whispering Oaks International, Inc., a Texas
corporation. This Conversion Schedule reflects conversions made under Section 4
of due above referenced Note.


Dated:


	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 Aggregate

 	
  

 
	
  

 	
  

 	
 Principal Amount

 	
  

 
	
 Date of Conversion

 (or for first entry,

 Original Issue Date)

 	
 Amount of

 Conversion

 	
 Remaining

 Subsequent to

 Conversion

 (or original

 Principal

 Amount)

 	
 Company Attest

 



35








EXHIBIT B


NEITHER THIS SECURITY NOR
THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL
OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH
SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES
ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.


Original Issue Date: June
25, 2007 

Date of this Amended and Restated Note: July 1, 2009

Conversion Price of this Amended and Restated Note (subject to adjustment
herein): $0.14


$430,000


AMENDED AND RESTATED

SENIOR SECURED CONVERTIBLE NOTE

DUE DECEMBER 31, 2012


          THIS
NOTE is one of a series of duly authorized and issued Senior Secured
Convertible Notes of Whispering Oaks International, Inc. d/bla BioCurex Inc., a Texas
corporation, having a principal place of business at 7080 River Road, Suite
215, Richmond, British Columbia, Canada V6X 1X5 (the “Company”), designated as
its Senior Secured Convertible Note, due December 31, 2012 (the “Note(s)”).


          FOR
VALUE RECEIVED, the Company promises to pay to CAMHZN Master LDC or its
registered assigns (the “Holder”), the principal sum of $430,000.00 on December 31,
2012 or such earlier date as the Notes are required or permitted to be repaid
as provided hereunder (the “Maturity Date”), and to pay interest to the Holder
on the aggregate unconverted and then outstanding principal amount of this Note
in accordance with the provisions hereof. This Note is subject to the following
additional provisions:


Section
1.     Definitions. For the purposes hereof, in addition to the terms defined
elsewhere in this Note: (a) capitalized terms not otherwise defined herein have
the meanings given to such terms in the Purchase Agreement, and (b) the
following terms shall have the following meanings:


                      “Alternate
Consideration” shall have the meaning set forth in Section 5(e)(iii).


                      “Amended
Issue Date” shall mean July 1, 2009.


                      “Bridge
Notes” shall mean promissory notes issued in a “Bridge Transaction.” 


36









	
  

 	
  

 
	
  

 	
           “Bridge
 Transaction” shall mean a transaction wherein the Company sells to
 certain persons at any time on or before October 1, 2009 promissory notes and
 shares of its Common Stock and receives gross proceeds therefor of at least
 $350,000, on the terms substantially similar to those set forth on Exhibit A
 hereto.

 
	
  

 	
  

 
	
  

 	
           “Business
 Day” means any day except Saturday, Sunday and any day which shall be a
 federal legal holiday in the United States or a day on which banking
 institutions in the State of New York are authorized or required by law or
 other government action to close.

 
	
  

 	
  

 
	
  

 	
           “Change
 of Control Transaction” means the occurrence of any of (i) an acquisition
 after the date hereof by an individual or legal entity or “group” (as
 described in Rule 13d-5(b)(l) promulgated under the Exchange Act) of
 effective control (whether through legal or beneficial ownership of capital
 stock of the Company, by contract or otherwise) of in excess of 33% of the
 voting securities of the Company, or (ii) a replacement at one time or within
 a two year period of more than one-half of the members of the Company’s board
 of directors who are serving on February 19, 2010 which is not approved by a
 majority of those individuals who are members of the board of directors on
 the date hereof (or by those individuals who are serving as members of the
 board of directors on any date whose nomination to the board of directors was
 approved by a majority of the members of the board of directors who are
 members on the date hereof), or (iii) Dr. Ricardo Moro shall no longer be
 employed by the Company as Chief Executive Officer on a full time basis, or
 (iv) the execution by the Company of an agreement to which the Company is a
 party or by which it is bound, providing for any of the events set forth
 above in (i) or (ii).

 
	
  

 	
  

 
	
  

 	
           “Common
 Stock” means the common stock, par value $0.01 per share, of the Company
 and stock of any other class into which such shares may hereafter have been
 reclassified or changed.

 
	
  

 	
  

 
	
  

 	
           “Conversion
 Date” shall have the meaning set forth in Section 4(a) hereof.

 
	
  

 	
  

 
	
  

 	
           “Conversion
 Price” shall have the meaning set forth in Section 4(b).

 
	
  

 	
  

 
	
  

 	
           “Conversion
 Shares” means the shares of Common Stock issuable upon conversion of
 Notes, as payment of interest or as payment of the Monthly Redemption, all in
 accordance with the terms hereof.

 
	
  

 	
  

 
	
  

 	
           “Equity
 Conditions” shall mean, during the period in question, (i) the Company
 shall have duly honored all conversions and redemptions scheduled to occur or
 occurring by virtue of one or more Notice of Conversions, if any, (ii) all
 liquidated damages and other amounts owing in respect of the Notes shall have
 been paid; (iii) there is an effective Registration Statement (or, in the
 case of the shares issuable upon conversion of the Notes, the Holder may
 resell such shares without regard to the volume limitations under Rule 144)
 pursuant to which the Holder is permitted to utilize the prospectus
 thereunder to resell all of the shares issuable pursuant to the Transaction
 Documents (and the Company believes, in good faith, that such effectiveness
 will continue uninterrupted for the foreseeable future), (iv) the Common
 Stock is trading on the Trading Market and all of the shares issuable
 pursuant to the Transaction Documents are listed for trading on a Trading
 Market (and the Company believes, in good faith, that trading of the Common
 Stock on a Trading Market will continue uninterrupted for the foreseeable
 future), (v) there is a sufficient number of authorized but unissued and
 otherwise unreserved shares of Common Stock for the issuance of all of the
 shares issuable pursuant to the Transaction Documents, (vi) there is then
 existing no Event of Default or event which, with the passage of

 


37









	
  

 	
  

 
	
  

 	
 time or the
 giving of notice, would constitute an Event of Default, (vii) all of the
 shares issued or  issuable pursuant to the
 transaction proposed would not violate the limitations set forth in Section
 4(c) and (viii) no public announcement of a pending or proposed Fundamental
 Transaction, Change of Control Transaction or acquisition transaction has occurred
 that has not been consummated.

 
	
  

 	
  

 
	
  

 	
           “Event
 of Default” shall have the meaning set forth in Section 9.

 
	
  

 	
  

 
	
  

 	
           “Exchange
 Act” means the Securities Exchange Act of 1934, as amended.

 
	
  

 	
  

 
	
  

 	
           “Fundamental
 Transaction” shall have the meaning set forth in Section 5(e)(iii)
 hereof.

 
	
  

 	
  

 
	
  

 	
           “Interest
 Conversion Rate” means the lesser of (i) the Conversion Price and (ii)
 80% of the VWAP for the 10 Trading Days immediately prior to the applicable
 Interest Payment Date.

 
	
  

 	
  

 
	
  

 	
           “Late
 Fees” shall have the meaning set forth in the second paragraph to this
 Note.

 
	
  

 	
  

 
	
  

 	
           “Mandatory
 Prepayment Amount” for any Notes shall equal the sum of (i) the principal
 amount of Notes to be prepaid, plus all accrued and unpaid interest thereon,
 and (ii) all other amounts, costs, expenses and liquidated damages due in
 respect of such Notes.

 
	
  

 	
  

 
	
  

 	
           “Original
 Issue Date” shall mean the date of the first issuance of the Notes
 regardless of the number of transfers of any Note and regardless of the
 number of instruments which may be issued to evidence such Note.

 
	
  

 	
  

 
	
  

 	
           “Person”
 means a corporation, an association, a partnership, organization, a business,
 an individual, a government or political subdivision thereof or a governmental
 agency.

 
	
  

 	
  

 
	
  

 	
           “Prime”
 shall mean the Prime Rate as reported in the Wall Street Journal on any day.

 
	
  

 	
  

 
	
  

 	
           “Public
 Offering” shall mean a transaction wherein the Company shall have issued
 shares of its Common Stock (including a transaction where such shares are
 part of a Unit which includes warrants to purchase Common Stock) in a firm
 commitment underwritten registered public offering and receives gross
 proceeds therefrom of at least $3,000,000.

 
	
  

 	
  

 
	
  

 	
           “Purchase
 Agreement” means the Securities Purchase Agreement, dated as of June 25,
 2007 to which the Company and the original Holder are parties, as amended,
 modified or supplemented from time to time in accordance with its terms.

 
	
  

 	
  

 
	
  

 	
           “Securities
 Act” means the Securities Act of 1933, as amended, and the rules and
 regulations promulgated thereunder.

 
	
  

 	
  

 
	
  

 	
           “Subsidiary”
 shall have the meaning given to such term in the Purchase Agreement.

 
	
  

 	
  

 
	
  

 	
           “Trading
 Day” means a day on which the Common Stock is traded on a Trading Market.

 
	
  

 	
  

 
	
  

 	
           “Trading
 Market” means the following markets or exchanges on which the Common
 Stock is listed or quoted for trading on the date in question: the Nasdaq
 SmallCap Market, the American Stock Exchange, the New York Stock Exchange,
 the Nasdaq National Market, the OTC Bulletin Board, or the Pink Sheets.

 


38









	
  

 	
  

 
	
  

 	
           “Transaction
 Documents” shall have the meaning set forth in the Purchase Agreement.

 
	
  

 	
  

 
	
  

 	
           “VWAP”
 means, for any date, the price determined by the first of the following
 clauses that applies: (a) if the Common Stock is then listed or quoted on a
 Trading Market, the daily volume weighted average price of the Common Stock
 for such date (or the nearest preceding date) on the primary Trading Market
 on which the Common Stock is then listed or quoted as reported by Bloomberg
 Financial L.P. (based on a Trading Day from 9:30 a.m. EST to 4:02 p.m.
 Eastern Time) using the VAP function; (b) if the Common Stock is not then
 listed or quoted on the Trading Market and if prices for the Common Stock are
 then reported in the “Pink Sheets” published by the Pink Sheets, LLC (or a
 similar organization or agency succeeding to its functions of reporting
 prices), the most recent bid price per share of the Common Stock so reported;
 or (c) in all other cases, the fair market value of a share of Common Stock
 as determined by a nationally recognized-independent appraiser selected in
 good faith by Holders holding a majority of the principal amount of Notes
 then outstanding.

 



Section
2.     Interest;
Principal Repayment


          a)        Payment
of Interest in Cash or Kind. The Company shall pay interest to the Holder
on the aggregate unconverted and then outstanding principal amount of this Note
at the rate of Prime (as adjusted monthly on the first Business Day of each
month) plus 2.75% per annum, payable as follows: (i) provided that the Bridge
Transaction shall have closed on or before October 1, 2009, then the first such
payment shall be due on the first day of the month following the month in which
the Bridge Notes shall have been issued (the “First Interest Payment Date”) and
shall be for the period from the Amended Issue Date to the last day of the
month in which the first of the Bridge Notes shall have been issued; (ii)
thereafter monthly in arrears beginning on the first day of the month following
the First Interest Payment Date; and (iii) on each Conversion Date (as to that
principal amount then being converted), on the Maturity Date (except that, if
any such date is not a Business Day, then such payment shall be due on the next
succeeding Business Day) (each such date, an “Interest Payment Date”), in cash
or shares of Common Stock at the Interest Conversion Rate, or a combination
thereof; provided, however, payment in shares of Common Stock may
only occur if during the 10 Trading Days immediately prior to the applicable
Interest Payment Date all of the Equity Conditions have been met, the payment
in shares of Common Stock (combined with all payments to other Note holders)
would not exceed 25% of the aggregate volume for the previous 10 Trading Days
and the Company shall have given the Holder notice in accordance with the
notice requirements set forth below. Notwithstanding anything contained herein
to the contrary, in the event that (i) the Bridge Transaction shall not have
closed on or before October 1, 2009, or at any time prior to October 1, 2009
the Company or its placement agent determines not to proceed with the Bridge
Transaction, or (ii) the Public Offering shall not have closed by February 19,
2010, or at any time prior to February 19, 2010 the Company or the lead
underwriter determines not to proceed with the Public Offering, then interest
on this Note shall be deemed to have accrued at the rate of eighteen percent
(18%) per annum from the Amended Issue Date through and including the date on
which all interest which is due and owing hereunder has been paid in full.


          b)        Company’s
Election to Pay Interest in Kind. Subject to the terms and conditions
herein, the decision whether to pay interest hereunder in shares of Common
Stock or cash shall be at the discretion of the Company. Should the Company
elect to pay interest in kind, it shall be paid in registered shares of Common
Stock at the Interest Conversion Rate. Not less than 10 Trading Days prior to
each Interest Payment Date, the Company shall provide the Holder with written
notice of its election to pay interest hereunder either in cash or shares of
Common Stock (the Company may indicate in such notice that the election
contained in such notice shall continue for later periods until revised).
Within 10 Trading Days prior to an Interest Payment Date, the Company’s
election (whether specific to an Interest Payment Date or continuous) shall be
irrevocable as to such Interest Payment Date. Subject to the aforementioned 


39





conditions, failure to
timely provide such written notice shall be deemed an election by the Company
to pay the interest on such Interest Payment Date in cash.


          c)        Interest
Calculations. Interest shall be calculated on the basis of a 360-day year
and shall accrue daily commencing on the Amended Issue Date until payment in
full of the principal sum, together with all accrued and unpaid interest and
other amounts which may become due hereunder, has been made. Interest shall be
compounded monthly. Payment of interest in shares of Common Stock shall
otherwise occur pursuant to Section 4(d)(ii) and only for purposes of the
payment of interest in shares, the Interest Payment Date shall be deemed the
Conversion Date. Interest shall cease to accrue with respect to any principal
amount converted, provided that the Company in fact delivers the Conversion
Shares within the time period required by Section 4(d)(ii) and if not so
delivered, interest will accrue until delivery of the Conversion Shares.
Interest hereunder will be paid to the Person in whose name this Note is
registered on the records of the Company regarding registration and transfers
of Notes (the “Note Register”). Except as otherwise provided herein, if at any
time the Company pays interest partially in cash and partially in shares of
Common Stock, then such payment shall be distributed ratably among the Holders
based upon the principal amount of Notes held by each Holder.


          d)        Late
Fee. All overdue accrued and unpaid interest to be paid hereunder shall
entail a late fee at the rate of 18% per annum (or such lower maximum amount of
interest permitted to be charged under applicable law) (“Late Fee”) which will
accrue daily, from the date such interest is due hereunder through and
including the date of payment. Notwithstanding anything to the contrary
contained herein, if on any Interest Payment Date the Company has elected to
pay interest in Common Stock and is not able to pay accrued interest in the
form of Common Stock because it does not then satisfy the conditions for
payment in the form of Common Stock set forth above, then, the Company shall
pay cash.


          e)        Optional Prepayment. The
Company shall not have the right to prepay any portion of the Notes without the
written consent of the Holders.


          f)        Mandatory
Repayment. 


                     (i)     If
the Company shall (x) be a party to any Change of Control Transaction or
Fundamental Transaction or (y) agree to sell or dispose of any of its assets in
one or more transactions, other than in the ordinary course of business
consistent with past practice (whether or not such sale would constitute a
Change of Control Transaction), then simultaneously with the execution of the
term sheet, letter of intent, memorandum of understanding or other document
outlining the terms of such Change of Control Transaction or Fundamental
Transaction the Company will be required to offer to repay the then outstanding
aggregate principal amount of the Notes at 115% of the principal amount
thereof. 


                     (ii)    Simultaneously
with the closing of the Public Offering, the Company shall offer to pay to the
Holder as a repayment of the principal amount of this Note an amount equal to
the greater of (x) 4% of the net proceeds from the Public Offering as shall be
set forth in the Use of Proceeds section of the Prospectus used by the Company
in connection with the Public Offering or (y) $120,000, plus all accrued and
unpaid interest thereon to the date of such payment. 


                     (iii)   In
connection with the Public Offering, if the underwriter(s) of such Public
Offering elects to exercise all or any portion of the option granted to it to
cover over-allotments (the “Green Shoe Transaction”), then within one Business
Day of the Company being notified that the underwriter(s) intend to proceed
with the Green Shoe Transaction, the Company shall offer to pay to the Holder
as a repayment of the principal amount of this Note an amount equal to 10% of
the gross proceeds from the Green Shoe Transaction, plus all accrued and unpaid
interest thereon to the date of such payment. 


40





                     (iv)    In
connection with the sale by the Company of any equity or debt securities other
than the Bridge Transaction or the Public Offering, then within one Business
Day of the Company’s determination to proceed with such sale of securities, the
Company shall offer to pay to the Holder as a repayment of the principal amount
of this Note an amount equal to 6% of the gross proceeds thereof, plus all
accrued and unpaid interest thereon to the date of such payment. 


                    
(v)     The Company shall offer to pay to the Holder
as a prepayment of the principal amount of this Note plus all accrued and
unpaid interest thereon to the date of such payment, an amount equal to 2% of
the gross revenues received by it from each licensing agreement entered into by
the Company, such offer to be made within three Business Days of the Company’s
receipt of such revenues. All such payments shall be made by the Company within
three Business Days of the actual receipt thereof by the Company.


                    
(vi)    The offers of repayment as set forth in Sections 2(f)(i)
thru 2(f)(v) shall be made in writing (a “Repayment Offer”). If the Holder has
not advised the Company that it elects to receive the repayment provided for in
the Repayment Offer within ten Business Days of the giving of such Repayment
Offer, then the Holder shall no longer have any right to receive any prepayment
from the transaction to which such Repayment Offer applied. If the Holder
should elect to receive any repayment pursuant to Sections 2(f)(i) thru
2(f)(iv) such payments shall be made on the later of (A) one Business Day of
the Holder’s election or (B) the closing of such transaction.


Section
3.     Registration
of Transfers and Exchanges.


          a)        Different
Denominations. This Note is exchangeable for an equal aggregate principal
amount of Notes of different authorized denominations as requested by the
Holder surrendering the same, No service charge will be made for such
registration of transfer or exchange.


          b)        Investment
Representations, This Note has been issued subject to certain investment
representations of the original Holder set forth in the Purchase Agreement and
may be transferred or exchanged only in compliance with the Purchase Agreement
and applicable federal and state securities laws and regulations.


          c)        Reliance
on Note Register. Prior to due presentment to the Company for transfer of
this Note, the Company and any agent of the Company may treat the Person in
whose name this Note is duly registered on the Note Register as the owner hereof
for the purpose of receiving payment as herein provided and for all other
purposes, whether or not this Note is overdue, and neither the Company nor any
such agent shall be affected by notice to the contrary.


Section
4.     Conversion.


          a)        Voluntary
Conversion. At any time after the Original Issue Date until this Note is no
longer outstanding, this Note shall be convertible into shares of Common Stock
at the option of the Holder, in whole or in part at any time and from time to
time (subject to the limitations on conversion set forth in Section 4(c)
hereof), provided, however, that the Holder shall not convert the Note into a
number of shares that would exceed 25% of the aggregate volume for the previous
10 Trading Days. The Holder shall effect conversions by delivering to the
Company the form of Notice of Conversion attached hereto as Annex A (a “Notice
of Conversion”), specifying therein the principal amount of Notes to be
converted and the date on which such conversion is to be effected (a
“Conversion Date”). If no Conversion Date is specified in a Notice of
Conversion, the Conversion Date shall be the date that such Notice of
Conversion is provided hereunder. To effect conversions hereunder, the Holder
shall not be required to physically 


41





surrender Notes to the
Company unless the entire principal amount of this Note plus all accrued and
unpaid interest thereon has been so converted. Conversions hereunder shall have
the effect of lowering the outstanding principal amount of this Note in an
amount equal to the applicable conversion. The Holder and the Company shall
maintain records showing the principal amount converted and the date of such
conversions. The Company shall deliver any objection to any Notice of
Conversion within 3 Business Days of receipt of such notice. In the event of
any dispute or discrepancy, the records of the Holder shall be controlling and
determinative in the absence of manifest error. The Holder and any assignee, by
acceptance of this Note, acknowledge and agree that, by reason of the
provisions of this paragraph, following conversion of a portion of this Note,
the unpaid and unconverted principal amount of this Note may be less than the
amount stated on the face hereof. However, at the Company’s request, the Holder
shall surrender the Note to the Company within five (5) Trading Days following
such request so that a new Note reflecting the correct principal amount may be
issued to Holder.


          b)         Conversion
Price. The conversion price in effect on any Conversion Date (subject to
adjustment herein) shall be equal to $0.14 per share.


          c)         Conversion
Limitations; Holder’s Restriction on Conversion. The Company shall
not effect any conversion of this Note, and the Holder shall not have the right
to convert any portion of this Note, pursuant to Section 4(a) or otherwise, to
the extent that after giving effect to such conversion, the Holder (together
with the Holder’s affiliates), as set forth on the applicable Notice of
Conversion, would beneficially own in excess of 4.99% of the number of shares
of the Common Stock outstanding immediately after giving effect to such
conversion. For purposes of the foregoing sentence, the number of shares of
Common Stock beneficially owned by the Holder and its affiliates shall include
the number of shares of Common Stock issuable upon conversion of this Note with
respect to which the determination of such sentence is being made, but shall
exclude the number of shares of Common Stock which would be issuable upon (A)
conversion of the remaining, nonconverted portion of this Note beneficially
owned by the Holder or any of its affiliates and (B) conversion of the
nonconverted portion of any other securities of the Company (including, without
limitation, any other Notes or the Warrants) subject to a limitation on
conversion or Conversion analogous to the limitation contained herein
beneficially owned by the Holder or any of its affiliates. Except as set forth
in the preceding sentence, for purposes of this Section 4(c), beneficial
ownership shall be calculated in accordance with Section 13(d) of the Exchange
Act. To the extent that the limitation contained in this section applies, the
determination of whether this Note is convertible (in relation to other securities
owned by the Holder) and of which a portion of this Note is convertible shall
be in the sole discretion of such Holder. To ensure compliance with this
restriction, the Holder will be deemed to represent to the Company each time it
delivers a Notice of Conversion that such Notice of Conversion has not violated
the restrictions set forth in this paragraph and the Company shall have no
obligation to verify or confirm the accuracy of such determination. For
purposes of this Section 4(c), in determining the number of outstanding shares
of Common Stock, the Holder may rely on the number of outstanding shares of
Common Stock as reflected in (x) the Company’s most recent Form 10-QSB or Form
10-KSB, as the case may be, (y) a more recent public announcement by the Company
or (z) any other notice by the Company or the Company’s Transfer Agent setting
forth the number of shares of Common Stock outstanding. Upon the written or
oral request of the Holder, the Company shall within two Trading Days confirm
orally and in writing to the Holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common Stock
shall be determined after giving effect to the conversion or Conversion of
securities of the Company, including this Note, by the Holder or its affiliates
since the date as of which such number of outstanding shares of Common Stock
was reported. The provisions of this Section 4(c) may be waived by the Holder
upon, at the election of the Holder, not less than 61 days’ prior notice to the
Company, and the provisions of this Section 4(c) shall continue to apply until
such 61st day (or such later date, as determined by the Holder, as may be
specified in such notice of waiver).


42





          d)         Mechanics
of Conversion


	
  

 	
  

 
	
  

 	
       i.               Conversion
 Shares Issuable Upon Conversion of Principal Amount. The number of
 shares of Common Stock issuable upon a conversion hereunder shall be
 determined by the quotient obtained by dividing (x) the amount of this Note
 (whether principal, accrued but unpaid interest or other amounts payable
 hereunder) to be converted by (y) the Conversion Price.

 
	
  

 	
  

 
	
  

 	
       ii.              Delivery
 of Certificate Upon Conversion. Not later than five Trading Days after
 any Conversion Date, the Company will deliver to the Holder at an address in
 the United States (A) a certificate or certificates representing the
 Conversion Shares which shall be free of restrictive legends and trading
 restrictions representing the number of shares of Common Stock being acquired
 upon the conversion of Notes (including, if so timely elected by the Company,
 shares of Common Stock representing the payment of accrued interest) and (B)
 a bank check or wire transfer in the amount of accrued and unpaid interest
 (if the Company is required to pay accrued interest in cash). The Company
 shall, if available and if allowed under applicable securities laws, use its
 best efforts to deliver any certificate or certificates required to be
 delivered by the Company under this Section electronically through the
 Depository Trust Corporation or another established clearing corporation
 performing similar functions.

 
	
  

 	
  

 
	
  

 	
       iii.             Failure
 to Deliver Certificates. If in the case of any Notice of Conversion such
 certificate or certificates are not delivered to or as directed by the
 applicable Holder by the fifth Trading Day after a Conversion Date, the
 Holder shall be entitled by written notice to the Company at any time on or
 before its receipt of such certificate or certificates thereafter, to rescind
 such conversion, in which event the Holder shall immediately return the
 certificates representing the principal amount of Notes tendered for
 conversion.

 
	
  

 	
  

 
	
  

 	
       iv.             Obligation
 Absolute: Partial Liquidated Damages. If the Company fails for any reason
 to deliver to the Holder such certificate or certificates pursuant to Section
 4(d)(ii) by the fifth Trading Day after the Conversion Date, the Company
 shall pay to such Holder, in cash, as liquidated damages and not as a
 penalty, for each $1000 of principal amount being converted, $5 per Trading
 Day (increasing to $10 per Trading Day after five Trading Days after such
 damages begin to accrue) for each Trading Day after such fifth Trading Day
 until such certificates are delivered. The Company’s obligations to issue and
 deliver the Conversion Shares upon conversion of this Note in accordance with
 the terms hereof are absolute and unconditional, irrespective of any action
 or inaction by the Holder to enforce the same, any waiver or consent with
 respect to any provision hereof, the recovery of any judgment against any
 Person or any action to enforce the same, or any setoff, counterclaim,
 recoupment, limitation or termination, or any breach or alleged breach by the
 Holder or any other Person of any obligation to the Company or any violation
 or alleged violation of law by the Holder or any other person, and
 irrespective of any other circumstance which might otherwise limit such
 obligation of the Company to the Holder in connection with the issuance of
 such Conversion Shares; provided, however, such delivery shall not operate as
 a waiver by the Company of any such action the Company may have against the
 Holder. In the event a Holder of this Note shall elect to convert any or all
 of the outstanding principal amount hereof, the Company may not refuse
 conversion based on any claim that the Holder or any one associated or
 affiliated with the Holder of has been engaged in any violation of law,
 agreement or for any other reason, unless, an injunction from a court, on
 notice, restraining and or enjoining conversion of all or part of this Note
 shall have been sought and obtained and the Company posts a surety bond for
 the benefit of the Holder in the amount of 150% of the principal amount of
 this Note outstanding, which is subject to the injunction, which bond shall
 remain in effect until the completion of arbitration/litigation of the
 dispute and the proceeds of which shall be payable to such Holder to the
 extent it obtains judgment. In the 

 


43









	
  

 	
  

 
	
  

 	
 absence of an injunction
 precluding the same, the Company shall issue Conversion Shares or, if
 applicable, cash, upon a properly noticed conversion. Nothing herein shall
 limit a Holder’s right to pursue actual damages or declare an Event of
 Default pursuant to Section 9 herein for the Company’s failure to deliver
 Conversion Shares within the period specified herein and such Holder shall
 have the right to pursue all remedies available to it at law or in equity
 including, without limitation, a decree of specific performance and/or
 injunctive relief. The Conversion of any such rights shall not prohibit the
 Holders from seeking to enforce damages pursuant to any other Section hereof
 or under applicable law.

 
	
  

 	
  

 
	
  

 	
       v.               Compensation
 for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In
 addition to any other rights available to the Holder, if the Company fails
 for any reason to deliver to the Holder such certificate or certificates
 pursuant to Section 4(d)(ii) by the fifth Trading Day after the Conversion
 Date, and if after such fifth Trading Day the Holder is required by its
 brokerage firm to purchase (in an open market transaction or otherwise)
 Common Stock to deliver in satisfaction of a sale by such Holder of the
 Conversion Shares which the Holder anticipated receiving upon such conversion
 (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in
 addition to any remedies available to or elected by the Holder) the amount by
 which (x) the Holder’s total purchase price (including brokerage commissions,
 if any) for the Common Stock so purchased exceeds (y) the product of (1) the
 aggregate number of shares of Common Stock that such Holder anticipated
 receiving from the conversion at issue multiplied by (2) the actual sale
 price of the Common Stock at the time of the sale (including brokerage
 commissions, if any) giving rise to such purchase obligation and (B) at the
 option of the Holder, either reissue Notes in principal amount equal to the
 principal amount of the attempted conversion or deliver to the Holder the
 number of shares of Common Stock that would have been issued had the Company
 timely complied with its delivery requirements under Section 4(d)(ii). For
 example, if the Holder purchases Common Stock having a total purchase price
 of $11,000 to cover a Buy-In with respect to an attempted conversion of Notes
 with respect to which the actual sale price of the Conversion Shares at the
 time of the sale (including brokerage commissions, if any) giving rise to
 such purchase obligation was a total of $10,000 under clause (A) of the
 immediately preceding sentence, the Company shall be required to pay the
 Holder $1,000. The Holder shall provide the Company written notice indicating
 the amounts payable to the Holder in respect of the Buy-In and all supporting
 brokerage statements. Notwithstanding anything contained herein to the
 contrary;

 
	
  

 	
  

 
	
  

 	
       vi.             
 Reservation of Shares Issuable Upon Conversion. The Company covenants
 that it will at all times reserve and keep available out of its authorized and
 unissued shares of Common Stock solely for the purpose of issuance upon
 conversion of the Notes and payment of interest on the Note, each as herein
 provided, free from preemptive rights or any other actual contingent purchase
 rights of persons other than the Holders, not less than such number of shares
 of the Common Stock as shall (subject to any additional requirements of the
 Company as to reservation of such shares set forth in the Purchase Agreement)
 be issuable (taking into account the adjustments and restrictions of Section
 5) upon the conversion of the outstanding principal amount of the Notes and
 payment of interest hereunder. The Company covenants that all shares of
 Common Stock that shall be so issuable shall, upon issue, be duly and validly
 authorized, issued and fully paid and nonassessable.

 
	
  

 	
  

 
	
  

 	
       vii.            Fractional
 Shares. Upon a conversion hereunder the Company shall not be required to
 issue stock certificates representing fractions of shares of the Common
 Stock, but may if otherwise permitted, make a cash payment in respect of any
 final fraction of a share based on the VWAP at such time. If the Company
 elects not, or is unable, to make such a cash payment, 

 


44









	
  

 	
  

 
	
  

 	
 the Holder shall be
 entitled to receive, in lieu of the final fraction of a share, one whole
 share of Common Stock.

 
	
  

 	
  

 
	
  

 	
       viii.            Transfer
 Taxes. The issuance of certificates for shares of the Common Stock on
 conversion of the Notes shall be made without charge to the Holders thereof
 for any documentary stamp or similar taxes that may be payable in respect of
 the issue or delivery of such certificate, provided that the Company shall
 not be required to pay any tax that may be payable in respect of any transfer
 involved in the issuance and delivery of any such certificate upon conversion
 in a name other than that of the Holder of such Notes so converted and the
 Company shall not be required to issue or deliver such certificates unless or
 until the person or persons requesting the issuance thereof shall have paid
 to the Company the amount of such tax or shall have established to the
 satisfaction of the Company that such tax has been paid.

 



Section
5.      Certain
Adjustments.


          a)         Stock
Dividends and Stock Splits. If the Company, at any time after the Amended
Issue Date while the Notes are outstanding: (A) shall pay a stock dividend or
otherwise make a distribution or distributions on shares of its Common Stock or
any other equity or equity equivalent securities payable in shares of Common
Stock (which, for avoidance of doubt, shall not include any shares of Common
Stock issued by the Company pursuant to this Note, including as interest
thereon), (B) subdivide outstanding shares of Common Stock into a larger number
of shares, or (C) combine (including by way of reverse stock split) outstanding
shares of Common Stock into a smaller number of shares, then the Conversion
Price shall be multiplied by a fraction of which the numerator shall be the
number of shares of Common Stock (excluding treasury shares, if any)
outstanding before such event and of which the denominator shall be the number
of shares of Common Stock outstanding after such event, excluding any shares
issued to the Holder as a stock dividend. Any adjustment made pursuant to this
Section shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of
a subdivision, combination or re-classification.


          b)
        Subsequent Equity
Sales. If the Company, at any time after the Amended Issue Date while the
Note is outstanding shall offer, sell, grant any option to purchase or offer,
sell or grant any right to re-price its securities, or otherwise dispose of or
issue (or announce any offer, sale, grant or any option to purchase or other
disposition) any Common Stock or Common Stock Equivalents entitling any Person
to acquire shares of Common Stock, at an effective price per share less than the
then Conversion Price (such lower price, the “Base Share Price” and such
issuances collectively, a “Dilutive Issuance”), as adjusted hereunder (if the
holder of the Common Stock or Common Stock Equivalents so issued shall at any
time, whether by operation of purchase price adjustments, reset provisions,
floating conversion, Conversion or exchange prices or otherwise, or due to
warrants, options or rights per share which is issued in connection with such
issuance, be entitled to receive shares of Common Stock at an effective price
per share which is less than the Conversion Price, such issuance shall be
deemed to have occurred for less than the Conversion Price), then, the
Conversion Price shall be reduced to an amount equal to the product of (A) the
Conversion Price in effect immediately prior to such Dilutive Issuance and (B)
the quotient determined by dividing (1) the sum of (I) the product derived by
multiplying the Conversion Price in effect immediately prior to such Dilutive
Issuance and the number of shares of Common Stock outstanding immediately prior
to such Dilutive Issuance plus (II) the consideration, if any, received by the
Company upon such Dilutive Issuance, by (2) the product derived by multiplying
(I) the Conversion Price in effect immediately prior to such Dilutive Issuance
by (II) the number of shares of Common Stock outstanding immediately after such
Dilutive Issuance. Such adjustment shall be made whenever such Common Stock or
Common Stock Equivalents are issued. The
Company shall notify the Holder in writing, no later than the Trading Day
following the issuance of any Common Stock or Common Stock


45





Equivalents subject
to this section, indicating therein the applicable issuance price, or of
applicable reset price, exchange price, conversion price and other pricing
terms (such notice the “Dilutive Issuance Notice”). For purposes of
clarification, whether or not the Company provides a Dilutive Issuance Notice
pursuant to this Section 5(b), upon the occurrence of any Dilutive Issuance, after
the date of such Dilutive Issuance the Holder is entitled to receive a number
of Conversion Shares based upon the Base Share Price regardless of whether the
Holder accurately refers to the Base Share Price in the Notice of Conversion.


          c)         Pro
Rata Distributions. If the Company, at any time while Notes are
outstanding, shall distribute to all holders of Common Stock (and not to
Holders) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security, then in each such case the Conversion
Price shall be determined by multiplying such Conversion Price in effect
immediately prior to the record date fixed for determination of stockholders
entitled to receive such distribution by a fraction of which the denominator
shall be the VWAP determined as of the record date mentioned above, and of
which the numerator shall be such VWAP on such record date less the then fair
market value at such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of the Common
Stock as determined by the Board of Directors in good faith. In either case the
adjustments shall be described in a statement provided to the Holders of the
portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.


          d)
        Calculations. All
calculations under this Section 5 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. The number of shares of Common
Stock outstanding at any given time shall not includes shares of Common Stock
owned or held by or for the account of the Company, and the description of any
such shares of Common Stock shall be considered on issue or sale of Common
Stock. For purposes of this Section 5, the number of shares of Common Stock
deemed to be issued and outstanding as of a given date shall be the sum of the
number of shares of Common Stock (excluding treasury shares, if any) issued and
outstanding.


          e)         Notice
to Holders.


	
  

 	
  

 
	
  

 	
           i.          Adjustment
 to Conversion Price. Whenever the Conversion Price is adjusted pursuant
 to any of this Section 5, the Company shall promptly mail to each Holder a
 notice setting forth the Conversion Price after such adjustment and setting
 forth a brief statement of the facts requiring such adjustment. If the
 Company issues a variable rate security, despite the prohibition thereon in
 the Purchase Agreement, the Company shall be deemed to have issued Common
 Stock or Common Stock Equivalents at the lowest possible conversion or
 Conversion price at which such securities may be converted in the case of a
 Variable Rate Transaction (as defined in the Purchase Agreement), or the
 lowest possible adjustment price in the case of an MFN Transaction (as
 defined in the Purchase Agreement).

 
	
  

 	
  

 
	
  

 	
           ii.         Notice
 to Allow Conversion by Holder. If (A) the Company shall declare a
 dividend (or any other distribution) on the Common Stock; (B) the Company
 shall declare a special nonrecurring cash dividend on or a redemption of the
 Common Stock; (C) the Company shall authorize the granting to all holders of
 the Common Stock rights or warrants to subscribe for or purchase any shares
 of capital stock of any class or of any rights; (D) the approval of any
 stockholders of the Company shall be required in connection with any
 reclassification of the Common Stock, any consolidation or merger to which
 the Company is a party, any sale or transfer of all or substantially all of
 the assets of the Company, of any compulsory share exchange whereby the
 Common Stock is converted into other securities, cash or property; (E) the
 Company shall authorize the voluntary or involuntary dissolution, liquidation
 or winding up of the affairs of 

 


46









	
  

 	
  

 
	
  

 	
 the Company; then, in each
 case, the Company shall cause to be filed at each office or agency maintained
 for the purpose of conversion of the Notes, and shall cause to be mailed to
 the Holders at their last addresses as they shall appear upon the stock books
 of the Company, at least 20 calendar days prior to the applicable record or
 effective date hereinafter specified, a notice stating (x) the date on which
 a record is to be taken for the purpose of such dividend, distribution,
 redemption, rights or warrants, or if a record is not to be taken, the date
 as of which the holders of the Common Stock of record to be entitled to such
 dividend, distributions, redemption, rights or warrants are to be determined
 or (y) the date on which such reclassification, consolidation, merger, sale,
 transfer or share exchange is expected to become effective or close, and the
 date as of which it is expected that holders of the Common Stock of record
 shall be entitled to exchange their shares of the Common Stock for
 securities, cash or other property deliverable upon such reclassification,
 consolidation, merger, sale, transfer or share exchange; provided, that the
 failure to mail such notice or any defect therein or in the mailing thereof
 shall not affect the validity of the corporate action required to be
 specified in such notice. Holders are entitled to convert Notes during the
 20-day period commencing the date of such notice to the effective date of the
 event triggering such notice.

 
	
  

 	
  

 
	
  

 	
           iii.       Fundamental
 Transaction. If, at any time while this Note is outstanding, (A) the
 Company effects any merger or consolidation of the Company with or into
 another Person, (B) the Company effects any sale of all or substantially all
 of its assets in one or a series of related transactions, (C) any tender
 offer or exchange offer (whether by the Company or another Person) is
 completed pursuant to which holders of Common Stock are permitted to tender
 or exchange their shares for other securities, cash or property, or (D) the
 Company effects any reclassification of the Common Stock or any compulsory
 share exchange pursuant to which the Common Stock is effectively converted
 into or exchanged for other securities, cash or property (in any such case, a
 “Fundamental Transaction”), then upon any subsequent conversion of this Note,
 the Holder shall have the right to receive, for each Conversion Share that
 would have been issuable upon such conversion absent such Fundamental
 Transaction, the same kind and amount of securities, cash or property as it
 would have been entitled to receive upon the occurrence of such Fundamental
 Transaction if it had been, immediately prior to such Fundamental
 Transaction, the holder of one share of Common Stock (the “Alternate
 Consideration”). For purposes of any such conversion, the determination of
 the Conversion Price shall be appropriately adjusted to apply to such
 Alternate Consideration based on the amount of Alternate Consideration
 issuable in respect of one share of Common Stock in such Fundamental
 Transaction, and the Company shall apportion the Conversion Price among the
 Alternate Consideration in a reasonable manner reflecting the relative value
 of any different components of the Alternate Consideration, If holders of
 Common Stock are given any choice as to the securities, cash or property to
 be received in a Fundamental Transaction, then the Holder shall be given the
 same choice as to the Alternate Consideration it receives upon any conversion
 of this Note following such Fundamental Transaction. To the extent necessary
 to effectuate the foregoing provisions, any successor to the Company or surviving
 entity in such Fundamental Transaction shall issue to the Holder a new note
 consistent with the foregoing provisions and evidencing the Holder’s right to
 convert such note into Alternate Consideration. The terms of any agreement
 pursuant to which a Fundamental Transaction is effected shall include terms
 requiring any such successor or surviving entity to comply with the
 provisions of this paragraph (c) and insuring that this Note (or any such
 replacement security) will be similarly adjusted upon any subsequent
 transaction analogous to a Fundamental Transaction.

 



          f)          Exempt
Issuance. Notwithstanding the foregoing, no adjustment will be made under
this Section 5 in respect of an Exempt Issuance or the issuance of the Primary
Equity Consideration in connection with the Bridge Transaction.


47





          g)          Public
Offering. Notwithstanding anything to the contrary contained herein, if a
Public Offering is closed on or before February 19, 2010, then and in such
event the Conversion Price shall be increased or decreased, as the case may be
to an amount equal to two times the price of a share of Common Stock sold in
such Public Offering; it being understood that if the Public Offering takes the
form of a sale of Units containing shares of Common Stock and warrants to
purchase Common Stock the price shall be increased or decreased, as the case
may be, to a price equal to two times (i) the price of the Unit sold in such
Public Offering divided by the number of shares of Common Stock included in
such Unit (the “Base Per Share Stock Price”), minus (ii) the value of that
number of warrants, if any, included in such Unit in excess of 150% of the
number of shares of Common Stock included in such Unit, divided by the number
of shares of Common Stock included in such Unit. (For example, assume (i) a
Unit consists of 70 shares of Common Stock and 140 warrants, (ii) the price at
which the Unit is sold in the Public Offering is $4.90 and (iii) the value of a
warrant is $0.01; then the Conversion Price would be adjusted as follows: two
times (i) the price of a Unit $4.90, divided by 70 (the number of shares of
Common Stock included in the Unit) = a Base Per Share Stock Price of $0.07,
minus (ii) the number of warrants included in the Unit in excess of 150% of the
number of shares would be 35, times $0.01 (the value of a warrant) = $0.35
divided by 70 (the number of shares of Common Stock included in the Unit) =
$0.005. Therefore the Conversion Price would be $0.13 ($0.07 minus $0.005 =
$0.065 times 2)). Notwithstanding the above, if the exercise price of the
warrants included in the Unit is less than the Base Per Share Stock Price, then
the Conversion Price will be equal to two times (i) the Base Per Share Stock
Price minus (ii) the value of the total number of warrants included in such
Unit divided by the number of shares of Common Stock included in such Unit. For
purposes of this Section 5(g) the value of a warrant shallbe equal to the
average of the closing price of a warrant for the first three Trading Days that
the warrant is separately traded following the effectiveness of the
registration statement covering the Public Offering.


Section
6.        INTENTIONALLY
OMITTED


Section
7.        Negative
Covenants. 


          So
long as any portion of this Note is outstanding, the Company will not and will
not permit any of its Subsidiaries to directly or indirectly:


          a)           enter
into, create, incur, assume or suffer to exist any liens of any kind, on or
with respect to any of its property or assets now owned or hereafter acquired
or any interest therein or any income or profits therefrom that is senior to,
subordinated to or pari passu, in any respect, the Company’s obligations
under the Notes;


          b)           amend
its certificate of incorporation, bylaws or charter documents so as to
adversely affect any rights of the Holder;


          c)           repay,
repurchase, redeem or offer to repay, repurchase, redeem, make any payment in
respect of or otherwise acquire any of its Common Stock, Preferred Stock, or
other equity securities other than as to the Conversion Shares to the extent
permitted or required under the Transaction Documents or as otherwise permitted
by the Transaction Documents;


          d)           incur
any indebtedness for borrowed money unless such indebtedness is subordinated in
right of payment, in a manner satisfactory to the Holder in its sole
discretion, to the obligations of the Company under the Notes; provided,
however, that any such subordination will not prohibit the Company from
repaying any such debt from the proceeds of a future sale of equity securities
by the Company;


          e)           prepay
any indebtedness for borrowed money (whether now existing or hereafter 


48





incurred);


          f)           create
or acquire any Subsidiary after the date hereof unless (i) such Subsidiary is a
wholly-owned Subsidiary of the Company and (ii) such Subsidiary becomes party
to the Security Agreement and the Subsidiary Guaranty (either by executing a
counterpart thereof or an assumption or joinder agreement in respect thereof)
and, to the extent required by the Purchaser, satisfied each condition of this
Note, the Purchase Agreement and the other Transaction Documents as if such
Subsidiary were a Subsidiary on the Closing Date; 


          g)          engage
in any transaction with any officer, director, employee or any affiliate of the
Company, including any contract, agreement or other arrangement providing for
the furnishing of services to by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner, in each case in excess of $10,000
other than (i) for payment of salary, director fees (of which the cash portion
thereof may not exceed $10,000 per year, per director) or consulting fees for
services rendered, (ii) reimbursement for expenses incurred on behalf of the
Company, and (iii) for other employee benefits, including stock option
agreements under any stock option plan of the Company; provided that the
foregoing shall not apply to any transactions between the Company and
Pacific BioSciences Research Centre (“PBRC”) or any affiliated successor to
PBRC, wherein PBRC provides to the Company, those research and development
services, technical services and/or administrative services which PBRC is
providing to the Company on the terms and conditions in effect on the Amended
Issue Date; and further provided that any agreement between the Company and
PBRC with respect to such services entered into subsequent to the Amended Issue
Date shall be approved by a majority of the independent members of the
Company’s Board of Directors, in each case at a cost to the Company not to
exceed 115% of the fully absorbed cost thereof to PBRC and provided that such
services are not available to the Company on terms more favorable to it from
any other party; or


          h)          enter
into any agreement with respect to any of the foregoing.


Section
8.        Events of Default.


	
  

 	
  

 
	
           a)           Event
 of Default. Wherever used herein, means any one of the following events (whatever
 the reason and whether it shall be voluntary or involuntary or effected by
 operation of law or pursuant to any judgment, decree or order of any court,
 or any order, rule or regulation of any administrative or governmental body):

 
	
  

 	
  

 
	
  

 	
              i.          any
 default in the payment of (A) the principal amount of any Note, or (B)
 interest (including Late Fees) on, or liquidated damages in respect of, any
 Note, in each case free of any claim of subordination, as and when the same
 shall become due and payable (whether on a Conversion Date or the Maturity
 Date or by acceleration or otherwise) which default, solely in the case of an
 interest payment or other default under clause (B) above, is not cured,
 within five Trading Days;

 
	
  

 	
  

 
	
  

 	
              ii.         the
 Company shall fail to observe or perform any other covenant or agreement
 contained in this Note or any of the other Transaction Documents (other than
 a breach by the Company of its obligations to deliver shares of Common Stock
 to the Holder upon conversion which breach is addressed in clause (xii)
 below) which failure is not cured, if possible to cure, within the earlier to
 occur of (A) 5 Trading Days after notice of such default sent by the Holder
 or by any other Holder and (B) 10 Trading Days after the Company shall become
 or should have become aware of such failure;

 


49









	
  

 	
  

 
	
  

 	
              iii.          a
 default or event of default (subject to any grace or cure period provided for
 in the applicable agreement, document or instrument) shall occur under (A)
 any of the [Transaction Documents] other than the Notes, or (B) any other
 material agreement, lease, document or instrument to which the Company or any
 Subsidiary is bound, which default, solely in the case of a default under
 clause (B) above, is not cured, within 10 Trading Days;

 
	
  

 	
  

 
	
  

 	
              iv.          any
 representation or warranty made herein, in any other Transaction Document, in
 any written statement pursuant hereto or thereto, or in any other report,
 financial statement or certificate made or delivered to the Holder or any
 other holder of Notes shall be untrue or incorrect in any material respect as
 of the date when made or deemed made;

 
	
  

 	
  

 
	
  

 	
              v.           (i)
 the Company or any of its Subsidiaries shall commence, or there shall be commenced
 against the Company or any such Subsidiary, a case under any applicable
 bankruptcy or insolvency laws as now or hereafter in effect or any successor
 thereto, or the Company or any Subsidiary commences any other proceeding
 under any reorganization, arrangement, adjustment of debt, relief of debtors,
 dissolution, insolvency or liquidation or similar law of any jurisdiction
 whether now or hereafter in effect relating to the Company or any Subsidiary
 thereof or (ii) there is commenced against the Company or any Subsidiary
 thereof any such bankruptcy, insolvency or other proceeding which remains
 undismissed for a period of 60 days; or (iii) the Company or any Subsidiary
 thereof is adjudicated by a court of competent jurisdiction insolvent or
 bankrupt; or any order of relief or other order approving any such case or
 proceeding is entered; or (iv) the Company or any Subsidiary thereof suffers
 any appointment of any custodian or the like for it or any substantial part
 of its property which continues undischarged or unstayed for a period of 60
 days; or (v) the Company or any Subsidiary thereof makes a general assignment
 for the benefit of creditors; or (vi) the Company shall fail to pay, or shall
 state that it is unable to pay, or shall be unable to pay, its debts
 generally as they become due; or (vii) the Company or any Subsidiary thereof
 shall call a meeting of its creditors with a view to arranging a composition,
 adjustment or restructuring of its debts; or (viii) the Company or any
 Subsidiary thereof shall by any act or failure to act expressly indicate its
 consent to, approval of or acquiescence in any of the foregoing; or (ix) any
 corporate or other action is taken by the Company or any Subsidiary thereof
 for the purpose of effecting any of the foregoing;

 
	
  

 	
  

 
	
  

 	
              vi.         the
 Company or any Subsidiary shall default in any of its obligations under any
 mortgage, credit agreement or other facility, indenture agreement, factoring
 agreement or other instrument under which there may be issued, or by which there
 may be secured or evidenced any indebtedness for borrowed money or money due
 under any long term leasing or factoring arrangement of the Company in an
 amount exceeding $50,000, whether such indebtedness now exists or shall
 hereafter be created and such default shall result in such indebtedness
 becoming or being declared due and payable prior to the date on which it
 would otherwise become due and payable;

 
	
  

 	
  

 
	
  

 	
              vii.        the
 Common Stock shall not be eligible for quotation on or quoted for trading on
 a Trading Market and shall not again be eligible for and quoted or listed for
 trading thereon within five Trading Days;

 
	
  

 	
  

 
	
  

 	
              viii.        the
 Company shall redeem or repurchase more than a de minimis number of its
 outstanding shares of Common Stock or other equity securities of the Company
 (other than redemptions of Conversion Shares and repurchases of shares of
 Common Stock or other equity securities of departing officers and directors
 of the Company; provided such repurchases shall not exceed $50,000, in the
 aggregate, for all officers and directors during the term of this Note);

 


50









	
  

 	
  

 
	
  

 	
              ix.        the
 Company shall fail for any reason to deliver certificates to a Holder prior
 to the fifth Trading Day after a Conversion Date pursuant to and in
 accordance with Section 4(d) or the Company shall provide notice to the
 Holder, including by way of public announcement, at any time, of its
 intention not to comply with requests for conversions of any Notes in
 accordance with the terms hereof;

 
	
  

 	
  

 
	
  

 	
              x.          the
 Company shall fail for any reason to pay in full the amount of cash due
 pursuant to a Buy-In within 5 Trading Days after notice therefor is delivered
 hereunder or shall fail to pay all amounts owed on account of an Event of
 Default within five days of the date due;

 
	
  

 	
  

 
	
  

 	
              xi.         the
 Company shall not have closed a Bridge Transaction on or before October 1,
 2009 or at any time prior to October 1, 2009, the Company or its placement
 agent determines not to proceed with the Bridge Transaction; or

 
	
  

 	
  

 
	
  

 	
              xii.        the
 Company shall not have closed a Public Offering on or before February 19,
 2010 or at any time prior to February 19, 2010, the Company or the lead
 underwriter determines not to proceed with the Public Offering.

 



          b)           Remedies
Upon Event of Default. If any Event of Default occurs, the full principal
amount of this Note, together with interest and other amounts owing in respect
thereof, to the date of acceleration shall become, at the Holder’s election,
immediately due and payable in cash. The aggregate amount payable upon an Event
of Default shall be equal to the Mandatory Prepayment Amount. Commencing 5 days
after the occurrence of any Event of Default that results in the eventual
acceleration of this Note, the interest rate on this Note shall accrue at the
rate of 18% per annum, or such lower maximum amount of interest permitted to be
charged under applicable law. All Notes for which the full Mandatory Prepayment
Amount hereunder shall have been paid in accordance herewith shall promptly be
surrendered to or as directed by the Company. The Holder need not provide and
the Company hereby waives any presentment, demand, protest or other notice of
any kind, and the Holder may immediately and without expiration of any grace
period enforce any and all of its rights and remedies hereunder and all other
remedies available to it under applicable law. Such declaration may be
rescinded and annulled by Holder at any time prior to payment hereunder and the
Holder shall have all rights as a Note holder until such time, if any, as the
full payment under this Section shall have been received by it. No such
rescission or annulment shall affect any subsequent Event of Default or impair
any right consequent thereon.


Section
9.          Miscellaneous.


           a)            Notices,
Any and all notices or other communications or deliveries to be provided by the
Holders hereunder, including, without limitation, any Notice of Conversion,
shall be in writing and delivered personally, by facsimile, sent by a
nationally recognized overnight courier service, addressed to the Company, at
the address set forth above, facsimile number (604) 207-9165 Attn: Dr. Ricardo
Moro, Chief Executive Officer, or such other address or facsimile number as the
Company may specify for such purposes by notice to the Holders delivered in
accordance with this Section. Any and all notices or other communications or
deliveries to be provided by the Company hereunder shall be in writing and
delivered personally, by facsimile, sent by a nationally recognized overnight
courier service addressed to each Holder at the facsimile, telephone number or
address of such Holder appearing on the books of the Company, or if no such
facsimile telephone number or address appears, at the principal place of
business of the Holder. Any notice or other communication or deliveries
hereunder shall be deemed given and effective on the earliest of (i) the date
of transmission, if such notice or communication is delivered via facsimile at
the facsimile telephone number specified in this Section prior to 5:30 p.m.
(New York City time), (ii) the date after the date of transmission, if such
notice or communication is delivered via


51





facsimile at the facsimile
telephone number specified in this Section later than 5:30 p.m. (New York City
time) on any date and earlier than 11:59 p.m. (New York City time) on such
date, (iii) the second Business Day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iv) upon actual receipt by
the party to whom such notice is required to be given.


          b)           Absolute
Obligation. Except as expressly provided herein, no provision of this Note
shall alter or impair the obligation of the Company, which is absolute and
unconditional, to pay the principal of, interest and liquidated damages (if
any) on, this Note at the time, place, and rate, and in the coin or currency,
herein prescribed. This Note is a direct debt obligation of the Company. This
Note ranks pari passu with all other Notes now or hereafter issued under
the terms set forth herein.


          c)           Lost
or Mutilated Note. If this Note shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of a mutilated Note, or in lieu of or in substitution
for a lost, stolen or destroyed Note, a new Note for the principal amount of
this Note so mutilated, lost, stolen or destroyed but only upon receipt of
evidence of such loss, theft or destruction of such Note, and of the ownership
hereof; and indemnity, if requested, all reasonably satisfactory to the
Company.


          d)           Security
Interest. This Note is a direct debt obligation of the Company and,
pursuant to the Security Agreement is secured by a first priority perfected
security interest in all of the assets of the Company for the benefit of the
Holders.


          e)           Governing
Law. All questions concerning the construction, validity, enforcement and
interpretation of this Note, and any claim, controversy or dispute arising
under or related to this Note, the relationship of the parties, and/or the
interpretation and enforcement of the rights and duties of the parties hereunder
shall be governed by and construed and enforced in accordance with the internal
laws of the State of New York, without regard to the principles of conflicts of
law thereof. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
any of the Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or agents)
shall be commenced in the state or federal courts sitting in the City of New
York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby
irrevocably submits to the exclusive jurisdiction of the New York Courts for
the adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim that
it is not personally subject to the jurisdiction of any such court, or such New
York Courts are improper or inconvenient venue for such proceeding. Each party
hereby irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by mailing a copy thereof
via registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it under this
Note and agrees that such service shall constitute good and sufficient service
of process and notice thereof Nothing contained herein shall be deemed to limit
in any way any right to serve process in any manner permitted by law. Each
party hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding
arising out of or relating to this Note or the transactions contemplated
hereby. If either party shall commence an action or proceeding to enforce any
provisions of this Note, then the prevailing party in such action or proceeding
shall be reimbursed by the other party for its attorney’s fees and other costs
and expenses incurred with the investigation, preparation and prosecution of
such action or proceeding.


          (f)           Waiver.
Any waiver by the Company or the Holder of a breach of any provision of this
Note shall not operate as or be construed to be a waiver of any other breach of
such provision or of any 


52





breach of any other
provision of this Note. The failure of the Company or the Holder to insist upon
strict adherence to any term of this Note on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist
upon strict adherence to that term or any other term of this Note. Any waiver
must be in writing.


          g)           Severability.
If any provision of this Note is invalid, illegal or unenforceable, the balance
of this Note shall remain in effect, and if any provision is inapplicable to
any person or circumstance, it shall nevertheless remain applicable to all
other persons and circumstances. If it shall be found that any interest or
other amount deemed interest due hereunder violates applicable laws governing
usury, the applicable rate of interest due hereunder shall automatically be
lowered to equal the maximum permitted rate of interest. The Company covenants
(to the extent that it may lawfully do so) that it shall not at any time insist
upon, plead, or in any manner whatsoever claim or take the benefit or advantage
of, any stay, extension or usury law or other law which would prohibit or
forgive the Company from paying all or any portion of the principal of or
interest on this Note as contemplated herein, wherever enacted, now or at any
time hereafter in force, or which may affect the covenants or the performance
of this indenture, and due Company (to the extent it may lawfully do so) hereby
expressly waives all benefits or advantage of any such law, and covenants that
it will not, by resort to any such law, binder, delay or impeded the execution
of any power herein granted to the Holder, but will suffer and permit the
execution of every such as though no such law has been enacted.


          h)           Next
Business Day. Whenever any payment or other obligation hereunder shall be
due on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day.


          i)           Headings.
The headings contained herein are for convenience only, do not constitute a
part of this Note and shall not be deemed to limit or affect any of the
provisions hereof.


          j)           Seniority.
This Note is senior in right of payment to any and all other indebtedness of
the Company; except for the Note issued by the Company in favor of CAMOFI
Master LDC, which note shall rank pari passu with this Note.


53







          IN
WITNESS WHEREOF, the Company has caused this Note to be duly executed by a duly
authorized officer as of the date first above indicated.


	
  

 	
  

 	
  

 
	
  

 	
 Whispering
 Oaks International, Inc.

 	
  

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 
	
  

 	 

 	
  

 
	
  

 	
 By:

 	
  

 


54





GRID
OF PRINCIPAL PAYMENTS


	
  

 	
  

 	
  

 	
  

 
	
 Date

 	
 Amount of Principal

 Payment

 	
 Remaining Unpaid

 Principal Balance

 	
  

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
  

 


55








EXHIBIT A TO PROMISSORY NOTE


	
  

 	
  

 	
  

 
	
 Securities:

 	
  

 	
 10% Unsecured Promissory Notes (“Notes”) plus the Equity
 Consideration described below. 

 
	
  

 	
  

 	
  

 
	
 Offering:

 	
  

 	
 Minimum — $350,000 aggregate principal amount of Notes.

 
	
  

 	
  

 	
 Maximum — $450,000 aggregate principal amount of Notes.

 
	
  

 	
  

 	
  

 
	
 Offering Termination:

 	
  

 	
 Close of business (Pacific time) August 31, 2009, unless extended by
 mutual agreement of the Company and the Placement Agent.

 
	
  

 	
  

 	
  

 
	
 Interest on Note:

 	
  

 	
 10% per annum, payable monthly, commencing six months from the date of
 issue. Default interest will be 12% per annum commencing from the date of
 default until the Notes are either repaid or the default is cured.

 
	
  

 	
  

 	
  

 
	
 Maturity of Note:

 	
  

 	
 The entire aggregate unpaid principal balance of the Notes and all
 accrued and unpaid interest thereon are due and payable on earlier of (i)
 August 31, 2010 or (ii) the closing of an underwritten public offering or a
 private placement (other than this Offering) resulting in gross proceeds to
 the Company of at least $3.0 million (a “Qualified Offering”) (either, the
 “Maturity Date”). 

 
	
  

 	
  

 	
  

 
	
 Equity Consideration:

 	
  

 	
 (a)       Each
 Investor shall receive the “Primary Equity Consideration” and, to the extent
 the Notes or any portion thereof remains outstanding immediately after the
 Maturity Date, the “Additional Equity Consideration,” both as defined below
 and sometimes referred to herein as the “Equity Consideration.” The Equity
 Consideration shall consist of shares of the Company’s common stock, par
 value $.001 per share (“Common Stock”), which shall have the same CUSIP
 number as the shares of Common Stock that are quoted on the Over the Counter
 Bulletin Board. 

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (b)       Primary
 Equity Consideration. The number of shares of Common Stock to be received by
 an Investor as Primary Equity Consideration shall equal the result obtained
 by dividing 100% of the original principal amount of the Note or Notes held
 by such Investor by $0.07. The Primary Equity Consideration shall be
 delivered to the Investors within ten business days following the closing in which
 such Notes are issued. 

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (c)       Additional
 Equity Consideration. To the extent the Notes, or any portion thereof, remain
 outstanding immediately after the Maturity Date, the Investors shall receive,
 in addition to the Primary Equity Consideration, the Additional Equity
 Consideration with respect to such Notes or portion thereof. The 

 



56







	
  

 	
  

 	
  

 
	
  

 	
  

 	
 number of shares of Common
 Stock to be received by an Investor as Additional Equity Consideration shall
 equal the result obtained by dividing 100% of the outstanding principal
 balance of the Note or Notes held by such Investor, and the accrued interest
 thereon, by $0.07. The number of shares of Common Stock included in the
 Additional Equity Consideration shall be adjusted, pro rata, on account of
 any stock splits, reverse stock splits, stock dividends paid on Common Stock,
 etc., which occur after the date of issuance of the Note and prior to the
 issuance of the Additional Equity Consideration.

 
	
  

 	
  

 	
  

 
	
 Minimum Investment:

 	
  

 	
 $25,000 per Investor.

 
	
  

 	
  

 	
  

 
	
 Placement Agent Compensation:

 	
  

 	
 Commissions. An amount equal to (i) 12% of the aggregate principal
 amount of Notes sold to Investors introduced to the Company by the Placement
 Agent or any subagent and (ii) 6% of the aggregate principal amount of the
 Notes sold to Investors introduced by someone other than the Placement Agent
 or a subagent.

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 Nonaccountable expense allowance. A amount equal to 3% of the
 aggregate principal amount of the Notes sold in the Offering.

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 The Commissions and the non-accountable expense allowance shall be
 payable in cash on the Closing Date or Closing Dates as defined below.

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 In addition, the Company will indemnify the Placement Agent and the
 subagents, and their respective officers, directors, agents, employees and
 controlling persons, against certain liabilities.

 
	
  

 	
  

 	
  

 
	
 Closing Date:

 	
  

 	
 The Offering contemplated hereby shall be consummated on the second
 business day following the date on which the Escrow Agent shall have received
 at least $350,000 from Investors subscribing for Notes (the “First Closing
 Date”). In the event the First Closing Date has not occurred by August 31,
 2009, the Escrow Agent shall return all of the subscription amounts then in
 its possession unless the Company and the Placement Agent have agreed to extend
 the offering period for up to an additional 30 days. After the First Closing
 Date covering the minimum offering amount, there may be additional closings
 from time to time as mutually agreed to by the Company and the Placement
 Agent. 

 
	
  

 	
  

 	
  

 
	
 Closing Conditions:

 	
  

 	
 In addition to the other terms and conditions herein, the Offering is
 conditioned upon the Company having obtained all necessary consents and
 approvals to the issuance of the Notes.

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 At or prior to the Closing of the Offering, the Company shall have
 entered into a Loan Modification Agreement with the 

 



57







	
  

 	
  

 	
  

 
	
  

 	
  

 	
 current secured lender of the Company (“Secured Lender”) on terms
 acceptable to the Placement Agent.

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 At or prior to the Closing, the Investors shall have executed a
 Lock-Up Agreement under which they will agree to not sell or otherwise
 dispose or transfer any shares of Common Stock for a period expiring 90 days
 after the closing of a Qualified Offering without the consent of the
 underwriter of the Qualified Offering and containing such other on terms and
 conditions identical in all material respects to the Lock-Up Agreement to be
 signed by the officers, directors and significant shareholders of the Company
 in connection with the Qualified Offering. 

 



58






ANNEX A


NOTICE OF CONVERSION


          The
undersigned hereby elects to convert principal under the Senior Secured
Convertible Note of Whispering Oaks International, Inc., a Texas corporation
(the “Company”), due on December 31, 2012, into shares of common stock, par
value $0.01 per share (due “Common Stock”), of the Company according to the
conditions hereof, as of the date written below. If shares are to be issued in
the name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto and is delivering herewith such
certificates and opinions as reasonably requested by due Company in accordance
therewith. No fee will be charged to the holder for any conversion, except for
such transfer taxes, if any.


          By the
delivery of this Notice of Conversion the undersigned represents and warrants
to Whispering Oaks International, Inc. that its ownership of the Common Stock
does not exceed the amounts determined in accordance with Section 13(d) of the
Exchange Act, specified under Section 4 of this Note.


          The
undersigned agrees to comply with the prospectus delivery requirements under
the applicable securities laws in connection with any transfer of the aforesaid
shares of Common Stock.


	
  

 	
  

 	
  

 
	
 Conversion
 calculations:

 	
  

 	
  

 
	
  

 	
 Date to Effect
 Conversion:

 
	
  

 	
  

 	
  

 
	
  

 	
 Principal
 Amount of Notes to be Converted:

 
	
  

 	
  

 	
  

 
	
  

 	
 Payment of Interest in Common Stock_ yes — no

 
	
  

 	
  

 	
 If yes, $______ of Interest Accrued on Account of Conversion at
 Issue.

 
	
  

 	
  

 	
  

 
	
  

 	
 Number of
 shares of Common Stock to be issued:

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 Signature:

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 Name:

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
  Address:

 










Schedule 1


CONVERSION SCHEDULE


The Senior
Secured Convertible Notes due on December 31, 2012, in the aggregate principal
amount of $___________ issued by Whispering Oaks International, Inc., a Texas
corporation. This Conversion Schedule reflects conversions made under Section 4
of due above referenced Note.


Dated:


	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 Aggregate

 	
  

 
	
  

 	
  

 	
 Principal Amount

 	
  

 
	
 Date of Conversion

 (or for first entry,

 Original Issue Date)

 	
 Amount of

 Conversion

 	
 Remaining

 Subsequent to

 Conversion

 (or original

 Principal

 Amount)

 	
 Company Attest

 



60









EXHIBIT C


CASH COLLATERAL ESCROW AGREEMENT


          CASH
COLLATERAL ESCROW AGREEMENT (this “Agreement”), dated
as of ________________, by and among Whispering Oaks International, Inc., d/b/a
Biocurex, Inc., a Texas corporation (the “Company”), _______________________
(the “Escrow Agent”), and the parties who have executed this Agreement as the
Lenders set forth on the signature pages hereto (individually, a “Lender,” and
collectively, the “Lenders”).


          WHEREAS:


          A.     The Company
and Lender are parties to a Security Agreement (the “Security Agreement”)
securing certain obligations of the Company to the Lenders under promissory
notes of the Company, copies of which are annexed hereto (the “Notes”); and


          B.     The Escrow
Agent agrees to serve as escrow agent in accordance with the terms and
conditions set forth herein.


          NOW, THEREFORE, the parties hereto agree as
follows:


1.       Establishment
of Escrow Account. On the date hereof, the parties hereto shall establish a
non-interest bearing escrow account with the Escrow Agent, which escrow account
shall be entitled “Whispering Oaks, Inc., Cash Collateral Account” (the “Escrow
Account”). 


2.       Deposit
of Funds. The Company shall deliver to the Escrow Agent for deposit in the
Escrow Account, in immediately available funds, an amount equal to the sum of
(i) the then outstanding principal amount of the Notes, (ii) all interest
required to be paid on the Notes from the first day of the month following the
deposit of such amount through


61





December 31,
2012, and (iii) any other amounts outstanding under the Notes, whether of
penalties, default interest, or otherwise. 


3.       Escrow
Period. This Escrow Agreement shall begin upon the date hereof and shall
terminate (the “Termination Date”) on the earlier of: (i) payment in full of
all amounts outstanding under the Notes by the Company; (ii) disbursement to
the Lenders of the Cash Collateral in full payment of all amounts outstanding
under the Notes, as set forth in Section 4 below; or (iii) the conversion of
all amounts outstanding under of the Notes by the Lenders into shares of Common
Stock (as defined in the Notes) of the Company. In the event of termination
under clauses (i), (ii) or (iii) the Company and Lenders shall provide written
notice of termination to the Escrow Agent. 


4.       Disbursement
from the Escrow Account.


(a)      At
any time, and from time to time prior to the Termination Date, a Lender may
deliver to the Escrow Agent written notice (a “Notice of Payment,” to be in the
form [agreed to by Escrow Agent and Lenders]that it has elected to have, all or
any portion of, its Note repaid from the Cash Collateral in lieu of converting
the Note into shares of the Company’s Common Stock (such Lender, a “Notifying
Lender”). If the Lender shall elect to have the entire unpaid amount of the
Note repaid, the original Note shall accompany such Notice of Payment. The
Notice of Payment shall be delivered by the Notifying Lender to the Escrow
Agent by 5:00 p.m. New York time. The Escrow Agent shall send the Notice of
Payment to the Company by the end of the next business day accompanied by the
original Note, if applicable. The Notice of Payment shall specify the dollar
amount to be released by the Escrow Agent, and the Escrow Agent shall release
the dollar amount stated in the Notice of Payment to the Notifying Lender no
later than


62





the third
Business Day following the transmittal to the Company of the Notice of Payment.



(b)      If
any Lender has converted all or any portion of its Note into shares of the
Company’s Common Stock then the Company may deliver to the Escrow Agent a
written notice setting forth the amount of the Note which was so converted, the
name of the Lender that converted said Note (the “Specific Lender”), and
requesting the Escrow Agent to deliver to the Company an amount equal to 100%
of the amount so converted (a “Repayment Notice”). The Escrow Agent shall send
the Repayment Notice to the Specific Lender at the address set forth under such
Specific Lender’s name on the signature pages hereto. The Specific Lender shall
have ten (10) business days from the transmission of the Repayment Notice by
the Escrow Agent to object in writing to the amount requested in the Repayment
Notice (a “Lender Notice of Objection”). A Lender Notice of Objection shall be
delivered to the Escrow Agent and the Company. If the Specific Lender fails to
provide the Escrow Agent and the Company with a Lender Notice of Objection
within such time, the Escrow Agent shall release the amount requested in the
Repayment Notice to the Company. In the event a Lender Notice of Objection is
timely received by the Escrow Agent it shall not release such amount to the
Company.


6.        Duties and Obligations of the Escrow Agent.


(a)      The
parties hereto agree that the duties and obligations of the Escrow Agent are
only such as are herein specifically provided and no other. The Escrow Agent’s
duties are as a depositary only, and the Escrow Agent shall incur no liability
whatsoever, except as a direct result of its willful misconduct or gross
negligence. 


63





(b)      The
Escrow Agent may consult with counsel of its choice, and shall not be liable
for any action taken, suffered or omitted by it in accordance with the advice
of such counsel.


(c)      The
Escrow Agent shall not be bound in any way by the terms of any other agreement
to which the Lenders or the Company are parties, whether or not it has
knowledge thereof, and the Escrow Agent shall not in any way be required to
determine whether or not any other agreement has been complied with by the
Lenders or the Company, or any other party thereto. The Escrow Agent shall not
be bound by any modification, amendment, termination, cancellation, rescission
or supersession of this Agreement unless the same shall be in writing and
signed jointly by the Lenders and the Company and agreed to in writing by the
Escrow Agent.


(d)      If
the Escrow Agent shall be uncertain as to its duties or rights hereunder or
shall receive instructions, claims or demands which, in its opinion, are in
conflict with any of the provisions of this Agreement, it shall be entitled to
refrain from taking any action, other than to keep safely all property held in
escrow or to take certain action, until it shall jointly be directed otherwise in
writing by the Lenders and the Company or by a final judgment of a court of
competent jurisdiction.


(e)      The
Escrow Agent shall be fully protected in relying upon any written notice,
demand, certificate or document which it, in good faith, believes to be
genuine. The Escrow Agent shall not be responsible for the sufficiency or
accuracy of the form, execution, validity or genuineness of documents now or
hereafter deposited hereunder, or of any endorsement thereon, or for any lack
of endorsement thereon, or for any description therein; nor shall the Escrow
Agent be responsible or liable in any respect on


64





account of the
identity, authority or rights of the persons executing or delivering or
purporting to execute or deliver any such document, security or endorsement.


(f)      The
Escrow Agent shall not be required to institute legal proceedings of any kind
and shall not be required to defend any legal proceedings which may be
instituted against it or in respect of the Cash Collateral.


(g)      
If the Escrow Agent at any time, in its sole discretion, deems it necessary or
advisable to relinquish custody of the Cash Collateral, it may do so by
delivering the same to any other escrow agent mutually agreeable to the Lenders
and the Company, and if no such escrow agent shall be selected within three
days of the Escrow Agent’s notification to the Lenders and the Company of its
desire to so relinquish custody of the Cash Collateral, then the Escrow Agent
may do so by delivering the Cash Collateral to the clerk or other proper
officer of a court of competent jurisdiction as may be permitted by law. The
fee of any court officer shall be borne by the Company. Upon such delivery, the
Escrow Agent shall be discharged from any and all responsibility or liability with
respect to the Cash Collateral and this Agreement and the Company shall
promptly pay to the Escrow Agent all monies which may be owed it for its
services hereunder, including, but not limited to, reimbursement of its
out-of-pocket expenses pursuant to Section 7 below.


(h)      Upon
the performance of this Agreement, the Escrow Agent shall be deemed released
and discharged of any further obligations hereunder.


7.        Fees, Expenses and Commissions. The Escrow Agent fee shall be
$________ per month from the establishment of the Escrow Account, plus all
reasonable out-of-pocket expenses paid or incurred by the Escrow Agent in the
administration of its duties


65





hereunder,
including, but not limited to, postage, all outside counsel to the Escrow Agent
and advisors’ and agents’ fees and all taxes or other governmental charges, if
any. The Company shall pay the Escrow Agent upon establishment of the Escrow
Account the sum of $_________ to be applied against the monthly fees, and
neither Lender shall have any obligation whatsoever to pay the Escrow Agent any
amounts or have any other obligation to the Escrow Agent except as expressly
set forth in this Agreement. 


8.        Indemnification.


(a)      The
Company hereby indemnifies and holds free and harmless the Escrow Agent from
any and all losses, expenses, liabilities and damages (including but not
limited to reasonable attorney’s fees, and amounts paid in settlement)
resulting from claims asserted by the Lender. against Escrow Agent with respect
to the performance of any of the provisions of this Agreement, provided that
the Escrow Agent shall not be entitled to any indemnity for any losses,
damages, taxes, liabilities or expenses that directly result from its willful
misconduct or gross negligence.


(b)      In
the event of any legal action between the parties to this Agreement to enforce
any of its terms, the legal fees of the prevailing party shall be paid by the
party(ies) who did not prevail.


9.        Miscellaneous.


(a)      All
Notices of Payment, Notices of Objection, notices, requests, demands and other
communications hereunder shall be in writing, sent by telecopier, upon proof of
sending thereof to the following addresses:


	
  

 	
  

 
	
  

 	
 (i)     If
 to the Company:

 


66









	
  

 	
  

 
	
  

 	
 (ii)     If
 to the Lender:

 
	
  

 	
  

 
	
  

 	
 At the fax
 numbers set forth in the Purchase Agreement

 
	
  

 	
  

 
	
  

 	
 (iii)     If
 to the Escrow Agent:

 



or at such
other address as any of the parties to this Agreement may hereafter designate
in the manner set forth above to the others.


(b)      All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement, and any claim, controversy or dispute arising under or
related to this Agreement, or the relationship of the parties, shall be
governed by and construed and enforced in accordance with the internal laws of
the State of New York, without regard to the principles of conflicts of law
thereof. 


(c)      This
Agreement may be executed in two or more counterparts, all of which when taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature page were an original
thereof.


67





(d)      This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and permitted
assigns. The assignment by a party of this Agreement or any rights hereunder
shall not affect the obligations of such party under this Agreement.


[  SIGNATURE
PAGE FOLLOWS  ]


68






IN WITNESS WHEREOF,
the parties hereto have caused this Agreement to be signed the day and year
first above written.


	
  

 	
  

 	
  

 	
  

 
	
  

 	
 Whispering
Oaks International, Inc.

 
	
  

 	
  

 
	
 

 	
 By:

 	 
 	
 

 
	
  

 	
 Name:

 
	
  

 	
 Title:

 
	
  

 	
  

 
	
  

 	
 CAMOFI
 Master LDC

 
	
  

 	
  

 
	
 

 	
 By:

 	 
 	
 

 
	
  

 	
 Name:

 
	
  

 	
 Title:

 
	
  

 	
  

 
	
  

 	
 CAMHZN
 Master LDC

 
	
  

 	
  

 
	
 

 	
 By:

 	 
 	
 

 
	
  

 	
 Name:

 
	
  

 	
 Title:

 
	
  

 	
  

 
	
  

 	
 Escrow
 Agent:

 
	
  

 	
  

 
	
 

 	
 By:

 	 
 	
 

 
	
  

 	
 Name:

 
	
  

 	
 Title:

 



69