SECURED CONVERTIBLE MINIMUM BORROWING NOTE

 

THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE

NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY

STATE SECURITIES LAWS.   THIS NOTE AND THE COMMON SHARES ISSUABLE UPON

CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR

HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO

THIS NOTE UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN

OPINION OF COUNSEL REASONABLY SATISFACTORY TO ON THE GO HEALTHCARE, INC.

THAT SUCH REGISTRATION IS NOT REQUIRED.

 

 

                 SECURED CONVERTIBLE MINIMUM BORROWING NOTE

 

FOR VALUE RECEIVED, ON THE GO HEALTHCARE, INC., a Delaware corporation (the

"Borrower") promises to pay to LAURUS MASTER FUND, LTD., c/o M&C Corporate

Services Limited, P.O. Box 309 GT, Ugland House, South Church Street, George

Town, Grand Cayman, Cayman Islands, Fax: 345-949-8080 (the "Holder") or its

registered assigns or successors in interest, on order, the sum of Two

Million five Hundred Thousand Dollars ($2,500,000), or, if different, the

aggregate principal amount of all Loans (as defined in the Security Agreement

referred to below), together with any accrued and unpaid interest hereon,

on July 14, 2008 (the "Maturity Date") if not sooner paid.

 

Capitalized terms used herein without definition shall have the meanings

ascribed to such terms in the Security and Purchase Agreement between the

Borrower and the Holder dated as of the date hereof (as amended, modified

and/or supplemented from time to time, the "Security Agreement").

 

The following terms shall apply to this Minimum Borrowing Note (this "Note"):

 

                                  Article I

 

CONTRACT RATE

 

1.1 Contract Rate.   Subject to Sections 4.2 and 5.11, interest payable on the

    outstanding principal amount of this Note (the "Principal Amount") shall

    accrue at a rate per annum equal to the "prime rate" published in The Wall

    Street Journal from time to time (the "Prime Rate"), plus two percent (2%)

    (the "Contract Rate").   The Contract Rate shall be increased or decreased

    as the case may be for each increase or decrease in the Prime Rate in an

    amount equal to such increase or decrease in the Prime Rate; each change

    to be effective as of the day of the change in the Prime Rate.   Subject to

    Section 1.2, the Contract Rate shall not at any time be less than eight

    percent (8%).   Interest shall be (i) calculated on the basis of a 360 day

    year, and (ii) payable monthly, in arrears, commencing on August 1, 2005

    on the first business day of each consecutive calendar month thereafter

    through and including the Maturity Date and on the Maturity Date, whether

    by acceleration or otherwise.

 

1.2 Contract Rate Adjustments and Payments.   The Contract Rate shall be

    calculated on the last business day of each calendar month hereafter (other

    than for increases or decreases in the Prime Rate which shall be calculated

    and become effective in accordance with the terms of Section 1.1) until

    the Maturity Date (each a "Determination Date") and shall be subject to

    adjustment as set forth herein.   If (i) the Borrower shall have registered

    the shares of the Common Stock underlying the conversion of each Minimum

    Borrowing Note and each Warrant on a registration statement declared

    effective by the Securities and Exchange Commission (the "SEC"), and

    (ii) the market price (the "Market Price") of the Common Stock as

    reported by Bloomberg, L.P. on the Principal Market for the five (5)

    trading days immediately preceding a Determination Date exceeds the

    then applicable Fixed Conversion Price by at least twenty-five percent

    (25%), the Contract Rate for the succeeding calendar month shall

    automatically be reduced by 200 basis points (200 b.p.) (2%) for each

    incremental twenty-five percent (25%) increase in the Market Price of

    the Common Stock above the then applicable Fixed Conversion Price.  

    Notwithstanding the foregoing (and anything to the contrary contained

    herein), in no event shall the Contract Rate at any time be less than

    zero percent.

 

                                       1

<PAGE>

 

 

1.3 Currency.   All principal, interest and other amounts owing under this

    Note, the Security Agreement or any Ancillary Agreement that, in accordance

    with their terms, are to be paid in cash shall be paid in US dollars.

    All amounts denominated in other currencies shall be converted to the

    US dollar equivalent amount in accordance with the Exchange Rate on the

    date of calculation. "Exchange Rate" means, in relation to any amount of

    currency to be converted into US dollars pursuant to this Note, the

    Security Agreement or any Ancillary Agreement, the US dollar exchange

    rate as published in the Wall Street Journal on the relevant date of

    calculation.

 

1.4 Taxes.

 

        (a) If permissible by law, any and all payments by the Borrower

            hereunder, including any amounts received on a conversion or

             redemption of the Note and any amounts on account of interest

            or deemed interest, shall be made free and clear of and without

            deduction for any and all present or future taxes, levies,

            imposts, deductions, charges or withholdings, and all liabilities

            with respect thereto, excluding taxes imposed on net income or

            franchise taxes of the Holder by the jurisdiction in which such

            person is organized or has its principal office (all such

            non-excluded taxes, levies, imposts, deductions, charges

            withholdings and liabilities, collectively or individually,

            "Taxes").   If the Borrower shall be required to deduct any

            Taxes from or in respect of any sum payable hereunder to the

            Holder, (i) the sum payable shall be increased by the amount

            (an "additional amount") necessary so that after making all

            required deductions (including deductions applicable to additional

            sums payable under this Section 1.4) the Holder shall receive an

            amount equal to the sum it would have received had no such

            deductions been made, (ii) the Borrower shall make such deductions

            and (iii) the Borrower shall pay the full amount deducted to the

            relevant governmental authority in accordance with applicable law.

 

        (b) In addition, the Borrower agrees to pay to the relevant

            governmental authority in accordance with applicable law any

            present or future stamp or documentary taxes or any other excise

            or property taxes, charges or similar levies that arise from any

            payment made hereunder or from the execution, delivery or

            registration of, or otherwise with respect to, this Note ("Other

            Taxes").   The Borrower shall deliver to the Holder official

            receipts, if any, in respect of any Taxes or Other Taxes payable

            hereunder promptly after payment of such Taxes or Other Taxes or

            other evidence of payment reasonably acceptable to the Holder.

 

                                       2

<PAGE>

 

 

        (c) The Borrower hereby indemnifies and agrees to hold the Holder

            harmless from and against Taxes and Other Taxes (including, without

            limitation, Taxes and Other Taxes imposed on any amounts payable

            under this Section 1.4) paid by such person, whether or not such

            Taxes or Other Taxes were correctly or legally asserted.   Such

            indemnification shall be paid within ten (10) days from the date on

            which any such person makes written demand therefor specifying in

            reasonable detail the nature and amount of such Taxes or Other

            Taxes.

 

        (d) The obligations of the Borrower under this Section 1.4 shall

            survive the termination of this Note and the payment of this Note

            and all other amounts payable hereunder.

 

                                   Article II

 

LOANS; PAYMENTS UNDER THIS NOTE

 

2.1 Loans.   All Loans evidenced by this Note shall be made in accordance with

    the terms and provisions of the Security Agreement.

 

2.2 No Effective Registration.   Notwithstanding anything to the contrary

    herein, the Holder shall not be required to accept shares of Common Stock

    as payment following a conversion by the Holder if there fails to exist

    an effective current Registration Statement (as defined in the

    Registration Rights Agreement) covering the shares of Common Stock to

    be issued, or if an Event of Default hereunder exists and is continuing,

    unless such requirement is otherwise waived in writing by the Holder in

    whole or in part at the Holder's option.

 

2.3 Optional Redemption in Cash.   The Borrower will have the option of

    prepaying this Note ("Optional Redemption") by paying to the Holder a sum

    of money equal to one hundred thirty percent (130%) of the principal amount

    of this Note together with accrued but unpaid interest thereon and any

    and all other sums due, accrued or payable to the Holder arising under

    this Note, the Security Agreement, or any other Ancillary Agreement (the

    "Redemption Amount") outstanding on the Redemption Payment Date (as

    defined below).   The Borrower shall deliver to the Holder a written notice

    of redemption (the "Notice of Redemption") specifying the date for such

    Optional Redemption (the "Redemption Payment Date"), which date shall be

     seven (7) days after the date of the Notice of Redemption (the "Redemption

    Period").   A Notice of Redemption shall not be effective with respect to

    any portion of this Note for which the Holder has previously delivered a

    Notice of Conversion (defined below) pursuant to Section 3.1, or for

    conversions elected to be made by the Holder pursuant to Section 3.1

    during the Redemption Period.   The Redemption Amount shall be determined

    as if such Holder's conversion elections had been completed immediately

    prior to the date of the Notice of Redemption.   On the Redemption Payment

    Date, the Redemption Amount (plus any additional interest and fees

    accruing on the Notes during the Redemption Period) must be irrevocably

    paid in full in immediately available funds to the Holder.   In the event

    the Borrowers fail to pay the Redemption Amount on the Redemption Payment

    Date, then such Redemption Notice shall be null and void.

 

                                       3

<PAGE>

 

 

                                  Article III

 

CONVERSION RIGHTS AND FIXED CONVERSION PRICE

 

3.1 Optional Conversion. Subject to the terms of this Article III, the Holder

    shall have the right, but not the obligation, at any time until the

    Maturity Date, or during an Event of Default (as defined in Article IV),

    and, subject to the limitations set forth in Section 3.2 hereof, to convert

    all or any portion of the outstanding Principal Amount and/or accrued

    interest and fees due and payable into fully paid and nonassessable shares

    of the Common Stock at the Fixed Conversion Price.   For purposes hereof,

    subject to Section 3.6 hereof, the initial "Fixed Conversion Price"

    means $1.02.   The shares of Common Stock to be issued upon such conversion

    are herein referred to as the "Conversion Shares."

 

3.2 Conversion Limitation.   Notwithstanding anything contained herein to the

    contrary, the Holder shall not be entitled to convert pursuant to the terms

    of this Note an amount that would be convertible into that number of

    Conversion Shares which would exceed the difference between (i) 4.99% of

    the outstanding shares of Common Stock and (ii) the number of shares of

    Common Stock beneficially owned by the Holder.   For purposes of the

    immediately preceding sentence, beneficial ownership shall be determined

    in accordance with Section 13(d) of the Exchange Act and Regulation 13d-3

    thereunder.   The Conversion Shares limitation described in this Section 3.2

    shall automatically become null and void without any notice to any

    Borrower upon the occurrence and during the continuance of an Event of

    Default, or upon 75 days prior notice to the Company.   Notwithstanding

    anything contained herein to the contrary, the provisions of this

    Section 3.2 are irrevocable and may not be waived by the Holder or any

    Borrower. The Holder shall be solely responsible for determining its

    ownership pursuant to this Section 3.2.  

 

3.3 Mechanics of Holder's Conversion.   In the event that the Holder elects

    to convert this Note into Common Stock, the Holder shall give notice of

    such election by delivering an executed and completed notice of conversion

    in substantially the form of Exhibit A hereto (appropriately completed)

    ("Notice of Conversion") to the Borrower and such Notice of Conversion

    shall provide a breakdown in reasonable detail of the Principal Amount,

    accrued interest and fees that are being converted.   On each Conversion

    Date (as hereinafter defined) and in accordance with its Notice of

    Conversion, the Holder shall make the appropriate reduction to the

    Principal Amount, accrued interest and fees as entered in its records

    and shall provide written notice thereof to the Borrower within two (2)

    Business Days after the Conversion Date.   Each date on which a Notice

    of Conversion is delivered or telecopied to the Borrower in accordance

    with the provisions hereof shall be deemed a Conversion Date (the

    "Conversion Date").   Pursuant to the terms of the Notice of Conversion,

    the Borrower w