SECURED CONVERTIBLE TERM 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 TERM 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 Five Hundred Thousand Dollars in lawful money of

the United States (US$500,000), together with any accrued and unpaid

interest hereon, on July 14, 2008 (the "Maturity Date") if not sooner

indefeasibly paid in full.  

 

Capitalized terms used herein without definition shall have the

meanings ascribed to such terms in the Security and Purchase Agreement

between the Company 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 Secured Convertible Term

Note (this "Note"):

 

 

ARTICLE I

 

CONTRACT RATE AND AMORTIZATION

 

1.1 Contract Rate.   Subject to Sections 4.2 and 5.10, 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

    (2.0%) (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 (8.0%).   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.

 

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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 Company

    shall have registered the shares of the Common Stock underlying the

    conversion of this 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 (0%).  

 

1.3 Principal Payments.   Amortizing payments of the aggregate principal

    amount outstanding under this Note at any time (the "Principal Amount")

    shall be made by the Company on December 1, 2005 and on the first

    business day of each succeeding month thereafter through and including

    the Maturity Date (each, an "Amortization Date").   Subject to

    Article III below, commencing on the first Amortization Date, the

    Company shall make monthly payments to the Holder on each Repayment

    Date, each such payment in the amount of $15,625 together with any

    accrued and unpaid interest on such portion of the Principal Amount

    plus any and all other unpaid amounts which are then owing under this

    Note, the Purchase Agreement and/or any other Related Agreement

    (collectively, the "Monthly Amount").   Any outstanding Principal

    Amount together with any accrued and unpaid interest and any and

    all other unpaid amounts which are then owing by the Company to the

    Holder under this Note, the Purchase Agreement and/or any other

    Related Agreement shall be due and payable on the Maturity Date.

 

1.4 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.

 

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1.5 Taxes.

 

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

             hereunder, including any amounts received on a conversion or

            redemption of this 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, charged, levied,

            imposed or required to be deducted or withheld by any federal,

            state or provincial government or other political subdivision

            and any agency, department or other entity exercising executive,

            legislative judicial, regulatory or administrative functions of

            or   pertaining to such government ("Government Authority"), and

            all liabilities with respect thereto, excluding, for certainty,

            taxes imposed on net income or profit and capital, capital gains,

            sales or franchise taxes of the Holder (all such non-excluded

            taxes, levies, imposts, deductions, charges withholdings and

            liabilities, collectively or individually, "Taxes").   The Company

            covenants and agrees that if a 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 1.5) 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 Company hereby 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 Company further covenants and agrees that 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.

 

        (c) The Company 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 1.5) paid by the Holder, 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 the Holder makes written demand therefor specifying in

            reasonable detail the nature and amount of such Taxes or Other

            Taxes.

 

        (d) The obligations of the Company under this Section 1.5 shall

            survive the termination and the payment of this Note and all

            other amounts payable hereunder.

 

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ARTICLE II

 

CONVERSION AND REDEMPTION

 

2.1 Payment of Monthly Amount.

 

        (a) Payment in Cash or Common Stock.   If the Monthly Amount (or a

            portion of such Monthly Amount if not all of the Monthly Amount

            may be converted into shares of Common Stock pursuant to

            Section 3.2) is required to be paid in cash pursuant to

            Section 2.1(b), then the Company shall pay the Holder an amount

            in cash equal to 103% of the Monthly Amount (or such portion of

            such Monthly Amount to be paid in cash) due and owing to the

            Holder on the Amortization Date.   If the Monthly Amount (or a

            portion of such Monthly Amount if not all of the Monthly Amount

            may be converted into shares of Common Stock pursuant to

            Section 3.2) is required to be paid in shares of Common Stock

            pursuant to Section 2.1(b), the number of such shares to be

            issued by the Company to the Holder on such Amortization Date

            (in respect of such portion of the Monthly Amount converted

            into shares of Common Stock pursuant to Section 2.1(b)), shall

            be the number determined by dividing (i) the portion of the

            Monthly Amount converted into shares of Common Stock, by (ii)

            the then applicable Fixed Conversion Price.   For purposes hereof,

            subject to Section 3.6 hereof, the initial "Fixed Conversion

            Price" means $1.02.

 

        (b) Monthly Amount Conversion Conditions.   Subject to Sections

            2.1(a), 2.2, and 3.2 hereof, the Holder shall convert into shares

            of Common Stock all or a portion of the Monthly Amount due on

            each Amortization Date if the following conditions (the

            "Conversion Criteria") are satisfied: (i) the average closing

            price of the Common Stock as reported by Bloomberg, L.P. on the

            Principal Market for the five (5) trading days immediately

             preceding such Amortization Date shall be greater than or equal

            to one hundred fifteen percent (115%) of the Fixed Conversion

            Price and (ii) the amount of such conversion does not exceed

            twenty five percent (25%) of the aggregate dollar trading volume

            of the Common Stock for the period of twenty-two (22) trading

            days immediately preceding such Amortization Date.   If subsection

            (i) of the Conversion Criteria is met but subsection (ii) of the

            Conversion Criteria is not met as to the entire Monthly Amount,

            the Holder shall convert only such part of the Monthly Amount

            that meets subsection (ii) of the Conversion Criteria.   Any

            portion of the Monthly Amount due on an Amortization Date that

            the Holder has not been able to convert into shares of Common

            Stock due to the failure to meet the Conversion Criteria, shall

            be paid in cash by the Company at the rate of 103% of the Monthly

            Amount otherwise due on such Amortization Date, within three

            (3) business days of such Amortization Date.

 

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2.2 No Effective Registration.   Notwithstanding anything to the contrary

    herein, none of the Company's obligations to the Holder may be converted

    into Common Stock unless (a) either (i) an effective current Registration

    Statement (as defined in the Registration Rights Agreement) covering the

    shares of Common Stock to be issued in connection with satisfaction of

    such obligations exists or (ii) an exemption from registration for resale

    of all of the Common Stock issued and issuable is available pursuant to

    Rule 144 of the Securities Act and (b) no Event of Default (as hereinafter

    defined) exists and is continuing, unless such Event of Default is cured

    within any applicable cure period or otherwise waived in writing by the

    Holder.

 

2.3 Optional Redemption in Cash.   The Company may prepay this Note ("Optional

    Redemption") by paying to the Holder a sum of money equal to one

    hundred thirty percent (130%) of the Principal Amount outstanding at

    such time 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 Purchase Agreement or any other Related Agreement (the

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

    defined below).   The Company 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) business 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 (as hereinafter

    defined) or for conversions elected to be made by the Holder pursuant

    to Section 3.3 during the Redemption Period.   The Redemption Amount

    shall be determined as if the 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 must be paid in

    good funds to the Holder.   In the event the Company fails to pay the

    Redemption Amount on the Redemption Payment Date as set forth herein,

    then such Redemption Notice will be null and void.

 

ARTICLE III

 

HOLDER'S CONVERSION RIGHTS

 

3.1 Optional Conversion.   Subject to the terms set forth in this

    Article III, the Holder shall have the right, but not the obligation, to

    convert all or any portion of the issued and outstanding Principal Amount

    and/or accrued interest and fees due and payable into fully paid and

    nonassessable shares of Common Stock at the Fixed Conversion Price.  

    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 C