EP MEDSYSTEMS INC
EXHIBIT 10.1
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>3
<FILENAME>exh101.txt
<DESCRIPTION>EXHIBIT 10.1
<TEXT>
                                                                Exhibit 10.1


     THIS NOTE AND THE SHARES OF COMMON STOCK  ISSUABLE UPON  CONVERSION OF THIS
NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS
NOTE AND THE SHARES OF COMMON STOCK  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 OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO EP MEDSYSTEMS INC., THAT SUCH REGISTRATION IS
NOT REQUIRED.


                            SECURED CONVERTIBLE NOTE



     FOR  VALUE  RECEIVED,  EP  MEDSYSTEMS,   INC.,  a  New  Jersey  corporation
(hereinafter called "Borrower") promises to pay to LAURUS MASTER FUND, LTD., c/o
Ironshore  Corporate Services Ltd., P.O. Box 1234 G.T.,  Queensgate House, South
Church Street, Grand Cayman, Cayman Islands, Fax: 345-949-9877 (the "Holder") or
its  registered  assigns,  on order,  without  demand,  the sum of FOUR  MILLION
DOLLARS  ($4,000,000) (the "Principal Amount") or such other principal amount as
may be from time to time  outstanding  under the Security  Agreement  (as herein
defined), together with any accrued and unpaid interest, on August 28, 2006 (the
"Maturity Date").

     Capitalized  terms used herein without  definition  shall have the meanings
ascribed to such terms in the Security Agreement between Borrower and the Holder
dated the date hereof (as amended,  modified and supplemented from time to time,
the "Security Agreement").

                  The following terms shall apply to this Note:

                                    ARTICLE I
                                    INTEREST

     1.1.  Interest Rate.  Subject to Section 5.3 hereof,  interest on this Note
shall be  payable  at the  Contract  Rate in  accordance  with the  terms of the
Security Agreement.

                                   ARTICLE II
                         ADVANCES, PAYMENTS UNDER NOTE

       2.1.  Mechanics  of  Advances.  All Loans
evidenced by this Note shall be made in accordance with the terms and provisions
of the Security Agreement.
                                       1
<PAGE>

     2.2.  Borrower  Conversion  Rights.  Subject to  adjustment  as provided in
Section  3.6  hereof,  the  Conversion  Price per share shall be two dollars and
fifty-five cents ($2.55) (the "Fixed Conversion  Price").  In the event that the
Common Stock trades on the principal  trading  exchange or market for the Common
Stock  (the  "Principal  Market")  at a price  greater  than  120% of the  Fixed
Conversion Price for a period of at least eleven (11) consecutive  trading days,
then Borrower may, at its sole option,  provide the Holder  irrevocable  written
notice ("Call Notice")  requiring the conversion at the Fixed  Conversion  Price
(then in effect) of all or a portion of the Note held by the Holder  (subject to
the  limitation  provided for in Section 3.3 hereof) as of the date set forth in
such Call  Notice  (the  "Call  Date").  The Call Date shall be at least two (2)
trading  days  following  the date of the Call Notice,  provided a  registration
statement  covering resales of that number of Conversion  Shares provided for in
the Call Notice has been declared effective and is available for use. The number
of  Conversion  Shares  to be  issued  in  connection  with any such  conversion
pursuant  to a  particular  Call Notice  pursuant to this  Section 2.2 shall not
exceed 30% of the aggregate  dollar  trading  volume of the Common Stock for the
eleven (11) trading days immediately  preceding the Call Notice. If the price of
the Common Stock falls below 110% of the Fixed  Conversion  Price during the ten
(10)  trading  day  period  preceding  the Call Date,  then the  Holder  will be
required to convert only such amount of the Note pursuant to such Call Notice as
will equal thirty percent (30%) of the aggregate  dollar trading volume for each
day during  such 10 day period that the  closing  price of the Common  Stock was
greater  than one  hundred  ten  percent  (110%)  of the then  applicable  Fixed
Conversion  Price.  The Company shall not be permitted to give the Investor more
than one Call Notice during any fifteen (15) day period.

     2.3.  Prepayments.  In the event Borrower wishes to prepay all or a portion
of the  Obligations  in cash in an  amount  in excess  of  $500,000  during  any
calendar year, Borrower shall deliver to the Holder a written irrevocable notice
indicating the amount  intended to be so prepaid (the  "Prepayment  Amount") and
the date on which such prepayment  shall be made (the "Prepayment  Date").  Such
notice shall be delivered to the Holder at least five (5) Business Days prior to
the Prepayment  Date. On the Prepayment  Date,  Borrower shall pay to the Holder
$500,000  plus  125%  (the  "Premium")  of the  Prepayment  Amount  in excess of
$500,000 in satisfaction of the Prepayment Amount;  provided,  however,  no such
Premium shall be applicable  to any  prepayment  made by Borrower of an Approved
Overadvance.  All such  prepayments  shall be (a) applied to the  Obligations in
such  order as the  Holder  shall  elect,  (b) shall be  subject to the terms of
Section 16 of the Security Agreement and (c) shall be credited (conditional upon
final  collection)  to the  Obligations  one Business Day after  receipt of such
amounts by Laurus in good funds in dollars of the United States of America.  Any
amount  received by Laurus  after 12:00 noon (New York time) on any Business Day
shall be deemed  received on the next Business Day.  Conversions  under Sections
2.2 or 3.1 shall not be deemed for any purpose to be prepayments hereunder.

                                  ARTICLE III

                                CONVERSION RIGHTS

     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,  including at any time prior to a Prepayment  Date (as defined in
Section 2.3),  or  thereafter  during an Event of Default (as defined in Article
V), and, subject to the volume  limitations set forth in Section 3.3 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
Borrower's  common stock, as currently  constituted  (the "Common Stock") at the
conversion price set forth in Section 3.2 (the "Conversion  Price").  The shares
of Common Stock to be issued upon such  conversion are herein referred to as the
"Conversion Shares."
                                       2
<PAGE>

     3.2. Conversion Price.  Notwithstanding the foregoing, the Fixed Conversion
Price shall be adjusted  upward (as hereafter  provided)  immediately  following
each conversion  under Sections 2.2 and/or 3.1 hereof in a multiple  (calculated
on an aggregate  cumulative  basis for all such  conversions  taken together) of
$2,000,000  (each  aggregate  $2,000,000   conversion,   a  "Specified  Event").
Following the occurrence of each Specified  Event,  the Fixed  Conversion  Price
shall be adjusted  upward based on a formula  equal to 115% of the closing price
for the Common Stock on the Principal Market,  or on any securities  exchange or
other  securities  market  on which the  Common  Stock is then  being  listed or
traded,  for the three (3) trading days  immediately  prior to the occurrence of
the Specified Event.

     3.3. 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 the number of shares of Common
Stock  beneficially  owned by such Holder or issuable  upon exercise of warrants
held by such  Holder  and 4.99% of the  outstanding  shares  of Common  Stock of
Borrower.  For the 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 Holder may void the Conversion Share
limitation  described in this Section 3.3 upon 75 days prior notice to Borrower,
or without any notice requirement upon an Event of Default.

     3.4.  Mechanics  of  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  ("Notice
of  Conversion")  to Borrower  and such  Notice of  Conversion  shall  provide a
breakdown  in  reasonable  detail of the  amount of  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
Borrower  within two (2) business days after the Conversion  Date.  Each date on
which a  Notice  of  Conversion  is  delivered  or  telecopied  to  Borrower  in
accordance  with the  provisions  hereof shall be deemed a Conversion  Date (the
"Conversion  Date").  A form of Notice of Conversion that may be employed by the
Holder is annexed hereto as Exhibit A. Borrower will cause the transfer agent to
transmit the certificates  representing  the Conversion  Shares to the Holder by
crediting  the account of the  Holder's  designated  broker with the  Depository
Trust  Corporation  ("DTC")  through its  Deposit  Withdrawal  Agent  Commission
("DWAC")  system within three (3) business days after receipt by Borrower of the
Notice of Conversion (the "Delivery Date").

     In the case of the exercise of the conversion rights set forth herein,  the
conversion  privilege  shall be deemed to have been exercised and the Conversion
Shares  issuable upon such  conversion  shall be deemed to have been issued upon
the date of receipt by Borrower of the Notice of Conversion. The Holder shall be
treated for all purposes as the record holder of such Common  Stock,  unless the
Holder provides Borrower written instructions to the contrary.
                                       3
<PAGE>

     3.5. Late Payments.  Borrower  understands that a delay in the delivery of
the shares of Common Stock in the form required pursuant to this Article beyond
the Delivery Date could result in economic loss to the Holder.  As  compensation
to the  Holder for such loss and  Borrower  agrees to pay late  payments  to the
Holder for late  issuance of such shares in the form  required  pursuant to this
Article III upon  conversion  of the Note, in the amount equal to the greater of
(i) $500 per Business Day after the Delivery  Date and (ii) the Holder's  actual
damages from such delayed  delivery.  Borrower  shall pay any payments  incurred
under this Section in immediately  available  funds upon demand and, in the case
of actual damages, accompanied by reasonable documentation of the amount of such
damages.

     3.6. Adjustment Provisions.  The Fixed Conversion Price and number and kind
of shares or other securities to be issued upon conversion  determined  pursuant
to Sections 3.1 and 3.2,  shall be subject to adjustment  from time to time upon
the happening of certain events while this conversion right remains outstanding,
as follows:

     A.   Reclassification,   etc.   If   Borrower   at  any  time   shall,   by
reclassification  or  otherwise,  change  the  Common  Stock  into the same or a
different  number of  securities  of any class or classes,  this Note, as to the
unpaid Principal Amount and accrued interest thereon, shall thereafter be deemed
to evidence the right to purchase an adjusted number of such securities and kind
of  securities  as would have been  issuable  as the result of such  change with
respect to the Common Stock immediately prior to such  reclassification or other
change.

     B. Stock Splits,  Combinations and Dividends. If the shares of Common Stock
are  subdivided or combined into a greater or smaller number of shares of Common
Stock,  or if a dividend is paid on the Common Stock in shares of Common  Stock,
the  Fixed  Conversion  Price  shall  be  proportionately  reduced  in  case  of
subdivision of shares or stock dividend or proportionately increased in the case
of combination of shares,  in each such case by the ratio which the total number
of shares of Common Stock outstanding  immediately after such event bears to the
total number of shares of Common  Stock  outstanding  immediately  prior to such
event.

     C. Share  Issuances.  Subject to the  provisions  of this  Section  3.6, if
Borrower  shall at any time prior to the  conversion or repayment in full of the
Principal  Amount issue any Additional  Shares to a Person other than the Holder
pursuant to Subsections A or B above for a consideration per share less than the
Fixed Conversion  Price in effect at the time of issuance,  the Fixed Conversion
Price shall be  immediately  reset to the price  determined by  multiplying  the
Fixed  Conversion  Price (as in effect  from  time to time) by a  fraction,  the
numerator  of which  shall be the number of shares of Common  Stock  outstanding
immediately  prior to such issue plus the number of shares of Common Stock which
the  aggregate  consideration  received  by  Borrower  for the  total  number of
Additional  Shares so issued would purchase at the Fixed Conversion Price (as in
effect  from time to time) and the  denominator  of which shall be the number of
shares of Common  Stock  outstanding  immediately  prior to such  issue plus the
number of such Additional  Shares so issued;  provided that, for the purposes of
this Section C, all shares of Common Stock issuable upon  exercise,  exchange or
conversion of outstanding  options,  convertible  securities and preferred stock
shall be deemed to be outstanding prior to such issuance;  provided, however, in
no event may the Fixed  Conversion  Price be reduced  to a price  which is lower
than the closing market price on the date such reset is effective.  For purposes
hereof, the issuance of any security of Borrower convertible into or exercisable
or  exchangeable  for Common  Stock shall result in an  adjustment  to the Fixed
Conversion  Price  only  upon  the  conversion,  exercise  or  exchange  of such
securities. "Additional Shares" means all shares of Common Stock, except:
                                       4
<PAGE>

     (a) shares of Common Stock issued or issuable upon  conversion of preferred
stock outstanding on the date hereof;

     (b) shares of Common  Stock or options or  warrants  issued or  issuable to
officers,  directors and employees of, and consultants to, Borrower  pursuant to
an option plan,  purchase plan or other employee or consultant  incentive  plan,
pursuant to stock grants or any other plan or arrangement approved by Borrower's
Board of Directors;

     (c)  shares of Common  Stock or  preferred  stock or  options  or  warrants
exercisable  for Common  Stock or preferred  stock issued to banks,  savings and
loan  associations,  equipment lessors or other similar lending  institutions in
connection with such entities  providing  working  capital credit  facilities or
equipment  financing to Borrower or to landlords not otherwise  affiliated  with
Borrower in connection with the lease of office, laboratory,  warehouse or other
similar property approved by Borrower's Board of Directors;

     (d) shares of Borrower's  capital stock issued  pursuant to the acquisition
of another  corporation by Borrower by merger,  purchase of all or substantially
all of the assets or stock or other reorganization  approved by Borrower's Board
of Directors;

     (e)  shares of  Borrower's  capital  stock  issued in  connection  with the
acquisition of technology or licenses or other similar transactions  approved by
Borrower's Board of Directors; and

     (f)  shares of  Borrower's  capital  stock  issued to  Persons  with  which
Borrower has strategic or business relationships, provided that such issuance is
approved by the Board of Directors of Borrower and is not  primarily for capital
raising purposes.

     D. Computation of Consideration. For purposes of any computation respecting
consideration  received  pursuant to  Subsection C above,  the  following  shall
apply:

     (a) in the case of the  issuance  of shares of Common  Stock for cash,  the
consideration  shall be the amount of such cash,  provided that in no case shall
any deduction be made for any commissions,  discounts or other expenses incurred
by  Borrower  for any  underwriting  of the  issue or  otherwise  in  connection
therewith;

     (b)  in  the  case  of  the  issuance  of  shares  of  Common  Stock  for a
consideration in whole or in part other than cash, the consideration  other than
cash shall be deemed to be the fair market value  thereof as  determined in good
faith by the Board of  Directors  of Borrower  (irrespective  of the  accounting
treatment thereof); and

     (c)  in  the  case  of the  issuance  of  securities  convertible  into  or
exchangeable  for shares of Common Stock, the aggregate  consideration  received
therefor  shall be deemed to be the  consideration  received by Borrower for the
issuance of such securities plus the additional minimum  consideration,  if any,
to be  received  by  Borrower  upon the  conversion  or  exchange  thereof  (the
consideration  in each case to be  determined  in the same manner as provided in
clauses (a) and (b) of this Subsection (D)).
                                       5
<PAGE>

     3.7. Reservation of Shares.  During the period the conversion right exists,
Borrower will reserve from its authorized and unissued Common Stock a sufficient
number of shares to  provide  for the  issuance  of Common  Stock  upon the full
conversion of this Note.  Borrower  represents  that upon issuance,  such shares
will be duly and validly issued, fully paid and non-assessable.  Borrower agrees
that its issuance of this Note shall  constitute full authority to its officers,
agents,  and  transfer  agents who are charged  with the duty of  executing  and
issuing stock  certificates to execute and issue the necessary  certificates for
shares of Common Stock upon the conversion of this Note.

     3.8.  Registration  Rights. The Holder has been granted registration rights
with respect to the shares of Common Stock issuable upon conversion of this Note
as more  fully  set  forth in a  Registration  Rights  Agreement  dated the date
hereof.

                                   ARTICLE IV

                                EVENTS OF DEFAULT

     The  occurrence  of any of the  following  events  is an Event  of  Default
("Event of Default"):

     4.1.  Failure to Pay Principal or Interest.  Borrower  shall default in the
payment of (i)  principal on any Note when due or (ii) interest on any Note when
due and such interest  payment  default shall continue for a period of three (3)
Business Days.

     4.2. Failure to Pay Other Obligations.  Borrower shall fail to make payment
of any of the other  Obligations when required  hereunder and such default shall
continue for a period of five (5) Business Days.

     4.3. Breach of Representations and Warranties.  Any material representation
or  warranty  made by  Borrower  hereunder,  in any  certificate,  statement  or
document  delivered  pursuant to the terms  hereof,  or in  connection  with the
transactions  contemplated  by this  Note  should  prove to have  been  false or
misleading  in any material  respect when made or deemed made,  as determined by
Laurus in good faith in the exercise of its reasonable discretion;

     4.4.  Breach of Covenants.  Borrower  shall fail to perform any covenant or
any  other  term or  condition  of this  Note  and  such  failure  shall  remain
unremedied for 10 days after the occurrence thereof.

     4.5. Default Under Related Agreement. The occurrence of an Event of Default
under and as defined in the Security Agreement.

     4.6.  Stop  Trade.  A stop  trade  order  is  instituted  by the SEC or the
Principal Market governing body undertakes to officially  suspend trading of the
stock for 30  consecutive  trading  days,  but excluding in all cases (i) a stop
trade order not resulting from actions or omissions  solely of Borrower,  (ii) a
stop trade order or a Principal Market suspension disputed in writing to the SEC
or the  Principal  Market  governing  body by Borrower  (which  default shall be
suspended  until such stop trade order or the  Principal  Market  suspension  is
finally  determined  by the SEC or the  Principal  Market  governing  body to be
effective),  (iii) a  delisting from a Principal Market that is not a suspension
by its governing  body and (iv) any  suspension of all trading on such Principal
Market.
                                       6
<PAGE>

                                  ARTICLE V
                                DEFAULT PAYMENTS

     5.1.  Default  Interest  Rate.  Following  the  occurrence  and  during the
continuance of an Event of Default, interest on this Note shall automatically be
increased  to the  Default  Rate in  effect  for  Loans  at such  time,  and all
outstanding  Obligations,  including unpaid  interest,  shall continue to accrue
interest from the date of such Event of Default at such interest rate applicable
to such Obligations until such Event of Default is cured or waived.

     5.2. Cumulative Remedies. The remedies under this Note shall be cumulative.

                                   ARTICLE VI
                                  MISCELLANEOUS

     6.1.  Failure or Indulgence Not Waiver.  No failure or delay on the part of
the Holder  hereof in the exercise of any power,  right or  privilege  hereunder
shall operate as a waiver thereof,  nor shall any single or partial  exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other  right,  power or  privilege.  All  rights  and  remedies  existing
hereunder  are  cumulative  to, and not  exclusive  of,  any rights or  remedies
otherwise available.

     6.2. Notices.  Any notice herein required or permitted to be given shall be
in writing and provided in accordance with the terms of the Security Agreement.

     6.3. Amendment  Provision.  The term "Note" and all reference  thereto,  as
used  throughout  this  instrument,  shall mean this  instrument  as  originally
executed,  or  if  later  amended  or  supplemented,   then  as  so  amended  or
supplemented.

     6.4.  Assignability.  This Note  shall be  binding  upon  Borrower  and its
successors  and  assigns,  and shall  inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder in accordance with the
terms hereof and the legend set forth herein.

     6.5.  Cost of  Collection.  If default is made in the payment of this Note,
Borrower shall pay the Holder hereof  reasonable costs of collection,  including
reasonable attorneys' fees.
                                       7
<PAGE>

     6.6.  Governing  Law.  This Note  shall be  governed  by and  construed  in
accordance with the laws of the State of New York,  without regard to principles
of  conflicts  of laws.  Any action  brought by either  party  against the other
concerning the transactions contemplated by this Agreement shall be brought only
in the state courts of New York or in the federal courts located in the state of
New  York.  Both  parties  and the  individual  signing  this  Note on behalf of
Borrower  agree to submit to the  jurisdiction  of such courts.  The  prevailing
party  shall  be  entitled  to  recover  from the  other  party  its  reasonable
attorney's  fees and  costs.  In the event  that any  provision  of this Note is
invalid or unenforceable  under any applicable statute or rule of law, then such
provision  shall  be  deemed  inoperative  to the  extent  that it may  conflict
therewith  and shall be deemed  modified to conform with such statute or rule of
law. Any such provision which may prove invalid or  unenforceable  under any law
shall not affect the validity or unenforceability of any other provision of this
Note. Nothing contained herein shall be deemed or operate to preclude the Holder
from  bringing suit or taking other legal action  against  Borrower in any other
jurisdiction to collect on Borrower's  obligations to Holder,  to realize on any
collateral or any other security for such obligations,  or to enforce a judgment
or other court order in favor of Holder.

     6.7.  Maximum  Payments.  Nothing  contained  herein  shall  be  deemed  to
establish  or require  the  payment of a rate of  interest  or other  charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest  required  to be paid or other  charges  hereunder  exceed the  maximum
permitted by such law, any payments in excess of such maximum  shall be credited
against amounts owed by Borrower to the Holder and thus refunded to Borrower.

     6.8. Security Interest. The Holder of this Note has been granted a security
interest in certain  assets of Borrower  more fully  described  in the  Security
Agreement.

     6.9.   Construction.   Each  party  acknowledges  that  its  legal  counsel
participated in the preparation of this Note and, therefore, stipulates that the
rule of construction  that  ambiguities are to be resolved  against the drafting
party shall not be applied in the interpretation of this Note to favor any party
against the other.
                                       8
<PAGE>

     IN WITNESS WHEREOF,  Borrower has caused this Note to be signed in its name
effective as of this 28th day of August, 2003.

                                    EP MEDSYSTEMS INC.


                                    By: /s/Reinhard Schmidt
                                    Name:  Reinhard Schmidt
                                    Title: President and Chief Executive
                                           Officer
WITNESS:_/s/___________________


                                       9
<PAGE>

                              NOTICE OF CONVERSION

(To be executed by the Holder in order to convert the Note)



     The  undersigned  hereby elects to convert  $_________ of the principal and
$_________  of the  interest  due on the Note  issued by EP  MEDSYSTEMS  INC. on
_______, 2003 into Shares of Common Stock of EP MEDSYSTEMS INC. (the "Borrower")
according  to the  conditions  set forth in such  Note,  as of the date  written
below.

Date of Conversion:

Conversion Price:

Shares To Be Delivered:

Signature:

Print Name:

Address:

                                       10

</TEXT>
</DOCUMENT>
