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 OR SUCH SHARES UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO MAGNETECH INTEGRATED SERVICES CORP. THAT SUCH REGISTRATION IS NOT REQUIRED.

FOR VALUE RECEIVED, MAGNETECH INTEGRATED SERVICES CORP., an Indiana corporation (the “ Company ”), 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, the sum of Three Million Dollars ($3,000,000), together with any accrued and unpaid interest hereon, on August 24, 2008 (the “ Maturity Date ”) if not sooner paid.

Capitalized terms used herein without definition shall have the meanings ascribed to such terms in that certain Security and Purchase Agreement dated as of the date hereof by and between the Company, certain Subsidiaries of the Company and the Holder (as amended, modified and/or supplemented from time to time, the “ Security Agreement ”). This Note is issued pursuant to, and is subject to the terms and conditions of, the Security Agreement.

The following terms shall apply to this Secured Convertible Term Note (this “ Note ”):

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 one percent (1.0%) (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. Interest shall be (i) calculated on the basis of a 360 day year, and (ii) payable monthly, in arrears, commencing on September 1, 2005, and 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 . 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 Grant Shares and the shares of the Common Stock underlying the conversion of this Note and each Warrant then outstanding on a registration statement declared effective by the Securities and Exchange Commission (the “ SEC ”), and (ii) the average of the Closing Prices (as defined below) 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 (the “ Closing Price Average ”) 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.) (2.0%) for each incremental twenty-five percent (25%) increase in the Closing Price Average 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%). For purposes of this Note, the “Closing Price” of the Common Stock shall mean: (i) in the event that the Common Stock is listed on the American Stock Exchange or New York Stock Exchange or the National or SmallCap Market of The Nasdaq Stock Market, Inc. (“ Nasdaq ”), the closing or last sale price, as the case may be, reported for the applicable day or (ii) in the event that the Common Stock is not traded on the American Stock Exchange or New York Stock Exchange or on the Nasdaq but is quoted on the NASD Over The Counter Bulletin Board, then the average of the closing bid and asked prices reported for the applicable day.

1.3   Principal Payments . Subject to Articles II and III below, amortizing payments of the aggregate principal amount outstanding under this Note at any time (the “ Principal Amount ”) shall be made by the Company on March 1, 2006 and on the first business day of each succeeding month thereafter through and including the Maturity Date (each, an “ Amortization Date ”). Subject to Articles II and 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 $100,000 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 Security Agreement and/or any other Ancillary Agreement (other than the Revolving Note and each Minimum Borrowing Note) (collectively, the “ Monthly Amount ”). Any outstanding Principal Amount together with any accrued and unpaid interest thereon and any and all other unpaid amounts which are then owing by the Company to the Holder under this Note, the Security Agreement and/or any other Ancillary Agreement (other than the Revolving Note and any Minimum Borrowing Note) shall be due and payable on the Maturity Date.

2.1   Payment of Monthly Amount.

(a)   Payment in Cash or Common Stock . If the Monthly Amount 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 101% of the Monthly Amount (the “ Premium Fee ”) due and owing to the Holder on the Amortization Date; provided, however, that if only a portion of such Monthly Amount may be converted into shares of Common Stock pursuant to Section 3.2, then the balance of such Monthly Amount that is required to be paid in cash shall not be subject to the

Premium Fee. 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 $0.26 per share of Common Stock.

(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 of the Monthly Amount due on each Amortization Date (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) if the following conditions (the “ Conversion Criteria ”) are satisfied: (i) the average of the Closing Prices (as defined herein)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 110% of the Fixed Conversion Price and (ii) the amount of such conversion does not exceed twenty eight percent (28%) 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 101% of the Monthly Amount otherwise due on such Amortization Date, within three (3) business days of such Amortization Date, pursuant to Section 2.1(a) above.

2.2   No Effective Registration . Notwithstanding anything to the contrary herein, none of the Company’s obligations to the Holder under this Note 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 conversion 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 fifteen percent (115%) 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 Security Agreement or any other Ancillary Agreement (other than the Revolving Note and any Minimum Borrowing Note) (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 3.1 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.

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 under this Note and fees due and payable under this Note, the Security Agreement or any other Ancillary Agreement (other than the Revolving Note and any Minimum Borrowing Note) into fully paid and nonassessable shares of Common Stock at the Fixed Conversion Price. Such conversion shall constitute complete satisfaction of the Principal Amount and/or accrued interest and fees so converted. 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 amount by which (i) 9.99% of the outstanding shares of Common Stock exceeds (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 following notice to the Company 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 Company.

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 (appropriate completed) (“ Notice of Conversion ”) to the Company and such Notice of Conversion shall provide a breakdown in reasonable detail of the Principal Amount, accrued interest and fees that are being converted