8-K

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 8-K

                             CURRENT REPORT PURSUANT
                          TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

       Date of Report (Date of earliest event reported): October 19, 2006

                                  MDWERKS, INC.
             (Exact name of registrant as specified in its charter)

                                    Delaware
                 (State or Other Jurisdiction of Incorporation)

       333-118155                                        33-1095411
(Commission File Number)                    (IRS Employer Identification Number)

                            Windolph Center, Suite I
                              1020 N.W. 6th Street
                            Deerfield Beach, FL 33442
                    (Address of Principal Executive Offices)

                                 (954) 389-8300
              (Registrant's Telephone Number, Including Area Code)

          (Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):

[_]  Written communications pursuant to Rule 425 under the Securities Act (17
     CFR 230.425)

[_]  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
     240.14-12)

[_]  Pre-commencement communications pursuant to Rule 14d-2(b) under the
     Exchange Act (17 CFR 240.14d-2(b))

[_]  Pre-commencement communications pursuant to Rule 13-e-4(c) under the
     Exchange Act (17 CFR 240.13e-4(c))



ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT

On October 20, 2006 we received gross proceeds of $2,375,000 in connection with
a financing provided by an unaffiliated accredited institutional investor (the
"Investor"). In connection with the financing, pursuant to the terms of a
Securities Purchase Agreement, we issued a senior secured convertible promissory
note to the Investor in the original principal amount of $2,500,000 (a "Senior
Note"), a five year Series D Warrant to purchase 187,500 shares of our common
stock at a price of $2.25 per share and a five year Series E Warrant to purchase
187,500 shares of our common stock at a price of $3.25 per share. As security
for our obligations, we, along with our subsidiaries, MDwerks Global Holdings,
Inc., Xeni Medical Systems, Inc., Xeni Financial Services, Corp. and Xeni
Medical Billing, Corp. entered into a Security Agreement with the Investor,
pursuant to which we granted a security interest in all of our assets to the
Investor. Our subsidiaries, MDwerks Global Holdings, Inc., Xeni Medical Systems,
Inc., Xeni Financial Services, Corp. and Xeni Medical Billing, Corp. are also
parties to a Guaranty Agreement pursuant to which they have agreed to
unconditionally guaranty our obligations under the Senior Note and the documents
entered into by us in connection the sale of the Senior Note. We also entered
into a Registration Rights Agreement, pursuant to which we agreed to register
for resale, the shares of our common stock into which the Senior Note is
convertible and the shares of our common stock for which the Series D Warrant
and the Series E Warrant are exercisable.

The following summary description of the material agreements entered into in
connection with the transaction described above is qualified in its entirety by
reference to the copies of such material agreements filed as exhibits to this
Current Report on Form 8-K.

Securities Purchase Agreement

The Securities Purchase Agreement provides for the sale, in two closings, of (i)
up to an aggregate amount of $5 million principal amount of senior secured
convertible notes ("Senior Notes") for which the purchaser will pay $0.95 for
each $1.00 principal amount of Senior Notes purchased. At each closing, we will
sell $2.5 million principal amount of Senior Notes and issue a five year Series
D Warrant to purchase 187,500 shares of our common stock at a price of $2.25 per
share and a five year Series E Warrant to purchase 187,500 shares of our common
stock at a price of $3.25 per share. The first closing occurred on October 19,
2006. The second closing is conditioned, among other things, upon our filing a
registration statement or amending a registration statement which has previously
been filed to cover the resale of shares of common stock to be issued upon
conversion of the Senior Notes or exercise of the Series D Warrant and the
Series E Warrant.

The Securities Purchase Agreement provides to the Investor, for so long as the
Senior Notes remain outstanding, a right of first refusal with respect to
subsequent placements of equity or equity equivalent securities by us.


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Senior Note

The Senior Note bears interest at the rate of 8% per year, payable monthly in
arrears, commencing December 1, 2006. Subject to certain mandatory prepayment
provisions, and events of default unpaid principal and interest due under the
Note will become due and payable on October 18, 2009. The Senior Note is
convertible, at the option of the holder, into shares of our common stock at a
price of $2.25 per share (the "Conversion Price"), subject to adjustment for
stock splits, stock dividends, or similar transactions, sales of our common
stock at a price per share below the Conversion Price or the issuance of
convertible securities or options or warrants to purchase shares of our common
stock at an exercise price or conversion price that is less than the Conversion
Price.

The Senior Notes provide for optional redemption by us at a redemption price
equal to 110% of the face amount redeemed plus accrued interest.

Events of default will result in a default rate of interest of 15% per year and
the holder may require that the Senior Note be redeemed at the Event of Default
Redemption Price (as defined in the Senior Note). The Event of Default
Redemption Price includes various premiums depending on the nature of the event
of default.

The Senior Note also provides that in the event of a Change of Control (as
defined in the Senior Note), the Holder may require that such Holder's Senior
Note be redeemed at the Change of Control Redemption Price (as defined in the
Senior Note). The Change of Control Redemption Price includes certain premiums
in the event the Senior Note is redeemed in the event of a Change of Control.

Series D Warrants

The Series D Warrants are exercisable at a price of $2.25 per share for a period
of five years from the date of issuance. The Series D Warrants may be exercised
on a cashless basis. The exercise price will be subject to adjustment in the
event of subdivision or combination of shares of our common stock and similar
transactions, distributions of assets, issuances of shares of common stock with
a purchase price below the exercise price of the Series D Warrants, issuances of
any rights, warrants or options to purchase shares of our common stock with an
exercise price below the exercise price of the Series D Warrants, issuances of
convertible securities with a conversion price below the exercise price of the
Series D Warrants.

Series E Warrants

The Series E Warrants are exercisable at a price of $3.25 per share for a period
of five years from the date of issuance. The Series E Warrants may be exercised
on a cashless basis. The exercise price will be subject to adjustment in the
event of subdivision or combination of shares of our common stock and similar
transactions, distributions of assets, issuances of shares of common stock with
a purchase price below the exercise


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price of the Series E Warrants, issuances of any rights, warrants or options to
purchase shares of our common stock with an exercise price below the exercise
price of the Series E Warrants, issuances of convertible securities with a
conversion price below the exercise price of the Series E Warrants.

Security Agreement

We, along with our subsidiaries MDwerks Global Holdings, Inc., Xeni Medical
Systems, Inc., Xeni Financial Services, Corp. and Xeni Medical Billing, Corp.,
entered into a Security Agreement with the Investor. The Security Agreement
provides for a lien in favor of the Investor on all of our assets, including the
assets of each of our subsidiaries.

Guaranty Agreement

Our subsidiaries, MDwerks Global Holdings, Inc., Xeni Medical Systems, Inc.,
Xeni Financial Services, Corp. and Xeni Medical Billing, Corp. entered into a
Guaranty Agreement with the Investor, pursuant to which they have agreed to
unconditionally guaranty our obligations under the Senior Note and the documents
entered into by us in connection the sale of the Senior Note.

Registration Rights Agreement

We entered into a Registration Rights Agreement with the Investor. The
Registration Rights Agreement requires us to file a registration statement
covering the resale of the shares underlying the Senior Note, the Series D
Warrants and the Series E Warrants within 45 calendar days after the closing
date. We are required to cause such registration statement to become effective
on or before the date which is 105 calendar days after the closing date. In
addition to it being an event of default under the Senior Note, if we fail to
file such registration statement in the time frame required, fail to cause it to
become effective in the time frame required, or fail to maintain the
effectiveness of the registration statement as required by the Registration
Rights Agreement, the exercise price of the Series D and the Series E Warrants
will immediately be reduced by $0.25 per share and then reduced by an additional
$0.10 per share for each thirty day period thereafter that the registration
statement is not filed or effective, as the case may be, up to a maximum
reduction of $0.65.

ITEM 3.02 UNREGISTERED SALES OF EQUITY SECURITIES.

Item 1.01 above is incorporated into this Item 3.02 by reference.

Investor is an "accredited investor," as defined in Regulation D under the
Securities Act of 1933, as amended, or the Securities Act. None of the Senior
Note, the Series D Warrant, the Series E Warrant or the shares of our common
stock underlying such securities were registered under the Securities Act, or
the securities laws of any state and were offered and sold in reliance on the
exemption from registration afforded by Section 4(2) and Regulation D (Rule 506)
under the Securities Act and corresponding provisions of state securities laws,
which exempts transactions by an issuer not involving any public offering.


                                        3



We made this determination based on the representations of the Investor, which
included, in pertinent part, that the Investor is an "accredited investor"
within the meaning of Rule 501 of Regulation D promulgated under the Securities
Act, and that the Investor was acquiring the Senior Note, the Series D Warrant
and the Series E Warrant for investment purposes for its own account and not as
nominee or agent, and not with a view to the resale or distribution, and that
Investor understood such securities may not be sold or otherwise disposed of
without registration under the Securities Act or an applicable exemption
therefrom.

Thus, the Senior Note, the Series D Warrant and the Series E Warrant and shares
of common stock underlying such securities may not be offered or sold in the
United States absent registration or an applicable exemption from the
registration requirements and certificates evidencing such shares contain a
legend stating the same.

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.

(d)   Exhibits

      The following exhibits are filed as part of this report:

      Exhibit No.   Description
      -----------   -----------
          4.1       Securities Purchase Agreement by and between Investor and
                    MDwerks, Inc.

          4.2       Form of Class D Warrant to purchase shares of Common Stock
                    at a price of $2.25 per share

          4.3       Form of Class E Warrant to purchase shares of Common Stock
                    at a price of $3.25 per share

          4.4       Form of Senior Secured Convertible Note

          4.5       Registration Rights Agreement between MDwerks, Inc. and
                    Investor

         10.1       Guaranty issued to Investor by Xeni Financial Services,
                    Corp., Xeni Medical Billing, Corp., MDwerks Global Holdings,
                    Inc. and Xeni Medical Systems, Inc.

         10.2       Security Agreement by and among Investor, MDwerks, Inc.,
                    Xeni Financial Services, Corp., Xeni Medical Billing, Corp.,
                    MDwerks Global Holdings, Inc. and Xeni Medical Systems, Inc.


                                        4



                                    SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this Report to be signed on its behalf
by the undersigned hereunto duly authorized.

                                        MDWERKS, INC.


Dated: October 23, 2006                 By: /s/ Howard B. Katz
                                            ------------------------------------
                                            Howard B. Katz
                                            Chief Executive Officer


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                                  EXHIBIT INDEX

Exhibit No.   Description
- -----------   -----------
    4.1       Securities Purchase Agreement by and between Investor and MDwerks,
              Inc.

    4.2       Form of Class D Warrant to purchase shares of Common Stock at a
              price of $2.25 per share

    4.3       Form of Class E Warrant to purchase shares of Common Stock at a
              price of $3.25 per share

    4.4       Form of Senior Secured Convertible Note

    4.5       Registration Rights Agreement between MDwerks, Inc. and Investor

   10.1       Guaranty issued to Investor by Xeni Financial Services, Corp.,
              Xeni Medical Billing, Corp., MDwerks Global Holdings, Inc. and
              Xeni Medical Systems, Inc.

   10.2       Security Agreement by and among Investor, MDwerks, Inc., Xeni
              Financial Services, Corp., Xeni Medical Billing, Corp., MDwerks
              Global Holdings, Inc. and Xeni Medical Systems, Inc.


                                        6

EX-4.1

                          SECURITIES PURCHASE AGREEMENT

     SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of October 19,
2006, by and among MDwerks, Inc., a Delaware corporation, with headquarters
located at 1020 NW 6th St., Suite I, Deerfield Beach, FL 33442 (the "COMPANY"),
and the investors listed on the Schedule of Buyers attached hereto
(individually, a "BUYER" and collectively, the "BUYERS").

     WHEREAS:

     A. The Company and each Buyer is executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by Section
4(2) of the Securities Act of 1933, as amended (the "1933 ACT"), and Rule 506 of
Regulation D ("REGULATION D") as promulgated by the United States Securities and
Exchange Commission (the "SEC") under the 1933 Act.

     B. The Company has authorized a new series of senior secured convertible
notes of the Company which notes shall be convertible into the Company's common
stock, par value $0.001 per share (the "COMMON STOCK"), in accordance with the
terms of the Notes (as defined below).

     C. Each Buyer wishes to purchase, and the Company wishes to sell, upon the
terms and conditions stated in this Agreement, (i) that aggregate principal
amount of the Notes, in substantially the form attached hereto as Exhibit A (the
"INITIAL NOTES"), set forth opposite such Buyer's name in column (3) on the
Schedule of Buyers attached hereto (which aggregate amount for all Buyers shall
be $2,500,000) (as converted, collectively, the "INITIAL CONVERSION SHARES"),
(ii) warrants, in substantially the form attached hereto as Exhibit B-1 (the
"SERIES D WARRANTS"), to acquire one half that number of shares of Common Stock
set forth opposite such Buyer's name in column (5) on the Schedule of Buyers and
(iii) warrants in substantially the form attached hereto as Exhibit B-2 (the
"SERIES E WARRANTS") to acquire one half of that number of shares of Common
Stock set forth opposite such Buyer's name in column (6) on the Schedule of
Buyers (collectively with the Series D Warrants, the "WARRANTS"). Any shares of
the Common Stock issued or issuable upon the exercise of the Warrants are
hereinafter referred to as the "WARRANT SHARES."

     D. Subject to the terms and conditions set forth in this Agreement, the
Buyers shall purchase in an Additional Closing (as defined in Section 1(a)(ii)
below), (i) that aggregate principal amount of Notes, in substantially the form
attached hereto as Exhibit A (collectively, the "ADDITIONAL NOTES" and,
collectively with the Initial Notes, the "NOTES"), set forth opposite such
Buyer's name in column (4) on the Schedule of Buyers (which aggregate amount for
all Buyers shall be $2,500,000) (as converted, collectively, the "ADDITIONAL
CONVERSION SHARES" and, collectively with the Initial Conversion Shares, the
"CONVERSION SHARES"); (ii) Series D Warrants to acquire one half of that number
of shares of Common Stock set forth opposite such Buyer's name in column (5) on
the Schedule of Buyers ("ADDITIONAL SERIES D WARRANTS") and (iii) Series E
Warrants to acquire one half of that number of shares of Common Stock set forth
opposite such Buyer's name in column (6) on the Schedule of Buyers ("ADDITIONAL
SERIES E


                                        1



WARRANTS" AND, COLLECTIVELY WITH THE ADDITIONAL SERIES D WARRANTS, "ADDITIONAL
WARRANTS").

     E. At the Closing (as defined below), the parties hereto shall execute and
deliver a Registration Rights Agreement, substantially in the form attached
hereto as Exhibit C (the "REGISTRATION RIGHTS AGREEMENT"), pursuant to which the
Company has agreed to provide certain registration rights with respect to the
Conversion Shares and the Warrant Shares under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities laws.

     F. The Notes, the Conversion Shares, the Warrants and the Warrant Shares
collectively are referred to herein as the "SECURITIES".

     G. Except as may be otherwise provided herein, the Notes will rank senior
to all outstanding and future indebtedness of the Company, subject to Permitted
Senior Indebtedness (as defined in the Notes), and except as may be otherwise
provided herein, will be secured by a perfected security interest in all of the
assets of the Company and each of the Company's subsidiaries, as evidenced by
the security agreement attached hereto as Exhibit D (the "SECURITY AGREEMENT")
and together with the Guaranty, and any ancillary documents related thereto,
collectively the "SECURITY DOCUMENTS").

     NOW, THEREFORE, the Company and each Buyer hereby agree as follows:

1. PURCHASE AND SALE OF NOTES AND WARRANTS.

     (a) Purchase of Notes and Warrants.

     (i) Initial Notes and Warrants. Subject to the satisfaction (or waiver) of
the conditions set forth in Sections 6(a) and 7(a) below, the Company shall
issue and sell to each Buyer, and each Buyer severally, but not jointly, will
purchase from the Company on the Initial Closing Date (as defined below), (x) a
principal amount of Initial Notes as is set forth opposite such Buyer's name in
column (3) on the Schedule of Buyers and (y) Warrants to acquire one half of
that number of Warrant Shares as is set forth opposite such Buyer's name in
columns (5&6) on the Schedule of Buyers (the "INITIAL CLOSING").

     (ii) Additional Notes and Warrants. Subject to the satisfaction (or waiver)
of the conditions set forth in Sections 1(c), 6(b) and 7(b) below, the Company
shall issue and sell to each Buyer, and each Buyer severally, but not jointly,
will purchase from the Company on the Additional Closing Date (as defined
below), a principal amount of Additional Notes as is set forth opposite such
Buyer's name in column (4) on the Schedule of Buyers and Additional Warrants to
acquire one half of that number of Warrant Shares as is set forth opposite such
Buyer's name in columns (5&6) (the "ADDITIONAL CLOSING").

     (iii) Closing. The Initial Closing and the Additional Closing are referred
to in this Agreement as a "CLOSING". Each Closing shall occur on the applicable
Closing Date at the offices of Gottbetter & Partners, LLP, 488 Madison Avenue,
New York, NY 10022.


                                        2



     (iv) Purchase Price. The aggregate purchase price for the Initial Notes and
the Warrants to be purchased by each Buyer at the Initial Closing (the "INITIAL
PURCHASE PRICE") shall be the amount set forth opposite such Buyer's name in
column (7) of the Schedule of Buyers. Each Buyer shall pay $.95 for each $1.00
of principal amount of Initial Notes and related Warrants to be purchased by
such Buyer at the Closing. The aggregate purchase price for the Initial Notes
and the Warrants to be purchased by each Buyer at the Additional Closing shall
be the amount set forth opposite such Buyer's name in column (7) of the Schedule
of Buyers (the "ADDITIONAL PURCHASE PRICE", and together with the Initial
Purchase Price, the "PURCHASE PRICE"). Each Buyer shall pay $.95 for each $1.00
of principal amount of Additional Notes to be purchased at each Additional
Closing.

     (b) Initial Closing Date. The date and time of the Initial Closing (the
"INITIAL CLOSING DATE") shall be 10:00 a.m., New York City Time, on the date
hereof after notification of satisfaction (or waiver) of the conditions to the
Initial Closing set forth in Sections 6(a) and 7(a) below (or such later date as
is mutually agreed to by the Company and each Buyer).

     (c) Additional Closing Dates. The date and time of the Additional Closing
(the "ADDITIONAL CLOSING DATE," and together with the Initial Closing Date, each
or "CLOSING DATE" and collectively, the "CLOSING DATES") shall be 10:00 a.m.,
New York City Time, on the date specified in the applicable Additional Closing
Notice (as defined below), subject to satisfaction (or waiver) of the conditions
to the Additional Closing set forth in Sections 6(b) and 7(b) and the conditions
contained in this Section 1(c) (or such later date as is mutually agreed to by
the Company and the applicable Buyer). Subject to the requirements of Sections
6(b) and 7(b) and the conditions contained in this Section 1(c), each Buyer
shall purchase the Additional Notes upon receipt of a notice of the filing of
the Registration Statement (the "ADDITIONAL CLOSING NOTICE"). The Additional
Closing Notice shall be delivered at least one Business Day prior to the
Additional Closing Date set forth in such Additional Closing Notice. As used
herein, "BUSINESS DAY" means any day other than Saturday, Sunday or other day on
which commercial banks in The City of New York are authorized or required by law
to remain closed.

     (d) Form of Payment. On the Initial Closing Date, (i) each Buyer shall pay
its Initial Purchase Price to the Company for the Initial Notes and the Warrants
to be issued and sold to such Buyer at the Closing by wire transfer of
immediately available funds in accordance with the Company's written wire
instructions and (ii) the Company shall deliver to each Buyer (A) the Initial
Notes (in the principal amounts as such Buyer shall have requested prior to the
Closing) which such Buyer is then purchasing and (B) the Warrants (in the
amounts as such Buyer shall have requested prior to the Closing) which such
Buyer is purchasing, in each case duly executed on behalf of the Company and
registered in the name of such Buyer or its designee. On the Additional Closing
Date, each Buyer shall pay the Additional Purchase Price to the Company for the
Additional Notes and Additional Warrants to be issued and sold to such Buyer at
the Additional Closing by wire transfer of immediately available funds for such
Additional Purchase Price in accordance with the Company's written wire
instructions. At each Closing, the Company shall deliver to each Buyer the Notes
(in the principal amounts as such Buyer shall request) and the Warrants which
such Buyer is then purchasing duly executed on behalf of the Company and
registered in the name of such Buyer or its designee.


                                        3



2. BUYER'S REPRESENTATIONS AND WARRANTIES.

     Each Buyer represents and warrants with respect to only itself that:

     (a) No Public Sale or Distribution. Such Buyer is (i) acquiring the Notes
and the Warrants and (ii) upon conversion of the Notes and exercise of the
Warrants will acquire the Conversion Shares issuable upon conversion of the
Notes and the Warrant Shares issuable upon exercise of the Warrants, for its own
account and not with a view towards, or for resale in connection with, the
public sale or distribution thereof, except pursuant to sales registered or
exempt from registration under the 1933 Act; provided, however, that by making
the representations herein, such Buyer does not agree to hold any of the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exempt from registration under the 1933 Act. Such
Buyer is acquiring the Securities hereunder in the ordinary course of its
business. Such Buyer does not presently have any agreement or understanding,
directly or indirectly, with any Person to distribute any of the Securities.
Further, there are no contracts, arrangements, understandings or relationships
(legal or otherwise) among such Buyer and any other Person with respect to any
securities of the Company, including but not limited to transfer or voting of
any of the Securities, finder's fees, joint ventures, loan or option
arrangements, puts or calls, guarantees of profits, division of profits or loss,
or the giving or withholding of proxies.

     (b) Accredited Investor Status. Such Buyer is an "accredited investor" as
that term is defined in Rule 501(a) under the 1933 Act. Such Buyer is not a
registered broker-dealer under Section 15 of the 1934 Act.

     (c) Reliance on Exemptions. Such Buyer understands that the Securities are
being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying in part upon the truth and accuracy of, and such
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire the Securities.

     (d) Information. Such Buyer and its advisors, if any, have been furnished
with all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Securities which
have been requested by such Buyer. Such Buyer and its advisors, if any, have
been afforded the opportunity to ask questions of the Company and have had such
questions answered to its satisfaction. Such Buyer understands that its
investment in the Securities involves a high degree of risk. Such Buyer has
sought such accounting, legal and tax advice as it has considered necessary to
make an informed investment decision with respect to its acquisition of the
Securities.

     (e) No Governmental Review. Such Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment


                                        4



in the Securities nor have such authorities passed upon or endorsed the merits
of the offering of the Securities.

     (f) Transfer or Resale. Such Buyer understands that except as provided in
the Registration Rights Agreement: (i) the Securities have not been and are not
being registered under the 1933 Act or any state securities laws, and may not be
offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) such Buyer shall have delivered to the Company an
opinion of counsel, in a form reasonably acceptable to the Company, to the
effect that such Securities to be sold, assigned or transferred may be sold,
assigned or transferred pursuant to an exemption from such registration, or (C)
such Buyer provides the Company with reasonable assurance (including an opinion
of counsel) that such Securities can be sold, assigned or transferred pursuant
to Rule 144 or Rule 144A promulgated under the 1933 Act, as amended, (or a
successor rule thereto) (collectively, "RULE 144"); (ii) any sale of the
Securities made in reliance on Rule 144 may be made only in accordance with the
terms of Rule 144 and further, if Rule 144 is not applicable, any resale of the
Securities under circumstances in which the seller (or the Person (as defined in
Section 3(s)) through whom the sale is made) may be deemed to be an underwriter
(as that term is defined in the 1933 Act) may require compliance with some other
exemption under the 1933 Act or the rules and regulations of the SEC thereunder;
and (iii) neither the Company nor any other Person is under any obligation to
register the Securities under the 1933 Act or any state securities laws or to
comply with the terms and conditions of any exemption thereunder. The Securities
may be pledged in connection with a bona fide margin account or other loan or
financing arrangement secured by the Securities and such pledge of Securities
shall not be deemed to be a transfer, sale or assignment of the Securities
hereunder, and no Buyer effecting a pledge of Securities shall be required to
provide the Company with any notice thereof or otherwise make any delivery to
the Company pursuant to this Agreement or any other Transaction Document (as
defined in Section 3(b)), including, without limitation, this Section 2(f).

     (g) Legends. Such Buyer understands that the certificates or other
instruments representing the Notes and the Warrants and, until such time as the
resale of the Conversion Shares and the Warrant Shares have been registered
under the 1933 Act as contemplated by each of the Registration Rights Agreement,
the stock certificates representing the Conversion Shares and the Warrant
Shares, except as set forth below, shall bear any legend as required by the
"blue sky" laws of any state and a restrictive legend in substantially the
following form (and a stop-transfer order may be placed against transfer of such
stock certificates):

          [NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
          CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
          [CONVERTIBLE] [EXERCISABLE] HAVE BEEN] [THE SECURITIES REPRESENTED BY
          THIS CERTIFICATE HAVE NOT BEEN] REGISTERED UNDER THE SECURITIES ACT OF
          1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES
          MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
          ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
          UNDER THE SECURITIES ACT OF 1933, AS AMENDED,


                                        5



          OR (B) AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE
          COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II)
          UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.
          NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
          CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
          ARRANGEMENT SECURED BY THE SECURITIES.

The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, or issue to such holder by electronic delivery at the applicable
balance account at DTC (as defined below) unless otherwise required by state
securities laws, if (i) such Securities are registered for resale under the 1933
Act, (ii) in connection with a sale, assignment or other transfer, such holder
provides the Company with an opinion of counsel, in a form reasonably acceptable
to the Company, to the effect that such sale, assignment or transfer of the
Securities may be made without registration under the applicable requirements of
the 1933 Act, or (iii) such holder provides the Company with reasonable
assurance that the Securities can be sold, assigned or transferred pursuant to
Rule 144 or Rule 144A.

     (h) Validity; Enforcement. The Transaction Documents (as defined below) to
which such Buyer is a party have been duly and validly authorized, executed and
delivered on behalf of such Buyer and shall constitute the legal, valid and
binding obligations of such Buyer enforceable against such Buyer in accordance
with their respective terms, except as such enforceability may be limited by
general principles of equity or to applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar laws relating to, or
affecting generally, the enforcement of applicable creditors' rights and
remedies.

     (i) No Conflicts. The execution, delivery and performance by such Buyer of
the Transaction Documents to which such Buyer is a party and the consummation by
such Buyer of the transactions contemplated hereby and thereby will not (i)
result in a violation of the organizational documents of such Buyer or (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which such Buyer is a party, or (iii) result in a
violation of any law, rule, regulation, order, judgment or decree (including
federal and state securities laws) applicable to such Buyer, except in the case
of clauses (ii) and (iii) above, for such conflicts, defaults, rights or
violations which would not, individually or in the aggregate, have or reasonably
be expected to have a material adverse effect on the ability of such Buyer to
perform its obligations hereunder.

     (j) Residency. Such Buyer is a resident of that jurisdiction specified
below its address on the Schedule of Buyers.

     (k) Independent Investment Decision. Such Buyer has independently evaluated
the merits of its decision to purchase the Securities pursuant to the
Transaction Documents, and such Buyer confirms that it has (i) not relied on the
advice of any other Buyer's business and/or legal


                                        6



counsel in making such decision and (ii) not received or relied on any advice of
the Company or its business and/or legal counsel in making such decision. Such
Buyer acknowledges that it had the opportunity to review this Agreement, the
other Transaction Documents and the transactions contemplated hereby and thereby
with its own legal counsel and investment and tax advisors, if any. Such Buyer
is relying solely on such counsel and advisors and not on any statements or
representations of the Company or any of its representatives or agents for
legal, tax or investment advice with respect to this investment, the
transactions contemplated by this Agreement and the other Transaction Documents.

     (l) Certain Trading Activities. Such Buyer has not directly or indirectly,
nor has any Person acting on behalf of or pursuant to any understanding with
such Buyer, engaged in any transactions in the securities of the Company
(including, without limitations, any Short Sales involving the Company's
securities) since the time that such Buyer was first contacted by the Company
regarding the transactions contemplated hereby. Such Buyer covenants that
neither it nor any Person acting on its behalf or pursuant to any understanding
with it will engage in any transactions in the securities of the Company
(including Short Sales) prior to the time that the transactions contemplated by
this Agreement are publicly disclosed. For the purpose of this Agreement, "SHORT
SALES" include, without limitation, all "short sales" as defined in Rule 200
promulgated under Regulation SHO under the 1934 Act and all types of direct and
indirect stock pledges, forward sale contracts, options, puts, calls, swaps and
similar arrangements (including on a total return basis), and sales and other
transactions through non-US broker dealers or foreign regulated brokers.

     (m) Limited Ownership. The purchase by such Buyer of the Securities
issuable to it at the Closing will not result in such Buyer or in the aggregate
with other Buyers (individually or together with other Persons with whom such
Buyer has identified, or will have identified, itself as part of a "group" in a
public filing made with the SEC involving the Company's securities) acquiring,
or obtaining the right to acquire, in excess of 19.999% of the outstanding
shares of Common Stock or the voting power of the Company on a post transaction
basis that assumes that the Closing shall have occurred. Such Buyer does not
presently intend to, alone or together with others, make a public filing with
the SEC to disclose that it has (or that it together with such other Persons
have) acquired, or obtained the right to acquire, as a result of the Closing
(when added to any other securities of the Company that it or they then own or
have the right to acquire), in excess of 19.999% of the outstanding shares of
Common Stock or the voting power of the Company on a post transaction basis that
assumes that the Closing shall have occurred.

     (n) General Solicitation. Such Buyer is not purchasing the Securities as a
result of any advertisement, article, notice or other communication regarding
the Securities published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar.

     (o) Organization; Authority. Such Buyer is an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization with the requisite corporate or partnership or other entity power
and authority to enter into and to consummate the transactions contemplated by
the applicable Transaction Documents to which it is a party and otherwise to
carry out its obligations thereunder.


                                        7



     (p) Prohibited Transactions. During the last ten (10) days prior to the
date hereof, neither such Buyer nor any Person acting on behalf of or pursuant
to any understanding with such Buyer has, directly or indirectly, effected or
agreed to effect any short sale, whether or not against the box, established any
"put equivalent position" (as defined in Rule 16a-1(h) under the Exchange Act)
with respect to the Common Stock, granted any other right (including, without
limitation, any put or call option) with respect to the Common Stock or with
respect to any security that includes, relates to or derived any significant
part of its value from the Common Stock or otherwise sought to hedge its
position in the Securities (but not including any actions to secure available
shares to borrow in order to effect short sales or similar transactions in the
future) (each, a "PROHIBITED TRANSACTION"). Prior to the earliest to occur of
(i) the termination of this Agreement or (ii) the date of the 8-K Filing as
described in Section 4(i), such Buyer shall not, and shall cause any Person
acting on behalf of or pursuant to any understanding with such Buyer not to,
engage, directly or indirectly, in a Prohibited Transaction. Such Buyer
acknowledges that the representations, warranties and covenants contained in
this Section 2(p) are being made for the benefit of the Buyers as well as the
Company.

3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

     The Company represents and warrants to each of the Buyers that:

     (a) Organization and Qualification. The Company and its "SUBSIDIARIES"
(which for purposes of this Agreement means any entity in which the Company,
directly or indirectly, owns a majority of the capital stock, equity or similar
interest) are entities duly organized and validly existing in good standing
under the laws of the jurisdiction in which they are formed, and have the
requisite power and authority to own their properties and to carry on their
business as now being conducted. Each of the Company and its Subsidiaries is
duly qualified as a foreign entity to do business and is in good standing in
every jurisdiction in which its ownership of property or the nature of the
business conducted by it makes such qualification necessary, except to the
extent that the failure to be so qualified or be in good standing would not have
a Material Adverse Effect. As used in this Agreement, "MATERIAL ADVERSE EFFECT"
means any material adverse effect on the business, properties, assets,
operations, results of operations or condition (financial or otherwise) of the
Company and its Subsidiaries, taken as a whole, or on the transactions
contemplated hereby and the other Transaction Documents or by the agreements and
instruments to be entered into in connection herewith or therewith, or on the
authority or ability of the Company to perform its obligations under the
Transaction Documents (as defined below). The Company has no Subsidiaries except
as set forth on Schedule 3(a). The Company owns, directly or indirectly, all of
the capital stock or other equity interests of each Subsidiary free and clear of
any liens, except those liens and security interests which may have been created
or will be created in connection with the Company's acquisition of each
Subsidiary as detailed on Schedule 3(a) attached hereto and as otherwise set
forth in Schedule 3(a) attached hereto (the "PERMITTED LIENS" hereinafter
defined), and all the issued and outstanding shares of capital stock of each
Subsidiary are validly issued and are fully paid, non-assessable and free of
preemptive and similar rights to subscribe for or purchase securities.

     (b) Authorization; Enforcement; Validity. The Company has the requisite
power and


                                        8



authority to enter into and perform its obligations under this Agreement, the
Notes, the Warrants, the Registration Rights Agreement, the Security Documents,
the Irrevocable Transfer Agent Instructions (as defined in Section 5(b)), and
each of the other agreements entered into by the Company hereto in connection
with the transactions contemplated by this Agreement (collectively, the
"TRANSACTION DOCUMENTS") and to issue the Securities in accordance with the
terms hereof and thereof. The execution and delivery of this Agreement and the
other Transaction Documents by the Company and the consummation by the Company
of the transactions contemplated hereby and thereby, including, without
limitation, the issuance of the Notes and the Warrants, the reservation for
issuance and the issuance of the Conversion Shares issuable upon conversion of
the Notes, the reservation for issuance and issuance of Warrant Shares issuable
upon exercise of the Warrants, and the granting of a security interest in the
Collateral (as defined in the Security Documents) have been duly authorized by
the Company's board of directors and (other than (i) the filing of appropriate
UCC financing statements with the appropriate states and other authorities
pursuant to the Security Agreement, (ii) the filing of a Form D under Regulation
D of the 1933 Act and (iii) the filing with the SEC of one or more Registration
Statements and any other filings as may be required by any state securities
agency in accordance with the requirements of the Registration Rights Agreement)
no further filing, consent, or authorization is required by the Company, its
board of directors or its stockholders. This Agreement and the other Transaction
Documents to which the Company and/or any Subsidiary is a party have been duly
executed and delivered by the Company and/or such Subsidiary, as applicable, and
constitute the legal, valid and binding obligations of the Company and/or such
Subsidiary, as applicable, enforceable against the Company and/or such
Subsidiary, as applicable, in accordance with their respective terms, except as
such enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of applicable creditors'
rights and remedies.

     (c) Issuance of Securities. The issuance of the Notes and the Warrants are
duly authorized and are free from all liens and charges with respect to the
issue thereof. As of the Closing, a number of shares of Common Stock shall have
been duly authorized and reserved for issuance which equals 175% of the maximum
number of shares Common Stock initially issuable upon conversion of the Notes
and upon exercise of the Warrants. Upon conversion in accordance with the Notes
or exercise in accordance with the Warrants, as the case may be, the Conversion
Shares and the Warrant Shares, respectively, will be validly issued, fully paid
and nonassessable and free from all preemptive or similar rights, liens and
charges with respect to the issue thereof, with the holders being entitled to
all rights accorded to a holder of Common Stock. The offer and issuance by the
Company of the Securities is exempt from registration under the 1933 Act.

     (d) No Conflicts. The execution, delivery and performance of this Agreement
and the other Transaction Documents by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby (including, without
limitation, the issuance of the Notes and the Warrants, the granting of a
security interest in the Collateral and reservation for issuance and issuance of
the Conversion Shares and the Warrant Shares) will not (i) result in a violation
of the Articles of Incorporation (as defined in Section 3(r)) of the


                                        9



Company or any of its Subsidiaries, any capital stock of the Company or Bylaws
(as defined in Section 3(r)) of the Company or any of its Subsidiaries or (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its Subsidiaries is a
party, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws and regulations
and the rules and regulations of the Over-The-Counter Bulletin Board (the
"PRINCIPAL MARKET") applicable to the Company or any of its Subsidiaries or by
which any property or asset of the Company or any of its Subsidiaries is bound
or affected except where such violation would not result in a Material Adverse
Affect.

     (e) Consents. Other than as set forth on Schedule 3(e), the Company is not
required to obtain any consent, authorization or order of, or make any filing or
registration with, any court, governmental agency or any regulatory or
self-regulatory agency or any other Person in order for it to execute, deliver
or perform any of its obligations under or contemplated by the Transaction
Documents, in each case in accordance with the terms hereof or thereof. All
consents, authorizations, orders, filings and registrations which the Company is
required to obtain pursuant to the preceding sentence shall have been obtained
or effected on or prior to the Closing Date, and the Company and its
Subsidiaries are unaware of any facts or circumstances which might prevent the
Company from obtaining or effecting any of the registrations, applications or
filings pursuant to the preceding sentence. The Company is not in violation of
the applicable listing requirements of the Principal Market. The issuance by the
Company of the Securities shall not have the effect of delisting or suspending
the Common Stock from the Principal Market.

     (f) Acknowledgment Regarding Buyer's Purchase of Securities. The Company
acknowledges and agrees that each Buyer is acting solely in the capacity of an
arm's length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and that no Buyer is (i) an officer
or director of the Company, (ii) to the knowledge of the Company, an "affiliate"
of the Company (as defined in Rule 144) or (iii) to the knowledge of the
Company, a "beneficial owner" of more than 10% of the shares of Common Stock (as
defined for purposes of Rule 13d-3 of the 1934 Act. The Company further
acknowledges that no Buyer is acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to this Agreement and the
other Transaction Documents and the transactions contemplated hereby and
thereby, and any advice given by a Buyer or any of its representatives or agents
in connection with this Agreement and the other Transaction Documents and the
transactions contemplated hereby and thereby is merely incidental to such
Buyer's purchase of the Securities. The Company further represents to each Buyer
that the Company's decision to enter into the Transaction Documents has been
based solely on the independent evaluation by the Company and its
representatives.

     (g) No General Solicitation. Neither the Company, nor any of its
Subsidiaries or Affiliates, nor, to the Company's knowledge, any Person acting
on its or their behalf, has engaged in any form of general solicitation or
general advertising (within the meaning of Regulation D) in connection with the
offer or sale of the Securities. The Company shall be responsible for the
payment of any placement agent's fees, financial advisory fees, or brokers'
commissions (other than for persons engaged by any Buyer or its investment
advisor) relating to


                                       10



or arising out of the transactions contemplated hereby.

     (h) No Integrated Offering. None of the Company, its Subsidiaries, any of
their Affiliates, or any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act. None of the Company, its Subsidiaries, their
Affiliates or any Person acting on its or their behalf will take any action or
steps referred to in the preceding sentence that would require registration of
any of the Securities under the 1933 Act.

     (i) Dilutive Effect. The Company understands and acknowledges that the
number of Conversion Shares issuable upon conversion of the Notes and the
Warrant Shares issuable upon exercise of the Warrants will increase in certain
circumstances. The Company further acknowledges that its obligation to issue
Conversion Shares upon conversion of the Notes in accordance with this Agreement
and the Notes and its obligation to issue the Warrant Shares upon exercise of
the Warrants in accordance with this Agreement and the Warrant is, in each case,
absolute and unconditional regardless of the dilutive effect that such issuance
may have on the ownership interests of other stockholders of the Company.

     (j) Application of Takeover Protections; Rights Agreement. The Company and
its board of directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other similar
anti-takeover provision under the Articles of Incorporation or the laws of the
jurisdiction of its formation which is or could become applicable to any Buyer
as a result of the transactions contemplated by this Agreement, including,
without limitation, the Company's issuance of the Securities and any Buyer's
ownership of the Securities. The Company has not adopted a stockholder rights
plan or similar arrangement relating to accumulations of beneficial ownership of
Common Stock or a change in control of the Company.

     (k) SEC Documents; Financial Statements. Except as disclosed in the SEC
Documents or on Schedule 3(k), during the two (2) years prior to the date
hereof, the Company has filed all reports, schedules, forms, statements and
other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the 1934 Act (all of the foregoing filed prior to the
date hereof and all exhibits included therein and financial statements, notes
and schedules thereto and documents incorporated by reference therein being
hereinafter referred to as the "SEC DOCUMENTS"). The Company has delivered to
the Buyers or their respective representatives true, correct and complete copies
of the SEC Documents not available on the EDGAR system if such SEC Documents
have been requested in writing by Buyers. As of their respective filing dates,
the SEC Documents complied in all material respects with the requirements of the
1934 Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and except as subsequently amended, none of the
SEC Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. As of
their respective filing dates, except as subsequently amended, the financial
statements of the Company included in the SEC Documents complied as to form in
all material


                                       11



respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).

     (l) Absence of Certain Changes. Except as disclosed in the SEC Documents or
on Schedule 3(l), since the date of the Company's most recent audited financial
statements contained in a Form 10-KSB, there has been no material adverse change
and no material adverse development in the business, assets, properties,
operations, condition (financial or otherwise) or results of operations of the
Company. Except as disclosed in the SEC Documents or on Schedule 3(l), since the
date of the Company's most recent audited financial statements contained in a
Form 10-KSB, neither the Company nor any of its Subsidiaries has (i) declared or
paid any dividends, (ii) sold any assets, individually or in the aggregate, in
excess of $100,000 outside of the ordinary course of business or (iii) had
capital expenditures, individually or in the aggregate, in excess of $100,000.
Neither the Company nor any of its Subsidiaries has taken any steps to seek
protection pursuant to any bankruptcy law nor does the Company have any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings or any actual knowledge of any fact which would
reasonably lead a creditor to do so. The Company and its Subsidiaries,
individually and on a consolidated basis, are not as of the date hereof, after
giving effect to the transactions contemplated hereby to occur at the Closing,
will not be Insolvent (as defined below). For purposes of this Section 3(l),
"INSOLVENT" means (i) the present fair saleable value of the Company's assets is
less than the amount required to pay the Company's total Indebtedness (as
defined in Section 3(s)), (ii) the Company is unable to pay its debts and
liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured (iii) the Company intends to incur or
believes that it will incur debts that would be beyond its ability to pay as
such debts mature or (iv) the Company has unreasonably small capital with which
to conduct the business in which it is engaged as such business is now
conducted.

     (m) No Undisclosed Events, Liabilities, Developments or Circumstances.
Except for the transactions contemplated hereunder, no event, liability,
development or circumstance has occurred or exists, with respect to the Company,
its Subsidiaries or their respective business, properties, operations or
financial condition, that would be required to be disclosed by the Company under
applicable securities laws on a registration statement on Form SB-2 or any other
appropriate form filed with the SEC relating to an issuance and sale by the
Company of its Common Stock and which has not been publicly announced.

     (n) Conduct of Business; Regulatory Permits. Neither the Company nor any of
its Subsidiaries is in violation of any term of or in default under its Articles
of Incorporation or Bylaws or their organizational charter or certificate of
incorporation or bylaws, respectively. Neither the Company nor any of its
Subsidiaries is in violation of any judgment, decree or order


                                       12



or any law, statute, ordinance, rule or regulation applicable to the Company or
its Subsidiaries, and neither the Company nor any of its Subsidiaries is or will
conduct its business in violation of any of the foregoing, except for violations
which would not, individually or in the aggregate, have a Material Adverse
Effect. Without limiting the generality of the foregoing, the Company is not in
violation of any of the rules, regulations or requirements of the Principal
Market and has no knowledge of any facts or circumstances which would reasonably
lead to delisting or suspension of the Common Stock by the Principal Market in
the foreseeable future. During the one (1) year prior to the date hereof, (i)
the Common Stock has been designated for quotation on the Principal Market, (ii)
trading in the Common Stock has not been suspended by the SEC or the Principal
Market and (iii) the Company has received no communication, written or oral,
from the SEC or the Principal Market regarding the suspension or delisting of
the Common Stock from the Principal Market. The Company and its Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
regulatory authorities necessary to conduct their respective businesses, except
where the failure to possess such certificates, authorizations or permits would
not have, individually or in the aggregate, a Material Adverse Effect, and
neither the Company nor any such Subsidiary has received any written notice of
proceedings relating to the revocation or modification of any such certificate,
authorization or permit.

     (o) Foreign Corrupt Practices. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other Person acting
on behalf of the Company or any of its Subsidiaries has, in the course of its
actions for, or on behalf of, the Company or any of its Subsidiaries (i) used
any corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expenses relating to political activity; (ii) made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; (iii) violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv)
made any unlawful bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official or employee.

     (p) Sarbanes-Oxley Act. The Company is in compliance with any and all
applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as
of the date hereof, and any and all applicable rules and regulations promulgated
by the SEC thereunder that are effective as of the date hereof.

     (q) Transactions With Affiliates. Except as set forth in the SEC Documents
filed at least ten days prior to the date hereof and other than the grant of
stock options disclosed on the SEC Documents or on Schedule 3(q), none of the
officers, directors or employees of the Company or any of its Subsidiaries is
presently a party to any transaction with the Company or any of its Subsidiaries
(other than for ordinary course services as employees, officers or directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any such
officer, director or employee or, to the knowledge of the Company or any of its
Subsidiaries, any corporation, partnership, trust or other entity in which any
such officer, director, or employee has a substantial interest or is an officer,
director, trustee or partner.

     (r) Equity Capitalization. As of the date hereof, the authorized capital
stock of the


                                       13



Company consists of (i) 100,000,000 shares of Common Stock, par value $0.001 per
share, of which as of the date hereof, 12,373,398 are issued and outstanding, up
to 2,751,250 shares will be reserved for issuance pursuant to the Company's
stock option and purchase plans and 1,759,678 shares are reserved for issuance
pursuant to securities (other than the Notes and the Warrants) exercisable or
exchangeable for, or convertible into, shares of Common Stock and (ii),
10,000,000 shares of Preferred stock, par value $0.001 per share, of which 1,000
shares have been designated as Series A Convertible Preferred stock, par value
$0.001 per share, of which as the date hereof, 14.333 shares are issued and
outstanding. All of such outstanding shares have been, or upon issuance will be,
validly issued and are fully paid and nonassessable. Except as disclosed on
Schedule 3(r): (i) none of the Company's capital stock is subject to preemptive
rights or any other similar rights or any liens or encumbrances suffered or
permitted by the Company; (ii) or in the SEC Documents, there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, or
exercisable or exchangeable for, any capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its Subsidiaries is or may become bound to issue
additional capital stock of the Company or any of its Subsidiaries or options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, or exercisable
or exchangeable for, any capital stock of the Company or any of its
Subsidiaries; (iii) or in the SEC Documents there are no outstanding debt
securities, notes, credit or loan agreements, credit facilities or other
agreements, documents or instruments evidencing Indebtedness (as defined below)
of the Company or any of its Subsidiaries or by which the Company or any of its
Subsidiaries is or may become bound; (iv) there are no financing statements
securing obligations in any material amounts, either singly or in the aggregate,
filed in connection with the Company or any of its Subsidiaries; (v) or in the
SEC Documents, there are no agreements or arrangements under which the Company
or any of its Subsidiaries is obligated to register the sale of any of their
securities under the 1933 Act (except pursuant to the Registration Rights
Agreement); (vi) or in the SEC Documents, there are no outstanding securities or
instruments of the Company or any of its Subsidiaries which contain any
redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to purchase, repurchase, retire or redeem a security of
the Company or any of its Subsidiaries; (vii) or in the SEC Documents, there are
no securities or instruments containing anti-dilution or similar provisions that
will be triggered by the issuance of the Securities; (viii) or in the SEC
Documents, the Company does not have any stock appreciation rights or "phantom
stock" plans or agreements or any similar plan or agreement; and (ix) the
Company and its Subsidiaries have no liabilities or obligations required to be
disclosed in the SEC Documents but not so disclosed in the SEC Documents, other
than those incurred in the ordinary course of the Company's or its Subsidiaries'
respective businesses and which, individually or in the aggregate, do not or
would not have a Material Adverse Effect. The Company has furnished to the
Buyers true, correct and complete copies of the Company's Articles of
Incorporation, as amended and as in effect on the date hereof (the "ARTICLES OF
INCORPORATION"), and the Company's Bylaws, as amended and as in effect on the
date hereof (the "BYLAWS"). The terms of all securities convertible into, or
exercisable or exchangeable for, shares of Common Stock and the material rights
of the holders thereof in respect thereto are disclosed in the SEC Documents or
on Schedule 3(r).


                                       14



     (s) Indebtedness and Other Contracts. Except as disclosed in Schedule 3(s)
or in the SEC Documents, neither the Company nor any of its Subsidiaries (i) has
any outstanding Indebtedness (as defined below), (ii) is a party to any
contract, agreement or instrument, the violation of which, or default under
which, by the other party(ies) to such contract, agreement or instrument would
result in a Material Adverse Effect or (iii) is in violation of any term of or
in default under any contract, agreement or instrument relating to any
Indebtedness, except where such violations and defaults would not result,
individually or in the aggregate, in a Material Adverse Effect. The Company's
SEC Documents and Schedule 3(s) provide a detailed description of the material
terms of any such outstanding Indebtedness. For purposes of this Agreement: (x)
"INDEBTEDNESS" of any Person means, without duplication (A) all indebtedness for
borrowed money, (B) all obligations issued, undertaken or assumed as the
deferred purchase price of property or services including (without limitation)
"Capital Leases" in accordance with generally accepted accounting principles
(other than trade payables entered into in the ordinary course of business), (C)
all reimbursement or payment obligations with respect to letters of credit,
surety bonds and other similar instruments, (D) all obligations evidenced by
notes, bonds, debentures or similar instruments, including obligations so
evidenced incurred in connection with the acquisition of property, assets or
businesses, (E) all indebtedness created or arising under any conditional sale
or other title retention agreement, or incurred as financing, in either case
with respect to any property or assets acquired with the proceeds of such
indebtedness (even though the rights and remedies of the seller or bank under
such agreement in the event of default are limited to repossession or sale of
such property), (F) all monetary obligations under any leasing or similar
arrangement which, in connection with generally accepted accounting principles,
consistently applied for the periods covered thereby, is classified as a capital
lease, (G) all indebtedness referred to in clauses (A) through (F) above secured
by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge,
security interest or other encumbrance upon or in any property or assets
(including accounts and contract rights) owned by any Person, even though the
Person which owns such assets or property has not assumed or become liable for
the payment of such indebtedness, and (H) all Contingent Obligations in respect
of indebtedness or obligations of others of the kinds referred to in clauses (A)
through (G) above; (y) "CONTINGENT OBLIGATION" means, as to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to any indebtedness, lease, dividend or other obligation of another
Person if the primary purpose or intent of the Person incurring such liability,
or the primary effect thereof, is to provide assurance to the obligee of such
liability that such liability will be paid or discharged, or that any agreements
relating thereto will be complied with, or that the holders of such liability
will be protected (in whole or in part) against loss with respect thereto; and
(z) "PERSON" means an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.

     (t) Absence of Litigation. There is no action, suit, proceeding or written
inquiry before or by the Principal Market, any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of the
Company, threatened against or affecting the Company or any of its Subsidiaries,
the Common Stock or any of the Company's Subsidiaries or any of the Company's or
its Subsidiaries' officers or directors, which is in the aggregate material to
the Company, except as set forth in the SEC Documents or on Schedule 3(t).


                                       15



     (u) Insurance. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect.

     (v) Employee Relations.

          (i) Neither the Company nor any of its Subsidiaries is a party to any
collective bargaining agreement or employs any member of a union. The Company
and its Subsidiaries believe that their relations with their employees are good.
No executive officer of the Company or any of its Subsidiaries (as defined in
Rule 501(f) of the 1933 Act) has notified the Company or any such Subsidiary
that such officer intends to leave the Company or any such Subsidiary or
otherwise terminate such officer's employment with the Company or any such
Subsidiary. No executive officer of the Company or any of its Subsidiaries, to
the knowledge of the Company or any such Subsidiary, is, or is now expected to
be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant and the continued employment of each such executive officer does not
subject the Company or any of its Subsidiaries to any liability with respect to
any of the foregoing matters.

          (ii) To the knowledge of the Company, the Company and its Subsidiaries
are in compliance with all federal, state and local laws and regulations
respecting labor, employment and employment practices and benefits, terms and
conditions of employment and wages and hours, except where failure to be in
compliance would not, either individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect.

     (w) Title. The Company and its Subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all personal
property owned by them which is material to the business of the Company and its
Subsidiaries, in each case, except as set forth in Schedule 3(w), free and clear
of all liens, encumbrances and defects except such as do not materially affect
the value of such property and do not interfere with the use made and proposed
to be made of such property by the Company and any of its Subsidiaries. Any real
property and facilities held under lease by the Company and any of its
Subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and facilities by the Company and its
Subsidiaries.

     (x) Intellectual Property Rights. The Company and its Subsidiaries own or
possess adequate rights or licenses to use all trademarks, trade names, service
marks, service mark registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals,


                                       16



governmental authorizations, trade secrets and other intellectual property
rights ("INTELLECTUAL PROPERTY RIGHTS") necessary to conduct their respective
businesses as now conducted. Except as set forth in Schedule 3(x), none of the
Company's Intellectual Property Rights have expired or terminated, or are
expected to expire or terminate, within three years from the date of this
Agreement. The Company does not have any knowledge of any infringement by the
Company or its Subsidiaries of Intellectual Property Rights of others. There is
no claim, action or proceeding being made or brought, or to the knowledge of the
Company, being threatened, against the Company or any of its Subsidiaries
regarding its Intellectual Property Rights. The Company and its Subsidiaries
have taken reasonable security measures to protect the secrecy, confidentiality
and value of all of their Intellectual Property Rights.

     (y) Environmental Laws. The Company and its Subsidiaries (i) are in
compliance with any and all Environmental Laws (as hereinafter defined), (ii)
have received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and (iii)
are in compliance with all terms and conditions of any such permit, license or
approval where, in each of the foregoing clauses (i), (ii) and (iii), the
failure to so comply could be reasonably expected to have, individually or in
the aggregate, a Material Adverse Effect. The term "ENVIRONMENTAL LAWS" means
all federal, state, local or foreign laws relating to pollution or protection of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, "HAZARDOUS MATERIALS") into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.

     (z) Subsidiary Rights. Except as set forth in Schedule 3(z), the Company
and its Subsidiaries have the unrestricted right to vote, and (subject to
limitations imposed by applicable law) to receive dividends and distributions
on, all capital securities of its Subsidiaries as owned by the Company or such
Subsidiary.

     (aa) Investment Company. The Company is not, and is not an affiliate of, an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.

     (bb) Tax Status. Except as set forth in Schedule (bb), the Company and each
of its Subsidiaries (i) has made or filed all foreign, federal and state income
and all other tax returns, reports and declarations required by any jurisdiction
to which it is subject, (ii) has paid all taxes and other governmental
assessments and charges that are material in amount, shown or determined to be
due on such returns, reports and declarations, except those being contested in
good faith and (iii) has set aside on its books provision reasonably adequate
for the payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction,
and the officers of the Company know of no basis for any such claim. No liens
have been filed and no claims are being asserted by or against the Company or


                                       17



any of its Subsidiaries with respect to any taxes (other than liens for taxes
not yet due and payable). Neither the Company nor it Subsidiaries has received
notice of assessment or proposed assessment of any taxes claimed to be owed by
it or any other Person on its behalf. Except as disclosed on Schedule 3(bb),
neither the Company nor any Subsidiary is a party to any tax sharing or tax
indemnity agreement or any other agreement of a similar nature that remains in
effect. Each of the Company and its Subsidiaries has complied in all material
respects with all applicable legal requirements relating to the payment and
withholding of taxes and, within the time and in the manner prescribed by law,
has withheld from wages, fees and other payments and paid over to the proper
governmental or regulatory authorities all amounts required.

     (cc) Internal Accounting and Disclosure Controls. The Company and each of
its Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
and liability accountability, (iii) access to assets or incurrence of
liabilities is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets and
liabilities is compared with the existing assets and liabilities at reasonable
intervals and appropriate action is taken with respect to any difference (the
"INTERNAL ACCOUNTING CONTROLS"). The Company maintains disclosure controls and
procedures (as such term is defined in Rule 13a-14 under the 1934 Act) that are
effective in ensuring that information required to be disclosed by the Company
in the reports that it files or submits under the 1934 Act is recorded,
processed, summarized and reported, within the time periods specified in the
rules and forms of the SEC, including, without limitation, controls and
procedures designed to ensure that information required to be disclosed by the
Company in the reports that it files or submits under the 1934 Act is
accumulated and communicated to the Company's management, including its
principal executive officer or officers and its principal financial officer or
officers, as appropriate, to allow timely decisions regarding required
disclosure.

     (dd) Off Balance Sheet Arrangements. There is no transaction, arrangement,
or other relationship between the Company or any of its Subsidiaries and an
unconsolidated or other off balance sheet entity that is required to be
disclosed by the Company in its Exchange Act filings and is not so disclosed or
that otherwise would be reasonably likely to have a Material Adverse Effect.

     (ee) Ranking of Notes. Except as set forth on Schedule (ee), no
Indebtedness of the Company is senior to or ranks pari passu with the Notes in
right of payment, whether with respect of payment of redemptions, interest,
damages or upon liquidation or dissolution or otherwise.

     (ff) Form SB-2 Eligibility. The Company is eligible to register the
Conversion Shares and the Warrant Shares for resale by the Buyers using Form
SB-2 promulgated under the 1933 Act.

     (gg) Transfer Taxes. On the Closing Date, all stock transfer or other taxes
(other than income or similar taxes) which are required to be paid in connection
with the sale and transfer of


                                       18



the Securities to be sold to each Buyer hereunder will be, or will have been,
fully paid or provided for by the Company, and all laws imposing such taxes will
be or will have been complied with except where the failure to do so would not
be reasonably likely to result in a Material Adverse Effect.

     (hh) Manipulation of Price. The Company and its Subsidiaries have not, and
to its knowledge no one acting on its behalf has, (i) taken, directly or
indirectly, any action designed to cause or to result or that could reasonably
be expected to cause or result in the stabilization or manipulation of the price
of any security of the Company to facilitate the sale or resale of any of the
Securities, (ii) sold, bid for, purchased, or paid any compensation for
soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay
to any person any compensation for soliciting another to purchase any other
securities of the Company.

     (ii) U.S. Real Property Holding Corporation. The Company is not, nor has
ever been, a U.S. real property holding corporation within the meaning of
Section 897 of the Internal Revenue Code of 1986, as amended, and the Company
shall so certify upon Buyer's request.

     (jj) Disclosure. The Company confirms that neither it nor any other Person
acting on its behalf has provided any of the Buyers or their agents or counsel
with any information that constitutes or could reasonably be expected to
constitute material, nonpublic information other than the existence of the
transactions contemplated by this Agreement or the other Transaction Documents.
The Company understands and confirms that each of the Buyers will rely on the
foregoing representations in effecting transactions in the Securities. All
disclosure provided to the Buyers regarding the Company, its business and the
transactions contemplated by this Agreement and the other Transaction Documents,
including the Schedules and Exhibit s hereto and thereto, furnished by or on
behalf of the Company is true and correct and does not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made herein or therein, in the light of the
circumstances under which they were made, not misleading. Each press release
issued by the Company or its Subsidiaries during the twelve (12) months
preceding the date of this Agreement did not at the time of release contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. No event
or circumstance has occurred with respect to the Company or any of its
Subsidiaries or its or their business, assets, liabilities, properties,
operations or financial conditions (financial or otherwise), which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or disclosed.

     (kk) Lien Searches. Within six (6) Business Days prior to the date hereof,
the Company shall have delivered or caused to be delivered to each Buyer
certified copies of UCC financing statement search results listing any and all
effective financing statements filed within five years prior to such date in any
applicable jurisdiction that name the Company or any of their Subsidiaries as a
debtor to perfect an interest in any of the assets thereof, together with copies
of such financing statements, none of which financing statements, except for any
financing statements filed with respect to the Senior Indebtedness or Permitted
Liens (as defined in the Notes) and as otherwise agreed to in writing by the
Buyers, shall cover any of the "Collateral"


                                       19



(as defined in the Security Documents), and the results of searches for any
effective tax liens and judgment liens filed against any such Person or its
property in any applicable jurisdiction, which results, except as otherwise
agreed to in writing by the Buyers, shall not show any such effective tax liens
and judgment liens.

4.   COVENANTS.

     (a) Best Efforts. Each party shall use its best efforts timely to satisfy
each of the conditions to be satisfied by it as provided in Sections 6 and 7 of
this Agreement.

     (b) Form D and Blue Sky. The Company agrees to file a Form D with respect
to the Securities as required under Regulation D and to provide a copy thereof
to each Buyer promptly after such filing.

     (c) Blue Sky. The Company shall, on or before the Closing Date, take such
action as the Company shall reasonably determine is necessary in order to obtain
an exemption for or to qualify the Securities for sale to the Buyers at the
Closing pursuant to this Agreement under applicable securities or "Blue Sky"
laws of the states of the United States (or to obtain an exemption from such
qualification), and shall provide evidence of any such action so taken to the
Buyers on or prior to the Closing Date. The Company shall make all filings and
reports relating to the offer and sale of the Securities required under
applicable securities or "Blue Sky" laws of the states of the United States
following the Closing Date.

     (d) Reporting Status. Until the date on which the Investors (as defined in
the Registration Rights Agreement) shall have sold all the Conversion Shares and
Warrant Shares and none of the Notes or Warrants is outstanding (the "REPORTING
PERIOD"), the Company shall file all reports required to be filed with the SEC
pursuant to the 1934 Act, and the Company shall not terminate its status as an
issuer required to file reports under the 1934 Act even if the 1934 Act or the
rules and regulations thereunder would otherwise permit such termination.

     (e) Use of Proceeds. The Company will use the proceeds from the sale of the
Securities substantially as set forth on Schedule 4(e).

     (f) Financial Information. The Company agrees to send the following to each
Investor (as defined in the Registration Rights Agreement) during the Reporting
Period (i) unless the following are filed with the SEC through EDGAR and are
available to the public through the EDGAR system, within one (1) Business Day
after the filing thereof with the SEC, a copy of its Annual Reports on Form 10-K
or 10-KSB, any interim reports or any consolidated balance sheets, income
statements, stockholders' equity statements and/or cash flow statements for any
period other than annual, any Current Reports on Form 8-K and any registration
statements (other than on Form S-8) or amendments filed pursuant to the 1933
Act, and (ii) copies of any notices and other information made available or
given to the stockholders of the Company generally, contemporaneously with the
making available or giving thereof to the stockholders. As used herein "Business
Day" means any other day other than a Saturday, Sunday, or other day on which
commercial banks in The City of New York are authorized or required by law to
remain closed.


                                       20



     (g) Listing. The Company shall promptly secure the listing of all of the
Registrable Securities (as defined in the Registration Rights Agreement) upon
each national securities exchange and automated quotation system, if any, upon
which the Common Stock is then listed (subject to official notice of issuance)
and shall maintain such listing of all Registrable Securities from time to time
issuable under the terms of the Transaction Documents. The Company shall
maintain the Common Stock's authorization for quotation on the Principal Market.
Neither the Company nor any of its Subsidiaries shall take any action which
would be reasonably expected to result in the delisting or suspension of the
Common Stock on the Principal Market. The Company shall pay all fees and
expenses in connection with satisfying its obligations under this Section 4(f).

     (h) Fees. The Company shall (i) pay Gottbetter & Partners, LLP ("G&P")
$40,000 in legal fees plus reasonable expenses and (ii) pay Gottbetter Capital
Master, Ltd. (a Buyer) ("GCF") or its designee(s) $15,000 for due diligence and
all reasonable expenses incurred in connection with the transactions
contemplated by the Transaction Documents (including all reasonable legal fees
and disbursements in connection therewith, documentation and implementation of
the transactions contemplated by the Transaction Documents and due diligence in
connection therewith), which amounts, to the extent they have not been paid,
shall be withheld by such Buyer from its Purchase Price at the Closing. GCF and
G&P acknowledge receipt of $25,000 delivered prior to the date hereof as an
advance against the fees of G&P and GCF referred to above in this Section 4(g).
The Company shall be responsible for the payment of any placement agent's fees,
financial advisory fees, or broker's commissions (other than for Persons engaged
by any Buyer) relating to or arising out of the transactions contemplated by the
Transaction Documents including, without limitation, any fees or commissions
payable to the Placement Agent. The Company shall pay, and hold each Buyer
harmless against, any liability, loss or expense (including, without limitation,
reasonable attorney's fees and out-of-pocket expenses) arising in connection
with any claim against a Buyer relating to any such payment. Except as otherwise
set forth in the Transaction Documents, each party to this Agreement shall bear
its own expenses in connection with the sale of the Securities to the Buyers.

     (i) Pledge of Securities. The Company acknowledges and agrees that the
Securities may be pledged by an Investor in connection with a bona fide margin
agreement or other loan or financing arrangement that is secured by the
Securities. The pledge of Securities shall not be deemed to be a transfer, sale
or assignment of the Securities hereunder, and no Investor effecting a pledge of
Securities shall be required to provide the Company with any notice thereof or
otherwise make any delivery to the Company pursuant to this Agreement or any
other Transaction Document, including, without limitation, Section 2(f) hereof;
provided that an Investor and its pledgee shall be required to comply with the
provisions of Section 2(f) hereof in order to effect a sale, transfer or
assignment of Securities to such pledgee. The Company hereby agrees to execute
and deliver such documentation as a pledgee of the Securities may reasonably
request in connection with a pledge of the Securities to such pledgee by an
Investor.

     (j) Disclosure of Transactions and Other Material Information. On or before
8:30 a.m., New York Time, on the fourth Business Day following the date of this
Agreement, the Company shall file a Current Report on Form 8-K describing the
terms of the transactions


                                       21



contemplated by the Transaction Documents in the form required by the 1934 Act
and attaching the material Transaction Documents (including, without limitation,
this Agreement, the form of each of the Notes, the form of Warrant, the
Registration Rights Agreement and the Security Documents) as exhibits to such
filing (including all attachments, the "8-K FILING"). From and after the filing
of the 8-K Filing with the SEC, the Company shall have disclosed any material,
nonpublic information delivered to the Buyers by the Company, any of its
Subsidiaries or any of their respective officers, directors, employees,
stockholders, representatives or agents. The Company shall not, and shall cause
each of its Subsidiaries and its and each of their respective officers,
directors, employees and agents, not to, provide any Buyer with any material,
nonpublic information regarding the Company or any of its Subsidiaries from and
after the filing of the 8-K Filing with the SEC without the express written
consent of such Buyer, except to the extent necessary to obtain a consent of
Buyer to a matter requiring Buyer's consent pursuant to the Transaction
Documents. In the event of a breach of the foregoing covenant by the Company,
its Subsidiaries, or any of its respective officers, directors, employees and
agents, in addition to any other remedy provided herein or in the Transaction
Documents, a Buyer shall have the right to make a public disclosure, in the form
of a press release, public advertisement or otherwise, of such material,
nonpublic information without the prior approval by the Company, its
Subsidiaries, or any of their respective officers, directors, employees or
agents. No Buyer shall have any liability to the Company, its Subsidiaries, or
any of its or their respective officers, directors, employees, stockholders or
agents for any such disclosure, except to the extent such disclosure contains
false or misleading information. Subject to the foregoing, none of the Company,
its Subsidiaries or any Buyer shall issue any press releases or any other public
statements with respect to the transactions contemplated hereby without the
approval of all of the Buyers; provided, however, that the Company shall be
entitled, without the prior approval of any Buyer, to make any press release or
other public disclosure with respect to such transactions (i) in substantial
conformity with the 8-K Filing and contemporaneously therewith and (ii) as is
required by applicable law and regulations (provided that in the case of clause
(i) the Required Holders (as defined in the Notes) shall be consulted by the
Company in connection with any such press release or other public disclosure
prior to its release). Except as required by applicable law and regulations,
without the prior written consent of any applicable Buyer, the Company shall not
disclose the name of any Buyer in any filing, announcement, release or
otherwise.

     (j) Restriction on Redemption and Cash Dividends. So long as any Notes are
outstanding, the Company shall not, directly or indirectly, redeem, or declare
or pay any cash dividend or distribution on, the Common Stock without the prior
express written consent of the Required Holders (as defined in the Notes).

     (k) Additional Notes; Variable Securities; Dilutive Issuances. So long as
any Buyer beneficially owns any Securities, the Company will not issue any Notes
(other than to the Buyers as contemplated hereby) and the Company shall not
issue any other securities that would cause a breach or default under the Notes.
For long as any Notes or Warrants remain outstanding, the Company shall not, in
any manner, issue or sell any rights, warrants or options to subscribe for or
purchase Common Stock or directly or indirectly convertible into or exchangeable
or exercisable for Common Stock at a price which varies or may vary with the
market price of the Common Stock, including by way of one or more reset(s) to
any fixed price unless the conversion, exchange or exercise price of any such
security cannot be less than the then applicable


                                       22



Conversion Price (as defined in the Notes) with respect to the Common Stock into
which any Note is convertible or the then applicable Exercise Price (as defined
in the Warrants) with respect to the Common Stock into which any Warrant is
exercisable. For long as any Notes or Warrants remain outstanding, the Company
shall not, in any manner, enter into or affect any Dilutive Issuance (as defined
in the Notes) if the effect of such Dilutive Issuance is to cause the Company to
be required to issue upon conversion of any Note or exercise of any Warrant any
shares of Common Stock in excess of that number of shares of Common Stock which
the Company has authorized for purposes of such conversions or exercises or
which the Company may issue upon conversion of the Notes and exercise of the
Warrants without breaching the Company's obligations under the rules or
regulations of the Principal Market.

     (l) Corporate Existence. So long as any Buyer beneficially owns any
Securities, the Company shall not be party to any Fundamental Transaction (as
defined in the Notes) unless the Company is in compliance with the applicable
provisions governing Fundamental Transactions set forth in the Notes and the
Warrants.

     (m) Reservation of Shares. So long as any Buyer owns any Securities, the
Company shall take all action necessary to at all times have authorized, and
reserved for the purpose of issuance, no less than 175% of the number of shares
of Common Stock issuable upon conversion of all of the Notes and issuable upon
exercise of the Warrants then outstanding (without taking into account any
limitations on the conversion of the Notes or exercise of the Warrants set forth
in the Notes and Warrants, respectively).

     (n) Conduct of Business. Neither the Company nor its Subsidiaries will
conduct its business in violation of any term of or in default under its
Certificate or Articles of Incorporation or Bylaws. The business of the Company
and its Subsidiaries shall not be conducted in violation of any law, ordinance
or regulation of any government, or any department or agency thereof or
governmental entity, except where such violations would not result, either
individually or in the aggregate, in a Material Adverse Effect.

     (o) Additional Issuances of Securities.

          (i) For purposes of this Section 4(o), the following definitions shall
     apply.

               (1) "CONVERTIBLE SECURITIES" means any stock or securities (other
          than Options) convertible into or exercisable or exchangeable for
          shares of Common Stock.

               (2) "OPTIONS" means any rights, warrants or options to subscribe
          for or purchase shares of Common Stock or Convertible Securities.

               (3) "COMMON STOCK EQUIVALENTS" means, collectively, Options and
          Convertible Securities.

          (ii) Except for Excluded Securities, from the date hereof until the
     date that is 30 Trading Days, (as defined in the Note) following the
     Effective Date (the "TRIGGER DATE"), the Company will not, directly or
     indirectly, offer, sell, grant any option to purchase, or otherwise dispose
     of (or announce any offer, sale, grant or any option to


                                       23



     purchase or other disposition of) any of its or its Subsidiaries' equity or
     equity equivalent securities, including without limitation any debt,
     preferred stock or other instrument or security that is, at any time during
     its life and under any circumstances, convertible into or exchangeable or
     exercisable for shares of Common Stock or Common Stock Equivalents (any
     such offer, sale, grant, disposition or announcement being referred to as a
     "SUBSEQUENT PLACEMENT")

          (iii) Except for Excluded Securities from the Trigger Date until the
     date on which none of the Notes is outstanding, the Company will not
     directly or indirectly, effect any subsequent Placement unless the Company
     shall have first complied with this Section 4(o)(iii).

               (1) The Company shall deliver to each Buyer who still holds Notes
          a written notice (the "OFFER NOTICE") of any proposed or intended
          issuance or sale or exchange (the "OFFER") of the securities being
          offered (the "OFFERED SECURITIES") in a Subsequent Placement, which
          Offer Notice shall (w) identify and describe the Offered Securities,
          (x) describe the price and other terms upon which they are to be
          issued, sold or exchanged, and the number or amount of the Offered
          Securities to be issued, sold or exchanged, (y) identify the persons
          or entities (if known) to which or with which the Offered Securities
          are to be offered, issued, sold or exchanged and (z) offer to issue
          and sell to or exchange with such Buyers all of the Offered
          Securities, allocated among such Buyers (a) based on such Buyer's pro
          rata portion of the aggregate principal amount of Notes purchased
          hereunder (the "BASIC AMOUNT"), and (b) with respect to each Buyer
          that elects to purchase its Basic Amount, any additional portion of
          the Offered Securities attributable to the Basic Amounts of other
          Buyers as such Buyer shall indicate it will purchase or acquire should
          the other Buyers subscribe for less than their Basic Amounts (the
          "UNDERSUBSCRIPTION AMOUNT").

               (2) To accept an Offer, in whole or in part, such Buyer must
          deliver a written notice to the Company prior to the end of the fifth
          (5th ) Business Day after such Buyer's receipt of the Offer Notice
          (the "OFFER PERIOD"), setting forth the portion of such Buyer's Basic
          Amount that such Buyer elects to purchase and, if such Buyer shall
          elect to purchase all of its Basic Amount, the Undersubscription
          Amount, if any, that such Buyer elects to purchase (in either case,
          the "NOTICE OF ACCEPTANCE"). If the Basic Amounts subscribed for by
          all Buyers are less than the total of all of the Basic Amounts, then
          each Buyer who has set forth an Undersubscription Amount in its Notice
          of Acceptance shall be entitled to purchase, in addition to the Basic
          Amounts subscribed for, the Undersubscription Amount it has subscribed
          for; provided, however, that if the Undersubscription Amounts
          subscribed for exceed the difference between the total of all the
          Basic Amounts and the Basic Amounts subscribed for (the "AVAILABLE
          UNDERSUBSCRIPTION AMOUNT"), each Buyer who has subscribed for any
          Undersubscription Amount shall be entitled to purchase only that
          portion of the Available Undersubscription Amount as the Basic Amount
          of such Buyer bears to the total Basic Amounts of all Buyers that have
          subscribed for


                                       24



          Undersubscription Amounts, subject to rounding by the Company to the
          extent its deems reasonably necessary.

               (3) The Company shall have twenty (20) Business Days from the
          expiration of the Offer Period above to offer, issue, sell or exchange
          all or any part of such Offered Securities as to which a Notice of
          Acceptance has not been given by the Buyers (the "REFUSED
          SECURITIES"), but only to the offerees described in the Offer Notice
          (if so described therein) and only upon terms and conditions
          (including, without limitation, unit prices and interest rates) that
          are not more favorable to the acquiring person or persons or less
          favorable to the Company than those set forth in the Offer Notice.

               (4) In the event the Company shall propose to sell less than all
          the Refused Securities (any such sale to be in the manner and on the
          terms specified in Section 4(o)(iii)(3) above), then each Buyer may,
          at its sole option and in its sole discretion, reduce the number or
          amount of the Offered Securities specified in its Notice of Acceptance
          to an amount that shall be not less than the number or amount of the
          Offered Securities that such Buyer elected to purchase pursuant to
          Section 4(o)(iii)(2) above multiplied by a fraction, (i) the numerator
          of which shall be the number or amount of Offered Securities the
          Company actually proposes to issue, sell or exchange (including
          Offered Securities to be issued or sold to Buyers pursuant to Section
          4(o)(iii)(3) above prior to such reduction) and (ii) the denominator
          of which shall be the original amount of the Offered Securities. In
          the event that any Buyer so elects to reduce the number or amount of
          Offered Securities specified in its Notice of Acceptance, the Company
          may not issue, sell or exchange more than the reduced number or amount
          of the Offered Securities unless and until such securities have again
          been offered to the Buyers in accordance with Section 4(o)(iii)(1)
          above.

               (5) Upon the closing of the issuance, sale or exchange of all or
          less than all of the Refused Securities, the Buyers shall acquire from
          the Company, and the Company shall issue to the Buyers, the number or
          amount of Offered Securities specified in the Notices of Acceptance,
          as reduced pursuant to Section 4(o)(iii)(3) above if the Buyers have
          so elected, upon the terms and conditions specified in the Offer. The
          purchase by the Buyers of any Offered Securities is subject in all
          cases to the preparation, execution and delivery by the Company and
          the Buyers of a purchase agreement relating to such Offered Securities
          reasonably satisfactory in form and substance to the Buyers and their
          respective counsel and to the Company and its counsel.

               (6) Any Offered Securities not acquired by the Buyers or other
          persons in accordance with Section 4(o)(ii)(3) above may not be
          issued, sold or exchanged until they are again offered to the Buyers
          under the procedures specified in this Agreement.

          (iv) The restrictions contained in subsections (ii) and (iii) of this
     Section 4(o)


                                       25



     shall not apply in connection with the issuance of any Excluded Securities
     (as defined in the Notes).

     (p) Additional Registration Statements. Until the Effective Date, the
Company will not file a registration statement under the 1933 Act relating to
securities that are not the Securities.

     (q) No Short Position. Each of the Buyers and any of its Affiliates do not
have an open short position in the Common Stock nor will any of the Buyers or
any of their respective Affiliates establish any open short position in the
Common Stock.

     (r) Transactions With Affiliates. So long as any Note or Warrant is
outstanding, the Company shall not, and shall cause each of its Subsidiaries not
to, enter into, amend, modify or supplement, or permit any Subsidiary to enter
into, amend, modify or supplement any agreement, transaction, commitment, or
arrangement with any of its or any Subsidiary's officers, directors, person who
were officers or directors at any time during the previous two (2) years,
stockholders who beneficially own five percent (5%) or more of the Common Stock,
or Affiliates (as defined below) or with any individual related by blood,
marriage, or adoption to any such individual or with any entity in which any
such entity or individual owns a five percent (5%) or more beneficial interest
(each a "RELATED PARTY"), except for (a) customary employment arrangements and
benefit programs on reasonable terms, (b) any investment in an Affiliate of the
Company, (c) any agreement, transaction, commitment, or arrangement on an
arms-length basis on terms no less favorable than terms which would have been
obtainable from a person other than such Related Party or (d) any agreement
transaction, commitment, or arrangement which is approved by a majority of the
disinterested directors of the Company, for purposes hereof, any director who is
also an officer of the Company or any subsidiary of the Company shall not be a
disinterested director with respect to any such agreement, transaction,
commitment, or arrangement. "Affiliate" for purposes hereof means, with respect
to any person or entity, another person or entity that, directly or indirectly,
(i) has a ten percent (10%) or more equity interest in that person or entity,
(ii) has ten percent (10%) or more common ownership with that person or entity,
(iii) controls that person or entity, or (iv) shares common control with that
person or entity. "Control" or "controls" for purposes hereof means that a
person or entity has the power, direct or indirect, to conduct or govern the
policies of another person or entity.

     (s) Restriction on Issuance of the Capital Stock. Except for Excluded
Securities (as defined in the Notes), the Company shall not, without the prior
written consent of the Buyers, (i) issue or sell shares of Common Stock or
preferred stock without consideration or for a consideration per share less than
the greater of the Closing Bid Price of the Common Stock determined immediately
prior to its issuance or $.01, if the Common Stock is not traded or quoted on
the Principal Market or any national exchange or market, (ii) issue any warrant,
option, right, contract, call, or other security instrument granting the holder
thereof, the right to acquire Common Stock without consideration or for a
consideration less than the greater of such Common Stock's Closing Bid Price
value determined immediately prior to its issuance or $.01, if the Common Stock
is not traded on the American Stock Exchange or any national exchange, or (iii)
file any registration statement on Form S-8, provided unless (x) such shares are
not issued without consideration or for a consideration less than the greater of
the Common Stock's Closing Bid Price on the date of issuance or $.01, if the
Common Stock is not traded or quoted on the


                                       26



Principal Market or any national exchange or market, and (y) such Form S-8
registration statement is not filed prior to 90 days following the effectiveness
of the registration statement. "Closing Bid Price" on any day shall be the
closing bid price for a share of Common Stock on such date on the American Stock
Exchange (or such other exchange, market, or other system that the Common Stock
is then traded on), as reported on Bloomberg, L.P. (or similar organization or
agency succeeding to its functions of reporting prices).

     (t) Removal of Legend. In addition to the Buyer's other available remedies,
the Company shall pay to the Buyer, in cash, as partial liquidated damages and
not as a penalty, for each $1,000 of Warrant Shares and/or Conversion Shares
(based on the closing price of the Common Stock on the date such Warrant Shares
and/or Conversion Shares are submitted to the Company's transfer agent), $5 per
Trading Day (increasing to $10 per trading day five (5) trading days after such
damages have begun to accrue) for each trading day after the third (3rd) trading
day following delivery by a Buyer to the Company or the Company's transfer agent
of a certificate representing Warrant Shares and/or Conversion Shares issued
with a restrictive legend, until such certificate is delivered to the Buyer with
such legend removed. Nothing herein shall limit the Buyer's right to pursue
actual damages for the failure of the Company and its transfer agent to deliver
certificates representing any securities as required hereby or by the
Irrevocable Transfer Agent Instructions, and the Buyer 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.

5. REGISTER; TRANSFER AGENT INSTRUCTIONS.

     (a) Register. The Company shall maintain at its principal executive offices
(or such other office or agency of the Company as it may designate by notice to
each holder of Securities), a register for the Notes and the Warrants in which
the Company shall record the name and address of the Person in whose name the
Notes and the Warrants have been issued (including the name and address of each
transferee), the principal amount of Notes held by such Person, the number of
Conversion Shares issuable upon conversion of the Notes and the number of
Warrant Shares issuable upon exercise of the Warrants held by such Person. The
Company shall keep the register open and available at all times during business
hours for inspection by any Buyer or its legal representatives.

     (b) Transfer Agent Instructions. The Company shall issue irrevocable
instructions to its transfer agent, and any subsequent transfer agent, to issue
certificates or credit shares to the applicable balance accounts at The
Depository Trust Company ("DTC"), registered in the name of each Buyer or its
respective nominee(s), for the Conversion Shares and the Warrant Shares issued
at the Closing or upon conversion of the Notes or exercise of the Warrants in
such amounts as specified from time to time by each Buyer to the Company upon
conversion of the Notes or exercise of the Warrants in the form of Exhibit E
attached hereto (the "IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"). The Company
warrants that no instruction with respect to the Securities other than the
Irrevocable Transfer Agent Instructions referred to in this Section 5(b), and
stop transfer instructions to give effect to Section 2(g) hereof, will be given
by the Company to its transfer agent, and that the Securities shall otherwise be
freely transferable on the books and records of the Company as and to the extent
provided in this Agreement and the other Transaction Documents. If a Buyer
effects a sale, assignment or transfer of the Securities in accordance with
Section 2(f), the Company shall permit the transfer and shall promptly instruct


                                       27



its transfer agent to issue one or more certificates or credit shares to the
applicable balance accounts at DTC in such name and in such denominations as
specified by such Buyer to effect such sale, transfer or assignment. In the
event that such sale, assignment or transfer involves Conversion Shares or
Warrant Shares sold, assigned or transferred pursuant to an effective
registration statement or pursuant to Rule 144, the transfer agent shall issue
such Securities to the Buyer, assignee or transferee, as the case may be,
without any restrictive legend. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to a Buyer. Accordingly,
the Company acknowledges that the remedy at law for a breach of its obligations
under this Section 5(b) will be inadequate and agrees, in the event of a breach
by the Company of the provisions of this Section 5(b), that a Buyer shall be
entitled, in addition to all other available remedies, to an order and/or
injunction restraining any breach and requiring immediate issuance and transfer,
without the necessity of showing economic loss and without any bond or other
security being required.

6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.

     (a) Initial Closing Date. The obligation of the Company hereunder to issue
and sell the Initial Notes and the related Warrants to each Buyer at the Initial
Closing is subject to the satisfaction, at or before the Initial Closing Date,
of each of the following conditions, provided that these conditions are for the
Company's sole benefit and may be waived by the Company at any time in its sole
discretion by providing each Buyer with prior written notice thereof:

     (i) Such Buyer shall have executed each of the Transaction Documents to
which it is a party and delivered the same to the Company.

     (ii) Such Buyer and each other Buyer shall have delivered to the Company
the Initial Purchase Price (less, in the case of GCF, the amounts withheld
pursuant to Section 4(g)) for the Initial Notes and the related Warrants being
purchased by such Buyer at the Initial Closing by wire transfer of immediately
available funds pursuant to the wire instructions provided by the Company.

     (iii) The representations and warranties of such Buyer shall be true and
correct in all material respects as of the date when made and as of the Closing
Date as though made at that time (except for representations and warranties that
speak as of a specific date), and such Buyer shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by such
Buyer at or prior to the Initial Closing Date.

     (b) Additional Closing Dates. The obligation of the Company hereunder to
issue and sell the Additional Notes to each Buyer at the Additional Closings is
subject to the satisfaction, at or before the Additional Closing Dates, of each
of the following conditions, provided that these conditions are for the
Company's sole benefit and may be waived by the Company at any time in its sole
discretion by providing each Buyer with prior written notice thereof:

     (i) Such Buyer and each other Buyer shall have delivered to the Company the
Additional Purchase Price for the Additional Notes being purchased by such Buyer
at the


                                       28



Additional Closing by wire transfer of immediately available funds pursuant to
the wire instructions provided by the Company.

     (ii) The representations and warranties of such Buyer shall be true and
correct in all material respects as of the date when made and as of the
Additional Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date), and such Buyer shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Buyer at or prior to the Additional Closing Date.

7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.

     (a) Initial Closing Date. The obligation of each Buyer hereunder to
purchase the Initial Notes and the related Warrants at the Initial Closing is
subject to the satisfaction, at or before the Initial Closing Date, of each of
the following conditions, provided that these conditions are for each Buyer's
sole benefit and may be waived by such Buyer at any time in its sole discretion
by providing the Company with prior written notice thereof:

     (i) The Company shall have executed and delivered (or, in the case of any
Transaction Document to which a Subsidiary is a party, caused such Subsidiary to
execute and deliver) to such Buyer (A) each of the Transaction Documents to
which it or any Subsidiary is a party, (B) the Initial Notes (in such principal
amounts as such Buyer shall request) being purchased by such Buyer at the
Initial Closing pursuant to this Agreement, and (C) the Warrants (in such
amounts as such Buyer shall request) being purchased by such Buyer at the
Initial Closing pursuant to this Agreement.

     (ii) Such Buyer shall have received the opinion of Peckar & Abramson, P.C.,
the Company's outside counsel, dated as of the Initial Closing Date, in
substantially the form of Exhibit F attached hereto and a letter stating that
the Company is in good standing with its attorneys.

     (iii) The Company shall have delivered to such Buyer a true copy of the
Irrevocable Transfer Agent Instructions which instructions shall have been
delivered to and acknowledged in writing by the Company's transfer agent.

     (iv) The Company shall have delivered to such Buyer a true copy of a
certificate evidencing the formation and good standing of the Company and each
of its Subsidiaries in such entity's jurisdiction of formation issued by the
Secretary of State (or comparable office) of such jurisdiction, as of a date
within ten (10) days of the Initial Closing Date.

     (v) The Company shall have delivered to such Buyer a true copy of
certificate evidencing the Company's and each Subsidiary's qualification as a
foreign corporation and good standing issued by the Secretary of State (or
comparable office) of each jurisdiction in which the Company or such Subsidiary
conducts business, as of a date within ten (10) days of the Initial Closing
Date.


                                       29



     (vi) The Company shall have delivered to such Buyer a certified copy of the
Articles of Incorporation as certified by the Secretary of State of the State of
Delaware within ten (10) days of the Initial Closing Date.

     (vii) The Company shall have delivered to such Buyer a certificate,
executed by the Chief Executive Officer of the Company and dated as of the
Closing Date, as to (i) the resolutions consistent with Section 3(b) as adopted
by the Company's Board of Directors in a form reasonably acceptable to such
Buyer, (ii) the Articles of Incorporation and (iii) the Bylaws, each as in
effect at the Initial Closing, in the form attached hereto as Exhibit G.

     (viii) The representations and warranties of the Company shall be true and
correct in all material respects (other than representations and warranties that
are already qualified by materiality or Material Adverse Effect which shall be
true and correct in all respects) as of the date when made and as of the Initial
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by the Transaction Documents to be performed,
satisfied or complied with by the Company at or prior to the Initial Closing
Date. Such Buyer shall have received a certificate, executed by the Chief
Executive Officer of the Company, dated as of the Initial Closing Date, to the
foregoing effect and as to such other matters as may be reasonably requested by
such Buyer in the form attached hereto as Exhibit H.

     (ix) The Company shall have delivered to such Buyer a letter from the
Company's transfer agent certifying the number of shares of Common Stock
outstanding as of a date within two (2) days of the Initial Closing Date.

     (x) The Common Stock (I) shall be designated for quotation or listed on the
Principal Market and (II) shall not have been suspended, as of the Initial
Closing Date, by the SEC or the Principal Market from trading on the Principal
Market nor shall suspension by the SEC or the Principal Market have been
threatened, as of the Initial Closing Date, either (A) in writing by the SEC or
the Principal Market or (B) by falling below the minimum listing maintenance
requirements of the Principal Market.

     (xi) The Company shall have obtained all governmental, regulatory or third
party consents and approvals, if any, necessary for the sale of the Securities
and the grant of the security interest in the assets of the Company and its
Subsidiaries, including the consent of any existing lender or landlord of the
Company or any Subsidiary, as applicable.

     (xii) The Company shall have provided to the Buyer an acknowledgement, to
the satisfaction of the Buyer, from the Company's certified public accountant as
to its ability to provide all consents required in order to file a registration
statement in connection with this transaction and that the Company is in good
standing with its auditors.

     (xiii) Within six (6) Business Days prior to the Initial Closing, the
Company shall have delivered or caused to be delivered to each Buyer true copies
of UCC search results, listing all effective financing statements which name as
debtor the Company or any of its Subsidiaries filed


                                       30



in the prior five years to perfect an interest in any assets thereof, together
with copies of such financing statements, none of which, except as otherwise
agreed in writing by the Buyers, shall cover any of the Collateral (as defined
in the Security Documents) and the results of searches for any tax lien and
judgment lien filed against such Person or its property, which results, except
as otherwise agreed to in writing by the Buyers shall not show any such Liens
(as defined in the Security Documents).

     (xiv) The Company shall have delivered to such Buyer such other documents
relating to the transactions contemplated by this Agreement as such Buyer or its
counsel may reasonably request.

     (b) Additional Closing Dates. The obligation of each Buyer hereunder to
purchase the Additional Notes at an Additional Closings is subject to the
satisfaction, at or before the Additional Closing Dates, of each of the
following conditions, provided that these conditions are for each Buyer's sole
benefit and may be waived by such Buyer at any time in its sole discretion by
providing the Company with prior written notice thereof:

     (i) The Company shall have executed and delivered to such Buyer the
Additional Notes (in such principal amounts as such Buyer shall request) which
are being purchased by such Buyer at the Additional Closing pursuant to this
Agreement.

     (ii) Such Buyer shall have received the opinion of Peckar & Abramson, P.C.,
the Company's outside counsel, dated as of the Additional Closing Date in form
acceptable to the Buyer and that the Company is in good standing with its
attorneys.

     (iii) The Irrevocable Transfer Agent Instructions shall remain in effect as
of the Additional Closing Date and the Company shall cause its transfer agent to
deliver a letter to such Buyer to that effect.

     (iv) The Company shall have delivered to such Buyer a certificate, executed
by the Chief Executive Officer of the Company dated as of the Additional Closing
Date, as to (i) the Resolutions, (ii) the Certificate of Incorporation and (iii)
the Bylaws, each as in effect at the Additional Closing, in the form attached
hereto as Exhibit E.

     (v) The representations and warranties of the Company shall be true and
correct in all material respects (except for those representations and
warranties that are qualified by materiality or Material Adverse Effect, which
shall be true and correct in all respects) as of the date when made and as of
the Additional Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date) and the Company
shall have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by the Transaction Documents to be
performed, satisfied or complied with by the Company at or prior to the
Additional Closing Date. Such Buyer shall have received a certificate, executed
by the Chief Executive Officer of the Company, dated as of the Additional
Closing Date, to the foregoing effect and as to such other matters as may be
reasonably requested by such Buyer; Nothing herein shall be deemed a
representation, warranty, covenant or agreement that the representations and
warranties contained herein that are described in the


                                       31



Representation Certificate (as defined below) shall be true and correct as of
the Additional Closing Date.

     (vi) The Company shall have delivered to such Buyer a letter from the
Company's transfer agent certifying the number of shares of Common Stock
outstanding as of a date within five days of the Additional Closing Date.

     (vii) The Common Stock (I) shall be designated for quotation or listed on
the Principal Market, (II) shall not have been suspended, as of the Additional
Closing Date, by the SEC or the Principal Market from trading on the Principal
Market nor shall suspension by the SEC or the Principal Market have been
threatened, as of the Additional Closing Date, in writing by the SEC or the
Principal Market and (III) during any day during the ninety (90) Trading Days
prior to the Additional Closing Date, shall not have fallen below the minimum
listing maintenance requirements of the Principal Market.

     (viii) The Company shall have obtained all governmental, regulatory or
third party consents and approvals, if any, necessary for the sale of the
applicable Additional Notes.

     (ix) No Event of Default (as defined in the Notes) shall have occurred and
be continuing.

     (x) The Company shall have delivered to such Buyer such other documents
relating to the transactions contemplated by this Agreement as such Buyer or its
counsel may reasonably request.

     (xi) The Registration Statement shall have been filed with the SEC or a
pre-effective amendment to a previously filed Registration Statement to include
the Conversion Shares and the Warrant Shares shall have been filed with the SEC.

8. TERMINATION. In the event that the Initial Closing shall not have occurred
with respect to a Buyer on or before five (5) Business Days from the date hereof
due to the Company's or such Buyer's failure to satisfy the conditions set forth
in Sections 6 and 7 above (and the nonbreaching party's failure to waive such
unsatisfied condition(s)), the nonbreaching party shall have the option to
terminate this Agreement with respect to such breaching party at the close of
business on such date without liability of any party to any other party;
provided, however, that if this Agreement is terminated pursuant to this Section
8, the Company shall remain obligated to reimburse the non-breaching Buyers for
the expenses described in Section 4(g) above that have not previously been paid.

9. MISCELLANEOUS.

     (a) Governing Law; Jurisdiction; Jury Trial. All questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York. Each


                                       32



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 suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. 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 to such
party at the address for such notices to it under this 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 HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF
THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

     (b) Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which 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; provided that a facsimile signature shall be
considered due execution and shall be binding upon the signatory thereto with
the same force and effect as if the signature were an original, not a facsimile
signature.

     (c) Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.

     (d) Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.

     (e) Entire Agreement; Amendments. This Agreement and the other Transaction
Documents supersede all other prior oral or written agreements between the
Buyers, the Company, their Affiliates and Persons acting on their behalf with
respect to the matters discussed herein, and this Agreement, the other
Transaction Documents and the instruments referenced herein and therein contain
the entire understanding of the parties with respect to the matters covered
herein and therein and, except as specifically set forth herein or therein,
neither the Company nor any Buyer makes any representation, warranty, covenant
or undertaking with respect to such matters. No provision of this Agreement may
be amended other than by an instrument in writing signed by the Company and the
Required Holders, and any amendment to this Agreement made in conformity with
the provisions of this Section 9(e) shall be binding on all Buyers and holders
of Securities, as applicable. No provision hereof may be waived other than by an
instrument in writing signed by the party against whom enforcement is sought. No
such amendment shall be effective to the extent that it applies to less than all
of the holders of the applicable Securities then outstanding. No consideration
shall be offered or paid to any Person


                                       33



to amend or consent to a waiver or modification of any provision of any of the
Transaction Documents unless the same consideration also is offered to all of
the parties to the Transaction Documents, holders of Notes or holders of the
Warrants, as the case may be. The Company has not, directly or indirectly, made
any agreements with any Buyers relating to the terms or conditions of the
transactions contemplated by the Transaction Documents except as set forth in
the Transaction Documents.

     (f) Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one Business Day after deposit with
an overnight courier service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:

     If to the Company:

                              MDwerks, Inc.
                              1020 NW 6th St.
                              Suite I
                              Deerfield Beach, FL 33442
                              Telephone: (954) 389-8300
                              Facsimile: (954) 427-5871
                              Attention: Howard Katz

     Copy to (for informational purposes only):

                              Peckar & Abramson, P.C.
                              70 Grand Avenue
                              River Edge, NJ 07661
                              Telephone: (201) 343-3434
                              Facsimile: (201) 343-6306
                              Attention: Stephen P. Katz, Esq.

     If to the Transfer Agent:

                              Corporation Stock Transfer
                              3200 Cherry Creek Avenue South - Suite 43
                              Denver, CO 80209
                              Telephone: (303) 282-4800
                              Facsimile: (303) 282-5800

     If to a Buyer, to its address and facsimile number set forth on the
Schedule of Buyers, with copies to such Buyer's representatives as set forth on
the Schedule of Buyers, with a copy (for informational purposes only) to:

                              Gottbetter & Partners, LLP
                              488 Madison Avenue, 12th Floor
                              New York, New York 10022


                                       34



                              Telephone: (212) 400-6900
                              Facsimile: (212) 400-6901
                              Attention: Jason M. Rimland, Esq.

     or to such other address and/or facsimile number and/or to the attention of
such other Person as the recipient party has specified by written notice given
to each other party five (5) days prior to the effectiveness of such change.
Written confirmation of receipt (A) given by the recipient of such notice,
consent, waiver or other communication, (B) mechanically or electronically
generated by the sender's facsimile machine containing the time, date, recipient
facsimile number and an image of the first page of such transmission or (C)
provided by an overnight courier service shall be rebuttable evidence of
personal service, receipt by facsimile or receipt from an overnight courier
service in accordance with clause (i), (ii) or (iii) above, respectively.

     (g) Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their respective successors and assigns,
including any purchasers of the Notes or the Warrants. The Company shall not
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the Required Holders (unless the Company is in compliance
with the applicable provisions governing Fundamental Transactions set forth in
the Notes and the Warrants). A Buyer may assign some or all of its rights
hereunder without the consent of the Company, in which event such assignee shall
be deemed to be a Buyer hereunder with respect to such assigned rights; provided
that such assignee agrees in writing to be bound by all of the provisions
contained herein.

     (h) No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and, except as set forth in Section 9(k) below, is not for the benefit
of, nor may any provision hereof be enforced by, any other Person.

     (i) Survival. Unless this Agreement is terminated under Section 8, the
representations and warranties of the Company and the Buyers contained in
Sections 2 and 3 shall survive for a period of two (2) years following the
Initial Closing Date and the agreements and covenants set forth in Sections 4, 5
and 9 shall survive the Closing for the periods referred to in such sections.
Each Buyer shall be responsible only for its own representations, warranties,
agreements and covenants hereunder.

     (j) Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
any other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

     (k) Indemnification. In consideration of each Buyer's execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless each
Buyer (collectively, the "INDEMNITEES") from and


                                       35



against any and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages, and expenses in connection therewith
and including reasonable attorneys' fees and disbursements (the "INDEMNIFIED
LIABILITIES"), incurred by any Indemnitee as a result of, or arising out of, or
relating to (a) any misrepresentation or breach of any representation or
warranty made by the Company or any Subsidiary in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby,
(b) any breach of any covenant, agreement or obligation of the Company or any
Subsidiary contained in the Transaction Documents or any other certificate,
instrument or document contemplated hereby or thereby or (c) any cause of
action, suit or claim brought or made against such Indemnitee by a third party
(including for these purposes a derivative action brought on behalf of the
Company) and arising out of or resulting from (i) the execution, delivery,
performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby except in the
case of (i) a claim arising out of the breach by the Indemnitee of any of the
Transaction Documents or certificate or instrument contemplated thereby or by
any of the Transaction Documents, (ii) the willful misconduct of Indemnitee,
(iii) any transaction financed or to be financed in whole or in part, directly
or indirectly, with the proceeds of the issuance of the Securities, or (iv) the
status of such Buyer or holder of the Securities as an investor in the Company
pursuant to the transactions contemplated by the Transaction Documents. To the
extent that the foregoing undertaking by the Company may be unenforceable for
any reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law. Except as otherwise set forth herein, the mechanics and
procedures with respect to the rights and obligations under this Section 9(k)
shall be the same as those set forth in Section 6 of the Registration Rights
Agreement.

     (l) Buyer Indemnification. In consideration of the Company's execution and
delivery of the Transaction Documents and its sale of the Securities thereunder
and in addition to all of the Buyers' other obligations under the Transaction
Documents, each Buyer shall defend, protect, indemnify and hold harmless the
Company from and against any and all Indemnified Liabilities, incurred by the
Company as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by such Buyer
in the Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby or (b) any breach of any covenant, agreement or
obligation of such Buyer contained in the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby. To the
extent that the foregoing undertaking by a Buyer may be unenforceable for any
reason, such Buyer shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law. Except as otherwise set forth herein, the mechanics and
procedures with respect to the rights and obligations under this Section 9(l)
shall be the same as those set forth in Section 6 of the Registration Rights
Agreement.

     (m) Remedies. Each Buyer and each holder of the Securities shall have all
rights and remedies set forth in the Transaction Documents and all rights and
remedies which such holders have been granted at any time under any other
agreement or contract and all of the rights which such holders have under any
law. Any Person having any rights under any provision of this Agreement shall be
entitled to enforce such rights specifically (without posting a bond or other
security), to recover damages by reason of any breach of any provision of this
Agreement and to


                                       36



exercise all other rights granted by law. Furthermore, the Company recognizes
that in the event that it fails to perform, observe, or discharge any or all of
its obligations under the Transaction Documents, any remedy at law may prove to
be inadequate relief to the Buyers. The Company therefore agrees that the Buyers
shall be entitled to seek temporary and permanent injunctive relief in any such
case without the necessity of proving actual damages and without posting a bond
or other security.

     (n) Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Buyer exercises a right, election, demand or
option under a Transaction Document and the Company does not timely perform its
related obligations within the periods therein provided, then such Buyer may
rescind or withdraw, in its sole discretion from time to time upon written
notice to the Company, any relevant notice, demand or election in whole or in
part without prejudice to its future actions and rights.

     (o) Payment Set Aside. To the extent that the Company makes a payment or
payments to the Buyers hereunder or pursuant to any of the other Transaction
Documents or the Buyers enforce or exercise their rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other Person under any law (including, without limitation, any
bankruptcy law, foreign, state or federal law, common law or equitable cause of
action), then to the extent of any such restoration the obligation or part
thereof originally intended to be satisfied shall be revived and continued in
full force and effect as if such payment had not been made or such enforcement
or setoff had not occurred.

     (p) Independent Nature of Buyers' Obligations and Rights. The obligations
of each Buyer under any Transaction Document are several and not joint with the
obligations of any other Buyer, and no Buyer shall be responsible in any way for
the performance of the obligations of any other Buyer under any Transaction
Document. Nothing contained herein or in any other Transaction Document, and no
action taken by any Buyer pursuant hereto or thereto, shall be deemed to
constitute the Buyers as a partnership, an association, a joint venture or any
other kind of entity, or create a presumption that the Buyers are in any way
acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents and the Company
acknowledges that to its knowledge the Buyers are not acting in concert or as a
group, and the Company will not assert any such claim, with respect to such
obligations or the transactions contemplated by the Transaction Documents. Each
Buyer confirms that it has independently participated in the negotiation of the
transaction contemplated hereby with the advice of its own counsel and advisors.
Each Buyer shall be entitled to independently protect and enforce its rights,
including, without limitation, the rights arising out of this Agreement or out
of any other Transaction Documents, and it shall not be necessary for any other
Buyer to be joined as an additional party in any proceeding for such purpose.

                            [SIGNATURE PAGE FOLLOWS]


                                       37



     IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.

                                        COMPANY:
                                        MDWERKS, INC.


                                        By: /s/ Howard Katz
                                            ------------------------------------
                                            Name: Howard Katz
                                            Title: Chief Executive Officer


                                       38



     IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.

                                        BUYERS:
                                        GOTTBETTER CAPITAL MASTER, LTD.


                                        By: /s/ Adam S. Gottbetter
                                            ------------------------------------
                                            Name: Adam S. Gottbetter
                                            Title: Director


                                       39



                               SCHEDULE OF BUYERS



      (1)                    (2)                   (3)         (4)           (5)       (6)       (7)               (8)
                                                                          AGGREGATE AGGREGATE
                                                                          NUMBER OF NUMBER OF
                                             AGGREGATE       AGGREGATE     SERIES D  SERIES E             LEGAL REPRESENTATIVE'S
                          ADDRESS AND       PRINCIPAL OF   PRINCIPAL OF    WARRANT   WARRANT   PURCHASE        ADDRESS AND
BUYER                  FACSIMILE NUMBER    INITIAL NOTES ADDITIONAL NOTES   SHARES    SHARES    PRICE        FACSIMILE NUMBER
- ----------------------------------------------------------------------------------------------------------------------------------

Gottbetter Capital 488 Madison Avenue        2,500,000       2,500,000     375,000   375,000  2,375,010 Jason M. Rimland, Esq.
Master, Ltd.       12th Floor                                                                           Gottbetter & Partners, LLP
                   New York, NY 10022                                                                   488 Madison Avenue
                   Facsimile: 212.400.6999                                                              12th Floor
                                                                                                        New York, NY 10022
                                                                                                        Facsimile: 212.400.6901
- ----------------------------------------------------------------------------------------------------------------------------------



                                       40



                                    EXHIBITS

Exhibit A     Form of Notes
Exhibit B-1   Form of Series D Warrants
Exhibit B-2   Form of Series E Warrants
Exhibit C     Registration Rights Agreement
Exhibit D     Form of Security Agreement
Exhibit E     Irrevocable Transfer Agent Instructions
Exhibit F     Form of Opinion Letter
Exhibit G     Form of Resolutions, Articles of Incorporation and By-Laws
Exhibit H     Form of Officer's Certificate

                                    SCHEDULES

Schedule 3(a)    Subsidiaries
Schedule 3(k)    SEC Documents; Financial Statements
Schedule 3(l)    Absence of Certain Changes
Schedule 3(q)    Transactions with Affiliates, Officers, Directors and Employees
Schedule 3(r)    Equity Capitalization
Schedule 3(s)    Indebtedness and Other Contracts
Schedule 3(t)    Absence of Litigation
Schedule 3(w)    Title
Schedule 3(x)    Intellectual Property Rights
Schedule 3(z)    Subsidiary Rights
Schedule 3(bb)   Tax Status
Schedule 3(ee)   Ranking of Notes
Schedule 4(e)    Planned Use of Gross Proceeds


                                       41

EX-4.2

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS WARRANT NOR
THE SECURITIES INTO WHICH THIS WARRANT IS EXERCISABLE HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL
SHALL BE SELECTED BY THE HOLDER), IN A FORM REASONABLY ACCEPTABLE TO THE
COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD
PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING,
THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

                                  MDWERKS, INC.

                        WARRANT TO PURCHASE COMMON STOCK

Warrant No.:
Number of Shares of Common Stock: 187,500
Date of Issuance: October 19, 2006 ("ISSUANCE DATE")

     MDwerks, Inc., a Delaware corporation (the "COMPANY"), hereby certifies
that, for good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, GOTTBETTER CAPITAL MASTER, LTD., the registered holder
hereof or its permitted assigns (the "HOLDER"), is entitled, subject to the
terms set forth below, to purchase from the Company, at the Exercise Price (as
defined below) then in effect, upon surrender of this Warrant to Purchase Common
Stock (including any Warrants to purchase Common Stock issued in exchange,
transfer or replacement hereof, the "WARRANT"), at any time or times on or after
the date hereof, but not after 11:59 p.m., New York Time, on the Expiration Date
(as defined below), One Hundred Eighty Seven Thousand Five Hundred (187,500)
fully paid nonassessable shares of Common Stock (as defined below) (the "WARRANT
SHARES"). Except as otherwise defined herein, capitalized terms in this Warrant
shall have the meanings set forth in Section 15. This Warrant is one of the
Warrants to purchase Common Stock (the "SPA WARRANTS") issued pursuant to
Section 1 of that certain Securities Purchase Agreement, dated as of October 19,
2006 (the "SUBSCRIPTION DATE"), by and among the Company and the investors (the
"BUYERS") referred to therein (the "SECURITIES PURCHASE AGREEMENT").

1. EXERCISE OF WARRANT.

     (a) Mechanics of Exercise. Subject to the terms and conditions hereof
(including, without limitation, the limitations set forth in Section 1(f)), this
Warrant may be exercised by the Holder on any day on or after the date hereof,
in whole or in part, by (i) delivery of a written notice, in the form attached
hereto as Exhibit A (the "EXERCISE NOTICE"), of the Holder's election to
exercise this Warrant and (ii) (A) payment to the Company of an amount equal to
the applicable Exercise Price multiplied by the number of Warrant Shares as to
which this Warrant is being exercised (the "AGGREGATE EXERCISE PRICE") in cash
or by wire transfer of immediately



available funds or (B) by notifying the Company that this Warrant is being
exercised pursuant to a Cashless Exercise (as defined in Section 1(d)). The
Holder shall not be required to deliver the original Warrant in order to affect
an exercise hereunder. Execution and delivery of the Exercise Notice with
respect to less than all of the Warrant Shares shall have the same effect as
cancellation of the original Warrant and issuance of a new Warrant evidencing
the right to purchase the remaining number of Warrant Shares. On or before the
first (1st) Business Day following the date on which the Company has received
each of the Exercise Notice and the Aggregate Exercise Price (or notice of a
Cashless Exercise) (the "EXERCISE DELIVERY DOCUMENTS"), the Company shall
transmit by facsimile an acknowledgment of confirmation of receipt of the
Exercise Delivery Documents to the Holder and the Company's transfer agent (the
"TRANSFER AGENT"). On or before the third (3rd) Business Day following the date
on which the Company has received all of the Exercise Delivery Documents (the
"SHARE DELIVERY DATE"), the Company shall (X) provided that the Transfer Agent
is participating in The Depository Trust Company ("DTC") Fast Automated
Securities Transfer Program, credit such aggregate number of shares of Common
Stock to which the Holder is entitled pursuant to such exercise to the Holder's
or its designee's balance account with DTC through its Deposit Withdrawal Agent
Commission system, or (Y) if the Transfer Agent is not participating in the DTC
Fast Automated Securities Transfer Program, issue and dispatch by overnight
courier to the address as specified in the Exercise Notice, a certificate,
registered in the Company's share register in the name of the Holder or its
designee, for the number of shares of Common Stock to which the Holder is
entitled pursuant to such exercise. Upon delivery of the Exercise Delivery
Documents, the Holder shall be deemed for all corporate purposes to have become
the holder of record of the Warrant Shares with respect to which this Warrant
has been exercised, irrespective of the date such Warrant Shares are credited to
the Holder's DTC account or the date of delivery of the certificates evidencing
such Warrant Shares as the case may be. If this Warrant is submitted in
connection with any exercise pursuant to this Section 1(a) and the number of
Warrant Shares represented by this Warrant submitted for exercise is greater
than the number of Warrant Shares being acquired upon an exercise, then the
Company shall as soon as practicable and in no event later than three Business
Days after any exercise and at its own expense, issue, a new Warrant (in
accordance with Section 7(d)) representing the right to purchase the number of
Warrant Shares purchasable immediately prior to such exercise under this
Warrant, less the number of Warrant Shares with respect to which this Warrant is
exercised. No fractional shares of Common Stock are to be issued upon the
exercise of this Warrant, but rather the number of shares of Common Stock to be
issued shall be rounded up to the nearest whole number. The Company shall pay
stamp and similar taxes which may be payable with respect to the issuance and
delivery of Warrant Shares upon exercise of this Warrant. The Company shall not
be required, however, to pay any transfer tax or similar charge imposed in
connection with the issuance and delivery of Warrant shares in any name other
than that of the Holder.

     (b) Exercise Price. For purposes of this Warrant, "EXERCISE PRICE" means
$2.25 subject to adjustment as provided herein.

     (c) Company's Failure to Timely Deliver Securities. If the Company shall
fail for any reason or for no reason to issue to the Holder within three (3)
Trading Days of receipt of the Exercise Delivery Documents, a certificate for
the number of shares of Common Stock to which the Holder is entitled and
register such shares of Common Stock on the Company's share register or to
credit the Holder's balance account with DTC for such number of shares of Common
Stock


                                       2



to which the Holder is entitled upon the Holder's exercise of this Warrant, and
if on or after such third (3rd) Trading Day the Holder purchases (in an open
market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the Holder of shares of Common Stock issuable upon
such exercise that the Holder anticipated receiving from the Company (a
"BUY-IN"), then the Company shall, within three (3) Business Days after the
Holder's request and in the Holder's sole discretion, either (i) pay cash to the
Holder in an amount equal to the Holder's total purchase price (including
brokerage commissions, if any) for the shares of Common Stock so purchased (the
"BUY-IN PRICE"), at which point the Company's obligation to deliver such
certificate (and to issue such shares of Common Stock) shall terminate, or (ii)
promptly honor its obligation to deliver to the Holder a certificate or
certificates representing such Warrant Shares and pay cash to the Holder in an
amount equal to the excess (if any) of the Buy-In Price over the product of (A)
such number of shares of Common Stock, times (B) the Closing Bid Price on the
date of exercise. Nothing herein shall limit the holder's right to pursue actual
damages for the Company's failure to maintain a sufficient number of authorized
shares of Common Stock or to otherwise issue shares of Common Stock upon
exercise of this Warrant in accordance with the terms hereof, and the Holder
shall have the right to pursue all remedies available at law or in equity
(including a decree of specific performance and/or injunctive relief).

     (d) Cashless Exercise. Notwithstanding anything contained herein to the
contrary, if, at the time of exercise of this Warrant, a Registration Statement
(as defined in the Registration Rights Agreement) covering the Warrant Shares
that are the subject of the Exercise Notice (the "UNAVAILABLE WARRANT SHARES")
is not available for the resale of such Unavailable Warrant Shares, the Holder
may, in its sole discretion, exercise this Warrant in whole or in part and, in
lieu of making the cash payment otherwise contemplated to be made to the Company
upon such exercise in payment of the Aggregate Exercise Price, elect instead to
receive upon such exercise the "Net Number" of shares of Common Stock determined
according to the following formula (a "CASHLESS EXERCISE"):

               Net Number = (A x B) - (A x C)
                            -----------------
                                    B

               For purposes of the foregoing formula:

          A   =   the total number of shares with respect to which this Warrant
                  is then being exercised.

          B   =   the Closing Sale Price of the shares of Common Stock (as
                  reported by Bloomberg) on the date immediately preceding the
                  date of the Exercise Notice.

          C   =   the Exercise Price then in effect for the applicable Warrant
                  Shares at the time of such exercise.

     (e) Disputes. In the case of a dispute as to the determination of the
Exercise Price or the arithmetic calculation of the Warrant Shares, the Company
shall promptly issue to the Holder


                                       3



the number of Warrant Shares that are not disputed and resolve such dispute in
accordance with Section 12.

     (f) Limitations on Exercises.

          (1) Beneficial Ownership. The Company shall not effect the exercise of
     this Warrant, and the Holder shall not have the right to exercise this
     Warrant, to the extent that after giving effect to such exercise, such
     Person (together with such Person's affiliates) would beneficially own
     (directly or indirectly through Warrant Shares or otherwise) in excess of
     4.99% of the shares of Common Stock outstanding immediately after giving
     effect to such exercise. For purposes of the foregoing sentence, the
     aggregate number of shares of Common Stock beneficially owned (directly or
     indirectly through Warrant Shares or otherwise) by such Person and its
     affiliates shall include the number of shares of Common Stock issuable upon
     exercise of this Warrant with respect to which the determination of such
     sentence is being made, but shall exclude shares of Common Stock which
     would be issuable upon (i) exercise of the remaining, unexercised portion
     of this Warrant beneficially owned by such Person and its affiliates and
     (ii) exercise or conversion of the unexercised or unconverted portion of
     any other securities of the Company beneficially owned by such Person and
     its affiliates (including, without limitation, any convertible notes or
     convertible preferred stock or warrants) subject to a limitation on
     conversion or exercise analogous to the limitation contained herein. Except
     as set forth in the preceding sentence, for purposes of this paragraph,
     beneficial ownership shall be calculated in accordance with Section 13(d)
     of the Securities Exchange Act of 1934, as amended. For purposes of this
     Warrant, 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 (1) the Company's most recent Form 10-KSB, Form 10-QSB,
     Current Report on Form 8-K or other public filing with the Securities and
     Exchange Commission, as the case may be, (2) a more recent public
     announcement by the Company or (3) any other notice by the Company or the
     Transfer Agent setting forth the number of shares of Common Stock
     outstanding. For any reason at any time, upon the written request of the
     Holder, the Company shall within two Business 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 exercise of
     securities of the Company, including the SPA Securities and the SPA
     Warrants, by the Holder and its affiliates since the date as of which such
     number of outstanding shares of Common Stock was reported. By written
     notice to the Company, the Holder may from time to time increase or
     decrease the Maximum Percentage specified in such notice; provided that (i)
     any such increase will not be effective until the sixty-first (61st) day
     after such notice is delivered to the Company, and (ii) any such increase
     or decrease will apply only to the Holder and not to any other holder of
     SPA Warrants.

          (2) Principal Market Regulation. The Company shall not be obligated to
     issue any shares of Common Stock upon exercise of this Warrant if the
     issuance of such shares of Common Stock would exceed that number of shares
     of Common Stock which the Company may issue upon exercise, redemption or
     conversion, as applicable, of the SPA


                                       4



     Warrants and SPA Securities or otherwise without breaching the Company's
     obligations under the rules or regulations of the Principal Market (the
     "EXCHANGE CAP"), except that such limitation shall not apply in the event
     that the Company (A) obtains the approval of its stockholders as required
     by the applicable rules of the Principal Market for issuances of shares of
     Common Stock in excess of such amount or (B) obtains a written opinion from
     outside counsel to the Company that such approval is not required, which
     opinion shall be reasonably satisfactory to the Required Holders. Until
     such approval or written opinion is obtained, no Buyer shall be issued in
     the aggregate, upon exercise or conversion, as applicable, of any SPA
     Warrants or SPA Securities, shares of Common Stock in an amount greater
     than the product of the Exchange Cap multiplied by a fraction, the
     numerator of which is the total number of shares of Common Stock underlying
     the SPA Warrants issued to such Buyer pursuant to the Securities Purchase
     Agreement on the Issuance Date and the denominator of which is the
     aggregate number of shares of Common Stock underlying the SPA Warrants
     issued to the Buyers pursuant to the Securities Purchase Agreement on the
     Issuance Date (with respect to each Buyer, the "EXCHANGE CAP ALLOCATION").
     In the event that any Buyer shall sell or otherwise transfer any of such
     Buyer's SPA Warrants, the transferee shall be allocated a pro rata portion
     of such Buyer's Exchange Cap Allocation, and the restrictions of the prior
     sentence shall apply to such transferee with respect to the portion of the
     Exchange Cap Allocation allocated to such transferee. In the event that any
     holder of SPA Warrants shall exercise all of such holder's SPA Warrants
     into a number of shares of Common Stock which, in the aggregate, is less
     than such holder's Exchange Cap Allocation, then the difference between
     such holder's Exchange Cap Allocation and the number of shares of Common
     Stock actually issued to such holder shall be allocated to the respective
     Exchange Cap Allocations of the remaining holders of SPA Warrants on a pro
     rata basis in proportion to the shares of Common Stock underlying the SPA
     Warrants then held by each such holder. In the event that the Company is
     prohibited from issuing any Warrant Shares for which an Exercise Notice has
     been received as a result of the operation of this Section 1(f)(ii), the
     Company shall pay cash in exchange for cancellation of such Warrant Shares,
     at a price per Warrant Share equal to the difference between the Closing
     Sale Price and the Exercise Price as of the date of the attempted exercise.
     To the extent required by the Principal Market, the provisions of the
     Exchange Cap shall be modified to comply with the applicable rules and
     regulations of the Principal Market, provided that any such changes shall
     not, in the Holder's reasonable discretion, materially change the terms of
     the transaction contemplated hereby.

     (g) Insufficient Authorized Shares. If at any time while any of the
Warrants remain outstanding the Company does not have a sufficient number of
authorized and unreserved shares of Common Stock (an "AUTHORIZED SHARE FAILURE")
to satisfy its obligation to reserve for issuance upon exercise of the Warrants
at least a number of shares of Common Stock equal to 175% of the number of
shares of Common Stock as shall from time to time be necessary to effect the
exercise of all of the Warrants then outstanding (the "REQUIRED RESERVE
AMOUNT"), then the Company shall immediately take all action necessary to
increase the Company's authorized shares of Common Stock to an amount sufficient
to allow the Company to reserve the Required Reserve Amount for the Warrants
then outstanding. Without limiting the generality of the foregoing sentence, as
soon as practicable after the date of the occurrence of an Authorized Share


                                       5



Failure, but in no event later than ninety (90) days after the occurrence of
such Authorized Share Failure, the Company shall hold a meeting of its
stockholders for the approval of an increase in the number of authorized shares
of Common Stock. In connection with such meeting, the Company shall provide each
stockholder with a proxy statement and shall use its reasonable best efforts to
solicit its stockholders' approval of such increase in authorized shares of
Common Stock and to cause its board of directors to recommend to the
stockholders that they approve such proposal.

2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES.

The Exercise Price and the number of Warrant Shares shall be adjusted from time
to time as follows:

     (a) Adjustment upon Issuance of shares of Common Stock. If and whenever on
or after the Subscription Date the Company issues or sells, or in accordance
with this Section 2 is deemed to have issued or sold, any shares of Common Stock
(including the issuance or sale of shares of Common Stock owned or held by or
for the account of the Company, but excluding shares of Common Stock which are
Excluded Securities (as defined in the SPA Securities) or are deemed to have
been issued by the Company in connection with any Excluded Securities) for a
consideration per share (the "NEW ISSUANCE PRICE") less than a price (the
"APPLICABLE PRICE") equal to the Exercise Price in effect immediately prior to
such issue or sale or deemed issuance or sale (the foregoing a "DILUTIVE
ISSUANCE"), then immediately after such Dilutive Issuance, the Exercise Price
then in effect shall be reduced to an amount equal to the New Issuance Price.
Upon each such adjustment of the Exercise Price hereunder, the number of Warrant
Shares shall be adjusted to the number of shares of Common Stock determined by
multiplying the Exercise Price in effect immediately prior to such adjustment by
the number of Warrant Shares acquirable upon exercise of this Warrant
immediately prior to such adjustment and dividing the product thereof by the
Exercise Price resulting from such adjustment. For purposes of determining the
adjusted Exercise Price under this Section 2(a), the following shall be
applicable:

          (i)   Issuance of Options. If the Company in any manner grants any
                Options and the lowest price per share for which one share of
                Common Stock is issuable upon the exercise of any such Option or
                upon conversion, exercise or exchange of any Convertible
                Securities issuable upon exercise of any such Option is less
                than the Applicable Price, then such shares of Common Stock
                (underlying such Option shall be deemed to be outstanding and to
                have been issued and sold by the Company at the time of the
                granting or sale of such Option for such price per share. For
                purposes of this Section 2(a)(i), the "lowest price per share
                for which one share of Common Stock is issuable upon exercise of
                such Options or upon conversion, exercise or exchange of such
                Convertible Securities" shall be equal to the sum of the lowest
                amounts of consideration (if any) received or receivable by the
                Company with respect to any one share of Common Stock upon the
                granting or sale of the Option, upon exercise of the Option and
                upon conversion, exercise or exchange of any Convertible
                Security issuable upon exercise of such Option. No further
                adjustment of the


                                       6



                Exercise Price or number of Warrant Shares shall be made upon
                the actual issuance of such shares of Common Stock or of such
                Convertible Securities upon the exercise of such Options or upon
                the actual issuance of such shares of Common Stock upon
                conversion, exercise or exchange of such Convertible Securities.

          (ii)  Issuance of Convertible Securities. If the Company in any manner
                issues or sells any Convertible Securities and the lowest price
                per share for which one share of Common Stock is issuable upon
                the conversion, exercise or exchange thereof is less than the
                Applicable Price, then such shares of Common Stock issuable upon
                conversion of such Convertible Securities shall be deemed to be
                outstanding and to have been issued and sold by the Company at
                the time of the issuance or sale of such Convertible Securities
                for such price per share. For the purposes of this Section
                2(a)(ii), the "lowest price per share for which one share of
                Common Stock is issuable upon the conversion, exercise or
                exchange" shall be equal to the sum of the lowest amounts of
                consideration (if any) received or receivable by the Company
                with respect to one share of Common Stock upon the issuance or
                sale of the Convertible Security and upon conversion, exercise
                or exchange of such Convertible Security. No further adjustment
                of the Exercise Price or number of Warrant Shares shall be made
                upon the actual issuance of such shares of Common Stock upon
                conversion, exercise or exchange of such Convertible Securities,
                and if any such issue or sale of such Convertible Securities is
                made upon exercise of any Options for which adjustment of this
                Warrant has been or is to be made pursuant to other provisions
                of this Section 2(a), no further adjustment of the Exercise
                Price or number of Warrant Shares shall be made by reason of
                such issue or sale. A change that permits the holder of an
                Option or Convertible Security to utilize a cashless exercise
                feature shall not be deemed to decrease the consideration
                payable by the holder solely by reason of the fact that the
                cashless exercise feature would result in a reduction in cash
                consideration receivable by the Company.

          (iii) Change in Option Price or Rate of Conversion. If the purchase
                price provided for in any Options, the additional consideration,
                if any, payable upon the issue, conversion, exercise or exchange
                of any Convertible Securities, or the rate at which any
                Convertible Securities are convertible into or exercisable or
                exchangeable for shares of Common Stock increases or decreases
                at any time, the Exercise Price and the number of Warrant Shares
                in effect at the time of such increase or decrease shall be
                adjusted to the Exercise Price and the number of Warrant Shares
                which would have been in effect at such time had such Options or
                Convertible Securities provided for such increased or decreased
                purchase price, additional consideration or increased or
                decreased conversion rate, as the case may be, at the time
                initially granted, issued or sold. For purposes of this Section
                2(a)(iii), if the terms of any Option or Convertible Security
                that was outstanding as of the date of issuance of this Warrant
                are increased or


                                       7



                decreased in the manner described in the immediately preceding
                sentence, then such Option or Convertible Security and the
                shares of Common Stock deemed issuable upon exercise, conversion
                or exchange thereof shall be deemed to have been issued as of
                the date of such increase or decrease. No adjustment pursuant to
                this Section 2(a) shall be made if such adjustment would result
                in an increase of the Exercise Price then in effect or a
                decrease in the number of Warrant Shares. A change that permits
                the holder of an Option or Convertible Security to utilize a
                cashless exercise feature shall not be deemed to decrease the
                consideration payable by the holder solely by reason of the fact
                that the cashless exercise feature would result in a reduction
                in cash consideration receivable by the Company.

          (iv)  Calculation of Consideration Received. In case any Option is
                issued in connection with the issue or sale of other securities
                of the Company, together comprising one integrated transaction
                in which no specific consideration is allocated to such Options
                by the parties thereto, the Options will be deemed to have been
                issued for a consideration of $0.001. If any shares of Common
                Stock, Options or Convertible Securities are issued or sold or
                deemed to have been issued or sold for cash, the consideration
                received therefor will be deemed to be the amount received by
                the Company therefor. If any shares of Common Stock, Options or
                Convertible Securities are issued or sold for a consideration
                other than cash, the amount of such consideration received by
                the Company will be the fair value of such consideration, except
                where such consideration consists of publicly traded securities,
                in which case the amount of consideration received by the
                Company will be the Closing Sale Price of such publicly traded
                security on the date of receipt. If any shares of Common Stock,
                Options or Convertible Securities are issued to the owners of
                the non-surviving entity in connection with any merger in which
                the Company is the surviving entity, the amount of consideration
                therefor will be deemed to be the fair value of such portion of
                the net assets and business of the non-surviving entity as is
                attributable to such shares of Common Stock, Options or
                Convertible Securities, as the case may be. The fair value of
                any consideration other than cash or publicly traded securities
                will be determined jointly by the Company and the Required
                Holders. If such parties are unable to reach agreement within
                ten (10) days after the occurrence of an event requiring
                valuation (the "VALUATION EVENT"), the fair value of such
                consideration will be determined within five (5) Business Days
                after the tenth day following the Valuation Event by an
                independent, reputable appraiser jointly selected by the Company
                and the Required Holders. The determination of such appraiser
                shall be final and binding upon all parties absent manifest
                error and the fees and expenses of such appraiser shall be borne
                by the Company.


                                       8



          (v)   Record Date. If the Company takes a record of the holders of
                shares of Common Stock for the purpose of entitling them (A) to
                receive a dividend or other distribution payable in shares of
                Common Stock, Options or in Convertible Securities or (B) to
                subscribe for or purchase shares of Common Stock, Options or
                Convertible Securities, then such record date will be deemed to
                be the date of the issue or sale of the shares of Common Stock
                deemed to have been issued or sold upon the declaration of such
                dividend or the making of such other distribution or the date of
                the granting of such right of subscription or purchase, as the
                case may be.

          (b) Adjustment upon Subdivision or Combination of Common Stock. If the
Company at any time on or after the Subscription Date subdivides (by any stock
split, stock dividend, recapitalization or otherwise) one or more classes of its
outstanding shares of Common Stock into a greater number of shares, the Exercise
Price in effect immediately prior to such subdivision will be proportionately
reduced and the number of Warrant Shares will be proportionately increased. If
the Company at any time on or after the Subscription Date combines (by
combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination will be proportionately
increased and the number of Warrant Shares will be proportionately decreased.
Any adjustment under this Section 2(b) shall become effective at the close of
business on the date the subdivision or combination becomes effective.

          (c) Other Events. If any event occurs of the type contemplated by the
provisions of this Section 2 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Company's
Board of Directors will make an appropriate adjustment in the Exercise Price and
the number of Warrant Shares so as to protect the rights of the Holder; provided
that no such adjustment pursuant to this Section 2(c) will increase the Exercise
Price or decrease the number of Warrant Shares as otherwise determined pursuant
to this Section 2.

3. RIGHTS UPON DISTRIBUTION OF ASSETS.

If the Company shall declare or make any dividend or other distribution of its
assets (or rights to acquire its assets) to holders of shares of Common Stock,
by way of return of capital or otherwise (including, without limitation, any
distribution of cash, stock or other securities, property or options by way of a
dividend, spin off, reclassification, corporate rearrangement, scheme of
arrangement or other similar transaction) (a "DISTRIBUTION"), at any time after
the issuance of this Warrant, then, in each such case, the Exercise Price in
effect immediately prior to the close of business on the record date fixed for
the determination of holders of shares of Common Stock entitled to receive the
Distribution shall be reduced, effective as of the close of business on such
record date, to a price determined by multiplying such Exercise Price by a
fraction of which (i) the numerator shall be the Exercise Price on such record
date minus the value of the Distribution (as determined in good faith by the
Company's Board of Directors) applicable to one share of Common Stock, and (ii)
the denominator shall be the Exercise Price on such record date.


                                       9



4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.

     (a) Purchase Rights. In addition to any adjustments pursuant to Section 2
above, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of shares of Common
Stock (the "PURCHASE RIGHTS"), then the Holder will be entitled to acquire, upon
the terms applicable to such Purchase Rights, the aggregate Purchase Rights
which the Holder could have acquired if the Holder had held the proportionate
number of shares of Common Stock acquirable upon complete exercise of this
Warrant (without regard to any limitations on the exercise of this Warrant)
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of shares of Common Stock are to be determined for the
grant, issue or sale of such Purchase Rights.

     (b) Fundamental Transactions. The Company shall not enter into or be party
to a Fundamental Transaction unless the Successor Entity assumes in writing all
of the obligations of the Company under this Warrant and the other Transaction
Documents and agrees to deliver to each holder of Warrants in exchange for such
Warrants a security of the Successor Entity evidenced by a written instrument
substantially similar in form and substance to this Warrant, including, without
limitation, an adjusted exercise price equal to the value for the shares of
Common Stock reflected by the terms of such Fundamental Transaction, and
exercisable for a corresponding number of shares of capital stock equivalent to
the shares of Common Stock acquirable and receivable upon exercise of this
Warrant (without regard to any limitations on the exercise of this Warrant).
Upon the occurrence of any Fundamental Transaction, the Successor Entity shall
succeed to, and be substituted for (so that from and after the date of such
Fundamental Transaction, the provisions of this Warrant referring to the
"Company" shall refer instead to the Successor Entity), the Company and may
exercise every right and power of the Company and shall assume all of the
obligations of the Company under this Warrant with the same effect as if such
Successor Entity had been named as the Company herein. Upon consummation of the
Fundamental Transaction, the Successor Entity shall deliver to the Holder
confirmation that there shall be issued upon exercise of this Warrant at any
time after the consummation of the Fundamental Transaction, in lieu of the
shares of the Common Stock (or other securities, cash, assets or other property)
issuable upon the exercise of the Warrant prior to such Fundamental Transaction,
such shares of the publicly traded Common Stock (or its equivalent) of the
Successor Entity (including its Parent Entity) which the Holder would have been
entitled to receive upon the happening of such Fundamental Transaction had this
Warrant been converted immediately prior to such Fundamental Transaction, as
adjusted in accordance with the provisions of this Warrant. In addition to and
not in substitution for any other rights hereunder, prior to the consummation of
any Fundamental Transaction pursuant to which holders of shares of Common Stock
are entitled to receive securities or other assets with respect to or in
exchange for shares of Common Stock (a "CORPORATE EVENT"), the Company shall
make appropriate provision to insure that the Holder will thereafter have the
right to receive upon an exercise of this Warrant at any time after the
consummation of the Fundamental Transaction but prior to the Expiration Date, in
lieu of the shares of the Common Stock (or other securities, cash, assets or
other property) issuable upon the exercise of the Warrant prior to such
Fundamental


                                       10



Transaction, such shares of stock, securities, cash, assets or any other
property whatsoever (including warrants or other purchase or subscription
rights) which the Holder would have been entitled to receive upon the happening
of such Fundamental Transaction had the Warrant been exercised immediately prior
to such Fundamental Transaction. Provisions made pursuant to the preceding
sentence shall be in the form and substance reasonably satisfactory to the
Required Holders. The provisions of this Section shall apply similarly and
equally to successive Fundamental Transactions and Corporate Events and shall be
applied without regard to any limitations on the exercise of this Warrant.

     (c) Notwithstanding the foregoing and the provisions of Section 4(b) above,
in the event of a Fundamental Transaction if the Holder has not exercised the
Warrant in full prior to the consummation of the Fundamental Transaction, then
the Company may enter into a Fundamental Transaction pursuant to which the
Holder shall receive, simultaneously with the consummation of the Fundamental
Transaction, in lieu of the warrant referred to in Section 4(b) cash in the
amount equal to the value of the remaining unexercised portion of this Warrant
on the date of such consummation, which value shall be determined by use of the
Black Scholes Option Pricing Model reflecting (A) a risk-free interest rate
corresponding to the U.S. Treasury rate for a period equal to the remaining term
of this Warrant as of such date of request and (B) an expected volatility equal
to the greater of 60% and the 100 day volatility obtained from the HVT function
on Bloomberg.

5. NONCIRCUMVENTION.

The Company hereby covenants and agrees that the Company will not, by amendment
of its Articles of Incorporation, Bylaws or through any reorganization, transfer
of assets, consolidation, merger, scheme of arrangement, dissolution, issue or
sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, and will at all
times in good faith carry out all the provisions of this Warrant and take all
action as may be required to protect the rights of the Holder. Without limiting
the generality of the foregoing, the Company (i) shall not increase the par
value of any shares of Common Stock receivable upon the exercise of this Warrant
above the Exercise Price then in effect, (ii) shall take all such actions as may
be necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable shares of Common Stock upon the exercise of
this Warrant, and (iii) shall, so long as any of the SPA Warrants are
outstanding, take all action necessary to reserve and keep available out of its
authorized and unissued shares of Common Stock, solely for the purpose of
effecting the exercise of the SPA Warrants, 175% of the number of shares of
Common Stock as shall from time to time be necessary to effect the exercise of
the SPA Warrants then outstanding (without regard to any limitations on
exercise).

6. WARRANT HOLDER NOT DEEMED A STOCKHOLDER.

Except as otherwise specifically provided herein, the Holder, solely in such
Person's capacity as a holder of this Warrant, shall not be entitled to vote or
receive dividends or be deemed the holder of share capital of the Company for
any purpose, nor shall anything contained in this Warrant be construed to confer
upon the Holder, solely in such Person's capacity as the Holder of this Warrant,
any of the rights of a stockholder of the Company or any right to vote, give or


                                       11



withhold consent to any corporate action (whether any reorganization, issue of
stock, reclassification of stock, consolidation, merger, conveyance or
otherwise), receive notice of meetings, receive dividends or subscription
rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares
which such Person is then entitled to receive upon the due exercise of this
Warrant. In addition, nothing contained in this Warrant shall be construed as
imposing any liabilities on the Holder to purchase any securities (upon exercise
of this Warrant or otherwise) or as a stockholder of the Company, whether such
liabilities are asserted by the Company or by creditors of the Company.
Notwithstanding this Section 6, the Company shall provide the Holder with copies
of the same notices and other information given to the stockholders of the
Company generally, contemporaneously with the giving thereof to the
stockholders.

7. REISSUANCE OF WARRANTS.

     (a) Transfer of Warrant. If this Warrant is to be transferred, the Holder
shall surrender this Warrant to the Company, whereupon the Company will issue
promptly following satisfaction of the transfer provisions contained in the
Securities Purchase Agreement and deliver upon the order of the Holder a new
Warrant (in accordance with Section 7(d)), in the name of the validly registered
assignee or transferee, representing the right to purchase the number of Warrant
Shares being transferred by the Holder and, if less then the total number of
Warrant Shares then underlying this Warrant is being transferred, a new Warrant
(in accordance with Section 7(d)) to the Holder representing the right to
purchase the number of Warrant Shares not being transferred.

     (b) Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Warrant, and, in the case of loss, theft or destruction,
of any indemnification undertaking by the Holder to the Company in customary
form and, in the case of mutilation, upon surrender and cancellation of this
Warrant, the Company shall execute and deliver to the Holder a new Warrant (in
accordance with Section 7(d)) representing the right to purchase the Warrant
Shares then underlying this Warrant.

     (c) Exchangeable for Multiple Warrants. This Warrant is exchangeable, upon
the surrender hereof by the Holder at the principal office of the Company, for a
new Warrant or Warrants (in accordance with Section 7(d)) representing in the
aggregate the right to purchase the number of Warrant Shares then underlying
this Warrant, and each such new Warrant will represent the right to purchase
such portion of such Warrant Shares as is designated by the Holder at the time
of such surrender; provided, however, that no Warrants for fractional shares of
Common Stock shall be given.

     (d) Issuance of New Warrants. Whenever the Company is required to issue a
new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be
of like tenor with this Warrant, (ii) shall represent, as indicated on the face
of such new Warrant, the right to purchase the Warrant Shares then underlying
this Warrant (or in the case of a new Warrant being issued pursuant to Section
7(a) or Section 7(c), the Warrant Shares designated by the Holder which, when
added to the number of shares of Common Stock underlying the other new


                                       12



Warrants issued in connection with such issuance, does not exceed the number of
Warrant Shares then underlying this Warrant), (iii) shall have an issuance date,
as indicated on the face of such new Warrant which is the same as the Issuance
Date, and (iv) shall have the same rights and conditions as this Warrant.

8. NOTICES.

Whenever notice is required to be given under this Warrant, unless otherwise
provided herein, such notice shall be given in accordance with Section 9(f) of
the Securities Purchase Agreement. The Company shall provide the Holder with
prompt written notice of all actions taken pursuant to this Warrant, including
in reasonable detail a description of such action and the reason therefore.
Without limiting the generality of the foregoing, the Company will give written
notice to the Holder (i) immediately upon any adjustment of the Exercise Price,
setting forth in reasonable detail, and certifying, the calculation of such
adjustment and (ii) at least fifteen (15) days prior to the date on which the
Company closes its books or takes a record (A) with respect to any dividend or
distribution upon the shares of Common Stock, (B) with respect to any grants,
issuances or sales of any Options, Convertible Securities or rights to purchase
stock, warrants, securities or other property to holders of shares of Common
Stock or (C) for determining rights to vote with respect to any Fundamental
Transaction, dissolution or liquidation, provided in each case that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to the Holder.

9. AMENDMENT AND WAIVER.

Except as otherwise provided herein, the provisions of this Warrant may be
amended and the Company may take any action herein prohibited, or omit to
perform any act herein required to be performed by it, only if the Company has
obtained the written consent of the Required Holders; provided that no such
action may increase the exercise price of any SPA Warrant or decrease the number
of shares or class of stock obtainable upon exercise of any SPA Warrant without
the written consent of the Holder. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the SPA Warrants then
outstanding.

10. GOVERNING LAW.

This Warrant shall be governed by and construed and enforced in accordance with,
and all questions concerning the construction, validity, interpretation and
performance of this Warrant shall be governed by, the internal laws of the State
of New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of New York.

11. CONSTRUCTION; HEADINGS.

This Warrant shall be deemed to be jointly drafted by the Company and all the
Buyers and shall not be construed against any person as the drafter hereof. The
headings of this Warrant are for convenience of reference and shall not form
part of, or affect the interpretation of, this Warrant.


                                       13



12. DISPUTE RESOLUTION.

In the case of a dispute as to the determination of the Exercise Price or the
arithmetic calculation of the Warrant Shares, the Company shall submit the
disputed determinations or arithmetic calculations via facsimile within two
Business Days of receipt of the Exercise Notice giving rise to such dispute, as
the case may be, to the Holder. If the Holder and the Company are unable to
agree upon such determination or calculation of the Exercise Price or the
Warrant Shares within three Business Days of such disputed determination or
arithmetic calculation being submitted to the Holder, then the Company shall,
within two Business Days submit via facsimile (a) the disputed determination of
the Exercise Price to an independent, reputable investment bank selected by the
Company and approved by the Holder (such approval not to be unreasonably
withheld or delayed) or (b) the disputed arithmetic calculation of the Warrant
Shares to the Company's independent, outside accountant. The Company shall cause
at its expense the investment bank or the accountant, as the case may be, to
perform the determinations or calculations and notify the Company and the Holder
of the results no later than ten Business Days from the time it receives the
disputed determinations or calculations. Such investment bank's or accountant's
determination or calculation, as the case may be, shall be binding upon all
parties absent demonstrable error.

13. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.

The remedies provided in this Warrant shall be cumulative and in addition to all
other remedies available under this Warrant and the other Transaction Documents,
at law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit the right of the Holder right
to pursue actual damages for any failure by the Company to comply with the terms
of this Warrant. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holder and that the remedy at law
for any such breach may be inadequate. The Company therefore agrees that, in the
event of any such breach or threatened breach, the holder of this Warrant shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.

14. TRANSFER.

This Warrant may be offered for sale, sold, transferred or assigned without the
consent of the Company, except as may otherwise be required by Section 2(f) of
the Securities Purchase Agreement.

15. CERTAIN DEFINITIONS.

For purposes of this Warrant, the following terms shall have the following
meanings:

     (a) "BLOOMBERG" means Bloomberg Financial Markets.


                                       14



     (b) "BUSINESS DAY" means any day other than Saturday, Sunday or other day
on which commercial banks in The City of New York are authorized or required by
law to remain closed.

     (c) "CLOSING BID PRICE" and "CLOSING SALE PRICE" means, for any security as
of any date, the last closing bid price and last closing trade price,
respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of
any market makers for such security as reported in the "pink sheets" by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid
Price or the Closing Sale Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Closing Bid Price or the
Closing Sale Price, as the case may be, of such security on such date shall be
the fair market value as mutually determined by the Company and the Holder. If
the Company and the Holder are unable to agree upon the fair market value of
such security, then such dispute shall be resolved pursuant to Section 12. All
such determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable
calculation period.

     (d) "COMMON STOCK" means (i) the Company's shares of Common Stock, par
value $0.001 per share, and (ii) any share capital into which such Common Stock
shall have been changed or any share capital resulting from a reclassification
of such Common Stock.

     (e) "CONVERTIBLE SECURITIES" means any stock or securities (other than
Options) directly or indirectly convertible into or exercisable or exchangeable
for shares of Common Stock.

     (f) "ELIGIBLE MARKET" means the Principal Market, The New York Stock
Exchange, Inc., the Nasdaq National Market, the Nasdaq Capital Market or the
American Stock Exchange.

     (g) "EXPIRATION DATE" means the date sixty months after the Issuance Date
or, if such date falls on a day other than a Business Day or on which trading
does not take place on the Principal Market (a "HOLIDAY"), the next date that is
not a Holiday.

     (h) "FUNDAMENTAL TRANSACTION" means that the Company shall, directly or
indirectly, in one or more related transactions, (i) consolidate or merge with
or into (whether or not the Company is the surviving corporation) another
Person, or (ii) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of the properties or assets of the Company to another Person,
or (iii) allow another Person to make a purchase, tender or exchange offer that
is accepted by the holders of more than the 50% of either the outstanding shares
of Common


                                       15



Stock (not including any shares of Common Stock held by the Person or Persons
making or party to, or associated or affiliated with the Persons making or party
to, such purchase, tender or exchange offer), or (iv) consummate a stock
purchase agreement or other business combination (including, without limitation,
a reorganization, recapitalization, spin-off or scheme of arrangement) with
another Person whereby such other Person acquires more than the 50% of the
outstanding shares of Common Stock (not including any shares of Common Stock
held by the other Person or other Persons making or party to, or associated or
affiliated with the other Persons making or party to, such stock purchase
agreement or other business combination), (v) reorganize, recapitalize or
reclassify its Common Stock (other than a forward or reverse stock split), or
(vi) any "person" or "group" (as these terms are used for purposes of Sections
13(d) and 14(d) of the Exchange Act) is or shall become the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
50% of the aggregate ordinary voting power represented by issued and outstanding
Common Stock.

     (i) "OPTIONS" means any rights, warrants or options to subscribe for or
purchase shares of Common Stock or Convertible Securities.

     (j) "PARENT ENTITY" of a Person means an entity that, directly or
indirectly, controls the applicable Person and whose common stock or equivalent
equity security is quoted or listed on an Eligible Market, or, if there is more
than one such Person or Parent Entity, the Person or Parent Entity with the
largest public market capitalization as of the date of consummation of the
Fundamental Transaction.

     (k) "PERSON" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency
thereof.

     (l) "PRINCIPAL MARKET" means the Over-the-Counter Bulletin Board.

     (m) "REGISTRATION RIGHTS AGREEMENT" means that certain registration rights
agreement by and among the Company and the Buyers.

     (n) "REQUIRED HOLDERS" means the holders of the SPA Warrants representing
at least a majority of shares of Common Stock underlying the SPA Warrants then
outstanding.

     (o) "SPA SECURITIES" means the Notes issued pursuant to the Securities
Purchase Agreement.

     (p) "SUCCESSOR ENTITY" means the Person (or, if so elected by the Required
Holders, the Parent Entity) formed by, resulting from or surviving any
Fundamental Transaction or the Person (or, if so elected by the Required
Holders, the Parent Entity) with which such Fundamental Transaction shall have
been entered into.

                            [SIGNATURE PAGE FOLLOWS]


                                       16



     IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common
Stock to be duly executed as of the Issuance Date set out above.

                                         MDWERKS, INC.


                                         By:
                                             -----------------------------------
                                             Name: Vincent Colangelo
                                             Title: Chief Financial Officer


                                       17



                                                                       EXHIBIT A

                                 EXERCISE NOTICE
            TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
                        WARRANT TO PURCHASE COMMON STOCK

                                  MDWERKS, INC.

     The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("WARRANT SHARES") of MDwerks,
Inc., a Delaware corporation (the "COMPANY"), evidenced by the attached Warrant
to Purchase Common Stock (the "WARRANT"). Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Warrant.

     1. Form of Exercise Price. The Holder intends that payment of the Exercise
Price shall be made as:

               a "Cash Exercise" with respect to _________________ Warrant
               Shares; and/or

     ___________

               a "Cashless Exercise" with respect to _______________ Warrant
               Shares.

     ___________

     2. Payment of Exercise Price. In the event that the holder has elected a
Cash Exercise with respect to some or all of the Warrant Shares to be issued
pursuant hereto, the holder shall pay the Aggregate Exercise Price in the sum of
$___________________ to the Company in accordance with the terms of the Warrant.

     3. Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.

     4. Delivery of Warrant. The Registered Holder shall deliver the Warrant to
the Company.

Date: _______________ __, ______

     Name of Registered Holder


By:
    ---------------------------------
    Name:
    Title:


                                       18



                                 ACKNOWLEDGMENT

     The Company hereby acknowledges this Exercise Notice and hereby directs
American Registrar & Transfer Co. to issue the above indicated number of shares
of Common Stock in accordance with the Transfer Agent Instructions dated October
__, 2006 from the Company and acknowledged and agreed to by Corporate Stock
Transfer.

                                         MDWERKS, INC.


                                         By:
                                             -----------------------------------
                                             Name:
                                             Title:


                                       19

EX-4.3

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS WARRANT NOR
THE SECURITIES INTO WHICH THIS WARRANT IS EXERCISABLE HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL
SHALL BE SELECTED BY THE HOLDER), IN A FORM REASONABLY ACCEPTABLE TO THE
COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD
PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING,
THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

                                  MDWERKS, INC.

                        WARRANT TO PURCHASE COMMON STOCK

Warrant No.:
Number of Shares of Common Stock: 187,500
Date of Issuance: October 19, 2006 ("ISSUANCE DATE")

     MDwerks, Inc., a Delaware corporation (the "COMPANY"), hereby certifies
that, for good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, GOTTBETTER CAPITAL MASTER, LTD., the registered holder
hereof or its permitted assigns (the "HOLDER"), is entitled, subject to the
terms set forth below, to purchase from the Company, at the Exercise Price (as
defined below) then in effect, upon surrender of this Warrant to Purchase Common
Stock (including any Warrants to purchase Common Stock issued in exchange,
transfer or replacement hereof, the "WARRANT"), at any time or times on or after
the date hereof, but not after 11:59 p.m., New York Time, on the Expiration Date
(as defined below), One Hundred Eighty Seven Thousand Five Hundred (187,500)
fully paid nonassessable shares of Common Stock (as defined below) (the "WARRANT
SHARES"). Except as otherwise defined herein, capitalized terms in this Warrant
shall have the meanings set forth in Section 15. This Warrant is one of the
Warrants to purchase Common Stock (the "SPA WARRANTS") issued pursuant to
Section 1 of that certain Securities Purchase Agreement, dated as of October 19,
2006 (the "SUBSCRIPTION DATE"), by and among the Company and the investors (the
"BUYERS") referred to therein (the "SECURITIES PURCHASE AGREEMENT").

1. EXERCISE OF WARRANT.

     (a) Mechanics of Exercise. Subject to the terms and conditions hereof
(including, without limitation, the limitations set forth in Section 1(f)), this
Warrant may be exercised by the Holder on any day on or after the date hereof,
in whole or in part, by (i) delivery of a written notice, in the form attached
hereto as Exhibit A (the "EXERCISE NOTICE"), of the Holder's election to
exercise this Warrant and (ii) (A) payment to the Company of an amount equal to
the applicable Exercise Price multiplied by the number of Warrant Shares as to
which this Warrant is being exercised (the "AGGREGATE EXERCISE PRICE") in cash
or by wire transfer of immediately



available funds or (B) by notifying the Company that this Warrant is being
exercised pursuant to a Cashless Exercise (as defined in Section 1(d)). The
Holder shall not be required to deliver the original Warrant in order to affect
an exercise hereunder. Execution and delivery of the Exercise Notice with
respect to less than all of the Warrant Shares shall have the same effect as
cancellation of the original Warrant and issuance of a new Warrant evidencing
the right to purchase the remaining number of Warrant Shares. On or before the
first (1st) Business Day following the date on which the Company has received
each of the Exercise Notice and the Aggregate Exercise Price (or notice of a
Cashless Exercise) (the "EXERCISE DELIVERY DOCUMENTS"), the Company shall
transmit by facsimile an acknowledgment of confirmation of receipt of the
Exercise Delivery Documents to the Holder and the Company's transfer agent (the
"TRANSFER AGENT"). On or before the third (3rd) Business Day following the date
on which the Company has received all of the Exercise Delivery Documents (the
"SHARE DELIVERY DATE"), the Company shall (X) provided that the Transfer Agent
is participating in The Depository Trust Company ("DTC") Fast Automated
Securities Transfer Program, credit such aggregate number of shares of Common
Stock to which the Holder is entitled pursuant to such exercise to the Holder's
or its designee's balance account with DTC through its Deposit Withdrawal Agent
Commission system, or (Y) if the Transfer Agent is not participating in the DTC
Fast Automated Securities Transfer Program, issue and dispatch by overnight
courier to the address as specified in the Exercise Notice, a certificate,
registered in the Company's share register in the name of the Holder or its
designee, for the number of shares of Common Stock to which the Holder is
entitled pursuant to such exercise. Upon delivery of the Exercise Delivery
Documents, the Holder shall be deemed for all corporate purposes to have become
the holder of record of the Warrant Shares with respect to which this Warrant
has been exercised, irrespective of the date such Warrant Shares are credited to
the Holder's DTC account or the date of delivery of the certificates evidencing
such Warrant Shares as the case may be. If this Warrant is submitted in
connection with any exercise pursuant to this Section 1(a) and the number of
Warrant Shares represented by this Warrant submitted for exercise is greater
than the number of Warrant Shares being acquired upon an exercise, then the
Company shall as soon as practicable and in no event later than three Business
Days after any exercise and at its own expense, issue, a new Warrant (in
accordance with Section 7(d)) representing the right to purchase the number of
Warrant Shares purchasable immediately prior to such exercise under this
Warrant, less the number of Warrant Shares with respect to which this Warrant is
exercised. No fractional shares of Common Stock are to be issued upon the
exercise of this Warrant, but rather the number of shares of Common Stock to be
issued shall be rounded up to the nearest whole number. The Company shall pay
stamp and similar taxes which may be payable with respect to the issuance and
delivery of Warrant Shares upon exercise of this Warrant. The Company shall not
be required, however, to pay any transfer tax or similar charge imposed in
connection with the issuance and delivery of Warrant shares in any name other
than that of the Holder.

     (b) Exercise Price. For purposes of this Warrant, "EXERCISE PRICE" means
$3.25 subject to adjustment as provided herein.

     (c) Company's Failure to Timely Deliver Securities. If the Company shall
fail for any reason or for no reason to issue to the Holder within three (3)
Trading Days of receipt of the Exercise Delivery Documents, a certificate for
the number of shares of Common Stock to which the Holder is entitled and
register such shares of Common Stock on the Company's share register or to
credit the Holder's balance account with DTC for such number of shares of Common
Stock


                                       2



to which the Holder is entitled upon the Holder's exercise of this Warrant, and
if on or after such third (3rd) Trading Day the Holder purchases (in an open
market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the Holder of shares of Common Stock issuable upon
such exercise that the Holder anticipated receiving from the Company (a
"BUY-IN"), then the Company shall, within three (3) Business Days after the
Holder's request and in the Holder's sole discretion, either (i) pay cash to the
Holder in an amount equal to the Holder's total purchase price (including
brokerage commissions, if any) for the shares of Common Stock so purchased (the
"BUY-IN PRICE"), at which point the Company's obligation to deliver such
certificate (and to issue such shares of Common Stock) shall terminate, or (ii)
promptly honor its obligation to deliver to the Holder a certificate or
certificates representing such Warrant Shares and pay cash to the Holder in an
amount equal to the excess (if any) of the Buy-In Price over the product of (A)
such number of shares of Common Stock, times (B) the Closing Bid Price on the
date of exercise. Nothing herein shall limit the holder's right to pursue actual
damages for the Company's failure to maintain a sufficient number of authorized
shares of Common Stock or to otherwise issue shares of Common Stock upon
exercise of this Warrant in accordance with the terms hereof, and the Holder
shall have the right to pursue all remedies available at law or in equity
(including a decree of specific performance and/or injunctive relief).

     (d) Cashless Exercise. Notwithstanding anything contained herein to the
contrary, if, at the time of exercise of this Warrant, a Registration Statement
(as defined in the Registration Rights Agreement) covering the Warrant Shares
that are the subject of the Exercise Notice (the "UNAVAILABLE WARRANT SHARES")
is not available for the resale of such Unavailable Warrant Shares, the Holder
may, in its sole discretion, exercise this Warrant in whole or in part and, in
lieu of making the cash payment otherwise contemplated to be made to the Company
upon such exercise in payment of the Aggregate Exercise Price, elect instead to
receive upon such exercise the "Net Number" of shares of Common Stock determined
according to the following formula (a "CASHLESS EXERCISE"):

               Net Number = (A x B) - (A x C)
                            -----------------
                                    B

               For purposes of the foregoing formula:

          A   =   the total number of shares with respect to which this Warrant
                  is then being exercised.

          B   =   the Closing Sale Price of the shares of Common Stock (as
                  reported by Bloomberg) on the date immediately preceding the
                  date of the Exercise Notice.

          C   =   the Exercise Price then in effect for the applicable Warrant
                  Shares at the time of such exercise.

     (e) Disputes. In the case of a dispute as to the determination of the
Exercise Price or the arithmetic calculation of the Warrant Shares, the Company
shall promptly issue to the Holder


                                       3



the number of Warrant Shares that are not disputed and resolve such dispute in
accordance with Section 12.

     (f) Limitations on Exercises.

          (1) Beneficial Ownership. The Company shall not effect the exercise of
     this Warrant, and the Holder shall not have the right to exercise this
     Warrant, to the extent that after giving effect to such exercise, such
     Person (together with such Person's affiliates) would beneficially own
     (directly or indirectly through Warrant Shares or otherwise) in excess of
     4.99% of the shares of Common Stock outstanding immediately after giving
     effect to such exercise. For purposes of the foregoing sentence, the
     aggregate number of shares of Common Stock beneficially owned (directly or
     indirectly through Warrant Shares or otherwise) by such Person and its
     affiliates shall include the number of shares of Common Stock issuable upon
     exercise of this Warrant with respect to which the determination of such
     sentence is being made, but shall exclude shares of Common Stock which
     would be issuable upon (i) exercise of the remaining, unexercised portion
     of this Warrant beneficially owned by such Person and its affiliates and
     (ii) exercise or conversion of the unexercised or unconverted portion of
     any other securities of the Company beneficially owned by such Person and
     its affiliates (including, without limitation, any convertible notes or
     convertible preferred stock or warrants) subject to a limitation on
     conversion or exercise analogous to the limitation contained herein. Except
     as set forth in the preceding sentence, for purposes of this paragraph,
     beneficial ownership shall be calculated in accordance with Section 13(d)
     of the Securities Exchange Act of 1934, as amended. For purposes of this
     Warrant, 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 (1) the Company's most recent Form 10-KSB, Form 10-QSB,
     Current Report on Form 8-K or other public filing with the Securities and
     Exchange Commission, as the case may be, (2) a more recent public
     announcement by the Company or (3) any other notice by the Company or the
     Transfer Agent setting forth the number of shares of Common Stock
     outstanding. For any reason at any time, upon the written request of the
     Holder, the Company shall within two Business 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 exercise of
     securities of the Company, including the SPA Securities and the SPA
     Warrants, by the Holder and its affiliates since the date as of which such
     number of outstanding shares of Common Stock was reported. By written
     notice to the Company, the Holder may from time to time increase or
     decrease the Maximum Percentage specified in such notice; provided that (i)
     any such increase will not be effective until the sixty-first (61st) day
     after such notice is delivered to the Company, and (ii) any such increase
     or decrease will apply only to the Holder and not to any other holder of
     SPA Warrants.

          (2) Principal Market Regulation. The Company shall not be obligated to
     issue any shares of Common Stock upon exercise of this Warrant if the
     issuance of such shares of Common Stock would exceed that number of shares
     of Common Stock which the Company may issue upon exercise, redemption or
     conversion, as applicable, of the SPA


                                       4



     Warrants and SPA Securities or otherwise without breaching the Company's
     obligations under the rules or regulations of the Principal Market (the
     "EXCHANGE CAP"), except that such limitation shall not apply in the event
     that the Company (A) obtains the approval of its stockholders as required
     by the applicable rules of the Principal Market for issuances of shares of
     Common Stock in excess of such amount or (B) obtains a written opinion from
     outside counsel to the Company that such approval is not required, which
     opinion shall be reasonably satisfactory to the Required Holders. Until
     such approval or written opinion is obtained, no Buyer shall be issued in
     the aggregate, upon exercise or conversion, as applicable, of any SPA
     Warrants or SPA Securities, shares of Common Stock in an amount greater
     than the product of the Exchange Cap multiplied by a fraction, the
     numerator of which is the total number of shares of Common Stock underlying
     the SPA Warrants issued to such Buyer pursuant to the Securities Purchase
     Agreement on the Issuance Date and the denominator of which is the
     aggregate number of shares of Common Stock underlying the SPA Warrants
     issued to the Buyers pursuant to the Securities Purchase Agreement on the
     Issuance Date (with respect to each Buyer, the "EXCHANGE CAP ALLOCATION").
     In the event that any Buyer shall sell or otherwise transfer any of such
     Buyer's SPA Warrants, the transferee shall be allocated a pro rata portion
     of such Buyer's Exchange Cap Allocation, and the restrictions of the prior
     sentence shall apply to such transferee with respect to the portion of the
     Exchange Cap Allocation allocated to such transferee. In the event that any
     holder of SPA Warrants shall exercise all of such holder's SPA Warrants
     into a number of shares of Common Stock which, in the aggregate, is less
     than such holder's Exchange Cap Allocation, then the difference between
     such holder's Exchange Cap Allocation and the number of shares of Common
     Stock actually issued to such holder shall be allocated to the respective
     Exchange Cap Allocations of the remaining holders of SPA Warrants on a pro
     rata basis in proportion to the shares of Common Stock underlying the SPA
     Warrants then held by each such holder. In the event that the Company is
     prohibited from issuing any Warrant Shares for which an Exercise Notice has
     been received as a result of the operation of this Section 1(f)(ii), the
     Company shall pay cash in exchange for cancellation of such Warrant Shares,
     at a price per Warrant Share equal to the difference between the Closing
     Sale Price and the Exercise Price as of the date of the attempted exercise.
     To the extent required by the Principal Market, the provisions of the
     Exchange Cap shall be modified to comply with the applicable rules and
     regulations of the Principal Market, provided that any such changes shall
     not, in the Holder's reasonable discretion, materially change the terms of
     the transaction contemplated hereby.

     (g) Insufficient Authorized Shares. If at any time while any of the
Warrants remain outstanding the Company does not have a sufficient number of
authorized and unreserved shares of Common Stock (an "AUTHORIZED SHARE FAILURE")
to satisfy its obligation to reserve for issuance upon exercise of the Warrants
at least a number of shares of Common Stock equal to 175% of the number of
shares of Common Stock as shall from time to time be necessary to effect the
exercise of all of the Warrants then outstanding (the "REQUIRED RESERVE
AMOUNT"), then the Company shall immediately take all action necessary to
increase the Company's authorized shares of Common Stock to an amount sufficient
to allow the Company to reserve the Required Reserve Amount for the Warrants
then outstanding. Without limiting the generality of the foregoing sentence, as
soon as practicable after the date of the occurrence of an Authorized Share


                                       5



Failure, but in no event later than ninety (90) days after the occurrence of
such Authorized Share Failure, the Company shall hold a meeting of its
stockholders for the approval of an increase in the number of authorized shares
of Common Stock. In connection with such meeting, the Company shall provide each
stockholder with a proxy statement and shall use its reasonable best efforts to
solicit its stockholders' approval of such increase in authorized shares of
Common Stock and to cause its board of directors to recommend to the
stockholders that they approve such proposal.

2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES.

The Exercise Price and the number of Warrant Shares shall be adjusted from time
to time as follows:

     (a) Adjustment upon Issuance of shares of Common Stock. If and whenever on
or after the Subscription Date the Company issues or sells, or in accordance
with this Section 2 is deemed to have issued or sold, any shares of Common Stock
(including the issuance or sale of shares of Common Stock owned or held by or
for the account of the Company, but excluding shares of Common Stock which are
Excluded Securities (as defined in the SPA Securities) or are deemed to have
been issued by the Company in connection with any Excluded Securities) for a
consideration per share (the "NEW ISSUANCE PRICE") less than a price (the
"APPLICABLE PRICE") equal to the Exercise Price in effect immediately prior to
such issue or sale or deemed issuance or sale (the foregoing a "DILUTIVE
ISSUANCE"), then immediately after such Dilutive Issuance, the Exercise Price
then in effect shall be reduced to an amount equal to the New Issuance Price.
Upon each such adjustment of the Exercise Price hereunder, the number of Warrant
Shares shall be adjusted to the number of shares of Common Stock determined by
multiplying the Exercise Price in effect immediately prior to such adjustment by
the number of Warrant Shares acquirable upon exercise of this Warrant
immediately prior to such adjustment and dividing the product thereof by the
Exercise Price resulting from such adjustment. For purposes of determining the
adjusted Exercise Price under this Section 2(a), the following shall be
applicable:

          (i)   Issuance of Options. If the Company in any manner grants any
                Options and the lowest price per share for which one share of
                Common Stock is issuable upon the exercise of any such Option or
                upon conversion, exercise or exchange of any Convertible
                Securities issuable upon exercise of any such Option is less
                than the Applicable Price, then such shares of Common Stock
                (underlying such Option shall be deemed to be outstanding and to
                have been issued and sold by the Company at the time of the
                granting or sale of such Option for such price per share. For
                purposes of this Section 2(a)(i), the "lowest price per share
                for which one share of Common Stock is issuable upon exercise of
                such Options or upon conversion, exercise or exchange of such
                Convertible Securities" shall be equal to the sum of the lowest
                amounts of consideration (if any) received or receivable by the
                Company with respect to any one share of Common Stock upon the
                granting or sale of the Option, upon exercise of the Option and
                upon conversion, exercise or exchange of any Convertible
                Security issuable upon exercise of such Option. No further
                adjustment of the


                                       6



                Exercise Price or number of Warrant Shares shall be made upon
                the actual issuance of such shares of Common Stock or of such
                Convertible Securities upon the exercise of such Options or upon
                the actual issuance of such shares of Common Stock upon
                conversion, exercise or exchange of such Convertible Securities.

          (ii)  Issuance of Convertible Securities. If the Company in any manner
                issues or sells any Convertible Securities and the lowest price
                per share for which one share of Common Stock is issuable upon
                the conversion, exercise or exchange thereof is less than the
                Applicable Price, then such shares of Common Stock issuable upon
                conversion of such Convertible Securities shall be deemed to be
                outstanding and to have been issued and sold by the Company at
                the time of the issuance or sale of such Convertible Securities
                for such price per share. For the purposes of this Section
                2(a)(ii), the "lowest price per share for which one share of
                Common Stock is issuable upon the conversion, exercise or
                exchange" shall be equal to the sum of the lowest amounts of
                consideration (if any) received or receivable by the Company
                with respect to one share of Common Stock upon the issuance or
                sale of the Convertible Security and upon conversion, exercise
                or exchange of such Convertible Security. No further adjustment
                of the Exercise Price or number of Warrant Shares shall be made
                upon the actual issuance of such shares of Common Stock upon
                conversion, exercise or exchange of such Convertible Securities,
                and if any such issue or sale of such Convertible Securities is
                made upon exercise of any Options for which adjustment of this
                Warrant has been or is to be made pursuant to other provisions
                of this Section 2(a), no further adjustment of the Exercise
                Price or number of Warrant Shares shall be made by reason of
                such issue or sale. A change that permits the holder of an
                Option or Convertible Security to utilize a cashless exercise
                feature shall not be deemed to decrease the consideration
                payable by the holder solely by reason of the fact that the
                cashless exercise feature would result in a reduction in cash
                consideration receivable by the Company.

          (iii) Change in Option Price or Rate of Conversion. If the purchase
                price provided for in any Options, the additional consideration,
                if any, payable upon the issue, conversion, exercise or exchange
                of any Convertible Securities, or the rate at which any
                Convertible Securities are convertible into or exercisable or
                exchangeable for shares of Common Stock increases or decreases
                at any time, the Exercise Price and the number of Warrant Shares
                in effect at the time of such increase or decrease shall be
                adjusted to the Exercise Price and the number of Warrant Shares
                which would have been in effect at such time had such Options or
                Convertible Securities provided for such increased or decreased
                purchase price, additional consideration or increased or
                decreased conversion rate, as the case may be, at the time
                initially granted, issued or sold. For purposes of this Section
                2(a)(iii), if the terms of any Option or Convertible Security
                that was outstanding as of the date of issuance of this Warrant
                are increased or


                                       7



                decreased in the manner described in the immediately preceding
                sentence, then such Option or Convertible Security and the
                shares of Common Stock deemed issuable upon exercise, conversion
                or exchange thereof shall be deemed to have been issued as of
                the date of such increase or decrease. No adjustment pursuant to
                this Section 2(a) shall be made if such adjustment would result
                in an increase of the Exercise Price then in effect or a
                decrease in the number of Warrant Shares. A change that permits
                the holder of an Option or Convertible Security to utilize a
                cashless exercise feature shall not be deemed to decrease the
                consideration payable by the holder solely by reason of the fact
                that the cashless exercise feature would result in a reduction
                in cash consideration receivable by the Company.

          (iv)  Calculation of Consideration Received. In case any Option is
                issued in connection with the issue or sale of other securities
                of the Company, together comprising one integrated transaction
                in which no specific consideration is allocated to such Options
                by the parties thereto, the Options will be deemed to have been
                issued for a consideration of $0.001. If any shares of Common
                Stock, Options or Convertible Securities are issued or sold or
                deemed to have been issued or sold for cash, the consideration
                received therefor will be deemed to be the amount received by
                the Company therefor. If any shares of Common Stock, Options or
                Convertible Securities are issued or sold for a consideration
                other than cash, the amount of such consideration received by
                the Company will be the fair value of such consideration, except
                where such consideration consists of publicly traded securities,
                in which case the amount of consideration received by the
                Company will be the Closing Sale Price of such publicly traded
                security on the date of receipt. If any shares of Common Stock,
                Options or Convertible Securities are issued to the owners of
                the non-surviving entity in connection with any merger in which
                the Company is the surviving entity, the amount of consideration
                therefor will be deemed to be the fair value of such portion of
                the net assets and business of the non-surviving entity as is
                attributable to such shares of Common Stock, Options or
                Convertible Securities, as the case may be. The fair value of
                any consideration other than cash or publicly traded securities
                will be determined jointly by the Company and the Required
                Holders. If such parties are unable to reach agreement within
                ten (10) days after the occurrence of an event requiring
                valuation (the "VALUATION EVENT"), the fair value of such
                consideration will be determined within five (5) Business Days
                after the tenth day following the Valuation Event by an
                independent, reputable appraiser jointly selected by the Company
                and the Required Holders. The determination of such appraiser
                shall be final and binding upon all parties absent manifest
                error and the fees and expenses of such appraiser shall be borne
                by the Company.


                                       8



          (v)   Record Date. If the Company takes a record of the holders of
                shares of Common Stock for the purpose of entitling them (A) to
                receive a dividend or other distribution payable in shares of
                Common Stock, Options or in Convertible Securities or (B) to
                subscribe for or purchase shares of Common Stock, Options or
                Convertible Securities, then such record date will be deemed to
                be the date of the issue or sale of the shares of Common Stock
                deemed to have been issued or sold upon the declaration of such
                dividend or the making of such other distribution or the date of
                the granting of such right of subscription or purchase, as the
                case may be.

          (b) Adjustment upon Subdivision or Combination of Common Stock. If the
Company at any time on or after the Subscription Date subdivides (by any stock
split, stock dividend, recapitalization or otherwise) one or more classes of its
outstanding shares of Common Stock into a greater number of shares, the Exercise
Price in effect immediately prior to such subdivision will be proportionately
reduced and the number of Warrant Shares will be proportionately increased. If
the Company at any time on or after the Subscription Date combines (by
combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination will be proportionately
increased and the number of Warrant Shares will be proportionately decreased.
Any adjustment under this Section 2(b) shall become effective at the close of
business on the date the subdivision or combination becomes effective.

          (c) Other Events. If any event occurs of the type contemplated by the
provisions of this Section 2 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Company's
Board of Directors will make an appropriate adjustment in the Exercise Price and
the number of Warrant Shares so as to protect the rights of the Holder; provided
that no such adjustment pursuant to this Section 2(c) will increase the Exercise
Price or decrease the number of Warrant Shares as otherwise determined pursuant
to this Section 2.

3. RIGHTS UPON DISTRIBUTION OF ASSETS.

If the Company shall declare or make any dividend or other distribution of its
assets (or rights to acquire its assets) to holders of shares of Common Stock,
by way of return of capital or otherwise (including, without limitation, any
distribution of cash, stock or other securities, property or options by way of a
dividend, spin off, reclassification, corporate rearrangement, scheme of
arrangement or other similar transaction) (a "DISTRIBUTION"), at any time after
the issuance of this Warrant, then, in each such case, the Exercise Price in
effect immediately prior to the close of business on the record date fixed for
the determination of holders of shares of Common Stock entitled to receive the
Distribution shall be reduced, effective as of the close of business on such
record date, to a price determined by multiplying such Exercise Price by a
fraction of which (i) the numerator shall be the Exercise Price on such record
date minus the value of the Distribution (as determined in good faith by the
Company's Board of Directors) applicable to one share of Common Stock, and (ii)
the denominator shall be the Exercise Price on such record date.


                                       9



4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.

     (a) Purchase Rights. In addition to any adjustments pursuant to Section 2
above, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of shares of Common
Stock (the "PURCHASE RIGHTS"), then the Holder will be entitled to acquire, upon
the terms applicable to such Purchase Rights, the aggregate Purchase Rights
which the Holder could have acquired if the Holder had held the proportionate
number of shares of Common Stock acquirable upon complete exercise of this
Warrant (without regard to any limitations on the exercise of this Warrant)
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of shares of Common Stock are to be determined for the
grant, issue or sale of such Purchase Rights.

     (b) Fundamental Transactions. The Company shall not enter into or be party
to a Fundamental Transaction unless the Successor Entity assumes in writing all
of the obligations of the Company under this Warrant and the other Transaction
Documents and agrees to deliver to each holder of Warrants in exchange for such
Warrants a security of the Successor Entity evidenced by a written instrument
substantially similar in form and substance to this Warrant, including, without
limitation, an adjusted exercise price equal to the value for the shares of
Common Stock reflected by the terms of such Fundamental Transaction, and
exercisable for a corresponding number of shares of capital stock equivalent to
the shares of Common Stock acquirable and receivable upon exercise of this
Warrant (without regard to any limitations on the exercise of this Warrant).
Upon the occurrence of any Fundamental Transaction, the Successor Entity shall
succeed to, and be substituted for (so that from and after the date of such
Fundamental Transaction, the provisions of this Warrant referring to the
"Company" shall refer instead to the Successor Entity), the Company and may
exercise every right and power of the Company and shall assume all of the
obligations of the Company under this Warrant with the same effect as if such
Successor Entity had been named as the Company herein. Upon consummation of the
Fundamental Transaction, the Successor Entity shall deliver to the Holder
confirmation that there shall be issued upon exercise of this Warrant at any
time after the consummation of the Fundamental Transaction, in lieu of the
shares of the Common Stock (or other securities, cash, assets or other property)
issuable upon the exercise of the Warrant prior to such Fundamental Transaction,
such shares of the publicly traded Common Stock (or its equivalent) of the
Successor Entity (including its Parent Entity) which the Holder would have been
entitled to receive upon the happening of such Fundamental Transaction had this
Warrant been converted immediately prior to such Fundamental Transaction, as
adjusted in accordance with the provisions of this Warrant. In addition to and
not in substitution for any other rights hereunder, prior to the consummation of
any Fundamental Transaction pursuant to which holders of shares of Common Stock
are entitled to receive securities or other assets with respect to or in
exchange for shares of Common Stock (a "CORPORATE EVENT"), the Company shall
make appropriate provision to insure that the Holder will thereafter have the
right to receive upon an exercise of this Warrant at any time after the
consummation of the Fundamental Transaction but prior to the Expiration Date, in
lieu of the shares of the Common Stock (or other securities, cash, assets or
other property) issuable upon the exercise of the Warrant prior to such
Fundamental


                                       10



Transaction, such shares of stock, securities, cash, assets or any other
property whatsoever (including warrants or other purchase or subscription
rights) which the Holder would have been entitled to receive upon the happening
of such Fundamental Transaction had the Warrant been exercised immediately prior
to such Fundamental Transaction. Provisions made pursuant to the preceding
sentence shall be in the form and substance reasonably satisfactory to the
Required Holders. The provisions of this Section shall apply similarly and
equally to successive Fundamental Transactions and Corporate Events and shall be
applied without regard to any limitations on the exercise of this Warrant.

     (c) Notwithstanding the foregoing and the provisions of Section 4(b) above,
in the event of a Fundamental Transaction if the Holder has not exercised the
Warrant in full prior to the consummation of the Fundamental Transaction, then
the Company may enter into a Fundamental Transaction pursuant to which the
Holder shall receive, simultaneously with the consummation of the Fundamental
Transaction, in lieu of the warrant referred to in Section 4(b) cash in the
amount equal to the value of the remaining unexercised portion of this Warrant
on the date of such consummation, which value shall be determined by use of the
Black Scholes Option Pricing Model reflecting (A) a risk-free interest rate
corresponding to the U.S. Treasury rate for a period equal to the remaining term
of this Warrant as of such date of request and (B) an expected volatility equal
to the greater of 60% and the 100 day volatility obtained from the HVT function
on Bloomberg.

5. NONCIRCUMVENTION.

The Company hereby covenants and agrees that the Company will not, by amendment
of its Articles of Incorporation, Bylaws or through any reorganization, transfer
of assets, consolidation, merger, scheme of arrangement, dissolution, issue or
sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, and will at all
times in good faith carry out all the provisions of this Warrant and take all
action as may be required to protect the rights of the Holder. Without limiting
the generality of the foregoing, the Company (i) shall not increase the par
value of any shares of Common Stock receivable upon the exercise of this Warrant
above the Exercise Price then in effect, (ii) shall take all such actions as may
be necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable shares of Common Stock upon the exercise of
this Warrant, and (iii) shall, so long as any of the SPA Warrants are
outstanding, take all action necessary to reserve and keep available out of its
authorized and unissued shares of Common Stock, solely for the purpose of
effecting the exercise of the SPA Warrants, 175% of the number of shares of
Common Stock as shall from time to time be necessary to effect the exercise of
the SPA Warrants then outstanding (without regard to any limitations on
exercise).

6. WARRANT HOLDER NOT DEEMED A STOCKHOLDER.

Except as otherwise specifically provided herein, the Holder, solely in such
Person's capacity as a holder of this Warrant, shall not be entitled to vote or
receive dividends or be deemed the holder of share capital of the Company for
any purpose, nor shall anything contained in this Warrant be construed to confer
upon the Holder, solely in such Person's capacity as the Holder of this Warrant,
any of the rights of a stockholder of the Company or any right to vote, give or


                                       11



withhold consent to any corporate action (whether any reorganization, issue of
stock, reclassification of stock, consolidation, merger, conveyance or
otherwise), receive notice of meetings, receive dividends or subscription
rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares
which such Person is then entitled to receive upon the due exercise of this
Warrant. In addition, nothing contained in this Warrant shall be construed as
imposing any liabilities on the Holder to purchase any securities (upon exercise
of this Warrant or otherwise) or as a stockholder of the Company, whether such
liabilities are asserted by the Company or by creditors of the Company.
Notwithstanding this Section 6, the Company shall provide the Holder with copies
of the same notices and other information given to the stockholders of the
Company generally, contemporaneously with the giving thereof to the
stockholders.

7. REISSUANCE OF WARRANTS.

     (a) Transfer of Warrant. If this Warrant is to be transferred, the Holder
shall surrender this Warrant to the Company, whereupon the Company will issue
promptly following satisfaction of the transfer provisions contained in the
Securities Purchase Agreement and deliver upon the order of the Holder a new
Warrant (in accordance with Section 7(d)), in the name of the validly registered
assignee or transferee, representing the right to purchase the number of Warrant
Shares being transferred by the Holder and, if less then the total number of
Warrant Shares then underlying this Warrant is being transferred, a new Warrant
(in accordance with Section 7(d)) to the Holder representing the right to
purchase the number of Warrant Shares not being transferred.

     (b) Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Warrant, and, in the case of loss, theft or destruction,
of any indemnification undertaking by the Holder to the Company in customary
form and, in the case of mutilation, upon surrender and cancellation of this
Warrant, the Company shall execute and deliver to the Holder a new Warrant (in
accordance with Section 7(d)) representing the right to purchase the Warrant
Shares then underlying this Warrant.

     (c) Exchangeable for Multiple Warrants. This Warrant is exchangeable, upon
the surrender hereof by the Holder at the principal office of the Company, for a
new Warrant or Warrants (in accordance with Section 7(d)) representing in the
aggregate the right to purchase the number of Warrant Shares then underlying
this Warrant, and each such new Warrant will represent the right to purchase
such portion of such Warrant Shares as is designated by the Holder at the time
of such surrender; provided, however, that no Warrants for fractional shares of
Common Stock shall be given.

     (d) Issuance of New Warrants. Whenever the Company is required to issue a
new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be
of like tenor with this Warrant, (ii) shall represent, as indicated on the face
of such new Warrant, the right to purchase the Warrant Shares then underlying
this Warrant (or in the case of a new Warrant being issued pursuant to Section
7(a) or Section 7(c), the Warrant Shares designated by the Holder which, when
added to the number of shares of Common Stock underlying the other new


                                       12



Warrants issued in connection with such issuance, does not exceed the number of
Warrant Shares then underlying this Warrant), (iii) shall have an issuance date,
as indicated on the face of such new Warrant which is the same as the Issuance
Date, and (iv) shall have the same rights and conditions as this Warrant.

8. NOTICES.

Whenever notice is required to be given under this Warrant, unless otherwise
provided herein, such notice shall be given in accordance with Section 9(f) of
the Securities Purchase Agreement. The Company shall provide the Holder with
prompt written notice of all actions taken pursuant to this Warrant, including
in reasonable detail a description of such action and the reason therefore.
Without limiting the generality of the foregoing, the Company will give written
notice to the Holder (i) immediately upon any adjustment of the Exercise Price,
setting forth in reasonable detail, and certifying, the calculation of such
adjustment and (ii) at least fifteen (15) days prior to the date on which the
Company closes its books or takes a record (A) with respect to any dividend or
distribution upon the shares of Common Stock, (B) with respect to any grants,
issuances or sales of any Options, Convertible Securities or rights to purchase
stock, warrants, securities or other property to holders of shares of Common
Stock or (C) for determining rights to vote with respect to any Fundamental
Transaction, dissolution or liquidation, provided in each case that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to the Holder.

9. AMENDMENT AND WAIVER.

Except as otherwise provided herein, the provisions of this Warrant may be
amended and the Company may take any action herein prohibited, or omit to
perform any act herein required to be performed by it, only if the Company has
obtained the written consent of the Required Holders; provided that no such
action may increase the exercise price of any SPA Warrant or decrease the number
of shares or class of stock obtainable upon exercise of any SPA Warrant without
the written consent of the Holder. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the SPA Warrants then
outstanding.

10. GOVERNING LAW.

This Warrant shall be governed by and construed and enforced in accordance with,
and all questions concerning the construction, validity, interpretation and
performance of this Warrant shall be governed by, the internal laws of the State
of New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of New York.

11. CONSTRUCTION; HEADINGS.

This Warrant shall be deemed to be jointly drafted by the Company and all the
Buyers and shall not be construed against any person as the drafter hereof. The
headings of this Warrant are for convenience of reference and shall not form
part of, or affect the interpretation of, this Warrant.


                                       13



12. DISPUTE RESOLUTION.

In the case of a dispute as to the determination of the Exercise Price or the
arithmetic calculation of the Warrant Shares, the Company shall submit the
disputed determinations or arithmetic calculations via facsimile within two
Business Days of receipt of the Exercise Notice giving rise to such dispute, as
the case may be, to the Holder. If the Holder and the Company are unable to
agree upon such determination or calculation of the Exercise Price or the
Warrant Shares within three Business Days of such disputed determination or
arithmetic calculation being submitted to the Holder, then the Company shall,
within two Business Days submit via facsimile (a) the disputed determination of
the Exercise Price to an independent, reputable investment bank selected by the
Company and approved by the Holder (such approval not to be unreasonably
withheld or delayed) or (b) the disputed arithmetic calculation of the Warrant
Shares to the Company's independent, outside accountant. The Company shall cause
at its expense the investment bank or the accountant, as the case may be, to
perform the determinations or calculations and notify the Company and the Holder
of the results no later than ten Business Days from the time it receives the
disputed determinations or calculations. Such investment bank's or accountant's
determination or calculation, as the case may be, shall be binding upon all
parties absent demonstrable error.

13. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.

The remedies provided in this Warrant shall be cumulative and in addition to all
other remedies available under this Warrant and the other Transaction Documents,
at law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit the right of the Holder right
to pursue actual damages for any failure by the Company to comply with the terms
of this Warrant. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holder and that the remedy at law
for any such breach may be inadequate. The Company therefore agrees that, in the
event of any such breach or threatened breach, the holder of this Warrant shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.

14. TRANSFER.

This Warrant may be offered for sale, sold, transferred or assigned without the
consent of the Company, except as may otherwise be required by Section 2(f) of
the Securities Purchase Agreement.

15. CERTAIN DEFINITIONS.

For purposes of this Warrant, the following terms shall have the following
meanings:

     (a) "BLOOMBERG" means Bloomberg Financial Markets.


                                       14



     (b) "BUSINESS DAY" means any day other than Saturday, Sunday or other day
on which commercial banks in The City of New York are authorized or required by
law to remain closed.

     (c) "CLOSING BID PRICE" and "CLOSING SALE PRICE" means, for any security as
of any date, the last closing bid price and last closing trade price,
respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of
any market makers for such security as reported in the "pink sheets" by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid
Price or the Closing Sale Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Closing Bid Price or the
Closing Sale Price, as the case may be, of such security on such date shall be
the fair market value as mutually determined by the Company and the Holder. If
the Company and the Holder are unable to agree upon the fair market value of
such security, then such dispute shall be resolved pursuant to Section 12. All
such determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable
calculation period.

     (d) "COMMON STOCK" means (i) the Company's shares of Common Stock, par
value $0.001 per share, and (ii) any share capital into which such Common Stock
shall have been changed or any share capital resulting from a reclassification
of such Common Stock.

     (e) "CONVERTIBLE SECURITIES" means any stock or securities (other than
Options) directly or indirectly convertible into or exercisable or exchangeable
for shares of Common Stock.

     (f) "ELIGIBLE MARKET" means the Principal Market, The New York Stock
Exchange, Inc., the Nasdaq National Market, the Nasdaq Capital Market or the
American Stock Exchange.

     (g) "EXPIRATION DATE" means the date sixty months after the Issuance Date
or, if such date falls on a day other than a Business Day or on which trading
does not take place on the Principal Market (a "HOLIDAY"), the next date that is
not a Holiday.

     (h) "FUNDAMENTAL TRANSACTION" means that the Company shall, directly or
indirectly, in one or more related transactions, (i) consolidate or merge with
or into (whether or not the Company is the surviving corporation) another
Person, or (ii) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of the properties or assets of the Company to another Person,
or (iii) allow another Person to make a purchase, tender or exchange offer that
is accepted by the holders of more than the 50% of either the outstanding shares
of Common


                                       15



Stock (not including any shares of Common Stock held by the Person or Persons
making or party to, or associated or affiliated with the Persons making or party
to, such purchase, tender or exchange offer), or (iv) consummate a stock
purchase agreement or other business combination (including, without limitation,
a reorganization, recapitalization, spin-off or scheme of arrangement) with
another Person whereby such other Person acquires more than the 50% of the
outstanding shares of Common Stock (not including any shares of Common Stock
held by the other Person or other Persons making or party to, or associated or
affiliated with the other Persons making or party to, such stock purchase
agreement or other business combination), (v) reorganize, recapitalize or
reclassify its Common Stock (other than a forward or reverse stock split), or
(vi) any "person" or "group" (as these terms are used for purposes of Sections
13(d) and 14(d) of the Exchange Act) is or shall become the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
50% of the aggregate ordinary voting power represented by issued and outstanding
Common Stock.

     (i) "OPTIONS" means any rights, warrants or options to subscribe for or
purchase shares of Common Stock or Convertible Securities.

     (j) "PARENT ENTITY" of a Person means an entity that, directly or
indirectly, controls the applicable Person and whose common stock or equivalent
equity security is quoted or listed on an Eligible Market, or, if there is more
than one such Person or Parent Entity, the Person or Parent Entity with the
largest public market capitalization as of the date of consummation of the
Fundamental Transaction.

     (k) "PERSON" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency
thereof.

     (l) "PRINCIPAL MARKET" means the Over-the-Counter Bulletin Board.

     (m) "REGISTRATION RIGHTS AGREEMENT" means that certain registration rights
agreement by and among the Company and the Buyers.

     (n) "REQUIRED HOLDERS" means the holders of the SPA Warrants representing
at least a majority of shares of Common Stock underlying the SPA Warrants then
outstanding.

     (o) "SPA SECURITIES" means the Notes issued pursuant to the Securities
Purchase Agreement.

     (p) "SUCCESSOR ENTITY" means the Person (or, if so elected by the Required
Holders, the Parent Entity) formed by, resulting from or surviving any
Fundamental Transaction or the Person (or, if so elected by the Required
Holders, the Parent Entity) with which such Fundamental Transaction shall have
been entered into.

                            [SIGNATURE PAGE FOLLOWS]


                                       16



     IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common
Stock to be duly executed as of the Issuance Date set out above.

                                         MDWERKS, INC.


                                         By:
                                             -----------------------------------
                                             Name: Vincent Colangelo
                                             Title: Chief Financial Officer


                                       17



                                                                       EXHIBIT A

                                 EXERCISE NOTICE
            TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
                        WARRANT TO PURCHASE COMMON STOCK

                                  MDWERKS, INC.

     The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("WARRANT SHARES") of MDwerks,
Inc., a Delaware corporation (the "COMPANY"), evidenced by the attached Warrant
to Purchase Common Stock (the "WARRANT"). Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Warrant.

     1. Form of Exercise Price. The Holder intends that payment of the Exercise
Price shall be made as:

               a "Cash Exercise" with respect to _________________ Warrant
               Shares; and/or

     ___________

               a "Cashless Exercise" with respect to _______________ Warrant
               Shares.

     ___________

     2. Payment of Exercise Price. In the event that the holder has elected a
Cash Exercise with respect to some or all of the Warrant Shares to be issued
pursuant hereto, the holder shall pay the Aggregate Exercise Price in the sum of
$___________________ to the Company in accordance with the terms of the Warrant.

     3. Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.

     4. Delivery of Warrant. The Registered Holder shall deliver the Warrant to
the Company.

Date: _______________ __, ______

     Name of Registered Holder


By:
    ---------------------------------
    Name:
    Title:


                                       18



                                 ACKNOWLEDGMENT

     The Company hereby acknowledges this Exercise Notice and hereby directs
American Registrar & Transfer Co. to issue the above indicated number of shares
of Common Stock in accordance with the Transfer Agent Instructions dated October
__, 2006 from the Company and acknowledged and agreed to by Corporate Stock
Transfer.

                                         MDWERKS, INC.


                                         By:
                                             -----------------------------------
                                             Name:
                                             Title:


                                       19

EX-4.4

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS
NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE
144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES. ANY TRANSFEREE OF THIS NOTE SHOULD
CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTIONS 3(c)(iii) AND 20(a)
HEREOF. THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE
SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET
FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS NOTE.

                                  MDWERKS, INC.
                         SENIOR SECURED CONVERTIBLE NOTE

Issuance Date: October 19, 2006       Original Principal Amount: U.S. $2,500,000

FOR VALUE RECEIVED, MDwerks, Inc., a Delaware corporation (the "COMPANY"),
hereby promises to pay to GOTTBETTER CAPITAL MASTER, LTD. or its registered
assigns ("HOLDER") the amount set out above as the Original Principal Amount (as
may be reduced pursuant to the terms hereof pursuant to redemption, conversion
or otherwise, the "PRINCIPAL") when due, whether upon the Maturity Date (as
defined below), on any Installment Date with respect to the Installment Amount
due on such Installment Date, acceleration, redemption or otherwise (in each
case in accordance with the terms hereof) and to pay interest ("INTEREST") on
any outstanding Principal at a rate per annum equal to the Interest Rate (as
defined below), from the date set out above as the Issuance Date (the "ISSUANCE
DATE") until the same becomes due and payable, whether upon an Interest Date (as
defined below), any Installment Date, or the Maturity Date, acceleration,
conversion, redemption or otherwise (in each case in accordance with the terms
hereof). This Senior Secured Convertible Note (including all Senior Secured
Convertible Notes issued in exchange, transfer or replacement hereof, this
"NOTE") issued pursuant to the Securities Purchase Agreement (as defined below).
Certain capitalized terms used herein are defined in Section 28.

1. PAYMENTS OF PRINCIPAL; MATURITY. On each Installment Date commencing October
1, 2007, the Company shall pay to the Holder an amount equal to the Installment
Amount due on such Installment Date in cash by wire transfer of immediately
available funds. The "MATURITY DATE" shall be October 18, 2009, as may be
extended at the option of the Holder (i) in the event that, and for so long as,
an Event of Default (as defined in Section 4(a)) shall have



occurred and be continuing and (ii) through the date that is ten (10) days after
the consummation of a Change of Control in the event that a Change of Control is
publicly announced or a Change of Control Notice (as defined in Section 5(b)) is
delivered prior to the Maturity Date.

2. INTEREST; INTEREST RATE.

     (a) Interest on this Note shall commence accruing on the Issuance Date and
shall be computed on the basis of a 360-day year and actual days elapsed and
shall be payable in arrears for each Calendar Month during the period beginning
on the Issuance Date and ending on, and including, the Maturity Date (each, an
"INTEREST DATE") with the first Interest Date being December 1, 2006. Interest
shall be payable on each Interest Date, to the record holder of this Note on the
applicable Interest Date, in cash ("CASH INTEREST").

     (b) From and after the occurrence of an Event of Default, the Interest Rate
shall be increased to fifteen percent (15%) per annum. In the event that such
Event of Default is subsequently cured, the adjustment referred to in the
preceding sentence shall cease to be effective as of the date of such cure;
provided that the Interest as calculated at such increased rate during the
continuance of such Event of Default shall continue to apply to the extent
relating to the days after the occurrence of such Event of Default through and
including the date of cure of such Event of Default.

3. CONVERSION OF NOTES. This Note shall be convertible into shares of common
stock of the Company, par value $0.001 per share (the "COMMON STOCK"), on the
terms and conditions set forth in this Section 3.

     (a) Conversion Right. Subject to the provisions of Section 3(d), at any
time or times on or after the Issuance Date, the Holder shall be entitled to
convert any portion of the outstanding and unpaid Conversion Amount (as defined
below) into fully paid and nonassessable shares of Common Stock in accordance
with Section 3(c), at the Conversion Rate (as defined below). The Company shall
not issue any fraction of a share of Common Stock upon any conversion. If the
issuance would result in the issuance of a fraction of a share of Common Stock,
the Company shall round such fraction of a share of Common Stock up to the
nearest whole share. The Company shall pay any and all stamp and similar taxes
that may be payable with respect to the issuance and delivery of Common Stock
upon conversion of any Conversion Amount. The Company shall not be required,
however, to pay any transfer tax or similar charge imposed in connection with
the issuance of Common Stock in any name other than that of the Holder.

     (b) Conversion Rate. The number of shares of Common Stock issuable upon
conversion of any Conversion Amount pursuant to Section 3(a) shall be determined
by dividing (x) such Conversion Amount by (y) the Conversion Price then in
effect (the "CONVERSION RATE").

          (i) "CONVERSION AMOUNT" means the portion of the Principal to be
     converted, redeemed or otherwise with respect to which this determination
     is being made.


                                        2



          (ii) "CONVERSION PRICE" means, as of the Issuance Date $2.25, which
     Conversion Price shall be subject to adjustment from time to time in
     accordance with the terms set forth herein (including Section 7 hereof).
     The Conversion Price shall be appropriately adjusted for any stock split,
     stock dividend, stock combination or other similar transaction that
     proportionately decreases or increases the Common Stock.

     (c) Mechanics of Conversion.

          (i) Optional Conversion. To convert any Conversion Amount into shares
     of Common Stock on any date (a "CONVERSION DATE"), the Holder shall (A)
     transmit by facsimile (or otherwise deliver), for receipt on or prior to
     5:00 p.m., New York Time, on such date, a copy of an executed notice of
     conversion in the form attached hereto as Exhibit I (the "CONVERSION
     NOTICE") to the Company and (B) if required by Section 3(c)(iv), surrender
     this Note to a nationally recognized overnight delivery service for
     delivery to the Company (or an indemnification undertaking with respect to
     this Note in the case of its loss, theft or destruction). On or before the
     next Trading Day following the date of receipt of a Conversion Notice, the
     Company shall transmit by facsimile a confirmation of receipt of such
     Conversion Notice to the Holder and the Transfer Agent. On or before the
     second (2nd) Trading Day following the date of receipt of a Conversion
     Notice (the "SHARE DELIVERY DATE"), the Company shall (1) (X) provided that
     the Transfer Agent is participating in the Fast Automated Securities
     Transfer Program of DTC credit such aggregate number of shares of Common
     Stock to which the Holder shall be entitled to the Holder's or its
     designee's balance account with DTC through its Deposit Withdrawal Agent
     Commission system or (Y) if the Transfer Agent is not participating in the
     DTC Fast Automated Securities Transfer Program, issue and deliver to the
     address as specified in the Conversion Notice, a certificate, registered in
     the name of the Holder or its designee, for the number of shares of Common
     Stock to which the Holder shall be entitled and (2) pay to the Holder in
     cash an amount equal to the accrued and unpaid Interest on the Conversion
     Amount up to and including the Conversion Date. If this Note is physically
     surrendered for conversion as required by Section 3(c)(iv) and the
     outstanding Principal of this Note is greater than the Principal portion of
     the Conversion Amount being converted, then the Company shall as soon as
     practicable and in no event later than three Business Days after receipt of
     this Note and at its own expense, issue and deliver to the holder a new
     Note (in accordance with Section 18(d)) representing the outstanding
     Principal not converted. The Person or Persons entitled to receive the
     shares of Common Stock issuable upon a conversion of this Note shall be
     treated for all purposes as the record holder or holders of such shares of
     Common Stock on the Conversion Date. In the event of a partial conversion
     of this Note pursuant hereto, the principal amount converted shall be
     deducted from the Installment Amounts relating to the Installment Dates in
     reverse chronological order.

          (ii) Company's Failure to Timely Convert. If within three (3) Trading
     Days after the Company's receipt of the facsimile copy of a Conversion
     Notice the Company shall fail to issue and deliver a certificate to the
     Holder or credit the Holder's balance account with DTC for the number of
     shares of Common Stock to which the Holder is entitled upon such Holder's
     conversion of any Conversion Amount (a "CONVERSION


                                        3



     FAILURE"), and if on or after such Trading Day the Holder purchases (in an
     open market transaction or otherwise) Common Stock to deliver in
     satisfaction of a sale by the Holder of Common Stock issuable upon such
     conversion that the Holder anticipated receiving from the Company (a
     "BUY-IN"), then the Company shall, within three (3) Business Days after the
     Holder's request and provision of trade confirmations and in the Holder's
     sole discretion, either (i) pay cash to the Holder in an amount equal to
     the Holder's total purchase price (including brokerage commissions and
     other out-of-pocket expenses, if any) for the shares of Common Stock so
     purchased (the "BUY-IN PRICE"), at which point the Company's obligation to
     deliver such certificate (and to issue such Common Stock) shall terminate,
     or (ii) promptly honor its obligation to deliver to the Holder a
     certificate or certificates representing such Common Stock and pay cash to
     the Holder in an amount equal to the excess (if any) of the Buy-In Price
     over the product of (A) such number of shares of Common Stock, times (B)
     the Closing Bid Price on the Conversion Date.

          (iii) Registration; Book-Entry. The Company shall maintain a register
     (the "REGISTER") for the recordation of the names and addresses of the
     holders of the Notes and the principal amount of the Notes held by such
     holders (the "REGISTERED NOTES"). The entries in the Register shall be
     conclusive and binding for all purposes absent manifest error. The Company
     and the holders of the Notes shall treat each Person whose name is recorded
     in the Register as the owner of a Note for all purposes, including, without
     limitation, the right to receive payments of principal and interest
     hereunder, notwithstanding notice to the contrary. A Registered Note may be
     assigned or sold in whole or in part only by registration of such
     assignment or sale on the Register. Upon its receipt of a request to assign
     or sell all or part of any Registered Note by a Holder, the Company shall
     record the information contained therein in the Register and issue one or
     more new Registered Notes in the same aggregate principal amount as the
     principal amount of the surrendered Registered Note to the designated
     assignee or transferee pursuant to Section 17. Notwithstanding anything to
     the contrary set forth herein, upon conversion of any portion of this Note
     in accordance with the terms hereof, the Holder shall not be required to
     physically surrender this Note to the Company unless (A) the full
     Conversion Amount represented by this Note is being converted or (B) the
     Holder has provided the Company with prior written notice (which notice may
     be included in a Conversion Notice) requesting physical surrender and
     reissue of this Note. The Holder and the Company shall maintain records
     showing the Principal, Interest and Late Charges converted and the dates of
     such conversions or shall use such other method, reasonably satisfactory to
     the Holder and the Company, so as not to require physical surrender of this
     Note upon conversion.

          (iv) Disputes. In the event of a dispute as to the number of shares of
     Common Stock issuable to the Holder in connection with a conversion of this
     Note, the Company shall issue to the Holder the number of shares of Common
     Stock not in dispute and resolve such dispute in accordance with Section
     23.

     (d) Limitations on Conversions.


                                        4



          (i) Beneficial Ownership. The Company shall not effect any conversion
     of this Note, and the Holder of this Note (including any successor,
     transferee or assignee) shall not have the right to convert any portion of
     this Note pursuant to Section 3(a), to the extent that after giving effect
     to such conversion, the Holder (together with the Holder's affiliates)
     would beneficially own in excess of 4.99% (the "MAXIMUM PERCENTAGE") of the
     number of shares of 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) exercise or conversion of the unexercised or
     nonconverted portion of any other securities of the Company (including,
     without limitation, any warrants) subject to a limitation on conversion or
     exercise 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 3(d)(i), beneficial ownership shall
     be calculated in accordance with Section 13(d) of the Securities Exchange
     Act of 1934, as amended. For purposes of this Section 3(d)(i), 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-KSB, Form 10-K, Form 10-QSB, Form
     10-Q or Form 8-K, as the case may be (y) a more recent public announcement
     by the Company or (z) any other notice by the Company or the Transfer Agent
     setting forth the number of shares of Common Stock outstanding. For any
     reason at any time, during regular business hours of the Company and upon
     the written request of the Holder, the Company shall within two (2)
     Business Days confirm 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 exercise 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. By written notice to the
     Company, the Holder may increase or decrease the Maximum Percentage to any
     other percentage specified in such notice; provided that (i) any such
     increase will not be effective until the sixty-first (61st ) day after such
     notice is delivered to the Company, and (ii) any such increase or decrease
     will apply only to the Holder and not to any other holder of Notes.

          (ii) Principal Market Regulation. The Company shall not be obligated
     to issue any shares of Common Stock upon conversion of this Note, and the
     Holder of this Note shall not have the right to receive upon conversion of
     this Note any shares of Common Stock, if the issuance of such shares of
     Common Stock would exceed the aggregate number of shares of Common Stock
     which the Company may issue upon conversion or exercise, as applicable, of
     the Notes and Warrants without breaching the Company's obligations under
     the rules or regulations of the Principal Market (the "EXCHANGE CAP"),
     except that such limitation shall not apply in the event that the Company
     (A) obtains the approval of its stockholders as required by the applicable
     rules of the Principal Market for issuances of Common Stock in excess of
     such amount or (B) obtains a written opinion


                                        5



     from outside counsel to the Company that such approval is not required,
     which opinion shall be reasonably satisfactory to the Required Holders.
     Until such approval or written opinion is obtained, no purchaser of the
     Notes pursuant to the Securities Purchase Agreement (the "PURCHASERS")
     shall be issued in the aggregate, upon conversion or exercise, as
     applicable, of Notes or Warrants, shares of Common Stock in an amount
     greater than the product of the Exchange Cap multiplied by a fraction, the
     numerator of which is the principal amount of Notes issued to the
     Purchasers pursuant to the Securities Purchase Agreement on the Closing
     Date and the denominator of which is the aggregate principal amount of all
     Notes issued to the Purchasers pursuant to the Securities Purchase
     Agreement on the Closing Date (with respect to each Purchaser, the
     "EXCHANGE CAP ALLOCATION"). In the event that any Purchaser shall sell or
     otherwise transfer any of such Purchaser's Notes, the transferee shall be
     allocated a pro rata portion of such Purchaser's Exchange Cap Allocation,
     and the restrictions of the prior sentence shall apply to such transferee
     with respect to the portion of the Exchange Cap Allocation allocated to
     such transferee. In the event that any holder of Notes shall convert all of
     such holder's Notes into a number of shares of Common Stock which, in the
     aggregate, is less than such holder's Exchange Cap Allocation, then the
     difference between such holder's Exchange Cap Allocation and the number of
     shares of Common Stock actually issued to such holder shall be allocated to
     the respective Exchange Cap Allocations of the remaining holders of Notes
     on a pro rata basis in proportion to the aggregate principal amount of the
     Notes then held by each such holder.

4. RIGHTS UPON EVENT OF DEFAULT.

     (a) Event of Default. Each of the following events shall constitute an
"Event of Default":

          (i) the failure of the applicable Registration Statement required to
     be filed pursuant to the Registration Rights Agreement to be filed on or
     prior to the Filing Deadline (as defined in the Registration Rights
     Agreement) or declared effective by the SEC on or prior to the date that is
     thirty (30) days after the applicable Effectiveness Deadline (as defined in
     the Registration Rights Agreement), the Company fails to file the final
     prospectus in accordance with Rule 424 under the 1933 Act or, while the
     applicable Registration Statement is required to be maintained effective
     pursuant to the terms of the Registration Rights Agreement, the
     effectiveness of the applicable Registration Statement lapses for any
     reason (including, without limitation, the issuance of a stop order) or is
     unavailable to any holder of the Notes for sale of all of such holder's
     Registrable Securities (as defined in the Registration Rights Agreement) in
     accordance with the terms of the Registration Rights Agreement, and such
     lapse or unavailability continues for a period of ten (10) consecutive days
     or for more than an aggregate of thirty (30) days in any 365-day period
     (other than days during an Allowable Grace Period (as defined in the
     Registration Rights Agreement));

          (ii) the suspension from trading or failure of the Common Stock to be
     listed on the Principal Market or on an Eligible Market for a period of
     five (5) consecutive


                                        6



     Trading Days or for more than an aggregate of ten (10) Trading Days in any
     365-day period

          (iii) the Company's (A) failure to cure a Conversion Failure by
     delivery of the required number of shares of Common Stock within ten (10)
     Business Days after the applicable Conversion Date or (B) written notice to
     any holder of the Notes, including by way of public announcement or through
     any of its authorized agents, at any time, of its intention not to comply
     with a request for conversion of any Notes into shares of Common Stock that
     is tendered in accordance with the provisions of the Notes;

          (iv) at any time following the tenth (10th) consecutive Business Day
     that the authorized number of shares is less than the number of shares of
     Common Stock that the Holder would be entitled to receive upon a conversion
     of one hundred seventy-five percent (175%) of the full Conversion Amount of
     this Note (without regard to any limitations on conversion set forth in
     Section 3(d) or otherwise);

          (v) the Company's failure to pay to the Holder any amount of Principal
     (including, without limitation, any redemption or make-whole payments),
     Interest, Late Charges or other amounts when and as due under this Note or
     any other Transaction Document (as defined in the Securities Purchase
     Agreement), including any Company Redemption Price or Redemption Premium in
     connection with any redemption of this Note, or any other agreement,
     document, certificate or other instrument delivered in connection with the
     transactions contemplated hereby and thereby to which the Holder is a
     party, except, in the case of a failure to pay Interest and Late Charges
     when and as due, in which case only if such failure continues for a period
     of at least five (5) Business Days;

          (vi) any default under, redemption of or acceleration prior to
     maturity of any Indebtedness in excess of $250,000, in the aggregate, of
     the Company or any of its Subsidiaries (as defined in Section 3(a) of the
     Securities Purchase Agreement);

          (vii) the Company or any of its Subsidiaries, pursuant to or within
     the meaning of Title 11, U.S. Code, or any similar Federal, foreign or
     state law for the relief of debtors (collectively, "BANKRUPTCY LAW"), (A)
     commences a voluntary case, (B) consents to the entry of an order for
     relief against it in an involuntary case, (C) consents to the appointment
     of a receiver, trustee, assignee, liquidator or similar official (a
     "CUSTODIAN"), (D) makes a general assignment for the benefit of its
     creditors or (E) admits in writing that it is generally unable to pay its
     debts as they become due;

          (viii) a court of competent jurisdiction enters an order or decree
     under any Bankruptcy Law that (A) is for relief against the Company or any
     of its Subsidiaries in an involuntary case, (B) appoints a Custodian of the
     Company or any of its Subsidiaries or (C) orders the liquidation of the
     Company or any of its Subsidiaries;

          (ix) a final judgment or judgments for the payment of money
     aggregating in excess of $250,000 are rendered against the Company or any
     of its Subsidiaries and


                                        7



     which judgments are not, within sixty (60) days after the entry thereof,
     bonded, discharged or stayed pending appeal, or are not discharged within
     sixty (60) days after the expiration of such stay; provided, however, that
     any judgment which is covered by insurance or an indemnity from a credit
     worthy party shall not be included in calculating the $250,000 amount set
     forth above so long as the Company provides the Holder a written statement
     from such insurer or indemnity provider (which written statement shall be
     reasonably satisfactory to the Holder) to the effect that such judgment is
     covered by insurance or an indemnity and the Company will receive the
     proceeds of such insurance or indemnity within thirty (30) days of the
     issuance of such judgment;

          (x) the Company breaches any material representation, warranty,
     covenant or other term or condition of any Transaction Document, except, in
     the case of a breach of a covenant which is curable, only if such breach
     continues for a period of at least thirty (30) consecutive days after
     written notice thereof;

          (xi) any breach or failure in any respect to comply with (x) Section
     15 of this Note or (y) any of the Potential Partner Conditions;

          (xii) the inability of the Common Stock to be transferred with DTC
     through the Deposit Withdrawal at Custodian system, only if such inability
     continues for a period of at least thirty (30) consecutive days; or

          (xiii) The Security Agreement (as defined in the Securities Purchase
     Agreement) shall for any reason fail or cease to create a valid and
     perfected and, except to the extent permitted by the terms thereof, first
     priority lien in favor of the Holder for the benefit of the holders of the
     Notes on any Collateral (as defined in the Security Agreement) purported to
     be covered thereby and such failure or cessation cannot be cured within ten
     (10) business days of written notice thereof.

     (b) Redemption Right. Upon the occurrence of an Event of Default with
respect to this Note, the Company shall within two (2) Business Days after the
day on which the Company is aware of the Event of Default deliver written notice
thereof via facsimile and overnight courier (an "EVENT OF DEFAULT NOTICE") to
the Holder. At any time after the earlier of the Holder's receipt of an Event of
Default Notice and the Holder becoming aware of an Event of Default, the Holder
may require the Company to redeem all or any portion of the outstanding balance
of this Note by delivering written notice thereof (the "Event of Default
Redemption Notice") to the Company, which Event of Default Redemption Notice
shall indicate the portion of this Note the Holder is electing to have redeemed.
Each portion of this Note subject to redemption by the Company pursuant to this
Section 4(b) shall be redeemed by the Company at a price equal to the greater of
(i) the product of (x) the Conversion Amount to be redeemed and (y) the
Redemption Premium and (ii) the product of (A) the Conversion Rate with respect
to such Conversion Amount in effect at such time as the Holder delivers an Event
of Default Redemption Notice and (B) the Closing Sale Price of the Common Stock
on the date immediately preceding such Event of Default (the "EVENT OF DEFAULT
REDEMPTION PRICE"). Redemptions required by this Section 4(b) shall be made in
accordance with the provisions of Section 12. To the extent redemptions required
by this Section 4(b) are deemed or determined by a court of competent
jurisdiction to be


                                        8



prepayments of the Note by the Company, such redemptions shall be deemed to be
voluntary prepayments. The parties hereto agree that in the event of the
Company's redemption of any portion of this Note under this Section 4(b), the
Holder's damages would be uncertain and difficult to estimate because of the
parties' inability to predict future interest rates and the uncertainty of the
availability of a suitable substitute investment opportunity for the Holder.
Accordingly, any Redemption Premium due under this Section 4(b) is intended by
the parties to be, and shall be deemed, a reasonable estimate of the Holder's
actual loss of its investment opportunity and not as a penalty.

5. RIGHTS UPON FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL.

     (a) Assumption. For so long as this Note shall remain outstanding, the
Company shall not enter into or be party to a Fundamental Transaction unless (i)
the Successor Entity assumes in writing all of the obligations of the Company
under this Note and the other Transaction Documents in accordance with the
provisions of this Section 5(a) pursuant to written agreements in form and
substance satisfactory to the Required Holders and approved by the Required
Holders prior to such Fundamental Transaction, including agreements to deliver
to each holder of Notes in exchange for such Notes a security of the Successor
Entity evidenced by a written instrument substantially similar in form and
substance to the Notes, including, without limitation, having a principal amount
and interest rate equal to the principal amounts and the interest rates of the
Notes held by such holder, having similar conversion rights as the Notes and
having similar ranking to the Notes, and satisfactory to the Required Holders
and (ii) the Successor Entity (including its Parent Entity) is a publicly traded
corporation whose common stock is quoted on or listed for trading on an Eligible
Market. Upon the occurrence of any Fundamental Transaction, the Successor Entity
shall succeed to, and be substituted for (so that from and after the date of
such Fundamental Transaction, the provisions of this Note referring to the
"Company" shall refer instead to the Successor Entity), and may exercise every
right and power of the Company and shall assume all of the obligations of the
Company under this Note with the same effect as if such Successor Entity had
been named as the Company herein. Upon consummation of the Fundamental
Transaction, the Successor Entity shall deliver to the Holder confirmation that
there shall be issued upon conversion or redemption of this Note at any time
after the consummation of the Fundamental Transaction, in lieu of the shares of
Common Stock (or other securities, cash, assets or other property) issuable upon
the conversion of the Notes prior to such Fundamental Transaction, such shares
of publicly traded common stock (or their equivalent) of the Successor Entity,
as adjusted in accordance with the provisions of this Note. The provisions of
this Section shall apply similarly and equally to successive Fundamental
Transactions and shall be applied without regard to any limitations on the
conversion of this Note.

     (b) Redemption Right. No sooner than fifteen (15) days nor later than ten
(10) days prior to the consummation of a Change of Control, but not prior to the
public announcement of such Change of Control, the Company shall deliver written
notice thereof via facsimile and overnight courier to the Holder (a "CHANGE OF
CONTROL NOTICE"). At any time during the period beginning after the Holder's
receipt of a Change of Control Notice and ending ten (10) Trading Days after the
consummation of such Change of Control, the Holder may require the Company to
redeem all or any portion of this Note by delivering written notice thereof
("CHANGE OF


                                        9



CONTROL REDEMPTION NOTICE") to the Company, which Change of Control Redemption
Notice shall indicate the Conversion Amount the Holder is electing to be
redeemed. The portion of this Note subject to redemption pursuant to this
Section 5 shall be redeemed by the Company in cash at a price equal to the
greater of (i) the product of the Change of Control Premium and the product of
(x) the sum of the Conversion Amount being redeemed and any accrued and unpaid
Interest with respect to such Conversion Amount and accrued and unpaid Late
Charges with respect to such Conversion Amount and Interest and (y) the quotient
determined by dividing (A) the Closing Sale Price of the Common Stock
immediately following the public announcement of such proposed Change of Control
by (B) the Conversion Price and (ii) 150% of the sum of the Conversion Amount
being redeemed and any accrued and unpaid Interest with respect to such
Conversion Amount subject to such Change of Control Redemption and accrued and
unpaid Late Charges with respect to such Conversion Amount and Interest (the
"CHANGE OF CONTROL REDEMPTION PRICE"). Redemptions required by this Section 5
shall be made in accordance with the provisions of Section 15 and shall have
priority to payments to shareholders in connection with a Change of Control. To
the extent redemptions required by this Section 5(b) are deemed or determined by
a court of competent jurisdiction to be prepayments of this Note by the Company,
such redemptions shall be deemed to be voluntary prepayments. Notwithstanding
anything to the contrary in this Section 5, until the Company Redemption Price
(together with any interest thereon) is paid in full, the Conversion Amount
submitted for redemption under this Section 5(c) may be converted, in whole or
in part, by the Holder into shares of Common Stock, or in the event the
Conversion Date is after the consummation of the Change of Control, shares of
publicly traded common stock (or their equivalent) of the Successor Entity
pursuant to Section 3. The parties hereto agree that in the event of the
Company's redemption of any portion of this Note under this Section 5(b), the
Holder's damages would be uncertain and difficult to estimate because of the
parties' inability to predict future interest rates and the uncertainty of the
availability of a suitable substitute investment opportunity for the Holder.
Accordingly, any redemption premium due under this Section 5(b) is intended by
the parties to be, and shall be deemed, a reasonable estimate of the Holder's
actual loss of its investment opportunity and not as a penalty.

6. RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS.

     (a) Purchase Rights. If at any time the Company grants, issues or sells any
Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the "PURCHASE RIGHTS"), then the Holder will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which the Holder could have acquired if the Holder had held the
number of shares of Common Stock acquirable upon complete conversion of this
Note (without taking into account any limitations or restrictions on the
convertibility of this Note) immediately before the date on which a record is
taken for the grant, issuance or sale of such Purchase Rights, or, if no such
record is taken, the date as of which the record holders of Common Stock are to
be determined for the grant, issue or sale of such Purchase Rights.

     (b) Other Corporate Events. In addition to and not in substitution for any
other rights hereunder, prior to the consummation of any Fundamental Transaction
pursuant to which holders


                                       10



of shares of Common Stock are entitled to receive securities or other assets
with respect to or in exchange for shares of Common Stock (a "CORPORATE EVENT"),
the Company shall make appropriate provision to insure that if the Holder is a
Holder at the time of consummation of such Fundamental Transaction, the Holder
will thereafter have the right to receive upon conversion of this Note, at the
Holder's option, (i) in addition to the shares of Common Stock receivable upon
such conversion, such securities or other assets to which the Holder would have
been entitled with respect to such shares of Common Stock had such shares of
Common Stock been held by the Holder upon the consummation of such Corporate
Event (without taking into account any limitations or restrictions on the
convertibility of this Note) or (ii) in lieu of the shares of Common Stock
otherwise receivable upon such conversion, such securities or other assets
received by the holders of shares of Common Stock in connection with the
consummation of such Corporate Event in such amounts as the Holder would have
been entitled to receive had this Note initially been issued with conversion
rights for the form of such consideration (as opposed to shares of Common Stock)
at a conversion rate for such consideration commensurate with the Conversion
Rate. Provision made pursuant to the preceding sentence shall be in a form and
substance satisfactory to the Required Holders. The provisions of this Section
shall apply similarly and equally to successive Corporate Events and shall be
applied without regard to any limitations on the conversion or redemption of
this Note.

7. RIGHTS UPON ISSUANCE OF OTHER SECURITIES.

     (a) Adjustment of Conversion Price upon Issuance of Common Stock. If at any
time after the Subscription Date, the Company issues or sells, or in accordance
with this Section 7(a) is deemed to have issued or sold, any shares of Common
Stock (including the issuance or sale of shares of Common Stock owned or held by
or for the account of the Company, but excluding shares of Common Stock which
are an Excluded Security or are deemed to have been issued or sold by the
Company in connection with any Excluded Security) for a consideration per share
(the "NEW ISSUANCE PRICE") less than a price (the "APPLICABLE PRICE") equal to
the Conversion Price in effect immediately prior to such issue or sale (the
foregoing a "DILUTIVE ISSUANCE"), then (i) if such issuance or sale occurs prior
to the one year anniversary date of the Subscription Date, immediately after
such Dilutive Issuance, the Conversion Price then in effect shall be reduced to
the New Issuance Price or (ii) if such issuance or sale occurs on or after the
one year anniversary of the Subscription Date, then immediately after such
Dilutive Issuance the Conversion Price then in effect shall be reduced to the
price determined by dividing (i) an amount equal to the sum of (x) the number of
shares of Common Stock outstanding immediately prior to such issue or sale
(including for the purpose, shares of Common Stock issuable upon conversion or
exercise of any outstanding securities or Options which are at such time
exercisable, convertible or vested) multiplied by the Applicable Price and (y)
the consideration, if any, to be received by the Company for such additional
shares of Common Stock by (ii) an amount equal to the sum of (x) the total
number of shares of Common Stock outstanding immediately prior to such issue of
sale (including, for this purpose, shares of Common Stock issuable upon
conversion or exercise of any outstanding securities or Options, which are at
such time exercisable, convertible or vested) any (y) the total number of
additional shares of Common Stock issuable as part of such Dilutive Issuance
(including shares subject to conversion of convertible securities or Options).
For purposes of determining the adjusted Conversion Price under this Section
7(a), the following shall be applicable:


                                       11



          (i) Issuance of Options. If the Company in any manner grants or sells
     any Options and the lowest price per share for which one share of Common
     Stock is issuable upon the exercise of any such Option or upon conversion
     or exchange or exercise of any Convertible Securities issuable upon
     exercise of such Option is less than the Applicable Price, then all of such
     shares of Common Stock underlying such Option shall be deemed to be
     outstanding and to have been issued and sold by the Company at the time of
     the granting or sale of such Option for such price per share. For purposes
     of this Section 7(a)(i), the "lowest price per share for which one share of
     Common Stock is issuable upon the exercise of any such Option or upon
     conversion or exchange or exercise of any Convertible Securities issuable
     upon exercise of such Option" shall be equal to the sum of the lowest
     amounts of consideration (if any) received or receivable by the Company
     with respect to any one share of Common Stock upon granting or sale of the
     Option, upon exercise of the Option and upon conversion or exchange or
     exercise of any Convertible Security issuable upon exercise of such Option.
     No further adjustment of the Conversion Price shall be made upon the actual
     issuance of such share of Common Stock or of such Convertible Securities
     upon the exercise of such Options or upon the actual issuance of such
     Common Stock upon conversion or exchange or exercise of such Convertible
     Securities.

          (ii) Issuance of Convertible Securities. If the Company in any manner
     issues or sells any Convertible Securities and the lowest price per share
     for which one share of Common Stock is issuable upon such conversion or
     exchange or exercise thereof is less than the Applicable Price, then all
     shares of Common Stock issuable upon conversion of such Convertible
     Securities shall be deemed to be outstanding and to have been issued and
     sold by the Company at the time of the issuance or sale of such Convertible
     Securities for such price per share. For the purposes of this Section
     7(a)(ii), the "lowest price per share for which one share of Common Stock
     is issuable upon such conversion or exchange or exercise" shall be equal to
     the sum of the lowest amounts of consideration (if any) received or
     receivable by the Company with respect to any one share of Common Stock
     upon the issuance or sale of the Convertible Security and upon the
     conversion or exchange or exercise of such Convertible Security. No further
     adjustment of the Conversion Price shall be made upon the actual issuance
     of such share of Common Stock upon conversion or exchange or exercise of
     such Convertible Securities, and if any such issue or sale of such
     Convertible Securities is made upon exercise of any Options for which
     adjustment of the Conversion Price had been or are to be made pursuant to
     other provisions of this Section 7(a), no further adjustment of the
     Conversion Price shall be made by reason of such issue or sale.

          (iii) Change in Option Price or Rate of Conversion. If the purchase
     price provided for in any Options, the additional consideration, if any,
     payable upon the issue, conversion, exchange or exercise of any Convertible
     Securities, or the rate at which any Convertible Securities are convertible
     into or exchangeable or exercisable for Common Stock changes at any time,
     the Conversion Price in effect at the time of such change shall be adjusted
     to the Conversion Price which would have been in effect at such time had
     such Options or Convertible Securities provided for such changed purchase
     price,


                                       12



     additional consideration or changed conversion rate, as the case may be, at
     the time initially granted, issued or sold. For purposes of this Section
     7(a)(iii), if the terms of any Option or Convertible Security that was
     outstanding as of the Subscription Date are changed in the manner described
     in the immediately preceding sentence, then such Option or Convertible
     Security and the Common Stock deemed issuable upon exercise, conversion or
     exchange thereof shall be deemed to have been issued as of the date of such
     change. No adjustment shall be made if such adjustment would result in an
     increase of the Conversion Price then in effect.

          (iv) Calculation of Consideration Received. In case any Option is
     issued in connection with the issue or sale of other securities of the
     Company, together comprising one integrated transaction in which no
     specific consideration is allocated to such Options by the parties thereto,
     the Options will be deemed to have been issued for such consideration as
     determined in good faith by the Board of Directors of the Company. If any
     Common Stock, Options or Convertible Securities are issued or sold or
     deemed to have been issued or sold for cash, the consideration received
     therefor will be deemed to be the net amount received by the Company
     therefor. If any Common Stock, Options or Convertible Securities are issued
     or sold for a consideration other than cash, the amount of the
     consideration other than cash received by the Company will be the fair
     value of such consideration as determined in good faith by the Board of
     Directors of the Company, except where such consideration consists of
     publicly traded securities, in which case the amount of consideration
     received by the Company will be the Closing Sale Price of such publicly
     traded securities on the date of receipt. If any Common Stock, Options or
     Convertible Securities are issued to the owners of the non-surviving entity
     in connection with any merger in which the Company is the surviving entity,
     the amount of consideration therefor will be deemed to be the fair value of
     such portion of the net assets and business of the non-surviving entity as
     is attributable to such Common Stock, Options or Convertible Securities, as
     the case may be. The fair value of any consideration other than cash or
     publicly traded securities will be determined jointly by the Company and
     the Required Holders. If such parties are unable to reach agreement within
     ten (10) days after the occurrence of an event requiring valuation (the
     "VALUATION EVENT"), the fair value of such consideration will be determined
     within five (5) Business Days after the tenth day following the Valuation
     Event by an independent, reputable appraiser jointly selected by the
     Company and the Required Holders. The determination of such appraiser shall
     be deemed binding upon all parties absent manifest error and the fees and
     expenses of such appraiser shall be borne by the Company.

          (v) Record Date. If the Company takes a record of the holders of
     Common Stock for the purpose of entitling them (A) to receive a dividend or
     other distribution payable in Common Stock, Options or in Convertible
     Securities or (B) to subscribe for or purchase Common Stock, Options or
     Convertible Securities, then such record date will be deemed to be the date
     of the issue or sale of the Common Stock deemed to have been issued or sold
     upon the declaration of such dividend or the making of such other
     distribution or the date of the granting of such right of subscription or
     purchase, as the case may be.


                                       13



     (b) Adjustment of Conversion Price upon Subdivision or Combination of
Common Stock. If the Company at any time on or after the Subscription Date
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its outstanding shares of Common Stock into a greater
number of shares, the Conversion Price in effect immediately prior to such
subdivision will be proportionately reduced. If the Company at any time on or
after the Subscription Date combines (by combination, reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Conversion Price in effect immediately prior to
such combination will be proportionately increased.

     (c) Other Events. If any event occurs of the type contemplated by the
provisions of this Section 7 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Company's
Board of Directors will make an appropriate adjustment in the Conversion Price
so as to protect the rights of the Holder under this Note; provided that no such
adjustment will increase the Conversion Price as otherwise determined pursuant
to this Section 7.

8. COMPANY RIGHT OF REDEMPTION.

     (a) General. The Company at its option shall have the right to redeem, with
three (3) Business Days advance written notice (the "COMPANY REDEMPTION
NOTICE"), a portion or all of the outstanding principal of the Note; provided,
however, the Closing Bid Price of the Common Stock is less than the Conversion
Price then in effect for five (5) Trading Days immediately prior to the delivery
of the Company Redemption Notice. The Holder may convert after the Company
Redemption Notice is received and until the Company Redemption Price is received
by the Holder. The redemption price shall be One Hundred and Ten percent (110%)
of the face amount redeemed plus accrued interest (the "COMPANY REDEMPTION
PRICE"). The Company shall pay the Company Redemption Price on all payments made
pursuant to this Note (except to the extent a higher redemption price is due in
connection with an Event of Default or Change of Control, in which case such
higher redemption price shall be paid by the Company), including payments made
before, on, or after the Maturity Date. It shall be an Event of Default if the
Company does not timely redeem the portion of this Note elected to be redeemed
pursuant to a Company Redemption Notice and, thereafter, the Holder shall be
able to exercise all of its rights and remedies hereunder upon an Event of
Default, including the right to accelerate this Note and cause this Note to be
redeemed in full pursuant to Section 4(b) hereof. For all payments under this
Note, the payment of the Company Redemption Price by the Company shall be in
addition to any accrued interest due.

     (b) Mechanics of Company Redemption. If the Company elects to redeem the
Note in accordance with Section 8(a), then the Company Redemption Price, if any,
which is to be paid to the Holder, shall be paid, by wire transfer of
immediately available funds, an amount in cash equal to 100% of the Company
Redemption Price. If the Company fails to redeem the amount of outstanding
principal set forth in the Company Redemption Notice on such date, then at the
option of the Holder designated in writing to the Company (any such designation,
"Conversion Notice" for purposes of this Note), the Holder may require the
Company to convert all or any part of such outstanding principal plus accrued
interest at the Conversion Price. Conversions


                                       14



required by this Section 8(b) shall be made in accordance with the provisions of
Section 3(c). Notwithstanding anything to the contrary in this Section 8(b), but
subject to Section 3(d), until the Company Redemption Price (together with any
interest thereon) is paid in full, the amount of outstanding principal set forth
in the Company Redemption Notice (together with any interest thereon) may be
converted, in whole or in part, by the Holder into Common Stock pursuant to
Section 3.

9. SECURITY. This Note is secured to the extent and in the manner set forth in
the Security Documents (as defined in the Securities Purchase Agreement).

10. NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company
will not, by amendment of its Articles of Incorporation, Bylaws or through any
reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Note, and will at all times in good faith carry out all of the
provisions of this Note and take all reasonable action as may be required to
protect the rights of the Holder of this Note.

11. RESERVATION OF AUTHORIZED SHARES.

     (a) Reservation. The Company initially shall reserve out of its authorized
and unissued Common Stock a number of shares of Common Stock for each of the
Notes equal to 175% of the Conversion Rate with respect to the Conversion Amount
of each such Note as of the Issuance Date. So long as any of the Notes are
outstanding, the Company shall take all action necessary to reserve and keep
available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Notes, 175% of the number of shares
of Common Stock as shall from time to time be necessary to effect the conversion
of all of the Notes then outstanding; provided that at no time shall the number
of shares of Common Stock so reserved be less than the number of shares required
to be reserved pursuant to the previous sentence (without regard to any
limitations on conversions) (the "REQUIRED RESERVE AMOUNT").

     (b) Insufficient Authorized Shares. If at any time while any of the Notes
remain outstanding the Company does not have a sufficient number of authorized
and unreserved shares of Common Stock to satisfy its obligation to reserve for
issuance upon conversion of the Notes at least a number of shares of Common
Stock equal to the Required Reserve Amount (an "AUTHORIZED SHARE FAILURE"), then
the Company shall immediately take all action necessary to increase the
Company's authorized shares of Common Stock to an amount sufficient to allow the
Company to reserve the Required Reserve Amount for the Notes then outstanding.
Without limiting the generality of the foregoing sentence, as soon as
practicable after the date of the occurrence of an Authorized Share Failure, but
in no event later than forty-five (45) days after the occurrence of such
Authorized Share Failure, the Company shall hold a meeting of its shareholders
for the approval of an increase in the number of authorized shares of Common
Stock. In connection with such meeting, the Company shall provide each
shareholder with a proxy or information statement and shall use its best efforts
to solicit its shareholders' approval of such increase in authorized shares of
Common Stock and to cause its board of directors to recommend to the
shareholders that they approve such proposal.


                                       15



12. HOLDER'S REDEMPTIONS. The Company shall deliver the applicable Event of
Default Redemption Price to the Holder within five (5) Business Days after the
Company's receipt of the Holder's Event of Default Redemption Notice. If the
Holder has submitted a Change of Control Redemption Notice in accordance with
Section 5(b), the Company shall deliver the applicable Change of Control
Redemption Price to the Holder concurrently with the consummation of such Change
of Control if such notice is received prior to the consummation of such Change
of Control and within five (5) Business Days after the Company's receipt of such
notice otherwise. In the event of a redemption of less than all of the
Conversion Amount of this Note, the Company shall promptly cause to be issued
and delivered to the Holder a new Note (in accordance with Section 18(d))
representing the outstanding Principal which has not been redeemed. In the event
that the Company does not pay the applicable Redemption Price to the Holder
within the time period required, at any time thereafter and until the Company
pays such unpaid Redemption Price in full, the Holder shall have the option, in
lieu of redemption, to require the Company to promptly return to the Holder all
or any portion of this Note representing the Conversion Amount that was
submitted for redemption and for which the applicable Redemption Price (together
with any Late Charges thereon) has not been paid. Upon the Company's receipt of
such notice, (x) the applicable Redemption Notice shall be null and void with
respect to such Conversion Amount, (y) the Company shall immediately return this
Note, or issue a new Note (in accordance with Section 18(d)) to the Holder
representing the sum of such Conversion Amount to be redeemed together with
accrued and unpaid Interest with respect to such Conversion Amount and accrued
and unpaid Late Charges with respect to such Conversion Amount and Interest and
(z) the Conversion Price of this Note or such new Notes shall be adjusted to the
lesser of (A) the Conversion Price as in effect on the date on which the
applicable Redemption Notice is voided and (B) the lowest Closing Bid Price
during the period beginning on and including the date on which the applicable
Redemption Notice is delivered to the Company and ending on and including the
date on which the applicable Redemption Notice is voided. The Holder's delivery
of a notice voiding a Redemption Notice and exercise of its rights following
such notice shall not affect the Company's obligations to make any payments of
Late Charges which have accrued prior to the date of such notice with respect to
the Conversion Amount subject to such notice.

13. RESTRICTION ON REDEMPTION AND CASH DIVIDENDS. Until all of the Notes have
been converted, redeemed or otherwise satisfied in accordance with their terms,
the Company shall not, directly or indirectly, redeem, repurchase or declare or
pay any cash dividend or distribution on its capital stock without the prior
express written consent of the Required Holders.

14. VOTING RIGHTS. The Holder shall have no voting rights as the holder of this
Note, except as required by law, including but not limited to Section 212 of the
Delaware General Corporation Law, and as expressly provided in this Note.

15. COVENANTS.

     (a) Rank. All payments due under this Note shall be senior to all other
Indebtedness of the Company and its Subsidiaries and shall be subordinate to the
Permitted Senior


                                       16



Indebtedness solely with respect to accounts receivables of the Company securing
the Permitted Senior Indebtedness.

     (b) Incurrence of Indebtedness. So long as this Note is outstanding, the
Company shall not, and the Company shall not permit any of its Subsidiaries to,
directly or indirectly, incur or guarantee, assume or suffer to exist any
Indebtedness, other than (i) the Indebtedness evidenced by this Note and (ii)
Permitted Indebtedness.

     (c) Existence of Liens. So long as this Note is outstanding, the Company
shall not, and the Company shall not permit any of its Subsidiaries to, directly
or indirectly, allow or suffer to exist any mortgage, lien, pledge, charge,
security interest or other encumbrance upon or in any property or assets
(including accounts and contract rights) owned by the Company or any of its
Subsidiaries (collectively, "LIENS") other than Permitted Liens.

     (d) Restricted Payments. The Company shall not, and the Company shall not
permit any of its Subsidiaries to, directly or indirectly, redeem, defease,
repurchase, repay or make any payments in respect of, by the payment of cash or
cash equivalents (in whole or in part, whether by way of open market purchases,
tender offers, private transactions or otherwise), all or any portion of any
Permitted Indebtedness, whether by way of payment in respect of principal of (or
premium, if any) or interest on, such Indebtedness if at the time such payment
is due or is otherwise made or, after giving effect to such payment, an event
constituting, an Event of Default has occurred and is continuing.

     (e) Sales of Equity Securities. Except for Excluded Securities, the Company
shall not, without the prior written consent of the Holder, (i) issue or sell
shares of Common Stock or preferred stock without consideration or for a
consideration per share less than the greater of the Closing Bid Price of the
Common Stock determined immediately prior to its issuance or $.01, if the Common
Stock is not traded or quoted on the Principal Market or any national exchange,
(ii) issue any warrant, option, right, contract, call, or other security
instrument granting the holder thereof, the right to acquire Common Stock
without consideration or for a consideration less than the greater of such
Common Stock's Closing Bid Price value determined immediately prior to its
issuance or $.01, if the Common Stock is not traded on the Principal Market or
any national exchange, or (iii) file any registration statement on Form S-8,
unless (x) such shares covered by such Form S-8 are not issued without
consideration or for a consideration less than the greater of the Common Stock's
Closing Bid Price on the date of issuance or $.01, if the Common Stock is not
traded or quoted on the Principal Market or any national exchange, and (y) such
Form S-8 registration statement is not filed prior to 90 days following the
effectiveness of the registration statement.

     (f) Subsidiary Internal Accounting Controls. So long as this Note is
outstanding, the Company and each of its Subsidiaries shall maintain, in all
material respects, a system of internal accounting controls consistent with the
Internal Accounting Controls (as defined in the Securities Purchase Agreement).

     (g) Dispositions. So long as any Obligations are outstanding, the Company
shall not, and the Company shall not permit any of its Subsidiaries to, convey,
sell, lease or sublease,


                                       17



transfer or otherwise dispose of, whether in one transaction or a series of
related transactions, all or any material part of its business, property or
assets, whether now owned or hereafter acquired (or agree to do any of the
foregoing); provided, however, that the Company and its Subsidiaries may (i)
sell inventory in the ordinary course of business, (ii) dispose of obsolete or
worn-out equipment in the ordinary course of business and (iii) dispose of the
non-core assets set forth on Schedule 15(g) hereto.

     (h) Additional Collateral Security. The Company shall cause each Subsidiary
of the Company or any such Subsidiary not in existence on the Issuance Date, to
execute and deliver to the Collateral Agent promptly and in any event within
five (5) Business Days after the formation, acquisition or change in status
thereof (i) a Security Agreement and (ii) such other agreements, instruments,
approvals, legal opinions or other documents reasonably requested by the
Collateral Agent in order to create, perfect, establish the first priority of
(subject to Permitted Liens) or otherwise protect any Lien purported to be
covered by any such Security Agreement or otherwise to effect the intent that
such Subsidiary shall become bound by all of the terms, covenants and agreements
contained in the this Note and that all property and assets of such Subsidiary
shall become Collateral for the Obligations.

16. VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES. The affirmative vote at a
meeting duly called for such purpose or the written consent without a meeting of
the Required Holders shall be required for any change or amendment to this Note.
In no event shall any amendment, modification nor waiver be made to this Note
which would adversely affect the Holder without the written consent of the
Holder.

17. TRANSFER. The Holder acknowledges and agrees that this Note may only be
offered, sold, assigned or transferred by the Holder without the consent of the
Company, provided that the provisions of Section 2(f) of the Securities Purchase
Agreement are complied with in all respects.

18. REISSUANCE OF THIS NOTE.

     (a) Transfer. If this Note is to be transferred, the Holder shall surrender
this Note to the Company, whereupon the Company will issue, promptly following
the satisfaction of the provisions of Section 2(f) of the Securities Purchase
Agreement, and deliver upon the order of the Holder a new Note (in accordance
with Section 18(d)), in the name of the validly registered assigns or
transferee, representing the outstanding Principal being transferred by the
Holder and, if less then the entire outstanding Principal is being transferred,
a new Note (in accordance with Section 18(d)) to the Holder representing the
outstanding Principal not being transferred. The Holder and any assignee, by
acceptance of this Note, acknowledge and agree that, by reason of the provisions
of Section 3(c)(iii) and this Section 18(a), following conversion or redemption
of any portion of this Note, the outstanding Principal represented by this Note
may be less than the Principal stated on the face of this Note.

     (b) Lost, Stolen or Mutilated Note. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Note,


                                       18



and, in the case of loss, theft or destruction, of any indemnification
undertaking and posting of a bond by the Holder to the Company in customary form
and, in the case of mutilation, upon surrender and cancellation of this Note,
the Company shall execute and deliver to the Holder a new Note (in accordance
with Section 18(d)) representing the outstanding Principal.

     (c) Note Exchangeable for Different Denominations. This Note is
exchangeable, upon the surrender hereof by the Holder at the principal office of
the Company, for a new Note or Notes (in accordance with Section 18(d) and in
principal amounts of at least $100,000) representing in the aggregate the
outstanding Principal of this Note, and each such new Note will represent such
portion of such outstanding Principal as is designated by the Holder at the time
of such surrender.

     (d) Issuance of New Notes. Whenever the Company is required to issue a new
Note pursuant to the terms of this Note, such new Note (i) shall be of like
tenor with this Note, (ii) shall represent, as indicated on the face of such new
Note, the Principal remaining outstanding (or in the case of a new Note being
issued pursuant to Section 18(a) or Section 18(c), the Principal designated by
the Holder which, when added to the principal represented by the other new Notes
issued in connection with such issuance, does not exceed the Principal remaining
outstanding under this Note immediately prior to such issuance of new Notes),
(iii) shall have an issuance date, as indicated on the face of such new Note,
which is the same as the Issuance Date of this Note, (iv) shall have the same
rights and conditions as this Note, and (v) shall represent accrued Interest and
Late Charges on the Principal and Interest of this Note, from the Issuance Date.

19. REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE
RELIEF. The remedies provided in this Note shall be cumulative and in addition
to all other remedies available under this Note and any of the other Transaction
Documents at law or in equity (including a decree of specific performance and/or
other injunctive relief). Amounts set forth or provided for herein with respect
to payments, conversion and the like (and the computation thereof) shall be the
amounts to be received by the Holder and shall not, except as expressly provided
herein, be subject to any other obligation of the Company (or the performance
thereof). The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holder and that the remedy at law
for any such breach may be inadequate. The Company therefore agrees that, in the
event of any such breach or threatened breach, the Holder shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach, without the necessity of showing economic loss and without any bond or
other security being required.

20. PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note is
placed in the hands of an attorney for collection or enforcement or is collected
or enforced through any legal proceeding or the Holder otherwise takes action to
collect amounts due under this Note or to enforce the provisions of this Note or
(b) there occurs any bankruptcy, reorganization, receivership of the Company or
other proceedings affecting Company creditors' rights and involving a claim
under this Note, then the Company shall pay the reasonable costs incurred by the
Holder for such collection, enforcement or action or in connection with such


                                       19



bankruptcy, reorganization, receivership or other proceeding, including, but not
limited to, attorneys' fees and disbursements.

21. CONSTRUCTION; HEADINGS. The headings of this Note are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Note.

22. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of the
Holder 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.

23. DISPUTE RESOLUTION. In the case of a dispute as to the determination of the
Closing Bid Price, the Closing Sale Price, the Average Market Price or the
Weighted Average Price or the arithmetic calculation of the Conversion Rate or
any Redemption Price, the Company shall submit the disputed determinations or
arithmetic calculations via facsimile within two (2) Business Days of receipt of
the Conversion Notice or Redemption Notice or other event giving rise to such
dispute, as the case may be, to the Holder. If the Holder and the Company are
unable to agree upon such determination or calculation within one (1) Business
Day of such disputed determination or arithmetic calculation being submitted to
the Holder, then the Company shall, within one (1) Business Day submit via
facsimile (a) the disputed determination of the Closing Bid Price, the Closing
Sale Price, the Average Market Price or the Weighted Average Price to an
independent, reputable investment bank selected by the Company and approved by
the Holder (such approval not to be unreasonably withheld or delayed) or (b) the
disputed arithmetic calculation of the Conversion Rate or any Redemption Price
to the Company's independent, outside accountant. The Company, at the Company's
expense, shall cause the investment bank or the accountant, as the case may be,
to perform the determinations or calculations and notify the Company and the
Holder of the results no later than five (5) Business Days from the time it
receives the disputed determinations or calculations. Such investment bank's or
accountant's determination or calculation, as the case may be, shall be binding
upon all parties absent demonstrable error. If such investment bank or
accountant's determination confirms the Company's calculation, Holder shall
reimburse Company for the Company's expenses of such investment bank or
accountants.

24. NOTICES; PAYMENTS.

     (a) Notices. Whenever notice is required to be given under this Note,
unless otherwise provided herein, such notice shall be given in accordance with
Section 9(f) of the Securities Purchase Agreement. The Company shall provide the
Holder with prompt written notice of all actions taken pursuant to this Note,
including in reasonable detail a description of such action and the reason
therefore. Without limiting the generality of the foregoing, the Company will
give written notice to the Holder (i) immediately upon any adjustment of the
Conversion Price, setting forth in reasonable detail, and certifying, the
calculation of such adjustment and (ii) at least twenty (20) days prior to the
date on which the Company closes its books or takes a record (A) with respect to
any dividend or distribution upon the Common Stock, (B) with respect to any pro
rata subscription offer to holders of Common Stock or (C) for determining rights
to vote with respect to any Fundamental Transaction, dissolution or


                                       20



liquidation, provided in each case that such information shall be made known to
the public prior to or in conjunction with such notice being provided to the
Holder.

     (b) Payments. Whenever any payment of cash is to be made by the Company to
any Person pursuant to this Note, such payment shall be made in lawful money of
the United States of America by a check drawn on the account of the Company and
sent via overnight courier service to such Person at such address as previously
provided to the Company in writing (which address, in the case of each of the
Purchasers, shall initially be as set forth on the Schedule of Buyers attached
to the Securities Purchase Agreement); provided that the Holder may elect to
receive a payment of cash via wire transfer of immediately available funds by
providing the Company with prior written notice setting out such request and the
Holder's wire transfer instructions. Whenever any amount expressed to be due by
the terms of this Note is due on any day which is not a Business Day, the same
shall instead be due on the next succeeding day which is a Business Day and, in
the case of any Interest Date which is not the date on which this Note is paid
in full, the extension of the due date thereof shall not be taken into account
for purposes of determining the amount of Interest due on such date. Any amount
of Principal or other amounts due under the Transaction Documents, other than
Interest, which is not paid when due shall result in a late charge being
incurred and payable by the Company in an amount equal to interest on such
amount at the rate of fifteen percent (15%) per annum from the date such amount
was due until the same is paid in full ("LATE CHARGE").

25. CANCELLATION. After all Principal, accrued Interest and other amounts at any
time owed on this Note has been paid in full, this Note shall automatically be
deemed canceled, shall be surrendered to the Company for cancellation and shall
not be reissued.

26 WAIVER OF NOTICE. To the extent permitted by law, the Company hereby waives
demand, notice, protest and all other demands and notices in connection with the
delivery, acceptance, performance, default or enforcement of this Note and the
Securities Purchase Agreement and the other Transaction Documents.

27. GOVERNING LAW; JURISDICTION; JURY TRIAL. This Note shall be construed and
enforced in accordance with, and all questions concerning the construction,
validity, interpretation and performance of this Note shall be governed by, the
internal laws of the State of New York, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York. The Company 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 suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper. The Company 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 to such party at the address it set forth
on the signature page hereto and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing


                                       21



contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. 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 enforceability 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 the Company in any other
jurisdiction to collect on the Company's obligations to the Holder, to realize
on any collateral or any other security for such obligations, or to enforce a
judgment or other court ruling in favor of the Holder. THE COMPANY HEREBY
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY
TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR
ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.

28. CERTAIN DEFINITIONS. For purposes of this Note, the following terms shall
have the following meanings:

     (a) "APPROVED STOCK PLAN" means any employee benefit plan which has been
approved by the Board of Directors of the Company, pursuant to which the
Company's securities may be issued to any employee, consultant, officer or
director for services provided to the Company.

     (b) "AVERAGE MARKET PRICE" means, for any given date, the lesser of (i) the
arithmetic average of the Weighted Average Price of the Common Stock during the
twenty (20) consecutive Trading Day period ending on the third (3rd) Trading Day
immediately prior to such given date, and (ii) the arithmetic average of the
Weighted Average Price of the Common Stock during the five (5) consecutive
Trading Day period commencing during the 20th consecutive Trading Day period
ending on the third (3rd) Trading Day immediately prior to such given date and
that all such determinations shall be appropriately adjusted for any stock
split, stock dividend, stock combination or other similar transaction that
proportionately decreases or increases the Common Stock during such periods.

     (c) "BLOOMBERG" means Bloomberg Financial Markets.

     (d) "BUSINESS DAY" means any day other than Saturday, Sunday or other day
on which commercial banks in The City of New York are authorized or required by
law to remain closed.

     (e) "CALENDAR MONTH" means the period beginning on and including the first
of each calendar month and ending on and including the last day of such calendar
month.

     (f) "CHANGE OF CONTROL" means any Fundamental Transaction other than (i)
any reorganization, recapitalization or reclassification of the Common Stock in
which holders of the Company's voting power immediately prior to such
reorganization, recapitalization or reclassification continue after such
reorganization, recapitalization or reclassification to hold


                                       22



publicly traded securities and, directly or indirectly, the voting power of the
surviving entity or entities necessary to elect a majority of the members of the
board of directors (or their equivalent if other than a corporation) of such
entity or entities, or (ii) pursuant to a migratory merger effected solely for
the purpose of changing the jurisdiction of incorporation of the Company.

     (g) "CHANGE OF CONTROL PREMIUM" means (i) 125% or (ii) 115% in the event of
a Change of Control involving consideration paid to holders of the Company's
Common Stock where the consideration per share of the Company's Common Stock to
be received by the holders thereof is greater (as to amounts other than cash, as
determined reasonably and in good faith by the Board of Directors of the
Company) than 200% of the Conversion Price as of the Initial Issuance Date (as
adjusted for stock splits, stock dividends, reverse stock splits,
recapitalizations, reclassifications and similar events).

     (h) "CLOSING BID PRICE" and "CLOSING SALE PRICE" means, for any security as
of any date, the last closing bid price and last closing trade price,
respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of
any market makers for such security as reported in the "pink sheets" by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid
Price or the Closing Sale Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Closing Bid Price or the
Closing Sale Price, as the case may be, of such security on such date shall be
the fair market value as mutually determined by the Company and the Holder. If
the Company and the Holder are unable to agree upon the fair market value of
such security, then such dispute shall be resolved pursuant to Section 23. All
such determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable
calculation period.

     (i) "CLOSING DATE" shall have the meaning set forth in the Securities
Purchase Agreement, which date is the date the Company initially issued Notes
pursuant to the terms of the Securities Purchase Agreement.

     (j) "CONTINGENT OBLIGATION" means, as to any Person, any direct or indirect
liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto.


                                       23



     (k) "CONVERTIBLE SECURITIES" means any stock or securities (other than
Options) directly or indirectly convertible into or exercisable or exchangeable
for Common Stock.

     (L) "ELIGIBLE MARKET" means, the Principal Market, The New York Stock
Exchange, Inc., the Nasdaq Capital Market, the Nasdaq Global Market or the
American Stock Exchange.

     (m) "EQUITY CONDITIONS" means that each of the following conditions is
satisfied: (i) on each day during the period beginning six (6) months prior to
the applicable date of determination and ending on and including the applicable
date of determination (the "Equity Conditions Measuring Period"), either (x) the
Registration Statement filed pursuant to the Registration Rights Agreement shall
be effective and available for the resale of all remaining Registrable
Securities in accordance with the terms of the Registration Rights Agreement and
there shall not have been any Grace Periods (as defined in the Registration
Rights Agreement) or (y) all shares of Common Stock issuable upon conversion of
the Notes and exercise of the Warrants shall be eligible for sale without
restriction and without the need for registration under any applicable federal
or state securities laws; (ii) on each day during the Equity Conditions
Measuring Period, the Common Stock is designated for quotation on the Principal
Market and shall not have been suspended from trading on such exchange or market
(other than suspensions of not more than two (2) Trading Days and occurring
prior to the applicable date of determination due to business announcements by
the Company) nor shall delisting or suspension by such exchange or market been
threatened or pending either (A) in writing by such exchange or market or (B) by
falling below the minimum listing maintenance requirements of such exchange or
market; (iii) during the one (1) year period ending on and including the date
immediately preceding the applicable date of determination, the Company shall
have delivered Conversion Shares upon conversion of the Notes and Warrant Shares
upon exercise of the Warrants to the holders on a timely basis as set forth in
Section 3(c)(i) hereof and Section 1(a) of the Warrants; (iv) any applicable
shares of Common Stock to be issued in connection with the event requiring
determination may be issued in full without violating Section 3(d) hereof and
the rules or regulations of the Principal Market; (v) during the Equity
Conditions Measuring Period, the Company shall not have failed to timely make
any payments within five (5) Business Days of when such payment is due pursuant
to any Transaction Document; (vi) during the Equity Conditions Measuring Period,
there shall not have occurred either (A) the public announcement of a pending,
proposed or intended Fundamental Transaction which has not been abandoned,
terminated or consummated or (B) an Event of Default or an event that with the
passage of time or giving of notice would constitute an Event of Default; (vii)
the Company shall have no knowledge of any fact that would cause (x) the
Registration Statements required pursuant to the Registration Rights Agreement
not to be effective and available for the resale of all remaining Registrable
Securities in accordance with the terms of the Registration Rights Agreement or
(y) any shares of Common Stock issuable upon conversion of the Notes and shares
of Common Stock issuable upon exercise of the Warrants not to be eligible for
sale without restriction pursuant to Rule 144(k) and any applicable state
securities laws; (viii) the Company otherwise shall have been in material
compliance with and shall not have materially breached any provision, covenant,
representation or warranty of any Transaction Document; and (ix) the Stockholder
Approval (as defined in the Securities Purchase Agreement) shall have been
obtained.


                                       24



     (n) "EQUITY CONDITIONS FAILURE" means that on any day during (i) the period
commencing twenty-one (21) Trading Days prior to the applicable Interest Notice
Date through the applicable Interest Notice Date or (ii) the period commencing
with the applicable Interest Notice Due Date through the applicable Interest
Date, the Equity Conditions have not been satisfied (or waived in writing by the
Holder).

     (o) "EXCLUDED SECURITIES" means any Common Stock and/or Options, Warrants
or other Common Stock Purchase Rights (and the Common Stock issuable pursuant to
such Options, Warrants or other rights) issued or issuable: (i) in connection
with any Approved Stock Plan up to a maximum of ten percent (10%) of the
outstanding Common Stock (provided that securities issued in connection with any
Approved Stock Plan that are outstanding as of the Subscription Date and shares
of Common Stock issuable pursuant to exercise or conversion of such outstanding
securities shall not be included for purposes calculating the maximum of ten
percent (10%)); (ii) upon conversion of, or in exchange for, the Notes or the
exercise of the Warrants; (iii) upon conversion or exercise of any Options or
Convertible Securities which are outstanding on the day immediately preceding
the Subscription Date, provided that the terms of such Options or Convertible
Securities are not amended, modified or changed on or after the Subscription
Date to lower the conversion or exercise price thereof; (iv) shares of Common
Stock issued in an underwritten public offering in which the gross cash proceeds
to the Company (before underwriting discounts, commissions and fees) are at
least $10,000,000; (v) options issued to Consulting For Strategic Growth up to a
maximum of fifty thousand (50,000) shares of Common Stock per calendar month
commencing the first full calendar month after the Registration Statement is
declared effective; (vi) options issued to medical practices that are customers
of the Company in good standing up to a maximum of 250,000 warrants per practice
and above the Closing Sale Price on the day of issuance; and (vii) shares of
Common Stock, Options, or Warrants to be issued to Rodman & Renshaw (or their
designees) as consideration for securing a line of credit or similar financing
for the Company.

     (p) "FUNDAMENTAL TRANSACTION" means that the Company shall, directly or
indirectly, in one or more related transactions, (i) consolidate or merge with
or into (whether or not the Company is the surviving corporation) another
Person, or (ii) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of the properties or assets of the Company to another Person,
or (iii) allow another Person or Persons to make a purchase, tender or exchange
offer that is accepted by the holders of more than the 50% of the outstanding
shares of Voting Stock (not including any shares of Voting Stock held by the
Person or Persons making or party to, or associated or affiliated with the
Person or Persons making or party to, such purchase, tender or exchange offer),
or (iv) consummate a stock purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization, spin-off or
scheme of arrangement) with another Person whereby such other Person acquires
more than the 50% of either the outstanding shares of Voting Stock (not
including any shares of Voting Stock held by the other Person or other Persons
making or party to, or associated or affiliated with the other Persons making or
party to, such stock purchase agreement or other business combination), (v)
reorganize, recapitalize or reclassify its Common Stock or (vi) any "person" or
"group" (as these terms are used for purposes of Sections 13(d) and 14(d) of the
Exchange Act) is or shall


                                       25



become the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of 50% of the aggregate Voting Stock of the Company.

     (q) "GAAP" means United States generally accepted accounting principles,
consistently applied.

     (r) "INDEBTEDNESS" of any Person means, without duplication (i) all
indebtedness for borrowed money, (ii) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services, including
(without limitation) "capital leases" in accordance with generally accepted
accounting principles (other than trade payables entered into in the ordinary
course of business), (iii) all reimbursement or payment obligations with respect
to letters of credit, surety bonds and other similar instruments, (iv) all
obligations evidenced by notes, bonds, debentures or similar instruments,
including obligations so evidenced incurred in connection with the acquisition
of property, assets or businesses, (v) all indebtedness created or arising under
any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to any property or assets acquired with
the proceeds of such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (vi) all monetary obligations under any
leasing or similar arrangement which, in connection with generally accepted
accounting principles, consistently applied for the periods covered thereby, is
classified as a capital lease, (vii) all indebtedness referred to in clauses (i)
through (vi) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any mortgage,
lien, pledge, charge, security interest or other encumbrance upon or in any
property or assets (including accounts and contract rights) owned by any Person,
even though the Person which owns such assets or property has not assumed or
become liable for the payment of such indebtedness, (viii) all obligations
issued, undertaken or assumed as part of any financing facility with respect to
accounts receivables of the Company and its Subsidiaries, including, without
limitation, any factoring arrangement of such accounts receivables and (ix) all
Contingent Obligations in respect of indebtedness or obligations of others of
the kinds referred to in clauses (i) through (viii) above.

     (s) "INITIAL ISSUANCE DATE" means October 19, 2006.

     (t) "INSTALLMENT AMOUNT" means with respect to any Installment Date, the
lesser of (A) $89,285.71 and (B) the remaining principal due hereunder. In the
event the Holder shall sell or otherwise transfer any portion of this Note, the
transferee shall be allocated a pro rata portion of the each unpaid Installment
Amount hereunder.

     (u) "INSTALLMENT DATE" means the first day of each calendar month.

     (v) "INTEREST RATE" means eight percent (8%) per annum, subject to periodic
adjustment pursuant to Section 2.

     (w) "OPTIONS" means any rights, warrants or options to subscribe for or
purchase Common Stock or Convertible Securities.


                                       26



     (x) "PARENT ENTITY" of a Person means an entity that, directly or
indirectly, controls the applicable Person and whose common stock or equivalent
equity security is quoted or listed on an Eligible Market, or, if there is more
than one such Person or Parent Entity, the Person or Parent Entity with the
largest public market capitalization as of the date of consummation of the
Fundamental Transaction.

     (y) "PERMITTED INDEBTEDNESS" means (A) Indebtedness incurred by the Company
that is made expressly subordinate in right of payment and priority to the
Indebtedness evidenced by this Note, as reflected in a written agreement
acceptable to the Holder and approved by the Holder in writing (which approval
shall not be unreasonably withheld or delayed), and which Indebtedness does not
provide at any time for (1) the payment, prepayment, repayment, repurchase or
defeasance, directly or indirectly, of any principal or premium, if any, thereon
until ninety-one (91) days after the Maturity Date or later and (2) total
interest and fees at a rate in excess of the Interest Rate hereunder, (B)
Permitted Senior Indebtedness, (C) Indebtedness secured by Permitted Liens, (D)
Indebtedness to trade creditors incurred in the ordinary course of business, and
(E) extensions, refinancings and renewals of any items of Permitted
Indebtedness, provided that the principal amount is not increased or the terms
modified to impose more burdensome terms upon the Company or its Subsidiary, as
the case may be, (F) indebtedness to David Goldner pursuant to that certain
promissory note, dated August 24, 2006, issued by the Company to David Goldner.

     (z) "PERMITTED LIENS" means (i) any Lien for taxes not yet due or
delinquent or being contested in good faith by appropriate proceedings for which
adequate reserves have been established in accordance with GAAP, (ii) any
statutory Lien arising in the ordinary course of business by operation of law
with respect to a liability that is not yet due or delinquent, (iii) any Lien
created by operation of law, such as materialmen's liens, mechanics' liens and
other similar liens, arising in the ordinary course of business with respect to
a liability that is not yet due or delinquent or that are being contested in
good faith by appropriate proceedings, (iv) Liens securing the Company's
obligations under the Notes, (v) Liens (A) upon or in any equipment (as defined
in the Security Agreement) acquired or held by the Company or any of its
Subsidiaries to secure the purchase price of such equipment or indebtedness
incurred solely for the purpose of financing the acquisition or lease of such
equipment, or (B) existing on such equipment at the time of its acquisition,
provided that the Lien is confined solely to the property so acquired and
improvements thereon, and the proceeds of such equipment, (vi) Liens incurred in
connection with the extension, renewal or refinancing of the indebtedness
secured by Liens of the type described in clause (v) above, provided that any
extension, renewal or replacement Lien shall be limited to the property
encumbered by the existing Lien and the principal amount of the Indebtedness
being extended, renewed or refinanced does not increase, (vii) Liens on accounts
receivables, security interests, loan documents and reserve accounts and the
proceeds thereof of the Company and its Subsidiaries securing the Company's
obligations under the Permitted Senior Indebtedness; (viii) leases or subleases
and licenses and sublicenses hereafter granted to others in the ordinary course
of the Company's business, not interfering in any material respect with the
business of the Company and its Subsidiaries taken as a whole, (ix) Liens in
favor of customs and revenue authorities arising as a matter of law to secure
payments of custom duties in connection with the importation of goods; (x) Liens
arising from judgments, decrees or attachments in circumstances not constituting
an Event of Default under Section 4(a)(ix); (xi)


                                       27



Liens with respect to Indebtedness not individually in excess of $50,000 or in
the aggregate in excess of $250,000, which individually and in aggregate are not
material to the Company; (xii) the Permitted Liens as defined in the Securities
Purchase Agreement and (xii) the Lien granted to David Goldner with respect to
the collateral described in that certain Security Agreement, dated August 24,
2006, between the Company and David Goldner.

     (aa) "PERMITTED SENIOR INDEBTEDNESS" means any financing facility to be
obtained by the Company after the Initial Issuance Date, and secured by liens in
any or all of the following: accounts receivables, security interests in client
assets; loan documents; reserve account; and the proceeds thereof.

     (bb) "PERSON" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency
thereof.

     (cc) "POTENTIAL PARTNER CONDITIONS" means at any time during the period
commencing on the date of the consummation of any material transaction between
the Company and a Person and ending on the first anniversary of the Effective
Date, there shall be no disclosure that any executive officer of such Person has
(i) exhibited dishonesty in the performance of his or her duties, which is
materially and demonstrably injurious to the Company; or (ii) been convicted of
(x) a felony under the laws of the United States or any state thereof or (y) a
misdemeanor involving moral turpitude, in each case, which is materially and
demonstrably injurious to the Company.

     (dd) "PRINCIPAL MARKET" means Over-the-Counter Bulletin Board.

     (ee) "REDEMPTION NOTICES" means, collectively, the Event of Default
Redemption Notices, Change of Control Redemption Notices, the Company Redemption
Notice, and, each of the foregoing, individually, a Redemption Notice.

     (ff) "REDEMPTION PREMIUM" means (i) in the case of the Events of Default
described in Section 4(a)(i) - (vi) and (ix) - (xii), 125% or (ii) in the case
of the Events of Default described in Section 4(a)(vii) - (viii), 120%.

     (gg) "REDEMPTION PRICES" means, collectively, the Event of Default
Redemption Price, Change of Control Redemption Price, and the Company Redemption
Amount, the Holder Optional Redemption Price and the Holder Partial Redemption
Price and, each of the foregoing, individually, a Redemption Price.

     (hh) "REGISTRATION RIGHTS AGREEMENT" means that certain registration rights
agreement between the Company and the initial holders of the Notes relating to,
among other things, the registration of the resale of the Common Stock issuable
upon conversion of the Notes and exercise of the Warrants.

     (ii) "REQUIRED HOLDERS" means the holders of Notes representing at least a
majority of the aggregate principal amount of the Notes then outstanding.


                                       28



     (jj) "SEC" means the United States Securities and Exchange Commission.

     (kk) "SECURITIES PURCHASE AGREEMENT" means that certain securities purchase
agreement dated the Subscription Date by and among the Company and the initial
holders of the Notes pursuant to which the Company issued the Notes.

     (ll) "SUBSCRIPTION DATE" means October 19, 2006.

     (mm) "SUCCESSOR ENTITY" means the Person, which may be the Company, formed
by, resulting from or surviving any Fundamental Transaction or the Person with
which such Fundamental Transaction shall have been made, provided that if such
Person is not a publicly traded entity whose common stock or equivalent equity
security is quoted or listed for trading on an Eligible Market, Successor Entity
shall mean such Person's Parent Entity.

     (nn) "TRADING DAY" means any day on which the Common Stock is traded on the
Principal Market, or, if the Principal Market is not the principal trading
market for the Common Stock, then on the principal securities exchange or
securities market on which the Common Stock is then traded; provided that
"Trading Day" shall not include any day on which the Common Stock is scheduled
to trade on such exchange or market for less than 4.5 hours or any day that the
Common Stock is suspended from trading during the final hour of trading on such
exchange or market (or if such exchange or market does not designate in advance
the closing time of trading on such exchange or market, then during the hour
ending at 4:00 p.m., New York Time).

     (oo) "VOLUME INSTALLMENT LIMITATION" means, for any date of determination,
fifteen percent (15%) of the aggregate dollar trading volume (as reported on
Bloomberg) of the Common Stock over the forty (40) consecutive Trading Day
period ending on the third (3rd) Trading Day immediately preceding the
applicable Installment Date.

     (pp) "VOLUME INTEREST LIMITATION" means, for any date of determination,
fifteen percent (15%) of the aggregate dollar trading volume (as reported on
Bloomberg) of the Common Stock over the twenty (20) consecutive Trading Day
period ending on the third (3rd) Trading Day immediately preceding the
applicable Interest Date.

     (qq) "VOTING STOCK" of a Person means capital stock of such Person of the
class or classes pursuant to which the holders thereof have the general voting
power to elect, or the general power to appoint, at least a majority of the
board of directors, managers or trustees of such Person (irrespective of whether
or not at the time capital stock of any other class or classes shall have or
might have voting power by reason of the happening of any contingency).

     (rr) "WARRANTS" has the meaning ascribed to such term in the Securities
Purchase Agreement, and shall include all warrants issued in exchange therefor
or replacement thereof.

     (ss) "WEIGHTED AVERAGE PRICE" means, for any security as of any date, the
dollar volume-weighted average price for such security on the Principal Market
during the period


                                       29



beginning at 9:30 a.m., New York Time (or such other time as the Principal
Market publicly announces is the official open of trading), and ending at 4:00
p.m., New York Time (or such other time as the Principal Market publicly
announces is the official close of trading) as reported by Bloomberg through its
"Volume at Price" functions, or, if the foregoing does not apply, the dollar
volume-weighted average price of such security in the over-the-counter market on
the electronic bulletin board for such security during the period beginning at
9:30 a.m., New York Time (or such other time as such market publicly announces
is the official open of trading), and ending at 4:00 p.m., New York Time (or
such other time as such market publicly announces is the official close of
trading) as reported by Bloomberg, or, if no dollar volume-weighted average
price is reported for such security by Bloomberg for such hours, the average of
the highest closing bid price and the lowest closing ask price of any of the
market makers for such security as reported in the "pink sheets" by Pink Sheets
LLC (formerly the National Quotation Bureau, Inc.). If the Weighted Average
Price cannot be calculated for a security on a particular date on any of the
foregoing bases, the Weighted Average Price of such security on such date shall
be the fair market value as mutually determined by the Company and the Holder.
If the Company and the Holder are unable to agree upon the fair market value of
such security, then such dispute shall be resolved pursuant to Section 23. All
such determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable
calculation period.

29. DISCLOSURE. Upon receipt or delivery by the Company of any notice in
accordance with the terms of this Note, unless the Company has in good faith
determined that the matters relating to such notice do not constitute material,
nonpublic information relating to the Company or its Subsidiaries, the Company
shall within one (1) Business Day after any such receipt or delivery publicly
disclose such material, nonpublic information on a Current Report on Form 8-K or
otherwise. In the event that the Company believes that a notice contains
material, nonpublic information, relating to the Company or its Subsidiaries,
the Company shall indicate to the Holder contemporaneously with delivery of such
notice, and in the absence of any such indication, the Holder shall be allowed
to presume that all matters relating to such notice do not constitute material,
nonpublic information relating to the Company or its Subsidiaries.

29. SUBORDINATION. The obligations of the Company under this Note and the
Security Documents are expressly subordinated to the obligations of the Company
and its Subsidiaries in connection with Permitted Senior Indebtedness. By
acceptance of this note, Holder agrees that it shall promptly execute and
deliver (i) such agreements, documents and instruments as may be reasonably
requested by holders of Permitted Senior Indebtedness, expressly confirming the
subordination of the Company's obligations under this Note and the Security
Documents to those of the holders of Permitted Senior Indebtedness and (ii) such
intercreditor agreements as may be reasonably requested by holders of Permitted
Senior Indebtedness relating to customary intercreditor arrangements including,
but not limited to, standstill agreements and the right to cure defaults under
this Note.

                            [Signature Page Follows]


                                       30



IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as of
the Issuance Date set out above.

                                         MDWERKS, INC.


                                         By:
                                             -----------------------------------
                                             Name: Howard Katz
                                             Title: Chief Executive Officer


                                       31

EX-4.5

                          REGISTRATION RIGHTS AGREEMENT

     REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of October 19,
2006, by and among MDwerks, Inc., a Delaware corporation, with headquarters
located at 1020 NW 6th Street, Suite I, Deerfield Beach, FL 33442 (the
"COMPANY"), and the undersigned buyers (each, a "BUYER", and collectively, the
"BUYERS").

     WHEREAS:

     A. In connection with the Securities Purchase Agreement by and among the
parties hereto of even date herewith (the "SECURITIES PURCHASE AGREEMENT"), the
Company has agreed, upon the terms and subject to the conditions set forth in
the Securities Purchase Agreement, to issue and sell to each Buyer (i)
convertible notes of the Company (the "NOTES") which will, among other things,
be convertible into shares of the Company's common stock, par value $0.001 per
share (the "COMMON STOCK") (as converted, the "CONVERSION SHARES") in accordance
with the terms of the Notes, and (ii) warrants (the "WARRANTS") which will be
exercisable to purchase a number of shares of Common Stock in accordance with
the terms of the Warrants (as exercised collectively, the "WARRANT SHARES").

     B. To induce the Buyers to execute and deliver the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the "1933 ACT"), and
applicable state securities laws.

     NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and each of the Buyers
hereby agree as follows:

1. DEFINITIONS.

     Capitalized terms used herein and not otherwise defined herein shall have
the respective meanings set forth in the Securities Purchase Agreement. As used
in this Agreement, the following terms shall have the following meanings:

     a. "BUSINESS DAY" means any day other than Saturday, Sunday or any other
day on which commercial banks in The City of New York are authorized or required
by law to remain closed.

     b. "CLOSING DATE" shall have the meaning set forth in the Securities
Purchase Agreement.

     c. "EFFECTIVE DATE" means the date that the Registration Statement has been
declared effective by the SEC.



     d. "EFFECTIVENESS DEADLINE" means the date which is one hundred five (105)
calendar days after the Closing Date.

     e. "FILING DEADLINE" means the date forty five (45) calendar days after the
Closing Date.

     f. "INVESTOR" means a Buyer or any transferee or assignee thereof to whom a
Buyer assigns its rights under this Agreement and who agrees to become bound by
the provisions of this Agreement in accordance with Section 9 and any transferee
or assignee thereof to whom a transferee or assignee assigns its rights under
this Agreement and who agrees to become bound by the provisions of this
Agreement in accordance with Section 9.

     g. "PERSON" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.

     h. "REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration
effected by preparing and filing one or more Registration Statements (as defined
below) in compliance with the 1933 Act and pursuant to Rule 415 (including the
amendment of a previously filed Registration Statement to include Registrable
Securities) and the declaration or ordering of effectiveness of such
Registration Statement(s) by the SEC.

     i. "REGISTRABLE SECURITIES" means (i) the Conversion Shares issued or
issuable upon conversion of the Notes, (ii) the Warrant Shares issued or
issuable upon exercise of the Warrants and (iii) any capital stock of the
Company issued or issuable with respect to the Conversion Shares, the Notes, the
Warrant Shares and/or the Warrants as a result of any stock split, stock
dividend, recapitalization, exchange or similar event or otherwise, without
regard to any limitations on conversions of the Notes or exercises of the
Warrants.

     j. "REGISTRATION STATEMENT" means a registration statement or registration
statements of the Company filed under the 1933 Act covering the Registrable
Securities.

     k. "REQUIRED HOLDERS" means the holders of at least a majority of the
Registrable Securities.

     l. "REQUIRED REGISTRATION AMOUNT" means 175% of the sum of (i) the number
of Conversion Shares issued and issuable pursuant to the Notes as of the Trading
Day immediately preceding the applicable date of determination, and (ii) the
number of Warrant Shares issued and issuable pursuant to the Warrants as of the
Trading Day immediately preceding the applicable date of determination, all
subject to adjustment as provided in Section 2(e) (without regard to any
limitations on conversion of the Notes or exercise of the Warrants).

     m. "RULE 415" means Rule 415 under the 1933 Act or any successor rule
providing for offering securities on a continuous or delayed basis.

     n. "SEC" means the United States Securities and Exchange Commission.


                                       2



2.   REGISTRATION.

     a. Mandatory Registration. The Company shall prepare, and, as soon as
practicable, but in no event later than the Filing Deadline, file with the SEC
the Registration Statement on Form SB-2, or any other available form, covering
the resale of all of the Registrable Securities, subject to the provisions of
Section 2(d). The Registration Statement prepared pursuant hereto shall register
for resale at least the number of shares of Common Stock equal to the Required
Registration Amount as of date the Registration Statement is initially filed
with the SEC. The Company shall use its best efforts to have the Registration
Statement declared effective by the SEC as soon as practicable, but in no event
later than the Effectiveness Deadline. As soon as reasonably practicable
following the Effective Date, the Company shall file with the SEC in accordance
with Rule 424 under the 1933 Act the final prospectus to be used in connection
with sales pursuant to such Registration Statement.

     b. Allocation of Registrable Securities. The initial number of Registrable
Securities included in any Registration Statement and any increase in the number
of Registrable Securities included therein shall be allocated pro rata among the
Investors based on the number of Registrable Securities held by each Investor at
the time the Registration Statement covering such initial number of Registrable
Securities or increase thereof is declared effective by the SEC. In the event
that an Investor sells or otherwise transfers any of such Investor's Registrable
Securities, each transferee shall be allocated a pro rata portion of the then
remaining number of Registrable Securities included in such Registration
Statement for such transferor. Any Shares of Common Stock included in a
Registration Statement and which remain allocated to any Person which ceases to
hold any Registrable Securities covered by such Registration Statement shall be
allocated to the remaining Investors, pro rata based on the number of
Registrable Securities then held by such Investors which are covered by such
Registration Statement. The Investors understand that the Company has
obligations with respect to other registration rights and that the Company may
include in the Registration Statement those securities set forth on Schedule
2(b) hereof with respect to which it has an existing obligation to register such
securities under the 1933 Act as of the date hereof.

     c. Legal Counsel. Subject to Section 5 hereof, the Required Holders at
their expense shall have the right to select one legal counsel to review any
registration pursuant to this Section 2 ("LEGAL COUNSEL"), which shall be
Gottbetter & Partners, LLP or such other counsel as thereafter designated by the
Required Holders. The Company and Legal Counsel shall reasonably cooperate with
each other in performing the Company's obligations under this Agreement.

     d. Ineligibility for Form S-3. In the event that Form S-3 is not available
for the registration of the resale of Registrable Securities hereunder, the
Company shall (i) register the resale of the Registrable Securities on another
appropriate form reasonably acceptable to the Required Holders and (ii)
undertake to register the Registrable Securities on Form S-3 as soon as such
form is available, provided that the Company shall maintain the effectiveness of
the Registration Statement then in effect until such time as a Registration
Statement on Form S-3 covering the Registrable Securities has been declared
effective by the SEC.


                                       3



     e. Sufficient Number of Shares Registered. In the event the number of
shares available under a Registration Statement filed pursuant to Section 2(a)
is insufficient to cover all of the Registrable Securities required to be
covered by such Registration Statement or an Investor's allocated portion of the
Registrable Securities pursuant to Section 2(b), the Company shall amend the
applicable Registration Statement, or file a new Registration Statement (on the
shortest form available therefor, if applicable), or both, so as to cover at
least the Required Registration Amount as of the Trading Day immediately
preceding the date of the filing of such amendment or new Registration
Statement, in each case, as soon as practicable, but in any event not later than
forty-five (45) days after the necessity therefor arises. The Company shall use
its best efforts to cause such amendment and/or new Registration Statement to
become effective as soon as practicable following the filing thereof. For
purposes of the foregoing provision, the number of shares available under a
Registration Statement shall be deemed "insufficient to cover all of the
Registrable Securities" if at any time the number of shares of Common Stock
available for resale under the Registration Statement is less than the product
determined by multiplying (i) the Required Registration Amount as of such time
by (ii) 0.90. The calculation set forth in the foregoing sentence shall be made
without regard to any limitations on the conversion of the Notes or the exercise
of the Warrants and such calculation shall assume that the Notes are then
convertible into shares of Common Stock at the then prevailing Conversion Rate
(as defined in the Notes) and that the Warrants are then exercisable for shares
of Common Stock at the then prevailing Exercise Price (as defined in the
Warrants) and for the number of Warrant Shares covered thereby.

     f. Effect of Failure to File and Obtain and Maintain Effectiveness of
Registration Statement. If (i) a Registration Statement covering all of the
Registrable Securities required to be covered thereby and required to be filed
by the Company pursuant to this Agreement is (A) not filed with the SEC on or
before the respective Filing Deadline (a "FILING FAILURE") or (B) not declared
effective by the SEC on or before the respective Effectiveness Deadline (an
"EFFECTIVENESS FAILURE"); provided, however, that for thirty (30) days following
the Effective Deadline there will be no Effectiveness Failure if the SEC is
reviewing the Registration Statement and the Company is using its best efforts
to have the Registration Statement declared effective or (ii) on any day after
the Effective Date sales of all of the Registrable Securities required to be
included on such Registration Statement cannot be made (other than during an
Allowable Grace Period (as defined in Section 3(r)) pursuant to such
Registration Statement (including, without limitation, because of a failure to
keep such Registration Statement effective, to disclose such information as is
necessary for sales to be made pursuant to such Registration Statement or to
register a sufficient number of Shares of Common Stock) (a "MAINTENANCE
FAILURE") then, as partial relief for the damages to any holder by reason of any
Filing Failure, Effectiveness Failure or Maintenance Failure (which remedy shall
not be exclusive of any other remedies available at law or in equity), the
Company shall immediately reduce the exercise price of each of the Warrants by
$0.25 and be reduced by an additional $.10 for each subsequent thirty (30) day
period thereafter (each reduction as adjusted for stock splits, stock dividends,
stock combinations or other similar transactions) up to a maximum aggregate
reduction of $0.65.


                                       4



3. RELATED OBLIGATIONS.

     At such time as the Company is obligated to file a Registration Statement
with the SEC pursuant to Section 2(a), 2(d) or 2(e), the Company will use its
best efforts to effect the registration of the Registrable Securities in
accordance with the intended method of disposition thereof and, pursuant
thereto, the Company shall have the following obligations:

     a. The Company shall promptly, but in no event later than the Filing
Deadline, prepare and file with the SEC a Registration Statement with respect to
the Registrable Securities and use its best efforts to cause such Registration
Statement relating to the Registrable Securities to become effective as soon as
practicable after such filing (but in no event later than the Effectiveness
Deadline). The Company shall keep each Registration Statement effective pursuant
to Rule 415 at all times until the earlier of (i) the date as of which the
Investors may sell all of the Registrable Securities covered by such
Registration Statement without restriction pursuant to Rule 144(k) (or any
successor thereto) promulgated under the 1933 Act or (ii) the date on which the
Investors shall have sold all of the Registrable Securities covered by such
Registration Statement (the "REGISTRATION PERIOD"). The Company shall ensure
that each Registration Statement (including any amendments or supplements
thereto and prospectuses contained therein) shall not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein, or necessary to make the statements therein (in the case of
prospectuses, in the light of the circumstances in which they were made) not
misleading.

     b. The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to a Registration
Statement and the prospectus used in connection with such Registration
Statement, which prospectus is to be filed pursuant to Rule 424 promulgated
under the 1933 Act, as may be necessary to keep such Registration Statement
effective at all times during the Registration Period, and, during such period,
comply with the provisions of the 1933 Act with respect to the disposition of
all Registrable Securities of the Company covered by such Registration Statement
until such time as all of such Registrable Securities shall have been disposed
of in accordance with the intended methods of disposition by the seller or
sellers thereof as set forth in such Registration Statement. In the case of
amendments and supplements to a Registration Statement which are required to be
filed pursuant to this Agreement (including pursuant to this Section 3(b)) by
reason of the Company filing a report on Form 10-Q or Form 10-QSB, Form 10-K or
Form 10-KSB or any analogous report under the Securities Exchange Act of 1934,
as amended (the "1934 ACT"), the Company shall have incorporated such report by
reference into such Registration Statement, if applicable, or shall file such
amendments or supplements with the SEC on the same day on which the 1934 Act
report is filed which created the requirement for the Company to amend or
supplement such Registration Statement.

     c. The Company shall (A) permit Legal Counsel to review and comment upon
(i) a Registration Statement at least five (5) Business Days prior to its filing
with the SEC and (ii) all amendments and supplements to all Registration
Statements (except for Annual Reports on Form 10-K or Form 10-KSB, and Reports
on Form 10-Q or Form 10-QSB and any similar or successor reports) within a
reasonable number of days prior to their filing with the SEC, and (B) not file
any Registration Statement or amendment or supplement thereto in a form to which
Legal


                                       5



Counsel reasonably objects. The Company shall not submit a request for
acceleration of the effectiveness of a Registration Statement or any amendment
or supplement thereto without the prior approval of Legal Counsel, which consent
shall not be unreasonably withheld. The Company shall furnish to Legal Counsel,
without charge, (i) copies of any correspondence from the SEC or the staff of
the SEC to the Company or its representatives relating to any Registration
Statement, (ii) promptly after the same is prepared and filed with the SEC, one
copy of any Registration Statement and any amendment(s) thereto, including
financial statements and schedules, all documents incorporated therein by
reference, if requested by an Investor, and all exhibits and (iii) upon the
effectiveness of any Registration Statement, one copy of the prospectus included
in such Registration Statement and all amendments and supplements thereto. The
Company shall reasonably cooperate with Legal Counsel in performing the
Company's obligations pursuant to this Section 3.

     d. The Company shall furnish to each Investor whose Registrable Securities
are included in any Registration Statement, without charge, (i) if the Company
shall not have filed a final prospectus in accordance with Rule 424 per Section
2(a), as soon as reasonably practicable after the effectiveness of any
Registration Statement, ten (10) copies of the prospectus included in such
Registration Statement and all amendments and supplements thereto (or such other
number of copies as such Investor may reasonably request) and (ii) such other
documents, including copies of any preliminary or final prospectus, as such
Investor may reasonably request from time to time in order to facilitate the
disposition of the Registrable Securities owned by such Investor.

     e. The Company shall use its best efforts to (i) register and qualify,
unless an exemption from registration and qualification applies, the resale by
Investors of the Registrable Securities covered by a Registration Statement
under such other securities or "blue sky" laws of all applicable jurisdictions
in the United States, (ii) prepare and file in those jurisdictions, such
amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the Registration Period, (iii) take such other
actions as may be necessary to maintain such registrations and qualifications in
effect at all times during the Registration Period, and (iv) take all other
actions reasonably necessary or advisable to qualify the Registrable Securities
for sale in such jurisdictions; provided, however, that the Company shall not be
required in connection therewith or as a condition thereto to (x) qualify to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 3(e), (y) subject itself to general taxation in any such
jurisdiction, or (z) file a general consent to service of process in any such
jurisdiction. The Company shall promptly notify Legal Counsel and each Investor
who holds Registrable Securities of the receipt by the Company of any
notification with respect to the suspension of the registration or qualification
of any of the Registrable Securities for sale under the securities or "blue sky"
laws of any jurisdiction in the United States or its receipt of actual notice of
the initiation or threatening of any proceeding for such purpose.

     f. The Company shall notify Legal Counsel and each Investor in writing of
the happening of any event, as promptly as practicable after becoming aware of
such event, as a result of which the prospectus included in a Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omission to state a material fact required to be stated


                                       6



therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading (provided that in no
event shall such notice contain any material, nonpublic information), and,
subject to Section 3(r), promptly prepare a supplement or amendment to such
Registration Statement to correct such untrue statement or omission, and deliver
ten (10) copies of such supplement or amendment to Legal Counsel and each
Investor (or such other number of copies as Legal Counsel or such Investor may
reasonably request). The Company shall also promptly notify Legal Counsel and
each Investor in writing (i) when a prospectus or any prospectus supplement or
post-effective amendment has been filed, and when a Registration Statement or
any post-effective amendment has become effective (notification of such
effectiveness shall be delivered to Legal Counsel and each Investor by facsimile
or e-mail on the same day of such effectiveness and by overnight mail), (ii) of
any request by the SEC for amendments or supplements to a Registration Statement
or related prospectus or related information, and (iii) of the Company's
reasonable determination that a post-effective amendment to a Registration
Statement would be appropriate.

     g. The Company shall use its best efforts to prevent the issuance of any
stop order or other suspension of effectiveness of a Registration Statement, or
the suspension of the qualification of any of the Registrable Securities for
sale in any jurisdiction and, if such an order or suspension is issued, to
obtain the withdrawal of such order or suspension at the earliest possible
moment and to notify Legal Counsel and each Investor who holds Registrable
Securities being sold of the issuance of such order and the resolution thereof
or its receipt of actual notice of the initiation or threat of any proceeding
for such purpose.

     h. If any Investor may be required under applicable securities law to be
described in the Registration Statement as an underwriter, the Company shall
make available for inspection by (i) any Investor, (ii) Legal Counsel and (iii)
one firm of accountants or other agents retained by the Investors (collectively,
the "INSPECTORS"), all pertinent financial and other records, and pertinent
corporate documents and properties of the Company (collectively, the "RECORDS"),
as shall be reasonably deemed necessary by each Inspector, and cause the
Company's officers, directors and employees, counsel and the Company's
independent certified public accountants to supply all information which may be
necessary and any Inspector may reasonably request; provided, however, that each
Inspector shall agree to hold in strict confidence and shall not make any
disclosure (except to an Investor) or use of any Record or other information
which the Company determines in good faith to be confidential, and of which
determination the Inspectors are so notified, unless (a) the disclosure of such
Records is necessary to avoid or correct a misstatement or omission in any
Registration Statement or is otherwise required under the 1933 Act, (b) the
release of such Records is ordered pursuant to a final, non-appealable subpoena
or order from a court or government body of competent jurisdiction, or (c) the
information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement of which
the Inspector has knowledge. Each Investor agrees that it shall, upon learning
that disclosure of such Records is sought in or by a court or governmental body
of competent jurisdiction or through other means, give prompt notice to the
Company and allow the Company, at its expense, to undertake appropriate action
to prevent disclosure of, or to obtain a protective order for, the Records
deemed confidential. Nothing herein (or in any other confidentiality agreement
between the Company and any Investor) shall be deemed to limit the


                                       7



Investors' ability to sell Registrable Securities in a manner which is otherwise
consistent with applicable laws and regulations.

     i. The Company shall hold in confidence and not make any disclosure of
information concerning an Investor provided to the Company unless (i) disclosure
of such information is necessary to comply with federal or state securities
laws, (ii) the disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (iii) the release of
such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement. The Company agrees that it shall, upon learning that disclosure of
such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
written notice to such Investor and allow such Investor, at the Investor's
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.

     j. The Company shall use its best efforts either to (i) cause all of the
Registrable Securities covered by a Registration Statement to be listed on each
securities exchange on which securities of the same class or series issued by
the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange, or (ii) secure
designation and quotation of all of the Registrable Securities covered by a
Registration Statement on the Nasdaq National Market, or (iii) if, despite the
Company's commercially reasonable best efforts to satisfy the preceding clauses
(i) or (ii) the Company is unsuccessful in satisfying the preceding clauses (i)
or (ii), to secure the inclusion for quotation on The Nasdaq Capital Market for
such Registrable Securities and, without limiting the generality of the
foregoing, to use its commercially reasonable best efforts to arrange for at
least two market makers to register with the National Association of Securities
Dealers, Inc. ("NASD") as such with respect to Common Stock of the Company. The
Company shall pay all fees and expenses in connection with satisfying its
obligation under this Section 3(k).

     k. The Company shall cooperate with the Investors who hold Registrable
Securities being offered and, to the extent applicable, facilitate the timely
preparation and delivery of certificates (not bearing any restrictive legend)
representing the Registrable Securities to be offered pursuant to a Registration
Statement and enable such certificates to be in such denominations or amounts,
as the case may be, as the Investors may reasonably request and registered in
such names as the Investors may request.

     l. If requested by an Investor, the Company shall within ten (10) days of
receipt of notice from such Investor (i) incorporate in a prospectus supplement
or post-effective amendment such information as an Investor reasonably requests
to be included therein relating to the sale and distribution of Registrable
Securities, including, without limitation, information with respect to the
number of Registrable Securities being offered or sold, the purchase price being
paid therefor and any other terms of the offering of the Registrable Securities
to be sold in such offering; (ii) make all required filings of such prospectus
supplement or post-effective amendment after being notified of the matters to be
incorporated in such prospectus supplement


                                       8



or post-effective amendment; and (iii) supplement or make amendments to any
Registration Statement if reasonably requested by an Investor holding any
Registrable Securities.

     m. Reserved.

     n. The Company shall otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC in connection with any registration
hereunder.

     o. Within two (2) Business Days after a Registration Statement which covers
Registrable Securities is ordered effective by the SEC, the Company shall
deliver, and shall cause legal counsel for the Company to deliver, to the
transfer agent for such Registrable Securities (with copies to the Investors
whose Registrable Securities are included in such Registration Statement)
confirmation that such Registration Statement has been declared effective by the
SEC in the form attached hereto as Exhibit A.

     p. Notwithstanding anything to the contrary herein, at any time after the
Effective Date, the Company may suspend or delay the effectiveness of a
Registration Statement if, in the good faith opinion of the Board of Directors
of the Company and its counsel, such suspension or delay is in the best interest
of the Company (a "GRACE PERIOD"); provided, that the Company shall promptly (i)
notify the Investors in writing of the existence of an event giving rise to a
Grace Period (provided that in each notice the Company will not disclose the
content of any material, non-public information to the Investors) and the date
on which the Grace Period will begin, and (ii) notify the Investors in writing
of the date on which the Grace Period ends; and, provided further, that no Grace
Period shall exceed fifteen (15) consecutive Trading Days and during any three
hundred sixty five (365) day period such Grace Periods shall not exceed an
aggregate of thirty (30) days and the first day of any Grace Period must be at
least two (2) Trading Days after the last day of any prior Grace Period (each,
an "ALLOWABLE GRACE PERIOD"). For purposes of determining the length of a Grace
Period above, the Grace Period shall begin on and include the date the Investors
receive the notice referred to in clause (i) and shall end on and include the
later of the date the Investors receive the notice referred to in clause (ii)
and the date referred to in such notice. The provisions of Section 3(g) hereof
shall not be applicable during the period of any Allowable Grace Period. Upon
expiration of the Grace Period, the Company shall again be bound by the first
sentence of Section 3(f) with respect to the information giving rise thereto
unless such material, non-public information is no longer applicable.
Notwithstanding anything to the contrary, the Company shall cause its transfer
agent to deliver unlegended shares of Common Stock to a transferee of an
Investor in accordance with the terms of the Securities Purchase Agreement in
connection with any sale of Registrable Securities with respect to which an
Investor has entered into a contract for sale, and delivered a copy of the
prospectus included as part of the applicable Registration Statement (unless an
exemption from such prospectus delivery requirement exists), prior to the
Investor's receipt of the notice of a Grace Period and for which the Investor
has not yet settled.

4. OBLIGATIONS OF THE INVESTORS.

     a. At least ten (10) Business Days prior to the first anticipated filing
date of a Registration Statement, the Company shall notify each Investor in
writing of the information the


                                       9



Company requires from each such Investor if such Investor elects to have any of
such Investor's Registrable Securities included in such Registration Statement.
It shall be a condition precedent to the obligations of the Company to complete
the registration pursuant to this Agreement with respect to the Registrable
Securities of a particular Investor that such Investor shall furnish to the
Company such information regarding itself, the Registrable Securities held by it
and the intended method of disposition of the Registrable Securities held by it,
as shall be reasonably required to effect and maintain the effectiveness of the
registration of such Registrable Securities and shall execute such documents in
connection with such registration as the Company may reasonably request.

     b. Each Investor, by such Investor's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of any Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from such Registration Statement.

     c. Each Investor agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 3(g) or the first
sentence of 3(f), such Investor will immediately discontinue disposition of
Registrable Securities pursuant to any Registration Statement(s) covering such
Registrable Securities until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(g) or the first
sentence of 3(f) or receipt of notice that no supplement or amendment is
required. Notwithstanding anything to the contrary, the Company shall cause its
transfer agent to deliver unlegended shares of Common Stock to a transferee of
an Investor in accordance with the terms of the Securities Purchase Agreement in
connection with any sale of Registrable Securities with respect to which an
Investor has entered into a contract for sale prior to the Investor's receipt of
a notice from the Company of the happening of any event of the kind described in
Section 3(g) or the first sentence of 3(f) and for which the Investor has not
yet settled.

     d. Each Investor covenants and agrees that it will comply with any
applicable prospectus delivery requirements of the 1933 Act as applicable to or
an exemption therefrom it in connection with sales of Registrable Securities
pursuant to the Registration Statement.

5.   EXPENSES OF REGISTRATION.

     All reasonable expenses, other than underwriting discounts and commissions,
incurred in connection with registrations, filings or qualifications pursuant to
Sections 2 and 3, including, without limitation, all registration, listing and
qualifications fees, printers and accounting fees, and fees and disbursements of
counsel for the Company related to registrations shall be paid by the Company.

6.   INDEMNIFICATION.

     In the event any Registrable Securities are included in a Registration
Statement under this Agreement:


                                       10



     a. To the fullest extent permitted by law, the Company will, and hereby
does, indemnify, hold harmless and defend each Investor, the directors,
officers, managers, partners, agents and each Person, if any, who controls any
Investor within the meaning of the 1933 Act or the 1934 Act (each, an
"INDEMNIFIED PERSON"), against any losses, claims, damages, liabilities,
judgments, fines, penalties, charges, costs, reasonable attorneys' fees, amounts
paid in settlement or expenses, joint or several, (collectively, "CLAIMS")
incurred in investigating, preparing or defending any action, claim, suit,
inquiry, proceeding, investigation or appeal taken from the foregoing by or
before any court or governmental, administrative or other regulatory agency,
body or the SEC, whether pending or threatened, whether or not an indemnified
party is or may be a party thereto ("INDEMNIFIED DAMAGES"), to which any of them
may become subject insofar as such Claims (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon: (i)
any untrue statement or alleged untrue statement of a material fact in a
Registration Statement or any post-effective amendment thereto or in any filing
made in connection with the qualification of the offering under the securities
or other "blue sky" laws of any jurisdiction in which Registrable Securities are
offered ("BLUE SKY FILING"), or the omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, (ii) any untrue statement or alleged untrue statement of
a material fact contained in any preliminary prospectus if used prior to the
effective date of such Registration Statement, or contained in the final
prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading, (iii) any violation or alleged violation by the Company of
the 1933 Act, the 1934 Act, any other law, including, without limitation, any
state securities law, or any rule or regulation thereunder relating to the offer
or sale of the Registrable Securities pursuant to a Registration Statement or
(iv) any violation of this Agreement (the matters in the foregoing clauses (i)
through (iv) being, collectively, "VIOLATIONS"). Subject to Section 6(c), the
Company shall reimburse the Indemnified Persons, promptly as such expenses are
incurred and are due and payable, for any legal fees or other reasonable
expenses incurred by them in connection with investigating or defending any such
Claim. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a): (i) shall not apply to
a Claim by an Indemnified Person arising out of or based upon a Violation which
occurs in reliance upon and in conformity with information furnished in writing
to the Company by such Indemnified Person for such Indemnified Person expressly
for use in connection with the preparation of the Registration Statement or any
such amendment thereof or supplement thereto, if such prospectus was timely made
available by the Company pursuant to Section 3(d) and (ii) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of the Company, which consent shall not be
unreasonably withheld or delayed. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of the Indemnified
Person and shall survive the transfer of the Registrable Securities by the
Investors pursuant to Section 9.

     b. In connection with any Registration Statement in which an Investor is
participating, each such Investor agrees to severally and not jointly indemnify,
hold harmless and defend, to the same extent and in the same manner as is set
forth in Section 6(a), the Company, each of its directors, each of its officers
who signs the Registration Statement and each Person, if


                                       11



any, who controls the Company within the meaning of the 1933 Act or the 1934 Act
(each, an "INDEMNIFIED PARTY"), against any Claim or Indemnified Damages to
which any of them may become subject, under the 1933 Act, the 1934 Act or
otherwise, insofar as such Claim or Indemnified Damages arise out of or are
based upon any Violation, in each case to the extent, and only to the extent,
that such Violation occurs in reliance upon and in conformity with written
information furnished to the Company by such Investor expressly for use in
connection with such Registration Statement; and, subject to Section 6(c), such
Investor will reimburse any legal or other expenses reasonably incurred by an
Indemnified Party in connection with investigating or defending any such Claim;
provided, however, that the indemnity agreement contained in this Section 6(b)
and the agreement with respect to contribution contained in Section 7 shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of such Investor, which consent shall not be
unreasonably withheld or delayed; provided, further, however, that the Investor
shall be liable under this Section 6(b) or Section 7 for only that amount of a
Claim or Indemnified Damages as does not exceed the net proceeds to such
Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(b) with
respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented.

     c. Promptly after receipt by an Indemnified Person or Indemnified Party
under this Section 6 of notice of the commencement of any action or proceeding
(including any governmental action or proceeding) involving a Claim, such
Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is
to be made against any indemnifying party under this Section 6, deliver to the
indemnifying party a written notice of the commencement thereof, and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses of not more than one counsel for such
Indemnified Person or Indemnified Party to be paid by the indemnifying party,
if, in the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding. In the case of an
Indemnified Person, legal counsel referred to in the immediately preceding
sentence shall be selected by the Investors holding at least a majority in
interest of the Registrable Securities included in the Registration Statement to
which the Claim relates. The Indemnified Party or Indemnified Person shall
cooperate reasonably with the indemnifying party in connection with any
negotiation or defense of any such action or Claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the Indemnified Party or Indemnified Person which relates to such action or
Claim. The indemnifying party shall keep the Indemnified Party or


                                       12



Indemnified Person fully apprised at all times as to the status of the defense
or any settlement negotiations with respect thereto. No indemnifying party shall
be liable for any settlement of any action, claim or proceeding affected without
its prior written consent, provided, however, that the indemnifying party shall
not unreasonably withhold, delay or condition its consent. No indemnifying party
shall, without the prior written consent of the Indemnified Party or Indemnified
Person, consent to entry of any judgment or enter into any settlement or other
compromise which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party or Indemnified Person of a
release from all liability in respect to such Claim or litigation. Following
indemnification as provided for hereunder, the indemnifying party shall be
subrogated to all rights of the Indemnified Party or Indemnified Person with
respect to all third parties, firms or corporations relating to the matter for
which indemnification has been made. The failure to deliver written notice to
the indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is materially prejudiced in its ability to
defend such action.

     d. The indemnification required by this Section 6 shall be made by periodic
payments of the amount thereof during the course of the investigation or
defense, as and when bills are received or Indemnified Damages are incurred.

     e. The indemnity agreements contained herein shall be in addition to (i)
any cause of action or similar right of the Indemnified Party or Indemnified
Person against the indemnifying party or others, and (ii) any liabilities the
indemnifying party may be subject to pursuant to the law.

7.   CONTRIBUTION.

     To the extent any indemnification by an indemnifying party is prohibited or
limited by law, the indemnifying party agrees to make the maximum contribution
with respect to any amounts for which it would otherwise be liable under Section
6 to the fullest extent permitted by law; provided, however, that: (i) no Person
involved in the sale of Registrable Securities which Person is guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) in connection with such sale shall be entitled to contribution from any
Person involved in such sale of Registrable Securities who was not guilty of
fraudulent misrepresentation; and (ii) contribution by any seller of Registrable
Securities shall be limited in amount to the net amount of proceeds received by
such seller from the sale of such Registrable Securities pursuant to such
Registration Statement.

8.   REPORTS UNDER THE 1934 ACT.

     With a view to making available to the Investors the benefits of Rule 144
promulgated under the 1933 Act or any other similar rule or regulation of the
SEC that may at any time permit the Investors to sell securities of the Company
to the public without registration ("RULE 144"), the Company agrees to:


                                       13



     a. make and keep public information available, as those terms are
understood and defined in Rule 144;

     b. file with the SEC in a timely manner all reports and other documents
required of the Company under the 1933 Act and the 1934 Act so long as the
Company remains subject to such requirements (it being understood that nothing
herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and

     c. furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company, if
true, that it has complied with the reporting requirements of Rule 144, the 1933
Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the Company, and
(iii) such other information as may be reasonably requested to permit the
Investors to sell such securities pursuant to Rule 144 without registration.

9.   ASSIGNMENT OF REGISTRATION RIGHTS.

     The rights under this Agreement shall be automatically assignable by an
Investor to any transferee of all or any portion of such Investor's Registrable
Securities if: (i) such Investor agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to the
Company within a reasonable time after such assignment; (ii) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (a) the name and address of such transferee or assignee, and
(b) the securities with respect to which such registration rights are being
transferred or assigned; (iii) immediately following such transfer or assignment
the further disposition of such securities by the transferee or assignee is
restricted under the 1933 Act and applicable state securities laws; (iv) at or
before the time the Company receives the written notice contemplated by clause
(ii) of this sentence the transferee or assignee agrees in writing with the
Company to be bound by all of the provisions contained herein; and (v) such
transfer shall have been made in accordance with the applicable requirements of
the Securities Purchase Agreement.

10.  AMENDMENT OF REGISTRATION RIGHTS.

     Provisions of this Agreement may be amended and the observance thereof may
be waived (either generally or in a particular instance and either retroactively
or prospectively), only with the written consent of the Company and the Required
Holders. Any amendment or waiver effected in accordance with this Section 10
shall be binding upon each Investor and the Company. No such amendment shall be
effective to the extent that it applies to less than all of the holders of the
Registrable Securities. No consideration shall be offered or paid to any Person
to amend or consent to a waiver or modification of any provision of any of this
Agreement unless the same consideration also is offered to all of the parties to
this Agreement.

11.  MISCELLANEOUS.


                                       14



     a. A Person is deemed to be a holder of Registrable Securities whenever
such Person owns or is deemed to own of record such Registrable Securities. If
the Company receives conflicting instructions, notices or elections from two or
more Persons with respect to the same Registrable Securities, the Company shall
act upon the basis of instructions, notice or election received from such record
owner of such Registrable Securities.

     b. Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Agreement must be in writing and
will be deemed to have been delivered: (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending party); or (iii) one Business Day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:

          If to the Company:
                                 MDwerks, Inc.
                                 1020 NW 6th St.
                                 Suite I
                                 Deerfield Beach, FL 33442
                                 Telephone: (954) 389-8300
                                 Facsimile: (954) 427-5817
                                 Attention: Howard Katz, CEO

          If to Legal Counsel:
                                 Peckar & Abramson, P.C.
                                 70 Grand Avenue
                                 River Edge, NJ  07661
                                 Telephone: (201) 343-3434
                                 Facsimile: (201) 343-6306
                                 Attention: Stephen P. Katz, Esq.

If to a Buyer, to its address and facsimile number set forth on the Schedule of
Buyers attached hereto, with copies to such Buyer's representatives as set forth
on the Schedule of Buyers, or to such other address and/or facsimile number
and/or to the attention of such other Person as the recipient party has
specified by written notice given to each other party five (5) days prior to the
effectiveness of such change. Written confirmation of receipt (A) given by the
recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender's facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by a courier or overnight courier
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.

     c. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.


                                       15



     d. All questions concerning the construction, validity, enforcement and
interpretation of this Agreement shall be governed by the internal laws of the
State of New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of New York. 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 suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. 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 to such party at the address for such notices to it under
this 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.
If any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND
AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY.

     e. This Agreement, the other Transaction Documents (as defined in the
Securities Purchase Agreement) and the instruments referenced herein and therein
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof and thereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein and
therein. This Agreement, the other Transaction Documents and the instruments
referenced herein and therein supersede all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof and thereof.

     f. Subject to the requirements of Section 9, this Agreement shall inure to
the benefit of and be binding upon the permitted successors and assigns of each
of the parties hereto.

     g. The headings in this Agreement are for convenience of reference only and
shall not limit or otherwise affect the meaning hereof.

     h. This Agreement may be executed in identical counterparts, each of which
shall be deemed an original but all of which shall constitute one and the same
agreement. This Agreement, once executed by a party, may be delivered to the
other party hereto by facsimile transmission of a copy of this Agreement bearing
the signature of the party so delivering this Agreement.


                                       16



     i. Each party shall do and perform, or cause to be done and performed, all
such further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as any other party may
reasonably request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated hereby.

     j. All consents and other determinations required to be made by the
Investors pursuant to this Agreement shall be made, unless otherwise specified
in this Agreement, by the Required Holders.

     k. The language used in this Agreement will be deemed to be the language
chosen by the parties to express their mutual intent and no rules of strict
construction will be applied against any party.

     l. This Agreement is intended for the benefit of the parties hereto and
their respective permitted successors and assigns, and is not for the benefit
of, nor may any provision hereof be enforced by, any other Person.

     m. The obligations of each Buyer hereunder are several and not joint with
the obligations of any other Buyer, and no provision of this Agreement is
intended to confer any obligations on any Buyer vis-a-vis any other Buyer.
Nothing contained herein, and no action taken by any Buyer pursuant hereto,
shall be deemed to constitute the Buyers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Buyers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated herein.


                                       17



     IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Registration Rights Agreement to be duly executed as of
the date first written above.

                                        COMPANY:

                                        MDWERKS, INC.


                                        By: /s/ Howard Katz
                                            ------------------------------------
                                            Name: Howard Katz
                                            Title: Chief Executive Officer

     IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Registration Rights Agreement to be duly executed as of
the date first written above.

                                        BUYER:

                                        GOTTBETTER CAPITAL MASTER, LTD.


                                        By: /s/ Adam S. Gottbetter
                                            ------------------------------------
                                            Name: Adam S. Gottbetter
                                            Title: Director


                                       18



                               SCHEDULE OF BUYERS



                                                                   Buyer's Representative's
                                  Buyer Address                    Address and
Buyer                             and Facsimile Number             Facsimile Number
- -------------------------------   ------------------------------   ------------------------------

Gottbetter Capital Master, Ltd.   488 Madison Avenue, 12th Floor   Gottbetter & Partners, LLP
                                  New York, NY 10022               488 Madison Avenue, 12th Floor
                                  Facsimile: 212.400.6999          New York, NY 10022
                                  Attention: Michael W. Chorske    Facsimile: 212.400.6901
                                                                   Attention: Jason M. Rimland



                                       19



                                    EXHIBIT A
                         FORM OF NOTICE OF EFFECTIVENESS
                            OF REGISTRATION STATEMENT

Corporate Stock Transfer
3200 Cherry Creek Avenue South
Suite 43
Denver, CO 80209

          Re:  MDwerks, Inc.

Ladies and Gentlemen:

     [We are][I am] counsel to MDwerks, Inc., a Delaware corporation (the
"Company"), and have represented the Company in connection with that certain
Securities Purchase Agreement (the "Securities Purchase Agreement") entered into
by and among the Company and the buyers named therein (collectively, the
"Holders") pursuant to which the Company issued to the Holders subordinated
secured convertible notes (the "Notes") convertible into the Company's common
stock, $0.001 par value (the "Common Stock"), warrants exercisable for shares of
Common Stock (the "Warrants"). Pursuant to the Securities Purchase Agreement,
the Company also has entered into a Registration Rights Agreement with the
Holders (the "Registration Rights Agreement") pursuant to which the Company
agreed, among other things, to register the Registrable Securities (as defined
in the Registration Rights Agreement), including the shares of Common Stock
issuable upon conversion of the Notes and the shares of Common Stock issuable
upon exercise of the Warrants, under the Securities Act of 1933, as amended (the
"1933 Act"). In connection with the Company's obligations under the Registration
Rights Agreement, on ___, 200_, the Company filed a Registration Statement on
Form S-3 (File No. 333-___) (the " Registration Statement ") with the Securities
and Exchange Commission (the "SEC") relating to the Registrable Securities which
names each of the Holders as a selling stockholder thereunder.

     In connection with the foregoing, [we][I] advise you that a member of the
SEC's staff has advised [us][me] by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ ENTER
TIME OF EFFECTIVENESS ] on [ ENTER DATE OF EFFECTIVENESS ] and [we][I] have no
knowledge, after telephonic inquiry of a member of the SEC's staff, that any
stop order suspending its effectiveness has been issued or that any proceedings
for that purpose are pending before, or threatened by, the SEC and the
Registrable Securities are available for resale under the 1933 Act pursuant to
the Registration Statement.


                                       20



     This letter shall serve as our standing opinion to you that the shares of
Common Stock are freely transferable by the Holders pursuant to the Registration
Statement. You need not require further letters from us to effect any future
legend-free issuance or reissuance of shares of Common Stock to the Holders as
contemplated by the Company's Irrevocable Transfer Agent Instructions dated
October [__], 2006. This letter shall serve as our standing opinion with regard
to this matter.

Very truly yours,

[ISSUER'S COUNSEL]

CC: [LIST NAMES OF HOLDERS]


                                       21

EX-10.1

                                    GUARANTY

          GUARANTY, dated as of October 19, 2006 made by each of the undersigned
(each a "GUARANTOR", and collectively, the "GUARANTORS"), in favor of GOTTBETTER
CAPITAL MASTER, LTD., a company organized under the laws of the Cayman Islands
(the "INVESTOR") for the "Buyers" (as defined below) party to the Securities
Purchase Agreement, dated as of even date herewith (as amended, restated or
otherwise modified from time to time, the "SECURITIES PURCHASE AGREEMENT").

                                   WITNESSETH:

          WHEREAS, MDwerks, Inc., a Delaware corporation (the "PARENT"), and
each party listed as a "Buyer" on the Schedule of Buyers attached thereto (each
a "BUYER", and collectively, the "BUYERS") are parties to the Securities
Purchase Agreement;

          WHEREAS, it is a condition precedent to the Buyers purchasing the
Notes (as defined below) that the Guarantors execute and deliver to the Investor
a guaranty guaranteeing all of the obligations of the Parent under the
Securities Purchase Agreement, the Notes and the Transaction Documents (as
defined in the Securities Purchase Agreement, the "TRANSACTION DOCUMENTS"); and

          WHEREAS, each Guarantor has determined that the execution, delivery
and performance of this Guaranty directly benefits, and is in the best interest
of, such Guarantor;

          NOW, THEREFORE, in consideration of the premises and the agreements
herein and in order to induce the Buyers to perform under the Securities
Purchase Agreement, each Guarantor hereby agrees with each Buyer as follows:

          SECTION 1. Definitions. Reference is hereby made to the Securities
Purchase Agreement and the "Notes" (as defined therein) issued pursuant thereto
(as such Notes may be amended, restated, replaced or otherwise modified from
time to time in accordance with the terms thereof, collectively, the "NOTES")
for a statement of the terms thereof. All terms used in this Guaranty, which are
defined in the Securities Purchase Agreement or the Notes and not otherwise
defined herein, shall have the same meanings herein as set forth therein.

          SECTION 2. Guaranty. The Guarantors, jointly and severally, hereby
unconditionally and irrevocably, guaranty the punctual payment, as and when due
and payable, by stated maturity or otherwise, of all Obligations (as defined in
the Security Agreement) of the Parent from time to time owing by it in respect
of the Securities Purchase Agreement, the Notes and the other Transaction
Documents, including, without limitation, all interest that accrues after the
commencement of any Insolvency Proceeding (as defined in the Security Agreement)
of the Parent or any Guarantor, whether or not the payment of such interest is
unenforceable or is not allowable due to the existence of such Insolvency
Proceeding, and all fees, commissions, expense reimbursements, indemnifications
and all other amounts due or to become due under any of the Transaction
Documents (such obligations, to the extent not paid by the Parent, being the
"GUARANTEED OBLIGATIONS"), and agrees to pay any and all expenses (including
reasonable counsel fees and expenses) reasonably incurred by the Investor in
enforcing any rights under this




Guaranty. Without limiting the generality of the foregoing, each Guarantor's
liability hereunder shall extend to all amounts that constitute part of the
Guaranteed Obligations and would be owed by the Parent to the Investor under the
Securities Purchase Agreement and the Notes but for the fact that they are
unenforceable or not allowable due to the existence of an Insolvency Proceeding
involving any Guarantor or the Parent (each, a "TRANSACTION PARTY").

          SECTION 3. Guaranty Absolute; Continuing Guaranty; Assignments.

          (a) The Guarantors, jointly and severally, guaranty that the
Guaranteed Obligations will be paid strictly in accordance with the terms of the
Transaction Documents, regardless of any law, regulation or order now or
hereafter in effect in any jurisdiction affecting any of such terms or the
rights of the Investor with respect thereto. The obligations of each Guarantor
under this Guaranty are independent of the Guaranteed Obligations, and a
separate action or actions may be brought and prosecuted against any Guarantor
to enforce such obligations, irrespective of whether any action is brought
against any Transaction Party or whether any Transaction Party is joined in any
such action or actions. The liability of any Guarantor under this Guaranty shall
be irrevocable, absolute and unconditional irrespective of, and each Guarantor
hereby irrevocably waives, to the extent permitted by law, any defenses it may
now or hereafter have in any way relating to, any or all of the following:

               (i) any lack of validity or enforceability of any Transaction
Document or any agreement or instrument relating thereto;

               (ii) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Guaranteed Obligations, or any other
amendment or waiver of or any consent to departure from any Transaction
Document, including, without limitation, any increase in the Guaranteed
Obligations resulting from the extension of additional credit to any Transaction
Party or otherwise;

               (iii) any taking, exchange, release or non-perfection of any
Collateral (as defined in the Security Documents), or any taking, release or
amendment or waiver of or consent to departure from any other guaranty, for all
or any of the Guaranteed Obligations;

               (iv) any change, restructuring or termination of the corporate,
limited liability company or partnership structure or existence of any
Transaction Party; or

               (v) any other circumstance (including any statute of limitations)
or any existence of or reliance on any representation by the Investor that might
otherwise constitute a defense available to, or a discharge of, any Transaction
Party or any other guarantor or surety.

This Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Guaranteed Obligations is rescinded
or must otherwise be returned by the Investor or any other Person upon the
insolvency, bankruptcy or reorganization of any Transaction Party or otherwise,
all as though such payment had not been made.

          (b) This Guaranty is a continuing guaranty and shall (i) remain in
full force and effect until the indefeasible cash payment in full of the
Guaranteed Obligations (other than inchoate indemnity obligations) and/or
complete conversion of all of the Company's obligations


                                      -2-



under the Notes to equity securities of the Company and payment of all other
amounts payable under this Guaranty (other than inchoate indemnity obligations)
and shall not terminate for any reason prior to the respective Maturity Date of
each Note (other than payment in full of the Notes and/or complete conversion of
all of the Company's obligations under the Notes to equity securities of the
Company) and (ii) be binding upon each Guarantor and its respective successors
and assigns. This Guaranty shall inure to the benefit of and be enforceable by
the Investor and its successors, and permitted pledgees, transferees and
assigns. Without limiting the generality of the foregoing sentence, the Investor
or any Buyer may pledge, assign or otherwise transfer all or any portion of its
rights and obligations under and subject to the terms of any Transaction
Document to any other Person, and such other Person shall thereupon become
vested with all the benefits in respect thereof granted to such Buyer herein or
otherwise, in each case as provided in the Securities Purchase Agreement or such
Transaction Document.

          SECTION 4. Waivers. To the extent permitted by applicable law, each
Guarantor hereby waives promptness, diligence, notice of acceptance and any
other notice with respect to any of the Guaranteed Obligations and this Guaranty
and any requirement that the Investor exhaust any right or take any action
against any Transaction Party or any other Person or any Collateral. The
Guarantor acknowledges that it will receive direct and indirect benefits from
the financing arrangements contemplated herein and that the waiver set forth in
this Section 4 is knowingly made in contemplation of such benefits. The
Guarantors hereby waive any right to revoke this Guaranty, and acknowledges that
this Guaranty is continuing in nature and applies to all Guaranteed Obligations,
whether existing now or in the future.

          SECTION 5. Subrogation. No Guarantor may exercise any rights that it
may now or hereafter acquire against any Transaction Party or any other
guarantor that arise from the existence, payment, performance or enforcement of
any Guarantor's obligations under this Guaranty, including, without limitation,
any right of subrogation, reimbursement, exoneration, contribution or
indemnification and any right to participate in any claim or remedy of the
Investor against any Transaction Party or any other guarantor or any Collateral,
whether or not such claim, remedy or right arises in equity or under contract,
statute or common law, including, without limitation, the right to take or
receive from any Transaction Party or any other guarantor, directly or
indirectly, in cash or other property or by set-off or in any other manner,
payment or security solely on account of such claim, remedy or right, unless and
until all of the Guaranteed Obligations (other than inchoate indemnity
obligations) and all other amounts payable under this Guaranty (other than
inchoate indemnity obligations) shall have indefeasibly been paid in full in
cash. If any amount shall be paid to the Guarantor in violation of the
immediately preceding sentence at any time prior to the later of the payment in
full in cash of the Guaranteed Obligations and all other amounts payable under
this Guaranty, such amount shall be held in trust for the benefit of the
Investor and shall forthwith be paid to the Investor to be credited and applied
to the Guaranteed Obligations and all other amounts payable under this Guaranty,
whether matured or unmatured, in accordance with the terms of the Transaction
Document, or to be held as Collateral for any Guaranteed Obligations or other
amounts payable under this Guaranty thereafter arising. If (a) any Guarantor
shall make payment to the Investor of all or any part of the Guaranteed
Obligations, and (b) all of the Guaranteed Obligations (other than inchoate
indemnity obligations) and all other amounts payable under this Guaranty (other
than inchoate indemnity obligations) shall indefeasibly be paid in full in cash,
the Investor will, at such Guarantor's request and expense, execute and deliver
to such Guarantor appropriate


                                      -3-



documents, without recourse and without representation or warranty, necessary to
evidence the transfer by subrogation to such Guarantor of an interest in the
Guaranteed Obligations resulting from such payment by such Guarantor.

          SECTION 6. Representations, Warranties and Covenants.

          (a) Each Guarantor hereby represents and warrants as of the date first
written above as follows:

               (i) The Guarantor (A) is a corporation, limited liability company
or limited partnership duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization as set forth on the
signature pages hereto, (B) has all requisite corporate, limited liability
company or limited partnership power and authority to conduct its business as
now conducted and as presently contemplated and to execute and deliver this
Guaranty and each other Transaction Document to which the Guarantor is a party,
and to consummate the transactions contemplated hereby and thereby and (C) is
duly qualified to do business and is in good standing in each jurisdiction in
which the character of the properties owned or leased by it or in which the
transaction of its business makes such qualification necessary except where the
failure to be so qualified would not result in a Material Adverse Effect.

               (ii) The execution, delivery and performance by the Guarantor of
this Guaranty and each other Transaction Document to which the Guarantor is a
party (A) have been duly authorized by all necessary corporate, limited
liability company or limited partnership action, (B) do not and will not
contravene its charter or by-laws, its limited liability company or operating
agreement or its certificate of partnership or partnership agreement, as
applicable, or any applicable law or any contractual restriction binding on the
Guarantor or its properties (except where the contravention of such contractual
restriction would not result in a Material Adverse Effect), (C) do not and will
not result in or require the creation of any lien (other than pursuant to any
Transaction Document) upon or with respect to any of its properties, and (D) do
not and will not result in any default, noncompliance, suspension, revocation,
impairment, forfeiture or nonrenewal of any material permit, license,
authorization or approval applicable to it or its operations or any of its
properties.

               (iii) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority is required in connection
with the due execution, delivery and performance by the Guarantor of this
Guaranty or any of the other Transaction Documents to which the Guarantor is a
party (other than expressly provided for in any of the Transaction Documents).

               (iv) Each of this Guaranty and the other Transaction Documents to
which the Guarantor is or will be a party, when delivered, will be, a legal,
valid and binding obligation of the Guarantor, enforceable against the Guarantor
in accordance with its terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, suretyship or
other similar laws and equitable principles (regardless of whether enforcement
is sought in equity or at law).


                                      -4-



               (v) There is no pending or, to the knowledge of the Guarantor,
threatened action, suit or proceeding against the Guarantor or to which any of
the properties of the Guarantor is subject, before any court or other
governmental authority or any arbitrator that (A) if adversely determined, could
reasonably be expected to have a Material Adverse Effect or (B) relates to this
Guaranty or any of the other Transaction Documents to which the Guarantor is a
party or any transaction contemplated hereby or thereby.

               (vi) The Guarantor (A) has read and understands the terms and
conditions of the Securities Purchase Agreement and the other Transaction
Documents, and (B) now has and will continue to have independent means of
obtaining information concerning the affairs, financial condition and business
of the Parent and the other Transaction Parties, and has no need of, or right to
obtain from any Buyer, any credit or other information concerning the affairs,
financial condition or business of the Parent or the other Transaction Parties
that may come under the control of any Buyer.

          (b) The Guarantor covenants and agrees that until indefeasible full
and final payment of the Guaranteed Obligations and/or complete conversion of
all of the Company's obligations under the Notes to equity securities of the
Company, it will comply with Sections 4[(j), (k), (l), (n) and (o)]of the
Securities Purchase Agreement as if the Guarantor were a party thereto.

          SECTION 7. Right of Set-off. Upon the occurrence and during the
continuance of any Event of Default, any Buyer may, and is hereby authorized to,
at any time and from time to time, without notice to the Guarantors (any such
notice being expressly waived by each Guarantor) and to the fullest extent
permitted by law, set-off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held and other indebtedness at
any time owing by any Buyer to or for the credit or the account of any Guarantor
against any and all obligations of the Guarantors now or hereafter existing
under this Guaranty or any other Transaction Document, irrespective of whether
or not any Buyer shall have made any demand under this Guaranty or any other
Transaction Document and although such obligations may be contingent or
unmatured. Each Buyer agrees to notify the relevant Guarantor promptly after any
such set-off and application made by such Buyer, provided that the failure to
give such notice shall not affect the validity of such set-off and application.
The rights of any Buyer under this Section 7 are in addition to other rights and
remedies (including, without limitation, other rights of set-off) which such
Buyer may have under this Guaranty or any other Transaction Document in law or
otherwise.

          SECTION 8. Notices, Etc. All notices and other communications provided
for hereunder shall be in writing and shall be mailed, telecopied or delivered,
if to any Guarantor, to it at its address set forth on the signature page
hereto, or if to the Investor or any Buyer, to it at its respective address set
forth in the Securities Purchase Agreement; or as to either such Person at such
other address as shall be designated by such Person in a written notice to such
other Person complying as to delivery with the terms of this Section 8. All such
notices and other communications shall be effective (i) if mailed (by certified
mail, postage prepaid and return receipt requested), when received or three
Business Days after deposited in the mails, whichever occurs first; (ii) if
telecopied, when transmitted and confirmation is received, provided same is


                                      -5-



on a Business Day and, if not, on the next Business Day; or (iii) if delivered
by hand, upon delivery, provided same is on a Business Day and, if not, on the
next Business Day.

          SECTION 9. CONSENT TO JURISDICTION; SERVICE OF PROCESS AND VENUE. ANY
LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS GUARANTY OR ANY OTHER
TRANSACTION DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK IN
THE COUNTY OF NEW YORK OR OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH
GUARANTOR HEREBY IRREVOCABLY ACCEPTS IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH GUARANTOR HEREBY
IRREVOCABLY APPOINTS THE SECRETARY OF STATE OF THE STATE OF NEW YORK AS ITS
AGENT FOR SERVICE OF PROCESS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING AND
FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE
AFOREMENTIONED COURTS AND IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF
COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, AT ITS ADDRESS
FOR NOTICES AS SET FORTH ON THE SIGNATURE PAGE HERETO AND TO THE SECRETARY OF
STATE OF THE STATE OF NEW YORK, SUCH SERVICE TO BECOME EFFECTIVE TEN (10) DAYS
AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE INVESTOR TO
SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL
PROCEEDINGS OR OTHERWISE PROCEED AGAINST EACH GUARANTOR IN ANY OTHER
JURISDICTION. ANY GUARANTOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE JURISDICTION OR LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN
ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT ANY GUARANTOR HAS OR
HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY
LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT,
ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS
PROPERTY, EACH GUARANTOR HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF
ITS OBLIGATIONS UNDER THIS GUARANTY AND THE OTHER TRANSACTION DOCUMENTS.

          SECTION 10. WAIVER OF JURY TRIAL, ETC. EACH GUARANTOR HEREBY WAIVES
ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
CONCERNING ANY RIGHTS UNDER THIS GUARANTY OR THE OTHER TRANSACTION DOCUMENTS, OR
UNDER ANY AMENDMENT, WAIVER, CONSENT, INSTRUMENT, DOCUMENT OR OTHER AGREEMENT
DELIVERED OR WHICH IN THE FUTURE MAY BE DELIVERED IN CONNECTION HEREWITH OR
THEREWITH, OR ARISING FROM ANY FINANCING RELATIONSHIP EXISTING IN CONNECTION
WITH THIS GUARANTY OR THE OTHER TRANSACTION DOCUMENTS, AND AGREES THAT ANY SUCH
ACTION, PROCEEDING OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE
A JURY. EACH GUARANTOR CERTIFIES THAT NO OFFICER, REPRESENTATIVE, AGENT OR


                                      -6-



ATTORNEY OF THE INVESTOR OR ANY BUYER HAS REPRESENTED, EXPRESSLY OR OTHERWISE,
THAT ANY BUYER WOULD NOT, IN THE EVENT OF ANY ACTION, PROCEEDING OR
COUNTERCLAIM, SEEK TO ENFORCE THE FOREGOING WAIVERS. EACH GUARANTOR HEREBY
ACKNOWLEDGES THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE INVESTOR
ENTERING INTO THIS AGREEMENT.

          SECTION 11. Taxes.

          (a) All payments made by any Guarantor hereunder or under any other
Transaction Document shall be made in accordance with the terms of the
respective Transaction Document and shall be made without set-off, counterclaim,
deduction or other defense. All such payments shall be made free and clear of
and without deduction for any present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
excluding taxes imposed on the net income of any Buyer by the jurisdiction in
which such Buyer is organized or where it has its principal lending office (all
such nonexcluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities, collectively or individually, "TAXES"). If any Guarantor shall be
required to deduct or to withhold any Taxes from or in respect of any amount
payable hereunder or under any other Transaction Document;

               (i) the amount so payable shall be increased to the extent
     necessary so that after making all required deductions and withholdings
     (including Taxes on amounts payable to any Buyer pursuant to this sentence)
     each Buyer receives an amount equal to the sum it would have received had
     no such deduction or withholding been made,

               (ii) such Guarantor shall make such deduction or withholding,

               (iii) such Guarantor shall pay the full amount deducted or
     withheld to the relevant taxation authority in accordance with applicable
     law, and

               (iv) as promptly as possible thereafter, such Guarantor shall
     send the Buyers an official receipt (or, if an official receipt is not
     available, such other documentation as shall be satisfactory to the
     Investor, as the case may be) showing payment. In addition, each Guarantor
     agrees to pay 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, registration or
     enforcement of, or otherwise with respect to, this Agreement or any other
     Transaction Document (collectively, "OTHER TAXES").

          (b) Each Guarantor hereby indemnifies and agrees to hold the Investor
and each Buyer (each an "INDEMNIFIED PARTY") harmless from and against Taxes or
Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by
any jurisdiction on amounts payable under this Section 11) paid by any
Indemnified Party as a result of any payment made hereunder or from the
execution, delivery, registration or enforcement of, or otherwise with respect
to, this Agreement or any other Transaction Document, and any liability
(including penalties, interest and expenses for nonpayment, late payment or
otherwise) arising therefrom or with respect thereto, whether or not such Taxes
or Other Taxes were correctly or legally asserted. This indemnification shall be
paid within 30 days from the date on which the Investor


                                      -7-



or such Buyer makes written demand therefor, which demand shall identify the
nature and amount of such Taxes or Other Taxes.

          (c) If any Guarantor fails to perform any of its obligations under
this Section 11, such Guarantor shall indemnify the Investor and each Buyer for
any taxes, interest or penalties that may become payable as a result of any such
failure. The obligations of the Guarantors under this Section 11 shall survive
the termination of this Guaranty and the payment of the Obligations and all
other amounts payable hereunder.

          SECTION 12. Miscellaneous.

          (a) Each Guarantor will make each payment hereunder in lawful money of
the United States of America and in immediately available funds to each Buyer,
at such address specified by such Buyer from time to time by notice to the
Guarantors.

          (b) No amendment or waiver of any provision of this Guaranty and no
consent to any departure by any Guarantor therefrom shall in any event be
effective unless the same shall be in writing and signed by each Guarantor and
each Buyer, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.

          (c) No failure on the part of any Buyer to exercise, and no delay in
exercising, any right hereunder or under any other Transaction Document shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right hereunder or under any Transaction Document preclude any other or further
exercise thereof or the exercise of any other right. The rights and remedies of
the Investor and the Buyers provided herein and in the other Transaction
Documents are cumulative and are in addition to, and not exclusive of, any
rights or remedies provided by law. The rights of the Investor and the Buyers
under any Transaction Document against any party thereto are not conditional or
contingent on any attempt by the Investor or any Buyer to exercise any of their
respective rights under any other Transaction Document against such party or
against any other Person.

          (d) Any provision of this Guaranty that is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
portions hereof or affecting the validity or enforceability of such provision in
any other jurisdiction.

          (e) This Guaranty shall (i) be binding on each Guarantor and its
respective successors and assigns, and (ii) inure, together with all rights and
remedies of the Investor hereunder, to the benefit of the Investor, the Buyers
and their respective successors, transferees and assigns. Without limiting the
generality of clause (ii) of the immediately preceding sentence, the Investor
and any Buyer may assign or otherwise transfer its rights and obligations under
the Securities Purchase Agreement or any other Transaction Document to any other
Person in accordance with the terms thereof, and such other Person shall
thereupon become vested with all of the benefits in respect thereof granted to
the Investor or Buyer, as the case may be, herein or otherwise. None of the
rights or obligations of any Guarantor hereunder may be assigned or otherwise
transferred without the prior written consent of each Buyer.


                                      -8-



          (f) This Guaranty reflects the entire understanding of the transaction
contemplated hereby and shall not be contradicted or qualified by any other
agreement, oral or written, entered into before the date hereof.

          (g) Section headings herein are included for convenience of reference
only and shall not constitute a part of this Agreement for any other purpose.

          (h) THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAW OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE
PERFORMED THEREIN WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES.

                [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]


                                      -9-



          IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be
executed by its respective duly authorized officer, as of the date first above
written.

                                  MDWERKS GLOBAL HOLDINGS, INC.


                                  By: /s/ Howard B. Katz
                                      ------------------------------------
                                  Name:         Howard B. Katz
                                  Title:        Chief Executive Officer
                                  Address:      1020 NW 6th Street
                                                Suite I
                                                Deerfield, Beach, FL 33442
                                  Jurisdiction: Florida


                                  XENI MEDICAL SYSTEMS, INC.


                                  By: /s/ Howard B. Katz
                                      ------------------------------------
                                  Name:         Howard B. Katz
                                  Title:        Chief Executive Officer
                                  Address:      1020 NW 6th Street
                                                Suite I
                                                Deerfield, Beach, FL 33442
                                  Jurisdiction: Delaware

                                  XENI FINANCIAL SERVICES CORPORATION


                                  By: /s/ Howard B. Katz
                                      ------------------------------------
                                  Name:         Howard B. Katz
                                  Title:        Chief Executive Officer
                                  Address:      1020 NW 6th Street
                                                Suite I
                                                Deerfield, Beach, FL 33442
                                  Jurisdiction: Florida


                                  XENI MEDICAL BILLING CORP.


                                  By: /s/ Howard B. Katz
                                      ------------------------------------
                                  Name:         Howard B. Katz
                                  Title:        Chief Executive Officer
                                  Address:      1020 NW 6th Street
                                                Suite I
                                                Deerfield Beach, FL 33442
                                  Jurisdiction: Delaware

EX-10.2

                               SECURITY AGREEMENT

     SECURITY AGREEMENT, dated as of October 19, 2006 (this "AGREEMENT") made by
MDWERKS, INC., a Delaware corporation (the "COMPANY"), and the undersigned
subsidiaries of the Company (each a "GRANTOR" and collectively and together with
the Company the "GRANTORS"), in favor of GOTTBETTER CAPITAL MASTER, LTD., a
Cayman Island company (the "BUYER").

                                   WITNESSETH:

     WHEREAS, the Company and the Buyer are parties to the Securities Purchase
Agreement, pursuant to which the Company shall be required to sell, and the
Buyer shall purchase or have the right to purchase, the "Notes" (as defined
therein); and

     WHEREAS, it is a condition precedent to the Buyer entering into the
Securities Purchase Agreement that the Grantors shall have executed and
delivered to the Buyer this Agreement providing for the grant to the Buyer of a
security interest in all personal property of each Grantor to secure all of the
Company's obligations under the Securities Purchase Agreement, the "Notes" (as
defined therein) issued pursuant thereto (as such Notes may be amended,
restated, replaced or otherwise modified from time to time in accordance with
the terms thereof, collectively, the "NOTES"), the "Transaction Documents" (as
defined in the Securities Purchase Agreement) (the "TRANSACTION DOCUMENTS") and
the Guarantors' obligations under the Guaranty;

     NOW, THEREFORE, in consideration of the premises and the agreements herein
and in order to induce the Buyers to perform under the Securities Purchase
Agreement, each Grantor agrees with the Buyer, as follows:

SECTION 1. DEFINITIONS.

     (a) Reference is hereby made to the Securities Purchase Agreement and the
Notes for a statement of the terms thereof. All terms used in this Agreement and
the recitals hereto which are defined in the Securities Purchase Agreement, the
Notes or in Articles 8 or 9 of the Uniform Commercial Code as in effect from
time to time in the State of New York (the "CODE"), and which are not otherwise
defined herein shall have the same meanings herein as set forth therein;
provided that terms used herein which are defined in the Code as in effect in
the State of New York on the date hereof shall continue to have the same meaning
notwithstanding any replacement or amendment of such statute except as the Buyer
may otherwise determine.

     (b) The following terms shall have the respective meanings provided for in
the Code: "Accounts", "Cash Proceeds", "Chattel Paper", "Commercial Tort Claim",
"Commodity Account", "Commodity Contracts", "Deposit Account", "Documents",
"Equipment", "Fixtures", "General Intangibles", "Goods", "Instruments",
"Inventory", "Investment Property", "Letter-of-Credit Rights", "Noncash
Proceeds", "Payment Intangibles", "Proceeds", "Promissory Notes", "Security",
"Record", "Security Account", "Software", and "Supporting Obligations".



     (c) As used in this Agreement, the following terms shall have the
respective meanings indicated below, such meanings to be applicable equally to
both the singular and plural forms of such terms:

          "COPYRIGHT LICENSES" means all licenses, contracts or other
agreements, whether written or oral, naming any Grantor as licensee or licensor
and providing for the grant of any right to use or sell any works covered by any
copyright (including, without limitation, all Copyright Licenses set forth in
Schedule II hereto).

          "COPYRIGHTS" means all domestic and foreign copyrights, whether
registered or not, including, without limitation, all copyright rights
throughout the universe (whether now or hereafter arising) in any and all media
(whether now or hereafter developed), in and to all original works of authorship
fixed in any tangible medium of expression, acquired or used by any Grantor
(including, without limitation, all copyrights described in Schedule II hereto),
all applications, registrations and recordings thereof (including, without
limitation, applications, registrations and recordings in the United States
Copyright Office or in any similar office or agency of the United States or any
other country or any political subdivision thereof), and all reissues,
divisions, continuations, continuations in part and extensions or renewals
thereof.

          "EVENT OF DEFAULT" shall have the meaning set forth in the Notes.

          "INSOLVENCY PROCEEDING" means any proceeding commenced by or against
any Person under any provision of the Bankruptcy Code (Chapter 11 of Title 11 of
the United States Code) or under any other bankruptcy or insolvency law,
assignments for the benefit of creditors, formal or informal moratoria,
compositions, or extensions generally with creditors, or proceedings seeking
reorganization, arrangement, or other similar relief.

          "INTELLECTUAL PROPERTY" means the Copyrights, Trademarks and Patents.

          "LICENSES" means the Copyright Licenses, the Trademark Licenses and
the Patent Licenses.

          "LIEN" means any mortgage, deed of trust, pledge, lien (statutory or
otherwise), security interest, charge or other encumbrance or security or
preferential arrangement of any nature, including, without limitation, any
conditional sale or title retention arrangement, any capitalized lease and any
assignment, deposit arrangement or financing lease intended as, or having the
effect of, security.

          "PATENT LICENSES" means all licenses, contracts or other agreements,
whether written or oral, naming any Grantor as licensee or licensor and
providing for the grant of any right to manufacture, use or sell any invention
covered by any Patent (including, without limitation, all Patent Licenses set
forth in Schedule II hereto).

          "PATENTS" means all domestic and foreign letters patent, design
patents, utility patents, industrial designs, inventions, trade secrets, ideas,
concepts, methods, techniques, processes, proprietary information, technology,
know-how, formulae, rights of publicity and


                                       2



other general intangibles of like nature, now existing or hereafter acquired
(including, without limitation, all domestic and foreign letters patent, design
patents, utility patents, industrial designs, inventions, trade secrets, ideas,
concepts, methods, techniques, processes, proprietary information, technology,
know-how and formulae described in Schedule II hereto), all applications,
registrations and recordings thereof (including, without limitation,
applications, registrations and recordings in the United States Patent and
Trademark Office, or in any similar office or agency of the United States or any
other country or any political subdivision thereof), and all reissues,
divisions, continuations, continuations in part and extensions or renewals
thereof.

          "TRADEMARK LICENSES" means all licenses, contracts or other
agreements, whether written or oral, naming any Grantor as licensor or licensee
and providing for the grant of any right concerning any Trademark, together with
any goodwill connected with and symbolized by any such trademark licenses,
contracts or agreements and the right to prepare for sale or lease and sell or
lease any and all Inventory now or hereafter owned by any Grantor and now or
hereafter covered by such licenses (including, without limitation, all Trademark
Licenses described in Schedule II hereto).

          "TRADEMARKS" means all domestic and foreign trademarks, service marks,
collective marks, certification marks, trade names, business names, d/b/a's,
Internet domain names, trade styles, designs, logos and other source or business
identifiers and all general intangibles of like nature, now or hereafter owned,
adopted, acquired or used by any Grantor (including, without limitation, all
domestic and foreign trademarks, service marks, collective marks, certification
marks, trade names, business names, d/b/a's, Internet domain names, trade
styles, designs, logos and other source or business identifiers described in
Schedule II hereto), all applications, registrations and recordings thereof
(including, without limitation, applications, registrations and recordings in
the United States Patent and Trademark Office or in any similar office or agency
of the United States, any state thereof or any other country or any political
subdivision thereof), and all reissues, extensions or renewals thereof, together
with all goodwill of the business symbolized by such marks and all customer
lists, formulae and other Records of any Grantor relating to the distribution of
products and services in connection with which any of such marks are used.

SECTION 2. GRANT OF SECURITY INTEREST. As collateral security for all of the
"Obligations" (as defined in Section 3 hereof), each Grantor hereby pledges and
assigns to the Buyer and grants to the Buyer a continuing security interest in,
all personal property of each Grantor, wherever located and whether now or
hereafter existing and whether now owned or hereafter acquired, of every kind
and description, tangible or intangible (collectively, the "COLLATERAL"),
including, without limitation, the following:

     (a) all Accounts;

     (b) all Chattel Paper (whether tangible or electronic);

     (c) the Commercial Tort Claims;


                                        3



     (d) all Deposit Accounts, all cash, and all other property from time to
time deposited therein and the monies and property in the possession or under
the control of the Buyer or any affiliate, representative, agent or
correspondent of the Buyer;

     (e) all Documents;

     (f) all Equipment;

     (g) all Fixtures;

     (h) all General Intangibles (including, without limitation, all Payment
Intangibles);

     (i) all Goods;

     (j) all Instruments (including, without limitation, Promissory Notes and
each certificated Security);

     (k) all Inventory;

     (l) all Investment Property;

     (m) all Copyrights, Patents and Trademarks, and all Licenses;

     (n) all Letter-of-Credit Rights;

     (o) all Supporting Obligations;

     (p) all other tangible and intangible personal property of each Grantor
(whether or not subject to the Code), including, without limitation, all bank
and other accounts and all cash and all investments therein, all proceeds,
products, offspring, accessions, rents, profits, income, benefits, substitutions
and replacements of and to any of the property of any Grantor described in the
preceding clauses of this Section 2 (including, without limitation, any proceeds
of insurance thereon and all causes of action, claims and warranties now or
hereafter held by each Grantor in respect of any of the items listed above), and
all books, correspondence, files and other Records, including, without
limitation, all tapes, desks, cards, Software, data and computer programs in the
possession or under the control of any Grantor or any other Person from time to
time acting for any Grantor that at any time evidence or contain information
relating to any of the property described in the preceding clauses of this
Section 2 or are otherwise necessary or helpful in the collection or realization
thereof; and

     (q) all Proceeds, including all Cash Proceeds and Noncash Proceeds, and
products of any and all of the foregoing Collateral;

in each case howsoever any Grantor's interest therein may arise or appear
(whether by ownership, security interest, claim or otherwise).


                                        4



SECTION 3. SECURITY FOR OBLIGATIONS. The security interest created hereby in the
Collateral constitutes continuing collateral security for all of the following
obligations, whether now existing or hereafter incurred (collectively, the
"OBLIGATIONS"):

     (a) the payment by the Company, as and when due and payable (by scheduled
maturity, required prepayment, acceleration, demand or otherwise), of all
amounts from time to time owing by it in respect of the Securities Purchase
Agreement, the Notes and the other Transaction Documents, including, without
limitation, (A) all principal of and interest on the Notes (including, without
limitation, all interest that accrues after the commencement of any Insolvency
Proceeding of any Grantor, whether or not the payment of such interest is
unenforceable or is not allowable due to the existence of such Insolvency
Proceeding), and (B) all fees, commissions, expense reimbursements,
indemnifications and all other amounts due or to become due under any of the
Transaction Documents including any Registration Delay Payments (as defined in
the Registration Rights Agreement); and

     (b) the due performance and observance by each Grantor of all of its other
obligations from time to time existing in respect of any of the Transaction
Documents, including without limitation, with respect to any conversion or
redemption rights of the Buyer under the Notes, for so long as the Notes are
outstanding.

SECTION 4. REPRESENTATIONS AND WARRANTIES. Each Grantor represents and warrants
as follows:

     (a) Schedule I hereto sets forth (i) the exact legal name of the Grantors,
and (ii) the organizational identification number of each Grantor or states that
no such organizational identification number exists.

     (b) Grantor has received no written notice threatening any action, suit,
proceeding or claim affecting any Grantor before any governmental authority or
any arbitrator, or any order, judgment or award by any governmental authority or
arbitrator, that may adversely affect the grant by any Grantor, or the
perfection, of the security interest purported to be created hereby in the
Collateral, or the exercise by the Buyer of any of its rights or remedies
hereunder.

     (c) To the knowledge of Grantors, all Federal, state and local tax returns
and other reports required by applicable law to be filed by any Grantor have
been filed, or extensions have been obtained, and all taxes, assessments and
other governmental charges imposed upon any Grantor or any property of any
Grantor (including, without limitation, all federal income and social security
taxes on employees' wages) and which have become due and payable on or prior to
the date hereof have been paid, except to the extent contested in good faith by
proper proceedings which stay the imposition of any penalty, fine or Lien
resulting from the non-payment thereof and with respect to which adequate
reserves have been set aside for the payment thereof in accordance with
generally accepted accounting principles consistently applied ("GAAP").

     (d) All Equipment, Fixtures, Goods and Inventory of each Grantor now
existing are, and all Equipment, Fixtures, Goods and Inventory of each Grantor
hereafter existing will be,


                                        5



located and/or based at the addresses specified therefor in Schedule III hereto,
except that each Grantor will give the Buyer not less than 30 days' prior
written notice of any change of the location of any such Collateral, other than
to locations set forth on Schedule III and with respect to which the Buyer has
filed financing statements and otherwise fully perfected its Liens thereon. Each
Grantor's chief place of business and chief executive office, the place where
each Grantor keeps its Records concerning Accounts and all originals of all
Chattel Paper are located at the addresses specified therefor in Schedule III
hereto. Except for the Permitted Liens (as defined in the Notes), none of the
Accounts is evidenced by Promissory Notes or other Instruments. Set forth in
Schedule IV hereto is a complete and accurate list, as of the date of this
Agreement, of (i) each Promissory Note, Security and other Instrument owned by
each Grantor and (ii) each Deposit Account, Securities Account and Commodities
Account of each Grantor, together with the name and address of each institution
at which each such Account is maintained, the account number for each such
Account and a description of the purpose of each such Account. Set forth in
Schedule II hereto is a complete and correct list of each trade name used by
each Grantor and the name of, and each trade name used by, each person from
which each Grantor has acquired any substantial part of the Collateral.

     (e) Each Grantor has delivered to the Buyer complete and correct copies of
each License described in Schedule II hereto, including all schedules and
exhibits thereto, which represents all of the Licenses existing on the date of
this Agreement. Each such License sets forth the entire agreement and
understanding of the parties thereto relating to the subject matter thereof, and
there are no other agreements, arrangements or understandings, written or oral,
relating to the matters covered thereby or the rights of each Grantor or any of
its affiliates in respect thereof. Each material License now existing is, and
any material License entered into in the future will be, the legal, valid and
binding obligation of the parties thereto, enforceable against such parties in
accordance with its terms. No default under any material License by any such
party has occurred, nor does any defense, offset, deduction or counterclaim
exist thereunder in favor of any such party.

     (f) Each Grantor owns and controls, or otherwise, to the knowledge of
Grantor, possesses adequate rights to use, all Trademarks, Patents and
Copyrights, which are the only trademarks, patents, copyrights, inventions,
trade secrets, proprietary information and technology, know-how, formulae,
rights of publicity necessary to conduct its business in substantially the same
manner as conducted as of the date hereof. Schedule II hereto sets forth a true
and complete list of all registered copyrights, issued Patents, Trademarks, and
Licenses annually owned or used by each Grantor as of the date hereof. To the
best knowledge of the Grantors, all such Intellectual Property of each Grantor
is subsisting and in full force and effect, has not been adjudged invalid or
unenforceable, is valid and enforceable and has not been abandoned in whole or
in part. Except as set forth in Schedule II, no such Intellectual Property is
the subject of any licensing or franchising agreement. Each Grantor has no
knowledge of any conflict with the rights of others to any Intellectual Property
and, to the knowledge, without inquiry, of the Grantors, each Grantor is not now
infringing or in conflict with any such rights of others in any material
respect, and to the knowledge, without inquiry, of the Grantors, no other Person
is now infringing or in conflict in any material respect with any such
properties, assets and rights owned or used by each Grantor. No Grantor has
received any notice that it is violating or has violated the trademarks,
patents, copyrights, inventions, trade secrets, proprietary


                                        6



information and technology, know-how, formulae, rights of publicity or other
intellectual property rights of any third party.

     (g) Each Grantor is and will be at all times the sole and exclusive owner
of, or otherwise has and will have adequate rights in, the Collateral free and
clear of any Liens, except for Permitted Liens (as defined in the Notes) on any
Collateral. No effective financing statement or other instrument similar in
effect covering all or any part of the Collateral is on file in any recording or
filing office except such as may have been filed in favor of the Buyer relating
to this Agreement.

     (h) The exercise by the Buyer of any of its rights and remedies hereunder
will not contravene any law or any contractual restriction binding on or
otherwise affecting each Grantor or any of its properties and will not result in
or require the creation of any Lien, upon or with respect to any of its
properties.

     (i) No authorization or approval or other action by, and no notice to or
filing with, any governmental authority or other regulatory body, or any other
Person, is required for (i) the grant by each Grantor, or the perfection, of the
security interest purported to be created hereby in the Collateral, or (ii) the
exercise by the Buyer of any of its rights and remedies hereunder, except (A)
for the filing under the Uniform Commercial Code in effect in the applicable
jurisdiction of the financing statements, (B) with respect to the perfection of
the security interest created hereby in the Intellectual Property, for the
recording of the appropriate Assignment for Security, substantially in the form
of Exhibit A hereto in the United States Patent and Trademark Office or the
United States Copyright Office, as applicable, and (C) with respect to the
perfection of the security interest created hereby in foreign Intellectual
Property and Licenses, for registrations and filings in jurisdictions located
outside of the United States and covering rights in such jurisdictions relating
to the Intellectual Property and Licenses.

     (j) This Agreement creates in favor of the Buyer a legal, valid and
enforceable security interest in the Collateral, as security for the
Obligations. Buyer's having possession of all Instruments and cash constituting
Collateral from time to time (or with respect to deposit accounts, entering into
appropriate control agreements), the recording of the appropriate Assignment for
Security executed pursuant hereto in the United States Patent and Trademark
Office and the United States Copyright Office, the execution of appropriate
assignments of Letter of Credit Rights, as applicable, and the filing of the
financing statements and the other filings and recordings, as applicable,
described in Schedule V hereto and, with respect to the Intellectual Property
hereafter existing and not covered by an appropriate Assignment for Security,
the recording in the United States Patent and Trademark Office or the United
States Copyright Office, as applicable, of appropriate instruments of
assignment, result in the perfection of such security interests. Such security
interests are, or in the case of Collateral in which each Grantor obtains rights
after the date hereof, will be, perfected, first priority security interests,
subject only to Permitted Liens and the recording of such instruments of
assignment. Such recordings and filings and all other action necessary or
desirable to perfect and protect such security interest have been duly taken,
except for the Buyer's having possession of Instruments and cash constituting
Collateral after the date hereof and the other filings and recordations
described in Section 4(l) hereof.


                                        7



     (k) As of the date hereof, no Grantor holds any Commercial Tort Claims nor
is aware of any such pending claims.

SECTION 5. COVENANTS AS TO THE COLLATERAL. So long as any of the Obligations
shall remain outstanding, unless the Buyer shall otherwise consent in writing:

     (a) Further Assurances. Each Grantor will at its expense, at any time and
from time to time, promptly execute and deliver all further instruments and
documents and take all further action that the Buyer may reasonably request in
order to: (i) perfect and protect the security interest purported to be created
hereby; (ii) enable the Buyer to exercise and enforce its rights and remedies
hereunder in respect of the Collateral; or (iii) otherwise effect the purposes
of this Agreement, including, without limitation: (A) marking conspicuously all
Chattel Paper and each License and, at the request of the Buyer, each of its
Records pertaining to the Collateral with a legend, in form and substance
satisfactory to the Buyer, indicating that such Chattel Paper, License or
Collateral is subject to the security interest created hereby, (B) delivering
and pledging to the Buyer hereunder each Promissory Note, Security, Chattel
Paper or other Instrument, now or hereafter owned by any Grantor, duly endorsed
and accompanied by executed instruments of transfer or assignment, all in form
and substance satisfactory to the Buyer, (C) executing and filing (to the
extent, if any, that any Grantor's signature is required thereon) or
authenticating the filing of, such financing or continuation statements, or
amendments thereto, as may be necessary or desirable or that the Buyer may
request in order to perfect and preserve the security interest purported to be
created hereby, (D) furnishing to the Buyer from time to time statements and
schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral in each case as the Buyer may
reasonably request, all in reasonable detail, (E) if any Collateral shall be in
the possession of a third party, notifying such Person of the Buyer's security
interest created hereby and obtaining a written acknowledgment from such Person
that such Person holds possession of the Collateral for the benefit of the
Buyer, which such written acknowledgement shall be in form and substance
satisfactory to the Buyer, (F) if at any time after the date hereof, any Grantor
acquires or holds any Commercial Tort Claim, promptly notifying the Buyer in a
writing signed by such Grantor setting forth a brief description of such
Commercial Tort Claim and granting to the Buyer a security interest therein and
in the proceeds thereof, which writing shall incorporate the provisions hereof
and shall be in form and substance satisfactory to the Buyer, (G) upon the
acquisition after the date hereof by any Grantor of any motor vehicle or other
Equipment subject to a certificate of title or ownership (other than a Motor
Vehicle or Equipment that is subject to a purchase money security interest),
causing the Buyer to be listed as the lienholder on such certificate of title or
ownership and delivering evidence of the same to the Buyer in accordance with
the Securities Purchase Agreement; and (H) taking all actions required by any
earlier versions of the Uniform Commercial Code or by other law, as applicable,
in any relevant Uniform Commercial Code jurisdiction, or by other law as
applicable in any foreign jurisdiction.

     (b) Location of Equipment and Inventory. Each Grantor will keep the
Equipment and Inventory at the locations specified therefor on Schedule II
hereto, or, at such other locations in the United States, provided that within
10 days following the relocation of Equipment or Inventory to such other
location, Grantor shall deliver to the Buyer a new Schedule II indicating


                                        8



such new location.

     (c) Condition of Equipment. Each Grantor will maintain or cause the
Equipment (necessary or useful to its business) to be maintained and preserved
in good condition, repair and working order, ordinary wear and tear excepted,
and will forthwith, or in the case of any loss or damage to any Equipment of any
Grantor within a commercially reasonable time after the occurrence thereof, make
or cause to be made all repairs, replacements and other improvements in
connection therewith which are necessary or desirable, consistent with past
practice, or which the Buyer may request to such end. Any Grantor will promptly
furnish to the Buyer a statement describing in reasonable detail any such loss
or damage in excess of $250,000 per occurrence to any Equipment.

     (d) Taxes, Etc. Each Grantor agrees to pay promptly when due all property
and other taxes, assessments and governmental charges or levies imposed upon,
and all claims (including claims for labor, materials and supplies) against, the
Equipment and Inventory, except to the extent the validity thereof is being
contested in good faith by proper proceedings which stay the imposition of any
penalty, fine or Lien resulting from the non-payment thereof and with respect to
which adequate reserves in accordance with GAAP have been set aside for the
payment thereof.

     (e) Insurance.

          (i) Each Grantor will, at its own expense, maintain insurance
     (including, without limitation, commercial general liability and property
     insurance) with respect to the Equipment and Inventory in such amounts,
     against such risks, in such form and with responsible and reputable
     insurance companies or associations as is required by any governmental
     authority having jurisdiction with respect thereto or as is carried
     generally in accordance with sound business practice by companies in
     similar businesses similarly situated and in any event, in amount, adequacy
     and scope reasonably satisfactory to the Buyer. To the extent requested by
     the Buyer at any time and from time to time, each such policy for liability
     insurance shall provide for all losses to be paid on behalf of the Buyer
     and any Grantor as their respective interests may appear, and each policy
     for property damage insurance shall provide for all losses to be adjusted
     with, and paid directly to, the Buyer. To the extent requested by the Buyer
     at any time and from time to time, each such policy shall in addition (A)
     name the Buyer as an additional insured party thereunder (without any
     representation or warranty by or obligation upon the Buyer) as their
     interests may appear, (B) contain an agreement by the insurer that any loss
     thereunder shall be payable to the Buyer on its own account notwithstanding
     any action, inaction or breach of representation or warranty by any
     Grantor, (C) provide that there shall be no recourse against the Buyer for
     payment of premiums or other amounts with respect thereto, and (D) provide
     that at least 30 days' prior written notice of cancellation, lapse,
     expiration or other adverse change shall be given to the Buyer by the
     insurer. Any Grantor will, if so requested by the Buyer, deliver to the
     Buyer original or duplicate policies of such insurance and, as often as the
     Buyer may reasonably request, a report of a reputable insurance broker with
     respect to such insurance. Any Grantor will also, at the request of the
     Buyer, execute and deliver instruments of assignment of such insurance


                                        9



     policies and cause the respective insurers to acknowledge notice of such
     assignment.

          (ii) Reimbursement under any liability insurance maintained by any
     Grantor pursuant to this Section 5(e) may be paid directly to the Person
     who shall have incurred liability covered by such insurance. In the case of
     any loss involving damage to Equipment or Inventory, any proceeds of
     insurance maintained by any Grantor pursuant to this Section 5(e) shall be
     paid to the Buyer (except as to which paragraph (iii) of this Section 5(e)
     is not applicable), any Grantor will make or cause to be made the necessary
     repairs to or replacements of such Equipment or Inventory, and any proceeds
     of insurance maintained by any Grantor pursuant to this Section 5(e) shall
     be paid by the Buyer to any Grantor as reimbursement for the costs of such
     repairs or replacements.

          (iii) All insurance payments in respect of such Equipment or Inventory
     shall be paid to the Buyer and applied as specified in Section 7(b) hereof.

     (f) Provisions Concerning the Accounts and the Licenses.

          (i) Any Grantor will (A) give the Buyer at least 30 days' prior
     written notice of any change in such Grantor's name, identity or
     organizational structure, (B) maintain its jurisdiction of incorporation as
     set forth in Section 4(b) hereto, (C) immediately notify the Buyer upon
     obtaining an organizational identification number, if on the date hereof
     such Grantor did not have such identification number, and (D) keep adequate
     records concerning the Accounts and Chattel Paper and permit
     representatives of the Buyer during normal business hours on reasonable
     notice to such Grantor, to inspect and make abstracts from such Records and
     Chattel Paper.

          (ii) Each Grantor will, except as otherwise provided in this
     subsection (f), continue to collect, at its own expense, all amounts due or
     to become due under the Accounts. In connection with such collections, any
     Grantor may (and, at the Buyer's direction, will) take such action as any
     Grantor may deem necessary or advisable to enforce collection or
     performance of the Accounts; provided, however, that the Buyer shall have
     the right at any time, upon the occurrence and during the continuance of an
     Event of Default, beyond any applicable grace period, to notify the account
     debtors or obligors under any Accounts of the assignment of such Accounts
     to the Buyer and to direct such account debtors or obligors to make payment
     of all amounts due or to become due to any Grantor thereunder directly to
     the Buyer or its designated agent and, upon such notification and at the
     expense of any Grantor and to the extent permitted by law, to enforce
     collection of any such Accounts and to adjust, settle or compromise the
     amount or payment thereof, in the same manner and to the same extent as any
     Grantor might have done. After receipt by any Grantor of a notice from the
     Buyer that the Buyer has notified the account debtors or obligors under any
     Accounts as referred to in the proviso to the immediately preceding
     sentence, (A) all amounts and proceeds (including Instruments) received by
     any Grantor in respect of the Accounts shall be received in trust for the
     benefit of the Buyer hereunder, shall be segregated from other funds of any
     Grantor and shall be forthwith paid over to the Buyer in the same form as
     so received (with any necessary endorsement) to be held as cash collateral
     and either (i) credited to the


                                       10



     outstanding obligations so long as no Event of Default shall have occurred
     and be continuing, beyond any applicable grace period, or (ii) if an Event
     of Default shall have occurred and be continuing, beyond any applicable
     grace period, applied as specified in Section 7(b) hereof, and (B) no
     Grantor will adjust, settle or compromise the amount or payment of any
     Account or release wholly or partly any account debtor or obligor thereof
     or allow any credit or discount thereon. In addition, upon the occurrence
     and during the continuance of an Event of Default, beyond any applicable
     grace period, the Buyer may (in its sole and absolute discretion) direct
     any or all of the banks and financial institutions with which any Grantor
     either maintains a Deposit Account or a lockbox or deposits the proceeds of
     any Accounts to send immediately to the Buyer by wire transfer (to such
     account as the Buyer shall specify, or in such other manner as the Buyer
     shall direct) all or a portion of such securities, cash, investments and
     other items held by such institution. Any such securities, cash,
     investments and other items so received by the Buyer shall (in the sole and
     absolute discretion of the Buyer) be held as additional Collateral for the
     Obligations or distributed in accordance with Section 7 hereof.

          (iii) Upon the occurrence and during the continuance of any material
     breach or default under any material License referred to in Schedule II
     hereto by any party thereto other than any Grantor, each Grantor party
     thereto will, promptly after obtaining knowledge thereof, give the Buyer
     written notice of the nature and duration thereof, specifying what action,
     if any, it has taken and proposes to take with respect thereto and
     thereafter will take reasonable steps to protect and preserve its rights
     and remedies in respect of such breach or default, or will obtain or
     acquire an appropriate substitute License.

          (iv) Each Grantor will, at its expense, promptly deliver to the Buyer
     a copy of each notice or other communication received by it by which any
     other party to any material License referred to in Schedule II hereto
     purports to exercise any of its rights or affect any of its obligations
     thereunder, together with a copy of any reply by such Grantor thereto.

          (v) Each Grantor will duly perform and observe in all respects all of
     its obligations and exercise its rights under each material License and
     will take all action reasonably necessary to maintain such Licenses in full
     force and effect. No Grantor will, without the prior written consent of the
     Buyer, cancel, terminate, amend or otherwise modify in any respect, or
     waive any provision of, any material License referred to in Schedule II
     hereto.

     (g) Transfers and Other Liens.

          (i) No Grantor will sell, assign (by operation of law or otherwise),
     lease, license, exchange or otherwise transfer or dispose of any of the
     Collateral, except (A) Inventory in the ordinary course of business, and
     (B) worn-out or obsolete assets not necessary to the business.

          (ii) No Grantor will create, suffer to exist or grant any Lien upon or
     with


                                       11



     respect to any Collateral other than a Permitted Lien.

     (h) Intellectual Property.

          (i) If applicable, any Grantor shall, upon the Buyer's written
     request, duly execute and deliver the applicable Assignment for Security in
     the form attached hereto as Exhibit A. Each Grantor (either itself or
     through licensees) will, and will require each licensee thereof to, take
     all action necessary to maintain all of the Intellectual Property in full
     force and effect, including, without limitation, using the proper statutory
     notices and markings and using the Trademarks on each applicable trademark
     class of goods in order to so maintain the Trademarks in full force and
     free from any claim of abandonment for non-use, and each Grantor will not
     (nor permit any licensee thereof to) do any act or knowingly omit to do any
     act whereby any Intellectual Property may become invalidated; provided,
     however, that so long as no Event of Default has occurred and is
     continuing, beyond any applicable grace period, no Grantor shall have an
     obligation to use or to maintain any Intellectual Property (A) that relates
     solely to any product or work, that has been, or is in the process of
     being, discontinued, abandoned or terminated, (B) that is being replaced
     with Intellectual Property substantially similar to the Intellectual
     Property that may be abandoned or otherwise become invalid, so long as the
     failure to use or maintain such Intellectual Property does not materially
     adversely affect the validity of such replacement Intellectual Property and
     so long as such replacement Intellectual Property is subject to the Lien
     created by this Agreement or (C) that is substantially the same as another
     Intellectual Property that is in full force, so long the failure to use or
     maintain such Intellectual Property does not materially adversely affect
     the validity of such replacement Intellectual Property and so long as such
     other Intellectual Property is subject to the Lien and security interest
     created by this Agreement. Each Grantor will cause to be taken all
     necessary steps in any proceeding before the United States Patent and
     Trademark Office and the United States Copyright Office or any similar
     office or agency in any other country or political subdivision thereof to
     maintain each registration of the Intellectual Property (other than the
     Intellectual Property described in the proviso to the immediately preceding
     sentence), including, without limitation, filing of renewals, affidavits of
     use, affidavits of incontestability and opposition, interference and
     cancellation proceedings and payment of maintenance fees, filing fees,
     taxes or other governmental fees. Upon learning that any Intellectual
     Property (other than Intellectual Property described in the proviso to the
     first sentence of subsection (i) of this clause (h)) is infringed,
     misappropriated, diluted or otherwise violated in any material respect by a
     third party, each Grantor shall (x) upon learning of such infringement,
     misappropriation, dilution or other violation, promptly notify the Buyer
     and (y) to the extent any Grantor shall deem appropriate under the
     circumstances, promptly sue for infringement, misappropriation, dilution or
     other violation, seek injunctive relief where appropriate and recover any
     and all damages for such infringement, misappropriation, dilution or other
     violation, or take such other actions as such Grantor shall deem
     appropriate under the circumstances to protect such Intellectual Property.
     Each Grantor shall furnish to the Buyer from time to time upon its request
     statements and schedules further identifying and describing the
     Intellectual Property and Licenses and such other reports in connection
     with the Intellectual Property and Licenses as the Buyer may reasonably
     request, all in


                                       12



     reasonable detail and promptly upon request of the Buyer, following receipt
     by the Buyer of any such statements, schedules or reports, each Grantor
     shall modify this Agreement by amending Schedule II hereto, as the case may
     be, to include any Intellectual Property and License, as the case may be,
     which becomes part of the Collateral under this Agreement and shall execute
     and authenticate such documents and do such acts as shall be necessary or,
     in the commercially reasonable judgment of the Buyer, desirable to subject
     such Intellectual Property and Licenses to the Lien and security interest
     created by this Agreement. Notwithstanding anything herein to the contrary,
     upon the occurrence and during the continuance of an Event of Default, no
     Grantor may abandon or otherwise permit any Intellectual Property then
     actively utilized in the business operations of Grantors, or any of them,
     to become invalid without the prior written consent of the Buyer.

          (ii) Upon Grantor, either itself or through any agent, employee,
     licensee or designee, filing an application for the registration of any
     Trademark or Copyright or the issuance of any Patent with the United States
     Patent and Trademark Office or the United States Copyright Office, as
     applicable, or in any similar office or agency of the United States or any
     country or any political subdivision thereof Grantor shall give the Buyer
     written notice thereof. Upon request of the Buyer, any Grantor shall
     execute, authenticate and deliver any and all assignments, agreements,
     instruments, documents and papers as the Buyer may reasonably request to
     evidence the Buyer's security interest hereunder in such Intellectual
     Property and the General Intangibles of any Grantor relating thereto or
     represented thereby, and each Grantor hereby appoints the Buyer its
     attorney-in-fact to execute and/or authenticate and file all such writings
     for the foregoing purposes, all acts of such attorney being hereby ratified
     and confirmed, and such power (being coupled with an interest) shall be
     irrevocable until the indefeasible payment in full in cash of all of the
     Obligations in full and the termination of each of the Transaction
     Documents.

     (i) Deposit, Commodities and Securities Accounts. Upon the Buyer's written
request, each Grantor shall cause each bank and other financial institution with
an account referred to in Schedule IV hereto to execute and deliver to the Buyer
a control agreement, in form and substance reasonably satisfactory to the Buyer,
duly executed by each Grantor and such bank or financial institution, or enter
into other arrangements in form and substance satisfactory to the Buyer,
pursuant to which such institution shall irrevocably agree, inter alia, that (i)
it will comply at any time with the instructions originated by the Buyer to such
bank or financial institution directing the disposition of cash, Commodity
Contracts, securities, Investment Property and other items from time to time
credited to such account, without further consent of each Grantor, which
instructions the Buyer will not give to such bank or other financial institution
in the absence of a continuing Event of Default, (ii) all cash, Commodity
Contracts, securities, Investment Property and other items of each Grantor
deposited with such institution shall be subject to a perfected, first priority
security interest in favor of the Buyer, (iii) any right of set off (other than
recoupment of standard fees), banker's Lien or other similar Lien, security
interest or encumbrance shall be fully waived as against the Buyer, and (iv)
upon receipt of written notice from the Buyer during the continuance of an Event
of Default, such bank or financial institution shall immediately send to the
Buyer by wire transfer (to such account as the


                                       13



Buyer shall specify, or in such other manner as the Buyer shall direct) all such
cash, the value of any Commodity Contracts, securities, Investment Property and
other items held by it. Without the prior written consent of the Buyer, each
Grantor shall not make or maintain any Deposit Account, Commodity Account or
Securities Account except for the accounts set forth in Schedule IV hereto. The
provisions of this paragraph 5(i) shall not apply to (i) Deposit Accounts for
which the Buyer is the depositary and (ii) Deposit Accounts specially and
exclusively used for payroll, payroll taxes and other employee wage and benefit
payments to or for the benefit of each Grantor's salaried employees.

     (j) Intentionally Omitted.

     (k) Control. Each Grantor hereby agrees to take any or all action that may
be necessary or desirable or that the Buyer may request in order for the Buyer
to obtain control in accordance with Sections 9-105 - 9-107 of the Code with
respect to the following Collateral: (i) Electronic Chattel Paper, (ii)
Investment Property, and (iii) Letter-of-Credit Rights.

     (l) Inspection and Reporting. Each Grantor shall permit the Buyer, or any
agent or representatives thereof or such professionals or other Persons as the
Buyer may designate, not more than once a year in the absence of an Event of
Default, (i) to examine and make copies of and abstracts from any Grantor's
records and books of account, (ii) to visit and inspect its properties, (iii) to
verify materials, leases, Instruments, Accounts, Inventory and other assets of
any Grantor from time to time, and (iv) to conduct audits, physical counts,
appraisals and/or valuations, examinations at the locations of any Grantor. Each
Grantor shall also permit the Buyer, or any agent or representatives thereof or
such professionals or other Persons as the Buyer may designate to discuss any
Grantor's affairs, finances and accounts with any of its directors, officers,
managerial employees, independent accountants or any of its other
representatives.

     (m) Future Subsidiaries. If any Grantor shall hereafter create or acquire
any Subsidiary, simultaneously with the creation of acquisition of such
Subsidiary, such Grantor shall cause such Subsidiary to become a party to this
Agreement as an additional "Grantor" hereunder, and to duly execute and deliver
a guaranty of the Obligations in favor of the Buyer in form and substance
reasonably acceptable to the Buyer, and to duly execute and/or deliver such
opinions of counsel and other documents, in form and substance reasonably
acceptable to the Buyer, as the Buyer shall reasonably request with respect
thereto.

SECTION 6. ADDITIONAL PROVISIONS CONCERNING THE COLLATERAL.

     (a) Each Grantor hereby (i) authorizes the Buyer to file one or more
Uniform Commercial Code financing or continuation statements, and amendments
thereto, relating to the Collateral and (ii) ratifies such authorization to the
extent that the Buyer has filed any such financing or continuation statements,
or amendments thereto, prior to the date hereof. A photocopy or other
reproduction of this Agreement or any financing statement covering the
Collateral or any part thereof shall be sufficient as a financing statement
where permitted by law.

     (b) Each Grantor hereby irrevocably appoints the Buyer as its
attorney-in-fact and proxy, with full authority in the place and stead of each
Grantor and in the name of each Grantor


                                       14



or otherwise, from time to time in the Buyer's discretion, so long as an Event
of Default shall have occurred and is continuing, beyond any applicable grace
period, to take any action and to execute any instrument which the Buyer may
deem necessary or advisable to accomplish the purposes of this Agreement
(subject to the rights of each Grantor under Section 5 hereof), including,
without limitation, (i) to obtain and adjust insurance required to be paid to
the Buyer pursuant to Section 5(e) hereof, (ii) to ask, demand, collect, sue
for, recover, compound, receive and give acquittance and receipts for moneys due
and to become due under or in respect of any Collateral, (iii) to receive,
endorse, and collect any drafts or other instruments, documents and chattel
paper in connection with clause (i) or (ii) above, (iv) to file any claims or
take any action or institute any proceedings which the Buyer may deem necessary
or desirable for the collection of any Collateral or otherwise to enforce the
rights of the Buyer and the Buyers with respect to any Collateral, and (v) to
execute assignments, licenses and other documents to enforce the rights of the
Buyer and the Buyers with respect to any Collateral. This power is coupled with
an interest and is irrevocable until all of the Obligations are indefeasibly
paid in full in cash.

     (c) For the purpose of enabling the Buyer to exercise rights and remedies
hereunder, at such time as the Buyer shall be lawfully entitled to exercise such
rights and remedies, and for no other purpose, each Grantor hereby grants to the
Buyer, to the extent assignable, an irrevocable, non-exclusive license
(exercisable without payment of royalty or other compensation to any Grantor) to
use, assign, license or sublicense any Intellectual Property now owned or
hereafter acquired by any Grantor, wherever the same may be located, including
in such license reasonable access to all media in which any of the licensed
items may be recorded or stored and to all computer programs used for the
compilation or printout thereof. Notwithstanding anything contained herein to
the contrary, but subject to the provisions of the Securities Purchase Agreement
that limit the right of any Grantor to dispose of its property and Section 5(h)
hereof, so long as no Event of Default shall have occurred and be continuing,
beyond any applicable grace period, any Grantor may exploit, use, enjoy,
protect, license, sublicense, assign, sell, dispose of or take other actions
with respect to the Intellectual Property in the ordinary course of its
business. In furtherance of the foregoing, unless an Event of Default shall have
occurred and be continuing, beyond any applicable grace period, the Buyer shall
from time to time, upon the request of any Grantor, execute and deliver any
instruments, certificates or other documents, in the form so requested, which
such Grantor shall have certified are appropriate (in any Grantor's judgment) to
allow it to take any action permitted above (including relinquishment of the
license provided pursuant to this clause (c) as to any Intellectual Property).
Further, upon the indefeasible payment in full in cash of all of the
Obligations, the Buyer (subject to Section 10(e) hereof) shall release and
reassign to any Grantor all of the Buyer's right, title and interest in and to
the Intellectual Property, and the Licenses, all without recourse,
representation or warranty whatsoever. The exercise of rights and remedies
hereunder by the Buyer shall not terminate the rights of the holders of any
licenses or sublicenses theretofore granted by each Grantor in accordance with
the second sentence of this clause (c). Each Grantor hereby releases the Buyer
from any claims, causes of action and demands at any time arising out of or with
respect to any actions taken or omitted to be taken by the Buyer under the
powers of attorney granted herein other than actions taken or omitted to be
taken through the Buyer's gross negligence or willful misconduct, as determined
by a final determination of a court of competent jurisdiction.


                                       15



     (d) If any Grantor fails to perform any agreement contained herein, the
Buyer may itself perform, or cause performance of, such agreement or obligation,
in the name of any Grantor or the Buyer, and the expenses of the Buyer incurred
in connection therewith shall be payable by any Grantor pursuant to Section 8
hereof and shall be secured by the Collateral.

     (e) The powers conferred on the Buyer hereunder are solely to protect its
interest in the Collateral and shall not impose any duty upon it to exercise any
such powers.

     Except for the safe custody of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, the Buyer shall have no
duty as to any Collateral or as to the taking of any necessary steps to preserve
rights against prior parties or any other rights pertaining to any Collateral.

     (f) Anything herein to the contrary notwithstanding (i) each Grantor shall
remain liable under the Licenses and otherwise with respect to any of the
Collateral to the extent set forth therein to perform all of its obligations
thereunder to the same extent as if this Agreement had not been executed, (ii)
the exercise by the Buyer of any of its rights hereunder shall not release any
Grantor from any of its obligations under the Licenses or otherwise in respect
of the Collateral, and (iii) the Buyer shall not have any obligation or
liability by reason of this Agreement under the Licenses or with respect to any
of the other Collateral, nor shall the Buyer be obligated to perform any of the
obligations or duties of any Grantor thereunder or to take any action to collect
or enforce any claim for payment assigned hereunder.

SECTION 7. REMEDIES UPON EVENT OF DEFAULT. If any Event of Default shall have
occurred and be continuing beyond any applicable grace period:

     (a) The Buyer may exercise in respect of the Collateral, in addition to any
other rights and remedies provided for herein or otherwise available to it, all
of the rights and remedies of a secured party upon default under the Code
(whether or not the Code applies to the affected Collateral), and also may (i)
take absolute control of the Collateral, including, without limitation, transfer
into the Buyer's name or into the name of its nominee or nominees (to the extent
the Buyer has not theretofore done so) and thereafter receive, for the benefit
of the Buyer, all payments made thereon, give all consents, waivers and
ratifications in respect thereof and otherwise act with respect thereto as
though it were the outright owner thereof, (ii) require each Grantor to, and
each Grantor hereby agrees that it will at its expense and upon request of the
Buyer forthwith, assemble all or part of its respective Collateral as directed
by the Buyer and make it available to the Buyer at a place or places to be
designated by the Buyer that is reasonably convenient to both parties, and the
Buyer may enter into and occupy any premises owned or leased by any Grantor
where the Collateral or any part thereof is located or assembled for a
reasonable period in order to effectuate the Buyer's rights and remedies
hereunder or under law, without obligation to any Grantor in respect of such
occupation, and (iii) without notice except as specified below and without any
obligation to prepare or process the Collateral for sale, (A) sell the
Collateral or any part thereof in one or more parcels at public or private sale,
at any of the Buyer's offices or elsewhere, for cash, on credit or for future
delivery, and at such price or prices and upon commercially reasonable terms
and/or (B) lease, license or dispose of the Collateral or any part thereof upon
commercially reasonable terms. Each Grantor agrees that, to


                                       16



the extent notice of sale or any other disposition of its respective Collateral
shall be required by law, at least ten (10) days' notice to any Grantor of the
time and place of any public sale or the time after which any private sale or
other disposition of its respective Collateral is to be made shall constitute
reasonable notification. The Buyer shall not be obligated to make any sale or
other disposition of any Collateral regardless of notice of sale having been
given. The Buyer may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so adjourned. Each
Grantor hereby waives any claims against the Buyer and the Buyers arising by
reason of the fact that the price at which its respective Collateral may have
been sold at a private sale was less than the price which might have been
obtained at a public sale or was less than the aggregate amount of the
Obligations, even if the Buyer accepts the first offer received and does not
offer such Collateral to more than one offeree, and waives all rights that any
Grantor may have to require that all or any part of such Collateral be
marshalled upon any sale (public or private) thereof. Each Grantor hereby
acknowledges that (i) any such sale of its respective Collateral by the Buyer
shall be made without warranty, (ii) the Buyer may specifically disclaim any
warranties of title, possession, quiet enjoyment or the like, and (iii) such
actions set forth in clauses (i) and (ii) above shall not adversely effect the
commercial reasonableness of any such sale of Collateral. In addition to the
foregoing, (1) upon written notice to any Grantor from the Buyer, such Grantor
shall cease any use of the Intellectual Property or any trademark, patent or
copyright similar thereto for any purpose described in such notice; (2) the
Buyer may, at any time and from time to time, upon 10 days' prior notice to such
Grantor, license, whether general, special or otherwise, and whether on an
exclusive or non-exclusive basis, any of the Intellectual Property, throughout
the universe for such term or terms, on such conditions, and in such manner, as
the Buyer shall in its sole discretion determine; and (3) the Buyer may, at any
time, pursuant to the authority granted in Section 6 hereof (such authority
being effective upon the occurrence and during the continuance of an Event of
Default), execute and deliver on behalf of such Grantor, one or more instruments
of assignment of the Intellectual Property (or any application or registration
thereof), in form suitable for filing, recording or registration in any country.

     (b) Any cash held by the Buyer as Collateral and all Cash Proceeds received
by the Buyer in respect of any sale of or collection from, or other realization
upon, all or any part of the Collateral may, in the discretion of the Buyer, be
held by the Buyer as collateral for, and/or then or at any time thereafter
applied (after payment of any amounts payable to the Buyer pursuant to Section 8
hereof) in whole or in part by the Buyer against, all or any part of the
Obligations in such order as the Buyer shall elect, consistent with the
provisions of the Securities Purchase Agreement. Any surplus of such cash or
Cash Proceeds held by the Buyer and remaining after the indefeasible payment in
full in cash of all of the Obligations shall be paid over to whomsoever shall be
lawfully entitled to receive the same or as a court of competent jurisdiction
shall direct.

     (c) In the event that the proceeds of any such sale, collection or
realization are insufficient to pay all amounts to which the Buyer is legally
entitled, each shall be liable for the deficiency, together with interest
thereon at the highest rate specified in any of the applicable Transaction
Documents for interest on overdue principal thereof or such other rate as shall
be fixed by applicable law, together with the costs of collection and the
reasonable fees, costs,


                                       17



expenses and other client charges of any attorneys employed by the Buyer to
collect such deficiency.

     (d) Each Grantor hereby acknowledges that if the Buyer complies with any
applicable state, provincial, or federal law requirements in connection with a
disposition of the Collateral, such compliance will not adversely affect the
commercial reasonableness of any sale or other disposition of the Collateral.

     (e) The Buyer shall not be required to marshal any present or future
collateral security (including, but not limited to, this Agreement and the
Collateral) for, or other assurances of payment of, the Obligations or any of
them or to resort to such collateral security or other assurances of payment in
any particular order, and all of the Buyer's rights hereunder and in respect of
such collateral security and other assurances of payment shall be cumulative and
in addition to all other rights, however existing or arising. To the extent that
any Grantor lawfully may agree, each Grantor hereby agrees that it will not
invoke any law relating to the marshalling of collateral which might cause delay
in or impede the enforcement of the Buyer's rights under this Agreement or under
any other instrument creating or evidencing any of the Obligations or under
which any of the Obligations is outstanding or by which any of the Obligations
is secured or payment thereof is otherwise assured, and, to the extent that it
lawfully may, each Grantor hereby irrevocably waives the benefits of all such
laws.

SECTION 8. INDEMNITY AND EXPENSES.

     (a) Each Grantor agrees, jointly and severally, to defend, protect,
indemnify and hold the Buyer, jointly and severally, harmless from and against
any and all claims, damages, losses, liabilities, obligations, penalties, fees,
costs and expenses (including, without limitation, reasonable legal fees, costs,
expenses, and disbursements of Buyer's counsel) to the extent that they arise
out of or otherwise result from this Agreement (including, without limitation,
enforcement of this Agreement), except claims, losses or liabilities resulting
solely and directly from the gross negligence or willful misconduct of buyer or
its agents, as determined by a final judgment of a court of competent
jurisdiction.

     (b) Each Grantor agrees, jointly and severally, to upon demand pay to the
Buyer the amount of any and all costs and expenses, including the reasonable
fees, costs, expenses and disbursements of counsel for the Buyer and of any
experts and agents (including, without limitation, any collateral trustee which
may act as agent of the Buyer), which the Buyer may incur in connection with (i)
the preparation, negotiation, execution, delivery, recordation, administration,
amendment, waiver or other modification or termination of this Agreement, (ii)
the custody, preservation, use or operation of, or the sale of, collection from,
or other realization upon, any Collateral, (iii) the exercise or enforcement of
any of the rights of the Buyer hereunder, or (iv) the failure by any Grantor to
perform or observe any of the provisions hereof.

SECTION 9. NOTICES, ETC. All notices and other communications provided for
hereunder shall be in writing and shall be mailed (by certified mail, postage
prepaid and return receipt requested), telecopied, e-mailed or delivered, if to
any Grantor at its address specified below and


                                       18



if to the Buyer to it, at its address specified below; or as to any such Person,
at such other address as shall be designated by such Person in a written notice
to such other Person complying as to delivery with the terms of this Section 9.
All such notices and other communications shall be effective (a) if sent by
certified mail, return receipt requested, when received or three days after
deposited in the mails, whichever occurs first, (b) if telecopied or e-mailed,
when transmitted (during normal business hours) and confirmation is received,
otherwise, the day after the notice was transmitted if confirmation is received,
or (c) if delivered, upon delivery.

SECTION 10. MISCELLANEOUS.

     (a) No amendment of any provision of this Agreement shall be effective
unless it is in writing and signed by each Grantor and the Buyer, and no waiver
of any provision of this Agreement, and no consent to any departure by each
Grantor therefrom, shall be effective unless it is in writing and signed by the
Buyer, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.

     (b) No failure on the part of the Buyer to exercise, and no delay in
exercising, any right hereunder or under any of the other Transaction Documents
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right preclude any other or further exercise thereof or the exercise of
any other right. The rights and remedies of the Buyer or any Buyer provided
herein and in the other Transaction Documents are cumulative and are in addition
to, and not exclusive of, any rights or remedies provided by law. The rights of
the Buyer under any of the other Transaction Documents against any party thereto
are not conditional or contingent on any attempt by such Person to exercise any
of its rights under any of the other Transaction Documents against such party or
against any other Person, including but not limited to, any Grantor.

     (c) Any provision of this Agreement that is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining portions
hereof or thereof or affecting the validity or enforceability of such provision
in any other jurisdiction.

     (d) This Agreement shall create a continuing security interest in the
Collateral and shall (i) remain in full force and effect until the indefeasible
payment in full in cash of the Obligations, and (ii) be binding on each Grantor
and all other Persons who become bound as debtor to this Agreement in accordance
with Section 9-203(d) of the Code and shall inure, together with all rights and
remedies of the Buyer hereunder, to the benefit of the Buyer and their
respective permitted successors, transferees and assigns. Without limiting the
generality of clause (ii) of the immediately preceding sentence, without notice
to any Grantor, the Buyer may assign or otherwise transfer their rights and
obligations under this Agreement and any of the other Transaction Documents, to
any other Person and such other Person shall thereupon become vested with all of
the benefits in respect thereof granted to the Buyer herein or otherwise. Upon
any such assignment or transfer, all references in this Agreement to the Buyer
shall mean the assignee of the Buyer. None of the rights or obligations of any
Grantor hereunder may be assigned or otherwise transferred without the prior
written consent of the Buyer, and any such assignment or transfer without the
consent of the Collatera l Agent shall be null and void.


                                       19



     (e) Upon the indefeasible payment in full in cash of the Obligations, (i)
this Agreement and the security interests created hereby shall terminate and all
rights to the Collateral shall revert to the respective Grantor that granted
such security interests hereunder, and (ii) the Buyer will at such Grantor's
expense, (A) return to such Grantor such of the Collateral as shall not have
been sold or otherwise disposed of or applied pursuant to the terms hereof, and
(B) execute and deliver to such Grantor such documents as such Grantor shall
reasonably request to evidence such termination, all without any representation,
warranty or recourse whatsoever.

     (f) THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, EXCEPT AS REQUIRED BY
MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT THE VALIDITY AND
PERFECTION OR THE PERFECTION AND THE EFFECT OF PERFECTION OR NON-PERFECTION OF
THE SECURITY INTEREST CREATED HEREBY, OR REMEDIES HEREUNDER, IN RESPECT OF ANY
PARTICULAR COLLATERAL ARE GOVERNED BY THE LAW OF A JURISDICTION OTHER THAN THE
STATE OF NEW YORK.

     (g) ANY LEGAL ACTION, SUIT OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR
ANY DOCUMENT RELATED THERETO MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW
YORK IN THE COUNTY OF NEW YORK OR THE UNITED STATES OF AMERICA FOR THE SOUTHERN
DISTRICT OF NEW YORK, AND APPELLATE COURTS THEREOF, AND, BY EXECUTION AND
DELIVERY OF THIS AGREEMENT, EACH GRANTOR HEREBY ACCEPTS FOR ITSELF AND IN
RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE
AFORESAID COURTS. EACH GRANTOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION, INCLUDING, WITHOUT LIMITATION,
ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH
ACTION, SUIT OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS AND CONSENTS TO THE
GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE
COURT.

     (h) EACH GRANTOR AND (BY ITS ACCEPTANCE OF THE BENEFITS OF THIS AGREEMENT)
THE BUYER WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED ON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT
OR ANY OF THE OTHER TRANSACTION DOCUMENTS, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, VERBAL OR WRITTEN STATEMENT OR OTHER ACTION OF THE PARTIES HERETO.

     (i) Each Grantor irrevocably consents to the service of process of any of
the aforesaid courts in any such action, suit or proceeding by the mailing of
copies thereof by registered or certified mail (or any substantially similar
form of mail), postage prepaid, to any Grantor at its address provided herein,
such service to become effective 10 days after such


                                       20



mailing.

     (j) Nothing contained herein shall affect the right of the Buyer to serve
process in any other manner permitted by law or commence legal proceedings or
otherwise proceed against any Grantor or any property of any Grantor in any
other jurisdiction.

     (k) Each Grantor irrevocably and unconditionally waives any right it may
have to claim or recover in any legal action, suit or proceeding referred to in
this Section any special, exemplary, punitive or consequential damages.

     (l) Section headings herein are included for convenience of reference only
and shall not constitute a part of this Agreement for any other purpose.

     (m) This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which shall be deemed
to be an original, but all of which taken together constitute one in the same
Agreement.

                [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]


                                       21



     IN WITNESS WHEREOF, each Grantor has caused this Agreement to be executed
and delivered by its officer thereunto duly authorized, as of the date first
above written.

                                        MDWERKS, INC.


                                        By:      /s/ Howard Katz
                                            ------------------------------------
                                        Name:         Howard Katz
                                        Title:        Chief Executive Officer
                                        Address:      1020 NW 6th St.
                                                      Suite I
                                                      Deerfield Beach, FL 33442


                                        MDWERKS GLOBAL HOLDINGS, INC.


                                        By:      /s/ Howard Katz
                                            ------------------------------------
                                        Name:         Howard Katz
                                        Title:        Chief Executive Officer
                                        Address:      1020 NW 6th St.
                                                      Suite I
                                                      Deerfield Beach, FL 33442
                                        Jurisdiction: Florida


                                        XENI MEDICAL SYSTEMS, INC.


                                        By:      /s/ Howard Katz
                                            ------------------------------------
                                        Name:         Howard Katz
                                        Title:        Chief Executive Officer
                                        Address:      1020 NW 6th St.
                                                      Suite I
                                                      Deerfield Beach, FL 33442
                                        Jurisdiction: Delaware


                                        XENI FINANCIAL SERVICES CORPORATION


                                        By:      /s/ Howard Katz
                                            ------------------------------------
                                        Name:         Howard Katz
                                        Title:        Chief Executive Officer
                                        Address:      1020 NW 6th St.
                                                      Suite I
                                                      Deerfield Beach, FL 33442
                                        Jurisdiction: Florida


                                       22



                                        XENI MEDICAL BILLING CORP.


                                        By:      /s/ Howard Katz
                                            ------------------------------------
                                        Name:         Howard Katz
                                        Title:        Chief Executive Officer
                                        Address:      1020 NW 6th St.
                                                      Suite I
                                                      Deerfield Beach, FL 33442
                                        Jurisdiction: Delaware

ACCEPTED BY:

GOTTBETTER CAPITAL MASTER, LTD.


By:    /s/ Adam S. Gottbetter
    ------------------------------------
Name: Adam S. Gottbetter
Title: Director
Address: 488 Madison Avenue, 12th Floor
         New York, NY 10022


                                       23