Document:

THE  SECURITIES  REPRESENTED  BY THIS  CERTIFICATE  HAVE NOT BEEN
          REGISTERED  UNDER THE  SECURITIES  ACT OF 1933,  AS AMENDED  (THE
          "ACT").  THE SECURITIES MAY NOT BE SOLD,  TRANSFERRED OR ASSIGNED
          IN THE ABSENCE OF AN  EFFECTIVE  REGISTRATION  STATEMENT  FOR THE
          SECURITIES  UNDER  SAID ACT,  OR AN  OPINION  OF COUNSEL IN FORM,
          SUBSTANCE  AND  SCOPE   CUSTOMARY  FOR  OPINIONS  OF  COUNSEL  IN
          COMPARABLE  TRANSACTIONS  THAT REGISTRATION IS NOT REQUIRED UNDER
          SAID ACT OR UNLESS  SOLD  PURSUANT  TO RULE 144 OR  REGULATION  S
          UNDER SAID ACT.

                        CALLABLE SECURED CONVERTIBLE NOTE

Westlake Village, California
August 12, 2004                                                          $80,000

         FOR VALUE  RECEIVED,  QT 5, INC., a Delaware  corporation  (hereinafter
called the "BORROWER"), hereby promises to pay to the order of AJW PARTNERS, LLC
or  registered  assigns  (the  "HOLDER")  the  sum of  Eighty  Thousand  Dollars
($80,000) on August 12, 2006 (the "MATURITY  DATE"),  and to pay interest on the
unpaid principal  balance hereof at the rate of ten percent (10%) per annum from
August 12,  2004 (the "ISSUE  DATE")  until the same  becomes  due and  payable,
whether at maturity or upon  acceleration  or by prepayment  or  otherwise.  Any
amount of  principal  or  interest on this Note which is not paid when due shall
bear  interest at the rate of fifteen  percent (15%) per annum from the due date
thereof until the same is paid  ("DEFAULT  INTEREST").  Interest  shall commence
accruing on the issue date, shall be computed on the basis of a 365-day year and
the actual  number of days elapsed and shall be payable,  quarterly on March 31,
June 30,  September 30 and December 31 of each year  beginning on September  30,
2004. All payments due hereunder (to the extent not converted into common stock,
$.001 par value per share,  of the Borrower  (the "COMMON  STOCK") in accordance
with the terms  hereof)  shall be made in lawful  money of the United  States of
America,  provided  that  $5,333.33  shall be  payable on the date  hereof.  All
payments shall be made at such address as the Holder shall hereafter give to the
Borrower by written notice made in accordance  with the provisions of this Note.
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  payment
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.  As used in this  Note,  the  term
"business  day"  shall mean any day other  than a  Saturday,  Sunday or a day on
which  commercial  banks in the city of New  York,  New York are  authorized  or
required by law or executive order to remain closed.  Each capitalized term used
herein,  and not otherwise  defined,  shall have the meaning ascribed thereto in
that certain Securities Purchase  Agreement,  dated August 12, 2004, pursuant to
which this Note was originally issued (the "PURCHASE AGREEMENT").

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         This Note is free from all taxes,  liens,  claims and encumbrances with
respect to the issue  thereof and shall not be subject to  preemptive  rights or
other  similar  rights  of  shareholders  of the  Borrower  and will not  impose
personal  liability  upon the holder  thereof.  The  obligations of the Borrower
under  this Note  shall be secured by that  certain  Security  Agreement  by and
between the Borrower and the Holder of even date herewith.

         The following terms shall apply to this Note:

                          ARTICLE I. CONVERSION RIGHTS

          1.1  CONVERSION  RIGHT.  The Holder  shall have the right from time to
time,  and at any time on or prior to the earlier of (i) the  Maturity  Date and
(ii) the date of  payment of the  Default  Amount  (as  defined in Article  III)
pursuant to Section  1.6(a) or Article III, the Optional  Prepayment  Amount (as
defined in Section 5.1 or any payments  pursuant to Section 1.7, each in respect
of the remaining outstanding principal amount of this Note to convert all or any
part of the outstanding and unpaid principal amount of this Note into fully paid
and  non-assessable  shares of Common Stock,  as such Common Stock exists on the
Issue Date, or any shares of capital  stock or other  securities of the Borrower
into which such Common Stock shall  hereafter be changed or  reclassified at the
conversion  price (the  "CONVERSION  PRICE")  determined  as provided  herein (a
"CONVERSION");  provided, however, that in no event shall the Holder be entitled
to convert any portion of this Note in excess of that  portion of this Note upon
conversion  of  which  the sum of (1) the  number  of  shares  of  Common  Stock
beneficially owned by the Holder and its affiliates (other than shares of Common
Stock  which may be deemed  beneficially  owned  through  the  ownership  of the
unconverted  portion of the Notes or the  unexercised or unconverted  portion of
any other security of the Borrower (including,  without limitation, the warrants
issued  by  the  Borrower  pursuant  to the  Purchase  Agreement)  subject  to a
limitation  on  conversion or exercise  analogous to the  limitations  contained
herein)  and (2) the  number  of  shares  of  Common  Stock  issuable  upon  the
conversion  of the portion of this Note with respect to which the  determination
of this  proviso is being made,  would  result in  beneficial  ownership  by the
Holder and its affiliates of more than 4.9% of the outstanding  shares of Common
Stock.  For  purposes  of the  proviso to the  immediately  preceding  sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities  Exchange Act of 1934, as amended,  and Regulations 13D-G thereunder,
except as otherwise provided in clause (1) of such proviso. The number of shares
of  Common  Stock to be  issued  upon  each  conversion  of this  Note  shall be
determined  by  dividing  the  Conversion  Amount  (as  defined  below)  by  the
applicable  Conversion  Price then in effect on the date specified in the notice
of  conversion,  in the form  attached  hereto  as  Exhibit  A (the  "NOTICE  OF
CONVERSION"), delivered to the Borrower by the Holder in accordance with Section
1.4 below;  provided that the Notice of Conversion is submitted by facsimile (or
by other means resulting in, or reasonably expected to result in, notice) to the
Borrower  before 6:00 p.m., New York, New York time on such conversion date (the
"CONVERSION  DATE").  The term  "CONVERSION  AMOUNT" means,  with respect to any
conversion of this Note, the sum of (1) the principal  amount of this Note to be
converted in such  conversion plus (2) accrued and unpaid  interest,  if any, on
such  principal  amount  at the  interest  rates  provided  in this  Note to the
Conversion Date plus (3) Default Interest, if any, on the amounts referred to in
the  immediately  preceding  clauses  (1)  and/or  (2) plus (4) at the  Holder's
option,  any amounts  owed to the Holder  pursuant  to  Sections  1.3 and 1.4(g)
hereof  or  pursuant  to  Section  2(c)  of  that  certain  Registration  Rights
Agreement,  dated as of August 12, 2004, executed in connection with the initial
issuance  of this  Note and the  other  Notes  issued  on the  Issue  Date  (the
"REGISTRATION RIGHTS AGREEMENT").

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          1.2  CONVERSION PRICE.

               (a)  CALCULATION OF CONVERSION  PRICE. The Conversion Price shall
be the lesser of (i) the Variable  Conversion Price (as defined herein) and (ii)
the Fixed  Conversion  Price (as  defined  herein)  (subject,  in each case,  to
equitable  adjustments for stock splits,  stock dividends or rights offerings by
the Borrower  relating to the  Borrower's  securities  or the  securities of any
subsidiary of the Borrower, combinations,  recapitalization,  reclassifications,
extraordinary distributions and similar events). The "VARIABLE CONVERSION PRICE"
shall mean the  Applicable  Percentage  (as defined  herein)  multiplied  by the
Market Price (as defined herein). "MARKET PRICE" means the average of the lowest
three (3) Trading  Prices (as  defined  below) for the Common  Stock  during the
twenty  (20)  Trading  Day period  ending one  Trading Day prior to the date the
Conversion  Notice is sent by the  Holder to the  Borrower  via  facsimile  (the
"CONVERSION DATE").  "TRADING PRICE" means, for any security as of any date, the
intraday trading price on the  Over-the-Counter  Bulletin Board (the "OTCBB") as
reported by a reliable  reporting  service mutually  acceptable to and hereafter
designated  by Holders of a majority in  interest of the Notes and the  Borrower
or, if the OTCBB is not the  principal  trading  market for such  security,  the
intraday trading price of such security on the principal  securities exchange or
trading  market  where  such  security  is listed or traded  or, if no  intraday
trading price of such security is available in any of the foregoing manners, the
average of the intraday  trading  prices of any market  makers for such security
that are listed in the "pink sheets" by the National  Quotation Bureau,  Inc. If
the Trading  Price cannot be  calculated  for such  security on such date in the
manner  provided  above,  the Trading  Price  shall be the fair market  value as
mutually determined by the Borrower and the holders of a majority in interest of
the Notes being  converted  for which the  calculation  of the Trading  Price is
required in order to determine the Conversion Price of such Notes. "TRADING DAY"
shall  mean any day on which the  Common  Stock is traded  for any period on the
OTCBB, or on the principal  securities  exchange or other  securities  market on
which the Common Stock is then being traded.  "APPLICABLE PERCENTAGE" shall mean
50.0%. The "FIXED CONVERSION PRICE" shall mean $.0056.

               (b)  CONVERSION PRICE DURING MAJOR ANNOUNCEMENTS. Notwithstanding
anything contained in Section 1.2(a) to the contrary,  in the event the Borrower
(i) makes a public announcement that it intends to consolidate or merge with any
other corporation (other than a merger in which the Borrower is the surviving or
continuing  corporation  and its capital stock is unchanged) or sell or transfer
all or substantially all of the assets of the Borrower or (ii) any person, group
or entity (including the Borrower) publicly announces a tender offer to purchase
50% or more of the Borrower's  Common Stock (or any other takeover  scheme) (the
date of the  announcement  referred  to in  clause  (i) or  (ii) is  hereinafter
referred  to as the  "ANNOUNCEMENT  DATE"),  then the  Conversion  Price  shall,
effective  upon  the  Announcement  Date and  continuing  through  the  Adjusted
Conversion Price  Termination Date (as defined below),  be equal to the lower of

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<PAGE>

(x) the  Conversion  Price which  would have been  applicable  for a  Conversion
occurring  on the  Announcement  Date and (y) the  Conversion  Price  that would
otherwise be in effect. From and after the Adjusted Conversion Price Termination
Date,  the  Conversion  Price shall be  determined  as set forth in this Section
1.2(a). For purposes hereof,  "ADJUSTED CONVERSION PRICE TERMINATION DATE" shall
mean,  with  respect to any  proposed  transaction  or tender offer (or takeover
scheme) for which a public  announcement  as contemplated by this Section 1.2(b)
has been  made,  the date upon  which the  Borrower  (in the case of clause  (i)
above)  or the  person,  group or  entity  (in the case of  clause  (ii)  above)
consummates or publicly announces the termination or abandonment of the proposed
transaction  or tender  offer (or  takeover  scheme)  which  caused this Section
1.2(b) to become operative.

               1.3  AUTHORIZED  SHARES.  The Borrower  covenants that during the
period  the  conversion  right  exists,  the  Borrower  will  reserve  from  its
authorized and unissued  Common Stock a sufficient  number of shares,  free from
preemptive  rights,  to provide for the  issuance of Common  Stock upon the full
conversion  of this Note and the other Notes  issued  pursuant  to the  Purchase
Agreement. The Borrower is required at all times to have authorized and reserved
two times the number of shares that is actually issuable upon full conversion of
the Notes (based on the  Conversion  Price of the Notes or the Exercise Price of
the Warrants in effect from time to time) (the "RESERVED AMOUNT").  The Reserved
Amount shall be increased  from time to time in accordance  with the  Borrower's
obligations  pursuant to Section  4(h) of the Purchase  Agreement.  The Borrower
represents  that upon  issuance,  such shares  will be duly and validly  issued,
fully paid and  non-assessable.  In addition,  if the  Borrower  shall issue any
securities  or make any change to its capital  structure  which would change the
number of shares of Common  Stock into which the Notes shall be  convertible  at
the then current  Conversion  Price,  the  Borrower  shall at the same time make
proper provision so that thereafter there shall be a sufficient number of shares
of Common Stock  authorized  and  reserved,  free from  preemptive  rights,  for
conversion of the outstanding  Notes. The Borrower (i) acknowledges  that it has
irrevocably  instructed its transfer agent to issue  certificates for the Common
Stock  issuable upon  conversion of this Note, and (ii) agrees that its issuance
of this Note shall  constitute full authority to its officers and agents who are
charged with the duty of executing  stock  certificates to execute and issue the
necessary  certificates  for shares of Common Stock in accordance with the terms
and conditions of this Note.

         If, at any time a Holder of this Note  submits a Notice of  Conversion,
and the Borrower  does not have  sufficient  authorized  but unissued  shares of
Common  Stock  available  to  effect  such  conversion  in  accordance  with the
provisions of this Article I (a "CONVERSION  DEFAULT"),  subject to Section 4.8,
the  Borrower  shall issue to the Holder all of the shares of Common Stock which
are then available to effect such conversion. The portion of this Note which the
Holder  included in its Conversion  Notice and which exceeds the amount which is
then  convertible  into available  shares of Common Stock (the "EXCESS  AMOUNT")
shall,  notwithstanding  anything  to  the  contrary  contained  herein,  not be
convertible  into Common Stock in accordance with the terms hereof until (and at
the  Holder's  option at any time  after) the date  additional  shares of Common
Stock are  authorized by the Borrower to permit such  conversion,  at which time
the  Conversion  Price  in  respect  thereof  shall  be the  lesser  of (i)  the
Conversion Price on the Conversion  Default Date (as defined below) and (ii) the
Conversion  Price on the  Conversion  Date  thereafter  elected by the Holder in
respect  thereof.  In addition,  the Borrower  shall pay to the Holder  payments

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<PAGE>

("CONVERSION  DEFAULT  PAYMENTS") for a Conversion  Default in the amount of (x)
the sum of (1) the then  outstanding  principal  amount  of this  Note  plus (2)
accrued and unpaid interest on the unpaid  principal amount of this Note through
the Authorization Date (as defined below) plus (3) Default Interest,  if any, on
the  amounts  referred  to in clauses  (1) and/or  (2),  multiplied  by (y) .24,
multiplied by (z) (N/365),  where N = the number of days from the day the holder
submits  a  Notice  of  Conversion  giving  rise to a  Conversion  Default  (the
"CONVERSION  DEFAULT  DATE") to the date  (the  "AUTHORIZATION  DATE")  that the
Borrower  authorizes  a  sufficient  number of shares of Common  Stock to effect
conversion of the full outstanding  principal balance of this Note. The Borrower
shall use its best efforts to authorize a sufficient  number of shares of Common
Stock as soon as  practicable  following  the  earlier of (i) such time that the
Holder notifies the Borrower or that the Borrower  otherwise  becomes aware that
there are or likely will be insufficient authorized and unissued shares to allow
full conversion thereof and (ii) a Conversion  Default.  The Borrower shall send
notice to the Holder of the  authorization of additional shares of Common Stock,
the  Authorization  Date and the amount of Holder's accrued  Conversion  Default
Payments.  The accrued Conversion Default Payments for each calendar month shall
be paid in cash or shall be convertible into Common Stock (at such time as there
are sufficient  authorized shares of Common Stock) at the applicable  Conversion
Price, at the Borrower's option, as follows:

               (a)  In the event  Holder  elects to take such  payment  in cash,
cash  payment  shall be made to  Holder  by the  fifth  (5th)  day of the  month
following the month in which it has accrued; and

               (b)  In the event  Holder  elects to take such  payment in Common
Stock,  the Holder may convert  such  payment  amount  into Common  Stock at the
Conversion  Price (as in effect at the time of conversion) at any time after the
fifth day of the month following the month in which it has accrued in accordance
with the terms of this Article I (so long as there is then a  sufficient  number
of authorized shares of Common Stock).

         The Holder's  election  shall be made in writing to the Borrower at any
time prior to 6:00 p.m.,  New York, New York time, on the third day of the month
following the month in which  Conversion  Default  payments have accrued.  If no
election is made,  the Holder shall be deemed to have  elected to receive  cash.
Nothing  herein shall limit the Holder's  right to pursue actual damages (to the
extent in excess of the Conversion  Default Payments) for the Borrower's failure
to maintain a sufficient  number of authorized  shares of Common Stock, and each
holder shall have the right to pursue all remedies available at law or in equity
(including degree of specific performance and/or injunctive relief).

          1.4  METHOD OF CONVERSION.

               (a)  MECHANICS OF  CONVERSION.  Subject to Section 1.1, this Note
may be converted by the Holder in whole or in part at any time from time to time
after the Issue Date,  by (A)  submitting to the Borrower a Notice of Conversion
(by  facsimile or other  reasonable  means of  communication  dispatched  on the
Conversion  Date prior to 6:00 p.m., New York, New York time) and (B) subject to
Section 1.4(b), surrendering this Note at the principal office of the Borrower.

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<PAGE>

               (b)  SURRENDER OF NOTE UPON CONVERSION.  Notwithstanding anything
to the contrary set forth  herein,  upon  conversion  of this Note in accordance
with the terms hereof, the Holder shall not be required to physically  surrender
this Note to the Borrower unless the entire unpaid principal amount of this Note
is so converted.  The Holder and the Borrower shall maintain records showing the
principal  amount so converted  and the dates of such  conversions  or shall use
such other method, reasonably satisfactory to the Holder and the Borrower, so as
not to require physical surrender of this Note upon each such conversion. In the
event of any  dispute or  discrepancy,  such  records of the  Borrower  shall be
controlling and determinative in the absence of manifest error.  Notwithstanding
the foregoing, if any portion of this Note is converted as aforesaid, the Holder
may not transfer this Note unless the Holder first  physically  surrenders  this
Note to the Borrower,  whereupon the Borrower will  forthwith  issue and deliver
upon the order of the Holder a new Note of like tenor,  registered as the Holder
(upon  payment  by the Holder of any  applicable  transfer  taxes) may  request,
representing  in the  aggregate the remaining  unpaid  principal  amount of this
Note. The Holder and any assignee,  by acceptance of this Note,  acknowledge and
agree that, by reason of the provisions of this paragraph,  following conversion
of a portion of this Note, the unpaid and unconverted  principal  amount of this
Note  represented  by this Note may be less than the  amount  stated on the face
hereof.

               (c)  PAYMENT OF TAXES.  The Borrower shall not be required to pay
any tax which may be payable in respect of any  transfer  involved  in the issue
and  delivery  of shares of Common  Stock or other  securities  or  property  on
conversion  of this Note in a name  other  than that of the Holder (or in street
name),  and the  Borrower  shall not be  required  to issue or deliver  any such
shares or other  securities  or property  unless and until the person or persons
(other than the Holder or the  custodian in whose street name such shares are to
be held for the Holder's  account)  requesting  the issuance  thereof shall have
paid to the Borrower the amount of any such tax or shall have established to the
satisfaction of the Borrower that such tax has been paid.

               (d)  DELIVERY OF COMMON  STOCK UPON  CONVERSION.  Upon receipt by
the Borrower from the Holder of a facsimile  transmission  (or other  reasonable
means of communication)  of a Notice of Conversion  meeting the requirements for
conversion as provided in this Section 1.4, the Borrower shall issue and deliver
or  cause  to be  issued  and  delivered  to or upon  the  order  of the  Holder
certificates  for the Common Stock issuable upon such conversion  within two (2)
business days after such receipt  (and,  solely in the case of conversion of the
entire  unpaid  principal  amount  hereof,  surrender of this Note) (such second
business day being hereinafter referred to as the "DEADLINE") in accordance with
the terms hereof and the Purchase Agreement (including,  without limitation,  in
accordance with the requirements of Section 2(g) of the Purchase  Agreement that
certificates for shares of Common Stock issued on or after the effective date of
the  Registration  Statement  upon  conversion  of this Note  shall not bear any
restrictive legend).

               (e)  OBLIGATION OF BORROWER TO DELIVER COMMON STOCK. Upon receipt
by the Borrower of a Notice of Conversion,  the Holder shall be deemed to be the
holder  of  record of the  Common  Stock  issuable  upon  such  conversion,  the
outstanding  principal  amount and the amount of accrued and unpaid  interest on
this Note shall be reduced to reflect such conversion,  and, unless the Borrower
defaults on its obligations under this Article I, all rights with respect to the
portion of this Note being so converted  shall  forthwith  terminate  except the

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right to receive the Common Stock or other securities,  cash or other assets, as
herein provided, on such conversion.  If the Holder shall have given a Notice of
Conversion as provided  herein,  the Borrower's  obligation to issue and deliver
the  certificates  for  Common  Stock  shall  be  absolute  and   unconditional,
irrespective of the absence of any action by the Holder to enforce the same, any
waiver or consent with  respect to any  provision  thereof,  the recovery of any
judgment  against any person or any action to enforce  the same,  any failure or
delay in the  enforcement of any other  obligation of the Borrower to the holder
of record, or any setoff, counterclaim,  recoupment,  limitation or termination,
or any breach or alleged breach by the Holder of any obligation to the Borrower,
and  irrespective  of any other  circumstance  which might  otherwise limit such
obligation of the Borrower to the Holder in connection with such conversion. The
Conversion  Date  specified in the Notice of Conversion  shall be the Conversion
Date so long as the Notice of Conversion is received by the Borrower before 6:00
p.m., New York, New York time, on such date.

               (f)  DELIVERY OF COMMON STOCK BY ELECTRONIC TRANSFER.  In lieu of
delivering  physical  certificates  representing  the Common Stock issuable upon
conversion,  provided the  Borrower's  transfer  agent is  participating  in the
Depository  Trust Company ("DTC") Fast Automated  Securities  Transfer  ("FAST")
program,  upon  request  of the Holder and its  compliance  with the  provisions
contained in Section 1.1 and in this  Section  1.4,  the Borrower  shall use its
best efforts to cause its transfer agent to  electronically  transmit the Common
Stock  issuable  upon  conversion  to the  Holder by  crediting  the  account of
Holder's Prime Broker with DTC through its Deposit  Withdrawal  Agent Commission
("DWAC") system.

               (g)  FAILURE TO DELIVER  COMMON STOCK PRIOR TO DEADLINE.  Without
in any way  limiting  the Holder's  right to pursue  other  remedies,  including
actual damages and/or  equitable  relief,  the parties agree that if delivery of
the Common Stock issuable upon conversion of this Note is more than two (2) days
after the Deadline (other than a failure due to the  circumstances  described in
Section 1.3 above, which failure shall be governed by such Section) the Borrower
shall pay to the Holder $2,000 per day in cash, for each day beyond the Deadline
that the Borrower fails to deliver such Common Stock.  Such cash amount shall be
paid to Holder by the fifth day of the month following the month in which it has
accrued  or, at the option of the Holder (by written  notice to the  Borrower by
the first day of the month  following the month in which it has accrued),  shall
be added to the  principal  amount of this Note, in which event  interest  shall
accrue  thereon in  accordance  with the terms of this Note and such  additional
principal  amount shall be convertible  into Common Stock in accordance with the
terms of this Note.

          1.5  CONCERNING  THE SHARES.  The shares of Common Stock issuable upon
conversion  of this Note may not be sold or  transferred  unless (i) such shares
are sold pursuant to an effective  registration  statement under the Act or (ii)
the Borrower or its transfer  agent shall have been furnished with an opinion of
counsel  (which  opinion  shall be in form,  substance  and scope  customary for
opinions of counsel in comparable transactions) to the effect that the shares to
be sold or transferred may be sold or transferred  pursuant to an exemption from
such registration or (iii) such shares are sold or transferred  pursuant to Rule
144 under the Act (or a  successor  rule)  ("RULE  144") or (iv) such shares are
transferred  to an  "affiliate"  (as  defined in Rule 144) of the  Borrower  who
agrees to sell or  otherwise  transfer the shares only in  accordance  with this
Section  1.5 and who is an  Accredited  Investor  (as  defined  in the  Purchase
Agreement).  Except as otherwise provided in the Purchase Agreement (and subject

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to the removal  provisions  set forth  below),  until such time as the shares of
Common Stock issuable upon  conversion of this Note have been  registered  under
the Act as contemplated by the Registration Rights Agreement or otherwise may be
sold pursuant to Rule 144 without any restriction as to the number of securities
as of a particular date that can then be immediately  sold, each certificate for
shares of Common Stock  issuable upon  conversion of this Note that has not been
so included in an  effective  registration  statement  or that has not been sold
pursuant to an effective  registration  statement  or an exemption  that permits
removal of the legend,  shall bear a legend substantially in the following form,
as appropriate:

          "THE  SECURITIES  REPRESENTED BY THIS  CERTIFICATE  HAVE NOT BEEN
          REGISTERED  UNDER THE  SECURITIES  ACT OF 1933,  AS AMENDED.  THE
          SECURITIES  MAY  NOT BE  SOLD,  TRANSFERRED  OR  ASSIGNED  IN THE
          ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
          UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM,  SUBSTANCE  AND
          SCOPE   CUSTOMARY   FOR   OPINIONS   OF  COUNSEL  IN   COMPARABLE
          TRANSACTIONS,  THAT  REGISTRATION  IS NOT REQUIRED UNDER SAID ACT
          UNLESS SOLD PURSUANT TO RULE 144 OR REGULATION S UNDER SAID ACT."

         The legend set forth  above  shall be removed  and the  Borrower  shall
issue to the Holder a new  certificate  therefor free of any transfer  legend if
(i) the  Borrower  or its  transfer  agent  shall  have  received  an opinion of
counsel,  in form,  substance  and scope  customary  for  opinions of counsel in
comparable  transactions,  to the effect  that a public sale or transfer of such
Common Stock may be made without  registration  under the Act and the shares are
so sold or  transferred,  (ii) such Holder provides the Borrower or its transfer
agent with reasonable  assurances that the Common Stock issuable upon conversion
of this Note (to the extent such  securities are deemed to have been acquired on
the  same  date)  can be sold  pursuant  to Rule 144 or (iii) in the case of the
Common Stock issuable upon  conversion of this Note, such security is registered
for sale by the Holder under an effective registration statement filed under the
Act or otherwise may be sold pursuant to Rule 144 without any  restriction as to
the number of  securities as of a particular  date that can then be  immediately
sold.  Nothing in this Note shall (i) limit the Borrower's  obligation under the
Registration Rights Agreement or (ii) affect in any way the Holder's obligations
to comply with applicable  prospectus  delivery  requirements upon the resale of
the securities referred to herein.

          1.6  EFFECT OF CERTAIN EVENTS.

               (a)  EFFECT OF MERGER,  CONSOLIDATION,  ETC. At the option of the
Holder,  the sale,  conveyance or disposition of all or substantially all of the
assets of the Borrower,  the  effectuation  by the Borrower of a transaction  or
series of related transactions in which more than 50% of the voting power of the
Borrower  is  disposed  of,  or the  consolidation,  merger  or  other  business
combination  of the Borrower with or into any other Person (as defined below) or
Persons when the Borrower is not the survivor shall either:  (i) be deemed to be
an Event of Default (as defined in Article  III)  pursuant to which the Borrower
shall  be  required  to pay to the  Holder  upon  the  consummation  of and as a
condition to such  transaction an amount equal to the Default Amount (as defined
in Article III) or (ii) be treated  pursuant to Section 1.6(b) hereof.  "PERSON"
shall mean any individual,  corporation, limited liability company, partnership,
association, trust or other entity or organization.

                                       8
<PAGE>

               (b)  ADJUSTMENT  DUE TO MERGER,  CONSOLIDATION,  ETC.  If, at any
time when this Note is issued and  outstanding and prior to conversion of all of
the  Notes,  there  shall be any  merger,  consolidation,  exchange  of  shares,
recapitalization,  reorganization,  or other similar event, as a result of which
shares of  Common  Stock of the  Borrower  shall be  changed  into the same or a
different number of shares of another class or classes of stock or securities of
the Borrower or another  entity,  or in case of any sale or conveyance of all or
substantially  all of the assets of the Borrower other than in connection with a
plan of complete liquidation of the Borrower, then the Holder of this Note shall
thereafter  have the right to receive  upon  conversion  of this Note,  upon the
basis and upon the  terms and  conditions  specified  herein  and in lieu of the
shares of Common Stock immediately  theretofore  issuable upon conversion,  such
stock, securities or assets which the Holder would have been entitled to receive
in such  transaction had this Note been converted in full  immediately  prior to
such  transaction  (without  regard to any  limitations  on conversion set forth
herein), and in any such case appropriate  provisions shall be made with respect
to the  rights  and  interests  of the  Holder  of this Note to the end that the
provisions hereof (including,  without limitation,  provisions for adjustment of
the Conversion Price and of the number of shares issuable upon conversion of the
Note)  shall  thereafter  be  applicable,  as  nearly as may be  practicable  in
relation to any securities or assets thereafter  deliverable upon the conversion
hereof. The Borrower shall not effect any transaction  described in this Section
1.6(b) unless (a) it first gives,  to the extent  practicable,  thirty (30) days
prior written  notice (but in any event at least fifteen (15) days prior written
notice) of the record date of the special meeting of shareholders to approve, or
if  there  is  no  such  record  date,   the   consummation   of,  such  merger,
consolidation,  exchange of shares,  recapitalization,  reorganization  or other
similar event or sale of assets  (during which time the Holder shall be entitled
to convert this Note) and (b) the  resulting  successor or acquiring  entity (if
not the Borrower) assumes by written  instrument the obligations of this Section
1.6(b). The above provisions shall similarly apply to successive consolidations,
mergers, sales, transfers or share exchanges.

               (c)  ADJUSTMENT  DUE  TO  DISTRIBUTION.  If  the  Borrower  shall
declare or make any distribution of its assets (or rights to acquire its assets)
to holders of Common Stock as a dividend, stock repurchase,  by way of return of
capital or otherwise  (including any dividend or  distribution to the Borrower's
shareholders in cash or shares (or rights to acquire shares) of capital stock of
a subsidiary  (i.e.,  a spin-off)) (a  "DISTRIBUTION"),  then the Holder of this
Note  shall be  entitled,  upon any  conversion  of this Note  after the date of
record for determining  shareholders  entitled to such Distribution,  to receive
the  amount of such  assets  which  would have been  payable to the Holder  with
respect to the shares of Common Stock  issuable  upon such  conversion  had such
Holder been the holder of such shares of Common Stock on the record date for the
determination of shareholders entitled to such Distribution.

               (d)  ADJUSTMENT  DUE TO DILUTIVE  ISSUANCE.  If, at any time when
any Notes are  issued  and  outstanding,  the  Borrower  issues or sells,  or in
accordance with this Section 1.6(d) hereof is deemed to have issued or sold, any
shares of Common Stock for no  consideration  or for a  consideration  per share
(before  deduction  of  reasonable   expenses  or  commissions  or  underwriting
discounts or allowances in connection  therewith) less than the Fixed Conversion

                                       9
<PAGE>

Price in effect on the date of such issuance (or deemed issuance) of such shares
of Common  Stock (a "DILUTIVE  ISSUANCE"),  then  immediately  upon the Dilutive
Issuance,  the Fixed  Conversion  Price  will be  reduced  to the  amount of the
consideration  per share  received by the  Borrower in such  Dilutive  Issuance;
provided that only one adjustment will be made for each Dilutive Issuance.

         The  Borrower  shall be deemed to have  issued or sold shares of Common
Stock if the  Borrower in any manner  issues or grants any  warrants,  rights or
options, whether or not immediately exercisable, to subscribe for or to purchase
Common Stock or other  securities  convertible  into or exchangeable  for Common
Stock ("CONVERTIBLE  SECURITIES") (such warrants, rights and options to purchase
Common Stock or Convertible Securities are hereinafter referred to as "OPTIONS")
and the price per share for which Common Stock is issuable  upon the exercise of
such Options is less than the Fixed  Conversion  Price then in effect,  then the
Fixed  Conversion  Price shall be equal to such price per share. For purposes of
the preceding sentence,  the "price per share for which Common Stock is issuable
upon the  exercise of such  Options"  is  determined  by dividing  (i) the total
amount,  if any, received or receivable by the Borrower as consideration for the
issuance or granting of all such Options,  plus the minimum  aggregate amount of
additional  consideration,  if any, payable to the Borrower upon the exercise of
all such Options,  plus, in the case of Convertible Securities issuable upon the
exercise  of  such  Options,   the  minimum   aggregate   amount  of  additional
consideration  payable upon the conversion or exchange  thereof at the time such
Convertible  Securities first become  convertible or  exchangeable,  by (ii) the
maximum total number of shares of Common Stock issuable upon the exercise of all
such  Options   (assuming  full   conversion  of  Convertible   Securities,   if
applicable). No further adjustment to the Conversion Price will be made upon the
actual  issuance of such Common  Stock upon the exercise of such Options or upon
the conversion or exchange of Convertible  Securities  issuable upon exercise of
such Options.

         Additionally,  the  Borrower  shall be  deemed  to have  issued or sold
shares  of  Common  Stock if the  Borrower  in any  manner  issues  or sells any
Convertible Securities, whether or not immediately convertible (other than where
the same are issuable upon the exercise of Options), and the price per share for
which Common Stock is issuable upon such conversion or exchange is less than the
Fixed Conversion Price then in effect,  then the Fixed Conversion Price shall be
equal to such price per share. For the purposes of the preceding  sentence,  the
"price per share for which  Common  Stock is issuable  upon such  conversion  or
exchange" is determined by dividing (i) the total  amount,  if any,  received or
receivable by the Borrower as consideration for the issuance or sale of all such
Convertible  Securities,   plus  the  minimum  aggregate  amount  of  additional
consideration,  if any,  payable to the Borrower upon the conversion or exchange
thereof at the time such  Convertible  Securities  first become  convertible  or
exchangeable,  by (ii) the  maximum  total  number of  shares  of  Common  Stock
issuable upon the conversion or exchange of all such Convertible Securities.  No
further  adjustment to the Fixed  Conversion  Price will be made upon the actual
issuance of such Common Stock upon  conversion  or exchange of such  Convertible
Securities.

               (e)  PURCHASE  RIGHTS.  If, at any time when any Notes are issued
and  outstanding,  the Borrower issues any  convertible  securities or rights to
purchase stock,  warrants,  securities or other property (the "PURCHASE RIGHTS")
pro rata to the record holders of any class of Common Stock,  then the Holder of
this  Note will be  entitled  to  acquire,  upon the  terms  applicable  to such

                                       10
<PAGE>

Purchase  Rights,  the  aggregate  Purchase  Rights which such Holder could have
acquired if such Holder had held the number of shares of Common Stock acquirable
upon  complete  conversion of this Note (without  regard to any  limitations  on
conversion  contained herein)  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.

               (f)  NOTICE  OF   ADJUSTMENTS.   Upon  the   occurrence  of  each
adjustment or  readjustment  of the  Conversion  Price as a result of the events
described  in this Section 1.6, the  Borrower,  at its expense,  shall  promptly
compute such adjustment or readjustment and prepare and furnish to the Holder of
a certificate  setting  forth such  adjustment  or  readjustment  and showing in
detail the facts  upon  which such  adjustment  or  readjustment  is based.  The
Borrower shall,  upon the written request at any time of the Holder,  furnish to
such  Holder  a  like   certificate   setting  forth  (i)  such   adjustment  or
readjustment,  (ii) the  Conversion  Price at the time in  effect  and (iii) the
number of shares of Common Stock and the amount,  if any, of other securities or
property which at the time would be received upon conversion of the Note.

          1.7  TRADING MARKET  LIMITATIONS.  Unless  permitted by the applicable
rules and  regulations  of the principal  securities  market on which the Common
Stock is then  listed or  traded,  in no event  shall the  Borrower  issue  upon
conversion  of or  otherwise  pursuant to this Note and the other  Notes  issued
pursuant to the  Purchase  Agreement  more than the maximum  number of shares of
Common Stock that the Borrower can issue  pursuant to any rule of the  principal
United  States  securities  market on which the Common Stock is then traded (the
"MAXIMUM SHARE AMOUNT"),  which shall be 19.99% of the total shares  outstanding
on the Closing Date (as defined in the Purchase Agreement), subject to equitable
adjustment from time to time for stock splits,  stock  dividends,  combinations,
capital  reorganizations  and  similar  events  relating  to  the  Common  Stock
occurring  after the date hereof.  Once the Maximum Share Amount has been issued
(the date of which is hereinafter referred to as the "MAXIMUM CONVERSION Date"),
if the Borrower fails to eliminate any prohibitions  under applicable law or the
rules or  regulations of any stock  exchange,  interdealer  quotation  system or
other self-regulatory organization with jurisdiction over the Borrower or any of
its  securities  on the  Borrower's  ability to issue  shares of Common Stock in
excess of the Maximum Share Amount (a "TRADING  MARKET  PREPAYMENT  EVENT"),  in
lieu of any further right to convert this Note, and in full  satisfaction of the
Borrower's  obligations  under this Note,  the Borrower shall pay to the Holder,
within fifteen (15) business days of the Maximum  Conversion  Date (the "TRADING
MARKET PREPAYMENT  DATE"), an amount equal to 130% times the sum of (a) the then
outstanding  principal  amount of this Note  immediately  following  the Maximum
Conversion  Date, plus (b) accrued and unpaid  interest on the unpaid  principal
amount of this Note to the  Trading  Market  Prepayment  Date,  plus (c) Default
Interest,  if any,  on the  amounts  referred to in clause (a) and/or (b) above,
plus  (d)  any  optional  amounts  that  may be  added  thereto  at the  Maximum
Conversion  Date by the Holder in  accordance  with the terms  hereof  (the then
outstanding  principal  amount of this Note  immediately  following  the Maximum
Conversion  Date, plus the amounts referred to in clauses (b), (c) and (d) above
shall collectively be referred to as the "REMAINING  CONVERTIBLE AMOUNT").  With
respect to each Holder of Notes,  the Maximum  Share  Amount shall refer to such
Holder's pro rata share thereof determined in accordance with Section 4.8 below.
In the event that the sum of (x) the aggregate  number of shares of Common Stock
issued upon  conversion of this Note and the other Notes issued  pursuant to the

                                       11
<PAGE>

Purchase  Agreement plus (y) the aggregate number of shares of Common Stock that
remain issuable upon conversion of this Note and the other Notes issued pursuant
to the Purchase Agreement, represents at least one hundred percent (100%) of the
Maximum Share Amount (the  "TRIGGERING  EVENT"),  the Borrower will use its best
efforts to seek and obtain Shareholder  Approval (or obtain such other relief as
will allow conversions  hereunder in excess of the Maximum Share Amount) as soon
as practicable  following the Triggering Event and before the Maximum Conversion
Date. As used herein,  "SHAREHOLDER APPROVAL" means approval by the shareholders
of the Borrower to authorize the issuance of the full number of shares of Common
Stock which would be issuable upon full conversion of the then outstanding Notes
but for the Maximum Share Amount.

          1.8  STATUS AS SHAREHOLDER.  Upon submission of a Notice of Conversion
by a Holder,  (i) the shares  covered  thereby  (other than the shares,  if any,
which  cannot be issued  because  their  issuance  would  exceed  such  Holder's
allocated  portion of the  Reserved  Amount or Maximum  Share  Amount)  shall be
deemed  converted into shares of Common Stock and (ii) the Holder's  rights as a
Holder of such  converted  portion  of this  Note  shall  cease  and  terminate,
excepting only the right to receive certificates for such shares of Common Stock
and to any remedies  provided herein or otherwise  available at law or in equity
to such Holder  because of a failure by the Borrower to comply with the terms of
this  Note.  Notwithstanding  the  foregoing,  if  a  Holder  has  not  received
certificates  for all shares of Common Stock prior to the tenth (10th)  business
day after the  expiration  of the Deadline  with respect to a conversion  of any
portion of this Note for any reason, then (unless the Holder otherwise elects to
retain its status as a holder of Common Stock by so notifying  the Borrower) the
Holder  shall  regain the  rights of a Holder of this Note with  respect to such
unconverted   portions  of  this  Note  and  the  Borrower  shall,  as  soon  as
practicable,  return such unconverted Note to the Holder or, if the Note has not
been  surrendered,  adjust its records to reflect that such portion of this Note
has not been converted.  In all cases, the Holder shall retain all of its rights
and remedies (including, without limitation, (i) the right to receive Conversion
Default Payments pursuant to Section 1.3 to the extent required thereby for such
Conversion  Default and any subsequent  Conversion Default and (ii) the right to
have the Conversion Price with respect to subsequent  conversions  determined in
accordance with Section 1.3) for the Borrower's failure to convert this Note.

                         ARTICLE II. CERTAIN COVENANTS

          2.1  DISTRIBUTIONS  ON CAPITAL  STOCK.  So long as the Borrower  shall
have any obligation under this Note, the Borrower shall not without the Holder's
written consent (a) pay, declare or set apart for such payment,  any dividend or
other distribution  (whether in cash, property or other securities) on shares of
capital stock other than  dividends on shares of Common Stock solely in the form
of  additional  shares of Common Stock or (b) directly or  indirectly or through
any subsidiary  make any other payment or distribution in respect of its capital
stock except for distributions  pursuant to any shareholders'  rights plan which
is approved by a majority of the Borrower's disinterested directors.

          2.2  RESTRICTION ON STOCK  REPURCHASES.  So long as the Borrower shall
have any obligation under this Note, the Borrower shall not without the Holder's
written consent redeem,  repurchase or otherwise acquire (whether for cash or in
exchange for property or other  securities or otherwise) in any one  transaction
or series of related transactions any shares of capital stock of the Borrower or
any warrants, rights or options to purchase or acquire any such shares.

                                       12
<PAGE>

          2.3  BORROWINGS.  So long as the  Borrower  shall have any  obligation
under this Note, the Borrower shall not,  without the Holder's  written consent,
create,  incur,  assume or suffer to exist any  liability  for  borrowed  money,
except (a)  borrowings in existence or committed on the date hereof and of which
the  Borrower  has  informed  Holder in writing  prior to the date  hereof,  (b)
indebtedness  to trade  creditors  or  financial  institutions  incurred  in the
ordinary  course of business or (c)  borrowings,  the proceeds of which shall be
used to repay this Note.

          2.4  SALE OF ASSETS. So long as the Borrower shall have any obligation
under this Note, the Borrower shall not,  without the Holder's  written consent,
sell,  lease or  otherwise  dispose  of any  significant  portion  of its assets
outside the ordinary  course of business.  Any consent to the disposition of any
assets may be conditioned on a specified use of the proceeds of disposition.

          2.5  ADVANCES  AND  LOANS.  So long as the  Borrower  shall  have  any
obligation under this Note, the Borrower shall not, without the Holder's written
consent,  lend money,  give credit or make advances to any person,  firm,  joint
venture or corporation,  including,  without  limitation,  officers,  directors,
employees, subsidiaries and affiliates of the Borrower, except loans, credits or
advances (a) in existence or committed on the date hereof and which the Borrower
has  informed  Holder  in  writing  prior  to the date  hereof,  (b) made in the
ordinary course of business or (c) not in excess of $100,000.

          2.6  CONTINGENT  LIABILITIES.  So long as the Borrower  shall have any
obligation under this Note, the Borrower shall not, without the Holder's written
consent, assume, guarantee, endorse, contingently agree to purchase or otherwise
become  liable upon the  obligation  of any  person,  firm,  partnership,  joint
venture or corporation,  except by the endorsement of negotiable instruments for
deposit or  collection  and except  assumptions,  guarantees,  endorsements  and
contingencies  (a) in  existence  or  committed on the date hereof and which the
Borrower  has  informed  Holder in  writing  prior to the date  hereof,  and (b)
similar transactions in the ordinary course of business.

                         ARTICLE III. EVENTS OF DEFAULT

         If any of the following events of default (each, an "EVENT OF DEFAULT")
shall occur:

          3.1  FAILURE TO PAY PRINCIPAL OR INTEREST.  The Borrower  fails to pay
the  principal  hereof or  interest  thereon  when due on this Note,  whether at
maturity,  upon a Trading Market  Prepayment Event pursuant to Section 1.7, upon
acceleration or otherwise;

          3.2  CONVERSION AND THE SHARES.  The Borrower fails to issue shares of
Common Stock to the Holder (or announces or threatens that it will not honor its
obligation to do so) upon exercise by the Holder of the conversion rights of the
Holder in accordance with the terms of this Note (for a period of at least sixty
(60) days, if such failure is solely as a result of the  circumstances  governed

                                       13
<PAGE>

by  Section  1.3 and the  Borrower  is using its best  efforts  to  authorize  a
sufficient  number of shares of Common Stock as soon as  practicable),  fails to
transfer  or  cause  its  transfer  agent  to  transfer  (electronically  or  in
certificated  form) any  certificate  for shares of Common  Stock  issued to the
Holder  upon  conversion  of or  otherwise  pursuant  to this  Note as and  when
required by this Note or the Registration  Rights Agreement,  or fails to remove
any restrictive legend (or to withdraw any stop transfer instructions in respect
thereof) on any  certificate for any shares of Common Stock issued to the Holder
upon  conversion  of or otherwise  pursuant to this Note as and when required by
this Note or the  Registration  Rights  Agreement  (or  makes any  announcement,
statement or threat that it does not intend to honor the  obligations  described
in  this  paragraph)  and  any  such  failure  shall  continue  uncured  (or any
announcement,  statement  or threat  not to honor its  obligations  shall not be
rescinded  in  writing)  for ten (10) days  after the  Borrower  shall have been
notified thereof in writing by the Holder;

          3.3  FAILURE TO TIMELY FILE REGISTRATION OR EFFECT  REGISTRATION.  The
Borrower  fails  to file the  Registration  Statement  within  sixty  (60)  days
following  the Closing  Date (as defined in the  Purchase  Agreement)  or obtain
effectiveness  with the Securities and Exchange  Commission of the  Registration
Statement  within one hundred  five (105) days  following  the Closing  Date (as
defined in the Purchase  Agreement)  or such  Registration  Statement  lapses in
effect (or sales  cannot  otherwise  be made  thereunder  effective,  whether by
reason of the Borrower's failure to amend or supplement the prospectus  included
therein in accordance with the  Registration  Rights Agreement or otherwise) for
more than twenty (20)  consecutive  days or forty (40) days in any twelve  month
period after the Registration Statement becomes effective;

          3.4  BREACH OF COVENANTS.  The Borrower breaches any material covenant
or other  material  term or condition  contained in Sections  1.3, 1.6 or 1.7 of
this Note,  or  Sections  4(c),  4(e),  4(h),  4(i),  4(j) or 5 of the  Purchase
Agreement and such breach  continues for a period of ten (10) days after written
notice thereof to the Borrower from the Holder;

          3.5  BREACH OF REPRESENTATIONS  AND WARRANTIES.  Any representation or
warranty  of  the  Borrower  made  herein  or in  any  agreement,  statement  or
certificate  given  in  writing  pursuant  hereto  or  in  connection   herewith
(including,  without  limitation,  the Purchase  Agreement and the  Registration
Rights  Agreement),  shall be false or misleading  in any material  respect when
made and the  breach of which  has (or with the  passage  of time  will  have) a
material  adverse  effect on the rights of the Holder with respect to this Note,
the Purchase Agreement or the Registration Rights Agreement;

          3.6  RECEIVER  OR  TRUSTEE.  The  Borrower  or any  subsidiary  of the
Borrower shall make an assignment for the benefit of creditors,  or apply for or
consent to the  appointment of a receiver or trustee for it or for a substantial
part of its property or business,  or such a receiver or trustee shall otherwise
be appointed;

          3.7  JUDGMENTS.  Any money judgment,  writ or similar process shall be
entered or filed  against the Borrower or any  subsidiary of the Borrower or any
of its  property  or other  assets  for more  than  $50,000,  and  shall  remain
unvacated,  unbonded  or  unstayed  for a period  of  twenty  (20)  days  unless
otherwise  consented to by the Holder,  which  consent will not be  unreasonably
withheld;

                                       14
<PAGE>

          3.8  BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other  proceedings for relief under any bankruptcy law or any law
for the relief of debtors  shall be instituted by or against the Borrower or any
subsidiary of the Borrower;

          3.9  DELISTING OF COMMON  STOCK.  The Borrower  shall fail to maintain
the  listing of the Common  Stock on at least one of the OTCBB or an  equivalent
replacement  exchange,  the Nasdaq National Market,  the Nasdaq SmallCap Market,
the New York Stock Exchange, or the American Stock Exchange; or

          3.10 DEFAULT  UNDER OTHER NOTES.  An Event of Default has occurred and
is  continuing  under any of the other Notes  issued  pursuant  to the  Purchase
Agreement,

then,  upon the occurrence and during the  continuation  of any Event of Default
specified in Section 3.1,  3.2,  3.3, 3.4, 3.5, 3.7, 3.9, or 3.10, at the option
of  the  Holders  of a  majority  of  the  aggregate  principal  amount  of  the
outstanding Notes issued pursuant to the Purchase Agreement  exercisable through
the delivery of written  notice to the  Borrower by such  Holders (the  "DEFAULT
NOTICE"),  and upon the  occurrence of an Event of Default  specified in Section
3.6 or 3.8, the Notes shall become  immediately due and payable and the Borrower
shall pay to the Holder, in full satisfaction of its obligations  hereunder,  an
amount  equal  to the  greater  of (i)  130%  times  the  sum  of (w)  the  then
outstanding  principal  amount of this Note plus (x) accrued and unpaid interest
on the  unpaid  principal  amount  of this  Note to the  date  of  payment  (the
"MANDATORY  PREPAYMENT DATE") plus (y) Default Interest,  if any, on the amounts
referred to in clauses  (w) and/or (x) plus (z) any  amounts  owed to the Holder
pursuant to Sections  1.3 and 1.4(g)  hereof or pursuant to Section  2(c) of the
Registration  Rights  Agreement (the then  outstanding  principal amount of this
Note to the date of payment plus the amounts referred to in clauses (x), (y) and
(z) shall collectively be known as the "DEFAULT SUM") or (ii) the "parity value"
of the  Default  Sum to be  prepaid,  where  parity  value means (a) the highest
number of shares  of Common  Stock  issuable  upon  conversion  of or  otherwise
pursuant to such Default Sum in accordance  with Article I, treating the Trading
Day immediately preceding the Mandatory Prepayment Date as the "Conversion Date"
for purposes of determining the lowest applicable  Conversion Price,  unless the
Default Event arises as a result of a breach in respect of a specific Conversion
Date  in  which  case  such  Conversion  Date  shall  be the  Conversion  Date),
multiplied  by (b) the highest  Closing  Price for the Common  Stock  during the
period  beginning  on the date of first  occurrence  of the Event of Default and
ending one day prior to the Mandatory Prepayment Date (the "DEFAULT AMOUNT") and
all other amounts payable  hereunder shall  immediately  become due and payable,
all without  demand,  presentment  or notice,  all of which hereby are expressly
waived, together with all costs, including,  without limitation,  legal fees and
expenses, of collection,  and the Holder shall be entitled to exercise all other
rights and remedies  available at law or in equity. If the Borrower fails to pay
the Default  Amount  within five (5) business  days of written  notice that such
amount is due and payable,  then the Holder shall have the right at any time, so
long as the  Borrower  remains  in default  (and so long and to the extent  that
there are sufficient  authorized shares), to require the Borrower,  upon written
notice,  to  immediately  issue,  in lieu of the Default  Amount,  the number of
shares of Common Stock of the Borrower  equal to the Default  Amount  divided by
the Conversion Price then in effect.

                                       15
<PAGE>

                           ARTICLE IV. MISCELLANEOUS

          4.1  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 privileges. All rights and remedies existing hereunder
are  cumulative  to, and not  exclusive  of, any  rights or  remedies  otherwise
available.

          4.2  NOTICES.  Any notice  herein  required or  permitted  to be given
shall be in writing and may be personally served or delivered by courier or sent
by United  States  mail and shall be deemed to have been given  upon  receipt if
personally served (which shall include telephone line facsimile transmission) or
sent by courier or three (3) days after  being  deposited  in the United  States
mail, certified,  with postage pre-paid and properly addressed, if sent by mail.
For the  purposes  hereof,  the  address of the Holder  shall be as shown on the
records of the Borrower;  and the address of the Borrower  shall be 5655 Lindero
Canyon Road, Suite 120,  Westlake Village,  California 91362,  facsimile number:
818-338-1551.  Both the Holder and the  Borrower  may  change  the  address  for
service by service of written notice to the other as herein provided.

          4.3  AMENDMENTS.  This  Note  and any  provision  hereof  may  only be
amended by an instrument in writing  signed by the Borrower and the Holder.  The
term "Note" and all reference thereto, as used throughout this instrument, shall
mean this  instrument  (and the other  Notes  issued  pursuant  to the  Purchase
Agreement) as originally executed, or if later amended or supplemented,  then as
so amended or supplemented.

          4.4  ASSIGNABILITY.  This Note shall be binding  upon the Borrower and
its successors and assigns,  and shall inure to be the benefit of the Holder and
its successors and assigns.  Each transferee of this Note must be an "accredited
investor" (as defined in Rule 501(a) of the 1933 Act).  Notwithstanding anything
in this  Note to the  contrary,  this  Note  may be  pledged  as  collateral  in
connection with a bona fide margin account or other lending arrangement.

          4.5  COST OF  COLLECTION.  If default  is made in the  payment of this
Note, the Borrower  shall pay the Holder hereof costs of  collection,  including
reasonable attorneys' fees.

          4.6  GOVERNING  LAW.  THIS NOTE  SHALL BE  ENFORCED,  GOVERNED  BY AND
CONSTRUED IN  ACCORDANCE  WITH THE LAWS OF THE STATE OF NEW YORK  APPLICABLE  TO
AGREEMENTS MADE AND TO BE PERFORMED  ENTIRELY WITHIN SUCH STATE,  WITHOUT REGARD
TO THE  PRINCIPLES  OF  CONFLICT OF LAWS.  THE  BORROWER  HEREBY  SUBMITS TO THE
EXCLUSIVE  JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK,
NEW YORK WITH RESPECT TO ANY DISPUTE  ARISING  UNDER THIS NOTE,  THE  AGREEMENTS
ENTERED INTO IN CONNECTION  HEREWITH OR THE TRANSACTIONS  CONTEMPLATED HEREBY OR
THEREBY.  BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO
THE  MAINTENANCE  OF SUCH SUIT OR  PROCEEDING.  BOTH PARTIES  FURTHER AGREE THAT
SERVICE OF PROCESS  UPON A PARTY  MAILED BY FIRST  CLASS MAIL SHALL BE DEEMED IN

                                       16
<PAGE>

EVERY  RESPECT  EFFECTIVE  SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR
PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN
ANY  OTHER  MANNER   PERMITTED  BY  LAW.   BOTH  PARTIES   AGREE  THAT  A  FINAL
NON-APPEALABLE  JUDGMENT IN ANY SUCH SUIT OR PROCEEDING  SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN OTHER  JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER
LAWFUL  MANNER.  THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE  ARISING  UNDER
THIS NOTE SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES,  INCLUDING  ATTORNEYS'
FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH SUCH DISPUTE.

          4.7  CERTAIN AMOUNTS.  Whenever  pursuant to this Note the Borrower is
required to pay an amount in excess of the outstanding  principal amount (or the
portion  thereof  required  to be paid at that  time)  plus  accrued  and unpaid
interest  plus Default  Interest on such  interest,  the Borrower and the Holder
agree that the actual  damages to the Holder from the receipt of cash payment on
this Note may be  difficult  to  determine  and the  amount to be so paid by the
Borrower  represents  stipulated  damages  and not a penalty  and is intended to
compensate  the Holder in part for loss of the  opportunity to convert this Note
and to earn a return  from the sale of  shares  of Common  Stock  acquired  upon
conversion  of this Note at a price in excess of the price paid for such  shares
pursuant to this Note. The Borrower and the Holder hereby agree that such amount
of stipulated  damages is not plainly  disproportionate  to the possible loss to
the Holder from the receipt of a cash payment without the opportunity to convert
this Note into shares of Common Stock.

          4.8  ALLOCATIONS  OF MAXIMUM  SHARE  AMOUNT AND RESERVED  AMOUNT.  The
Maximum  Share Amount and Reserved  Amount shall be allocated pro rata among the
Holders of Notes  based on the  principal  amount of such  Notes  issued to each
Holder.  Each increase to the Maximum Share Amount and Reserved  Amount shall be
allocated pro rata among the Holders of Notes based on the  principal  amount of
such Notes held by each Holder at the time of the increase in the Maximum  Share
Amount  or  Reserved  Amount.  In the  event a Holder  shall  sell or  otherwise
transfer any of such Holder's Notes,  each  transferee  shall be allocated a pro
rata portion of such transferor's  Maximum Share Amount and Reserved Amount. Any
portion of the Maximum Share Amount or Reserved  Amount which remains  allocated
to any person or entity  which does not hold any Notes shall be allocated to the
remaining Holders of Notes, pro rata based on the principal amount of such Notes
then held by such Holders.

          4.9  DAMAGES  SHARES.  The shares of Common Stock that may be issuable
to the Holder pursuant to Sections 1.3 and 1.4(g) hereof and pursuant to Section
2(c) of the Registration Rights Agreement ("DAMAGES SHARES") shall be treated as
Common Stock issuable upon  conversion of this Note for all purposes  hereof and
shall be subject to all of the limitations and afforded all of the rights of the
other shares of Common Stock issuable  hereunder,  including without limitation,
the right to be included in the  Registration  Statement  filed  pursuant to the
Registration Rights Agreement.  For purposes of calculating  interest payable on
the outstanding  principal amount hereof,  except as otherwise  provided herein,
amounts  convertible  into Damages  Shares  ("DAMAGES  AMOUNTS")  shall not bear
interest  but must be  converted  prior  to the  conversion  of any  outstanding
principal amount hereof, until the outstanding Damages Amounts is zero.

                                       17
<PAGE>

          4.10 DENOMINATIONS.  At the request of the Holder,  upon  surrender of
this  Note,  the  Borrower  shall  promptly  issue  new  Notes in the  aggregate
outstanding  principal amount hereof, in the form hereof, in such  denominations
of at least $50,000 as the Holder shall request.

          4.11 PURCHASE  AGREEMENT.  By its acceptance of this Note, each Holder
agrees to be bound by the applicable terms of the Purchase Agreement.

          4.12 NOTICE OF CORPORATE EVENTS.  Except as otherwise  provided below,
the Holder of this Note shall have no rights as a Holder of Common  Stock unless
and only to the  extent  that it  converts  this Note  into  Common  Stock.  The
Borrower shall provide the Holder with prior  notification of any meeting of the
Borrower's  shareholders  (and copies of proxy  materials and other  information
sent to shareholders). In the event of any taking by the Borrower of a record of
its shareholders for the purpose of determining shareholders who are entitled to
receive  payment of any dividend or other  distribution,  any right to subscribe
for, purchase or otherwise acquire  (including by way of merger,  consolidation,
reclassification  or  recapitalization)  any  share of any  class  or any  other
securities  or property,  or to receive any other  right,  or for the purpose of
determining  shareholders  who  are  entitled  to vote in  connection  with  any
proposed sale, lease or conveyance of all or substantially  all of the assets of
the  Borrower  or any  proposed  liquidation,  dissolution  or winding up of the
Borrower,  the Borrower shall mail a notice to the Holder,  at least twenty (20)
days prior to the record  date  specified  therein (or thirty (30) days prior to
the consummation of the transaction or event, whichever is earlier), of the date
on which  any such  record  is to be taken  for the  purpose  of such  dividend,
distribution,  right or other event, and a brief statement  regarding the amount
and character of such dividend, distribution, right or other event to the extent
known at such time. The Borrower shall make a public  announcement  of any event
requiring notification to the Holder hereunder substantially simultaneously with
the  notification  to the Holder in  accordance  with the terms of this  Section
4.12.

          4.13 REMEDIES.  The Borrower  acknowledges  that a breach by it of its
obligations  hereunder will cause  irreparable harm to the Holder,  by vitiating
the intent and purpose of the transaction contemplated hereby. Accordingly,  the
Borrower  acknowledges  that the  remedy at law for a breach of its  obligations
under  this  Note will be  inadequate  and  agrees,  in the event of a breach or
threatened  breach by the  Borrower  of the  provisions  of this Note,  that the
Holder shall be entitled,  in addition to all other available remedies at law or
in equity, and in addition to the penalties  assessable herein, to an injunction
or injunctions restraining,  preventing or curing any breach of this Note and to
enforce specifically the terms and provisions thereof,  without the necessity of
showing economic loss and without any bond or other security being required.

                                       18
<PAGE>

                             ARTICLE V. CALL OPTION

          5.1  CALL OPTION.  Notwithstanding  anything to the contrary contained
in this  Article  V, so  long as (i) no  Event  of  Default  or  Trading  Market
Prepayment Event shall have occurred and be continuing,  (ii) the Borrower has a
sufficient  number of  authorized  shares of Common Stock  reserved for issuance
upon full  conversion of the Notes,  then at any time after the Issue Date,  and
(iii) the  Common  Stock is trading at or below  $.035 per share,  the  Borrower
shall have the right,  exercisable  on not less than ten (10) Trading Days prior
written  notice to the Holders of the Notes (which notice may not be sent to the
Holders  of the Notes  until  the  Borrower  is  permitted  to prepay  the Notes
pursuant  to this  Section  5.1),  to  prepay  all of the  outstanding  Notes in
accordance  with this  Section  5.1.  Any  notice of  prepayment  hereunder  (an
"OPTIONAL  PREPAYMENT")  shall be delivered to the Holders of the Notes at their
registered  addresses  appearing  on the books and records of the  Borrower  and
shall state (1) that the Borrower is  exercising  its right to prepay all of the
Notes  issued on the Issue Date and (2) the date of  prepayment  (the  "OPTIONAL
PREPAYMENT NOTICE").  On the date fixed for prepayment (the "OPTIONAL PREPAYMENT
Date"),  the Borrower shall make payment of the Optional  Prepayment  Amount (as
defined  below) to or upon the order of the Holders as  specified by the Holders
in writing to the  Borrower at least one (1)  business day prior to the Optional
Prepayment  Date. If the Borrower  exercises its right to prepay the Notes,  the
Borrower  shall make payment to the holders of an amount in cash (the  "OPTIONAL
PREPAYMENT  AMOUNT") equal to either (i) 130% (for prepayments  occurring within
thirty (30) days of the Issue Date), (ii) 140% for prepayments occurring between
thirty-one  (31) and  sixty  (60)  days of the Issue  Date,  or (iii)  150% (for
prepayments  occurring  after the sixtieth (60th) day following the Issue Date),
multiplied by the sum of (w) the then outstanding  principal amount of this Note
plus (x) accrued and unpaid interest on the unpaid principal amount of this Note
to the  Optional  Prepayment  Date plus (y)  Default  Interest,  if any,  on the
amounts  referred  to in clauses  (w) and (x) plus (z) any  amounts  owed to the
Holder pursuant to Sections 1.3 and 1.4(g) hereof or pursuant to Section 2(c) of
the Registration Rights Agreement (the then outstanding principal amount of this
Note to the date of payment plus the amounts referred to in clauses (x), (y) and
(z)  shall   collectively   be  known  as  the   "OPTIONAL   PREPAYMENT   SUM").
Notwithstanding notice of an Optional Prepayment, the Holders shall at all times
prior to the Optional  Prepayment  Date maintain the right to convert all or any
portion of the Notes in  accordance  with  Article I and any portion of Notes so
converted  after  receipt  of an  Optional  Prepayment  Notice  and prior to the
Optional  Prepayment  Date set forth in such notice and payment of the aggregate
Optional  Prepayment Amount shall be deducted from the principal amount of Notes
which are  otherwise  subject to  prepayment  pursuant  to such  notice.  If the
Borrower  delivers an Optional  Prepayment  Notice and fails to pay the Optional
Prepayment  Amount due to the Holders of the Notes within two (2) business  days
following the Optional  Prepayment  Date, the Borrower shall forever forfeit its
right to redeem the Notes pursuant to this Section 5.1.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       19
<PAGE>

         IN WITNESS  WHEREOF,  Borrower has caused this Note to be signed in its
name by its duly authorized officer this 12th day of August, 2004.

                                        QT 5, INC.

                                        By:_____________________________________
                                           Timothy J. Owens
                                           Chief Executive Officer

                                       20
<PAGE>

                                    EXHIBIT A

                              NOTICE OF CONVERSION
                    (To be Executed by the Registered Holder
                         in order to Convert the Notes)

         The  undersigned  hereby  irrevocably  elects  to  convert  $__________
principal  amount of the Note (defined  below) into shares of common stock,  par
value $.001 per share ("COMMON  STOCK"),  of QT 5, Inc., a Delaware  corporation
(the  "BORROWER")  according to the conditions of the  convertible  Notes of the
Borrower  dated as of August  12,  2004 (the  "Notes"),  as of the date  written
below.  If  securities  are to be issued in the name of a person  other than the
undersigned,  the  undersigned  will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates.  No fee will be charged to
the Holder for any conversion, except for transfer taxes, if any. A copy of each
Note is attached hereto (or evidence of loss, theft or destruction thereof).

         The Borrower  shall  electronically  transmit the Common Stock issuable
pursuant to this Notice of Conversion to the account of the  undersigned  or its
nominee with DTC through its Deposit  Withdrawal Agent Commission  system ("DWAC
TRANSFER").

         Name of DTC Prime Broker:______________________________________________

         Account Number:________________________________________________________

         In lieu of receiving  shares of Common Stock issuable  pursuant to this
Notice of Conversion by way of a DWAC Transfer,  the undersigned hereby requests
that the Borrower issue a certificate or  certificates  for the number of shares
of  Common  Stock set  forth  below  (which  numbers  are based on the  Holder's
calculation  attached hereto) in the name(s) specified  immediately below or, if
additional space is necessary, on an attachment hereto:

         Name:__________________________________________________________________

         Address:_______________________________________________________________

         The  undersigned  represents  and warrants that all offers and sales by
the undersigned of the securities issuable to the undersigned upon conversion of
the Notes shall be made pursuant to  registration  of the  securities  under the
Securities Act of 1933, as amended (the "ACT"), or pursuant to an exemption from
registration under the Act.

                  Date of Conversion:___________________________
                  Applicable Conversion Price:____________________
                  Number of Shares of Common Stock to be Issued Pursuant to
                  Conversion of the Notes:______________
                  Signature:___________________________________
                  Name:______________________________________
                  Address:____________________________________

                                       21
<PAGE>

The  Borrower  shall issue and deliver  shares of Common  Stock to an  overnight
courier not later than three  business  days  following  receipt of the original
Note(s) to be converted,  and shall make payments  pursuant to the Notes for the
number of business days such issuance and delivery is late.

                                       22GUARANTY AND PLEDGE AGREEMENT

     GUARANTY AND PLEDGE  AGREEMENT (this  "Agreement"),  dated as of August 12,
2004, among QT 5, Inc., a Delaware corporation (the "Company"), Timothy J. Owens
(the  "Pledgor"),  and  the  pledgees  signatory  hereto  and  their  respective
endorsees, transferees and assigns (collectively, the "Pledgees").

                              W I T N E S S E T H:
                               - - - - - - - - - -

     WHEREAS,  pursuant  to a  Securities  Purchase  Agreement,  dated  the date
hereof, between Company and the Pledgees (the "Purchase Agreement"), Company has
agreed to issue to the Pledgees and the  Pledgees  have agreed to purchase  from
Company certain of Company's 10% Callable  Secured  Convertible  Notes,  due two
years from the date of issue (the "Notes"), which are convertible into shares of
Company's  Common  Stock,  par value $.001 per share (the  "Common  Stock").  In
connection  therewith,  Company  shall issue the Pledgees  certain  Common Stock
purchase warrants (the "Warrants"); and

     WHEREAS,  as a  material  inducement  to the  Pledgees  to  enter  into the
Purchase Agreement, the Pledgees have required and the Pledgor has agreed (i) to
unconditionally guarantee the timely and full satisfaction of all obligations of
the Company,  whether matured or unmatured, now or hereafter existing or created
and  becoming  due  and  payable  (the  "Obligations")  to the  Pledgees,  their
successors,  endorsees,  transferees or assigns under the Transaction  Documents
(as  defined in the  Purchase  Agreement)  to the extent of the  Collateral  (as
defined  in  Section  5  hereof),  and  (ii) to  grant  to the  Pledgees,  their
successors,  endorsees, transferees or assigns a security interest in all of the
shares  of  Common  Stock  currently  owned by the  Pledgor  (collectively,  the
"Shares"),  as collateral  security for Obligations.  Terms used and not defined
herein shall have the meaning ascribed to them in the Purchase Agreement.

     NOW, THEREFORE,  in consideration of the foregoing recitals, and the mutual
covenants contained herein, the parties hereby agree as follows:

          1.   Guaranty.  To the extent of the  Collateral,  the Pledgor  hereby
absolutely,  unconditionally and irrevocably  guarantees to the Pledgees,  their
successors,  endorsees, transferees and assigns the due and punctual performance
and  payment  of the  Obligations  owing  to  the  Pledgees,  their  successors,
endorsees, transferees or assigns when due, all at the time and place and in the
amount  and  manner  prescribed  in,  and  otherwise  in  accordance  with,  the
Transaction  Documents,  regardless of any defense or set-off counterclaim which
the Company or any other person may have or assert, and regardless of whether or
not the Pledgees or anyone on behalf of the Pledgees  shall have  instituted any
suit,  action or  proceeding  or  exhausted  its  remedies or taken any steps to
enforce any rights  against  the Company or any other  person to compel any such
performance  or observance or to collect all or part of any such amount,  either
pursuant to the provisions of the Transaction  Documents or at law or in equity,
and regardless of any other condition or contingency.  The Pledgor shall have no
obligation  whatsoever  to the Pledgees  beyond the  Collateral  pledged for the
Obligations set forth herein.

<PAGE>

          2.   Waiver of Demand. The Pledgor hereby unconditionally:  (i) waives
any  requirement  that the  Pledgees,  in the event of a breach in any  material
respect  by the  Company  of any of its  representations  or  warranties  in the
Transaction  Documents,  first make  demand  upon,  or seek to enforce  remedies
against, the Company or any other person before demanding payment of enforcement
hereunder;  (ii) covenants that this Agreement will not be discharged  except by
complete  performance of all the  Obligations  to the extent of the  Collateral;
(iii) agrees that this  Agreement  shall remain in full force and effect without
regard to, and shall not be affected or impaired,  without  limitation,  by, any
invalidity,  irregularity  or  unenforceability  in  whole  or in  part  of  the
Transaction  Documents  or any  limitation  on  the  liability  of  the  Company
thereunder, or any limitation on the method or terms of payment thereunder which
may now or  hereafter  be caused or imposed in any manner  whatsoever;  and (iv)
waives diligence, presentment and protest with respect to, and notice of default
in the  performance  or payment of any  Obligation  by the  Company  under or in
connection with the Transaction Documents.

          3.   Release. The obligations, covenants, agreements and duties of the
Pledgor hereunder shall not be released,  affected or impaired by any assignment
or  transfer,  in  whole  or in  part,  of  the  Transaction  Documents  or  any
Obligation,  although made without  notice to or the consent of the Pledgor,  or
any  waiver by the  Pledgees,  or by any other  person,  of the  performance  or
observance  by the Company or the Pledgor of any of the  agreements,  covenants,
terms or conditions contained in the Transaction Documents, or any indulgence in
or the  extension  of the  time  or  renewal  thereof,  or the  modification  or
amendment  (whether  material or  otherwise),  or the  voluntary or  involuntary
liquidation,  sale or other  disposition  of all or any  portion of the stock or
assets  of  the  Company  or  the  Pledgor,  or  any  receivership,  insolvency,
bankruptcy,  reorganization, or other similar proceedings, affecting the Company
or the  Pledgor or any assets of the Company or the  Pledgor,  or the release of
any proper from any security for any  Obligation,  or the impairment of any such
property or security,  or the release or discharge of the Company or the Pledgor
from the performance or observance of any agreement, covenant, term or condition
contained in or arising out of the Transaction Documents by operation of law, or
the merger or consolidation of the Company, or any other cause,  whether similar
or dissimilar to the foregoing.

          4.   Subrogation.

               (a)  Unless and until complete performance of all the Obligations
to the extent of the  Collateral,  the Pledgor shall not be entitled to exercise
any right of  subrogation  to any of the  rights  of the  Pledgees  against  the
Company or any  collateral  security or guaranty  held by the  Pledgees  for the
payment  or  performance  of the  Obligations,  nor shall the  Pledgor  seek any
reimbursement  from the  Company  in  respect of  payments  made by the  Pledgor
hereunder.

               (b)  In the extent that the Pledgor  shall  become  obligated  to
perform  or pay any sums  hereunder,  or in the event  that for any  reason  the
Company is now or shall hereafter become indebted to the Pledgor,  the amount of
such sum shall at all times be  subordinate  as to lien,  time of payment and in
all other  respects,  to the amounts owing to the Pledgees under the Transaction
Documents and the Pledgor shall not enforce or receive payment thereof until all
Obligations  due to the Pledgees  under the  Transaction  have been performed or
paid.  Nothing herein contained is intended or shall be construed to give to the
Pledgor any right of subrogation in or under the Transaction  Documents,  or any
right to participate in any way therein,  or in any right,  title or interest in
the assets of the Pledgees.

                                       2
<PAGE>

          5.   Security.  As  collateral  security for the punctual  payment and
performance, when due, by the Company of all the Obligations, the Pledgor hereby
pledges  with,  hypothecates,  transfers  and assigns to the Pledgees all of the
Shares and all proceeds,  shares and other  securities  received,  receivable or
otherwise  distributed  in respect of or in exchange for the Shares,  including,
without  limitation,  any shares and other securities into which such Shares may
be convertible or exchangeable  (collectively,  the "Additional  Collateral" and
together  with the  Shares,  the  "Collateral").  Simultaneously  herewith,  the
Pledgor  shall  deliver to the  Pledgees  the  certificate(s)  representing  the
Shares,  stamped with a bank  medallion  guarantee,  along with a stock transfer
power duly  executed  in blank by the  Pledgor,  to be held by the  Pledgees  as
security.  Any  Collateral  received  by the Pledgor on or after the date hereof
shall be immediately  delivered to the Pledgees together with any executed stock
powers or other transfer documents requested by the Pledgees,  which request may
be made at any time prior to the date when the Obligations  shall have been paid
and otherwise satisfied in full.

          6.   Voting Power, Dividends, Etc. and other Agreements.

               (a)  Unless  and  until  an  Event of  Default  (as set  forth in
Section 7 hereof) has occurred, the Pledgor shall be entitled to:

                    (i)  Exercise all voting and/or consensual powers pertaining
          to the Collateral, or any part thereof, for all purposes;

                    (ii) Receive and retain  dividends  paid with respect to the
          Collateral; and

                    (iii)Receive  the  benefits  of any  income  tax  deductions
          available to the Pledgor as a shareholder of the Company.

               (b)  The Pledgor agrees that it will not sell, assign,  transfer,
          pledge, hypothecate, encumber or otherwise dispose of the Collateral.

               (c)  The Pledgor and the Company  jointly and severally  agree to
pay all  costs  including  all  reasonable  attorneys'  fees  and  disbursements
incurred by the Pledgees in enforcing  this  Agreement  in  accordance  with its
terms.

          7.   Default and Remedies.

               (a)  For the purposes of this Agreement, "Event of Default" shall
mean:

                    (i)  default  in or under any of the  Obligations  after the
          expiration, without cure, of any applicable cure period;

                    (ii) a breach in any material  respect by the Company of any
          of its representations or warranties in the Transaction Documents; or

                                       3
<PAGE>

                    (iii)a breach in any material  respect by the Pledgor of any
          of its representations or warranties in this Agreement.

               (b)  the Pledgees shall have the following  rights upon any Event
of Default:

                    (i)  the  rights  and  remedies   provided  by  the  Uniform
          Commercial  Code as adopted  by the State of New York (the  "UCC") (as
          said law may at any time be amended);

                    (ii) the right to receive and retain all dividends, payments
          and other distributions of any kind upon any or all of the Collateral;

                    (iii)the right to cause any or all of the  Collateral  to be
          transferred  to its own name or to the name of its  designee  and have
          such transfer  recorded in any place or places deemed  appropriate  by
          the Pledgees; and

                    (iv) the right to sell,  at a public or  private  sale,  the
          Collateral  or any part  thereof  for cash,  upon credit or for future
          delivery,  and at such price or prices in accordance  with the UCC (as
          such law may be  amended  from time to  time).  Upon any such sale the
          Pledgees  shall have the right to deliver,  assign and transfer to the
          purchaser  thereof the Collateral so sold. The Pledgees shall give the
          Pledgor not less than ten (10) days'  written  notice of its intention
          to make any such sale.  Any such  sale,  shall be held at such time or
          times during  ordinary  business  hours and at such place or places as
          the  Pledgees  may fix in the notice of such sale.  The  Pledgees  may
          adjourn or cancel any sale or cause the same to be adjourned from time
          to time by  announcement at the time and place fixed for the sale, and
          such sale may be made at any time or place to which the same may be so
          adjourned.  In case of any sale of all or any  part of the  Collateral
          upon terms calling for payments in the future,  any Collateral so sold
          may be retained by the Pledgees until the selling price is paid by the
          purchaser  thereof,  but the Pledgees  shall incur no liability in the
          case  of the  failure  of  such  purchaser  to take up and pay for the
          Collateral so sold and, in the case of such failure,  such  Collateral
          may again be sold upon like notice. The Pledgees,  however, instead of
          exercising  the power of sale herein  conferred upon them, may proceed
          by a suit or suits  at law or in  equity  to  foreclose  the  security
          interest  and sell the  Collateral,  or any portion  thereof,  under a
          judgment or decree of a court or courts of competent jurisdiction, the
          Pledgor having been given due notice of all such action.  The Pledgees
          shall incur no  liability as a result of a sale of the  Collateral  or
          any part thereof.  All proceeds of any such sale,  after deducting the
          reasonable  expenses  and  reasonable   attorneys'  fees  incurred  in
          connection  with such  sale,  shall be  applied  in  reduction  of the
          Obligations, and the remainder, if any, shall be paid to the Pledgor.

          8.   Application  of  Proceeds;  Release.  The proceeds of any sale or
enforcement of or against all or any part of the Collateral,  and any other cash
or  collateral at the time held by the Pledgees  hereunder,  shall be applied by
the Pledgees  first to the payment of the  reasonable  costs of any such sale or
enforcement,  then to reimburse the Pledgees for any damages,  costs or expenses

                                       4
<PAGE>

incurred by the Pledgees as a result of an Event of Default, then to the payment
of the  principal  amount or stated valued (as  applicable)  of, and interest or
dividends  (as  applicable)  and any  other  payments  due in  respect  of,  the
Obligations.  The remainder,  if any,  shall be paid to the Pledgor.  As used in
this  Agreement,  "proceeds"  shall mean  cash,  securities  and other  property
realized in respect of, and distributions in kind of, the Collateral,  including
any thereof received under any reorganization, liquidation or adjustment of debt
of any issuer of securities included in the Collateral.

          9.   Representations and Warranties.

               (a)  The Pledgor  hereby  represents and warrants to the Pledgees
                    that:

                    (i)  the  Pledgor  has full  power and  authority  and legal
          right to  pledge  the  Collateral  to the  Pledgees  pursuant  to this
          Agreement and this  Agreement  constitutes a legal,  valid and binding
          obligation of the Pledgor, enforceable in accordance with its terms.

                    (ii) the  execution,   delivery  and   performance  of  this
          Agreement and other instruments  contemplated  herein will not violate
          any  provision  of any order or  decree  of any court or  governmental
          instrumentality  or of any  mortgage,  indenture,  contract  or  other
          agreement  to which the Pledgor is a party or by which the Pledgor and
          the  Collateral  may be bound,  and will not result in the creation or
          imposition of any lien, charge or encumbrance on, or security interest
          in, any of the Pledgor's properties pursuant to the provisions of such
          mortgage, indenture, contract or other agreement.

                    (iii)the Pledgor is the sole record and beneficial  owner of
          all of the Shares; and

                    (iv) the Pledgor owns the  Collateral  free and clear of all
          Liens.

               (b)  The Company represents and warrants to the Pledgees that:

                    (i)  it has no knowledge that any of the  representations or
          warranties  of the  Pledgor  herein  are  incorrect  or  false  in any
          material respect;

                    (ii) all of the Shares were validly  issued,  fully paid and
          non-assessable; and

                    (iii) the Pledgor is the record holder of the Shares.

          10.  No Waiver; No Election of Remedies. No failure on the part of the
Pledgees to exercise,  and no delay in  exercising,  any right,  power or remedy
hereunder  shall  operate as a waiver  thereof;  nor shall any single or partial
exercise by the  Pledgees of any right,  power or remedy  preclude  any other or
further  exercise  thereof or the exercise of any other right,  power or remedy.
The  remedies  herein  provided  are  cumulative  and are not  exclusive  of any
remedies  provided by law. In  addition,  the exercise of any right or remedy of
the Pledgees at law or equity or under this  Agreement  or any of the  documents
shall not be deemed to be an election of Pledgee's rights or remedies under such
documents or at law or equity.

                                       5
<PAGE>

          11.  Termination.  This Agreement shall terminate on the date on which
all Obligations have been performed, satisfied, paid or discharged in full.

          12.  Further  Assurances.  The parties hereto agree that, from time to
time upon the written request of any party hereto, they will execute and deliver
such  further  documents  and do such  other  acts and  things as such party may
reasonably request in order fully to effect the purposes of this Agreement.  The
Pledgees  acknowledge that they are aware that Pledgor shall have no obligations
whatsoever to the Pledgees beyond the Collateral pledged for the Obligations set
forth herein,  and no request for further  assurance may or shall  increase such
Obligations.

          13.  Miscellaneous.

               (a)  Modification.    This   Agreement    contains   the   entire
understanding  between the parties with respect to the subject matter hereof and
specifically  incorporates all prior oral and written agreements relating to the
subject matter hereof. No portion or provision of this Agreement may be changed,
modified,  amended,  waived,  supplemented,  discharged,  canceled or terminated
orally or by any course of dealing,  or in any manner other than by an agreement
in writing, signed by the party to be charged.

               (b)  Notice.  Any and all  notices  or  other  communications  or
deliveries  required or permitted to be provided  hereunder  shall be in writing
and  shall be deemed  given and  effective  on the  earliest  of (i) the date of
transmission,  if such notice or communication is delivered via facsimile at the
facsimile  telephone  number  specified in this Section  prior to 6:30 p.m. (New
York City time) on a Business Day (as defined in the Purchase  Agreement),  (ii)
the Business Day after the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile  telephone  number specified in this
Agreement later than 6:30 p.m. (New York City time) on any date and earlier than
11:59 p.m.  (New York City time) on such date,  (iii) the Business Day following
the  date of  mailing,  if  sent  by  nationally  recognized  overnight  courier
services,  or (iv) upon  actual  receipt  by the  party to whom  such  notice is
required to be given. The address for such notices and  communications  shall be
as follows:

          If to the Company:            QT 5, Inc.
                                        5655 Lindero Canyon Road
                                        Suite 120
                                        Westlake Village, California  91362
                                        Attention: Chief Executive Officer
                                        Telephone:  818-338-1510
                                        Facsimile:   818-338-1551

                                       6
<PAGE>

          With copies to:               Sichenzia Ross Friedman Ference LLP
                                        1065 Avenue of the Americas
                                        New York, New York  10018
                                        Attention:  Gregory Sichenzia, Esq.
                                        Telephone:  212-930-9700
                                        Facsimile:   212-930-9725

          If to the Pledgor:            Timothy J. Owens
                                        c/o QT 5, Inc.
                                        5655 Lindero Canyon Road
                                        Suite 120
                                        Westlake Village, California  91362
                                        Attention: Chief Executive Officer
                                        Telephone:  818-338-1510
                                        Facsimile:   818-338-1551

          If to the Pledgees:           AJW Partners, LLC
                                        AJW Offshore, Ltd.
                                        AJW Qualified Partners, LLC
                                        New Millennium Capital Partners II, LLC
                                        1044 Northern Boulevard
                                        Suite 302
                                        Roslyn, New York  11576
                                        Facsimile No.:  (516) 739-7115
                                        Attn:  Corey S. Ribotsky

          With copies to:               Ballard Spahr Andrews & Ingersoll, LLP
                                        1735 Market Street, 51st Fl.
                                        Philadelphia, PA 19103
                                        Facsimile No.: (215) 864-8999
                                        Attn:  Gerald J. Guarcini, Esquire

               (c)  Invalidity.  If any part of this  Agreement  is contrary to,
prohibited  by, or deemed invalid under  applicable  laws or  regulations,  such
provision  shall be  inapplicable  and deemed omitted to the extent so contrary,
prohibited or invalid, but the remainder hereof shall not be invalidated thereby
and shall be given effect so far as possible.

               (d)  Benefit of Agreement.  This Agreement  shall be binding upon
and inure to the parties hereto and their respective successors and assigns.

               (e)  Mutual Agreement.  This Agreement  embodies the arm's length
negotiation  and mutual  agreement  between the parties  hereto and shall not be
construed against either party as having been drafted by it.

               (f)  New York Law to Govern.  This Agreement shall be governed by
and construed and enforced in accordance  with the internal laws of the State of
New York without  regard to the  principals  of  conflicts of law thereof.  Each

                                       7
<PAGE>

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 or that
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 in effect for  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.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       8
<PAGE>

     IN WITNESS WHEREOF, the parties hereto have caused this Guaranty and Pledge
Agreement to be duly executed by their respective  authorized  persons as of the
date first indicated above.

                                        QT 5, INC.

                                        By:
                                          --------------------------------------
                                          Timothy J. Owens
                                          Chief Executive Officer

                                        PLEDGEES:

                                        AJW PARTNERS, LLC
                                        By: SMS Group, LLC

                                        By:
                                          --------------------------------------
                                          Corey S. Ribotsky
                                          Manager

                                        AJW OFFSHORE, LTD.
                                        By:  First Street Manager II, LLC

                                        By:
                                          --------------------------------------
                                          Corey S. Ribotsky
                                          Manager

                                        AJW QUALIFIED PARTNERS, LLC
                                        By:  AJW Manager, LLC

                                        By:
                                          --------------------------------------
                                          Corey S. Ribotsky
                                          Manager

                                        NEW MILLENNIUM CAPITAL PARTNERS II, LLC
                                        By:  First Street Manager II, LLC

                                        By:
                                          --------------------------------------
                                          Corey S. Ribotsky
                                          Manager

                    [Signatures Continued on Following Page]

                                       9
<PAGE>

                                        PLEDGOR:

                                        ----------------------------------------
                                        Timothy J. Owens

                                        3,400,000 shares of Common Stock

                                       10

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