SETTLEMENT AGREEMENT AND MUTUAL RELEASE
                     ---------------------------------------

         This Settlement Agreement and Mutual Release (the "Agreement") is
entered into by and between Telenetics Corporation ("Telenetics") and Michael
Armani ("Armani"), on the one hand, and Harvey Bibicoff ("Bibicoff"), Bibicoff &
Associates, Inc., David Landau ("Landau"), Linda Berglas ("Berglas"), Peter
Nitz, Sandra Nitz, and Paul Springer ("Springer") (sometimes collectively
"Cross-Complainants"), on the other. This Agreement is entered into with
reference to the following facts:

                                    RECITALS
                                    --------

         A. On or about October 18, 1999, Telenetics filed a Complaint against
Bibicoff and Bibicoff & Associates, Inc. in Orange County Superior Court Case
No. 815922 ("Case No. 815922"). On or about December 6, 1999, Bibicoff, Bibicoff
& Associates, Inc., Landau, Berglas, Peter Nitz, Sandra Nitz, and Springer filed
a Cross-Complaint against Telenetics and Armani in Case No. 815922, and on or
about July 12, 2000 filed a First Amended Cross-Complaint in Case No. 815922
against Telenetics and Armani. On or about August 14, 2000, Telenetics filed a
Cross-Complaint against Bibicoff, Bibicoff & Associates, Inc., Landau, and Peter
Nitz in Case No. 815922. Each of the parties denies the allegations asserted
against him, her or it by any of the other parties in Case No. 815922.

         B. The parties to this Agreement wish to settle all differences between
them which arise out of or which in any way are connected with or related to any
of the claims, allegations, causes of action and/or contentions set forth in
Case No. 815922.


<PAGE>

         C. Without acknowledging the validity of any other party's rights,
claims or defenses in connection with the subject matter of Case No. 815922, and
in order for the parties to this Agreement to settle all differences between
them, and in consideration of the mutual covenants, agreements and promises set
forth in this Agreement, and other good and valuable consideration, each party
to this Agreement agrees as follows:

                                    AGREEMENT
                                    ---------

         1. The foregoing Recitals shall be part of this Agreement.

         2. Telenetics and Armani collectively shall pay to Harvey Bibicoff the
sum of $300,000 (Three Hundred Thousand Dollars), plus any accrued interest,
within forty-five (45) days after October 9, 2000, except that Telenetics shall
pay to Harvey Bibicoff with respect to the amounts due under this Agreement,
including the amounts owed on the Promissory Note identified in paragraph 17 of
this Agreement, twenty-five per cent (25%) of the net cash proceeds Telenetics
receives from investors in connection with its activities undertaken to raise
capital, up to the full amount of the $300,000 plus the amount of the Promissory
Note, and then shall pay, on or before the date 45 days after October 9,
whatever portion of the $300,000, if any, and whatever portion of the Promissory
Note, if any, remain unpaid. The payment or payments shall be made payable in
the name of Harvey Bibicoff and his attorneys of record, Greenberg Glusker
Fields Claman & Machtinger LLP. Telenetics and Armani, and each of them,
acknowledge that each of them is jointly and severally liable for paying the
$300,000. Commencing as of September 20, 2000, interest shall accrue at the rate
of ten per cent (10%) per annum on the $300,000 or on so much of the $300,000 as
remains unpaid until the $300,000 is paid in full.

         3. Within ten days of the Effective Date, Telenetics shall issue to
Harvey Bibicoff 200,000 shares of Telenetics common stock (the "Shares").

                                      -2-


<PAGE>

         4. Within five working days of the Effective Date, Telenetics shall
issue to Cross-Complainants warrants (the "Warrants") to purchase 150,000 shares
of Telenetics common stock (the "Warrant Shares") at an exercise price equal to
$1.92 per share, which was the volume weighted average price of Telenetics
common stock over the period October 2 through 6, 2000. The Warrants shall be
substantially in the form of the warrant attached as Exhibit 1 and shall be
distributed as follows:

         90,000 Warrants for the purchase of a total of 90,000 Warrant Shares in
         the name of Harvey Bibicoff;

         30,000 Warrants for the purchase of a total of 30,000 Warrant Shares in
         the name of Peter Nitz;

         7,500 Warrants for the purchase of a total of 7,500 Warrant Shares
         issued in the name of Sandra Nitz;

         7,500 Warrants for the purchase of a total of 7,500 Warrant Shares
         issued in the name of David Landau;

         7,500 Warrants for the purchase of a total of 7,500 Warrant Shares
         issued in the name of Linda Berglas; and

         7,500 Warrants for the purchase of a total of 7,500 Warrant Shares
         issued in the name of Paul Springer.

         5. The Cross-Complainants, and each of them, expressly agree to the
payment of the sum of $300,000 solely to Bibicoff as set forth in paragraph 2,
expressly agree to the issuance of the 200,000 Shares solely to Bibicoff as set
forth in paragraph 3, and expressly agree to the respective number of Warrants
issued to each of them as set forth in paragraph 4.

                                      -3-


<PAGE>

         6. The Warrants shall provide that if Telenetics shall at any time
subdivide its outstanding shares of common stock or effect a combination thereof
into a smaller number of shares, the number of Warrant Shares and the exercise
price shall be proportionately adjusted. The Warrants shall vest immediately and
be exercisable in whole or in part from and after the Effective Date of the
Agreement and, if not exercised, shall expire at the close of business on the
regular business day nearest to three years from the date they are issued.

         7. Telenetics agrees that the Shares and, upon payment in full of the
exercise price, the Warrant Shares will be validly issued, fully paid and
nonassessable.

         8. Telenetics further agrees that the Cross-Complainants, and each of
them, shall have the right to piggyback the registration of both the Shares and
the Warrant Shares pursuant to any registration statement filed with the
Securities and Exchange Commission ("SEC") covering the sale or resale of shares
of the common stock of Telenetics. Such piggyback registration rights shall not
apply to the SB-2 registration statement with respect to the Ladenburg
transaction which Telenetics may file with the SEC. If Telenetics does not
otherwise file a registration statement covering the resale of shares of its
common stock, Telenetics agrees to take all necessary action to ensure that the
resale of the Shares and the Warrant Shares are registered as soon as reasonably
possible, but in no event more than ninety (90) days after the Effective Date of
this Agreement, pursuant to a separate registration statement filed with the
SEC, provided, however, that Cross-Complainants, and each of them, return their
selling security holder questionnaires to Telenetics' counsel, Rutan & Tucker
LLP, within five (5) calendar days after they are received by their attorneys of
record, Greenberg Glusker Fields Claman & Machtinger LLP, and to the extent all
of the questionnaires are not returned with the five-day period, the ninety-day
period shall be extended based on the number of days beyond the five-day period
that Cross-Complainants, or any of them, delay in returning their
questionnaires.

                                      -4-


<PAGE>

         9. Telenetics agrees that if registration of the Shares and the Warrant
Shares has not been piggybacked on another registration statement, any
registration statement shall be on Form S-3 (the "S-3 Registration Statement")
containing a form of prospectus (as amended or supplemented, if applicable)
registering under the Securities Act of 1933, as amended (the "Act"), the Shares
and Warrant Shares covered by this Agreement. Thereafter, Telenetics agrees to
use its best efforts to have the S-3 Registration Statement declared effective
by the SEC as soon as possible. The S-3 Registration Statement shall comply in
all material respects with all applicable requirements of law. All costs and
expenses in connection with preparing and filing the S-3 Registration Statement
(including amendments and supplements thereto) shall be borne by Telenetics.

         10. The S-3 Registration Statement shall be prepared as a "shelf"
registration statement under Rule 415 of the Act, and shall be maintained
effective until all of the Shares and Warrant Shares are resold pursuant to the
S-3 Registration Statement. Telenetics agrees to take all necessary action to
ensure that the Shares and Warrant Shares issued to Cross-Complainants pursuant
to this Agreement are at all relevant times covered by a valid registration
statement. Accordingly, Telenetics will prepare and file with the SEC such
amendments and supplements to the S-3 Registration Statement (and the prospectus
used in connection with such S-3 Registration Statement), or prepare and file
any additional registration statement, as may be necessary to comply with the
provisions of the Act (and any other applicable securities laws) with respect to
the disposition of the Shares and Warrant Shares.

         11. Telenetics will furnish to Cross-Complainants such numbers of
copies of a prospectus, including a preliminary prospectus, in conformity with
the requirements of the Act, and such other documents as they may reasonably
request in order to facilitate the disposition of the Shares and Warrant Shares
owned by them.

                                      -5-


<PAGE>

         12. Upon request by any Cross-Complainant, Telenetics will use its best
efforts to register and qualify the Shares and Warrant Shares under such other
securities or Blue Sky laws of the jurisdictions in which that Cross-Complainant
is located as of the Effective Date of this Agreement, of such other
jurisdictions as shall be reasonably requested by the Cross-Complainant and of
all other jurisdictions where legally required, provided that Telenetics shall
not be required in connection therewith to qualify to do business or to file a
general consent to service of process in any such state or jurisdiction.

         13. Telenetics warrants that it has authorized and reserved a
sufficient number of shares of common stock to provide for the issuance of the
Shares and the Warrant Shares and agrees that during the period within which the
rights represented by the Warrants may be exercised, it will have at all times
authorized and reserved a sufficient number of shares of common stock to provide
for the exercise of the rights evidenced by the Warrants and the issuance of the
underlying Warrant Shares.

         14. If Telenetics should become aware that a prospectus included in a
registration statement covering the Shares or Warrant Shares (or any supplement
or amendment thereto) contains an untrue statement of a material fact or omits
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, Telenetics will notify each Cross-Complainant of this fact as
soon as reasonably practicable and use its best efforts promptly to prepare a
supplement or amendment to the registration statement to correct the untrue
statement or omission, and deliver a number of copies of such supplement or
amendment to each Cross-Complainant as such Cross-Complainant may reasonably
request.

                                      -6-


<PAGE>

         15. Telenetics will provide Cross-Complainants with notice of the date
that a registration statement or any supplemental registration statement
registering the resale of the Shares or Warrant Shares is declared effective by
the SEC, and the date or dates upon which any registration statement or
supplemental registration statement is no longer effective.

         16. Telenetics will use its best efforts to list the Shares and Warrant
Shares with the National Association of Securities Dealers and all other
securities exchanges or markets on which Telenetics common stock is listed and
prepare and file any required filing with the National Association of Securities
Dealers and any other exchange or market on which Telenetics common stock is
listed.

         17. Telenetics shall pay to Harvey Bibicoff all amounts due on the
outstanding Promissory Note held by Harvey Bibicoff, which note was issued to
him by Telenetics in or about December 1998 (the "Note"), within forty-five (45)
days after October 9. As of September 30, 2000, the amount due on the Note was
Two Hundred Thirty Thousand Dollars ($230,000.00). Telenetics shall pay interest
at the rate of ten per cent (10%) per annum from and after September 30, 2000 on
the Note or on such portion of the Note as remains unpaid until it is paid in
full. Cross-Complainants Landau, Berglas, Springer, Peter Nitz, and Sandra Nitz
agree that the maturity date on the Promissory Notes issued to them by
Telenetics in or about December 1998 was extended up to and including October
10. Harvey Bibicoff agrees that the maturity date of the Note shall be extended
to the date 45 days after October 9 and that the Note shall be paid in
accordance with the provisions of this Agreement.

                                      -7-


<PAGE>

         18. Within five days after the Effective Date of this Agreement, the
parties shall submit a request for dismissal with prejudice in Case No. 815922
with respect to the complaint and the two cross-complaints filed in Case No.
815922.

         19. Within five days after the Effective Date of this Agreement,
Cross-Complainants, and each of them, and Cross-Complainants' counsel shall
return to Telenetics' counsel all originals and all copies of all documents
which Telenetics and/or George Rombach produced during the course of Case No.
815922, except as to those documents which have been marked as deposition
exhibits, and as to such documents, Greenberg Glusker Fields Claman & Machtinger
LLP shall take all reasonable and necessary steps to maintain the
confidentiality of such documents. Counsel for Telenetics similarly agree to
take all reasonable and necessary steps to maintain the confidentiality of
documents produced by any of the Cross-Complainants in Case No. 815922.
Cross-Complainants, and each of them, represent and warrant that none of the
documents produced by Telenetics and/or Mr. Rombach in Case No. 815922, nor
copies of any such documents, and none of the information contained in any such
documents or copies of any such documents has been used or disseminated for any
purpose other than for purposes of this litigation, and Cross-Complainants, and
each of them, acknowledge that this representation and warranty shall survive
the consummation of the settlement of Case No. 815922.

                                      -8-


<PAGE>

         20. Except for any obligations imposed by this Agreement, Telenetics
and Armani, and each of them, on the one hand, and Cross-Complainants, and each
of them, on the other, and, as applicable, each of their respective agents,
successors, predecessors, parent companies, affiliated companies, related
companies, partners, officers, directors, shareholders, representatives,
employees, attorneys, insurance companies, assigns and heirs, and each of them,
past and present, hereby release and forever discharge each other party and each
of his, her, or its respective agents, successors, predecessors, parent
companies, affiliated companies, related companies, partners, officers,
directors, shareholders, representatives, employees, attorneys, insurance
companies, assigns and heirs, and each of them, past and present, with respect
to any and all claims, demands, liabilities, obligations, debts, attorneys'
fees, costs, accounts, actions, or causes of action which any of the parties
have or claim to have as of the date of this Agreement, in law or equity,
whether known or unknown, which pertain to or which arise out of the facts,
circumstances, and/or events which are asserted, or could have been asserted in
Case No. 815922 and/or which pertain to, arise out of, or is in any connected
with the past relationships between the Parties.

         21. As a condition of this Agreement and in furtherance of the release
provisions set forth in this Agreement, the parties expressly waive any and all
rights and benefits conferred upon them by the provisions of section 1542 of the
Civil Code of the State of California with respect to any of the matters
described or set forth in this Agreement. Section 1542 of the Civil Code of the
State of California states:

         A general release does not extend to claims which the creditor does not
         know or suspect to exist in his favor at the time of executing the
         release, which if known by him must have materially affected his
         settlement with the debtor.

         The parties acknowledge that except for matters expressly represented
or recited in this Agreement, the facts and law in relation to this matter and
the claims released by the terms of this Agreement may turn out to be different
from the facts or law as now known to each party and/or his, her or its agents
and/or representatives, including his, her or its counsel. Each party expressly
assumes the risk of the existence of different or presently unknown facts or law
and agrees that this Agreement shall in all respects be effective and binding as
to each party despite the possibility of the existence of different or new facts
or law.

                                      -9-


<PAGE>

         22. Each of the parties represents and warrants that he, she or it has
not heretofore assigned, transferred or subrogated, or purported to assign,
transfer or subrogate, to any person or entity, any of the claims released in
this Agreement. Each of the parties agrees that he, she or it shall indemnify
each of the other parties, including with respect to any attorneys' fees and
costs, and hold each of the other parties harmless from and against any claims
based on or arising from any such assignment, transfer or subrogation, or any
attempted assignment, transfer or subrogation, of any of the claims released in
this Agreement.

         23. Telenetics agrees to refrain from taking any action to impede
Cross-Complainants' lawful right to transfer, sell and/or assign any of the
Shares, Warrants or Warrant Shares, and will cooperate fully in the lawful
transfer and/or sale of those shares. Further, with regard to Telenetics shares
currently held by Cross-Complainants, or to be received by Cross-Complainants,
for which a valid registration statement is in effect, Telenetics will refrain
from and promptly cooperate in any lawful request by a Cross-Complainant to have
Telenetics exchange a legended stock certificate for a clean certificate.

         24. Each of the parties agrees to execute and deliver to each other
party all necessary documents and to take such additional action as may be
necessary or reasonably required to effectuate the terms, conditions,
provisions, and intent of this Agreement.

         25. Each party executing this Agreement and/or any other documents
related to the settlement between the parties represents and warrants that he,
she or it has been duly authorized to execute this Agreement and any such other
related documents.

                                      -10-


<PAGE>

         26. Telenetics and Armani hereby acknowledge that this Agreement is
being entered into for present consideration.

         27. Telenetics and Armani are informed and believe and based thereon
represent that neither Harvey Bibicoff nor Bibicoff & Associates has been an
insider within the meaning of either 11 USC ss. 101(28) or 11 USC ss. 547(b).

         28. If within the sooner of (1) one hundred thirty-five (135) days of
the Effective Date of this Agreement or (2) ninety (90) days after Telenetics
completes all payments to Harvey Bibicoff as required by this Agreement,
Telenetics files a petition in bankruptcy or an involuntary petition is filed
against Telenetics which is not cured within thirty days of filing, Harvey
Bibicoff shall have the right to litigate any or all of the claims which
otherwise would have been released by this Agreement upon his returning any and
all consideration received by him pursuant to the terms of this Agreement. In
the event Harvey Bibicoff returns all consideration received by him pursuant to
the terms of this Agreement and determines to litigate any or all of the claims
which otherwise would have been released by this Agreement which he had asserted
against Telenetics, then Telenetics shall have the right to litigate any or all
of the claims which otherwise would have been released by this Agreement which
Telenetics had asserted against Harvey Bibicoff.

         29. With respect to the Five Hundred Thirty Thousand Dollars
($530,000.00), with accrued interest, which is owed to Harvey Bibicoff pursuant
to the terms of this Agreement, Telenetics shall grant Harvey Bibicoff a
security interest as set forth in a security agreement substantially in the form
of the agreement attached as Exhibit 2 and as reflected in a UCC-1 substantially
in the form of the UCC-1 attached as Exhibit 3, and Shala Shashani ("Shashani")
and SMC Communications Group, Inc. ("SMC") shall enter into an intercreditor
agreement substantially in the form of the agreement attached as Exhibit 4.
Shashani and SMC shall sign this Agreement solely to indicate their assent to
the terms of a shared security arrangement with Harvey Bibicoff. Shashani and
SMC, on the one hand, and Cross-Complainants, and each of them, on the other,
acknowledge that Shashani and SMC are not parties in Case No. 815922 and are not
parties to this Agreement except to the extent of the terms of this paragraph.

                                      -11-


<PAGE>

30. Each of the parties acknowledges that he, she or it has carefully read this
Agreement and knows and understands the contents and effect of this Agreement,
and each of the parties further acknowledges that he, she or it is signing this
Agreement based on his, her or its own free act.

         31. Each of the parties acknowledges that he, she or it has been
advised to seek legal counsel in connection with this matter and the provisions
and execution of this Agreement, and each of the parties acknowledges that he,
she or it either has consulted with his, her or its own legal counsel or has had
a full opportunity to consult with his, her or its own legal counsel in
connection with the settlement between the parties, the terms, conditions, and
provisions of this Agreement, and the execution of this Agreement.

         32. This Agreement has been entered into in the State of California,
and all of the terms, conditions and provisions of this Agreement shall be
governed by and construed and enforced in accordance with the laws of the State
of California.

         33. If any term, condition or provision of this Agreement is held to be
invalid, void or unenforceable, the remaining terms, conditions and provisions
of this Agreement nevertheless shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.

                                      -12-


<PAGE>

         34. This Agreement and all of its terms, conditions and provisions
shall be binding upon and shall inure to the benefit of each of the parties and
each of the parties' respective heirs, successors and assigns.

         35. The prevailing party in any proceeding to enforce the provisions of
this Agreement shall be entitled to recover all costs, including reasonable
attorney's fees, from the non-prevailing party.

         36. Each of the parties shall bear and be responsible for his, her or
its own attorneys' fees and costs incurred in connection with all aspects of
Case No. 815992.

         37. This Agreement contains the entire agreement and understanding
concerning the settlement between the parties and replaces any prior
negotiations or agreements between the parties, whether written and/or oral.

         38. Each of the parties agrees that no particular party or parties to
this Agreement shall be deemed to be the author of this Agreement or any
particular term, provision or condition of this Agreement. Each of the parties
further agrees that any ambiguities in this Agreement shall be resolved, and the
terms, provisions and conditions of this Agreement shall be construed and
interpreted, without regard to which party or parties may have suggested,
drafted, revised, or otherwise authored this Agreement or any of its particular
terms, provisions or conditions. Each of the parties further agrees that this
Agreement shall be construed and interpreted as if drafted jointly by all of the
parties.

                                      -13-


<PAGE>

         39. It is understood that this Agreement is entered into in compromise
of disputed claims and that neither the settlement between the parties nor the
performance of any of the terms, provisions, or conditions of this Agreement
shall be construed or interpreted as an admission of liability on the part of
any of the parties to this Agreement.

         40. Any disputes arising under this Agreement shall be resolved in
accordance with the laws of the State of California in either the County of
Orange or the County of Los Angeles, State of California.

         41. This Agreement may not be changed, altered or modified except in a
writing signed by each of the parties and/or duly authorized representatives of
each of the parties.

         42. This Agreement may be executed in counterparts, including facsimile
counterparts, and all such executed counterparts, including with facsimile
signatures, together shall constitute one original Agreement which shall be
binding on all of the parties to this Agreement notwithstanding that all of the
parties are not signatory to the original or the same counterparts.

         43. The effective date of this Agreement (the "Effective Date") shall
be the date when this Agreement has been signed by all of the parties to this
Agreement and executed copies of this Agreement with all of the parties'
signatures have been delivered to each of the other parties and/or their
counsel. The date 45 days after October 9, 2000 referred to in paragraphs 2 and
17 of this Agreement shall be deemed to be November 27, 2000.

Dated:  6 November, 2000               TELENETICS CORPORATION

                                        By:  /s/ Terry S. Parker
                                             -----------------------------------

                                        Its:  President
                                             -----------------------------------

                                  -14-


<PAGE>

Dated:  6 November, 2000               TELENETICS CORPORATION

                                        By:  /s/ David Stone
                                             -----------------------------------

                                        Its:  Chief Financial Officer/Secretary
                                             -----------------------------------



Dated:  6 November, 2000                /s/ Michael Armani
                                        ---------------------------------------
                                        MICHAEL ARMANI



Dated:  Nov 4, 2000                     BIBICOFF & ASSOCIATES, INC.

                                        By:  /s/ Harvey Bibicoff
                                             -----------------------------------

                                        Its:  Pres/CEO
                                             -----------------------------------



Dated:  Nov 4, 2000                     /s/ Harvey Bibicoff
                                        ----------------------------------------
                                        HARVEY BIBICOFF



Dated:   11/5, 2000                     /s/ David Landau
                                        ----------------------------------------
                                        DAVID LANDAU



Dated:   11/6, 2000                     /s/ Linda Berglas
                                        ----------------------------------------
                                        LINDA BERGLAS



Dated:   11/6, 2000                     /s/ Peter Nitz
                                        ----------------------------------------
                                        PETER NITZ


Dated:   11/6, 2000                     /s/ Sandra Nitz
                                        ----------------------------------------
                                        SANDRA NITZ

                                  -15-


<PAGE>


Dated:  November 3, 2000                /s/ Paul Springer
                                        ----------------------------------------
                                        PAUL SPRINGER



Dated:  6 November, 2000                /s/ Shala Shashani
                                        ----------------------------------------
                                        SHALA SHASHANI



Dated:  6 November, 2000               SMC COMMUNICATIONS GROUP

                                        By:  /s/ Shala Shashani
                                             -----------------------------------

                                        Its:  Owner
                                             -----------------------------------

APPROVED AS TO FORM:



RUTAN & TUCKER, LLP



By:
    -----------------------------
    David H. Hochner
    Attorneys for Telenetics Corporation
    and Michael Armani



GREENBERG GLUSKER FIELDS
CLAMAN & MACHTINGER LLP



By:
    -----------------------------
    Michael E. Weinsten
    Attorneys for Harvey Bibicoff, Bibicoff &
    Associates, Inc., David Landau, Linda Berglas,
    Peter Nitz, Sandra Nitz, and Paul Springer

                                      -16-