<PAGE>
Exhibit 10.28


THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD,
TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
RECEIPT BY THE MAKER OF AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE REASONABLY
ACCEPTABLE TO THE MAKER) IN THE FORM, SUBSTANCE AND SCOPE REASONABLY
SATISFACTORY TO THE MAKER THAT THIS NOTE MAY BE SOLD, TRANSFERRED, OR OTHERWISE
DISPOSED OF, UNDER AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND SUCH STATE
SECURITIES LAWS.


                             TELENETICS CORPORATION

                       Secured Convertible Promissory Note
                                due April 1, 2005



No. CN-1                                                           $2,115,000.00
Dated: April 1, 2002


         For value received, TELENETICS CORPORATION, a California corporation
(the "MAKER"), hereby promises to pay to the order of DOLPHIN OFFSHORE PARTNERS,
L.P. (together with its successors, representatives, and permitted assigns, the
"HOLDER"), in accordance with the terms hereinafter provided, the principal
amount of Two Million One Hundred Fifteen Thousand Dollars ($2,115,000.00),
together with interest thereon.

         All payments under or pursuant to this Note shall be made in United
States Dollars in immediately available funds to the Holder at the address of
the Holder first set forth above or at such other place as the Holder may
designate from time to time in writing to the Maker or by wire transfer of funds
to the Holder's account, instructions for which are attached hereto as EXHIBIT
A. The outstanding principal balance of this Note shall be due and payable on
April 1, 2005 (the "MATURITY DATE") or at such earlier time as provided herein.

                                   ARTICLE I

         Section 1.1 PURCHASE AGREEMENT. This Note has been executed and
delivered pursuant to the Note and Warrant Purchase Agreement, dated as of April
1, 2002 (the "PURCHASE AGREEMENT"), by and between the Maker and the purchasers
listed therein. Capitalized terms used and not otherwise defined herein shall
have the meanings set forth for such terms in the Purchase Agreement.

         Section 1.2 INTEREST. Beginning on the date hereof, the outstanding
principal balance of this Note shall bear interest, in arrears, at a rate per
annum equal to six percent (6%), payable quarterly or upon conversion unless
prepaid as provided herein; provided, however, if the Market Price (as defined

<PAGE>

in Section 3.2 hereof) is below the Conversion Price Floor (as defined in
Section 3.2 hereof) for a period of twenty (20) consecutive Trading Days, (the
"LOW PERIOD"), the outstanding principal balance of this Note shall bear
interest, in arrears, at a rate per annum equal to sixteen percent (16%) for the
period beginning on the day after the Low Period and ending on the day before
the Market Price exceeds an amount equal to 120% of the Conversion Price Floor
for a period of twenty (20) consecutive Trading Days. Interest shall be computed
on the basis of a 360-day year of twelve (12) 30-day months and shall accrue
commencing on the issuance date of this Note (the "ISSUANCE DATE"). The interest
shall be payable in cash. Upon the occurrence of an Event of Default (as defined
in Section 2.1 hereof), then to the extent permitted by law, the Maker will pay
interest to the Holder, payable on demand, on the outstanding principal balance
of the Note from the date of the Event of Default until such Event of Default is
cured at the rate of the lesser of nine percent (9%) above the interest rate
then in effect and the maximum applicable legal rate per annum.

         Section 1.3 SECURITY AGREEMENT. The obligations of the Maker hereunder
shall be secured by, and the Holder shall be entitled to the rights and security
granted by the Maker pursuant to, the Security Agreement dated as of the date
hereof by the Maker for the benefit of the Holder (the "SECURITY AGREEMENT").

         Section 1.4 SENIORITY OF THIS NOTE. This Note shall be senior to all
other indebtedness of the Maker other than the senior secured convertible
promissory notes in the aggregate principal amount of $2,087,500 issued by the
Maker as of January 23, 2002 and the secured promissory notes in the aggregate
principal amount of $162,500 issued by the Maker as of March 1, 2002.

         Section 1.5 PAYMENT ON NON-BUSINESS DAYS. Whenever any payment to be
made shall be due on a Saturday, Sunday or a public holiday under the laws of
the State of New York, such payment may be due on the next succeeding business
day and such next succeeding day shall be included in the calculation of the
amount of accrued interest payable on such date.

         Section 1.6 TRANSFER. This Note may be transferred or sold, subject to
the provisions of Section 4.8 of this Note and the provisions of the other
Transaction Documents (as defined in the Purchase Agreement), or pledged,
hypothecated or otherwise granted as security by the Holder.

         Section 1.7 REPLACEMENT. Upon receipt of a duly executed, notarized and
unsecured written statement from the Holder with respect to the loss, theft or
destruction of this Note (or any replacement hereof), and without requiring an
indemnity bond or other security, or, in the case of a mutilation of this Note,
upon surrender and cancellation of such Note, the Maker shall issue a new Note,
of like tenor and amount, in lieu of such lost, stolen, destroyed or mutilated
Note.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]

                                      -2-
<PAGE>

                                   ARTICLE II


                           EVENTS OF DEFAULT; REMEDIES
                           ---------------------------

         Section 2.1 EVENTS OF DEFAULT. The occurrence of any of the following
events shall be an "EVENT OF DEFAULT" under this Note:

                  (a) the Maker shall fail to make the payment of any amount of
principal outstanding for a period of three (3) days after the date such payment
is due hereunder; or

                  (b) the Maker shall fail to make any payment of interest in
cash for a period of five (5) days after the date such interest is due; or

                  (c) the failure of the Registration Statement to be declared
effective by the Securities and Exchange Commission ("SEC") on or prior to the
one hundred --- twentieth day following the Closing Date; or

                  (d) the suspension from listing or the failure of the Maker's
common stock, no par value per share (the "COMMON STOCK"), to be listed on the
OTC Bulletin Board for a period of five (5) consecutive Trading Days; or

                  (e) the Maker's notice to the Holder, including by way of
public announcement, at any time, of its inability to comply (including for any
of the reasons described in Section 3.8(a) hereof) or its intention not to
comply with proper requests for conversion of this Note into shares of Common
Stock; or

                  (f) the Maker shall fail to (i) timely delivery the shares of
Common Stock upon conversion of this Note, (ii) timely file the Registration
Statement (as defined in the Registration Rights Agreement) or (iii) make the
payment of any fees and/or liquidated damages under this Note, the Purchase
Agreement or the Registration Rights Agreement, which failure in the case of
items (i) and (iii) of this Section 2.1(f) is not remedied within seven (7)
business days after the incurrence thereof; or

                  (g) while the Registration Statement is required to be
maintained effective pursuant to the terms of the Registration Rights Agreement,
the effectiveness of the Registration Statement lapses for any reason
(including, without limitation, the issuance of a stop order) or is unavailable
to the Holder for sale of the Registrable Securities (as defined in the
Registration Rights Agreement) in accordance with the terms of the Registration
Rights Agreement, and such lapse or unavailability continues for a period of
fifteen (15) consecutive Trading Days, PROVIDED that the cause of such lapse or
unavailability is not due to factors primarily within the control of Holder; and
PROVIDED, FURTHER, that such period may be extended for an additional ten (10)
Trading Days if such lapse or unavailability is a result of comments received
from the Commission with respect to the Company filing a post-effective
amendment to the Registration Statement; or

                                      -3-
<PAGE>

                  (h) default shall be made in the performance or observance by
the Maker of (i) any material covenant, condition or agreement contained in this
Note (other than as set forth in Section 3.7(m) hereof and clause (f) of this
Section 2.1) and such default is not fully cured within five (5) business days
after the occurrence thereof or (ii) any material covenant, condition or
agreement contained in the Purchase Agreement (other than Sections 3.17 and 3.18
thereof), the Security Agreement or the Registration Rights Agreement which is
not covered by any other provisions of this Section 2.1 and such default is not
fully cured within seven (7) business days after the occurrence thereof; or

                  (i) any material representation or warranty made by the Maker
herein or in the Purchase Agreement, the Security Agreement or the Registration
Rights Agreement shall prove to have been false or incorrect or breached in a
material respect on the date as of which made; or

                  (j) the Maker shall issue any debt securities which are not
subordinate to this Note and are not on such terms as are acceptable to the
Holders; or

                  (k) the consummation of any of the following transactions: (i)
the consolidation, merger or other business combination of the Maker with or
into a person or entity (other than (A) pursuant to a migratory merger effected
solely for the purpose of changing the jurisdiction of incorporation of the
Maker or (B) a consolidation, merger or other business combination in which
holders of the Maker's voting power immediately prior to the transaction
continue after the transaction to hold, directly or indirectly, the voting power
of the surviving entity or entities necessary to elect a majority of the members
of the board of directors (or their equivalent if other than a corporation) of
such entity or entities), except if in the case of a consolidation, merger or
other business combination of the Maker, the Maker shall have given the Holder
not less than fifteen (15) business days prior written notice thereof (the
"TRANSACTION NOTICE") and shall have furnished the Holder with such information
regarding the consolidation, merger or other business combination (including,
without limitation, the counterparties thereto) as the Holder may reasonably
request in order for the Holder to determine if it will exercise its conversion
rights hereunder prior to the consummation of such consolidation, merger or
other business combination; (ii) the sale or transfer of all or substantially
all of the Maker's assets; or (iii) the consummation of a purchase, tender or
exchange offer made to the holders of more than 30% of the outstanding shares of
Common Stock; or

                  (l) if required by applicable law, rule or regulation, the
stockholders of the Maker shall fail to approve the proposal presented and
recommended by the Board of Directors of the Maker to approve the Holder
acquiring in excess of 19.99% of the issued and outstanding shares of Common
Stock upon conversion of this Note and/or exercise of the Warrants; or

                  (m) the Maker shall (i) default in any payment of any amount
or amounts of principal of or interest on any payment (other than the
Indebtedness hereunder) the aggregate principal amount of which payment is in
excess of $100,000 or (ii) default in the observance or performance of any other
agreement or condition relating to any Indebtedness or contained in any
instrument or agreement evidencing, securing or relating thereto, or any other
event shall occur or condition exist, the effect of which default or other event
or condition is to cause, or to permit the holder or holders or beneficiary or
beneficiaries of such Indebtedness to cause with the giving of notice if
required, such Indebtedness to become due prior to its stated maturity; or

                                      -4-
<PAGE>

                  (n) the Maker shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian, trustee
or liquidator of itself or of all or a substantial part of its property or
assets, (ii) make a general assignment for the benefit of its creditors, (iii)
commence a voluntary case under the United States Bankruptcy Code (as now or
hereafter in effect) or under the comparable laws of any jurisdiction (foreign
or domestic), (iv) file a petition seeking to take advantage of any bankruptcy,
insolvency, moratorium, reorganization or other similar law affecting the
enforcement of creditors' rights generally, (v) acquiesce in writing to any
petition filed against it in an involuntary case under United States Bankruptcy
Code (as now or hereafter in effect) or under the comparable laws of any
jurisdiction (foreign or domestic), or (vi) take any action under the laws of
any jurisdiction (foreign or domestic) analogous to any of the foregoing; or

                  (o) a proceeding or case shall be commenced in respect of the
Maker, without its application or consent, in any court of competent
jurisdiction, seeking (i) the liquidation, reorganization, moratorium,
dissolution, winding up, or composition or readjustment of its debts, (ii) the
appointment of a trustee, receiver, custodian, liquidator or the like of it or
of all or any substantial part of its assets in connection with the liquidation
or dissolution of the Maker or (iii) similar relief in respect of it under any
law providing for the relief of debtors, and such proceeding or case described
in clause (i), (ii) or (iii) shall continue undismissed, or unstayed and in
effect, for a period of sixty (60) days or any order for relief shall be entered
in an involuntary case under United States Bankruptcy Code (as now or hereafter
in effect) or under the comparable laws of any jurisdiction (foreign or
domestic) against the Maker or action under the laws of any jurisdiction
(foreign or domestic) analogous to any of the foregoing shall be taken with
respect to the Maker and shall continue undismissed, or unstayed and in effect
for a period of sixty (60) days;

                  (p) intentionally omitted;

                  (q) a breach of Section 3.17 of the Purchase Agreement; or

                  (r) a breach of Section 3.18 of the Purchase Agreement.

         Section 2.2 REMEDIES UPON AN EVENT OF DEFAULT. If an Event of Default
shall have occurred and shall be continuing, the Holder of this Note may at any
time at its option (a) declare the entire unpaid principal balance of this Note,
together with all interest accrued hereon, due and payable, and thereupon, the
same shall be accelerated and so due and payable, without presentment, demand,
protest, or notice, all of which are hereby expressly unconditionally and
irrevocably waived by the Maker; PROVIDED, HOWEVER, that upon the occurrence of
an Event of Default described in (i) Sections 2.1 (m), (n) or (o), the
outstanding principal balance and accrued interest hereunder shall be
automatically due and payable and (ii) Sections 2.1 (c)-(l), demand the
prepayment of this Note pursuant to Section 3.7 hereof, (b) demand that the
principal amount of this Note then outstanding shall be converted into shares of
Common Stock at a Conversion Price per share calculated pursuant to Section 3.1
hereof assuming that the date that the Event of Default occurs is the Conversion
Date (as defined in Section 3.2(a) hereof), or (c) exercise or otherwise enforce
any one or more of the Holder's rights, powers, privileges, remedies and
interests under this Note, the Purchase Agreement, the Security Agreement, the


                                      -5-
<PAGE>

Registration Rights Agreement or applicable law. An Event of Default under
Section 2.1(r) may only be waived by the Holder. No course of delay on the part
of the Holder shall operate as a waiver thereof or otherwise prejudice the right
of the Holder. No remedy conferred hereby shall be exclusive of any other remedy
referred to herein or now or hereafter available at law, in equity, by statute
or otherwise.

                                  ARTICLE III

                      CONVERSION; ANTIDILUTION; PREPAYMENT
                      ------------------------------------

         Section 3.1 CONVERSION OPTION. At any time on or after the Issuance
Date, this Note shall be convertible (in whole or in part), at the option of the
Holder (the "CONVERSION OPTION"), into such number of fully paid and
non-assessable shares of Common Stock (the "CONVERSION RATE") as is determined
by dividing (x) that portion of the outstanding principal balance under this
Note as of such date that the Holder elects to convert by (y) the Conversion
Price (as hereinafter defined) then in effect on the date on which the Holder
faxes prior to 5:00 p.m. pacific time a notice of conversion (the "CONVERSION
Notice"), duly executed, to the Maker (facsimile number (949) 455-9324, Attn.:
Chief Financial Officer and Attn.: President) (the "CONVERSION DATE"), provided,
however, that the Conversion Price shall be subject to adjustment as described
in Section 3.6 below.

         Section 3.2 CONVERSION PRICE.

                  (a) Subject to the provisions of subsection (b) below, the
term "CONVERSION PRICE" shall mean $.44064, except that if during any period (a
"BLACK-OUT PERIOD"), a Holder is unable to trade any Common Stock issued or
issuable upon conversion of the Notes immediately due to the postponement of
filing or delay or suspension of effectiveness of a registration statement or
because the Maker has otherwise informed such Holder that an existing prospectus
cannot be used at that time in the sale or transfer of such Common Stock, such
Holder shall have the option but not the obligation on any Conversion Date
within ten (10) Trading Days following the expiration of the Black-out Period of
using the Conversion Price applicable on such Conversion Date or any Conversion
Price selected by such Holder that would have been applicable had such
Conversion Date been at any earlier time during the Black-out Period or within
the ten (10) Trading Days thereafter.

                  (b) The Holder may elect to convert this Note at the Alternate
Conversion Price (as defined below) at the earlier of the effective date of the
Registration Statement or one hundred twenty (120) days following the Closing
Date; provided, however, that the Alternate Conversion Price may only be used if
the Market Price (as defined below) at the time of the conversion is less than
$0.55. The "ALTERNATE CONVERSION PRICE" shall mean an amount equal to the Market
Price (as defined below) multiplied by the Discount Percentage (as defined
below), subject to a ceiling of $.44064 and subject to a floor of $.10 (the
"CONVERSION PRICE FLOOR"). The term "MARKET PRICE" means the average of the
three (3) lowest Volume Weighted Average Prices (as defined below) for the
Maker's Common Stock during the twenty-five (25) Trading Days immediately prior
to the Conversion Date, subject to adjustment under Section 3.6 hereof.

                                      -6-
<PAGE>

                  (c) The term "DISCOUNT PERCENTAGE" shall initially mean
eighty-five percent (85%); PROVIDED, HOWEVER, if the Registration Statement is
not declared effective within one hundred twenty (120) days following the
Closing Date, the Discount Percentage shall decrease by 0.1% for each day that
the Registration Statement is not effective beyond such one hundred twenty (120)
day period. The term "VOLUME WEIGHTED AVERAGE PRICE" shall mean the daily volume
weighted average price (based on a Trading Day from 9:30 a.m. to 4:00 p.m.,
eastern time) of the Common Stock of the Maker on the OTC Bulletin Board (or any
successor thereto) as reported by Bloomberg Financial LP using the AQR function.

         Section 3.3 MECHANICS OF CONVERSION.

                  (a) Not later than three (3) Trading Days after any Conversion
Date, the Maker will deliver to the applicable Holder by express courier (A) a
certificate or certificates which shall be free of restrictive legends and
trading restrictions (other than those required by Section 5.1 of the Purchase
Agreement) representing the number of shares of Common Stock being acquired upon
the conversion of this Note and (B) one or more new promissory notes
representing the amount of this Note not converted. If in the case of any
Conversion Notice such certificate or certificates are not delivered to or as
directed by the applicable Holder by the third Trading Day after the Conversion
Date (the "DELIVERY DATE"), the Holder shall be entitled by written notice to
the Maker at any time before its receipt of such certificate or certificates
thereafter, to rescind such conversion, in which event the Maker shall
immediately return this Note tendered for conversion, whereupon the Maker and
the Holder shall each be restored to their respective positions immediately
prior to the delivery of such notice of revocation, except that any amounts
described in Sections 3.3(b) and (c) shall be payable through the date notice of
rescission is given to the Maker.

                  (b) The Maker understands that a delay in the delivery of the
shares of Common Stock upon conversion of this Note and failure to deliver one
or more new promissory notes representing the unconverted principal amount of
this Note beyond the Delivery Date could result in economic loss to the Holder.
If the Maker fails to deliver to the Holder such certificate or certificates
pursuant to this Section hereunder by the Delivery Date, the Maker shall pay to
such Holder, in cash, an amount per Trading Day for each Trading Day until such
certificates are delivered, together with interest on such amount at a rate of
10% per annum, accruing until such amount and any accrued interest thereon is
paid in full, equal to the greater of (A) (i) 1% of the aggregate principal
amount requested to be converted for the first five (5) Trading Days after the
Delivery Date and (ii) 2% of the aggregate principal amount requested to be
converted for each Trading Day thereafter and (B) $2,000 per day (which amount
shall be paid as liquidated damages and not as a penalty). Nothing herein shall
limit a Holder's right to pursue actual damages for the Maker's failure to
deliver certificates representing shares of Common Stock upon conversion within
the period specified herein (including, without limitation, damages relating to
any purchase of shares of Common Stock by such Holder to make delivery on a sale
effected in anticipation of receiving certificates representing shares of Common
Stock upon conversion, such damages to be in an amount equal to (A) the
aggregate amount paid by such Holder for the shares of Common Stock so purchased
minus (B) the aggregate amount of net proceeds received by such Holder from the
sale of the shares of Common Stock issued by the Maker pursuant to such
conversion), and such Holder shall have the right to pursue all remedies
available to it at law or in equity (including, without limitation, a decree of
specific performance and/or injunctive relief). Notwithstanding anything to the
contrary contained herein, the Holder shall be entitled to withdraw a Conversion
Notice in accordance with Section 3.3(a), and upon such withdrawal the Maker
shall only be obligated to pay the liquidated damages accrued in accordance with
this Section 3.3(b) through the date the Conversion Notice is withdrawn.

                                      -7-
<PAGE>

                  (c) In addition to any other rights available to the Holder,
if the Maker fails to deliver to the Holder such certificate or certificates
pursuant to Section 3.3(a) by the Delivery Date and if after the Delivery Date
the Holder purchases (in an open market transaction or otherwise) shares of
Common Stock to deliver in satisfaction of a sale by such Holder of the
Conversion Shares which the Holder anticipated receiving upon such conversion (a
"BUY-IN"), then the Maker shall pay in cash to the Holder (in addition to any
remedies available to or elected by the Holder) the amount by which (A) the
Holder's total purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased exceeds (B) the aggregate principal amount
of this Note for which such conversion was not timely honored, together with
interest thereon at a rate of the lesser of 15% and the maximum applicable legal
rate per annum, accruing until such amount and any accrued interest thereon is
paid in full (which amount shall be paid as liquidated damages and not as a
penalty). For example, if the Holder purchases shares of Common Stock having a
total purchase price of $11,000 to cover a Buy-In with respect to an attempted
conversion of $10,000 aggregate principal amount of this Note, the Maker shall
be required to pay the Holder $1,000, plus interest. The Holder shall provide
the Maker written notice indicating the amounts payable to the Holder in respect
of the Buy-In.

         Section 3.4 OWNERSHIP CAP AND CERTAIN CONVERSION RESTRICTIONS.

                  (a) Notwithstanding anything to the contrary set forth in
Section 3 of this Note, at no time may a holder of this Note convert this Note
if the number of shares of Common Stock to be issued pursuant to such conversion
would exceed, when aggregated with all other shares of Common Stock owned by
such holder at such time, the number of shares of Common Stock which would
result in such holder owning more than 4.999% of all of the Common Stock
outstanding at such time; PROVIDED, HOWEVER, that upon a holder of this Note
providing the Maker with sixty (60) days notice (pursuant to Section 4.1 hereof)
(the "WAIVER Notice") that such holder would like to waive this Section 3.4 with
regard to any or all shares of Common Stock issuable upon conversion of this
Note, this Section 3.4 will be of no force or effect with regard to all or the
portion of the Note referenced in the Waiver Notice.

                  (b) The Holder may not convert any Note hereunder to the
extent such conversion would result in the Holder beneficially owning (as
determined in accordance with Section 13(d) of the Exchange Act and the rules
thereunder) in excess of 9.999% of the then issued and outstanding shares of
Common Stock, including shares issuable upon conversion of the Note held by the
Holder after application of this Section.

         Section 3.5 INTENTIONALLY OMITTED.

         Section 3.6 ADJUSTMENT OF CONVERSION PRICE.

                  (a) The Conversion Price shall be subject to adjustment from
time to time as follows:

                                      -8-
<PAGE>

                           (i) ADJUSTMENTS FOR STOCK SPLITS AND COMBINATIONS. If
the Maker shall at any time or from time to time after the Issuance Date, effect
a stock split of the outstanding Common Stock, the applicable Conversion Price
in effect immediately prior to the stock split shall be proportionately
decreased. If the Maker shall at any time or from time to time after the
Issuance Date, combine the outstanding shares of Common Stock, the applicable
Conversion Price in effect immediately prior to the combination shall be
proportionately increased. Any adjustments under this Section 3.6(a)(i) shall be
effective at the close of business on the date the stock split or combination
occurs.

                           (ii) ADJUSTMENTS FOR CERTAIN DIVIDENDS AND
DISTRIBUTIONS. If the Maker shall at any time or from time to time after the
Issuance Date, make or issue or set a record date for the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in shares of Common Stock, then, and in each event, the applicable
Conversion Price in effect immediately prior to such event shall be decreased as
of the time of such issuance or, in the event such record date shall have been
fixed, as of the close of business on such record date, by multiplying, as
applicable, the applicable Conversion Price then in effect by a fraction:

                           (1) the numerator of which shall be the total number
of shares of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date; and

                           (2) the denominator of which shall be the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend or
distribution.

                           (iii) ADJUSTMENT FOR OTHER DIVIDENDS AND
DISTRIBUTIONS. If the Maker shall at any time or from time to time after the
Issuance Date, make or issue or set a record date for the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in other than shares of Common Stock, then, and in each event, an
appropriate revision to the applicable Conversion Price shall be made and
provision shall be made (by adjustments of the Conversion Price or otherwise) so
that the holders of this Note shall receive upon conversions thereof, in
addition to the number of shares of Common Stock receivable thereon, the number
of securities of the Maker which they would have received had this Note been
converted into Common Stock on the date of such event and had thereafter, during
the period from the date of such event to and including the Conversion Date,
retained such securities (together with any distributions payable thereon during
such period), giving application to all adjustments called for during such
period under this Section 3.6(a)(iii) with respect to the rights of the holders
of this Note.

                           (iv) ADJUSTMENTS FOR RECLASSIFICATION, EXCHANGE OR
SUBSTITUTION. If the Common Stock issuable upon conversion of this Note at any
time or from time to time after the Issuance Date shall be changed to the same
or different number of shares of any class or classes of stock, whether by
reclassification, exchange, substitution or otherwise (other than by way of a
stock split or combination of shares or stock dividends provided for in Sections
3.6(a)(i), (ii) and (iii), or a reorganization, merger, consolidation, or sale
of assets provided for in Section 3.6(a)(v)), then, and in each event, an
appropriate revision to the Conversion Price shall be made and provisions shall


                                      -9-
<PAGE>

be made (by adjustments of the Conversion Price or otherwise) so that the holder
of this Note shall have the right thereafter to convert this Note into the kind
and amount of shares of stock and other securities receivable upon
reclassification, exchange, substitution or other change, by holders of the
number of shares of Common Stock into which such Note might have been converted
immediately prior to such reclassification, exchange, substitution or other
change, all subject to further adjustment as provided herein.

                           (v) ADJUSTMENTS FOR REORGANIZATION, MERGER,
CONSOLIDATION OR SALES OF ASSETS. If at any time or from time to time after the
Issuance Date there shall be a capital reorganization of the Maker (other than
by way of a stock split or combination of shares or stock dividends or
distributions provided for in Section 3.6(a)(i), (ii) and (iii), or a
reclassification, exchange or substitution of shares provided for in Section
3.6(a)(iv)), or a merger or consolidation of the Maker with or into another
corporation, or the sale of all or substantially all of the Maker's properties
or assets to any other person (an "ORGANIC CHANGE"), then as a part of such
Organic Change an appropriate revision to the Conversion Price shall be made and
provision shall be made (by adjustments of the Conversion Price or otherwise) so
that the holder of this Note shall have the right thereafter to convert such
Note into the kind and amount of shares of stock and other securities or
property of the Maker or any successor corporation resulting from Organic
Change. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 3.6(a)(v) with respect to the
rights of the holder of this Note after the Organic Change to the end that the
provisions of this Section 3.6(a)(v) (including any adjustment in the applicable
Conversion Price then in effect and the number of shares of stock or other
securities deliverable upon conversion of this Note) shall be applied after that
event in as nearly an equivalent manner as may be practicable.

                           (vi) ADJUSTMENTS FOR ISSUANCE OF ADDITIONAL SHARES OF
COMMON STOCK.

                           (1) In the event the Maker, shall, at any time, from
time to time, issue or sell any Additional Shares of Common Stock to a third
party other than the Holder for a consideration per share less than the
Conversion Price then in effect for the Note immediately prior to the time of
such issue or sale, then, forthwith upon such issue or sale, the Conversion
Price then in effect for the Notes shall be reduced to a price equal to the
consideration per share paid for such Common Stock.

                           (2) If the Maker, at any time after the Issuance
Date, shall issue any Additional Shares of Common Stock to the Holder, at a
price per share less than the applicable Conversion Price then in effect or
without consideration, then the applicable Conversion Price upon each such
issuance shall be adjusted to that price (rounded to the nearest cent)
determined by multiplying the applicable Conversion Price then in effect by a
fraction:

                                (A) the numerator of which shall be equal to the
sum of (x) the number of shares of Common Stock outstanding immediately prior to
the issuance of such Additional Shares of Common Stock PLUS (y) the number of
shares of Common Stock (rounded to the nearest whole share) which the aggregate
consideration for the total number of such Additional Shares of Common Stock so
issued would purchase at a price per share equal to the applicable Conversion
Price then in effect, and

                                      -10-
<PAGE>

                                (B) the denominator of which shall be equal to
the number of shares of Common Stock outstanding immediately after the issuance
of such Additional Shares of Common Stock.

                  No adjustment of the applicable Conversion Price shall be made
under this subsection (a)(vi) upon the issuance of any Additional Shares of
Common Stock which are issued pursuant to any Common Stock Equivalent (as
defined below) if upon the issuance of such Common Stock Equivalent (x) any
adjustment shall have been made pursuant to subsection (vii) of this Section
3.6(a) or (y) no adjustment was required pursuant to subsection (vii) of this
Section 3.6(a). No adjustment of the applicable Conversion Price shall be made
under this subsection (vi) in an amount less than $.01 per share, but any such
lesser adjustment shall be carried forward and shall be made at the time and
together with the next subsequent adjustment, if any, which together with any
adjustments so carried forward shall amount to $.01 per share or more; PROVIDED
that upon any adjustment of the applicable Conversion Price as a result of any
dividend or distribution payable in Common Stock or Convertible Securities (as
defined below) or the reclassification, subdivision or combination of Common
Stock into a greater or smaller number of shares, the foregoing figure of $.01
per share (or such figure as last adjusted) shall be adjusted (to the nearest
one-half cent) in proportion to the adjustment in the applicable Conversion
Price.

                           (vii) ISSUANCE OF COMMON STOCK EQUIVALENTS. If the
Maker, at any time after the Issuance Date, shall issue any securities
convertible into or exchangeable for, directly or indirectly, Common Stock
("CONVERTIBLE SECURITIES"), other than this Note, or any rights or warrants or
options to purchase any such Common Stock or Convertible Securities, shall be
issued or sold (collectively, the "COMMON STOCK EQUIVALENTS") and the price per
share for which Additional Shares of Common Stock may be issuable thereafter
pursuant to such Common Stock Equivalent shall be less than the applicable
Conversion Price then in effect, or if, after any such issuance of Common Stock
Equivalents, the price per share for which Additional Shares of Common Stock may
be issuable thereafter is amended or adjusted, and such price as so amended
shall be less than the applicable Conversion Price in effect at the time of such
amendment, then the applicable Conversion Price upon each such issuance or
amendment shall be adjusted as provided in the first sentence of subsection (vi)
of this Section 3.6(a) on the basis that (1) the maximum number of Additional
Shares of Common Stock issuable pursuant to all such Common Stock Equivalents
shall be deemed to have been issued (whether or not such Common Stock
Equivalents are actually then exercisable, convertible or exchangeable in whole
or in part) as of the earlier of (A) the date on which the Maker shall enter
into a firm contract for the issuance of such Common Stock Equivalent, or (B)
the date of actual issuance of such Common Stock Equivalent, and (2) the
aggregate consideration for such maximum number of Additional Shares of Common
Stock shall be deemed to be the minimum consideration received or receivable by
the Maker for the issuance of such Additional Shares of Common Stock pursuant to
such Common Stock Equivalent. No adjustment of the applicable Conversion Price
shall be made under this subsection (vii) upon the issuance of any Convertible
Security which is issued pursuant to the exercise of any warrants or other
subscription or purchase rights therefor, if any adjustment shall previously
have been made to the exercise price of such warrants then in effect upon the
issuance of such warrants or other rights pursuant to this subsection (vii). If
no adjustment is required under this subsection (vii) upon issuance of any
Common Stock Equivalent or once an adjustment is made under this subsection
(vii) no further adjustments shall be made upon the actual issue of Common Stock
upon conversion or exchange of the Common Stock Equivalent.

                                      -11-
<PAGE>

                           (viii) CONSIDERATION FOR STOCK. In case any shares of
Common Stock or any Common Stock Equivalents shall be issued or sold:

                           (1) in connection with any merger or consolidation in
which the Maker is the surviving corporation (other than any consolidation or
merger in which the previously outstanding shares of Common Stock of the Maker
shall be changed to or exchanged for the stock or other securities of another
corporation), the amount of consideration therefore shall be, deemed to be the
fair value, as determined reasonably and in good faith by the Board of Directors
of the Maker, of such portion of the assets and business of the nonsurviving
corporation as such Board may determine to be attributable to such shares of
Common Stock, Convertible Securities, rights or warrants or options, as the case
may be; or

                           (2) in the event of any consolidation or merger of
the Maker in which the Maker is not the surviving corporation or in which the
previously outstanding shares of Common Stock of the Maker shall be changed into
or exchanged for the stock or other securities of another corporation, or in the
event of any sale of all or substantially all of the assets of the Maker for
stock or other securities of any corporation, the Maker shall be deemed to have
issued a number of shares of its Common Stock for stock or securities or other
property of the other corporation computed on the basis of the actual exchange
ratio on which the transaction was predicated, and for a consideration equal to
the fair market value on the date of such transaction of all such stock or
securities or other property of the other corporation. If any such calculation
results in adjustment of the applicable Conversion Price, or the number of
shares of Common Stock issuable upon conversion of the Notes, the determination
of the applicable Conversion Price or the number of shares of Common Stock
issuable upon conversion of the Notes immediately prior to such merger,
consolidation or sale, shall be made after giving effect to such adjustment of
the number of shares of Common Stock issuable upon conversion of the Notes.

                           (ix) SUPERSEDING ADJUSTMENT. If, at any time after
any adjustment of the Conversion Price shall have been made pursuant to Section
3.6(a)(vii) as the result of any Common Stock Equivalents, any (i) such Common
Stock Equivalents shall expire, and the right of conversion or exchange with
respect to all or a portion of such other Common Stock Equivalents shall not
have been exercised, or (ii) the consideration per share for which shares of
Common Stock are issuable pursuant to such Common Stock Equivalents, shall be
increased solely by virtue of provisions therein contained for an automatic
increase in such consideration per share upon the occurrence of a specified date
or event, then for each outstanding Note such previous adjustment shall be
rescinded and annulled and the Additional Shares of Common Stock which were
deemed to have been issued by virtue of the computation made in connection with
the adjustment so rescinded and annulled shall no longer be deemed to have been
issued by virtue of such computation. Upon the occurrence of an event set forth
in this Section 3.6(a)(ix) above, there shall be a recomputation made of the
effect of such Common Stock Equivalents on the basis of: (i) treating the number
of Additional Shares of Common Stock or other property, if any, theretofore
actually issued or issuable pursuant to the previous exercise of any such right
of conversion or exchange, as having been issued on the date or dates of any


                                      -12-
<PAGE>

such exercise and for the consideration actually received and receivable
therefor, and (ii) treating any such Common Stock Equivalents which then remain
outstanding as having been granted or issued immediately after the time of such
increase of the consideration per share for which shares of Common Stock or
other property are issuable under such Common Stock Equivalents; whereupon a new
adjustment of the Conversion Price then in effect shall be made, which new
adjustment shall supersede the previous adjustment so rescinded and annulled.

                  (b) RECORD DATE. In case the Maker shall take record of the
holders of its Common Stock for the purpose of entitling them to subscribe for
or purchase Common Stock or Convertible Securities, then the date of the issue
or sale of the shares of Common Stock shall be deemed to be such record date.

                  (c) CERTAIN ISSUES EXCEPTED. Anything herein to the contrary
notwithstanding, the Maker shall not be required to make any adjustment of the
number of shares of Common Stock issuable upon conversion of the Notes upon the
grant after the Issuance Date of, or the exercise after the Issuance Date of,
options or warrants or rights to purchase stock under the Maker's existing stock
option and stock purchase plans or upon the issuance to the Holder or its
successors or assigns of replacement securities pursuant to Section 3.10(b) of
the Purchase Agreement.

                  (d) NO IMPAIRMENT. The Maker shall not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Maker, but will at all
times in good faith, assist in the carrying out of all the provisions of this
Section 3.6 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the Holder against
impairment. In the event a Holder shall elect to convert any Notes as provided
herein, the Maker cannot refuse conversion based on any claim that such Holder
or any one associated or affiliated with such Holder has been engaged in any
violation of law, violation of an agreement to which such Holder is a party or
for any reason whatsoever, unless, an injunction from a court, or notice,
restraining and or adjoining conversion of all or of said Notes shall have
issued and the Maker posts a surety bond for the benefit of such Holder in an
amount equal to 130% of the amount of the Notes the Holder has elected to
convert, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such Holder in the event it obtains judgment.

                  (e) CERTIFICATES AS TO ADJUSTMENTS. Upon occurrence of each
adjustment or readjustment of the Conversion Price or number of shares of Common
Stock issuable upon conversion of this Note pursuant to this Section 3.6, the
Maker at its expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish to the Holder a certificate setting
forth such adjustment and readjustment, showing in detail the facts upon which
such adjustment or readjustment is based. The Maker shall, upon written request
of the Holder, at any time, furnish or cause to be furnished to such holder a
like certificate setting forth such adjustments and readjustments, the
applicable Conversion Price in effect at the time, and 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 the conversion of this Note. Notwithstanding the
foregoing, the Maker shall not be obligated to deliver a certificate unless such
certificate would reflect an increase or decrease of at least one percent (1%)
of such adjusted amount.

                                      -13-
<PAGE>

                  (f) ISSUE TAXES. The Maker shall pay any and all issue and
other taxes, excluding federal, state or local income taxes, that may be payable
in respect of any issue or delivery of shares of Common Stock on conversion of
this Note pursuant thereto; PROVIDED, HOWEVER, that the Maker shall not be
obligated to pay any transfer taxes resulting from any transfer requested by any
holder in connection with any such conversion.

                  (g) FRACTIONAL SHARES. No fractional shares of Common Stock
shall be issued upon conversion of this Note. In lieu of any fractional shares
to which the Holder would otherwise be entitled, the Maker shall pay cash equal
to the product of such fraction multiplied by the average of the Volume Weighted
Average Prices of the Common Stock for the five (5) consecutive Trading Days
immediately preceding the Conversion Date.

                  (h) RESERVATION OF COMMON STOCK. The Maker shall at all times
when this Note shall be outstanding, reserve and keep available out of its
authorized but unissued Common Stock, subject to Shareholder Approval, such
number of shares of Common Stock as shall from time to time be sufficient to
effect the conversion of this Note; PROVIDED that the number of shares of Common
Stock so reserved shall at no time be less than 100% of the aggregate number of
shares of Common Stock issuable at a Conversion Price equal to the Conversion
Price Floor. The Maker shall, from time to time in accordance with the
California General Corporation Law, as amended, increase the authorized number
of shares of Common Stock if at any time the unissued number of authorized
shares shall not be sufficient to satisfy the Maker's obligations under this
Section 3.6(h).

                  (i) REGULATORY COMPLIANCE. If any shares of Common Stock to be
reserved for the purpose of conversion of this Note require registration or
listing with or approval of any governmental authority, stock exchange or other
regulatory body under any federal or state law or regulation or otherwise before
such shares may be validly issued or delivered upon conversion, the Maker shall,
at its sole cost and expense, in good faith and as expeditiously as possible,
endeavor to secure such registration, listing or approval, as the case may be.

                  (j) WHEN ADJUSTMENT NOT REQUIRED. If the Maker shall take a
record of the holders of its Common stock for the purpose of entitling them to
receive a dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders thereof, legally abandon
its plan to pay or deliver such dividend, distribution, subscription or purchase
rights, then thereafter no adjustment shall be required by reason of the taking
of such record and any such adjustment previously made in respect thereof shall
be rescinded and annulled. Further, anything herein to the contrary
notwithstanding, the Maker shall not be required to make any adjustment of the
number of shares of Common Stock issuable upon conversion of this Note upon the
grant or the exercise of, options or warrants or rights to purchase stock under
the Maker's existing stock option and stock purchase plans or upon the issuance
to the Holder or its successors or assigns of replacement securities pursuant to
Section 3.10(b) of the Purchase Agreement.

                                      -14-
<PAGE>

         Section 3.7 PREPAYMENT.

                  (a) PREPAYMENT UPON AN EVENT OF DEFAULT. Notwithstanding
anything to the contrary contained herein, upon the occurrence of an Event of
Default described in Sections 2.1(c)-(k) hereof, the Holder shall have the
right, at such Holder's option, to require the Maker to prepay all or a portion
of this Note at a price equal to the Triggering Event Prepayment Price (as
defined in Section 3.7(c) below) applicable at the time of such request. Nothing
in this Section 3.7(a) shall limit the Holder's rights under Section 2.2 hereof.

                  (b) PREPAYMENT OPTION UPON MAJOR TRANSACTION. In addition to
all other rights of the holder of this Note contained herein, simultaneous with
the occurrence of a Major Transaction (as defined below), the holder of this
Note shall have the right, at such holder's option, to require the Maker to
prepay all or a portion of such holder's Notes at a price equal to the greater
of (i) 130% of the aggregate principal amount of the Notes and (ii) the product
of (A) the Conversion Rate and (B) the Volume Weighted Average Price of the
Common Stock on the Trading Day immediately preceding such Major Transaction
("Major Transaction Prepayment Price").

                  (c) PREPAYMENT OPTION UPON TRIGGERING EVENT. In addition to
all other rights of the holder of this Note contained herein, after a Triggering
Event (as defined below), the holder of this Note shall have the right, at such
holder's option, to require the Maker to prepay all or a portion of such
holder's Notes at a price equal to the greater of (i) 130% of the aggregate
principal amount of this Note and (ii) the product of (A) the Conversion Rate at
such time and (B) the Volume Weighted Average Price of the Common Stock
calculated as of the date immediately preceding such Triggering Event on which
the exchange or market on which the Common Stock is traded is open ("Triggering
Event Prepayment Price").

                  (d) PREPAYMENT OPTION IN CONNECTION WITH CONVERSION PRICE
FLOOR. In addition to all other rights of the holder of this Note contained
herein, if the Market Price of the Maker's Common Stock is below the Conversion
Price Floor for ninety (90) consecutive days, the holder of this Note shall have
the right, at such holder's option and upon ninety (90) days prior written
notice to the Maker, to require the Maker to prepay all or a portion of such
holder's Notes at a price equal to the aggregate principal amount of this Note
plus all accrued and unpaid interest.

                  (e) "MAJOR TRANSACTION." A "Major Transaction" shall be deemed
to have occurred at such time as any of the following events:

                           (i) the consolidation, merger or other business
combination of the Maker with or into another Person (as defined in Section 4.13
hereof) (other than (A) pursuant to a migratory merger effected solely for the
purpose of changing the jurisdiction of incorporation of the Maker or (B) a
consolidation, merger or other business combination in which holders of the
Maker's voting power immediately prior to the transaction continue after the
transaction to hold, directly or indirectly, the voting power of the surviving
entity or entities necessary to elect a majority of the members of the board of
directors (or their equivalent if other than a corporation) of such entity or
entities).

                                      -15-
<PAGE>

                           (ii) the sale or transfer of all or substantially all
of the Maker's assets; or

                           (iii) consummation of a purchase, tender or exchange
offer made to the holders of more than 30% of the outstanding shares of Common
Stock.

                  (f) "TRIGGERING EVENT." A "Triggering Event" shall be deemed
to have occurred at such time as any of the following events:

                           (i) the failure of the Registration Statement to be
declared effective by the SEC on or prior to the date which is one hundred fifty
(150) days after the Closing Date;

                           (ii) while the Registration Statement is required to
be maintained effective pursuant to the terms of the Registration Rights
Agreement, the effectiveness of the Registration Statement lapses for any reason
(including, without limitation, the issuance of a stop order) or is unavailable
to the holder of this Note for sale of the Registrable Securities (as defined in
the Registration Rights Agreement) in accordance with the terms of the
Registration Rights Agreement, and such lapse or unavailability continues for a
period of fifteen (15) consecutive Trading Days, PROVIDED that the cause of such
lapse or unavailability is due to factors within the control of the Maker and
not due to factors solely within the control of the holder of this Note; and
PROVIDED, FURTHER, that such period may be extended for an additional ten (10)
Trading Days if such lapse or unavailability is a result of comments received
from the Commission with respect to the Company filing a post-effective
amendment to the Registration Statement;

                           (iii) the suspension from trading or the failure of
the Common Stock to be traded on the OTC Bulletin Board for a period of five (5)
consecutive days, PROVIDED, that such suspension from listing or failure to be
listed is due to factors within the control of the Maker, including, but not
limited to, failure to timely file all reports required to be filed with the SEC
or to meet the net tangible assets requirements for listing, if any;

                           (iv) the Maker's notice to any holder of the Notes,
including by way of public announcement, at any time, of its inability to comply
(including for any of the reasons described in Section 3.8) or its intention not
to comply with proper requests for conversion of any of the Notes into shares of
Common Stock;

                           (v) the Maker's failure to comply with a Conversion
Notice tendered within ten (10) business days after the receipt by the Maker of
the Conversion Notice and the original Note;

                           (vi) any material representation, warranty or
covenant made by the Maker herein or in the Purchase Agreement, the Security
Agreement or the Registration Rights Agreement shall prove to have been false or
incorrect or breached in a material respect on the date as of which made; or

                  (g) INTENTIONALLY OMITTED.

                                      -16-
<PAGE>

                  (h) MECHANICS OF PREPAYMENT AT OPTION OF HOLDER UPON MAJOR
TRANSACTION. No sooner than fifteen (15) days nor later than ten (10) days prior
to the consummation of a Major Transaction, but not prior to the public
announcement of such Major Transaction, the Maker shall deliver written notice
thereof via facsimile and overnight courier ("Notice of Major Transaction") to
the holder of this Note. At any time after receipt of a Notice of Major
Transaction (or, in the event a Notice of Major Transaction is not delivered at
least ten (10) days prior to a Major Transaction, at any time within ten (10)
days prior to a Major Transaction), any holder of the Notes then outstanding may
require the Maker to prepay, effective immediately prior to the consummation of
such Major Transaction, all of the holder's Notes then outstanding by delivering
written notice thereof via facsimile and overnight courier ("Notice of
Prepayment at Option of Holder Upon Major Transaction") to the Maker, which
Notice of Prepayment at Option of Holder Upon Major Transaction shall indicate
(i) the number of Notes that such holder is electing to prepay and (ii) the
applicable Major Transaction Prepayment Price, as calculated pursuant to Section
3.7(b) above.

                  (i) MECHANICS OF PREPAYMENT AT OPTION OF HOLDER UPON
TRIGGERING EVENT. Within one (1) day after the occurrence of a Triggering Event,
the Maker shall deliver written notice thereof via facsimile and overnight
courier ("Notice of Triggering Event") to each holder of the Note. At any time
after the earlier of a holder's receipt of a Notice of Triggering Event and such
holder becoming aware of a Triggering Event, any holder of this Note may require
the Maker to prepay all of the Notes on a pro rata basis by delivering written
notice thereof via facsimile and overnight courier ("Notice of Prepayment at
Option of Holder Upon Triggering Event") to the Maker, which Notice of
Prepayment at Option of Holder Upon Triggering Event shall indicate (i) the
number of Notes that such holder is electing to prepay and (ii) the applicable
Triggering Event Prepayment Price, as calculated pursuant to Section 3.7(c)
above.

                  (j) INTENTIONALLY OMITTED.

                  (k) PAYMENT OF PREPAYMENT PRICE. Upon the Maker's receipt of a
Notice(s) of Prepayment at Option of Holder Upon Triggering Event or a Notice(s)
of Prepayment at Option of Holder Upon Major Transaction from any holder of the
Notes, the Maker shall immediately notify each holder of the Notes by facsimile
of the Maker's receipt of such Notice(s) of Prepayment at Option of Holder Upon
Triggering Event or Notice(s) of Prepayment at Option of Holder Upon Major
Transaction and each holder which has sent such a notice shall promptly submit
to the Maker such holder's certificates representing the Notes which such holder
has elected to have prepaid. The Maker shall deliver the applicable Triggering
Event Prepayment Price, in the case of a prepayment pursuant to Section 3.7(i),
to such holder within five (5) business days after the Maker's receipt of a
Notice of Prepayment at Option of Holder Upon Triggering Event and, in the case
of a prepayment pursuant to Section 3.7(k), the Maker shall deliver the
applicable Major Transaction Prepayment Price immediately prior to the
consummation of the Major Transaction; provided that a holder's original Note
shall have been so delivered to the Maker; provided further that if the Maker is
unable to prepay all of the Notes to be prepaid, the Maker shall prepay an
amount from each holder of the Notes being prepaid equal to such holder's
pro-rata amount (based on the number of Notes held by such holder relative to
the number of Notes outstanding) of all Notes being prepaid. If the Maker shall
fail to prepay all of the Notes submitted for prepayment (other than pursuant to
a dispute as to the arithmetic calculation of the prepayment price), in addition


                                      -17-
<PAGE>

to any remedy such holder of the Notes may have under this Note, the Security
Agreement and the Purchase Agreement, the applicable prepayment price payable in
respect of such Notes not prepaid shall bear interest at the rate of 2.0% per
month (prorated for partial months) until paid in full. Until the Maker pays
such unpaid applicable prepayment price in full to a holder of the Notes
submitted for prepayment, such holder shall have the option (the "Void Optional
Prepayment Option") to, in lieu of prepayment, require the Maker to promptly
return to such holder(s) all of the Notes that were submitted for prepayment by
such holder(s) under this Section 3.7 and for which the applicable prepayment
price has not been paid, by sending written notice thereof to the Maker via
facsimile (the "Void Optional Prepayment Notice"). Upon the Maker's receipt of
such Void Optional Prepayment Notice(s) and prior to payment of the full
applicable prepayment price to such holder, (i) the Notice(s) of Prepayment at
Option of Holder Upon Triggering Event or the Notice(s) of Prepayment at Option
of Holder Upon Major Transaction, as the case may be, shall be null and void
with respect to those Notes submitted for prepayment and for which the
applicable prepayment price has not been paid, (ii) the Maker shall immediately
return any Notes submitted to the Maker by each holder for prepayment under this
Section 3.7(h) and for which the applicable prepayment price has not been paid
and (iii) the Conversion Price of such returned Notes shall be adjusted to the
lesser of (A) the Conversion Price as in effect on the date on which the Void
Optional Prepayment Notice(s) is delivered to the Maker and (B) the lowest
Volume Weighted Average Price during the period beginning on the date on which
the Notice(s) of Prepayment of Option of Holder Upon Major Transaction or the
Notice(s) of Prepayment at Option of Holder Upon Triggering Event, as the case
may be, is delivered to the Maker and ending on the date on which the Void
Optional Prepayment Notice(s) is delivered to the Maker; provided that no
adjustment shall be made if such adjustment would result in an increase of the
Conversion Price then in effect. A holder's delivery of a Void Optional
Prepayment Notice and exercise of its rights following such notice shall not
effect the Maker's obligations to make any payments which have accrued prior to
the date of such notice. Payments provided for in this Section 3.7 shall have
priority to payments to other stockholders in connection with a Major
Transaction.

                  (l) HOLDER PREPAYMENT OPTION. At the sole option of the
Holder, the Holder may grant the Maker the option to prepay all or any portion
of the outstanding principal amount of this Note together with all accrued and
unpaid interest thereon within ten (10) days of the Holder granting the option
to the Maker. If the Maker elects to exercise the prepayment option, the Maker
shall upon five (5) days prior written notice to the Holder (the "MAKER'S
PREPAYMENT NOTICE") prepay all or a portion of the outstanding Notes equal to
130% of the aggregate principal amount of this Note plus any accrued but unpaid
interest (the "MAKER'S PREPAYMENT PRICE"); PROVIDED, HOWEVER, that if a holder
has delivered a Conversion Notice to the Maker or delivers a Conversion Notice
after receipt of the Maker's Prepayment Notice, the Notes designated to be
converted may not be prepaid by the Maker; PROVIDED FURTHER that if during the
period between delivery of the Maker's Prepayment Notice and the Maker's
Prepayment Date (as defined below), a holder shall become entitled to deliver a
Notice of Prepayment at Option of Holder Upon Major Transaction or Notice of
Prepayment at Option of Holder upon Triggering Event, then the such rights of
the holders shall take precedence over the previously delivered Maker Prepayment
Notice. The Maker's Prepayment Notice shall state the date of prepayment which
date shall be the sixth (6th) day after the Maker has delivered the Maker's
Prepayment Notice (the "MAKER'S PREPAYMENT DATE"), the Maker's Prepayment Price


                                      -18-
<PAGE>

and the amount of Notes to be prepaid by the Maker. The Maker shall deliver the
Maker's Prepayment Price to the Holder within five (5) business days after the
Maker has delivered the Maker's Prepayment Notice, PROVIDED, that if the
holder(s) delivers a Conversion Notice before the Maker's Prepayment Date, then
the portion of the Maker's Prepayment Price which would be paid to prepay the
Notes covered by such Conversion Notice shall be returned to the Maker upon
delivery of the Common Stock issuable in connection with such Conversion Notice
to the holder(s). On the Maker's Prepayment Date, the Maker shall pay the
Maker's Prepayment Price, subject to any adjustment pursuant to the immediately
preceding sentence, to the holder(s) on a pro rata basis, PROVIDED, however,
that upon receipt by Maker of the certificates representing the Notes to be
prepaid pursuant to this Section 3.7(l), the Maker shall, on the next business
day following the date of receipt by the Maker of the original Note, pay the
Maker's Prepayment Price to the holder(s) on a pro rata basis. If the Maker
fails to pay the Maker's Prepayment Price by the sixth (6th) business day after
the Maker has delivered the Maker's Prepayment Notice, the prepayment will be
declared null and void and the Maker shall lose its right to serve a Maker 's
Prepayment Notice pursuant to this Section 3.7(l) in the future.

                  (m) MAKER PREPAYMENT OPTION. The Maker may prepay all or a
portion of this Note after the earlier of the effective date of the Registration
Statement or one hundred fifty (150) days following the Closing Date at a price
equal to 110% of the aggregate principal amount of the Notes plus all accrued
and unpaid interest by providing twenty (20) days written notice to the Holder.
Nothing contained in this Section 3.7(m) shall preclude the Holder from
converting its Note within such twenty (20) day period. Additionally, if the
Holder elects to convert this Note at a Conversion Price less than $.23 per
share, the Maker may prepay, at the option of its Board of Directors, such
principal amount of this Note that the Holder seeks to convert at a Conversion
Price less than $.23 per share, upon one (1) Trading Day prior written notice to
the Holder (the "MAKER PREPAYMENT NOTICE") at a cash price equal to 110% of the
sum of the outstanding principal amount and any interest accrued and outstanding
(the "MAKER PREPAYMENT PRICE"). The Maker may not deliver a Maker Prepayment
Notice to the Holder unless the Maker has clear and good funds for a minimum of
the amount it intends to prepay in a bank account controlled by the Maker. The
Maker Prepayment Notice shall state the date of prepayment (the "MAKER
PREPAYMENT DATE"), the Maker Prepayment Price, the amount of the Note of such
Holder to be prepaid, the amount of accrued and unpaid interest through the
Maker Prepayment Date and shall call upon the Holder to surrender to the Maker
on the Maker Prepayment Date at the place designated in the Maker Prepayment
Notice such Holder's Note. The Maker Prepayment Date shall be no more than six
(6) Trading Days after the date on which the Holder is notified of the Maker's
intent to prepay the Note (the "MAKER PREPAYMENT NOTICE DATE"). If the Maker
fails to pay the Maker Prepayment Price by the sixth (6th) trading day following
the Maker Prepayment Notice Date, the prepayment will be declared null and void,
the Maker shall lose its right to deliver a Maker Prepayment Notice to the
Holder in the future and the Holder shall be entitled to liquidated damages,
payable on demand, in an amount equal to forty percent (40%) of the principal
amount that was to be prepaid pursuant to the Maker Prepayment Notice pursuant
to this Section 3.7(m) in addition to the Common Stock issuable upon conversion
of this Note. If the Maker fails to pay the liquidated damages on demand, such
liquidated damages shall accrue at the rate of one percent (1%) per month until
paid in full. On or after the Maker Prepayment Date, the Holder shall surrender
the Notes called for prepayment to the Maker at the place designated in the
Maker Prepayment Notice and shall thereupon be entitled to receive payment of
the Maker Prepayment Price.

                                      -19-
<PAGE>

         Section 3.8 INABILITY TO FULLY CONVERT.

                  (a) HOLDER'S OPTION IF MAKER CANNOT FULLY CONVERT. If, upon
the Maker's receipt of a Conversion Notice, the Maker cannot issue shares of
Common Stock registered for resale under the Registration Statement for any
reason, including, without limitation, because the Maker (w) does not have a
sufficient number of shares of Common Stock authorized and available, (x) is
otherwise prohibited by applicable law or by the rules or regulations of any
stock exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Maker or any of its securities from
issuing all of the Common Stock which is to be issued to the Holder pursuant to
a Conversion Notice or (y) fails to have a sufficient number of shares of Common
Stock registered for resale under the Registration Statement, then the Maker
shall issue as many shares of Common Stock as it is able to issue in accordance
with the Holder's Conversion Notice and, with respect to the unconverted portion
of this Note, the Holder, solely at Holder's option, can elect to:

                           (i) require the Maker to prepay that portion of this
Note for which the Maker is unable to issue Common Stock in accordance with the
Holder's Conversion Notice (the "MANDATORY PREPAYMENT") at a price per share
equal to the prepayment price as of such Conversion Date (the "MANDATORY
PREPAYMENT PRICE");

                           (ii) if the Maker's inability to fully convert is
pursuant to Section 3.8(a)(y) above, require the Maker to issue restricted
shares of Common Stock equal to one hundred twenty percent (120%) of the number
of shares of Common Stock the Maker is unable to deliver in accordance with such
holder's Conversion Notice;

                           (iii) void its Conversion Notice and retain or have
returned, as the case may be, this Note that was to be converted pursuant to the
Conversion Notice (provided that the Holder's voiding its Conversion Notice
shall not effect the Maker's obligations to make any payments which have accrued
prior to the date of such notice).

                  (b) MECHANICS OF FULFILLING HOLDER'S ELECTION. The Maker shall
immediately send via facsimile to the Holder, upon receipt of a facsimile copy
of a Conversion Notice from the Holder which cannot be fully satisfied as
described in Section 3.8(a) above, a notice of the Maker's inability to fully
satisfy the Conversion Notice (the "INABILITY TO FULLY CONVERT NOTICE"). Such
Inability to Fully Convert Notice shall indicate (i) the reason why the Maker is
unable to fully satisfy such holder's Conversion Notice, (ii) the amount of this
Note which cannot be converted and (iii) the applicable Mandatory Prepayment
Price. The Holder shall notify the Maker of its election pursuant to Section
3.8(a) above by delivering written notice via facsimile to the Maker ("NOTICE IN
RESPONSE TO INABILITY TO CONVERT").

                  (c) PAYMENT OF PREPAYMENT PRICE. If the Holder shall elect to
require the Maker to make a Mandatory Prepayment pursuant to Section 3.8(a)(i)
above, the Maker shall pay the Mandatory Prepayment Price in cash to the Holder
within five (5) days of the Maker's receipt of the Holder's Notice in Response
to Inability to Convert, PROVIDED that prior to the Maker's receipt of the


                                      -20-
<PAGE>

Holder's Notice in Response to Inability to Convert the Maker has not delivered
a notice to the Holder stating, to the satisfaction of the Holder, that the
event or condition resulting in the Mandatory Prepayment has been cured and all
Conversion Shares issuable to the Holder can and will be delivered to the Holder
in accordance with the terms of this Note. If the Maker shall fail to pay the
applicable Mandatory Prepayment Price to the Holder on a timely basis as
described in this Section 3.8(c) (other than pursuant to a dispute as to the
determination of the arithmetic calculation of the prepayment price), in
addition to any remedy the Holder may have under this Note and the Purchase
Agreement, such unpaid amount shall bear interest at the rate of 2.0% per month
(prorated for partial months) until paid in full. Until the full Mandatory
Prepayment Price is paid in full to the Holder, the Holder may (i) void the
Mandatory Prepayment with respect to that portion of the Note for which the full
Mandatory Prepayment Price has not been paid, (ii) receive back such Note, and
(iii) require that the Conversion Price of such returned Note be adjusted to the
lesser of (A) the Conversion Price as in effect on the date on which the Holder
voided the Mandatory Prepayment and (B) the lowest Volume Weighted Average Price
during the period beginning on the Conversion Date and ending on the date the
Holder voided the Mandatory Prepayment.

         Section 3.9 NO RIGHTS AS SHAREHOLDER. Nothing contained in this Note
shall be construed as conferring upon the Holder, prior to the conversion of
this Note, the right to vote or to receive dividends or to consent or to receive
notice as a shareholder in respect of any meeting of shareholders for the
election of directors of the Maker or of any other matter, or any other rights
as a shareholder of the Maker.

                                   ARTICLE IV

                                  MISCELLANEOUS
                                  -------------

         Section 4.1 NOTICES. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telex (with correct answer back
received), telecopy or facsimile at the address or number designated in the
Purchase Agreement (if delivered on a business day during normal business hours
where such notice is to be received), or the first business day following such
delivery (if delivered other than on a business day during normal business hours
where such notice is to be received) or (b) on the second business day following
the date of mailing by express courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first occur.
The Maker will give written notice to the Holder at least ten (10) days prior to
the date on which the Maker closes its books or takes a record (x) with respect
to any dividend or distribution upon the Common Stock, (y) with respect to any
pro rata subscription offer to holders of Common Stock or (z) for determining
rights to vote with respect to any Organic Change, dissolution, liquidation or
winding-up and in no event shall such notice be provided to such holder prior to
such information being made known to the public. The Maker will also give
written notice to the Holder at least ten (10) days prior to the date on which
any Organic Change, dissolution, liquidation or winding-up will take place but
in no event shall such notice be provided to the Holder prior to such
information being made known to the public.

                                      -21-
<PAGE>

         Section 4.2 GOVERNING LAW. This Note shall be governed by and construed
in accordance with the internal laws of the State of New York, without giving
effect to the choice of law provisions. This Note shall not be interpreted or
construed with any presumption against the party causing this Note to be
drafted.

         Section 4.3 HEADINGS. Article and section headings in this Note are
included herein for purposes of convenience of reference only and shall not
constitute a part of this Note for any other purpose.

         Section 4.4 REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES
AND INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative
and in addition to all other remedies available under this Note, at law or in
equity (including, without limitation, a decree of specific performance and/or
other injunctive relief), no remedy contained herein shall be deemed a waiver of
compliance with the provisions giving rise to such remedy and nothing herein
shall limit a holder's right to pursue actual damages for any failure by the
Maker to comply with the terms of this Note. Amounts set forth or provided for
herein with respect to payments, conversion and the like (and the computation
thereof) shall be the amounts to be received by the holder thereof and shall
not, except as expressly provided herein, be subject to any other obligation of
the Maker (or the performance thereof). The Maker acknowledges that a breach by
it of its obligations hereunder will cause irreparable and material harm to the
Holder and that the remedy at law for any such breach may be inadequate.
Therefore the Maker agrees that, in the event of any such breach or threatened
breach, the Holder shall be entitled, in addition to all other available rights
and remedies, at law or in equity, to seek and obtain such equitable relief,
including but not limited to an injunction restraining any such breach or
threatened breach, without the necessity of showing economic loss and without
any bond or other security being required.

         Section 4.5 ENFORCEMENT EXPENSES. The Maker agrees to pay all costs and
expenses of enforcement of this Note, including, without limitation, reasonable
attorneys' fees and expenses.

         Section 4.6 BINDING EFFECT. The obligations of the Maker and the Holder
set forth herein shall be binding upon the successors and assigns of each such
party, whether or not such successors or assigns are permitted by the terms
hereof.

         Section 4.7 AMENDMENTS. This Note may not be modified or amended in any
manner except in writing executed by the Maker and the Holder.

         Section 4.8 COMPLIANCE WITH SECURITIES LAWS. The Holder of this Note
acknowledges that this Note is being acquired solely for the Holder's own
account and not as a nominee for any other party, and for investment, and that
the Holder shall not offer, sell or otherwise dispose of this Note. This Note
and any Note issued in substitution or replacement therefore shall be stamped or
imprinted with a legend in substantially the following form:

                                      -22-
<PAGE>

         "THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
         AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS, AND MAY NOT
         BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR RECEIPT
         BY THE MAKER OF AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE
         REASONABLY ACCEPTABLE TO THE MAKER) IN THE FORM, SUBSTANCE AND SCOPE
         REASONABLY SATISFACTORY TO THE MAKER THAT THIS NOTE MAY BE SOLD,
         TRANSFERRED, HYPOTHECATED OR OTHERWISE DISPOSED OF, UNDER AN EXEMPTION
         FROM REGISTRATION UNDER THE ACT AND SUCH STATE SECURITIES LAWS."

         Section 4.9 CONSENT TO JURISDICTION. Each of the Maker and the Holder
(i) hereby irrevocably submits to the exclusive jurisdiction of the United
States District Court sitting in the Southern District of New York and the
courts of the State of New York located in New York County for the purposes of
any suit, action or proceeding arising out of or relating to this Note and (ii)
hereby waives, and agrees not to assert in any such suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of such court,
that the suit, action or proceeding is brought in an inconvenient forum or that
the venue of the suit, action or proceeding is improper. Each of the Maker and
the Holder consents to process being served in any such suit, action or
proceeding by mailing a copy thereof via certified mail, return receipt
requested, to such party at the address in effect for notices to it under the
Purchase Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing in this Section 4.9
shall affect or limit any right to serve process in any other manner permitted
by law.

         Section 4.10 PARTIES IN INTEREST. This Note shall be binding upon,
inure to the benefit of and be enforceable by the Maker, the Holder and their
respective successors and permitted assigns.

         Section 4.11 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on
the part of the Holder in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege.

         Section 4.12 MAKER WAIVERS. Except as otherwise specifically provided
herein, the Maker and all others that may become liable for all or any part of
the obligations evidenced by this Note, hereby waive presentment, demand, notice
of nonpayment, protest and all other demands' and notices in connection with the
delivery, acceptance, performance and enforcement of this Note, and do hereby
consent to any number of renewals of extensions of the time or payment hereof
and agree that any such renewals or extensions may be made without notice to any
such persons and without affecting their liability herein and do further consent
to the release of any person liable hereon, all without affecting the liability
of the other persons, firms or Maker liable for the payment of this Note, AND DO
HEREBY WAIVE TRIAL BY JURY.

                  (a) No delay or omission on the part of the Holder in
exercising its rights under this Note, or course of conduct relating hereto,
shall operate as a waiver of such rights or any other right of the Holder, nor
shall any waiver by the Holder of any such right or rights on any one occasion
be deemed a waiver of the same right or rights on any future occasion.

                  (b) THE MAKER ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS
NOTE IS A PART IS A COMMERCIAL TRANSACTION, AND TO THE EXTENT ALLOWED BY
APPLICABLE LAW, HEREBY WAIVES ITS RIGHT TO NOTICE AND HEARING WITH RESPECT TO
ANY PREJUDGMENT REMEDY WHICH THE HOLDER OR ITS SUCCESSORS OR ASSIGNS MAY DESIRE
TO USE.

                                      -23-
<PAGE>

         Section 4.13 DEFINITIONS. For the purposes hereof, the following terms
shall have the following meanings:

         "ADDITIONAL SHARES OF COMMON STOCK" means all shares of Common Stock
issued by the Maker after the date hereof, except (i) shares of Common Stock
issuable upon exercise of the Warrants; (ii) shares of Common Stock issuable
upon conversion of the Notes; (iii) shares of Common Stock to be issued to
strategic partners and/or in connection with a strategic merger or acquisition;
(iv) shares of Common Stock or the issuance of options to purchase shares of
Common Stock to employees, officers, directors, consultants and vendors in
accordance with the Maker's equity incentive policies; (v) the issuance of
Securities pursuant to the conversion or exercise of convertible or exercisable
securities issued or outstanding on or prior to the date hereof; (vi) shares of
Common Stock issued or issuable as replacement securities or upon exercise or
conversion of replacement securities pursuant to Section 3.10(b) of the Purchase
Agreement; and (vii) shares of Common Stock issued or issuable upon conversion
of shares of the Maker's Series A Convertible Preferred Stock.

         "PERSON" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.

         "TRADING DAY" means (a) a day on which the Common Stock is traded on
the OTC Bulletin Board, Nasdaq SmallCap Market, The Nasdaq National Market,
American Stock Exchange or other registered national stock exchange on which the
Common Stock has been listed, or (b) if the Common Stock is not listed on the
OTC Bulletin Board, Nasdaq SmallCap Market, The Nasdaq National Market, American
Stock Exchange or any registered national stock exchange, a day on which the
Common Stock is quoted in the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices); PROVIDED, HOWEVER, that in the
event that the Common Stock is not listed or quoted as set forth in (a) and (b)
hereof, then Trading Day shall mean any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]


                                      -24-
<PAGE>


         IN WITNESS WHEREOF, the Maker has executed this Note as of the day and
year first above written.

                                               TELENETICS CORPORATION



                                               By: /S/ Shala Shashani Lutz
                                                  ------------------------------
                                                   Name: Shala Shashani Lutz
                                                   Title:  President

                                      -25-
<PAGE>


                                    EXHIBIT A

                               WIRE INSTRUCTIONS.



Payee: ________________________________________________________

Bank: _________________________________________________________

Address: ______________________________________________________

         ______________________________________________________

Bank No.: _____________________________________________________

Account No.: __________________________________________________

Account Name: _________________________________________________




                                      -26-
<PAGE>

                                     FORM OF

                              NOTICE OF CONVERSION

     (To be Executed by the Registered Holder in order to Convert the Note)

         The undersigned hereby irrevocably elects to convert $ ________________
of the principal amount of the above Note No. ___ into shares of Common Stock of
TELENETICS CORPORATION (the "Maker") according to the conditions hereof, as of
the date written below.

Date of Conversion _____________________________________________________

Applicable Conversion Price ____________________________________________

Signature_______________________________________________________________

         [Name]

Address:________________________________________________________________

        ________________________________________________________________


                                      -27-