Document:

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                                                                   EXHIBIT 10.36

                             DATED NOVEMBER 30, 2001

                             PALM IRELAND INVESTMENT

                                       and

                          FOOTHILL CAPITAL CORPORATION

                                   (as Agent)

                         -------------------------------

                                  SHARE CHARGE

                         -------------------------------

                                   Arthur Cox
                                   ----------

                                Earlsfort Centre
                                Earlsfort Terrace
                                    Dublin 2

                                    WJ1844/jb

                                    29/11/01

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THIS SHARE CHARGE is made the 30th of November, 2001.

BETWEEN:

(1)   PALM IRELAND INVESTMENT, a company incorporated and registered under the
      laws of Ireland having its registered office at 5 Richview Office Park,
      Clonskeagh, Dublin 14, (the "Chargor"); and

(2)   FOOTHILL CAPITAL CORPORATION, a Californian corporation with its principal
      place of business at 2450 Colorado Avenue, Suite 3000 West, Santa Monica,
      Los Angeles California 90404 USA as agent for the hereinafter defined
      Lenders (the "Agent").

WITNESSES as follows:

1     DEFINITIONS AND INTERPRETATION

1.1   Definitions:

      In this Share Charge, words or expressions defined in the Loan Agreement
      (as defined below) shall, unless otherwise defined below, bear the same
      meaning in this Share Charge and, in addition, in this Share Charge
      (unless the context otherwise requires) the following expressions have the
      following meanings:

      "Business Day" means a day on which banks generally are open for business
      (other than a day on which banks are only open for business in euro) in
      California (excluding Saturdays, Sundays and bank or public holidays in
      those places);

      "Charged Property" means all Investments from time to time charged in
      favour of, or assigned to, Agent on behalf of the Lender Group by or
      pursuant to this Share Charge;

      "Default" has the meaning given to it in the Loan Agreement;

      "Event of Default" has the meaning given to it in the Loan Agreement;

      "Group" means together the Domestic Parent (as defined in the Loan
      Agreement) and its direct and indirect subsidiaries from time to time and

      "Group Company" means any of such entities;

      "Investments" means

(a)         the Securities; and

(b)         all stocks, shares or other securities, rights, monies or other
            property (together the "Derivative Assets") accruing, offered,
            issued or otherwise derived at any time (whether before or after
            the date of this Share Charge) by way of bonus, redemption,
            exchange, purchase, substitution, conversion, preference, option or
            otherwise in respect of any of the Securities; and

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(c)        all dividends, interest and other distributions paid or payable in
           respect of or deriving from any of the Securities or the Derivative
           Assets or deriving from any investment of any such dividends,
           interest or other income provided however that the Investments shall
           at no time exceed 100% of the entire issued ordinary share capital of
           Subsidiary Borrower;

      "Irish Debenture" means the Debenture of even date herewith executed by
      Subsidiary Borrower and Agent;

      "Irish Loan Documents" has the meaning given to it in the Loan Agreement;

      "Lender Group" shall have the meaning given to it in the Loan Agreement;

      "Lenders" shall have the meaning given to it in the Loan Agreement and
      shall include (where the context permits or requires) any successor,
      assignee or transferee lenders permitted under the Loan Agreement;

      "Lien" means any lien, mortgage, charge, standard security, pledge,
      hypothecation, security trust, assignment by way of security, or any other
      security interest whatsoever, howsoever created or arising or any other
      agreement or arrangement, having the commercial effect of conferring
      security and any agreement to enter into, create or establish any of the
      foregoing;

      "Loan Agreement" means the Loan Agreement of even date herewith among Palm
      Global Operations Limited as Subsidiary Borrower, the Lenders, Agent,
      Heller Financial, Inc. as the Syndication Agent, and The CIT
      Group/Business Credit, Inc. as the Documentation Agent.

      "UK Loan Documents" has the meaning given to it in the Loan Agreement;

      "Permitted Lien" has the meaning given to it in the Loan
      Agreement;"Secured Sums" means all money and liabilities covenanted to be
      paid or discharged by the Chargor to Agent on behalf of the Lender Group
      under Clause 2.1 (Covenant to Pay);

      "Securities" means the securities described in the First Schedule and all
      other stocks, shares or other securities or investments now or in the
      future owned at law or in equity by the Chargor constituting 100% of the
      issued share capital of Subsidiary Borrower but not including, for the
      avoidance of doubt, stocks, shares or other securities or investments in
      the capital of any other company or entity; and

      "Subsidiary Borrower" means Palm Global Operations Limited, a company
      incorporated under the laws of Ireland with its registered office at 25-28
      North Wall Quay, Dublin 1.

1.2   Interpretation:In this Share Charge, unless the context otherwise
      requires:

      1.2.1  words denoting the singular number only shall include the plural
             number also and vice versa; words denoting the masculine gender
             only shall also include the

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             feminine gender; words denoting persons only shall include
             corporations, partnerships and unincorporated associations;

      1.2.2  references to clauses, paragraphs and Schedules are to be construed
             as references to clauses, paragraphs and Schedules of this Share
             Charge;

      1.2.3  references to any party shall, where relevant, be deemed to be
             references to or to include, as appropriate, their respective
             successors or permitted assigns;

      1.2.4  references in this Share Charge to this Share Charge or any other
             document include references to this Share Charge or such other
             document as varied, supplemented, restated and/or replaced in any
             manner from time to time and/or any document which varies,
             supplements, restates and/or replaces it;

      1.2.5  references to "including" and "in particular" shall not be
             construed restrictively but shall be construed as meaning
             "including, without prejudice to the generality of the foregoing"
             and "in particular, but without prejudice to the generality of the
             foregoing" respectively;

      1.2.6  references to moneys, obligations and liabilities due, owing or
             incurred under the Loan Agreement shall include money, obligations
             and liabilities due, owing or incurred in respect of any extensions
             or increases in the amount of the facilities provided for therein
             or the obligations and liabilities imposed thereunder;

      1.2.7  expressions defined in the Companies Act 1963 shall have the same
             meanings in this Share Charge, except that the expression "company"
             shall include a body corporate established outside Ireland;

      1.2.8  any reference to any statute or any section of any statute shall be
             deemed to include reference to any statutory modification or
             re-enactment of it for the time being in force;

      1.2.9  references to "law" shall include any present or future common law,
             statute, statutory instrument, treaty, regulation, directive,
             order, decree, other legislative measure, code, circular, notice,
             demand, or injunction binding on the persons to whom it is directed
             to comply;

      1.2.10 a "person" includes any person, individual, firm, company,
             corporation, government, state or agency of a state or any
             undertaking or other association, organisation, trust or agency
             (whether or not having separate legal personality) or any two or
             more of the foregoing;

      1.2.11 "winding-up" of any person includes its dissolution and/or
             termination and/or any equivalent or analogous proceedings under
             the law of any jurisdiction in which the person concerned is
             incorporated, registered, established or carries on business or to
             which that person is subject;

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      1.2.12 reference to "writing" include any telex and facsimile transmission
             legibly received, except, unless the Lender otherwise agrees, in
             relation to any certificate, forecast, report, notice, resolution
             or other document which is expressly required by this Agreement to
             be signed, and "written" has corresponding meaning; and

      1.2.13 a time of day is a reference to Dublin time, unless otherwise
             stated.

1.3   Index and Headings:The index to and the headings in this Share Charge are
      inserted for convenience and shall not affect its interpretation.

2     COVENANT TO PAY

      2.1.1 Covenant to Pay:The Chargor hereby covenants that it will, on demand
      in writing made to it by Agent, on or following the making of a demand
      made in accordance with the Loan Agreement, pay or discharge to Agent on
      behalf of the Lender Group all money and liabilities now or in the future
      due, owing or incurred to the Lender Group pursuant to the Irish Loan
      Documents (other than under clause 2.1.2 of the Irish Debenture) by
      Subsidiary Borrower as and when the same fall due for payment,but which
      are not paid on their due date.

2.2   Demands from Agent:The making of one demand under this Share Charge will
      not preclude Agent from making any further demands.

3     CHARGING CLAUSE

3.1   Charging Clause:The Chargor as legal and beneficial owner hereby charges
      to Agent on behalf of the Lender Group as security for the payment or
      discharge of all Secured Sums by way of first fixed charge, all the
      Chargor's interest in the Investments.

3.2   Proviso for Redemption:On irrevocable and unconditional payment and
      discharge of all the Secured Sums and upon the Lender Group being under no
      further obligation to provide financial accommodation to the Group
      pursuant to the Irish Loan Documents, Agent will as soon as practicable at
      the request and cost of the Chargor execute such documents (or procure
      that its nominees execute such documents) as the Chargor may reasonably
      request which may be required to discharge the security created by this
      Share Charge.

4     DOCUMENTS AND VOTING RIGHTS

4.1   Deposit of Documents:Except as otherwise expressly agreed in writing by
      Agent, the Chargor shall:

      4.1.1 upon executing this Share Charge and, in relation to after acquired
            Charged Property, within 30 Business Days of receipt by the Chargor
            of the relevant documents of title, deposit with Agent, and Agent
            shall be entitled to retain all stock and share certificates and
            other documents evidencing, or documents of title relating to, the
            Charged Property together with stock transfer forms (or equivalent
            instruments of transfer), with the name of the transferee, the
            consideration and the

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            date left blank, but otherwise duly completed and executed by the
            person in whose name such certificate or document is, on the basis
            that Agent (or its nominee) shall be entitled to hold such
            certificates, documents, power of attorney and stock transfer forms
            (or equivalent instruments of transfer) until the Secured Sums have
            been irrevocably and unconditionally discharged in full (in
            accordance with Clause 3.2 (Proviso for Redemption)) and shall be
            entitled at any time after an Event of Default has occurred and is
            continuing to complete (pursuant to its powers in Clause 11 (Power
            of Attorney)) the stock transfer forms (or equivalent instruments of
            transfer) on behalf of Agent in favour of Agent or such other
            persons as it shall select; and

      4.1.2 execute and deliver to Agent such documents and transfers and give
            such instructions and perform such other acts as Agent may
            reasonably require at any time to constitute or perfect an equitable
            or legal charge (at Agent's option) over registered Charged Property
            or a pledge over bearer Charged Property, including any Charged
            Property which the Chargor elects to hold in any paperless transfer
            and settlement system or held in a clearing system.

4.2   Voting Rights:

      4.2.1 Unless and until an Event of Default occurs and is continuing:

            4.2.1.1  all voting and other rights attaching to any Charged
                     Property shall continue to be exercised subject to Clause 5
                     (Negative Pledge) by the Chargor for so long as it remains
                     the registered owner and the Chargor shall not permit any
                     person other than itself or a reputable paperless transfer
                     and settlement or clearing system, Agent or Agent's nominee
                     to be registered as holder of any Charged Property; and

            4.2.1.2  if the Charged Property charged under this Share Charge is
                     registered in the name of Agent, all voting and other
                     rights attaching to it shall be exercised by Agent or its
                     nominee in accordance with instructions in writing from
                     time to time received from the Chargor;

            provided that the Chargor shall not exercise such voting rights in a
            manner which adversely affects the validity or enforceability of the
            security created by this Share Charge or would result in Agent or
            its nominee incurring any cost or expense or being subject to any
            liability unless previously indemnified to its satisfaction.

      4.2.2 Unless an Event of Default occurs and is continuing, the Chargor
            shall be entitled to receive and retain all dividends, distributions
            and other monies paid on or derived from the Charged Property.

      4.2.3 After an Event of Default occurs and for so long as such an Event of
            Default is continuing, Agent on behalf of the Lender Group shall be
            entitled to:

             4.2.3.1 receive and retain all dividends, distributions and other
                     monies paid on the Charged Property; and

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             4.2.3.2 exercise or direct the exercise of the voting rights
                     attached to any of the Charged Property in such manner as
                     it considers fit. The Chargor shall after such time:

             4.2.3.2.1 comply, or procure the compliance, with any directions of
                       Agent in respect of the exercise of the voting rights
                       attached to such Investments; and

             4.2.3.2.2 if Agent so requires by notice to the Chargor,
                       immediately deliver to Agent a form of proxy or other
                       authority (in each case, in such form as Agent shall
                       reasonably require) appointing such person as Agent shall
                       select as proxy of the Chargor or, as the case may be,
                       its nominee or otherwise enabling such person as Agent
                       shall select to exercise such voting rights as shall be
                       specified (whether generally or specifically) in the
                       relevant notice.

4.3   Payment of Costs on Securities:The Chargor shall duly and promptly pay all
      costs, instalments or other payments which from time to time become due in
      respect of any Charged Property. In the case of any default by the Chargor
      in this respect Agent may, if it thinks fit, make any such payments on
      behalf of the Chargor, in which event any sums so paid shall be reimbursed
      on demand by the Chargor to Agent and until reimbursed shall bear interest
      in accordance with Clause 13.3 (Overdue Amounts) and shall be secured on
      the Charged Property.

4.4   Collection of Distributions:At any time following the registration of the
      Charged Property in the name of Agent or its nominee in accordance with
      Clause 4.2.1, Agent shall not be under any duty to ensure that any
      dividends, distributions or other monies payable in respect of the Charged
      Property are duly or promptly paid or received by it or its nominee, or to
      verify that the correct amounts are paid or received, or to take any
      action in connection with the taking up of any (or any offer of any)
      stocks, shares, rights, monies or other property paid, distributed,
      accruing or offered at any time by way of interest, dividend, redemption,
      bonus, rights, preference, option, warrant or otherwise on, or in respect
      of or in substitution for, any of the Charged Property.

4.5   Maintenance of Legal Validity:The Chargor shall obtain, comply with the
      terms of and do all that is necessary to maintain in full force and effect
      all authorisations, approvals, licences and consents required in or by the
      laws and regulations of its jurisdiction of incorporation to enable it
      lawfully to enter into and perform its obligations under this Share Charge
      and to ensure the legality, validity, enforceability or admissibility in
      evidence in its jurisdiction of incorporation and Ireland of this Share
      Charge.

5     NEGATIVE PLEDGE AND OTHER RESTRICTIONS

      The Chargor shall not, without the prior written consent of Agent (save as
      otherwise permitted by any Irish Loan Document):

      5.1.1 create, or agree or attempt to create, or permit to arise or
            subsist, any lien of any kind (save for Permitted Liens) or any
            trust over any of the Charged Property;

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      5.1.2 sell, transfer, assign or otherwise dispose of any of the Charged
            Property or the equity of redemption in respect of the Charged
            Property; or

      5.1.3 do or cause or permit to be done anything which may in any way
            materially depreciate, jeopardise or otherwise materially prejudice
            the market value or collateral value of the Charged Property or the
            rights of Agent on behalf of the Lender Group hereunder.

6     FURTHER ASSURANCE

      To the extent required to comply with the Loan Agreement, the Chargor
      shall promptly following demand by Agent in writing, execute and deliver
      to Agent at the cost of the Chargor and in such form as Agent may
      reasonably require, such other documents as Agent may reasonably require
      to secure the payment of the Secured Sums, or to perfect or protect this
      Share Charge or facilitate its realisation or the exercise of Agent's
      rights thereunder, or following an Event of Default which is continuing,
      to vest title to any Charged Property in itself or its nominee or any
      purchaser and/or to create a legal mortgage over the Securities or
      Derivative Assets and to register such security or title in any applicable
      register in each case consistent with the jurisdiction in which such asset
      is situated and/or to facilitate the realisation of this security or
      Agent's rights under this Share Charge.

7     CONTINUING SECURITY

7.1   Continuing Security:This Share Charge shall be a continuing security,
      notwithstanding any intermediate payment or settlement of account or any
      other matter whatever, and shall be in addition to and shall not prejudice
      or be prejudiced by any right of Lien, set-off or other rights exercisable
      by Agent on behalf of the Lender Group or Agent on behalf of the Lender
      Group as banker against any Group Company or any Lien, guarantee,
      indemnity and/or negotiable instrument now or in the future held by Agent
      on behalf of the Lenders. Agent shall not be bound to enforce any other
      Lien before enforcing the security created by this Share Charge. Section
      17 of the Conveyancing Act 1881 shall not apply to this Share Charge.

7.2   Subrogation:- During the continuance of this Share Charge:

      7.2.1   any rights of the Chargor, by reason of the performance of any of
              its obligations under this Share Charge, the enforcement of any of
              the charges contained herein or any action taken pursuant to any
              rights of any person conferred by or pursuant to this Share Charge
              or by law (so far as they relate to any of the Charged Property,
              the Agent on behalf of the Lender Group as the person entitled to
              any of the charges contained herein, any receiver or any delegate
              of the Chargor):

      7.2.1.1 to be indemnified by any person; or

      7.2.1.2 to prove in respect of any liability in the winding-up of any
              person; or

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      7.2.1.3 to take the benefit of or enforce any security interest or
              guarantees or to exercise any rights of contribution,

              (all such rights the "Subrogation Rights") shall be exercised and
              enforced by the Chargor in such manner and on such terms, and only
              in such manner and on such terms, as Agent may require (and,
              without limitation, Agent shall be entitled to require the Chargor
              not to exercise or enforce any Subrogation Rights);

      7.2.2   any amount received by the Chargor as a result of any exercise of
              any Subrogation Rights shall be held in trust for and immediately
              paid to Agent on behalf of the Lender Group;

      Provided that no Subrogation Rights shall arise or exist, which if they
      did exist would constitute a right to be indemnified by, to prove in the
      winding-up of, to take the benefit of any Lien or guarantee granted by, or
      to exercise any rights of contribution against, Subsidiary Borrower, and
      the Chargor waives all its entitlement and rights to or in respect of any
      such Subrogation Rights.

      7.2.3   Waiver of Defences: The liabilities and obligations of the Chargor
              under this Share Charge shall remain in force irrespective of
              whatever dealings may occur between the Agent, the Lenders, the
              Chargor and Subsidiary Borrower including, without limitation, the
              granting of any additional time for the performance of any
              obligation, or the variation of any obligation.

8     POWERS OF SALE

8.1   Statutory Power of Sale to arise on Enforcement:The restrictions in
      Section 20 of the Conveyancing Act 1881 shall not apply to this Share
      Charge, but the statutory power of sale (as varied and extended by this
      Share Charge) shall (as between Agent and a purchaser from Agent), and the
      Agent shall have the power to appoint a receiver of the Charged Property
      (or the income thereof) which shall, arise immediately on the execution of
      this Share Charge without restrictions (statutory or otherwise) as to the
      giving of notice or otherwise. However, Agent shall not exercise such
      powers until the taking of action by the Agent under clause 9 of the Loan
      Agreement, but this provision shall not affect a purchaser or require him
      to ask whether a demand or appointment has been made.

8.2   Third Parties not to be concerned with validity of demand:No person
      dealing in good faith and for value with Agent, its agents or brokers,
      shall be concerned to enquire whether this Share Charge has become
      enforceable, or whether any power exercised or purported to be exercised
      has become exercisable, or whether any Secured Sums remain due upon this
      Share Charge or have been validly demanded, or as to the necessity or
      expediency of any stipulations and conditions subject to which the sale of
      any Charged Property shall be made, or otherwise as to the propriety or
      regularity of the sale of any Charged Property, or to see to the
      application of any money paid to Agent, or its agents or brokers, and each
      such dealing shall be deemed to be within the powers hereby conferred and
      to be valid and effective accordingly.

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9     OPENING OF NEW ACCOUNTS

9.1   Ruling off of Accounts:On receiving notice that the Chargor has encumbered
      or disposed of any of the Charged Property, Agent may rule off such
      Chargor's account or accounts and open a new account or accounts in the
      name of the Chargor.

9.2   Credits not to reduce Indebtedness of Chargor:If Agent does not open a new
      account or accounts immediately on receipt of such notice, it shall
      nevertheless be treated as if it had done so at the time when it received
      such notice and as from that time all payments made by the Chargor to
      Agent on behalf of the Lender Group shall be treated as having been
      credited to such new account or accounts and shall not operate to reduce
      the amount owing from the Chargor to Agent on behalf of the Lender Group
      at the time when it received such notice.

10    ENFORCEMENT

10.1  Statutory Powers:The powers conferred on mortgagees or receivers by the
      Conveyancing Act 1881 and the Companies Acts, 1963 to 2001 shall apply to
      the security constituted by this Share Charge except insofar as they are
      expressly or impliedly excluded and where there is ambiguity or conflict
      between the powers contained in such statutes, the powers contained in
      this Share Charge shall prevail.

10.2  Liability of Agent:Neither the Agent nor any receiver or delegate shall be
      liable to account as mortgagee in possession or otherwise for any money
      not actually received by it.

10.3  Redemption of Prior Charges: Agent at any time following the security
      constituted by this Share Charge becoming enforceable may redeem any and
      all prior Liens on or relating to the Charged Property or any part thereof
      or procure the transfer of such Liens to itself and may settle and pass
      the accounts of the person or persons entitled to the prior Liens. Any
      account so settled and passed shall be conclusive and binding on the
      Chargor.

10.4  Rights of Agent:All or any of the rights which are conferred by this Share
      Charge (either expressly or impliedly) upon a receiver may be exercised
      after the Share Charge becomes enforceable by Agent irrespective of
      whether Agent shall have taken possession or appointed a receiver of the
      Charged Property.

11    POWER OF ATTORNEY

11.1  Power of Attorney:The Chargor by way of security hereby irrevocably
      appoints Agent (whether or not a receiver has been appointed), and any
      receiver separately, as the attorney of the Chargor (with full power to
      appoint substitutes and to delegate), in its name and on its behalf, and
      as its act and deed or otherwise, at any time during the continuance of an
      Event of Default to:

      11.1.1 execute and deliver and otherwise perfect any agreement, assurance,
             deed, instrument or document; or

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      11.1.2 perform any act;

      which may be required of the Chargor under this Share Charge, or may be
      deemed necessary by such attorney, acting reasonably, for any purpose of
      this Share Charge or to enhance or perfect the security intended to be
      constituted by it or following an Event of Default, to convey or transfer
      legal ownership of any of the Charged Property (including the completion
      of the stock transfer forms referred to in Clause 4.1 (Deposit of
      Documents)).

11.2  Ratification:The Chargor undertakes, if so required, to ratify and confirm
      all acts done and transactions entered into by any attorney appointed
      under Clause 11.1 (Power of Attorney) in the proper exercise of its powers
      in accordance with this Share Charge.

11.3  Delegation:Agent may delegate by power of attorney or in any other manner
      all or any of the powers, authorities and discretions which are for the
      time being exercisable by Agent under this Share Charge to any person or
      persons which it shall think fit and on such terms and conditions as it
      shall think fit (including power to sub-delegate) without liability for
      any act or omission by such delegate.

12    APPLICATION OF MONEY RECEIVED

12.1  Application of Recoveries:Any money received under the powers conferred by
      this Share Charge shall, subject to the discharge of any prior-ranking
      claims, be paid or applied in the following order of priority:

      12.1.1  in satisfaction of all costs, charges and expenses incurred, and
              payments made by Agent in connection with the exercise of its
              rights under this Share Charge (including any costs, charges and
              expenses incidental to the appointment of a receiver and the
              exercise of a receiver's rights and all remuneration payable to a
              receiver or liabilities of a receiver);

      12.1.2  in or towards satisfaction of the Secured Sums in the manner
              applicable under the Irish Loan Documents; and

      12.1.3  as to the surplus (if any), to the person or persons entitled to
              it.

12.2  Suspense Account:Agent may, in its absolute discretion on or at any time
      or times pending the payment to the Lender Group of the whole of the
      Secured Sums, place and keep to the credit of a separate or suspense
      account, bearing interest at a commercial rate, any money received,
      recovered or realised by Agent on behalf of the Lender Group by virtue of
      this Share Charge in such manner as Agent may determine without any
      obligation to apply it in or towards the discharge of any Secured Sum.
      That amount may be kept there (with any interest earned being credited to
      that account) until Agent is satisfied that all the Secured Sums have been
      discharged in full and that all facilities which might give rise to
      Secured Sums have terminated.

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13    COSTS AND INTEREST ON OVERDUE AMOUNTS

13.1  Indemnity: All costs, charges and liabilities (including all properly
      incurred professional fees and disbursements and value added tax and/or
      any similar tax) and all other sums paid or incurred by Agent or the
      Lender Group under or in connection with this Share Charge or the Irish
      Loan Documents, shall be recoverable (on a full indemnity basis) as a debt
      payable on demand from the Chargor, may be debited following non-payment
      of such sum(s) by the Chargor when due, or, if relevant, when demanded,
      without notice to any account of the Chargor, shall bear interest in
      accordance with the provisions of the Irish Loan Documents and shall be
      charged on the Charged Property. The Chargor shall indemnify Agent or the
      Lender Group against all properly incurred costs, charges and expenses
      arising out of any proceedings referable to the Chargor brought against
      Agent or the Lender Group or to which Agent or the Lender Group may be a
      party whether as plaintiffs or defendants or otherwise and which relate to
      any Charged Property. All amounts paid by the Chargor under this Share
      Charge shall be paid free and clear of any deduction or withholding on
      account of tax or any other amount (save to the extent required by law)
      and free of any set-off or counterclaim or otherwise. If the Chargor is
      required to make any deduction or withholding by law on any sum paid or
      payable by it to Agent on behalf of the Lenders under this Share Charge
      the sum payable by the Chargor in respect of which the deduction or
      withholding is required shall be increased to the extent necessary to
      ensure that Agent or the Lender Group receives on the due date and retains
      (free of any liability in respect of such deduction or withholding) a net
      sum equal to the sum it would have received and retained had no such
      deduction or withholding been required or made except where such deduction
      or withholding is permitted by the terms of the Loan Agreement and there
      is no corresponding obligation on the Subsidiary Borrower in the Loan
      Agreement to account to the Lender or Agent for such sum that has been
      withheld or deducted.

13.2  Types of Costs Recoverable: The costs recoverable by Agent under this
      Share Charge shall include:

      13.2.1  all costs properly incurred in preparing and administering this
              Share Charge or perfecting the security created by it;

      13.2.2  all costs (whether or not allowable on a taxation by the court) of
              all proceedings for the enforcement of this Share Charge or for
              the recovery or attempted recovery of the Secured Sums;

      13.2.3  all money properly expended and all properly incurred costs
              arising out of the exercise of any power, right or discretion
              conferred by this Share Charge; and

      13.2.4  all costs and losses arising from any default by the Chargor in
              the payment when due of any Secured Sums or the performance of its
              obligations under this Share Charge.

13.3  Overdue Amounts: Any overdue amounts secured by this Share Charge shall
      carry interest at the rate and in accordance with the terms contained in
      the Irish Loan

                                       12

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      Documents in relation to overdue sums provided under Section 2.6(c) of the
      Loan Agreement or at such other rate agreed between the Chargor and Agent
      from time to time. In each case, such interest shall accrue on a day to
      day basis to the date of repayment in full and, if unpaid, shall be
      compounded on the terms so agreed (or in the absence of such agreed terms
      with monthly rests on Agent's usual monthly interest days). Interest shall
      continue to be charged and compounded on this basis after as well as
      before any demand or judgment.

13.4  Currency Indemnity:

      13.4.1  Moneys received or held by Agent pursuant to this Share Charge
              may, from time to time after demand has been made, be converted
              into such currency as Agent considers necessary or desirable to
              discharge the Secured Sums in that currency at such rate of
              exchange as may be applicable under the Loan Agreement or, if
              there is none, the prevailing spot rate of exchange of Wells Fargo
              Bank, N.A. or any successor thereto (as conclusively determined by
              Agent in accordance with the Loan Agreement) for purchasing the
              currency to be acquired with the existing currency.

      13.4.2  No payment to Agent (whether under any judgment or court order or
              otherwise) shall discharge the obligation or liability in respect
              of which it was made unless and until Agent shall have received
              payment in full in the currency in which such obligation or
              liability was incurred, and to the extent that the amount of any
              such payment shall on actual conversion into such currency fall
              short of such obligation or liability expressed in that currency,
              Agent on behalf of the Lender Group shall have a further separate
              cause of action against the Chargor and shall be entitled to
              enforce this security to recover the amount of the shortfall.

      To the extent that the amount of any such payment shall on actual
      conversion into such currency exceed such obligation or liability
      expressed in that currency, Agent shall repay that excess to the Chargor.

14    SET-OFF

      14.1.1  Agent may at any time or times during the continuance of an Event
              of Default retain any money standing to the credit of the Chargor
              in any currency upon any account or otherwise (in any country and
              whether or not in the Chargor's name) as cover for any Secured
              Sums and at any time after an Event of Default without notice to
              the Chargor, and may set off, combine and/or consolidate all or
              any of such money with all or such part of the Secured Sums as
              Agent may select (whether presently payable or not), and purchase
              with any such money any other currency required to effect such
              combination.

      14.1.2  The Chargor irrevocably authorises Agent in its name and at its
              expense to perform such acts and sign such documents as may be
              required to give effect to any set-off or transfer pursuant to
              Clause 14.1, including the purchase with the

                                       13

<PAGE>

              money standing to the credit of any such account of such other
              currencies as may be necessary to effect such set off or
              transfer.

      14.1.3  The foregoing provisions of this clause shall be in addition to
              and without prejudice to such rights of set off, combination,
              consolidation, lien and other rights whatsoever conferred on the
              Lender Group by law.

15    TRANSFER

      Agent may transfer all or any part of its rights in relation to this Share
      Charge and the Secured Sums or otherwise grant an interest in them to any
      person to which it is entitled to make such a transfer under the Loan
      Agreement.

16    DISCLOSURE

      The Chargor irrevocably authorises Agent, at its discretion, at any time
      or from time to time, to disclose any information concerning the Chargor,
      this Share Charge and the Secured Sums to any prospective transferee or
      grantee referred to in Clause 15 (Transfer), or to any affiliate of the
      Agent or the Lenders and their officers, directors, employers, agents and
      advisors subject to such person undertaking to the Chargor, in manner,
      form and substance reasonably satisfactory to such Chargor, to keep such
      information confidential. Both Agent and any prospective transferee or
      grantee shall be entitled to diclose such information to their
      professional advisers.

      The above authority is without prejudice to any obligation of Agent to
      make disclosure imposed by law.

17    FORBEARANCE AND SEVERABILITY

17.1  No Waivers: All rights, powers and privileges under this Share Charge
      shall continue in full force and effect, regardless of the Agent
      exercising, delaying in exercising or omitting to exercise any of them.

17.2  Invalidity and Severability:

      17.2.1  None of the covenants and guarantees given and none of the charges
              created by the Chargor under this Share Charge shall be avoided or
              invalidated by reason only of one other or more of such covenants,
              guarantees or charges being invalid or unenforceable.

      17.2.2  Any provision of this Share Charge which for any reason is or
              becomes illegal, invalid or unenforceable shall be ineffective
              only to the extent of such illegality, invalidity and
              unenforceability, without invalidating the remaining provisions of
              this Share Charge or the effectiveness of any provisions of this
              Share Charge under the laws of any jurisdiction.

                                       14

<PAGE>

18    VARIATIONS AND CONSENTS

18.1  Variations in Writing: No variation of this Share Charge shall be
      considered valid and as constituting part of this Share Charge, unless
      such variation shall have been made in writing and signed by Agent and the
      Chargor.

18.2  Variation: The expression "variation" shall include any variation,
      supplement, extension, deletion or replacement however effected.

18.3  Conditional Consents: Save as otherwise expressly specified in this Share
      Charge or the Loan Agreement, any consent of Agent may be given absolutely
      or on any terms and subject to any conditions as Agent may determine in
      its entire discretion.

19    SERVICE OF DEMANDS AND NOTICES

19.1  Notices to the Chargor: A demand for payment or any other communication to
      be given to the Chargor under this Share Charge may be made or given by
      any manager or officer of Agent and must be in writing addressed to the
      Chargor served on it at the address for service of the Chargor stated in
      the Second Schedule, or to the address last notified to Agent by the
      Chargor, or by facsimile transmission to the facsimile number stated in
      the Second Schedule, or to the facsimile number last notified to Agent by
      the Chargor or by any other form of electronic communication which may be
      available.

19.2  Notices to Agent: Any communication to be given to Agent under this Share
      Charge must be given to Agent in writing served on it at 2450 Colorado
      Avenue, Suite 3000 West, Santa Monica, Los Angeles California 90404 USA
      (marked for the attention of Business Finance Division Manager) or by
      facsimile to facsimile number 00 1 310 453 7443 or the address or
      facsimile number last notified to the Chargor by Agent in writing.

19.3  Deemed Service:A notice or demand shall be deemed to be duly served on the
      Chargor:

      19.3.1  if delivered by hand, at the time of actual delivery;

      19.3.2  if transmitted by facsimile, at the time the facsimile
              transmission report (or other appropriate evidence) confirming
              that the facsimile has been transmitted to the addressee is
              received by the sender; or

      19.3.3  if sent by first class prepaid post, at noon on the third Business
              Day (or if sent by airmail, the fifth Business Day) following the
              day of posting and shall be effective even if it is misdelivered
              or returned undelivered;

      provided that, where delivery or transmission occurs after 6.00 pm in the
      place of delivery on a Business Day or on a day which is not a Business
      Day, service shall be deemed to occur at 9.00 am in the place of delivery
      on the next Business Day.

      In proving such service, it shall be sufficient to prove that personal
      delivery was made or that the envelope containing the communication was
      correctly addressed and posted or

                                       15

<PAGE>

      that a facsimile transmission report (or other appropriate evidence) was
      obtained that the facsimile had been transmitted to the addressee.

19.4  Service on Agent: Any communication to Agent shall be deemed to have been
      given only on actual receipt by it.

20    COUNTERPARTS

      This Share Charge may be executed by the parties in any number of copies,
      all of which taken together shall constitute a single Share Charge.

21    ADJUSTMENT OF ACCOUNT

      If the statement of account between Agent and the Chargor by reference to
      which any Secured Sums are calculated for the purposes of this Share
      Charge requires adjustment at any time because of any claim made against
      Agent by an officeholder then, notwithstanding any other provision of this
      Share Charge:

      21.1.1  the Chargor's liability to Agent will be correspondingly adjusted;

      21.1.2  Agent may treat any release or settlement made by it with the
              Chargor before any such adjustment is required as being of no
              effect; and

      21.1.3  Agent may recover from the Chargor such sum as will place the
              Lender Group in the same position as if such release or settlement
              had not been made.

      If any claim is made against Agent under any insolvency law with reference
      to this Share Charge, Agent may agree the claim or settle it on any terms
      it chooses without asking for the Chargor's agreement. If Agent does agree
      or settle such claim, the Chargor will be liable under this Share Charge
      as if a court order had been made containing the terms which Agent agreed
      or settled. The Chargor will be responsible for all costs and expenses
      which Agent or the Lender Group properly incurred in defending such a
      claim.

22    REPRESENTATIONS AND WARRANTIES

22.1  Representations and Warranties: The Chargor represents and warrants to
      Agent that:

      22.1.1  the Chargor is the sole, absolute and beneficial owner of the
              Charged Property, that no person save the Chargor has any right or
              interest of any sort whatsoever in or to the Charged Property and
              that there are no agreements or arrangements (including any
              restrictions on transfer or rights of pre-emption) affecting the
              Charged Property which would in any way fetter the rights of the
              Chargor under this Share Charge;

      22.1.2  the Securities are duly authorised, validly issued and fully paid
              and there are no monies or liabilities outstanding in respect of
              any of the Securities;

                                       16

<PAGE>

      22.1.3  the Securities constitute 100% of the entire issued ordinary share
              capital of Subsidiary Borrower, and constitute 100% of all of the
              shares in Subsidiary Borrower owned legally or beneficially by the
              Chargor;

      22.1.4  the transfer of the Securities or the charge over the Securities,
              each as contemplated by this Share Charge, is not prohibited by
              the constitutional documents of the Chargor;

      22.1.5  the Chargor is validly incorporated under the laws of Ireland and
              has the power and authority to enter into, perform and deliver
              this Share Charge and the arrangements contemplated hereby;

      22.1.6  this Share Charge constitutes its legal, valid and binding
              obligations, enforceable in accordance with its terms except
              enforcement may be limited by equitable principles or by
              insolvency or similar laws relating to or limiting the rights of
              creditors generally;

      22.1.7  in any proceedings taken in its jurisdiction of incorporation in
              relation to this Share Charge, the choice of the law of Ireland as
              the governing law of this Share Charge and any judgment obtained
              in Ireland will be recognised and enforced;

      22.1.8  the Chargor has not taken any corporate action nor have any other
              steps been taken or legal proceedings been started or (to the best
              of its knowledge and belief) threatened against it for its
              winding-up, dissolution, court protection or re-organisation or
              for the appointment of a receiver, examiner, trustee or similar
              officer of it or of any or all of its assets or revenues;

      22.1.9  its execution of this Share Charge and exercise of its rights and
              performance of its obligations hereunder will not result in the
              existence of nor oblige it to create any Lien over all or any of
              its present or future revenues or assets otherwise than as
              contemplated hereby; and

      22.1.10 its execution of this Share Charge constitutes, and its exercise
              of its rights and performance of its obligations hereunder will
              constitute, private and commercial acts done and performed for
              private and commercial purposes.

22.2  Times of Making Representations and Warranties

      The representations and warranties set out in Clause 22.1 (Representations
      and Warranties):

      22.2.1  will survive the execution of each Irish Loan Document and each
              drawdown under the Loan Agreement; and

      22.2.2  are made on the date hereof and are deemed to be repeated in
              accordance with Section 3.3(a) (Conditions Precedent to all
              Extensions of Credit) of the Loan Agreement with reference to the
              facts and circumstances then existing.

                                       17

<PAGE>

23    GOVERNING LAW AND SUBMISSION TO JURISDICTION

23.1  Governing Law:Any dispute, controversy, proceedings or claim of whatever
      nature arising out of or relating to, or breach of, this Share Charge
      shall be governed by and this Share Charge shall be construed in all
      respects in accordance with the laws of Ireland.

23.2  Submission to Jurisdiction:

      23.2.1  The Chargor irrevocably submits for the benefit of Agent to the
              non-exclusive jurisdiction of the courts of Ireland for the
              purpose of hearing and determining any proceedings arising out of
              this Share Charge.

      23.2.2  The Chargor hereby designates, appoints and empowers the Subsidary
              Borrower at 25-28 North Wall Quay, Dublin 1 (or such other address
              in Ireland as it may notify to Agent), marked for the attention of
              the company secretary, as its process service agent to accept
              service of process in Ireland in any proceedings, and agrees that
              failure by such agent to give notice of such service of process to
              the Chargor shall not impair or affect the validity of such
              service or any judgment based on it. If the appointment ceases to
              be effective in respect of the Chargor, the Chargor shall
              immediately appoint a further person in Ireland to accept service
              of process on its behalf in Ireland and, if it fails to make such
              appointment within 15 days, Agent shall be entitled to appoint
              such person by notice to the Chargor.

      23.2.3  The Chargor irrevocably agrees not to claim that any such court is
              not a convenient or appropriate forum and agrees that a judgment
              in proceedings brought in such courts shall be conclusive and
              binding upon them and may be enforced in any other jurisdiction.

23.3  Freedom of Choice:The submission to the jurisdiction of the courts
      referred to in Clause 23.2 (Submission to Jurisdiction) shall not (and
      shall not be construed so as to) limit the right of Agent to take
      proceedings against the Chargor in the courts of any country in which the
      Chargor has assets or in any other court of competent jurisdiction nor
      shall the taking of proceedings in any one or more jurisdictions preclude
      the taking of proceedings in any other jurisdiction (whether concurrently
      or not) if and to the extent permitted by applicable law.

THIS SHARE CHARGE has been executed by the Chargor as a Deed and signed by Agent
but shall only be treated as having been executed and delivered to take effect
on the day and year first above written.

                                       18

<PAGE>

                                 FIRST SCHEDULE

100 ordinary shares of US$1 each held by the Chargor in Palm Global Operations
Limited.

                                 SECOND SCHEDULE

The address of the Chargor for service of notice is

                  220 Wharfdale Road,
                  Wokingham,
                  Berkshire, RG41 5TB
                  Fax number: (44) 118 927 8791
                  For the attention of the Legal Department

                  With a copy to: Palm Inc.
                  5470 Great America Parkway
                  MS12106
                  Santa Clara CA95052

                  Fax number: 001 408 878 2790
                  For the attention of the General Counsel

                                       19

<PAGE>

CHARGOR

PRESENT when the Common Seal of             )
PALM IRELAND INVESTMENT                     )
(pursuant to a resolution of its board of   )   /s/ Judy Bruner
directors) was affixed hereto:              )  --------------------------
                                               (Directorr)

                                               /s/ Stephen Yu
                                               --------------------------
                                               (Director/Secretary)

AGENT

SIGNED by                                   )
for and on behalf of                        )
FOOTHILL CAPITAL                            )
CORPORATION as Agent                        )  /s/ John Nocita
                                               --------------------------
                                               (Authorised Officer)

                                       20Exhibit 4.01

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

                          SECURED CONVERTIBLE DEBENTURE

Palo  Alto,  California
December  28,  2001                                                     $500,000

          FOR  VALUE  RECEIVED,  AMNIS  SYSTEMS  INC.,  a  Delaware  corporation
(hereinafter  called  the  "BORROWER"),  hereby  promises to pay to the order of
BRISTOL  INVESTMENT  FUND,  LTD. or registered assigns (the "HOLDER") the sum of
Five  Hundred  Thousand  Dollars ($500,000), on December 28, 2003 (the "MATURITY
DATE"),  and  to pay interest on the unpaid principal balance hereof at the rate
of  twelve  percent  (12%)  per  annum from December 28, 2001 (the "ISSUE DATE")
until the same becomes due and payable, whether at maturity or upon acceleration
or  by  prepayment  or  otherwise.  Any  amount of principal or interest on this
Debenture  which is not paid when due shall bear interest at the rate of fifteen
percent  (15%)  per  annum  from  the  due  date  thereof until the same is paid
("DEFAULT  INTEREST"). Interest shall commence accruing on the issue date, shall
be computed on the basis of a 365-day year and the actual number of days elapsed
and shall be payable, at the option of the Holder, either quarterly on March 31,
June  30, September 30 and December 31 of each year beginning on March 31, 2002,
or  at the time of conversion of the principal to which such interest relates in
accordance  with  Article I below. All payments due hereunder (to the extent not
converted  into  common stock, par value $0.0001 per share, of the Borrower (the
"COMMON  STOCK")  in  accordance  with the terms hereof) shall be made in lawful
money  of the United States of America or, at the option of the Holder, in whole
or  in  part,  in  shares  of  Common  Stock  of the Borrower valued at the then
applicable  Conversion  Price (as defined herein). All payments shall be made at
such  address  as  the  Holder  shall  hereafter give to the Borrower by written
notice  made  in  accordance with the provisions of this Debenture. Whenever any
amount  expressed  to  be  due  by the terms of this Debenture is due on any day
which  is  not  a  business  day,  the  same  shall  instead  be due on the next
succeeding  day which is a business day and, in the case of any interest payment
date  which  is  not  the  date  on  which  this  Debenture is paid in full, the
extension  of  the due date thereof shall not be taken into account for purposes
of  determining  the  amount  of  interest  due  on  such  date. As used in this
Debenture,  the  term  "business  day" shall mean any day other than a Saturday,

                                        1
<PAGE>
Sunday or a day on which commercial banks in the city of Los Angeles, California
are  authorized  or  required  by  law or executive order to remain closed. Each
capitalized  term used herein, and not otherwise defined, shall have the meaning
ascribed  thereto  in that certain Securities Purchase Agreement, dated December
28,  2001, pursuant to which this Debenture was originally issued (the "PURCHASE
AGREEMENT").

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

     The  following  terms  shall  apply  to  this  Debenture:

                          ARTICLE I.  CONVERSION RIGHTS

          1.1  CONVERSION  RIGHT  AND  INVESTMENT  OPTION.
               ------------------------------------------

               (a)  CONVERSION  RIGHT. The Holder shall have the right from time
                    -----------------
to time, and at any time on or prior to the earlier of (i) the Maturity Date and
(ii)  the  date  of  payment  of  the Default Amount (as defined in Article III)
pursuant  to  Section  1.6(a) or Article III, the Optional Prepayment Amount (as
defined  in Section 5.1 or any payments pursuant to Section 1.7, each in respect
of  the  remaining outstanding principal amount of this Debenture to convert all
or  any  part  of  the outstanding and unpaid principal amount of this Debenture
into  fully paid and non-assessable shares of Common Stock, as such Common Stock
exists  on the Issue Date, or any shares of capital stock or other securities of
the  Borrower  into  which  such  Common  Stock  shall  hereafter  be changed or
reclassified  at  the  conversion  price  (the "CONVERSION PRICE") determined as
provided  herein (a "CONVERSION"); provided, however, that in no event shall the
                                   --------  -------
Holder  be  entitled  to  convert  any  portion  of  this Debenture (or exercise
Investment  Options (as defined in Section 1.1(b))) in excess of that portion of
this  Debenture  upon conversion of which the sum of (1) the number of shares of
Common  Stock  beneficially  owned  by the Holder and its affiliates (other than
shares  of  Common  Stock  which  may  be  deemed beneficially owned through the
ownership  of  the  unconverted  portion  of  the  Debentures,  the  unexercised
Investment  Options  or  the  unexercised  or  unconverted  portion of any other
security  of the Borrower (including, without limitation, the warrants issued by
the  Borrower  pursuant  to  the  Purchase Agreement) subject to a limitation on
conversion  or  exercise  analogous to the limitations contained herein) and (2)
the number of shares of Common Stock issuable upon the conversion of the portion
of  this  Debenture  (and  upon  the  exercise, if any, of Investment Options in
connection therewith) with respect to which the determination of this proviso is
being  made,  would  result  in  beneficial  ownership  by  the  Holder  and its
affiliates  of  more  than  4.9%  of the outstanding shares of Common Stock. For
purposes  of  the  proviso  to  the  immediately  preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange  Act  of  1934, as amended, and Regulations 13D-G thereunder, except as
otherwise  provided  in clause (1) of such proviso. The Holder of this Debenture
may waive the limitations set forth herein by sixty-one (61) days written notice

                                        2
<PAGE>
to  the  Borrower.  The  number of shares of Common Stock to be issued upon each
conversion  of  this  Debenture  shall  be determined by dividing the Conversion
Amount  (as  defined below) by the applicable Conversion Price then in effect on
the  date  specified in the notice of conversion, in the form attached hereto as
Exhibit  A (the "NOTICE OF CONVERSION"), delivered to the Borrower by the Holder
in  accordance with Section 1.4 below; provided that the Notice of Conversion is
submitted  by  facsimile (or by other means resulting in, or reasonably expected
to  result in, notice) to the Borrower before 3:00 p.m., Los Angeles, California
time  on  such  conversion  date  (the  "CONVERSION DATE"). The term "CONVERSION
AMOUNT"  means, with respect to any conversion of this Debenture, the sum of (1)
the  principal  amount of this Debenture to be converted in such conversion plus
(2)  accrued  and  unpaid  interest,  if  any,  on  such principal amount at the
interest  rates  provided  in  this  Debenture  to  the Conversion Date plus (3)
Default  Interest,  if  any,  on  the  amounts  referred  to  in the immediately
preceding  clauses  (1)  and/or (2) plus (4) at the Holder's option, any amounts
owed  to  the  Holder  pursuant to Sections 1.3 and 1.4(g) hereof or pursuant to
Section 2(c) of that certain Registration Rights Agreement, dated as of December
28, 2001, executed in connection with the initial issuance of this Debenture and
the  other  Debentures  issued  on  the  Issue  Date  (the  "REGISTRATION RIGHTS
AGREEMENT").

               (b)  INVESTMENT  OPTIONS.  On  any  Conversion Date relating to a
                    -------------------
conversion  of this Debenture by the Holder, the Holder shall have the option to
purchase  one  additional  share of Common Stock for every share of Common Stock
issuable  as  a  result  of  such  conversion  at an exercise price equal to the
applicable Conversion Price (the option to purchase such additional shares shall
be referred to herein as the "INVESTMENT OPTIONS"). Holder (i) shall indicate on
the  Notice  of  Conversion  in  respect  of  such  Conversion  Date  that it is
exercising  its  Investment  Option  with  respect  to such conversion and shall
specify  the  number  of  shares  of  Common  Stock  with  respect  to which the
Investment  Option is being so exercised, and (ii) shall pay to the Borrower, in
immediately  available  funds,  on or within five (5) business day following the
Conversion  Date,  the  aggregate  purchase price for the shares of Common Stock
issuable  as a result of the exercise of such Investment Options. The provisions
of  this  Debenture relating to conversion mechanics shall apply to any exercise
by  the  Holder  of  Investment  Options.

          1.2  CONVERSION  PRICE.
               -----------------

               (a)  CALCULATION  OF CONVERSION PRICE. The Conversion Price shall
                    --------------------------------
be  the lesser of (i) the Variable Conversion Price (as defined herein) and (ii)
the  Fixed  Conversion  Price  (as  defined  herein)  (subject, in each case, to
equitable  adjustments  for stock splits, stock dividends or rights offerings by
the  Borrower  relating  to  the  Borrower's securities or the securities of any
subsidiary  of  the Borrower, combinations, recapitalization, reclassifications,
extraordinary distributions and similar events). The "VARIABLE CONVERSION PRICE"
shall  mean  the  Applicable  Percentage  (as  defined herein) multiplied by the
Market Price (as defined herein). "MARKET PRICE" means the average of the lowest
three  (3)  Trading  Prices  (as  defined below) for the Common Stock during the
twenty  (20)  Trading  Day  period  ending one Trading Day prior to the date the
Conversion  Notice  is  sent  by  the  Holder to the Borrower via facsimile (the
"CONVERSION  DATE"). "TRADING PRICE" means, for any security as of any date, the
intraday  trading  price on the Over-the-Counter Bulletin Board (the "OTCBB") as
reported  by  a  reliable reporting service mutually acceptable to and hereafter
designated  by  Holders  of  a  majority  in  interest of the Debentures and the
Borrower or, if the OTCBB is not the principal trading market for such security,

                                        3
<PAGE>
the intraday trading price of such security on the principal securities exchange
or  trading  market  where  such security is listed or traded or, if no intraday
trading price of such security is available in any of the foregoing manners, the
average  of  the  intraday trading prices of any market makers for such security
that  are  listed in the "pink sheets" by the National Quotation Bureau, Inc. If
the  Trading  Price  cannot  be calculated for such security on such date in the
manner  provided  above,  the  Trading  Price  shall be the fair market value as
mutually determined by the Borrower and the holders of a majority in interest of
the Debentures being converted for which the calculation of the Trading Price is
required in order to determine the Conversion Price of such Debentures. "TRADING
DAY"  shall  mean  any day on which the Common Stock is traded for any period on
the OTCBB, or on the principal securities exchange or other securities market on
which  the Common Stock is then being traded. "APPLICABLE PERCENTAGE" shall mean
70.0%.  The  "FIXED  CONVERSION  PRICE"  shall  mean  $0.385.

               (b)  CONVERSION PRICE DURING MAJOR ANNOUNCEMENTS. Notwithstanding
                    -------------------------------------------
anything  contained in Section 1.2(a) to the contrary, in the event the Borrower
(i) makes a public announcement that it intends to consolidate or merge with any
other corporation (other than a merger in which the Borrower is the surviving or
continuing  corporation  and its capital stock is unchanged) or sell or transfer
all or substantially all of the assets of the Borrower or (ii) any person, group
or entity (including the Borrower) publicly announces a tender offer to purchase
50%  or  more of the Borrower's Common Stock (or any other takeover scheme) (the
date  of  the  announcement  referred  to  in  clause (i) or (ii) is hereinafter
referred  to  as  the  "ANNOUNCEMENT  DATE"),  then  the Conversion Price shall,
effective  upon  the  Announcement  Date  and  continuing  through  the Adjusted
Conversion  Price  Termination Date (as defined below), be equal to the lower of
(x)  the  Conversion  Price  which  would  have been applicable for a Conversion
occurring  on  the  Announcement  Date  and  (y) the Conversion Price that would
otherwise be in effect. From and after the Adjusted Conversion Price Termination
Date,  the  Conversion  Price  shall  be determined as set forth in this Section
1.2(a).  For  purposes  hereof,  "ADJUSTED  CONVERSION  PRICE  TERMINATION DATE"
shall  mean,  with  respect  to  any  proposed  transaction  or tender offer (or
takeover scheme) for which a public announcement as contemplated by this Section
1.2(b)  has  been  made, the date upon which the Borrower (in the case of clause
(i)  above)  or  the  person, group or entity (in the case of clause (ii) above)
consummates or publicly announces the termination or abandonment of the proposed
transaction  or  tender  offer  (or  takeover  scheme) which caused this Section
1.2(b)  to  become  operative.

          1.3  AUTHORIZED  SHARES.  The  Borrower  covenants  that  during  the
               -------------------
period  the  conversion  right  exists,  the  Borrower  will  reserve  from  its
authorized  and  unissued  Common Stock a sufficient number of shares, free from
preemptive  rights,  to  provide  for the issuance of Common Stock upon the full
conversion  of  this  Debenture  and the other Debentures issued pursuant to the
Purchase  Agreement and upon exercise of the Investment Options. The Borrower is
required  at  all  times to have authorized and reserved two times the number of
shares  that  is actually issuable upon full conversion of the Debentures (based
on  the Conversion Price of the Debentures or the Exercise Price of the Warrants
in  effect  from  time to time) and upon exercise of the Investment Options (the
"RESERVED  AMOUNT"). The Reserved Amount shall be increased from time to time in
accordance  with  the  Borrower's  obligations  pursuant  to Section 4(h) of the
Purchase Agreement. The Borrower represents that upon issuance, such shares will

                                        4
<PAGE>
be  duly  and validly issued, fully paid and non-assessable. In addition, if the
Borrower  shall issue any securities or make any change to its capital structure
which  would  change  the  number  of  shares  of  Common  Stock  into which the
Debentures  shall  be  convertible  at the then current Conversion Price and for
which the Investment Option shall be exercisable, the Borrower shall at the same
time make proper provision so that thereafter there shall be a sufficient number
of  shares of Common Stock authorized and reserved, free from preemptive rights,
for  conversion  of  the  outstanding  Debentures and exercise of the Investment
Options.  The  Borrower  (i) acknowledges that it has irrevocably instructed its
transfer  agent  to  issue  certificates  for  the  Common  Stock  issuable upon
conversion  of  this  Debenture and exercise of the Investment Options, and (ii)
agrees  that  its  issuance of this Debenture shall constitute full authority to
its  officers  and  agents  who  are  charged  with  the duty of executing stock
certificates  to  execute  and  issue  the  necessary certificates for shares of
Common  Stock  in  accordance  with  the terms and conditions of this Debenture.

          If,  at  any  time  a  Holder  of  this  Debenture submits a Notice of
Conversion,  and  the  Borrower does not have sufficient authorized but unissued
shares  of  Common Stock available to effect such conversion (including exercise
of  the  Investment Options) in accordance with the provisions of this Article I
(a  "CONVERSION  DEFAULT"),  subject to Section 4.8, the Borrower shall issue to
the  Holder all of the shares of Common Stock which are then available to effect
such  conversion  (including exercise of the Investment Options). The portion of
this  Debenture  which  the  Holder  included in its Conversion Notice and which
exceeds  the  amount  which  is then convertible into available shares of Common
Stock  (the  "EXCESS  AMOUNT")  shall,  notwithstanding anything to the contrary
contained  herein,  not  be convertible into Common Stock in accordance with the
terms  hereof  until  (and  at  the  Holder's option at any time after) the date
additional  shares of Common Stock are authorized by the Borrower to permit such
conversion,  at  which time the Conversion Price in respect thereof shall be the
lesser  of  (i)  the Conversion Price on the Conversion Default Date (as defined
below)  and  (ii) the Conversion Price on the Conversion Date thereafter elected
by  the  Holder  in  respect thereof. In addition, the Borrower shall pay to the
Holder  payments ("CONVERSION DEFAULT PAYMENTS") for a Conversion Default in the
amount  of  (x)  the  sum  of  (1) the then outstanding principal amount of this
                      -------
Debenture plus (2) accrued and unpaid interest on the unpaid principal amount of
this  Debenture  through  the  Authorization  Date  (as  defined below) plus (3)
                                                                        ----
Default  Interest, if any, on the amounts referred to in clauses (1) and/or (2),
multiplied  by  (y) .24, multiplied by (z) (N/365), where N = the number of days
--------------           -------------
from  the  day  the  holder  submits  a  Notice  of  Conversion giving rise to a
Conversion  Default  (the  "CONVERSION  DEFAULT  DATE")  to  the  date  (the
"AUTHORIZATION DATE") that the Borrower authorizes a sufficient number of shares
of  Common  Stock  to  effect  conversion  (including exercise of the Investment
Options)  of  the  full  outstanding  principal  balance  of this Debenture. The
Borrower  shall  use its best efforts to authorize a sufficient number of shares
of  Common  Stock  as soon as practicable following the earlier of (i) such time
that  the  Holder  notifies  the Borrower or that the Borrower otherwise becomes
aware  that  there  are  or  likely will be insufficient authorized and unissued
shares  to  allow  full conversion thereof (including exercise of the Investment
Options)  and  (ii)  a Conversion Default. The Borrower shall send notice to the
Holder  of  the  authorization  of  additional  shares  of  Common  Stock,  the
Authorization  Date  and  the  amount  of  Holder's  accrued  Conversion Default
Payments.  The accrued Conversion Default Payments for each calendar month shall

                                        5
<PAGE>
be paid in cash or shall be convertible into Common Stock (at such time as there
are  sufficient  authorized shares of Common Stock) at the applicable Conversion
Price,  at  the  Holder's  option,  as  follows:

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

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

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

          1.4  METHOD  OF  CONVERSION.
               ----------------------

               (a)  MECHANICS  OF  CONVERSION.  Subject  to  Section  1.1,  this
                    -------------------------
Debenture  may  be  converted by the Holder in whole or in part at any time from
time to time after the Issue Date, by (A) submitting to the Borrower a Notice of
Conversion  (by  facsimile or other reasonable means of communication dispatched
on the Conversion Date prior to 3:00 p.m., Los Angeles, California time) and (B)
subject  to  Section 1.4(b), surrendering this Debenture at the principal office
of  the  Borrower.

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

                                        6
<PAGE>
by reason of the provisions of this paragraph, following conversion of a portion
of this Debenture, the unpaid and unconverted principal amount of this Debenture
represented  by  this  Debenture  may be less than the amount stated on the face
hereof.

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

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

               (e)  OBLIGATION OF BORROWER TO DELIVER COMMON STOCK. Upon receipt
                    ----------------------------------------------
by  the Borrower of a Notice of Conversion, the Holder shall be deemed to be the
holder  of  record  of  the  Common  Stock  issuable  upon  such conversion, the
outstanding  principal  amount  and the amount of accrued and unpaid interest on
this  Debenture  shall  be  reduced  to reflect such conversion, and, unless the
Borrower  defaults  on  its  obligations  under  this Article I, all rights with
respect  to  the  portion  of  this Debenture being so converted shall forthwith
terminate except the right to receive the Common Stock or other securities, cash
or  other  assets,  as  herein provided, on such conversion. If the Holder shall
have  given a Notice of Conversion as provided herein, the Borrower's obligation
to  issue  and  deliver  the certificates for Common Stock shall be absolute and
unconditional,  irrespective  of  the  absence  of  any  action by the Holder to
enforce  the  same, any waiver or consent with respect to any provision thereof,
the  recovery  of  any  judgment against any person or any action to enforce the
same,  any  failure  or  delay in the enforcement of any other obligation of the
Borrower  to  the  holder  of  record,  or any setoff, counterclaim, recoupment,
limitation  or termination, or any breach or alleged breach by the Holder of any
obligation  to  the  Borrower,  and irrespective of any other circumstance which
might  otherwise  limit  such  obligation  of  the  Borrower  to  the  Holder in
connection  with such conversion. The Conversion Date specified in the Notice of
Conversion  shall  be the Conversion Date so long as the Notice of Conversion is
received by the Borrower before 3:00 p.m., Los Angeles, California time, on such
date.

                                        7
<PAGE>
               (f)  DELIVERY  OF COMMON STOCK BY ELECTRONIC TRANSFER. In lieu of
                    ------------------------------------------------
delivering  physical  certificates  representing  the Common Stock issuable upon
conversion,  provided  the  Borrower's  transfer  agent  is participating in the
Depository  Trust  Company  ("DTC")  Fast Automated Securities Transfer ("FAST")
program,  upon  request  of  the  Holder  and its compliance with the provisions
contained  in  Section  1.1  and in this Section 1.4, the Borrower shall use its
best  efforts  to cause its transfer agent to electronically transmit the Common
Stock  issuable  upon  conversion and upon exercise of the Investment Options to
the  Holder  by  crediting the account of Holder's Prime Broker with DTC through
its  Deposit  Withdrawal  Agent  Commission  ("DWAC") system.  In the event that
Borrower's  transfer  agent is not eligible or is not currently participating in
the  DTC  FAST  program,  the  Borrower  will  cause  its transfer agent to take
whatever  action  is necessary to become eligible to participate in the DTC FAST
program  within  ten  (10)  business  days  following  the  Issue  Date.

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

          1.5  CONCERNING  THE  SHARES. The shares of Common Stock issuable upon
               -----------------------
conversion of this Debenture (including upon exercise of the Investment Options)
may  not  be sold or transferred unless  (i) such shares are sold pursuant to an
effective  registration  statement  under  the  Act  or (ii) the Borrower or its
transfer  agent  shall  have  been  furnished with an opinion of  counsel (which
opinion  shall be in form, substance and scope customary for opinions of counsel
in  comparable  transactions)  to  the  effect  that  the  shares  to be sold or
transferred  may  be  sold  or  transferred  pursuant  to an exemption from such
registration  or  (iii) such shares are sold or transferred pursuant to Rule 144
under  the  Act  (or  a  successor  rule)  ("RULE  144") or (iv) such shares are
transferred  to  an  "affiliate"  (as  defined  in Rule 144) of the Borrower who
agrees  to  sell  or  otherwise transfer the shares only in accordance with this
Section  1.5  and  who  is  an  Accredited  Investor (as defined in the Purchase
Agreement).  Except as otherwise provided in the Purchase Agreement (and subject
to  the  removal  provisions  set forth below), until such time as the shares of
Common Stock issuable upon conversion of this Debenture (including upon exercise
of the Investment Options) have been registered under the Act as contemplated by
the  Registration Rights Agreement or otherwise may be sold pursuant to Rule 144
without  any  restriction as to the number of securities as of a particular date
that  can  then be immediately sold, each certificate for shares of Common Stock
issuable  upon  conversion  of  this  Debenture  (including upon exercise of the
Investment  Options)  that has not been so included in an effective registration

                                        8
<PAGE>
statement  or  that  has  not  been  sold  pursuant to an effective registration
statement  or  an  exemption  that  permits  removal of the legend, shall bear a
legend  substantially  in  the  following  form,  as  appropriate:

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

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

          1.6  EFFECT  OF  CERTAIN  EVENTS.
               ---------------------------

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

                                        9
<PAGE>
               (b)  ADJUSTMENT  DUE  TO  MERGER,  CONSOLIDATION, ETC. If, at any
                    ------------------------------------------------
time  when  this  Debenture is issued and outstanding and prior to conversion of
all  of  the  Debentures,  there shall be any merger, consolidation, exchange of
shares, recapitalization, reorganization, or other similar event, as a result of
which shares of Common Stock of the Borrower shall be changed into the same or a
different number of shares of another class or classes of stock or securities of
the  Borrower  or another entity, or in case of any sale or conveyance of all or
substantially  all of the assets of the Borrower other than in connection with a
plan  of complete liquidation of the Borrower, then the Holder of this Debenture
shall  thereafter  have  the right to receive upon conversion of this Debenture,
upon the basis and upon the terms and conditions specified herein and in lieu of
the  shares  of  Common  Stock immediately theretofore issuable upon conversion,
such  stock,  securities  or assets which the Holder would have been entitled to
receive  in  such  transaction  had  this  Debenture  been  converted  in  full
immediately  prior  to  such  transaction  (without regard to any limitations on
conversion  set forth herein), and in any such case appropriate provisions shall
be made with respect to the rights and interests of the Holder of this Debenture
to the end that the provisions hereof (including, without limitation, provisions
for adjustment of the Conversion Price and of the number of shares issuable upon
conversion of the Debenture) shall thereafter be applicable, as nearly as may be
practicable  in relation to any securities or assets thereafter deliverable upon
the  conversion  hereof. The Borrower shall not effect any transaction described
in  this  Section  1.6(b)  unless (a) it first gives, to the extent practicable,
thirty  (30)  days  prior written notice (but in any event at least fifteen (15)
days  prior  written  notice)  of  the  record  date  of  the special meeting of
stockholders  to  approve,  or if there is no such record date, the consummation
of,  such  merger,  consolidation,  exchange  of  shares,  recapitalization,
reorganization  or  other similar event or sale of assets (during which time the
Holder  shall  be  entitled  to  convert  this  Debenture) and (b) the resulting
successor  or  acquiring  entity  (if  not  the  Borrower)  assumes  by  written
instrument  the  obligations  of this Section 1.6(b). The above provisions shall
similarly apply to successive consolidations, mergers, sales, transfers or share
exchanges.

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

               (d)  PURCHASE  RIGHTS.  If,  at  any time when any Debentures are
                    ----------------
issued and outstanding, the Borrower issues any convertible securities or rights
to  purchase  stock,  warrants,  securities  or  other  property  (the "PURCHASE
RIGHTS")  pro  rata to the record holders of any class of Common Stock, then the
Holder  of this Debenture will be entitled to acquire, upon the terms applicable
to  such  Purchase Rights, the aggregate Purchase Rights which such Holder could
have  acquired  if  such  Holder  had  held the number of shares of Common Stock
acquirable  upon  complete  conversion  of this Debenture (without regard to any

                                       10
<PAGE>
limitations on conversion contained herein) immediately before the date on which
a record is taken for the grant, issuance or sale of such Purchase Rights or, if
no such record is taken, the date as of which the record holders of Common Stock
are  to  be  determined  for  the  grant, issue or sale of such Purchase Rights.

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

          1.7  TRADING MARKET LIMITATIONS. Unless permitted or not prohibited by
               --------------------------
the applicable rules and regulations of the principal securities market on which
the  Common Stock is then listed or traded, in no event shall the Borrower issue
upon  conversion  of  or  otherwise  pursuant  to  this  Debenture and the other
Debentures issued pursuant to the Purchase Agreement (including upon exercise of
the  Investment  Options) more than the maximum number of shares of Common Stock
that  the Borrower can issue pursuant to any rule of the principal United States
securities  market  on which the Common Stock is then traded (the "MAXIMUM SHARE
AMOUNT"),  which,  as of the Issue Date shall be 2,475,325 shares (19.99% of the
total  shares  outstanding  on  the Issue Date), subject to equitable adjustment
from  time  to  time  for  stock  splits, stock dividends, combinations, capital
reorganizations  and similar events relating to the Common Stock occurring after
the  date  hereof.  Once  the  Maximum Share Amount has been issued (the date of
which  is  hereinafter  referred  to  as  the "MAXIMUM CONVERSION DATE"), if the
Borrower  fails  to eliminate any prohibitions under applicable law or the rules
or  regulations  of  any  stock  exchange, interdealer quotation system or other
self-regulatory  organization  with jurisdiction over the Borrower or any of its
securities  on  the Borrower's ability to issue shares of Common Stock in excess
of  the  Maximum  Share Amount (a "TRADING MARKET PREPAYMENT EVENT"), in lieu of
any  further  right  to  convert this Debenture, and in full satisfaction of the
Borrower's  obligations  under  this  Debenture,  the  Borrower shall pay to the
Holder,  within  fifteen  (15) business days of the Maximum Conversion Date (the
"TRADING  MARKET PREPAYMENT DATE"), an amount equal to 130% times the sum of (a)
                                                            -----     ---
the  then  outstanding  principal amount of this Debenture immediately following
the  Maximum Conversion Date, plus (b) accrued and unpaid interest on the unpaid
                              ----
principal  amount  of this Debenture to the Trading Market Prepayment Date, plus
                                                                            ----
(c)  Default  Interest,  if any, on the amounts referred to in clause (a) and/or
(b)  above,  plus  (d)  any  optional  amounts  that may be added thereto at the
             ----
Maximum  Conversion  Date by the Holder in accordance with the terms hereof (the
then  outstanding  principal  amount of this Debenture immediately following the
Maximum  Conversion  Date,  plus the amounts referred to in clauses (b), (c) and
                            ----
(d)  above  shall  collectively  be  referred  to  as the "REMAINING CONVERTIBLE
AMOUNT").  With  respect  to each Holder of Debentures, the Maximum Share Amount
shall  refer  to  such  Holder's pro rata share thereof determined in accordance
                                 --- ----
with  Section  4.8 below.  In the event that the sum of (x) the aggregate number

                                       11
<PAGE>
of shares of Common Stock issued upon conversion of this Debenture and the other
Debentures issued pursuant to the Purchase Agreement (including upon exercise of
the  Investment Options) plus (y) the aggregate number of shares of Common Stock
                         ----
that  remain issuable upon conversion of this Debenture and the other Debentures
issued  pursuant  to  the  Purchase  Agreement  (including  upon exercise of the
Investment  Options),  represents  at  least  one  hundred percent (100%) of the
Maximum  Share  Amount  (the "TRIGGERING EVENT"), the Borrower will use its best
efforts  to seek and obtain Stockholder Approval (or obtain such other relief as
will  allow conversions hereunder in excess of the Maximum Share Amount) as soon
as  practicable following the Triggering Event and before the Maximum Conversion
Date.  As used herein, "STOCKHOLDER APPROVAL" means approval by the stockholders
of the Borrower to authorize the issuance of the full number of shares of Common
Stock  which  would  be  issuable  upon  full conversion of the then outstanding
Debentures  (including  upon  exercise  of  the  Investment Options) but for the
Maximum  Share  Amount.

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

                         ARTICLE II.  CERTAIN COVENANTS

          2.1  DISTRIBUTIONS  ON  CAPITAL  STOCK.  So long as the Borrower shall
               ---------------------------------
have  any  obligation  under  this Debenture, the Borrower shall not without the
Holder's  written  consent  (a)  pay, declare or set apart for such payment, any
dividend  or  other distribution (whether in cash, property or other securities)
on shares of capital stock other than dividends on shares of Common Stock solely
in  the  form of additional shares of Common Stock or (b) directly or indirectly
or  through  any subsidiary make any other payment or distribution in respect of

                                       12
<PAGE>
its  capital stock except for distributions pursuant to any shareholders' rights
plan  which is approved by a majority of the Borrower's disinterested directors.

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

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

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

          2.5  ADVANCES  AND  LOANS.  So  long  as  the  Borrower shall have any
               --------------------
obligation  under  this  Debenture, the Borrower shall not, without the Holder's
written  consent,  lend money, give credit or make advances to any person, firm,
joint  venture  or  corporation,  including,  without  limitation,  officers,
directors, employees, subsidiaries and affiliates of the Borrower, except loans,
credits  or  advances (a) in existence or committed on the date hereof and which
the  Borrower  has informed Holder in writing prior to the date hereof, (b) made
in  the  ordinary  course  of  business  or  (c)  not  in  excess  of  $50,000.

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

                         ARTICLE III.  EVENTS OF DEFAULT

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

                                       13
<PAGE>
          3.1  FAILURE  TO  PAY PRINCIPAL OR INTEREST. The Borrower fails to pay
               --------------------------------------
the  principal hereof or interest thereon when due on this Debenture, whether at
maturity,  upon  a Trading Market Prepayment Event pursuant to Section 1.7, upon
acceleration  or  otherwise.

          3.2  CONVERSION  AND THE SHARES. The Borrower fails to issue shares of
               --------------------------
Common Stock or Investment Options to the Holder (or announces or threatens that
it  will  not  honor its obligation to do so) upon exercise by the Holder of the
conversion  rights  of  the Holder (or rights to exercise Investment Options) in
accordance  with  the terms of this Debenture (provided that, if such failure is
solely as a result of the circumstances governed by Section 1.3 and the Borrower
is  using  its best efforts to authorize a sufficient number of shares of Common
Stock  as soon as practicable, such failure shall continue for a period of sixty
(60)  days),  fails  to  transfer  or  cause  its  transfer  agent  to  transfer
(electronically  or  in  certificated form) any certificate for shares of Common
Stock  issued  to  the  Holder  upon conversion of or otherwise pursuant to this
Debenture or upon exercise of or otherwise pursuant to the Investment Options as
and  when  required  by  this Debenture or the Registration Rights Agreement, or
fails  to  remove  any  restrictive  legend  (or  to  withdraw any stop transfer
instructions  in  respect  thereof)  on any certificate for any shares of Common
Stock  issued  to  the  Holder  upon conversion of or otherwise pursuant to this
Debenture or upon exercise of or otherwise pursuant to the Investment Options as
and  when  required  by  this Debenture or the Registration Rights Agreement (or
makes any announcement, statement or threat that it does not intend to honor the
obligations  described  in  this  paragraph) and any such failure shall continue
uncured  (or  any announcement, statement or threat not to honor its obligations
shall  not  be  rescinded in writing) for ten (10) days after the Borrower shall
have  been  notified  thereof  in  writing  by  the  Holder.

          3.3  FAILURE  TO  TIMELY FILE REGISTRATION OR EFFECT REGISTRATION. The
               ------------------------------------------------------------
Borrower  fails  to  file the Registration Statement within forty-five (45) days
following  the  Filing Date (as defined in the Registration Rights Agreement) or
obtain  effectiveness  with  the  Securities  and  Exchange  Commission  of  the
Registration Statement within one hundred twenty (120) days following the Filing
Date  or such Registration Statement lapses in effect (or sales cannot otherwise
be  made  thereunder  effective,  whether by reason of the Borrower's failure to
amend  or  supplement  the  prospectus  included  therein in accordance with the
Registration  Rights  Agreement  or  otherwise)  for  more  than  thirty  (30)
consecutive  days  or  sixty  (60)  days  in  any  twelve month period after the
Registration  Statement  becomes  effective;

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

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

                                       14
<PAGE>
          3.6  RECEIVER  OR  TRUSTEE.  The  Borrower  or  any  subsidiary of the
               ---------------------
Borrower  shall make an assignment for the benefit of creditors, or apply for or
consent  to the appointment of a receiver or trustee for it or for a substantial
part  of its property or business, or such a receiver or trustee shall otherwise
be  appointed;

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

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

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

          3.10 DEFAULT  UNDER OTHER DEBENTURES. An Event of Default has occurred
               -------------------------------
and  is  continuing  under  any  of  the other Debentures issued pursuant to the
Purchase  Agreement.

then,  upon  the  occurrence and during the continuation of any Event of Default
specified  in  Section 3.1, 3.2, 3.3, 3.4, 3.5, 3.7, 3.9, or 3.10, at the option
of  the  Holders  of  a  majority  of  the  aggregate  principal  amount  of the
outstanding  Debentures  issued  pursuant  to the Purchase Agreement exercisable
through  the  delivery  of  written  notice to the Borrower by such Holders (the
"DEFAULT  NOTICE"),  and upon the occurrence of an Event of Default specified in
Section  3.6 or 3.8, the Debentures shall become immediately due and payable and
the  Borrower  shall  pay to the Holder, in full satisfaction of its obligations
hereunder,  an  amount equal to the greater of (i) 130% times the sum of (w) the
                                                        -----     ---
then  outstanding principal amount of this Debenture plus (x) accrued and unpaid
                                                     ----
interest on the unpaid principal amount of this Debenture to the date of payment
(the  "MANDATORY  PREPAYMENT  DATE")  plus  (y) Default Interest, if any, on the
                                      ----
amounts  referred  to in clauses (w) and/or (x) plus (z) any amounts owed to the
                                                ----
Holder pursuant to Sections 1.3 and 1.4(g) hereof or pursuant to Section 2(c) of
the Registration Rights Agreement (the then outstanding principal amount of this
Debenture  to  the  date of payment plus the amounts referred to in clauses (x),
                                    ----
(y)  and  (z)  shall  collectively  be  known  as the "DEFAULT SUM") or (ii) the
"parity  value"  of  the Default Sum to be prepaid, where parity value means (a)
the  highest  number  of  shares  of Common Stock issuable upon conversion of or
otherwise  pursuant  to  such  Default  Sum  (including  upon  exercise  of  the
Investment  Options)  in  accordance  with  Article  I, treating the Trading Day
immediately preceding the Mandatory Prepayment Date as the "Conversion Date" for
purposes  of  determining  the  lowest  applicable  Conversion Price, unless the
Default Event arises as a result of a breach in respect of a specific Conversion
Date  in  which  case  such  Conversion  Date  shall  be  the  Conversion Date),
multiplied  by  (b)  the  highest  Closing Price for the Common Stock during the
--------------
period  beginning  on  the  date of first occurrence of the Event of Default and
ending one day prior to the Mandatory Prepayment Date (the "DEFAULT AMOUNT") and

                                       15
<PAGE>
all  other  amounts  payable hereunder shall immediately become due and payable,
all  without  demand,  presentment  or notice, all of which hereby are expressly
waived,  together  with all costs, including, without limitation, legal fees and
expenses,  of collection, and the Holder shall be entitled to exercise all other
rights and remedies available at law or in equity.  If the Borrower fails to pay
the  Default  Amount  within  five (5) business days of written notice that such
amount  is due and payable, then the Holder shall have the right at any time, so
long  as  the  Borrower  remains  in default (and so long and to the extent that
there  are  sufficient authorized shares), to require the Borrower, upon written
notice,  to  immediately  issue,  in  lieu  of the Default Amount, the number of
shares  of  Common  Stock of the Borrower equal to the Default Amount divided by
the  Conversion  Price  then  in  effect.

                           ARTICLE IV.  MISCELLANEOUS

          4.1  FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part
               ---------------------------------
of  the  Holder in the exercise of any power, right or privilege hereunder shall
operate  as  a  waiver  thereof, nor shall any single or partial exercise of any
such  power, right or privilege preclude other or further exercise thereof or of
any  other  right,  power  or  privileges.  All  rights  and  remedies  existing
hereunder  are  cumulative  to,  and  not  exclusive  of, any rights or remedies
otherwise  available.

          4.2  NOTICES.  Any  notice  herein  required  or permitted to be given
               -------
shall be in writing and may be personally served or delivered by courier or sent
by  United  States  mail  and shall be deemed to have been given upon receipt if
personally served (which shall include telephone line facsimile transmission) or
sent  by  courier  or  three (3) days after being deposited in the United States
mail,  certified, with postage pre-paid and properly addressed, if sent by mail.
For  the  purposes  hereof,  the  address of the Holder shall be as shown on the
records  of the Borrower; and the address of the Borrower shall be 3450 Hillview
Avenue,  Palo  Alto, California 94304, facsimile number: 650-354-8854). Both the
Holder and the Borrower may change the address for service by service of written
notice  to  the  other  as  herein  provided.

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

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

                                       16
<PAGE>
          4.5  COST  OF  COLLECTION.  If  default is made in the payment of this
               --------------------
Debenture,  the  Borrower  shall  pay  the  Holder  hereof  costs of collection,
including  reasonable  attorneys'  fees.

          4.6  GOVERNING  LAW. THIS DEBENTURE SHALL BE ENFORCED, GOVERNED BY AND
               --------------
CONSTRUED  IN  ACCORDANCE  WITH  THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS  MADE  AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD
TO  THE  PRINCIPLES  OF  CONFLICT  OF  LAWS.  THE BORROWER HEREBY SUBMITS TO THE
EXCLUSIVE  JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK,
NEW  YORK  WITH  RESPECT  TO  ANY  DISPUTE  ARISING  UNDER  THIS  DEBENTURE, THE
AGREEMENTS  ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT
FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING.  BOTH PARTIES FURTHER AGREE
THAT  SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED
IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR
PROCEEDING.  NOTHING  HEREIN  SHALL AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS
IN  ANY  OTHER  MANNER  PERMITTED  BY  LAW.  BOTH  PARTIES  AGREE  THAT  A FINAL
NON-APPEALABLE  JUDGMENT  IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND
MAY  BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER
LAWFUL  MANNER.  THE  PARTY  WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING UNDER
THIS  DEBENTURE  SHALL  BE  RESPONSIBLE  FOR  ALL  FEES  AND EXPENSES, INCLUDING
ATTORNEYS'  FEES,  INCURRED  BY  THE  PREVAILING  PARTY  IN CONNECTION WITH SUCH
DISPUTE.

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

          4.8  ALLOCATIONS  OF  MAXIMUM  SHARE  AMOUNT  AND RESERVED AMOUNT. The
               ------------------------------------------------------------
Maximum  Share  Amount and Reserved Amount shall be allocated pro rata among the
Holders of Debentures based on the principal amount of such Debentures issued to
each  Holder.  Each  increase  to  the  Maximum Share Amount and Reserved Amount
shall  be  allocated  pro  rata  among  the  Holders  of Debentures based on the
principal  amount  of  such  Debentures  held  by each Holder at the time of the
increase  in the Maximum Share Amount or Reserved Amount.  In the event a Holder

                                       17
<PAGE>
shall  sell  or  otherwise  transfer  any  of  such  Holder's  Debentures,  each
transferee  shall  be  allocated a pro rata portion of such transferor's Maximum
Share  Amount  and  Reserved Amount.  Any portion of the Maximum Share Amount or
Reserved  Amount  which remains allocated to any person or entity which does not
hold  any  Debentures shall be allocated to the remaining Holders of Debentures,
pro  rata  based  on  the  principal amount of such Debentures then held by such
Holders.

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

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

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

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

                                       18
<PAGE>
          4.13 REMEDIES.  The  Borrower  acknowledges that a breach by it of its
               --------
obligations  hereunder  will  cause irreparable harm to the Holder, by vitiating
the intent and purpose of the transaction contemplated hereby.  Accordingly, the
Borrower  acknowledges  that  the  remedy at law for a breach of its obligations
under  this Debenture will be inadequate and agrees, in the event of a breach or
threatened  breach by the Borrower of the provisions of this Debenture, that the
Holder  shall be entitled, in addition to all other available remedies at law or
in  equity, and in addition to the penalties assessable herein, to an injunction
or  injunctions  restraining,  preventing or curing any breach of this Debenture
and  to  enforce  specifically  the  terms  and  provisions thereof, without the
necessity  of showing economic loss and without any bond or other security being
required.

                         ARTICLE V.  OPTIONAL PREPAYMENT

          5.1. OPTIONAL  PREPAYMENT.  Notwithstanding  anything  to the contrary
               --------------------
contained  in  this  Article  V,  so  long as (i) no Event of Default or Trading
Market  Prepayment  Event  shall  have  occurred and be continuing, and (ii) the
Borrower  has  a sufficient number of authorized shares of Common Stock reserved
for  issuance upon full conversion of the Debentures, then at any time after the
Issue  Date, the Borrower shall have the right, exercisable on not less than ten
(10)  Trading  Days prior written notice to the Holders of the Debentures (which
notice  may  not  be sent to the Holders of the Debentures until the Borrower is
permitted  to prepay the Debentures pursuant to this Section 5.1), to prepay all
of  the  outstanding Debentures in accordance with this Section 5.1.  Any notice
of  prepayment  hereunder  (an  "OPTIONAL PREPAYMENT") shall be delivered to the
Holders  of  the Debentures at their registered addresses appearing on the books
and  records of the Borrower and shall state (1) that the Borrower is exercising
its  right  to prepay all of the Debentures issued on the Issue Date and (2) the
date  of  prepayment  (the "OPTIONAL PREPAYMENT NOTICE").  On the date fixed for
prepayment  (the "OPTIONAL PREPAYMENT DATE"), the Borrower shall make payment of
the  Optional  Prepayment  Amount (as defined below) to or upon the order of the
Holders  as specified by the Holders in writing to the Borrower at least one (1)
business  day  prior to the Optional Prepayment Date.  If the Borrower exercises
its  right  to  prepay  the  Debentures,  the Borrower shall make payment to the
holders  of  an  amount in cash (the "OPTIONAL PREPAYMENT AMOUNT") equal to 122%
(for  Optional  Prepayments  occurring  prior to December 28, 2002) or 130% (for
Optional Prepayments occurring after December 28, 2002) multiplied by the sum of
(w) the then outstanding principal amount of this Debenture plus (x) accrued and
                                                            ----
unpaid interest on the unpaid principal amount of this Debenture to the Optional
Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in
                ----
clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections
                    ----
1.3  and  1.4(g)  hereof  or pursuant to Section 2(c) of the Registration Rights
Agreement  (the  then outstanding principal amount of this Debenture to the date
of  payment  plus  the  amounts  referred  to  in clauses (x), (y) and (z) shall
             ----
collectively  be known as the "OPTIONAL PREPAYMENT SUM"). Notwithstanding notice
of  an Optional Prepayment, the Holders shall at all times prior to the Optional
Prepayment  Date  maintain  the  right  to  convert  all  or  any portion of the
Debentures  in  accordance  with  Article  I  and  any  portion of Debentures so

                                       19
<PAGE>
converted  after  receipt  of  an  Optional  Prepayment  Notice and prior to the
Optional  Prepayment  Date set forth in such notice and payment of the aggregate
Optional  Prepayment  Amount  shall  be  deducted  from  the principal amount of
Debentures  which  are  otherwise subject to prepayment pursuant to such notice.
If  the  Borrower  delivers  an  Optional Prepayment Notice and fails to pay the
Optional  Prepayment  Amount due to the Holders of the Debentures within two (2)
business days following the Optional Prepayment Date, the Borrower shall forever
forfeit  its  right  to  redeem  the  Debentures  pursuant  to this Section 5.1.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       20
<PAGE>
          IN WITNESS WHEREOF, Borrower has caused this Debenture to be signed in
its name by its duly authorized officer this 28th day of December, 2001.

                                       AMNIS SYSTEMS INC.

                                       By:
                                          --------------------------------------
                                          Michael  A.  Liccardo
                                          President and Chief Executive Officer

                                       21
<PAGE>
                                                                       EXHIBIT A

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

          The  undersigned  hereby  irrevocably  elects  to  convert
$        principal amount of the Debenture (defined below) into shares of common
 --------
stock,  par  value  $0.0001 per share ("COMMON STOCK"), of Amnis Systems Inc., a
Delaware  corporation  (the  "BORROWER")  according  to  the  conditions  of the
convertible  debentures  of  the  Borrower  dated  as  of December 28, 2001 (the
"Debentures"),  as of the date written below.  If securities are to be issued in
the  name  of  a person other than the undersigned, the undersigned will pay all
transfer  taxes  payable  with  respect  thereto and is delivering herewith such
certificates.  No  fee  will be charged to the Holder for any conversion, except
for  transfer  taxes,  if  any.  A copy of each Debenture is attached hereto (or
evidence  of  loss,  theft  or  destruction  thereof).

          The  undersigned  hereby irrevocably elects to exercise its Investment
Option to purchase                 shares of Common Stock of the Borrower (up to
                   ---------------
the  number of shares of Common Stock issuable pursuant to the conversion of the
Debenture)  at  the  Applicable  Conversion Price set forth below and shall make
payment  of  $           for such shares by wire transfer of such amount to the
              ----------
Borrower  simultaneously  upon  transfer  of  the  shares of Common Stock by the
Borrower.

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

     Name  of  DTC  Prime  Broker:
                                  ------------------------------------------
     Account  Number:
                     -------------------------------------------------------

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

     Name:
          ------------------------------------------------------------------
     Address:
             ---------------------------------------------------------------

                                       22
<PAGE>
          The  undersigned  represents and warrants that all offers and sales by
the undersigned of the securities issuable to the undersigned upon conversion of
the  Debentures and exercise of the Investment Options shall be made pursuant to
registration of the securities under the Securities Act of 1933, as amended (the
"ACT"),  or  pursuant  to  an  exemption  from  registration  under  the  Act.

          Date of Conversion:
                               -----------------------------------
          Applicable Conversion Price:
                                        --------------------------
          Number of Shares of Common Stock to be Issued Pursuant to:
          (i)  Conversion of the Debentures:
                                            ----------------------
          (ii)  exercise of Investment Options:
                                               -------------------
          Signature:
                    ----------------------------------------------
          Name:
               ---------------------------------------------------
          Address:
                  ------------------------------------------------

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

                                       23
<PAGE>

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