Document:

<PAGE>
                                                                  EXHIBIT - 10.1

                              AMENDMENT NO. TWO TO
                    AMENDED AND RESTATED EMPLOYMENT AGREEMENT
                    -----------------------------------------

This Amendment No. Two to Amended and Restated Employment Agreement
("Amendment"), by and between Mossimo Giannulli ("Executive"), and Mossimo,
Inc., a Delaware Corporation (the "Company"), is effective as of February 18,
2003 (the "Effective Date"), and amends that certain Amended and Restated
Employment Agreement dated as of February 1, 2001, by and between Executive and
the Company, as amended by that certain Amendment No. One to Amended and
Restated Employment Agreement dated as of July 30, 2002 (collectively, the
"Agreement").

WHEREAS, the Company and Executive entered into the Agreement, and now desire to
amend the Agreement as set forth herein;

WHEREAS, the parties desire to amend the Agreement only as expressly provided
herein. All other provisions of the Agreement shall remain unchanged and in full
force and effect; and

WHEREAS, the Compensation Committee of the Board of Directors of the Company
(the "Committee") has approved this Amendment in its entirety.

NOW, THEREFORE, in consideration of the mutual agreements hereinafter set forth,
it is agreed that the Agreement is hereby amended as follows:

     A. AMENDMENT. The Agreement is hereby amended as follows:

                   SECTION 2 OF THE AGREEMENT ENTITLED "TERM OF AGREEMENT" SHALL
BE DELETED IN ITS ENTIRETY, AND SHALL BE REPLACED WITH THE FOLLOWING:

                      "TERM OF AGREEMENT. The term ("Term") of this Agreement
                      shall be for four consecutive twelve month periods
                      commencing on the Effective Date and ending on January 31,
                      2006 (each such twelve month period hereinafter referred
                      to as the "Contract Year"). The term may be extended by
                      mutual agreement of the parties for successive one year
                      periods on such terms as may be agreed."

B. CONSISTENT CHANGES. The Agreement is hereby amended wherever necessary to
reflect the changes described above.

<PAGE>

D. CONTINUING VALIDITY. Except as expressly amended pursuant to this Amendment,
the terms of the Agreement and all other related documents shall remain
unchanged in and in full force and effect.

E. MISCELLANEOUS.

         1. AMENDMENT. This Amendment may be amended only as approved by written
instrument signed on behalf of each party.

         2. GOVERNING LAW. This Amendment and the legal relations thus created
between the parties hereto shall be governed by and construed under and in
accordance with the internal law of the State of California.

         3. HEADINGS. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.

         4. SEVERABILITY. In the event that a court of competent jurisdiction
determines that any portion of this Amendment is in violation of any statute or
public policy, only the portions of this Amendment that violates such statute or
public policy shall be stricken. All portions of this Amendment that do not
violate any statute or public policy shall continue in full force and effect.
Further, any court order striking any portion of this Amendment shall modify the
stricken terms as narrowly as possible to give as much effect as possible to the
intentions of the parties under this Amendment.

         5. COUNTERPARTS. This Amendment may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.

IN WITNESS WHEREOF, the Company has caused this Amendment to be executed by its
duly authorized officer, and the Executive has hereunto signed this Amendment,
as of March 18, 2003.
                                        Company:
                                        MOSSIMO, INC.
                                        By:  /s/ GIA CASTROGIOVANNI
                                             --------------------------
                                        Its: Chief Operating Officer

                                        Executive:
                                        /s/ MOSSIMO GIANNULLI
                                        -------------------------------
                                        Mossimo Giannulli<PAGE>

                                                                  EXHIBIT - 10.2

                       CONSENT TO ASSIGNMENT AND AMENDMENT

THIS CONSENT TO ASSIGNMENT AND AMENDMENT (this "Amendment") is made and entered
into as of 2nd day of February, 2003, by and between MOSSIMO, INC., a Delaware
corporation with offices located at 2016 Broadway, Santa Monica, CA 90404
("Licensor"), TARGET STORES, a division of Target Corporation, a Minnesota
corporation with offices located at 1000 Nicollet Mall, Minneapolis, MN 55403
("ASSIGNOR") and TARGET BRANDS, INC., a Minnesota corporation with offices
located at 1000 Nicollet Mall, Minneapolis, MN 55403, and a wholly owned
subsidiary of Assignor ("ASSIGNEE").

WHEREAS, Assignor and Licensor entered into that certain License Agreement dated
as of March 28, 2000, and amended on February 1, 2002 (as amended, the
"Agreement");

WHEREAS, Assignor desires to assign, transfer and set over to TBI all of its
right, title and interest in and to the Agreement;

WHEREAS, Assignor desires that Licensor consent to the assignment of the
Agreement (the "Assignment"), and Licensor is willing to consent to the
Assignment, on the terms and subject to the conditions set forth herein; and

WHEREAS, the parties desire to amend the Agreement in the manner set forth
herein.

NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:

1. CAPITALIZED TERMS. Capitalized terms used and not defined herein shall have
the same meaning as in the Agreement.

2. ASSIGNMENT. Contingent upon Licensor granting its consent, Assignor is,
pursuant to a separate document between Assignee and Assignor, assigning,
transferring and setting over to Assignee all of its right, title and interest
in and to the Agreement; provided, however, that Assignor shall remain liable
for all of its and Assignee's obligations thereunder.

3. CONSENT TO ASSIGNMENT. Licensor hereby consents to the foregoing Assignment
of the Agreement to Assignee.

4. AMENDMENT. The parties hereby amend the Agreement to provide as follows:

         4.1      Assignee shall have the right to grant sublicenses under the
                  Agreement to its parent corporation or to any parent
                  corporation, division or wholly owned subsidiary of Assignee's
                  parent corporation.

<PAGE>

         4.2      A new Section 5.5 shall be added to the Agreement, such
                  Section to read as follows:

         "Licensee shall reimburse Licensor for half of the travel and travel
         related expenses incurred by Licensor in traveling to Minneapolis to
         perform the Services. All such travel expenses must comply with
         Licensee's corporate employee travel guidelines, which include, among
         other things, coach class airfare and standard hotel accommodations at
         Licensee-preferred hotels for certain levels of employees and a
         specified per diem for food. Licensee may, in its sole discretion,
         decline to reimburse Licensor for the amount of any such expenses which
         exceed Licensee's guidelines and have not otherwise been approved in
         writing in advance by Licensor. Licensor shall submit expenses and such
         supporting documentation as Licensee may reasonably request no more
         often than quarterly. Expenses which comply with the foregoing will be
         paid within forty-five (45) days of receipt of such materials."

5. RENEWAL. Assignee and Assignor hereby confirm that the Agreement shall renew
on the same terms and conditions, except as amended as expressly set forth
herein, for two (2) additional Contract Years (as such term is defined in the
Agreement), specifically, the Extended Term shall commence on February 1, 2004
and continue through January 31, 2006.

6. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the laws of the State of California without regard to its choice
of law principles.

7. COUNTERPARTS. This Amendment may be executed by facsimile and in one or more
counterparts, all of which shall be considered one and the same agreement.

8. FULL FORCE AND EFFECT. Except as expressly amended herein, all of the terms
and conditions contained in the Agreement shall remain in full force and effect.

TARGET CORPORATION                              MOSSIMO, INC.

By: /s/ Patricia Adams                          By: /s/ Mossimo Giannulli
    ---------------------------------               ----------------------------
    Patricia Adams                                  Mossimo G. Giannulli
    Sr. Vice President                              Chief Executive Officer
    ---------------------------------               ----------------------------

TARGET BRANDS, INC.

By: /s/ Erica Street
    ---------------------------------
    Erica C. Street
    President<PAGE>
EXHIBIT 10.1

                              AMENDED AND RESTATED
                       NOTE AND WARRANT PURCHASE AGREEMENT

<PAGE>

<TABLE>

                                                TABLE OF CONTENTS
<CAPTION>

                                                                                                  PAGE
<S>                        <C>                                                                     <C>

ARTICLE I                  AMENDED AND RESTATED NOTES AND WARRANTS..................................1
         Section 1.1       Amended and Restated Notes and Warrants..................................1
         Section 1.2       Issuance of Common Stock.................................................2
         Section 1.4       Warrants.................................................................2
         Section 1.5       Warrant Shares...........................................................2
         Section 1.6       Registration Rights.  ...................................................2
         Section 1.7       Security Agreements......................................................2
         Section 1.8       Closing. ................................................................3

ARTICLE II                 REPRESENTATIONS AND WARRANTIES...........................................3
         Section 2.1       Representations and Warranties of the Company............................3
         Section 2.2       Representations and Warranties of the Purchasers........................13

ARTICLE III                COVENANTS...............................................................15
         Section 3.1       Securities Compliance...................................................15
         Section 3.2       Registration and Listing................................................15
         Section 3.3       Inspection Rights.......................................................15
         Section 3.4       Compliance with Laws....................................................15
         Section 3.5       Keeping of Records and Books of Account.................................15
         Section 3.6       Reporting Requirements..................................................16
         Section 3.7       Amendments..............................................................16
         Section 3.8       Other Agreements........................................................16
         Section 3.9       Distributions...........................................................16
         Section 3.10      Registration Rights.....................................................16
         Section 3.11      Reservation of Shares...................................................16
         Section 3.12      Transfer Agent Instructions.............................................17
         Section 3.13      Disposition of Assets...................................................17
         Section 3.14      Repayment of Other Indebtedness.........................................17
         Section 3.15      Non-public Information..................................................18
         Section 3.16      Annual Report on Form 10-KSB............................................18

ARTICLE IV                 CONDITIONS..............................................................18
         Section 4.1       Conditions Precedent to the Obligation of the Company to
                           Close and to Sell the Common Stock, the Notes and Warrants..............18
         Section 4.2       Conditions Precedent to the Obligation of the Purchasers to
                           Close and to Purchase the Common Stock, the Notes and Warrants..........19

ARTICLE V                  CERTIFICATE LEGEND......................................................21
         Section 5.1       Legend..................................................................21

ARTICLE VI                 TERMINATION.............................................................21
         Section 6.1       Termination by Mutual Consent...........................................21
         Section 6.2       Effect of Termination...................................................22

ARTICLE VII                INDEMNIFICATION.........................................................22
         Section 7.1       General Indemnity.......................................................22
         Section 7.2       Indemnification Procedure...............................................22

ARTICLE VIII               MISCELLANEOUS...........................................................23
         Section 8.1       Fees and Expenses.......................................................23
         Section 8.2       Specific Enforcement; Consent to Jurisdiction...........................23
         Section 8.3       Entire Agreement; Amendment.............................................24
         Section 8.4       Notices.................................................................24
         Section 8.5       Waivers.................................................................25
         Section 8.6       Headings................................................................25
         Section 8.7       Successors and Assigns..................................................25
         Section 8.8       No Third Party Beneficiaries............................................25
         Section 8.9       Governing Law...........................................................25
         Section 8.10      Survival................................................................25
         Section 8.11      Counterparts............................................................25
         Section 8.12      Publicity...............................................................26
         Section 8.13      Severability............................................................26
         Section 8.14      Further Assurances......................................................26

</TABLE>

<PAGE>

                              AMENDED AND RESTATED
                       NOTE AND WARRANT PURCHASE AGREEMENT

         This AMENDED AND RESTATED NOTE AND WARRANT PURCHASE AGREEMENT (this
"AGREEMENT") is dated as of March 1, 2003 (the "EFFECTIVE DATE"), by and between
TELENETICS CORPORATION, a California corporation (the "COMPANY"), and the
entities listed on EXHIBIT A hereto (each a "PURCHASER" and collectively, the
"PURCHASERS").

                                 R E C I T A L S

         A. As of January 23, 2002, March 1, 2002, and April 1, 2002, the
Company entered into Note and Warrant Purchase Agreements, Security Agreements,
Registration Rights Agreements, Senior Secured Convertible Promissory Notes and
Secured Convertible Promissory Notes (collectively, the "ORIGINAL NOTES"), and
Warrants to Purchase Shares of Common Stock (the "ORIGINAL WARRANTS") of the
Company (collectively, the "ORIGINAL DOCUMENTS") with the Purchasers.

         B. The Company and the Purchasers acknowledge and agree that, due to a
worsening United States economy, the Company is experiencing cash flow problems
that negatively impact its ability to meet its obligations to the Purchasers.

         C. The Company and the Purchasers agree that a restructuring as set
forth herein of the debt incurred by the Company pursuant to the Original
Documents will aid in the ability of the Company to meet its obligations to the
Purchasers.

         D. This Agreement is intended to and shall replace the Note and Warrant
Purchase Agreements executed by the parties as part of the Original Documents.

         E. This Agreement has been mutually negotiated between informed,
sophisticated, consensual parties over an extended period of time.

         NOW, THEREFORE, in consideration of the premises contained herein and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the Company and the Purchasers agree as follows:

                                   ARTICLE I
                     AMENDED AND RESTATED NOTES AND WARRANTS
                     ---------------------------------------

         SECTION 1.1 AMENDED AND RESTATED NOTES AND WARRANTS. On or before the
Closing Date (as defined in SECTION 1.7) , each Purchaser shall surrender and
deliver to the Company the Original Note and the Original Warrant that were
issued to such Purchaser. Upon surrender and delivery by the Purchasers of all
of the Original Notes and Original Warrants (and the cancellation thereof), and
the execution of this Agreement by the parties, the Company shall deliver to
each Purchaser an Amended and Restated Secured Promissory Note (collectively,
the "NOTES") in a form substantially similar to that attached hereto as EXHIBIT
B, and an Amended and Restated Warrant to Purchase Shares of Common Stock
(collectively, the "WARRANTS") in a form substantially similar to that attached
hereto as EXHIBIT C.

<PAGE>

         The Company and the Purchasers are executing and delivering this
Agreement in accordance with and in reliance upon the exemption from securities
registration afforded by Section 4(2) of the U.S. Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder (the "SECURITIES
ACT"), including Regulation D ("REGULATION D"), and/or upon such other exemption
from the registration requirements of the Securities Act as may be available
with respect to any or all of the investments to be made hereunder.

         SECTION 1.2 ISSUANCE OF COMMON STOCK. As part of the consideration for
entering into this Agreement, at the Closing, the Company shall issue shares of
its common stock (the "COMMON STOCK") to each of the Purchasers in the amounts
set forth next to each Purchaser's name on EXHIBIT A.

         SECTION 1.3 WAIVER OF PRIOR BREACHES, DEFAULTS, ETC. As part of the
consideration for entering into this Agreement and receiving the Common Stock,
each of the Purchasers, as of the Closing and as of the Effective Date, hereby
waives any and all rights, remedies, causes of action and any other claims that
it may have against the Company relating to any breach, default, penalty,
failure to pay or any other transgression or noncompliance on the part of the
Company under the terms of the Original Documents.

         SECTION 1.4 WARRANTS. At the Closing, the Company shall issue to the
Purchasers Warrants to purchase an aggregate of 7,429,543 shares of the
Company's common stock which shall provide for an exercise price equal to the
Warrant Price as calculated under the terms of the Original Warrants on the
Closing Date. The Warrants shall be exercisable through February 28, 2007 and
shall have a fixed exercise price as set forth in the Warrants.

         SECTION 1.5 WARRANT SHARES. The Company has authorized and has reserved
and covenants to continue to reserve, free of preemptive rights and other
similar contractual rights of stockholders, a minimum of 7,429,543 shares of the
Company's common stock issuable under the terms of the Warrants. Any shares of
common stock issuable upon exercise of the Warrants (and such shares when
issued) are herein referred to as the "WARRANT SHARES." The Common Stock, the
Notes, the Warrants, and the Warrant Shares are sometimes collectively referred
to herein as the "SECURITIES."

         SECTION 1.6 REGISTRATION RIGHTS. Except as set forth in SECTION 3.10
hereof, the Securities shall not carry registration rights. Therefore, the
Registration Rights Agreements that were executed by the parties as part of the
Original Documents shall be terminated and of no force and effect as of the
Effective Date.

         SECTION 1.7 SECURITY AGREEMENTS. At the Closing, the Company shall
execute and deliver to the Purchasers Amended and Restated Security Agreements
which are intended to and shall replace the Security Agreements executed by the
parties as part of the Original Documents. The Security Agreements executed by
the parties as part of the Original Documents shall be terminated and of no
force and effect as of the Closing Date. It is the intention of the Company and
the Purchasers that the security interest granted by the Company to all of the
Purchasers (except the security interest granted to Dolphin Offshore Partners,
L.P. ("DOLPHIN")) shall be pari passu and shall be senior to the security
interest granted to Dolphin.

                                      -2-
<PAGE>

         SECTION 1.8 CLOSING. The closing (the "CLOSING") of the execution and
delivery of this Agreement shall occur upon delivery by facsimile of executed
signature pages of this Agreement and all other documents, instruments and
writings required to be delivered pursuant to this Agreement to Rutan & Tucker,
LLP, 611 Anton Boulevard, Suite 1400, Costa Mesa, California 92626. The Closing
shall take place no later than April 30, 2003, and shall take place at the
offices of Rutan & Tucker, LLP at 5:00 p.m. (California time) upon the
satisfaction of each of the conditions set forth in ARTICLE IV hereof (the
"CLOSING DATE"). Notwithstanding the actual Closing Date, the parties
acknowledge and agree that the terms and conditions of this Agreement
contemplate that the transactions provided for herein shall be deemed effective
as of the Effective Date.

                                   ARTICLE II
                         REPRESENTATIONS AND WARRANTIES
                         ------------------------------

         SECTION 2.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. In order to
induce the Purchasers to enter into this Agreement and to purchase the Notes and
the Warrants, the Company hereby makes the following representations and
warranties to the Purchasers:

                  (a) ORGANIZATION, GOOD STANDING AND POWER. The Company is a
         corporation duly incorporated, validly existing and in good standing
         under the laws of the State of California and has the requisite
         corporate power to own, lease and operate its properties and assets and
         to conduct its business as it is now being conducted. The Company does
         not have any Subsidiaries (as defined in SECTION 2.1(g)) or own
         securities of any kind in any other entity (except as set forth on
         SCHEDULE 2.1(g) hereto. The Company and each such Subsidiary is duly
         qualified as a foreign corporation to do business and is in good
         standing in every jurisdiction in which the nature of the business
         conducted or property owned by it makes such qualification necessary
         except for any jurisdiction(s) (alone or in the aggregate) in which the
         failure to be so qualified will not have a Material Adverse Effect. For
         the purposes of this Agreement, "MATERIAL ADVERSE EFFECT" means any
         adverse effect on the business, operations, properties, prospects or
         financial condition of the Company or its Subsidiaries and which is
         material to such entity or other entities controlling or controlled by
         such entity or which is likely to materially hinder the performance by
         the Company of its obligations hereunder and under the other
         Transaction Documents (as defined in SECTION 2.1(b) hereof).

                  (b) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
         corporate power and authority to enter into and perform this Agreement,
         the Amended and Restated Security Agreements, the Notes, the Warrants
         and the Irrevocable Transfer Agent Instructions (as defined in SECTION
         3.12) (collectively, the "TRANSACTION DOCUMENTS") and to issue and sell
         the Securities (as defined in SECTION 1.5) in accordance with the terms
         hereof and the Notes and the Warrants, as applicable. The execution,
         delivery and performance of the Transaction Documents by the Company
         and the consummation by it of the transactions contemplated thereby
         have been duly and validly authorized by all necessary corporate
         action, and no further consent or authorization of the Company or its
         Board of Directors or stockholders is required. This Agreement has been
         duly executed and delivered by the Company. The other Transaction
         Documents will have been duly executed and delivered by the Company at
         the Closing. Each of the Transaction Documents constitutes, or shall
         constitute when executed and delivered, a valid and binding obligation
         of the Company enforceable against the Company in accordance with its
         terms, except as such enforceability may be limited by applicable
         bankruptcy, insolvency, reorganization, moratorium, liquidation,
         conservatorship, receivership or similar laws relating to, or affecting
         generally the enforcement of, creditor's rights and remedies or by
         other equitable principles of general application.

                                      -3-
<PAGE>

                  (C) CAPITALIZATION. The authorized capital stock of the
         Company and the shares thereof issued and outstanding as of March 1,
         2003 are set forth on SCHEDULE 2.1(c) hereto. All of the outstanding
         shares of the Company's common stock and any other security of the
         Company have been duly and validly authorized. Except as set forth in
         this Agreement or on SCHEDULE 2.1(c) hereto, no shares of common stock
         or any other security of the Company are entitled to preemptive rights
         or registration rights and there are no outstanding options, warrants,
         scrip, rights to subscribe to, call or commitments of any character
         whatsoever relating to, or securities or rights convertible into, any
         shares of capital stock of the Company. Furthermore, except as set
         forth in this Agreement or on SCHEDULE 2.1(c) hereto, there are no
         contracts, commitments, understandings, or arrangements by which the
         Company is or may become bound to issue additional shares of the
         capital stock of the Company or options, securities or rights
         convertible into shares of capital stock of the Company. Except for
         customary transfer restrictions contained in agreements entered into by
         the Company in order to sell restricted securities or as provided on
         SCHEDULE 2.1(C) hereto, the Company is not a party to or bound by any
         agreement or understanding granting registration or anti-dilution
         rights to any person with respect to any of its equity or debt
         securities. Except as set forth on SCHEDULE 2.1(c), the Company is not
         a party to, and it has no knowledge of, any agreement or understanding
         restricting the voting or transfer of any shares of the capital stock
         of the Company. Except as set forth on SCHEDULE 2.1(c) hereto, the
         offer and sale of all capital stock, convertible securities, rights,
         warrants, or options of the Company issued prior to the Closing
         complied with all applicable federal and state securities laws, and no
         holder of such securities has a right of rescission or claim for
         damages with respect thereto which could have a Material Adverse
         Effect. The Company has furnished or made available to the Purchasers
         true and correct copies of the Company's Articles of Incorporation as
         in effect on the date hereof (the "Articles"), and the Company's Bylaws
         as in effect on the date hereof (the "BYLAWS").

                  (d) ISSUANCE OF SECURITIES. The Common Stock, the Notes and
         the Warrants to be issued at the Closing have been duly authorized by
         all necessary corporate action and, when issued upon cancellation of
         the Original Notes and the Original Warrants in accordance with the
         terms hereof, shall be validly issued and outstanding, free and clear
         of all liens, encumbrances and rights of refusal of any kind (other
         than federal and state securities law restrictions). When the Warrant
         Shares are issued and paid for in accordance with the terms of this
         Agreement and as set forth in the Warrants, such shares will be duly
         authorized by all necessary corporate action and validly issued and
         outstanding, fully paid and nonassessable, free and clear of all liens,
         encumbrances and rights of refusal of any kind (other than federal and
         state securities law restrictions) and the holders shall be entitled to
         all rights accorded to a holder of common stock.

                                      -4-
<PAGE>

                  (e) NO CONFLICTS. Except as disclosed on SCHEDULE 2.1(E), the
         execution, delivery and performance of the Transaction Documents by the
         Company and the consummation by the Company of the transactions
         contemplated hereby and thereby do not and will not (i) violate any
         provision of the Company's Articles or Bylaws or any Subsidiary's
         comparable charter documents, (ii) conflict with, or constitute a
         default (or an event which with notice or lapse of time or both would
         become a default) under, or give to others any rights of termination,
         amendment, acceleration or cancellation of, any agreement, mortgage,
         deed of trust, indenture, note, bond, license, lease agreement,
         instrument or obligation to which the Company or any of its
         Subsidiaries is a party or by which the Company or any of its
         Subsidiaries' respective properties or assets are bound (other than as
         expressly contemplated by the Transaction Documents), (iii) create or
         impose a lien, mortgage, security interest, charge or encumbrance of
         any nature on any property or asset of the Company or any of its
         Subsidiaries under any agreement or any commitment to which the Company
         or any of its Subsidiaries is a party or by which the Company or any of
         its Subsidiaries is bound or by which any of their respective
         properties or assets are bound, or (iv) result in a violation of any
         federal, state, local or foreign statute, rule, regulation, order,
         judgment or decree (including federal and state securities laws and
         regulations) applicable to the Company or any of its Subsidiaries or by
         which any property or asset of the Company or any of its Subsidiaries
         are bound or affected, except, in all cases other than violations
         pursuant to clauses (i) or (iv) above, for such conflicts, defaults,
         terminations, amendments, acceleration, cancellations and violations as
         would not, individually or in the aggregate, have a Material Adverse
         Effect. The business of the Company and its Subsidiaries is not being
         conducted in violation of any laws, ordinances or regulations of any
         governmental entity, except for possible violations which singularly or
         in the aggregate do not and will not have a Material Adverse Effect.
         Neither the Company nor any of its Subsidiaries is required under
         federal, state, foreign or local law, rule or regulation to obtain any
         consent, authorization or order of, or make any filing or registration
         with, any court or governmental agency in order for it to execute,
         deliver or perform any of its obligations under the Transaction
         Documents or issue and sell the Notes, the Common Stock, the Warrants
         and the Warrant Shares in accordance with the terms hereof or thereof
         (other than any filings which may be required to be made by the Company
         with the Commission, the OTCBB prior to or subsequent to the Closing,
         or state securities administrators subsequent to the Closing, or any
         registration statement which may be filed pursuant hereto).

                  (f) COMMISSION DOCUMENTS, FINANCIAL STATEMENTS. The common
         stock of the Company is registered pursuant to Section 12(g) of the
         Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and,
         except as disclosed in this SECTION 2.1(f) and on SCHEDULE 2.1(f)
         hereto, since January 1, 2002, the Company has timely filed all
         reports, schedules, forms, statements and other documents required to
         be filed by it with the Commission pursuant to the reporting
         requirements of the Exchange Act, including material filed pursuant to
         Section 13(a) or 15(d) of the Exchange Act (all of the foregoing
         including filings incorporated by reference therein being referred to
         herein as the "COMMISSION DOCUMENTS"). The Company has delivered or
         made available to the Purchasers true and complete copies of the
         Commission Documents filed with the Commission since January 1, 2002.
         The Company has not provided to the Purchasers any material non-public
         information or other information which, according to applicable law,

                                      -5-
<PAGE>

         rule or regulation, should have been disclosed publicly by the Company
         but which has not been so disclosed, other than with respect to the
         transactions contemplated by this Agreement. At the time of its filing,
         the Form 10-QSB for the fiscal quarter ended September 30, 2002 (the
         "FORM 10-QSB") complied in all material respects with the requirements
         of the Exchange Act and the rules and regulations of the Commission
         promulgated thereunder and other federal, state and local laws, rules
         and regulations applicable to such documents, and the Form 10-QSB did
         not contain any untrue statement of a material fact or omit to state a
         material fact required to be stated therein or necessary in order to
         make the statements therein, in light of the circumstances under which
         they were made, not misleading. As of their respective dates, the
         financial statements of the Company included in the Commission
         Documents complied as to form in all material respects with applicable
         accounting requirements and the published rules and regulations of the
         Commission or other applicable rules and regulations with respect
         thereto. Such financial statements have been prepared in accordance
         with generally accepted accounting principles ("GAAP") applied on a
         consistent basis during the periods involved (except (i) as may be
         otherwise indicated in such financial statements or the notes thereto
         or (ii) in the case of unaudited interim statements, to the extent they
         may not include footnotes or may be condensed or summary statements),
         and fairly present in all material respects the financial position of
         the Company and its Subsidiaries as of the dates thereof and the
         results of operations and cash flows for the periods then ended
         (subject, in the case of unaudited statements, to normal year-end audit
         adjustments). Notwithstanding anything contained in this Section
         2.1(f), the Company hereby imparts to the Purchasers that the Company's
         independent auditors withdrew their previously issued review reports
         with respect to the condensed consolidated financial statements
         included in the Company's Form 10-QSBs for March 31, 2002 and June 30,
         2002.

                  (g) SUBSIDIARIES. SCHEDULE 2.1(g) hereto sets forth each
         Subsidiary of the Company, showing the jurisdiction of its
         incorporation or organization and showing the percentage of each
         person's ownership of the outstanding stock or other interests of such
         Subsidiary. For the purposes of this Agreement, "SUBSIDIARY" shall mean
         any corporation or other entity of which at least a majority of the
         securities or other ownership interest having ordinary voting power
         (absolutely or contingently) for the election of directors or other
         persons performing similar functions are at the time owned directly or
         indirectly by the Company and/or any of its other Subsidiaries. All of
         the outstanding shares of capital stock of each Subsidiary have been
         duly authorized and validly issued, and are fully paid and
         nonassessable. There are no outstanding preemptive, conversion or other
         rights, options, warrants or agreements granted or issued by or binding
         upon any Subsidiary for the purchase or acquisition of any shares of
         capital stock of any Subsidiary or any other securities convertible
         into, exchangeable for or evidencing the rights to subscribe for any
         shares of such capital stock. Neither the Company nor any Subsidiary is
         subject to any obligation (contingent or otherwise) to repurchase or
         otherwise acquire or retire any shares of the capital stock of any
         Subsidiary or any convertible securities, rights, warrants or options
         of the type described in the preceding sentence except as set forth on
         SCHEDULE 2.1(g) hereto. Neither the Company nor any Subsidiary is party
         to, nor has any knowledge of, any agreement restricting the voting or
         transfer of any shares of the capital stock of any Subsidiary.

                                      -6-
<PAGE>

                  (h) NO MATERIAL ADVERSE CHANGE. Since September 30, 2002, the
         Company has not experienced or suffered any Material Adverse Effect,
         except as disclosed on SCHEDULE 2.1(h) hereto and except that the
         Company is unable to file two years of audited financial statements
         with its Form 10-KSB for the period ending December 31, 2002.

                  (i) NO UNDISCLOSED LIABILITIES. Except as disclosed in the
         Commission Documents, neither the Company nor any of its Subsidiaries
         has any liabilities, obligations, claims or losses (whether liquidated
         or unliquidated, secured or unsecured, absolute, accrued, contingent or
         otherwise) other than those incurred in the ordinary course of the
         Company's or its Subsidiaries respective businesses since September 30,
         2002 and which, individually or in the aggregate, do not or would not
         have a Material Adverse Effect on the Company or its Subsidiaries.

                  (j) NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. Since September
         30, 2002, except as disclosed on SCHEDULE 2.1(j) hereto, no event or
         circumstance has occurred or exists with respect to the Company or its
         Subsidiaries or their respective businesses, properties, prospects,
         operations or financial condition, which, under applicable law, rule or
         regulation, requires public disclosure or announcement by the Company
         but which has not been so publicly announced or disclosed.

                  (k) INDEBTEDNESS. SCHEDULE 2.1(k) hereto sets forth as of the
         date hereof all outstanding secured and unsecured Indebtedness of the
         Company or any Subsidiary, or for which the Company or any Subsidiary
         has commitments. For the purposes of this Agreement, "INDEBTEDNESS"
         shall mean (a) any liabilities for borrowed money or amounts owed in
         excess of $25,000 (other than trade accounts payable incurred in the
         ordinary course of business), (b) all guaranties, endorsements and
         other contingent obligations in respect of Indebtedness of others,
         whether or not the same are or should be reflected in the Company's
         balance sheet (or the notes thereto), except guaranties by endorsement
         of negotiable instruments for deposit or collection or similar
         transactions in the ordinary course of business; and (c) the present
         value of any lease payments in excess of $25,000 due under leases
         required to be capitalized in accordance with GAAP. Except as disclosed
         on SCHEDULE 2.1(K), neither the Company nor any Subsidiary is in
         default with respect to any Indebtedness.

                  (l) TITLE TO ASSETS. Each of the Company and the Subsidiaries
         has good and marketable title to all of its real and personal property,
         free and clear of any mortgages, pledges, charges, liens, security
         interests or other encumbrances of any nature whatsoever, except for
         those indicated on SCHEDULE 2.1(l) hereto or such that, individually or
         in the aggregate, would not have a Material Adverse Effect as of the
         Effective Date. All said leases of the Company and each of its
         Subsidiaries are valid and subsisting and in full force and effect.

                  (m) ACTIONS PENDING. There is no action, suit, claim,
         investigation, arbitration, alternative dispute resolution proceeding
         or other proceeding pending or, to the knowledge of the Company,
         threatened against the Company or any Subsidiary which questions the
         validity of this Agreement or any of the other Transaction Documents or
         any of the transactions contemplated hereby or thereby or any action
         taken or to be taken pursuant hereto or thereto. Except as set forth on
         SCHEDULE 2.1(m) hereto, there is no action, suit, claim, investigation,
         arbitration, alternative dispute resolution proceeding or other
         proceeding pending or, to the knowledge of the Company, threatened,
         against or involving the Company, any Subsidiary or any of their
         respective properties or assets, which individually or in the
         aggregate, would have a Material Adverse Effect as of the Closing Date.
         There are no outstanding orders, judgments, injunctions, awards or
         decrees of any court, arbitrator or governmental or regulatory body
         against the Company or any Subsidiary or any officers or directors of
         the Company or Subsidiary in their capacities as such, which
         individually or in the aggregate, would have a Material Adverse Effect
         as of the Effective Date.

                                      -7-
<PAGE>

                  (n) COMPLIANCE WITH LAW. The business of the Company and the
         Subsidiaries has been and is presently being conducted in accordance
         with all applicable federal, state and local governmental laws, rules,
         regulations and ordinances, except as set forth on SCHEDULE 2.1(n)
         hereto or such that, individually or in the aggregate, the
         noncompliance therewith would not have a Material Adverse Effect. The
         Company and each of its Subsidiaries have all franchises, permits,
         licenses, consents and other governmental or regulatory authorizations
         and approvals necessary for the conduct of its business as now being
         conducted by it unless the failure to possess such franchises, permits,
         licenses, consents and other governmental or regulatory authorizations
         and approvals, individually or in the aggregate, could not reasonably
         be expected to have a Material Adverse Effect.

                  (o) TAXES. Except as set forth on SCHEDULE 2.1(o) hereto, the
         Company and each of the Subsidiaries has accurately prepared and filed
         all federal, state and other tax returns required by law to be filed by
         it, has paid or made provisions for the payment of all taxes shown to
         be due and all additional assessments, and adequate provisions have
         been and are reflected in the financial statements of the Company and
         the Subsidiaries for all current taxes and other charges to which the
         Company or any Subsidiary is subject and which are not currently due
         and payable. Except as disclosed on SCHEDULE 2.1(o) hereto, none of the
         federal income tax returns of the Company or any Subsidiary have been
         audited by the Internal Revenue Service. The Company has no knowledge
         of any additional assessments, adjustments or contingent tax liability
         (whether federal or state) of any nature whatsoever, whether pending or
         threatened against the Company or any Subsidiary for any period, nor of
         any basis for any such assessment, adjustment or contingency.

                  (p) CERTAIN FEES. Except as set forth on SCHEDULE 2.1(p)
         hereto, the Company has not employed any broker or finder or incurred
         any liability for any brokerage or investment banking fees,
         commissions, finders' structuring fees, financial advisory fees or
         other similar fees in connection with the Transaction Documents.

                  (q) DISCLOSURE. To the best of the Company's knowledge,
         neither this Agreement or the Schedules hereto nor any other documents,
         certificates or instruments furnished to the Purchasers by or on behalf
         of the Company or any Subsidiary in connection with the transactions
         contemplated by this Agreement contain any untrue statement of a
         material fact or omit to state a material fact necessary in order to
         make the statements made herein or therein, in the light of the
         circumstances under which they were made herein or therein, not
         misleading.

                                      -8-
<PAGE>

                  (r) OPERATION OF BUSINESS. Except as disclosed on SCHEDULE
         2.1(r), the Company and each of the Subsidiaries owns or possesses all
         patents, trademarks, domain names (whether or not registered) and any
         patentable improvements or copyrightable derivative works thereof,
         websites and intellectual property rights relating thereto, service
         marks, trade names, copyrights, licenses and authorizations, including,
         but not limited to, those listed on SCHEDULE 2.1(r) hereto, and all
         rights with respect to the foregoing, which are necessary for the
         conduct of its business as now conducted without any conflict with the
         rights of others.

                  (s) ENVIRONMENTAL COMPLIANCE. Except as disclosed on SCHEDULE
         2.1(s) hereto, the Company and each of its Subsidiaries have obtained
         all material approvals, authorization, certificates, consents,
         licenses, orders and permits or other similar authorizations of all
         governmental authorities, or from any other person, that are required
         under any Environmental Laws. SCHEDULE 2.1(s) hereto sets forth all
         material permits, licenses and other authorizations issued under any
         Environmental Laws to the Company or its Subsidiaries. "ENVIRONMENTAL
         LAWS" shall mean all applicable laws relating to the protection of the
         environment including, without limitation, all requirements pertaining
         to reporting, licensing, permitting, controlling, investigating or
         remediating emissions, discharges, releases or threatened releases of
         hazardous substances, chemical substances, pollutants, contaminants or
         toxic substances, materials or wastes, whether solid, liquid or gaseous
         in nature, into the air, surface water, groundwater or land, or
         relating to the manufacture, processing, distribution, use, treatment,
         storage, disposal, transport or handling of hazardous substances,
         chemical substances, pollutants, contaminants or toxic substances,
         material or wastes, whether solid, liquid or gaseous in nature. Except
         as set forth on SCHEDULE 2.1(s) hereto, the Company has all necessary
         governmental approvals required under all Environmental Laws and used
         in its business or in the business of any of its Subsidiaries. The
         Company and each of its Subsidiaries are also in compliance with all
         other limitations, restrictions, conditions, standards, requirements,
         schedules and timetables required or imposed under all Environmental
         Laws. Except for such instances as would not individually or in the
         aggregate have a Material Adverse Effect, there are no past or present
         events, conditions, circumstances, incidents, actions or omissions
         relating to or in any way affecting the Company or its Subsidiaries
         that violate or may violate any Environmental Law after the Closing or
         that may give rise to any environmental liability, or otherwise form
         the basis of any claim, action, demand, suit, proceeding, hearing,
         study or investigation (i) under any Environmental Law, or (ii) based
         on or related to the manufacture, processing, distribution, use,
         treatment, storage (including, without limitation, underground storage
         tanks), disposal, transport or handling, or the emission, discharge,
         release or threatened release of any hazardous substance.
         "ENVIRONMENTAL LIABILITIES" means all liabilities of a person (whether
         such liabilities are owed by such person to governmental authorities,
         third parties or otherwise) whether currently in existence or arising
         hereafter which arise under or relate to any Environmental Law.

                                      -9-
<PAGE>

                  (t) BOOKS AND RECORDS; INTERNAL ACCOUNTING CONTROLS. The
         records and documents of the Company and its Subsidiaries accurately
         reflect in all material respects the information relating to the
         business of the Company and the Subsidiaries, the location and
         collection of their assets, and the nature of all transactions giving
         rise to the obligations or accounts receivable of the Company or any
         Subsidiary. The Company and each of its Subsidiaries maintain a system
         of internal accounting controls sufficient, in the judgment of the
         Company's board of directors, to provide reasonable assurance that (i)
         transactions are executed in accordance with management's general or
         specific authorizations, (ii) transactions are recorded as necessary to
         permit preparation of financial statements in conformity with generally
         accepted accounting principles and to maintain asset accountability,
         (iii) access to assets is permitted only in accordance with
         management's general or specific authorization and (iv) the recorded
         accountability for assets is compared with the existing assets at
         reasonable intervals and appropriate actions are taken with respect to
         any differences.

                  (u) MATERIAL AGREEMENTS. Except for the Transaction Documents
         and as set forth in the Commission Documents and on SCHEDULE 2.1(u)
         hereto, neither the Company nor any Subsidiary is a party to any
         written or oral contract, instrument, agreement, commitment,
         obligation, plan or arrangement, a copy of which would be required to
         be filed with the Commission (collectively, "MATERIAL AGREEMENTS") if
         the Company or any Subsidiary were registering securities under the
         Securities Act. Except as disclosed on SCHEDULED 2.1(u), to the best of
         the Company's knowledge neither the Company nor any subsidiary is in
         default under any Material Agreement now in effect, the result of which
         could cause a Material Adverse Effect. Except as disclosed on SCHEDULE
         2.1(u), no written or oral contract, instrument, agreement, commitment,
         obligation, plan or arrangement of the Company or of any Subsidiary
         limits or shall limit the payment of interest on the Notes, or
         dividends on its common stock.

                  (v) TRANSACTIONS WITH AFFILIATES. Except as set forth on
         SCHEDULE 2.1(v) hereto, there are no loans, leases, agreements,
         contracts, royalty agreements, management contracts or arrangements or
         other continuing transactions exceeding $50,000 individually or in the
         aggregate between (a) the Company, any Subsidiary or any of their
         respective customers or suppliers on the one hand, and (b) on the other
         hand, any officer, employee, consultant or director of the Company, or
         any of its Subsidiaries, or any person owning any capital stock of the
         Company or any Subsidiary or any member of the immediate family of such
         officer, employee, consultant, director or stockholder or any
         corporation or other entity controlled by such officer, employee,
         consultant, director or stockholder, or a member of the immediate
         family of such officer, employee, consultant, director or stockholder.

                  (w) SECURITIES ACT OF 1933. The Company has complied and will
         comply with all applicable federal and state securities laws in
         connection with the offer, issuance and sale of the Securities. Neither
         the Company nor anyone acting on its behalf, directly or indirectly,
         has sold or will sell, offer to sell or solicit offers to buy any of
         the Securities, or similar securities to, or solicit offers with
         respect thereto from, or enter into any preliminary conversations or
         negotiations relating thereto with, any person, or has taken or will
         take any action so as to bring the issuance and sale of any of the
         Securities under the registration provisions of the Securities Act and
         applicable state securities laws. Neither the Company nor any of its
         affiliates, nor any person acting on its or their behalf, has engaged
         in any form of general solicitation or general advertising (within the
         meaning of Regulation D under the Securities Act) in connection with
         the offer or sale of any of the Securities.

                                      -10-
<PAGE>

                  (x) GOVERNMENTAL APPROVALS. Except as set forth on SCHEDULE
         2.1(x) hereto, and except for the filing of any notice prior or
         subsequent to the Closing that may be required under applicable state
         and/or federal securities laws (which if required, shall be filed on a
         timely basis), no authorization, consent, approval, license, exemption
         of, filing or registration with any court or governmental department,
         commission, board, bureau, agency or instrumentality, domestic or
         foreign, is or will be necessary for, or in connection with, the
         execution or delivery of the Notes and the Warrants, or for the
         performance by the Company of its obligations under the Transaction
         Documents.

                  (y) EMPLOYEES. Neither the Company nor any Subsidiary has any
         collective bargaining arrangements or agreements covering any of its
         employees. Except as set forth on SCHEDULE 2.1(y) hereto, neither the
         Company nor any Subsidiary has any employment contract, agreement
         regarding proprietary information, non-competition agreement,
         non-solicitation agreement, confidentiality agreement, or any other
         similar contract or restrictive covenant, relating to the right of any
         officer, employee or consultant to be employed or engaged by the
         Company or such Subsidiary. Since September 30, 2002, no officer,
         consultant or key employee of the Company or any Subsidiary whose
         termination, either individually or in the aggregate, could have a
         Material Adverse Effect, has terminated or, to the knowledge of the
         Company, has any present intention of terminating his or her employment
         or engagement with the Company or any Subsidiary.

                  (z) ABSENCE OF CERTAIN DEVELOPMENTS. Except as set forth on
         SCHEDULE 2.1(Z) hereto, since September 30, 2002, neither the Company
         nor any Subsidiary has:

                           (i) issued any stock, bonds or other corporate
                  securities or any rights, options or warrants with respect
                  thereto;

                           (ii) borrowed any amount or incurred or become
                  subject to any liabilities (absolute or contingent) except
                  current liabilities incurred in the ordinary course of
                  business which are comparable in nature and amount to the
                  current liabilities incurred in the ordinary course of
                  business during the comparable portion of its prior fiscal
                  year, as adjusted to reflect the current nature and volume of
                  the Company's or such Subsidiary's business;

                           (iii) discharged or satisfied any lien or encumbrance
                  or paid any obligation or liability (absolute or contingent),
                  other than current liabilities paid in the ordinary course of
                  business;

                           (iv) declared or made any payment or distribution of
                  cash or other property to stockholders with respect to its
                  stock, or purchased or redeemed, or made any agreements so to
                  purchase or redeem, any shares of its capital stock;

                                      -11-
<PAGE>

                           (v) sold, assigned or transferred any other tangible
                  assets, or canceled any debts or claims, except in the
                  ordinary course of business;

                           (vi) sold, assigned or transferred any patent rights,
                  trademarks, trade names, copyrights, trade secrets or other
                  intangible assets or intellectual property rights, or
                  disclosed any proprietary confidential information to any
                  person except in the ordinary course of business or to the
                  Purchasers or its representatives;

                           (vii) suffered any substantial losses or waived any
                  rights of material value, whether or not in the ordinary
                  course of business, or suffered the loss of any material
                  amount of prospective business;

                           (viii) made any changes in employee compensation
                  except in the ordinary course of business and consistent with
                  past practices;

                           (ix) made capital expenditures or commitments
                  therefor that aggregate in excess of $25,000;

                           (x) entered into any other transaction other than in
                  the ordinary course of business, or entered into any other
                  material transaction, whether or not in the ordinary course of
                  business;

                           (xi) made charitable contributions or pledges in
                  excess of $25,000;

                           (xii) suffered any material damage, destruction or
                  casualty loss, whether or not covered by insurance; (xiii)
                  experienced any material problems with labor or management in
                  connection with the terms and conditions of their employment;

                           (xiv) effected any two or more events of the
                  foregoing kind which in the aggregate would cause a Material
                  Adverse Effect; or

                           (xv) entered into an agreement, written or otherwise
                  (other than the Transaction Documents), to take any of the
                  foregoing actions.

                  (aa) USE OF PROCEEDS. The proceeds from the sale of the Notes
         and the Warrant Shares will be used by the Company for working capital
         purposes and shall not be used to prepay any outstanding Indebtedness
         or make any loans to any officer, director, affiliate or insider of the
         Company.

                  (bb) PUBLIC UTILITY HOLDING COMPANY ACT AND INVESTMENT COMPANY
         ACT STATUS. The Company is not a "HOLDING COMPANY" or a "PUBLIC UTILITY
         COMPANY" as such terms are defined in the Public Utility Holding
         Company Act of 1935, as amended. The Company is not, and as a result of
         and immediately upon Closing will not be, an "INVESTMENT COMPANY" or a
         company "CONTROLLED" by an "INVESTMENT COMPANY," within the meaning of
         the Investment Company Act of 1940, as amended.

                                      -12-
<PAGE>

                  (cc) ERISA. No liability to the Pension Benefit Guaranty
         Corporation has been incurred with respect to any Plan by the Company
         or any of its Subsidiaries which is or would cause a Material Adverse
         Effect. The execution and delivery of this Agreement and the issue and
         sale of the Common Stock and the Warrant Shares will not involve any
         transaction which is subject to the prohibitions of Section 406 of
         ERISA or in connection with which a tax could be imposed pursuant to
         Section 4975 of the Internal Revenue Code of 1986, as amended, provided
         that, if any Purchaser, or any person or entity that owns a beneficial
         interest in any Purchaser, is an "EMPLOYEE PENSION BENEFIT PLAN"
         (within the meaning of Section 3(2) of ERISA) with respect to which the
         Company is a "PARTY IN INTEREST" (within the meaning of Section 3(14)
         of ERISA), the requirements of Sections 407(d)(5) and 408(e) of ERISA,
         if applicable, are met. As used in this SECTION 2.1(vv), the term
         "PLAN" shall mean an "EMPLOYEE PENSION BENEFIT PLAN" (as defined in
         Section 3 of ERISA) which is or has been established or maintained, or
         to which contributions are or have been made, by the Company or any
         Subsidiary or by any trade or business, whether or not incorporated,
         which, together with the Company or any Subsidiary, is under common
         control, as described in Section 414(b) or (c) of the Code.

         SECTION 2.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each of
the Purchasers hereby makes the following representations and warranties to the
Company with respect solely to itself and not with respect to any other
Purchaser:

                  (a) ORGANIZATION AND STANDING OF THE PURCHASERS. If the
         Purchaser is an entity, such Purchaser is a corporation, limited
         liability company or partnership duly incorporated or organized,
         validly existing and in good standing under the laws of the
         jurisdiction of its incorporation or organization.

                  (b) AUTHORIZATION AND POWER. Each Purchaser has the requisite
         power and authority to enter into and perform the Transaction Documents
         and to purchase the Securities being sold to it hereunder. The
         execution, delivery and performance of the Transaction Documents by
         each Purchaser and the consummation by it of the transactions
         contemplated hereby have been duly authorized by all necessary
         corporate or partnership action, and no further consent or
         authorization of such Purchaser or its Board of Directors,
         stockholders, members or partners, as the case may be, is required.
         This Agreement has been duly authorized, executed and delivered by each
         Purchaser. The other Transaction Documents constitute, or shall
         constitute when executed and delivered, valid and binding obligations
         of each Purchaser enforceable against such Purchaser in accordance with
         their terms, except as such enforceability may be limited by applicable
         bankruptcy, insolvency, reorganization, moratorium, liquidation,
         conservatorship, receivership or similar laws relating to, or affecting
         generally the enforcement of, creditor's rights and remedies or by
         other equitable principles of general application.

                  (c) ACQUISITION FOR INVESTMENT. Each Purchaser is acquiring
         the Securities solely for its own account for the purpose of investment
         and not with a view to or for sale in connection with a distribution.
         Each Purchaser does not have a present intention to sell any of the
         Securities, nor a present arrangement (whether or not legally binding)
         or intention to effect any distribution of any of the Securities to or
         through any person or entity; provided, however, that by making the

                                      -13-
<PAGE>

         representations herein and subject to SECTION 2.2(e) below, each
         Purchaser does not agree to hold any of the Securities for any minimum
         or other specific term and reserves the right to dispose of any of the
         Securities at any time in accordance with federal and state securities
         laws applicable to such disposition. Each Purchaser acknowledges that
         it (i) has such knowledge and experience in financial and business
         matters such that Purchaser is capable of evaluating the merits and
         risks of Purchaser's investment in the Company and is (ii) able to bear
         the financial risks associated with an investment in the Securities and
         (iii) that it has been given full access to such records of the Company
         and the Subsidiaries and to the officers of the Company and the
         Subsidiaries as it has deemed necessary or appropriate to conduct its
         due diligence investigation.

                  (d) RULE 144. Each Purchaser understands that the Securities
         must be held indefinitely unless such Securities are registered under
         the Securities Act or an exemption from registration is available. Each
         Purchaser acknowledges that such person is familiar with Rule 144 of
         the rules and regulations of the Commission, as amended, promulgated
         pursuant to the Securities Act ("RULE 144"), and that such Purchaser
         has been advised that Rule 144 permits resales only under certain
         circumstances. Each Purchaser understands that to the extent that Rule
         144 is not available, such Purchaser will be unable to sell any
         Securities without either registration under the Securities Act or the
         existence of another exemption from such registration requirement.

                  (e) GENERAL. Each Purchaser understands that the Securities
         are being offered and sold in reliance on a transactional exemption
         from the registration requirements of federal and state securities laws
         and the Company is relying upon the truth and accuracy of the
         representations, warranties, agreements, acknowledgments and
         understandings of such Purchaser set forth herein in order to determine
         the applicability of such exemptions and the suitability of such
         Purchaser to acquire the Securities. Each Purchaser understands that no
         United States federal or state agency or any government or governmental
         agency has passed upon or made any recommendation or endorsement of the
         Securities.

                  (f) OPPORTUNITIES FOR ADDITIONAL INFORMATION. Each Purchaser
         acknowledges that such Purchaser has had the opportunity to ask
         questions of and receive answers from, or obtain additional information
         from, the executive officers of the Company concerning the financial
         and other affairs of the Company, and to the extent deemed necessary in
         light of such Purchaser's personal knowledge of the Company's affairs,
         such Purchaser has asked such questions and received answers to the
         full satisfaction of such Purchaser, and such Purchaser desires to
         invest in the Company.

                  (g) NO GENERAL SOLICITATION. Each Purchaser acknowledges that
         the Securities were not offered to such Purchaser by means of any form
         of general or public solicitation or general advertising, or publicly
         disseminated advertisements or sales literature, including (i) any
         advertisement, article, notice or other communication published in any
         newspaper, magazine, or similar media, or broadcast over television or
         radio, or (ii) any seminar or meeting to which such Purchaser was
         invited by any of the foregoing means of communications.

                                      -14-
<PAGE>

                  (h) ACCREDITED INVESTOR. Each Purchaser is an accredited
         investor (as defined in Rule 501 of Regulation D), and such Purchaser
         has such experience in business and financial matters that it is
         capable of evaluating the merits and risks of an investment in the
         Securities. Each Purchaser acknowledges that an investment in the
         Securities is speculative and involves a high degree of risk.

                  (i) LIMITATIONS ON SHORT SALES. So long as no Event of Default
         (as defined in the Notes) has occurred and is continuing, neither the
         Purchasers nor their affiliates will undertake any special selling
         activities with respect to the Common Stock or the Warrant Shares,
         which includes, without limitation, any short sale.

         The Company and the Purchasers acknowledge and agree that the Schedules
to be prepared by the Company and subsequently attached hereto may be delivered
by the Company to the Purchasers post-Closing; provided, however, that such
Schedules shall be delivered no later than June 30, 2003.

                                  ARTICLE III
                                    COVENANTS
                                    ---------

         The Company covenants with each Purchaser as follows, which covenants
are for the benefit of each Purchaser and their respective permitted assignees,
as follows:

         SECTION 3.1 SECURITIES COMPLIANCE. The Company shall notify the
Commission in accordance with their rules and regulations, of the transactions
contemplated by any of the Transaction Documents and shall take all other
necessary action and proceedings as may be required and permitted by applicable
law, rule and regulation, for the legal and valid issuance of the Securities to
the Purchasers, or their respective subsequent holders.

         SECTION 3.2 INTENTIONALLY OMITTED.

         SECTION 3.3 INSPECTION RIGHTS. Subject to SECTION 3.15 hereof, the
Company shall permit, during normal business hours and upon reasonable request
and reasonable notice, a Purchaser or any employees, agents or representatives
thereof, so long as a Purchaser shall own the Common Stock, the Warrant Shares
or the Warrants which, in the aggregate, represent more than two percent (2%) of
the total combined voting power of all voting securities then outstanding, to
examine and make reasonable copies of and extracts from the records and books of
account of, and visit and inspect, during the term of the Notes, the properties,
assets, operations and business of the Company and any Subsidiary, and to
discuss the affairs, finances and accounts of the Company and any Subsidiary
with any of its officers, consultants, directors, and key employees.

         SECTION 3.4 INTENTIONALLY OMITTED.

         SECTION 3.5 KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Company shall
keep and cause each Subsidiary to keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Company and its
Subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.

                                      -15-
<PAGE>

         SECTION 3.6 REPORTING REQUIREMENTS. The Company shall furnish or make
available three (3) copies of the following to the Purchasers in a timely manner
so long as the Purchasers shall be obligated hereunder to purchase the Notes or
shall beneficially own the Notes or Warrants, or shall own Warrant Shares which,
in the aggregate, represent more than one percent (1%) of the total combined
voting power of all voting securities then outstanding:

                  (a) Quarterly Reports filed with the Commission on Form 10-QSB
         as soon as available, and in any event within fifty-one (51) days after
         the end of each of the first three (3) fiscal quarters of the Company;

                  (b) Annual Reports filed with the Commission on Form 10-KSB as
         soon as available, and in any event within one hundred six (106) days
         after the end of each fiscal year of the Company; and

                  (c) Copies of all notices and information, including without
         limitation notices and proxy statements in connection with any
         meetings, that are provided to holders of shares of the Company's
         common stock, contemporaneously with the delivery of such notices or
         information to such holders of common stock.

         SECTION 3.7 AMENDMENTS. The Company shall not amend or waive any
provision of the Articles or Bylaws of the Company in any way that would
adversely affect the exercise rights, voting rights, prepayment rights or
redemption rights of the holder of the Notes or the Warrants; provided, however,
that the Company shall not be prohibited from amending its Articles to increase
its authorized capital stock.

         SECTION 3.8 OTHER AGREEMENTS. The Company shall not enter into any
agreement in which the terms of such agreement would restrict or impair the
right or ability to perform of the Company or any Subsidiary under any
Transaction Document.

         SECTION 3.9 DISTRIBUTIONS. Except as set forth on SCHEDULE 3.9 hereto,
so long as any Notes remain outstanding, the Company agrees that it shall not,
without the prior written consent of the holders of a majority of the principal
amount of the Notes outstanding at the time consent is required, which consent
may be granted or denied in the sole discretion of the Purchasers, (i) declare
or pay any dividends (other than a stock dividend or stock split) or make any
distributions to any holder(s) of the Company's common stock or (ii) purchase or
otherwise acquire for value, directly or indirectly, any common stock or other
equity security of the Company.

         SECTION 3.10 REGISTRATION RIGHTS. Each Purchaser that holds the Common
Stock and the Warrant Shares shall have those certain registration rights
expressly set forth in the Amended and Restated Registration Rights Agreement,
which shall be substantially in the form set forth in EXHIBIT D.

                                      -16-
<PAGE>

         SECTION 3.11 RESERVATION OF SHARES. So long as the Warrants remain
outstanding, the Company shall take all action necessary to at all times have
authorized, and reserved for the purpose of issuance, 100% of the aggregate
number of Warrant Shares initially issuable under the Warrants.

         SECTION 3.12 TRANSFER AGENT INSTRUCTIONS. The Company shall issue
irrevocable instructions to its transfer agent, and any subsequent transfer
agent, to issue certificates, registered in the name of the Purchasers or their
respective nominee(s), for the Warrant Shares in such amounts as specified from
time to time by the Purchasers to the Company upon exercise of the Warrants, in
the form of EXHIBIT E attached hereto (the "IRREVOCABLE TRANSFER AGENT
INSTRUCTIONS"). All such certificates shall bear the restrictive legend
specified in SECTION 5.1 of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this SECTION 3.12 will be given by the Company to its transfer agent other
than as contemplated by the Irrevocable Transfer Agent Instructions and that the
Securities shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement. Nothing in this
SECTION 3.12 shall affect in any way the Purchasers' obligations and agreements
set forth in SECTION 5.1 to comply with all applicable prospectus delivery or
other requirements, if any, upon the resale of the Common Stock and the Warrant
Shares. If a Purchaser provides the Company with an opinion of counsel, in form,
substance and scope generally acceptable to the Company, to the effect that a
public sale, assignment or transfer of the Securities may be made without
registration under the Securities Act or the Purchasers provide the Company with
reasonable assurances that the Securities can be sold pursuant to Rule 144
without any restriction as to the number of securities acquired as of a
particular date that can then be immediately sold, the Company shall permit the
transfer, and, in the case of the Common Stock and the Warrant Shares, promptly
instruct its transfer agent to issue one or more certificates in such name and
in such denominations as specified by the Purchasers and without any restrictive
legend. The Company acknowledges that a breach by it of its obligations under
this SECTION 3.12 will cause irreparable harm to the Purchasers by vitiating the
intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this SECTION 3.12 will be inadequate and agrees, in the event of a breach
or threatened breach by the Company of the provisions of this SECTION 3.12, that
the Purchasers shall be entitled, in addition to all other available remedies,
to an order and/or injunction restraining any breach and requiring immediate
issuance and transfer, without the necessity of showing economic loss and
without any bond or other security being required.

         SECTION 3.13 DISPOSITION OF ASSETS. So long as the Notes remain
outstanding, neither the Company nor any Subsidiary shall sell, transfer or
otherwise dispose of any material amount of its properties, assets and rights
including, without limitation, its software and intellectual property, to any
person except for sales to customers in the ordinary course of business, sales
of inventory to subcontractors, sales or assignments of accounts receivable to
the Company's contract manufacturers or their lenders, without the prior written
consent of the holders of a majority of the principal amount of the Notes then
outstanding.

         SECTION 3.14 REPAYMENT OF OTHER INDEBTEDNESS. So long as the Notes
remain outstanding, the Company shall not prepay any Indebtedness for borrowed
money owed by the Company to any officer, director, affiliate or insider of the
Company.

                                      -17-
<PAGE>

         SECTION 3.15 NON-PUBLIC INFORMATION. Except as required under the
Transaction Documents, neither the Company nor any of its officers or agents
shall disclose any material non-public information about the Company to the
Purchasers and neither the Purchasers nor any of their affiliates, officers or
agents will solicit any material non-public information from the Company. Each
Purchaser agrees that, without the prior written consent of the Board of
Directors of the Company, until such time as any and all material non-public
information disclosed to the Purchaser pursuant to the Transaction Documents has
been disclosed publicly and until such time as that information is no longer
considered material, neither the Purchaser nor any of its affiliates (as such
term is defined in Rule 12b-2 of the Exchange Act), acting alone or as part of a
group, will: (a) acquire, propose, or offer to acquire, or agree to acquire,
directly or indirectly, by purchase or otherwise, any securities or direct or
indirect rights to acquire any securities of the Company, or (b) sell any
securities of the Company.

         SECTION 3.16 ANNUAL REPORT ON FORM 10-KSB. The Company shall file its
Annual Report on Form 10-KSB for the year ended December 31, 2002 (including
audited financial statements) with the Commission no later than April 15, 2003.

                                   ARTICLE IV
                                   CONDITIONS
                                   ----------

         SECTION 4.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO
CLOSE AND TO SELL THE COMMON STOCK, THE NOTES AND WARRANTS. The obligation
hereunder of the Company to close and issue and sell the Common Stock, the Notes
and the Warrants to the Purchasers at the Closing is subject to the satisfaction
or waiver, at or before the Closing, of the conditions set forth below. These
conditions are for the Company's sole benefit and may be waived by the Company
in writing at any time in its sole discretion.

                  (a) ACCURACY OF THE PURCHASERS' REPRESENTATIONS AND
         WARRANTIES. The representations and warranties of each Purchaser shall
         be true and correct in all material respects as of the date when made
         and as of the Closing Date as though made at that time, except for
         representations and warranties that are expressly made as of a
         particular date, which shall be true and correct in all material
         respects as of such date.

                  (b) PERFORMANCE BY THE PURCHASERS. Each Purchaser shall have
         performed, satisfied and complied in all respects with all covenants,
         agreements and conditions required by this Agreement to be performed,
         satisfied or complied with by the Purchasers at or prior to the Closing
         Date.

                  (c) NO INJUNCTION. No statute, rule, regulation, executive
         order, decree, ruling or injunction shall have been enacted, entered,
         promulgated or endorsed by any court or governmental authority of
         competent jurisdiction which prohibits the consummation of any of the
         transactions contemplated by this Agreement.

                  (d) DELIVERY OF ORIGINAL NOTES AND ORIGINAL WARRANTS. The
         Original Notes and Original Warrants shall have been delivered to the
         Company at the Closing for cancellation effective as of the Effective
         Date.

                                      -18-
<PAGE>

                  (e) DELIVERY OF TRANSACTION DOCUMENTS. The Transaction
         Documents shall have been duly executed and delivered by the Purchasers
         to the Company, and the Company shall have received such other
         certificates and documents as the Company or its counsel shall
         reasonably require incident to the Closing.

         SECTION 4.2 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE PURCHASERS TO
CLOSE AND TO PURCHASE THE COMMON STOCK, THE NOTES AND WARRANTS. The obligation
hereunder of the Purchasers to purchase the Common Stock, the Notes and the
Warrants and consummate the transactions contemplated by this Agreement is
subject to the satisfaction or waiver, at or before the Closing, of each of the
conditions set forth below. These conditions are for the Purchasers' sole
benefit and may be waived by the Purchasers at any time in their sole
discretion.

                  (a) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES.
         Each of the representations and warranties of the Company in this
         Agreement, the Amended and Restated Security Agreements and the Notes
         shall be true and correct in all material respects as of the Closing
         Date, except for representations and warranties that speak as of a
         particular date, which shall be true and correct in all material
         respects as of such date.

                  (b) PERFORMANCE BY THE COMPANY. The Company shall have
         performed, satisfied and complied in all respects with all covenants,
         agreements and conditions required by this Agreement to be performed,
         satisfied or complied with by the Company at or prior to the Closing.

                  (c) NO SUSPENSION, ETC. Trading in the Company's common stock
         shall not have been suspended by the Commission (except for any
         suspension of trading of limited duration agreed to by the Company,
         which suspension shall be terminated prior to the Closing), and, at any
         time prior to the Closing Date, trading in securities generally as
         reported by Bloomberg Financial Markets ("BLOOMBERG") shall not have
         been suspended or limited, or minimum prices shall not have been
         established on securities whose trades are reported by Bloomberg, or on
         the New York Stock Exchange, nor shall a banking moratorium have been
         declared either by the United States or New York State authorities, nor
         shall there have occurred any national or international calamity or
         crisis of such magnitude in its effect on any financial market which,
         in each case, in the reasonable judgment of the Purchasers, makes it
         impracticable or inadvisable to purchase the Notes.

                  (d) NO INJUNCTION. No statute, rule, regulation, executive
         order, decree, ruling or injunction shall have been enacted, entered,
         promulgated or endorsed by any court or governmental authority of
         competent jurisdiction which prohibits the consummation of any of the
         transactions contemplated by this Agreement.

                  (e) NO PROCEEDINGS OR LITIGATION. No action, suit or
         proceeding before any arbitrator or any governmental authority shall
         have been commenced, and no investigation by any governmental authority
         shall have been threatened, against the Company or any Subsidiary, or
         any of the officers, directors or affiliates of the Company or any
         Subsidiary seeking to restrain, prevent or change the transactions
         contemplated by this Agreement, or seeking damages in connection with
         such transactions.

                                      -19-

<PAGE>

                  (f) WARRANTS AND NOTES. The Company shall have delivered the
         originally executed Warrants (in such denominations as each Purchaser
         may request) to the Purchasers and shall have delivered the originally
         executed Notes (in such denominations as each Purchaser may request) to
         the Purchasers that are being acquired by the Purchasers at the
         Closing.

                  (g) RESOLUTIONS. The Board of Directors of the Company shall
         have adopted resolutions consistent with SECTION 2.1(B) hereof in a
         form reasonably acceptable to the Purchasers (the "RESOLUTIONS").

                  (h) RESERVATION OF SHARES. As of the Closing Date, the Company
         shall have reserved out of its authorized and unissued shares of common
         stock solely for the purpose of effecting the exercise of the Warrants,
         a number of shares of common stock equal to at least 100% of the
         aggregate number of shares of common stock initially issuable upon
         exercise of the Warrants.

                  (i) TRANSFER AGENT INSTRUCTIONS. The Irrevocable Transfer
         Agent Instructions, in the form of EXHIBIT E attached hereto, shall
         have been delivered to and acknowledged in writing by the Company's
         transfer agent.

                  (j) SECRETARY'S CERTIFICATE. The Company shall have delivered
         to the Purchasers a secretary's certificate, dated as of the Closing
         Date, as to (i) the Resolutions, (ii) the Articles, (iii) the Bylaws,
         each as in effect at the Closing, and (iv) the authority and incumbency
         of the officers of the Company executing the Transaction Documents and
         any other documents required to be executed or delivered in connection
         therewith.

                  (k) OFFICER'S CERTIFICATE. On the Closing Date, the Company
         shall have delivered to the Purchasers a certificate of an executive
         officer of the Company, dated as of the Closing Date, confirming the
         accuracy of the Company's representations, warranties and covenants as
         of the Closing Date and confirming the compliance by the Company with
         the conditions precedent set forth in this SECTION 4.2 as of the
         Closing Date.

                  (l) AMENDED AND RESTATED SECURITY AGREEMENTS. As of the
         Closing Date, the parties shall have entered into the Amended and
         Restated Security Agreements in substantially the forms set forth in
         EXHIBIT F attached hereto.

                  (m) UCC-1 FINANCING STATEMENTS. The Company shall have filed
         all UCC-1 financing statements or agreements in form and substance
         satisfactory to the Purchasers at the appropriate offices to create a
         valid and perfected security interest in the Collateral (as defined in
         the Amended and Restated Security Agreements).

                  (n) JUDGMENT, LIEN AND UCC SEARCH. A judgment, lien and UCC
         financing statement search shall have been completed by the Purchasers.

                  (o) MATERIAL ADVERSE EFFECT. No Material Adverse Effect shall
         have occurred.

                                      -20-
<PAGE>

                                   ARTICLE V
                               CERTIFICATE LEGEND
                               ------------------

         SECTION 5.1 LEGEND. Each certificate representing the Common Stock, the
Warrants and the Warrant Shares shall be stamped or otherwise imprinted with a
legend substantially in the following form (in addition to any legend required
by applicable state securities or "BLUE SKY" laws):

         THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES") HAVE
         NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
         "SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
         TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE
         SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR TELENETICS
         CORPORATION SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL THAT
         REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
         PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.

         The Company agrees to reissue certificates representing any of the
Securities, without the legend set forth above if at such time, prior to making
any transfer of any such Securities, such holder thereof shall give written
notice to the Company describing the manner and terms of such transfer and
removal as the Company may reasonably request. Such proposed transfer will not
be effected until: (a) the Company has notified such holder that either (i) in
the opinion of Company counsel, the registration of the Common Stock, Warrants
or Warrant Shares under the Securities Act is not required in connection with
such proposed transfer; or (ii) a registration statement under the Securities
Act covering such proposed disposition has been filed by the Company with the
Commission and has become effective under the Securities Act; and (b) the
Company has notified such holder that either: (i) in the opinion of Company
counsel, the registration or qualification under the securities or "BLUE SKY"
laws of any state is not required in connection with such proposed disposition,
or (ii) compliance with applicable state securities or "BLUE SKY" laws has been
effected. The Company will use its best efforts to respond to any such notice
from a holder within five (5) days. In the case of any proposed transfer under
this SECTION 5, the Company will use reasonable efforts to comply with any such
applicable state securities or "BLUE SKY" laws, but shall in no event be
required, in connection therewith, to qualify to do business in any state where
it is not then qualified or to take any action that would subject it to tax or
to the general service of process in any state where it is not then subject. The
restrictions on transfer contained in SECTION 5.1 shall be in addition to, and
not by way of limitation of, any other restrictions on transfer contained in any
other section of this Agreement.

                                   ARTICLE VI
                                   TERMINATION
                                   -----------

         SECTION 6.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be
terminated at any time prior to the Closing Date by the mutual written consent
of the Company and the Purchasers.

                                      -21-
<PAGE>

         SECTION 6.2 EFFECT OF TERMINATION. If this Agreement is terminated as
provided in SECTION 6.1 herein, this Agreement shall become void and of no
further force and effect, except for SECTIONS 8.1 AND 8.2, and ARTICLE VII
herein. Nothing in this SECTION 6.2 shall be deemed to release the Company or
any Purchaser from any liability for any breach under this Agreement, or to
impair the rights of the Company and such Purchaser to compel specific
performance by the other party of its obligations under this Agreement.

                                  ARTICLE VII
                                 INDEMNIFICATION
                                 ---------------

         SECTION 7.1 GENERAL INDEMNITY. The Company agrees to indemnify and hold
harmless each Purchaser (and its respective directors, officers, affiliates,
agents, successors and assigns) from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorneys' fees, charges and disbursements) incurred by
each Purchaser as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Company herein. The
Purchasers severally but not jointly agree to indemnify and hold harmless the
Company and its directors, officers, affiliates, agents, successors and assigns
from and against any and all losses, liabilities, deficiencies, costs, damages
and expenses (including, without limitation, reasonable attorneys' fees, charges
and disbursements) incurred by the Company as result of any inaccuracy in or
breach of the representations, warranties or covenants made by the Purchasers
herein.

         SECTION 7.2 INDEMNIFICATION PROCEDURE. Any party entitled to
indemnification under this ARTICLE VII (an "INDEMNIFIED PARTY") will give
written notice to the indemnifying party of any matters giving rise to a claim
for indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this ARTICLE VII except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between it
and the indemnifying party may exist with respect to such action, proceeding or
claim, to assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise or
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party's costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. If
the indemnifying party elects to defend any such action or claim, then the

                                      -22-
<PAGE>

indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party shall not be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent. Notwithstanding anything in this ARTICLE VII to the
contrary, the indemnifying party shall not, without the indemnified party's
prior written consent, settle or compromise any claim or consent to entry of any
judgment in respect thereof which imposes any future obligation on the
indemnified party or which does not include, as an unconditional term thereof,
the giving by the claimant or the plaintiff to the indemnified party of a
release from all liability in respect of such claim. The indemnification
required by this ARTICLE VII shall be made by periodic payments of the amount
thereof during the course of investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred, so long as the
indemnified party irrevocably agrees to refund such moneys if it is ultimately
determined by a court of competent jurisdiction that such party was not entitled
to indemnification. The indemnity agreements contained herein shall be in
addition to (a) any cause of action or similar rights of the indemnified party
against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to pursuant to the law.

                                  ARTICLE VIII
                                  MISCELLANEOUS
                                  -------------

         SECTION 8.1 FEES AND EXPENSES. Each party shall pay the fees and
expenses of its advisors, counsel, accountants and other experts, if any, and
all other expenses, incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement.

         SECTION 8.2 SPECIFIC ENFORCEMENT; CONSENT TO JURISDICTION.

                  (a) The Company and the Purchasers acknowledge and agree that
         irreparable damage would occur in the event that any of the provisions
         of this Agreement or the other Transaction Documents were not performed
         in accordance with their specific terms or were otherwise breached. It
         is accordingly agreed that the parties shall be entitled to an
         injunction or injunctions to prevent or cure breaches of the provisions
         of this Agreement or the other Transaction Documents and to enforce
         specifically the terms and provisions hereof or thereof, this being in
         addition to any other remedy to which any of them may be entitled by
         law or equity.

                  (b) The Company and each Purchaser (i) hereby irrevocably
         submit to the exclusive jurisdiction of the United States District
         Court sitting in the Southern District of New York and the courts of
         the State of New York located in New York County for the purposes of
         any suit, action or proceeding arising out of or relating to this
         Agreement or any of the other Transaction Documents or the transactions
         contemplated hereby or thereby and (ii) hereby waive, and agree not to
         assert in any such suit, action or proceeding, any claim that it is not
         personally subject to the jurisdiction of such court, that the suit,
         action or proceeding is brought in an inconvenient forum or that the
         venue of the suit, action or proceeding is improper. The Company and
         each Purchaser consent to process being served in any such suit, action
         or proceeding by mailing via certified mail, return receipt requested,
         a copy thereof to such party at the address in effect for notices to it
         under this Agreement and agrees that such service shall constitute good
         and sufficient service of process and notice thereof. Nothing in this
         SECTION 8.2 shall affect or limit any right to serve process in any
         other manner permitted by law.

                                      -23-
<PAGE>

         SECTION 8.3 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the
Transaction Documents contain the entire understanding and agreement of the
parties with respect to the matters covered hereby and, except as specifically
set forth herein or in the other Transaction Documents, neither the Company nor
any Purchaser makes any representation, warranty, covenant or undertaking with
respect to such matters, and they supersede all prior understandings and
agreements with respect to said subject matter, all of which are merged herein.
No provision of this Agreement may be waived or amended other than by a written
instrument signed by the Company and the holders of at least a majority of the
principal amount of the Notes then outstanding, and no provision hereof may be
waived other than by a written instrument signed by the party against whom
enforcement of any such amendment or waiver is sought. No such amendment shall
be effective to the extent that it applies to less than all of the holders of
the Notes then outstanding. No consideration shall be offered or paid to any
person to amend or consent to a waiver or modification of any provision of any
of the Transaction Documents unless the same consideration is also offered to
all of the parties to the Transaction Documents or holders of Notes, as the case
may be.

         SECTION 8.4 NOTICES. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telecopy or facsimile at the
address or number designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first business day
following such delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the second
business day following the date of mailing by express courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall be:

         If to the Company:                 Telenetics Corporation
                                            25111 Arctic Ocean
                                            Lake Forest, California 92630
                                            Attention:  President
                                            Attention:  Chief Financial Officer
                                            Telecopier:  (949) 455-9324
                                            Telephone:  (949) 455-4000

         with copies (which copies
         shall not constitute notice
         to the Company) to:                Larry A. Cerutti, Esq.
                                            Rutan & Tucker, LLP
                                            611 Anton Boulevard, Suite 1400
                                            Costa Mesa, California  92626
                                            Telecopier:  (714) 546-9035
                                            Telephone:  (714) 641-5100

                                      -24-
<PAGE>

         If to any Purchaser:               At the address of such Purchaser set
                                            forth on EXHIBIT A to this
                                            Agreement.

         Any party hereto may from time to time change its address for notices
by giving at least ten (10) days written notice of such changed address to the
other parties hereto.

         SECTION 8.5 WAIVERS. No waiver by either party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.

         SECTION 8.6 HEADINGS. The article, section and subsection headings in
this Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.

         SECTION 8.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
After the Closing, the assignment by a party to this Agreement of any rights
hereunder shall not affect the obligations of such party under this Agreement.
Subject to applicable federal and state securities laws, the Purchasers may
assign the Notes, the Warrants and their rights under this Agreement and the
other Transaction Documents and any other rights hereto and thereto without the
consent of the Company; provided, however, that any assignee shall first provide
the Company with duly executed representations and warranties in the form
contained in SECTION 2.2 of this Agreement.

         SECTION 8.8 NO THIRD PARTY BENEFICIARIES. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.

         SECTION 8.9 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
giving effect to choice of law provisions. This Agreement shall not be
interpreted or construed with any presumption against the party causing this
Agreement to be drafted.

         SECTION 8.10 SURVIVAL. The representations and warranties of the
Company and the Purchasers contained in SECTIONS 2.1(o) AND 2.1(s) should
survive until the expiration of the applicable statutes of limitation, and those
contained in ARTICLE II, with the exception of SECTIONS 2.1(o) AND 2.1(s), shall
survive the execution and delivery hereof and the Closing until the date three
(3) years from the Closing Date, and the agreements and covenants set forth in
ARTICLES I, III, V, VII AND VIII of this Agreement shall survive the execution
and delivery hereof and the Closing hereunder.

         SECTION 8.11 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart.

                                      -25-
<PAGE>

         SECTION 8.12 PUBLICITY. The Company agrees that it will not disclose,
and will not include in any public announcement, the names of the Purchasers
without the consent of the Purchasers in accordance with SECTION 8.3, which
consent shall not be unreasonably withheld or delayed, or unless and until such
disclosure is required by law, rule or applicable regulation, and then only to
the extent of such requirement.

         SECTION 8.13 SEVERABILITY. The provisions of this Agreement are
severable and, in the event that any court of competent jurisdiction shall
determine that any one or more of the provisions or part of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Agreement and this Agreement shall be reformed and construed as if such
invalid or illegal or unenforceable provision, or part of such provision, had
never been contained herein, so that such provisions would be valid, legal and
enforceable to the maximum extent possible.

         SECTION 8.14 FURTHER ASSURANCES. From and after the date of this
Agreement, upon the request of the Purchasers or the Company, the Company and
each Purchaser shall execute and deliver such instruments, documents and other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement, the Notes,
the Warrants and the Amended and Restated Security Agreements.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                      -26-
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date first above
written.

COMPANY:                      TELENETICS CORPORATION

                              By: /s/ David L. Stone
                                  ----------------------------------------------
                                  Name:  David L. Stone
                                  Title:  President

PURCHASERS:                   SDS MERCHANT FUND, L.P.

                              By: SDS Capital Partners, LLC, its general partner

                                  By: /s/ Steve Derby
                                      ------------------------------------------
                                      Name:  Steve Derby
                                      Title: Managing Member

                                  /s/ Jeremy Bond
                                  ----------------------------------------------
                                  JEREMY BOND

                                  /s/ John Bertsch
                                  ----------------------------------------------
                                  JOHN BERTSCH

                                  GARY ARNOLD AND PATRICIA ARNOLD,
                                  Joint Tenants with Right of Survivorship

                                  By: /s/ Gary Arnold
                                      ------------------------------------------
                                      Name:  Gary Arnold

                                  By: /s/ Patricia Arnold
                                      ------------------------------------------
                                      Name:  Patricia Arnold

                                  ----------------------------------------------
                                  DENIS FORTIN

                       [SIGNATURES CONTINUED ON NEXT PAGE]

                                      -27-
<PAGE>

                                  SHADOW CAPITAL LLC

                                  By: /s/ B. Kent Garlinghouse
                                      ------------------------------------------
                                      Name:  B. Kent Garlinghouse
                                      Title: Manager

                                  DRAGON COEUR LLC II-D

                                  By: /s/ E. H. Arnold
                                      ------------------------------------------
                                      Name: E. H. Arnold
                                      Title:

                                  /s/ David Random
                                  ----------------------------------------------
                                  DAVID RANDOM

                                  /s/ Joseph Regan
                                  ----------------------------------------------
                                  JOSEPH REGAN

                                  THE SANFORD R. PENN, JR. TRUST
                                  DATED APRIL 30, 2002

                                  /s/ Sanford R. Penn, Jr.
                                  ----------------------------------------------
                                  Sanford R. Penn, Jr., Trustee

                                  /s/ Michael N. Taglich
                                  ----------------------------------------------
                                  MICHAEL N. TAGLICH

                                  /s/ Robert F. Taglich
                                  ----------------------------------------------
                                  ROBERT F. TAGLICH

                                  [SIGNATURES CONTINUED ON NEXT PAGE]

                                      -28-
<PAGE>

                                  TAG KENT PARTNERS

                                  By: /s/ Michael N. Taglich
                                      ------------------------------------------
                                      Name:  Michael N. Taglich
                                      Title: General Partner

                                  /s/ Charles S. Brand
                                  ----------------------------------------------
                                  CHARLES S. BRAND

                                  /s/ Michael J. Fourticq
                                  ----------------------------------------------
                                  MICHAEL J. FOURTICQ

                                  /s/ Keith Becker
                                  ----------------------------------------------
                                  KEITH BECKER

                                  /s/ Lloyd B. Embry
                                  ----------------------------------------------
                                  LLOYD B. EMBRY

                                  JOHN R. WORTHINGTON TRUST

                                  By: /s/ John R. Worthington
                                      ------------------------------------------
                                      John R. Worthington, Trustee

                                  DOLPHIN OFFSHORE PARTNERS, L.P.

                                  By: /s/ Peter E. Salas
                                      ------------------------------------------
                                      Name:  Peter E. Salas
                                      Title: General Partner

                                      -29-
<PAGE>
<TABLE>

                                                             EXHIBIT A
                                                        LIST OF PURCHASERS
<CAPTION>
------------------------------ --------------- ------------------ -------------------- --------------- ---------------
                                 NUMBER OF
                                  ORIGINAL                                                                 NUMBER
                                WARRANTS AND                                           PRINCIPAL AND     OF SHARES
                                  WARRANTS       DOLLAR AMOUNT       DOLLAR AMOUNT        INTEREST       OF COMMON
          NAMES AND                ISSUED             OF                  OF               AMOUNT       STOCK ISSUED
   ADDRESSES OF PURCHASERS       AT CLOSING      ORIGINAL NOTE       AMENDED NOTE      AS OF 2/28/03     AT CLOSING
------------------------------ --------------- ------------------ -------------------- --------------- ---------------
<S>                                <C>           <C>               <C>                   <C>              <C>
SDS Merchant Fund, L.P.            2,553,105     $1,500,000 cash   $ 1,577,490.83 cash   $1,531,537.21    5,360,380
c/o SDS Capital Partners
One Sound Shore Drive
Greenwich, CT 06830
------------------------------ --------------- ------------------ -------------------- --------------- ---------------
Jeremy Bond                           85,104     $   50,000 cash   $    53,307.74 cash   $   51,754.84      181,142
c/o Taglich Brothers, Inc.
1370 Avenue of the Americas
31st Floor
New York, NY  10019
------------------------------ --------------- ------------------ -------------------- --------------- ---------------
John R. Bertsch                       85,104     $   50,000 cash   $    53,307.74 cash   $   51,754.84      181,142
c/o Taglich Brothers, Inc.
1370 Avenue of the Americas
31st Floor
New York, NY  10019
------------------------------ --------------- ------------------ -------------------- --------------- ---------------
Gary Arnold and Patricia              85,104     $   50,000 cash   $    53,307.74 cash   $   51,754.84      181,142
Arnold,
Joint Tenants with Right of
Survivorship
c/o Taglich Brothers, Inc.
1370 Avenue of the Americas
31st Floor
New York, NY  10019
------------------------------ --------------- ------------------ -------------------- --------------- ---------------
Denis Fortin                          85,104     $   50,000 cash   $    53,307.74 cash   $   51,754.84      181,142
c/o Taglich Brothers, Inc.
1370 Avenue of the Americas
31st Floor
New York, NY  10019
------------------------------ --------------- ------------------ -------------------- --------------- ---------------
Shadow Capital LLC                    85,104     $   50,000 cash   $    53,307.74 cash   $   51,754.84      181,142
c/o Taglich Brothers, Inc.
1370 Avenue of the Americas
31st Floor
New York, NY  10019
------------------------------ --------------- ------------------ -------------------- --------------- ---------------
Dragon Coeur LLC II-D                170,207     $  100,000 cash   $   106,615.50 cash   $  103,509.70      362,384
c/o Taglich Brothers, Inc.
1370 Avenue of the Americas
31st Floor
New York, NY  10019
------------------------------ --------------- ------------------ -------------------- --------------- ---------------
David Random                          42,552     $   25,000 cash   $    26,653.88 cash   $   25,877.43       90,571
c/o Taglich Brothers, Inc.
1370 Avenue of the Americas
31st Floor
New York, NY  10019

<PAGE>
------------------------------ --------------- ------------------ -------------------- --------------- ---------------
                                 NUMBER OF
                                  ORIGINAL                                                                 NUMBER
                                WARRANTS AND                                           PRINCIPAL AND     OF SHARES
                                  WARRANTS       DOLLAR AMOUNT       DOLLAR AMOUNT        INTEREST       OF COMMON
          NAMES AND                ISSUED             OF                  OF               AMOUNT       STOCK ISSUED
   ADDRESSES OF PURCHASERS       AT CLOSING      ORIGINAL NOTE       AMENDED NOTE      AS OF 2/28/03     AT CLOSING
------------------------------ --------------- ------------------ -------------------- --------------- ---------------
Joseph F. Regan                       42,552     $   25,000 cash   $    26,653.88 cash   $   25,877.43       90,571
c/o Taglich Brothers, Inc.
1370 Avenue of the Americas
31st Floor
New York, NY  10019
------------------------------ --------------- ------------------ -------------------- --------------- ---------------
The Sanford R. Penn Trust             42,552     $   25,000 cash   $    26,653.88 cash   $   25,877.43       90,571
c/o Taglich Brothers, Inc.
1370 Avenue of the Americas
31st Floor
New York, NY  10019
------------------------------ --------------- ------------------ -------------------- --------------- ---------------
Michael N. Taglich                    42,552     $   25,000 cash   $    26,653.88 cash   $   25,877.43       90,571
c/o Taglich Brothers, Inc.
1370 Avenue of the Americas
31st Floor
New York, NY  10019
------------------------------ --------------- ------------------ -------------------- --------------- ---------------
Robert F. Taglich                     42,552     $   25,000 cash   $    26,653.88 cash   $   25,877.43       90,571
c/o Taglich Brothers, Inc.
1370 Avenue of the Americas
31st Floor
New York, NY  10019
------------------------------ --------------- ------------------ -------------------- --------------- ---------------
Tag Kent Partners                    191,483     $  112,500        $   119,926.96 cash   $  116,433.40      407,517
c/o Taglich Brothers, Inc.                      cancellation of
1370 Avenue of the Americas                     indebtedness
31st Floor                                      (comprising the
New York, NY  10019                             $75,000 principal
                                                balance of the
                                                6.5% note issued
                                                January 23, 2001
                                                plus the $37,500
                                                principal balance
                                                of the 10%
                                                note issued
                                                December 23, 1999)
------------------------------ --------------- ------------------ -------------------- --------------- ---------------
Charles S. Brand                      38,297     $   22,500 cash   $    24,573.08 cash  $    23,857.24       83,500
c/o Taglich Brothers, Inc.
1370 Avenue of the Americas,
31st Floor
New York, NY  10019
------------------------------ --------------- ------------------ -------------------- --------------- ---------------
Michael J. Fourticq                   85,104     $   50,000 cash   $    59,521.45 cash  $    53,016.09      178,556
c/o Taglich Brothers, Inc.
1370 Avenue of the Americas,
31st Floor
New York, NY  10019
------------------------------ --------------- ------------------ -------------------- --------------- ---------------
Keith Becker                          51,063     $   30,000 cash   $    32,764.10 cash  $    31,809.66      111,334
c/o Taglich Brothers, Inc.
1370 Avenue of the Americas,
31st Floor
New York, NY  10019

<PAGE>
------------------------------ --------------- ------------------ -------------------- --------------- ---------------
                                 NUMBER OF
                                  ORIGINAL                                                                 NUMBER
                                WARRANTS AND                                           PRINCIPAL AND     OF SHARES
                                  WARRANTS       DOLLAR AMOUNT       DOLLAR AMOUNT        INTEREST       OF COMMON
          NAMES AND                ISSUED             OF                  OF               AMOUNT       STOCK ISSUED
   ADDRESSES OF PURCHASERS       AT CLOSING      ORIGINAL NOTE       AMENDED NOTE      AS OF 2/28/03     AT CLOSING
------------------------------ --------------- ------------------ -------------------- --------------- ---------------
Lloyd B. Embry                        51,063    $    30,000 cash   $    32,764.10 cash  $    31,809.66      111,334
c/o Taglich Brothers, Inc.
1370 Avenue of the Americas,
31st Floor
New York, NY  10019
------------------------------ --------------- ------------------ -------------------- --------------- ---------------
John R. Worthington Trust             51,063    $    30,000 cash   $    32,764.10 cash  $    31,809.66      111,334
c/o Taglich Brothers, Inc.
1370 Avenue of the Americas,
31st Floor
New York, NY  10019
------------------------------ --------------- ------------------ -------------------- --------------- ---------------
Dolphin Offshore Partners,         3,599,878    $ 2,115,000        $ 2,232,714.65 cash  $ 2,167,673.81    7,586,858
L.P.                                            cancellation of
129 East 17th Street                            indebtedness
New York, N.Y. 10003                            (comprising the
                                                remaining
                                                balance of the
                                                7.0% Convertible
                                                Subordinated
                                                Debenture due
                                                January 2, 2003)
</TABLE>

<PAGE>

                                    EXHIBIT B
              FORM OF AMENDED AND RESTATED SECURED PROMISSORY NOTE

                                    EXHIBIT C
                      FORM OF AMENDED AND RESTATED WARRANT

                                    EXHIBIT D
           FORM OF AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT

                                    EXHIBIT E
                 FORM OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS

                                    EXHIBIT F
                 FORM OF AMENDED AND RESTATED SECURITY AGREEMENT

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