Document:

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EXHIBIT 10.33

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

                             TELENETICS CORPORATION

                       Secured Convertible Promissory Note
                                due March 1, 2005

No. CN-___                                                          $___________
Dated: March 1, 2002

         For value received, TELENETICS CORPORATION, a California corporation
(the "MAKER"), hereby promises to pay to the order of _______________________
(together with its successors, representatives, and permitted assigns, the
"HOLDER"), in accordance with the terms hereinafter provided, the principal
amount of _________________________ ($____________), together with interest
thereon. Concurrently with the issuance of this Note, the Maker is issuing
separate notes (the "OTHER NOTES") to separate purchasers (the "OTHER HOLDERS")
pursuant to the Purchase Agreement (as defined in Section 1.1 hereof).

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

                                   ARTICLE I

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

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         Section 1.2 INTEREST. Beginning on the date hereof, the outstanding
principal balance of this Note shall bear interest, in arrears, at a rate per
annum equal to six percent (6%), payable quarterly or upon conversion unless
prepaid as provided herein; provided, however, if the Market Price (as defined
in Section 3.2 hereof) is below the Conversion Price Floor (as defined in
Section 3.2 hereof) for a period of twenty (20) consecutive Trading Days, (the
"LOW PERIOD"), the outstanding principal balance of this Note shall bear
interest, in arrears, at a rate per annum equal to sixteen percent (16%) for the
period beginning on the day after the Low Period and ending on the day before
the Market Price exceeds an amount equal to 120% of the Conversion Price Floor
for a period of twenty (20) consecutive Trading Days. Interest shall be computed
on the basis of a 360-day year of twelve (12) 30-day months and shall accrue
commencing on the issuance date of this Note (the "ISSUANCE DATE"). The interest
shall be payable in cash. Upon the occurrence of an Event of Default (as defined
in Section 2.1 hereof), then to the extent permitted by law, the Maker will pay
interest to the Holder, payable on demand, on the outstanding principal balance
of the Note from the date of the Event of Default until such Event of Default is
cured at the rate of the lesser of nine percent (9%) above the interest rate
then in effect and the maximum applicable legal rate per annum.

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

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

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

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

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

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                                   ARTICLE II

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

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

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

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

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

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

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

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

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

                  (h) default shall be made in the performance or observance by
the Maker of (i) any material covenant, condition or agreement contained in this
Note (other than as set forth in Section 3.7(m) hereof and clause (f) of this

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Section 2.1) and such default is not fully cured within five (5) business days
after the occurrence thereof or (ii) any material covenant, condition or
agreement contained in the Purchase Agreement (other than Sections 3.17 and 3.18
thereof), the Security Agreement, the Other Notes or the Registration Rights
Agreement which is not covered by any other provisions of this Section 2.1 and
such default is not fully cured within seven (7) business days after the
occurrence thereof; or

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

                  (j) the Maker shall issue any debt securities which are not
subordinate to this Note and the Other Notes and are not on such terms as are
acceptable to the Holders of a majority of the outstanding principal amount of
this Note and the Other Notes purchased under the Purchase Agreement; or

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

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

                  (m) the Maker shall (i) default in any payment of any amount
or amounts of principal of or interest on any payment (other than the
Indebtedness hereunder) the aggregate principal amount of which payment is in
excess of $100,000 or (ii) default in the observance or performance of any other
agreement or condition relating to any Indebtedness or contained in any
instrument or agreement evidencing, securing or relating thereto, or any other
event shall occur or condition exist, the effect of which default or other event
or condition is to cause, or to permit the holder or holders or beneficiary or

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beneficiaries of such Indebtedness to cause with the giving of notice if
required, such Indebtedness to become due prior to its stated maturity; or

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

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

                  (p) the occurrence of an Event of Default under the Other
Notes;

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

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

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

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any one or more of the Holder's rights, powers, privileges, remedies and
interests under this Note, the Purchase Agreement, the Security Agreement, the
Registration Rights Agreement or applicable law. An Event of Default under
Section 2.1(r) may only be waived by the Holder or holders of a majority of
outstanding principal amount of this Note and the Other Notes. No course of
delay on the part of the Holder shall operate as a waiver thereof or otherwise
prejudice the right of the Holder. No remedy conferred hereby shall be exclusive
of any other remedy referred to herein or now or hereafter available at law, in
equity, by statute or otherwise.

                                  ARTICLE III

                      CONVERSION; ANTIDILUTION; PREPAYMENT

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

         Section 3.2 CONVERSION PRICE.

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

                  (b) The Holder may elect to convert this Note at the Alternate
Conversion Price (as defined below) at the earlier of the effective date of the
Registration Statement or one hundred twenty (120) days following the Closing
Date; provided, however, that the Alternate Conversion Price may only be used if
the Market Price (as defined below) at the time of the conversion is less than
$0.55. The "ALTERNATE CONVERSION PRICE" shall mean an amount equal to the Market
Price (as defined below) multiplied by the Discount Percentage (as defined

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below), subject to a ceiling of the greater of the initial Conversion Price as
of the Closing Date and $.35 and subject to a floor of $.10 (the "CONVERSION
PRICE FLOOR"). The term "MARKET PRICE" means the average of the three (3) lowest
Volume Weighted Average Prices (as defined below) for the Maker's Common Stock
during the twenty-five (25) Trading Days immediately prior to the Conversion
Date, subject to adjustment under Section 3.6 hereof.

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

         Section 3.3 MECHANICS OF CONVERSION.

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

                  (b) The Maker understands that a delay in the delivery of the
shares of Common Stock upon conversion of this Note and failure to deliver one
or more new promissory notes representing the unconverted principal amount of
this Note beyond the Delivery Date could result in economic loss to the Holder.
If the Maker fails to deliver to the Holder such certificate or certificates
pursuant to this Section hereunder by the Delivery Date, the Maker shall pay to
such Holder, in cash, an amount per Trading Day for each Trading Day until such
certificates are delivered, together with interest on such amount at a rate of
10% per annum, accruing until such amount and any accrued interest thereon is
paid in full, equal to the greater of (A) (i) 1% of the aggregate principal
amount requested to be converted for the first five (5) Trading Days after the
Delivery Date and (ii) 2% of the aggregate principal amount requested to be
converted for each Trading Day thereafter and (B) $2,000 per day (which amount
shall be paid as liquidated damages and not as a penalty). Nothing herein shall
limit a Holder's right to pursue actual damages for the Maker's failure to
deliver certificates representing shares of Common Stock upon conversion within
the period specified herein (including, without limitation, damages relating to
any purchase of shares of Common Stock by such Holder to make delivery on a sale

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effected in anticipation of receiving certificates representing shares of Common
Stock upon conversion, such damages to be in an amount equal to (A) the
aggregate amount paid by such Holder for the shares of Common Stock so purchased
minus (B) the aggregate amount of net proceeds received by such Holder from the
sale of the shares of Common Stock issued by the Maker pursuant to such
conversion), and such Holder shall have the right to pursue all remedies
available to it at law or in equity (including, without limitation, a decree of
specific performance and/or injunctive relief). Notwithstanding anything to the
contrary contained herein, the Holder shall be entitled to withdraw a Conversion
Notice in accordance with Section 3.3(a), and upon such withdrawal the Maker
shall only be obligated to pay the liquidated damages accrued in accordance with
this Section 3.3(b) through the date the Conversion Notice is withdrawn.

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

         Section 3.4 OWNERSHIP CAP AND CERTAIN CONVERSION RESTRICTIONS.

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

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

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         Section 3.5 INTENTIONALLY OMITTED.

         Section 3.6 ADJUSTMENT OF CONVERSION PRICE.

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

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

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

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

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

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

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                           (iv) ADJUSTMENTS FOR RECLASSIFICATION, EXCHANGE OR
SUBSTITUTION. If the Common Stock issuable upon conversion of this Note at any
time or from time to time after the Issuance Date shall be changed to the same
or different number of shares of any class or classes of stock, whether by
reclassification, exchange, substitution or otherwise (other than by way of a
stock split or combination of shares or stock dividends provided for in Sections
3.6(a)(i), (ii) and (iii), or a reorganization, merger, consolidation, or sale
of assets provided for in Section 3.6(a)(v)), then, and in each event, an
appropriate revision to the Conversion Price shall be made and provisions shall
be made (by adjustments of the Conversion Price or otherwise) so that the holder
of this Note shall have the right thereafter to convert this Note into the kind
and amount of shares of stock and other securities receivable upon
reclassification, exchange, substitution or other change, by holders of the
number of shares of Common Stock into which such Note might have been converted
immediately prior to such reclassification, exchange, substitution or other
change, all subject to further adjustment as provided herein.

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

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

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

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

                                      -10-
<PAGE>

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

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

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

                           (vii) ISSUANCE OF COMMON STOCK EQUIVALENTS. If the
Maker, at any time after the Issuance Date, shall issue any securities
convertible into or exchangeable for, directly or indirectly, Common Stock
("CONVERTIBLE SECURITIES"), other than this Note, or any rights or warrants or
options to purchase any such Common Stock or Convertible Securities, shall be
issued or sold (collectively, the "COMMON STOCK EQUIVALENTS") and the price per
share for which Additional Shares of Common Stock may be issuable thereafter
pursuant to such Common Stock Equivalent shall be less than the applicable
Conversion Price then in effect, or if, after any such issuance of Common Stock
Equivalents, the price per share for which Additional Shares of Common Stock may
be issuable thereafter is amended or adjusted, and such price as so amended
shall be less than the applicable Conversion Price in effect at the time of such
amendment, then the applicable Conversion Price upon each such issuance or
amendment shall be adjusted as provided in the first sentence of subsection (vi)
of this Section 3.6(a) on the basis that (1) the maximum number of Additional
Shares of Common Stock issuable pursuant to all such Common Stock Equivalents
shall be deemed to have been issued (whether or not such Common Stock
Equivalents are actually then exercisable, convertible or exchangeable in whole
or in part) as of the earlier of (A) the date on which the Maker shall enter
into a firm contract for the issuance of such Common Stock Equivalent, or (B)
the date of actual issuance of such Common Stock Equivalent, and (2) the
aggregate consideration for such maximum number of Additional Shares of Common
Stock shall be deemed to be the minimum consideration received or receivable by
the Maker for the issuance of such Additional Shares of Common Stock pursuant to

                                      -11-
<PAGE>

such Common Stock Equivalent. No adjustment of the applicable Conversion Price
shall be made under this subsection (vii) upon the issuance of any Convertible
Security which is issued pursuant to the exercise of any warrants or other
subscription or purchase rights therefor, if any adjustment shall previously
have been made to the exercise price of such warrants then in effect upon the
issuance of such warrants or other rights pursuant to this subsection (vii). If
no adjustment is required under this subsection (vii) upon issuance of any
Common Stock Equivalent or once an adjustment is made under this subsection
(vii) no further adjustments shall be made upon the actual issue of Common Stock
upon conversion or exchange of the Common Stock Equivalent.

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

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

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

                           (ix) SUPERSEDING ADJUSTMENT. If, at any time after
any adjustment of the Conversion Price shall have been made pursuant to Section
3.6(a)(vii) as the result of any Common Stock Equivalents, any (i) such Common
Stock Equivalents shall expire, and the right of conversion or exchange with
respect to all or a portion of such other Common Stock Equivalents shall not
have been exercised, or (ii) the consideration per share for which shares of
Common Stock are issuable pursuant to such Common Stock Equivalents, shall be
increased solely by virtue of provisions therein contained for an automatic
increase in such consideration per share upon the occurrence of a specified date
or event, then for each outstanding Note such previous adjustment shall be
rescinded and annulled and the Additional Shares of Common Stock which were
deemed to have been issued by virtue of the computation made in connection with

                                      -12-
<PAGE>

the adjustment so rescinded and annulled shall no longer be deemed to have been
issued by virtue of such computation. Upon the occurrence of an event set forth
in this Section 3.6(a)(ix) above, there shall be a recomputation made of the
effect of such Common Stock Equivalents on the basis of: (i) treating the number
of Additional Shares of Common Stock or other property, if any, theretofore
actually issued or issuable pursuant to the previous exercise of any such right
of conversion or exchange, as having been issued on the date or dates of any
such exercise and for the consideration actually received and receivable
therefor, and (ii) treating any such Common Stock Equivalents which then remain
outstanding as having been granted or issued immediately after the time of such
increase of the consideration per share for which shares of Common Stock or
other property are issuable under such Common Stock Equivalents; whereupon a new
adjustment of the Conversion Price then in effect shall be made, which new
adjustment shall supersede the previous adjustment so rescinded and annulled.

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

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

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

                  (e) CERTIFICATES AS TO ADJUSTMENTS. Upon occurrence of each
adjustment or readjustment of the Conversion Price or number of shares of Common
Stock issuable upon conversion of this Note pursuant to this Section 3.6, the
Maker at its expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish to the Holder a certificate setting
forth such adjustment and readjustment, showing in detail the facts upon which

                                      -13-
<PAGE>

such adjustment or readjustment is based. The Maker shall, upon written request
of the Holder, at any time, furnish or cause to be furnished to such holder a
like certificate setting forth such adjustments and readjustments, the
applicable Conversion Price in effect at the time, and the number of shares of
Common Stock and the amount, if any, of other securities or property which at
the time would be received upon the conversion of this Note. Notwithstanding the
foregoing, the Maker shall not be obligated to deliver a certificate unless such
certificate would reflect an increase or decrease of at least one percent (1%)
of such adjusted amount.

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

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

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

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

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

                                      -14-
<PAGE>

the Maker's existing stock option and stock purchase plans or upon the issuance
to the Holder or the Other Holders or their successors or assigns of replacement
securities pursuant to Section 3.10(c) of the Purchase Agreement

         Section 3.7 PREPAYMENT.

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

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

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

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

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

                           (i) the consolidation, merger or other business
combination of the Maker with or into another Person (as defined in Section 4.13
hereof) (other than (A) pursuant to a migratory merger effected solely for the
purpose of changing the jurisdiction of incorporation of the Maker or (B) a
consolidation, merger or other business combination in which holders of the
Maker's voting power immediately prior to the transaction continue after the

                                      -15-
<PAGE>

transaction to hold, directly or indirectly, the voting power of the surviving
entity or entities necessary to elect a majority of the members of the board of
directors (or their equivalent if other than a corporation) of such entity or
entities).

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

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

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

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

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

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

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

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

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

                                      -16-
<PAGE>

                  (g) INTENTIONALLY OMITTED.

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

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

                  (j) INTENTIONALLY OMITTED.

                  (k) PAYMENT OF PREPAYMENT PRICE. Upon the Maker's receipt of a
Notice(s) of Prepayment at Option of Holder Upon Triggering Event or a Notice(s)
of Prepayment at Option of Holder Upon Major Transaction from any holder of the
Notes, the Maker shall immediately notify each holder of the Notes by facsimile
of the Maker's receipt of such Notice(s) of Prepayment at Option of Holder Upon
Triggering Event or Notice(s) of Prepayment at Option of Holder Upon Major
Transaction and each holder which has sent such a notice shall promptly submit
to the Maker such holder's certificates representing the Notes which such holder
has elected to have prepaid. The Maker shall deliver the applicable Triggering
Event Prepayment Price, in the case of a prepayment pursuant to Section 3.7(i),
to such holder within five (5) business days after the Maker's receipt of a
Notice of Prepayment at Option of Holder Upon Triggering Event and, in the case
of a prepayment pursuant to Section 3.7(k), the Maker shall deliver the
applicable Major Transaction Prepayment Price immediately prior to the
consummation of the Major Transaction; provided that a holder's original Note

                                      -17-
<PAGE>

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

                  (l) HOLDER PREPAYMENT OPTION. At the sole option of the
Holder, the Holder may grant the Maker the option to prepay all or any portion
of the outstanding principal amount of this Note together with all accrued and
unpaid interest thereon within ten (10) days of the Holder granting the option
to the Maker. If the Maker elects to exercise the prepayment option, the Maker
shall upon five (5) days prior written notice to the Holder (the "MAKER'S
PREPAYMENT NOTICE") prepay all or a portion of the outstanding Notes equal to
130% of the aggregate principal amount of this Note plus any accrued but unpaid
interest (the "MAKER'S PREPAYMENT PRICE"); PROVIDED, HOWEVER, that if a holder
has delivered a Conversion Notice to the Maker or delivers a Conversion Notice
after receipt of the Maker's Prepayment Notice, the Notes designated to be
converted may not be prepaid by the Maker; PROVIDED FURTHER that if during the
period between delivery of the Maker's Prepayment Notice and the Maker's

                                      -18-
<PAGE>

Prepayment Date (as defined below), a holder shall become entitled to deliver a
Notice of Prepayment at Option of Holder Upon Major Transaction or Notice of
Prepayment at Option of Holder upon Triggering Event, then the such rights of
the holders shall take precedence over the previously delivered Maker Prepayment
Notice. The Maker's Prepayment Notice shall state the date of prepayment which
date shall be the sixth (6th) day after the Maker has delivered the Maker's
Prepayment Notice (the "MAKER'S PREPAYMENT DATE"), the Maker's Prepayment Price
and the amount of Notes to be prepaid by the Maker. The Maker shall deliver the
Maker's Prepayment Price to the Holder within five (5) business days after the
Maker has delivered the Maker's Prepayment Notice, PROVIDED, that if the
holder(s) delivers a Conversion Notice before the Maker's Prepayment Date, then
the portion of the Maker's Prepayment Price which would be paid to prepay the
Notes covered by such Conversion Notice shall be returned to the Maker upon
delivery of the Common Stock issuable in connection with such Conversion Notice
to the holder(s). On the Maker's Prepayment Date, the Maker shall pay the
Maker's Prepayment Price, subject to any adjustment pursuant to the immediately
preceding sentence, to the holder(s) on a pro rata basis, PROVIDED, however,
that upon receipt by Maker of the certificates representing the Notes to be
prepaid pursuant to this Section 3.7(l), the Maker shall, on the next business
day following the date of receipt by the Maker of the original Note, pay the
Maker's Prepayment Price to the holder(s) on a pro rata basis. If the Maker
fails to pay the Maker's Prepayment Price by the sixth (6th) business day after
the Maker has delivered the Maker's Prepayment Notice, the prepayment will be
declared null and void and the Maker shall lose its right to serve a Maker 's
Prepayment Notice pursuant to this Section 3.7(l) in the future.

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

                                      -19-
<PAGE>

amount that was to be prepaid pursuant to the Maker Prepayment Notice pursuant
to this Section 3.7(m) in addition to the Common Stock issuable upon conversion
of this Note. If the Maker fails to pay the liquidated damages on demand, such
liquidated damages shall accrue at the rate of one percent (1%) per month until
paid in full. On or after the Maker Prepayment Date, the Holder shall surrender
the Notes called for prepayment to the Maker at the place designated in the
Maker Prepayment Notice and shall thereupon be entitled to receive payment of
the Maker Prepayment Price.

         Section 3.8 INABILITY TO FULLY CONVERT.

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

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

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

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

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

                                      -20-
<PAGE>

                  (c) PAYMENT OF PREPAYMENT PRICE. If the Holder shall elect to
require the Maker to make a Mandatory Prepayment pursuant to Section 3.8(a)(i)
above, the Maker shall pay the Mandatory Prepayment Price in cash to the Holder
within five (5) days of the Maker's receipt of the Holder's Notice in Response
to Inability to Convert, PROVIDED that prior to the Maker's receipt of the
Holder's Notice in Response to Inability to Convert the Maker has not delivered
a notice to the Holder stating, to the satisfaction of the Holder, that the
event or condition resulting in the Mandatory Prepayment has been cured and all
Conversion Shares issuable to the Holder can and will be delivered to the Holder
in accordance with the terms of this Note. If the Maker shall fail to pay the
applicable Mandatory Prepayment Price to the Holder on a timely basis as
described in this Section 3.8(c) (other than pursuant to a dispute as to the
determination of the arithmetic calculation of the prepayment price), in
addition to any remedy the Holder may have under this Note and the Purchase
Agreement, such unpaid amount shall bear interest at the rate of 2.0% per month
(prorated for partial months) until paid in full. Until the full Mandatory
Prepayment Price is paid in full to the Holder, the Holder may (i) void the
Mandatory Prepayment with respect to that portion of the Note for which the full
Mandatory Prepayment Price has not been paid, (ii) receive back such Note, and
(iii) require that the Conversion Price of such returned Note be adjusted to the
lesser of (A) the Conversion Price as in effect on the date on which the Holder
voided the Mandatory Prepayment and (B) the lowest Volume Weighted Average Price
during the period beginning on the Conversion Date and ending on the date the
Holder voided the Mandatory Prepayment.

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

                                   ARTICLE IV

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

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

                                      -21-
<PAGE>

any Organic Change, dissolution, liquidation or winding-up will take place but
in no event shall such notice be provided to the Holder prior to such
information being made known to the public. The Maker shall promptly notify the
Holder of this Note of any notices sent or received, or any actions taken with
respect to the Other Notes.

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

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

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

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

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

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

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

                                      -22-
<PAGE>

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

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

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

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

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

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

                                      -23-
<PAGE>

shall any waiver by the Holder of any such right or rights on any one occasion
be deemed a waiver of the same right or rights on any future occasion.

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

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

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

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

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

                                      -24-
<PAGE>

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

                                              TELENETICS CORPORATION

                                              By: ______________________________
                                                  Name: Shala Shashani Lutz
                                                  Title:  President

                                      -25-
<PAGE>

                                    EXHIBIT A

                               WIRE INSTRUCTIONS.

Payee: ________________________________________________________

Bank: _________________________________________________________

Address: ______________________________________________________

         ______________________________________________________

Bank No.: _____________________________________________________

Account No.: __________________________________________________

Account Name: _________________________________________________

                                      -26-
<PAGE>

                                     FORM OF

                              NOTICE OF CONVERSION

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

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

Date of Conversion ___________________________________________________________

Applicable Conversion Price __________________________________________________

Signature_____________________________________________________________________

         [Name]

Address:______________________________________________________________________

        ______________________________________________________________________

                                      -27-<PAGE>

EXHIBIT 10.34

                          REGISTRATION RIGHTS AGREEMENT
                          -----------------------------

                  This Registration Rights Agreement (this "AGREEMENT") is made
and entered into as of March 1, 2002, by and among Telenetics Corporation, a
California corporation (the "COMPANY"), and the purchasers listed on the
signature pages hereto (the "PURCHASERS").

                  This Agreement is being entered into pursuant to the Note and
Warrant Purchase Agreement, dated as of the date hereof among the Company and
the Purchasers (the "PURCHASE AGREEMENT").

                  The Company and the Purchasers hereby agree as follows:

          1.      DEFINITIONS.

                  Capitalized terms used and not otherwise defined herein shall
have the meanings given such terms in the Purchase Agreement. As used in this
Agreement, the following terms shall have the following meanings:

                  "ADVICE" shall have meaning set forth in Section 3(m).

                  "AFFILIATE" means, with respect to any Person, any other
Person that directly or indirectly controls or is controlled by or under common
control with such Person. For the purposes of this definition, "CONTROL," when
used with respect to any Person, means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms of "affiliated," "CONTROLLING" and "CONTROLLED" have
meanings correlative to the foregoing.

                  "BOARD" shall have meaning set forth in Section 3(n).

                  "BUSINESS DAY" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
State of New York generally are authorized or required by law or other
government actions to close.

                  "CLOSING DATE" means the date of the closing of the purchase
and sale of the Notes and the Warrants pursuant to the Purchase Agreement.

                  "COMMISSION" means the Securities and Exchange Commission.

                  "COMMON STOCK" means the Company's Common Stock, no par value
per share.

                  "EFFECTIVENESS DATE" means with respect to the Registration
Statement the earlier of (x) the 120th day following the Closing Date and (y)
the date that is no later than five (5) days after the date on which the
Commission informs the Company that the Commission (i) will not review the

<PAGE>

Registration Statement or (ii) that the Company may request the acceleration of
the effectiveness of the Registration Statement and the Company makes such
request; PROVIDED, HOWEVER, that the Company shall not be required to have the
Registration Statement declared effective within such five (5) days if the
Company has not obtained Shareholder Approval (as defined in Section 3.17 of the
Purchase Agreement) by such date; PROVIDED, FURTHER, that within three (3)
business days after obtaining Shareholder Approval, the Company shall file a
request for acceleration of the Registration Statement.

                  "EFFECTIVENESS PERIOD" shall have the meaning set forth in
Section 2.

                  "EVENT" shall have the meaning set forth in Section 7(e).

                  "EVENT DATE" shall have the meaning set forth in Section 7(e).

                  "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

                  "FILING DATE" means April 19, 2002.

                  "HOLDER" or "HOLDERS" means the holder or holders, as the case
may be, from time to time of Registrable Securities.

                  "INDEMNIFIED PARTY" shall have the meaning set forth in
Section 5(c).

                  "INDEMNIFYING PARTY" shall have the meaning set forth in
Section 5(c).

                  "LOSSES" shall have the meaning set forth in Section 5(a).

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

                  "PROCEEDING" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.

                  "PROSPECTUS" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference in such Prospectus.

                  "REGISTRABLE SECURITIES" means the shares of Common Stock
issuable upon conversion of the principal amount of the Notes and the shares of
Common Stock issuable upon exercise of the Warrants; PROVIDED, HOWEVER, that

                                      -2-
<PAGE>

Registrable Securities shall include (but not be limited to) a number of shares
of Common Stock equal to no less than 100% of the aggregate number of shares of
Common Stock issuable at a conversion price equal to the Conversion Price Floor
(as defined in the Notes). Such registered shares of Common Stock shall be
allocated among the Holders pro rata based on the total number of Registrable
Securities issued or issuable as of each date that a Registration Statement, as
amended, relating to the resale of the Registrable Securities is declared
effective by the Commission. Notwithstanding anything herein contained to the
contrary, if the actual number of shares of Common Stock issuable upon
conversion of the Notes and upon exercise of the Warrants exceeds 100% of the
Conversion Price Floor, the term "Registrable Securities" shall be deemed to
include such additional shares of Common Stock.

                  "REGISTRATION STATEMENT" means the registration statements and
any additional registration statements contemplated by Section 2, including (in
each case) the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference in such
registration statement.

                  "RULE 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.

                  "RULE 158" means Rule 158 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.

                  "RULE 415" means Rule 415 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.

                  "SECURITIES ACT" means the Securities Act of 1933, as amended.

                  "SPECIAL COUNSEL" means a special counsel to the Holders, for
which the Holders will be reimbursed by the Company pursuant to Section 4 hereof
and Section 8.1 of the Purchase Agreement.

         2.       SHELF REGISTRATION.

                  On or prior to the Filing Date, the Company shall prepare and
file with the Commission a "shelf" Registration Statement covering all
Registrable Securities for an offering to be made on a continuous basis pursuant
to Rule 415. The Registration Statement shall be on Form S-3 (except if the
Company is not then eligible to register for resale the Registrable Securities
on Form S-3, in which case such registration shall be on another appropriate
form). The Company shall (i) not permit any securities, other than the
Registrable Securities and the securities listed on Schedule 2.1(c) of the
Purchase Agreement, to be included in the Registration Statement and (ii) use
its best efforts to cause the Registration Statement to be declared effective
under the Securities Act as promptly as possible after the filing thereof, but

                                      -3-
<PAGE>

in any event prior to the Effectiveness Date, and to keep such Registration
Statement continuously effective under the Securities Act until such date as is
the earlier of (x) the date when all Registrable Securities covered by such
Registration Statement have been sold or (y) the date on which the Registrable
Securities may be sold without any restriction pursuant to Rule 144 as
determined by the counsel to the Company pursuant to a written opinion letter,
addressed to the Company's transfer agent to such effect (the "EFFECTIVENESS
PERIOD"). If at any time and for any reason, an additional Registration
Statement is required to be filed because at such time the actual number of
shares of Common Stock into which the Notes are convertible and the Warrants are
exercisable exceeds one hundred twenty-five percent (125%) of the number of
shares of Registrable Securities remaining under the Registration Statement, the
Company shall have twenty (20) Business Days to file such additional
Registration Statement, and the Company shall use its best efforts to cause such
additional Registration Statement to be declared effective by the Commission as
soon as possible, but in no event later than forty (45) days after filing. If at
such time in the reasonable opinion of the Purchasers there is not or will not
be a sufficient number of Registrable Securities to be issued upon conversion of
the principal amount of the Notes then outstanding, or upon the exercise of the
Warrants then outstanding, the Purchasers shall be entitled to demand that the
Company prepare and file an additional Registration Statement.

         3.       REGISTRATION PROCEDURES.

                  In connection with the Company's registration obligations
hereunder, the Company shall:

                  (a) Prepare and file with the Commission on or prior to the
Filing Date, a Registration Statement on Form S-3 (or if the Company is not then
eligible to register for resale the Registrable Securities on Form S-3 such
registration shall be on another appropriate form) in accordance with the method
or methods of distribution thereof as specified by the Holders, and use its best
efforts to cause the Registration Statement to become effective and remain
effective as provided herein; provided, HOWEVER, that not less than three (3)
Business Days prior to the filing of the Registration Statement or any related
Prospectus or any amendment or supplement thereto (including any document that
would be incorporated therein by reference), the Company shall (i) furnish to
the Holders and any Special Counsel, copies of all such documents proposed to be
filed, which documents (other than those incorporated by reference) will be
subject to the review of such Holders and such Special Counsel, and (ii) cause
its officers and directors, counsel and independent certified public accountants
to respond to such inquiries as shall be necessary, in the reasonable opinion of
counsel to such Holders, to conduct a reasonable investigation within the
meaning of the Securities Act. The Company shall not file the Registration
Statement or any such Prospectus or any amendments or supplements thereto to
which the Holders of a majority of the Registrable Securities or any Special
Counsel shall reasonably object in writing within two (2) Business Days of their
receipt thereof.

                  (b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement as may be
necessary to keep the Registration Statement continuously effective as to the
applicable Registrable Securities for the Effectiveness Period and prepare and
file with the Commission such additional Registration Statements in order to
register for resale under the Securities Act all of the Registrable Securities;

                                      -4-
<PAGE>

(ii) cause the related Prospectus to be amended or supplemented by any required
Prospectus supplement, and as so supplemented or amended to be filed pursuant to
Rule 424 (or any similar provisions then in force) promulgated under the
Securities Act; (iii) respond as promptly as possible to any comments received
from the Commission with respect to the Registration Statement or any amendment
thereto and as promptly as possible provide the Holders true and complete copies
of all correspondence from and to the Commission relating to the Registration
Statement; and (iv) comply in all material respects with the provisions of the
Securities Act and the Exchange Act with respect to the disposition of all
Registrable Securities covered by the Registration Statement during the
applicable period in accordance with the intended methods of disposition by the
Holders thereof set forth in the Registration Statement as so amended or in such
Prospectus as so supplemented.

                  (c) Notify the Holders of Registrable Securities to be sold
and any Special Counsel as promptly as possible (and, in the case of (i)(A)
below, not less than three (3) days prior to such filing) and (if requested by
any such Person) confirm such notice in writing no later than one (1) Business
Day following the day (i)(A) when a Prospectus or any Prospectus supplement or
post-effective amendment to the Registration Statement is proposed to be filed;
(B) when the Commission notifies the Company whether there will be a "review" of
such Registration Statement and whenever the Commission comments in writing on
such Registration Statement and (C) with respect to the Registration Statement
or any post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other federal or state governmental authority
for amendments or supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) if at any time any of the representations and warranties of the
Company contained in any agreement contemplated hereby ceases to be true and
correct in all material respects; (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (vi) of the occurrence of any event that makes any statement made
in the Registration Statement or Prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.

                  (d) Use its best efforts to avoid the issuance of, or, if
issued, obtain the withdrawal of, (i) any order suspending the effectiveness of
the Registration Statement or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.

                  (e) If requested by the Holders of a majority in interest of
the Registrable Securities, (i) promptly incorporate in a Prospectus supplement
or post-effective amendment to the Registration Statement such information as
the Company reasonably agrees should be included therein and (ii) make all

                                      -5-
<PAGE>

required filings of such Prospectus supplement or such post-effective amendment
as soon as practicable after the Company has received notification of the
matters to be incorporated in such Prospectus supplement or post-effective
amendment.

                  (f) Furnish to each Holder and any Special Counsel, without
charge, at least one conformed copy of each Registration Statement and each
amendment thereto, including financial statements and schedules, all documents
incorporated or deemed to be incorporated therein by reference, and all exhibits
to the extent requested by such Person (including those previously furnished or
incorporated by reference) promptly after the filing of such documents with the
Commission.

                  (g) Promptly deliver to each Holder and any Special Counsel,
without charge, as many copies of the Prospectus or Prospectuses (including each
form of prospectus) and each amendment or supplement thereto as such Persons may
reasonably request; and the Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto, during periods in which
such Prospectus and each amendment or supplement thereto are effective, by each
of the selling Holders in connection with the offering and sale of the
Registrable Securities covered by such Prospectus and any amendment or
supplement thereto.

                  (h) Prior to any public offering of Registrable Securities,
use its best efforts to register or qualify or cooperate with the selling
Holders and any Special Counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of such
Registrable Securities for offer and sale under the securities or Blue Sky laws
of such jurisdictions within the United States as any Holder requests in
writing, to keep each such registration or qualification (or exemption
therefrom) effective during the Effectiveness Period and to do any and all other
acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by a Registration Statement;
PROVIDED, HOWEVER, that the Company shall not be required to qualify generally
to do business in any jurisdiction where it is not then so qualified or to take
any action that would subject it to general service of process in any such
jurisdiction where it is not then so subject or subject the Company to any
material tax in any such jurisdiction where it is not then so subject.

                  (i) Cooperate with the Holders to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be sold pursuant to a Registration Statement, which certificates shall, if
required under the terms of this Agreement, be free of all restrictive legends,
and to enable such Registrable Securities to be in such denominations and
registered in such names as any Holder may request within the applicable time
periods prescribed for the issuance of shares upon conversion of Notes and
exercise of Warrants.

                  (j) Upon the occurrence of any event contemplated by Section
3(c)(vi), as promptly as possible, prepare a supplement or amendment, including
a post-effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus
will contain an untrue statement of a material fact or omit to state a material

                                      -6-
<PAGE>

fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.

                  (k) Use its best efforts to cause all Registrable Securities
relating to such Registration Statement to be listed on the OTC Bulletin Board,
Nasdaq SmallCap Market, The Nasdaq National Market, American Stock Exchange and
any other securities exchange, quotation system or market, if any, on which
similar securities issued by the Company are then listed as and when required
pursuant to the Purchase Agreement.

                  (l) Comply in all material respects with all applicable rules
and regulations of the Commission and make generally available to its security
holders earning statements satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 not later than 45 days after the end of any 12-month
period (or 90 days after the end of any 12-month period if such period is a
fiscal year) commencing on the first day of the first fiscal quarter of the
Company after the effective date of the Registration Statement, which statement
shall conform to the requirements of Rule 158.

                  (m) If the Registration Statement refers to any Holder by name
or otherwise as the holder of any securities of the Company, then such Holder
shall have the right to require (if such reference to such Holder by name or
otherwise is not required by the Securities Act or any similar federal statute
then in force) the deletion of the reference to such Holder in any amendment or
supplement to the Registration Statement filed or prepared subsequent to the
time that such reference ceases to be required.

                  Each Holder covenants and agrees that (i) it will not sell any
Registrable Securities under the Registration Statement until it has received
copies of the Prospectus as then amended or supplemented as contemplated in
Section 3(g) and notice from the Company that such Registration Statement and
any post-effective amendments thereto have become effective as contemplated by
Section 3(c), (ii) it and its officers, directors or Affiliates, if any, will
comply with the prospectus delivery requirements of the Securities Act as
applicable to them in connection with sales of Registrable Securities pursuant
to the Registration Statement and (iii) it will furnish to the Company
information regarding such Holder and the distribution of such Registrable
Securities as is required by law to be disclosed in the Registration Statement,
and the Company may exclude from such registration the Registrable Securities of
any such Holder who unreasonably fails to furnish such information within a
reasonable time after receiving such request.

                  Each Holder agrees by its acquisition of such Registrable
Securities that, upon receipt of a notice from the Company of the occurrence of
any event of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv),
3(c)(v) or 3(c)(vi), such Holder will forthwith discontinue disposition of such
Registrable Securities under the Registration Statement until such Holder's
receipt of the copies of the supplemented Prospectus and/or amended Registration
Statement contemplated by Section 3(j), or until it is advised in writing (the
"ADVICE") by the Company that the use of the applicable Prospectus may be
resumed, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus or Registration Statement.

                                      -7-
<PAGE>

                  (n) If (i) there is material non-public information regarding
the Company which the Company's Board of Directors (the "BOARD") reasonably
determines not to be in the Company's best interest to disclose and which the
Company is not otherwise required to disclose, or (ii) there is a significant
business opportunity (including, but not limited to, the acquisition or
disposition of assets (other than in the ordinary course of business) or any
merger, consolidation, tender offer or other similar transaction) available to
the Company which the Board reasonably determines not to be in the Company's
best interest to disclose, then the Company may postpone or suspend filing or
effectiveness of a registration statement for a period not to exceed 20
consecutive days, provided that the Company may not postpone or suspend its
obligation under this Section 3(n) for more than 45 days in the aggregate during
any 12 month period; PROVIDED, HOWEVER, that no such postponement or suspension
shall be permitted for consecutive 20 day periods, arising out of the same set
of facts, circumstances or transactions.

     4.           REGISTRATION EXPENSES.

                  All fees and expenses incident to the performance of or
compliance with this Agreement by the Company, except as and to the extent
specified in Section 4, shall be borne by the Company whether or not the
Registration Statement is filed or becomes effective and whether or not any
Registrable Securities are sold pursuant to the Registration Statement. The fees
and expenses referred to in the foregoing sentence shall include, without
limitation, (i) all registration and filing fees (including, without limitation,
fees and expenses (A) with respect to filings required to be made with the OTC
Bulletin Board, Nasdaq SmallCap Market, Nasdaq National Market and each other
securities exchange or market on which Registrable Securities are required
hereunder to be listed, (B) with respect to filings required to be made with the
National Association of Securities Dealers, Inc. and the NASD Regulation, Inc.
and (C) in compliance with state securities or Blue Sky laws (including, without
limitation, fees and disbursements of Special Counsel for the Holders in
connection with Blue Sky qualifications of the Registrable Securities and
determination of the eligibility of the Registrable Securities for investment
under the laws of such jurisdictions as the Holders of a majority of Registrable
Securities may designate)), (ii) printing expenses (including, without
limitation, expenses of printing certificates for Registrable Securities and of
printing prospectuses if the printing of prospectuses is requested by the
holders of a majority of the Registrable Securities included in the Registration
Statement), (iii) messenger, telephone and delivery expenses, (iv) fees and
disbursements of counsel for the Company and Special Counsel for the Holders to
the extent required by Section 8.1 of the Purchase Agreement, (v) Securities Act
liability insurance, if the Company so desires such insurance, and (vi) fees and
expenses of all other Persons retained by the Company in connection with the
consummation of the transactions contemplated by this Agreement, including,
without limitation, the Company's independent public accountants (including the
expenses of any comfort letters or costs associated with the delivery by
independent public accountants of a comfort letter or comfort letters). In
addition, the Company shall be responsible for all of its internal expenses
incurred in connection with the consummation of the transactions contemplated by
this Agreement (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit, the fees and expenses incurred in connection with the listing
of the Registrable Securities on any securities exchange as required hereunder.

                                      -8-
<PAGE>

     5.           INDEMNIFICATION.

                  (a) INDEMNIFICATION BY THE COMPANY. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents, brokers (including brokers who
offer and sell Registrable Securities as principal as a result of a pledge or
any failure to perform under a margin call of Common Stock), investment advisors
and employees of each of them, each Person who controls any such Holder (within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act) and the officers, directors, agents and employees of each such controlling
Person, to the fullest extent permitted by applicable law, from and against any
and all losses, claims, damages, liabilities, costs (including, without
limitation, costs of preparation and attorneys' fees) and expenses
(collectively, "LOSSES") (as determined by a court of competent jurisdiction in
a final judgment not subject to appeal or review), as incurred, arising solely
out of based solely upon any untrue or alleged untrue statement of a material
fact contained in the Registration Statement, any Prospectus or any form of
prospectus or in any amendment or supplement thereto or in any preliminary
prospectus, or arising solely out of or based solely upon any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein (in the case of any Prospectus or form of
prospectus or supplement thereto, in the light of the circumstances under which
they were made) not misleading, except to the extent, but only to the extent,
that such untrue statements or omissions are based solely upon information
regarding such Holder or such other Indemnified Party furnished in writing to
the Company by such Holder expressly for use therein, which information was
reasonably relied on by the Company for use therein or to the extent that such
information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder or the Special Counsel expressly for use in the
Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto. The Company shall notify the Holders promptly
of the institution, threat or assertion of any Proceeding of which the Company
is aware in connection with the transactions contemplated by this Agreement.

                  (b) INDEMNIFICATION BY PURCHASERS. The Purchasers shall,
severally and not jointly, indemnify and hold harmless the Company, the
directors, officers, agents and employees, each Person who controls the Company
(within the meaning of Section 15 of the Securities Act and Section 20 of the
Exchange Act), and the directors, officers, agents or employees of such
controlling Persons, to the fullest extent permitted by applicable law, from and
against all Losses (as determined by a court of competent jurisdiction in a
final judgment not subject to appeal or review), as incurred, arising solely out
of or based solely upon any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, any Prospectus, or any
form of prospectus or form of prospectus or in any amendment or supplement
thereto or in any preliminary prospectus, or arising solely out of or based
solely upon any omission of a material fact required to be stated therein or
necessary to make the statements therein (in the case of any Prospectus or
supplement thereto, in the light of the circumstances under which they were
made) not misleading, to the extent, but only to the extent, that such untrue
statement or omission or alleged untrue statement or omission is contained in
any information so furnished in writing by such Holder or other Indemnified
Party to the Company specifically for inclusion in the Registration Statement or
such Prospectus and that such information was reasonably relied upon by the

                                      -9-
<PAGE>

Company for use in the Registration Statement, such Prospectus or such form of
prospectus or to the extent that such information relates to such Holder or such
Holder's proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder or the Special Counsel
expressly for use in the Registration Statement, such Prospectus or such form of
Prospectus.

                  (c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity hereunder
(an "INDEMNIFIED PARTY"), such Indemnified Party promptly shall notify the
Person from whom indemnity is sought (the "INDEMNIFYING PARTY) in writing, and
the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Party and the
payment of all fees and expenses incurred in connection with defense thereof;
provided, that the failure of any Indemnified Party to give such notice shall
not relieve the Indemnifying Party of its obligations or liabilities pursuant to
this Agreement, except (and only) to the extent that it shall be finally
determined by a court of competent jurisdiction (which determination is not
subject to appeal or further review) that such failure shall have proximately
and materially adversely prejudiced the Indemnifying Party.

                  An Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in
writing to pay such fees and expenses; or (2) the Indemnifying Party shall have
failed promptly to assume the defense of such Proceeding and to employ counsel
reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3)
the named parties to any such Proceeding (including any impleaded parties)
include both such Indemnified Party and the Indemnifying Party, and such
Indemnified Party shall have been advised by counsel (which shall be reasonably
acceptable to the Indemnifying Party) that a conflict of interest is likely to
exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld or delayed. No Indemnifying Party
shall, without the prior written consent of the Indemnified Party, effect any
settlement of any pending Proceeding in respect of which any Indemnified Party
is a party, unless such settlement includes an unconditional release of such
Indemnified Party from all liability on claims that are the subject matter of
such Proceeding.

              All fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within ten (10) Business Days of written notice thereof to the
Indemnifying Party (regardless of whether it is ultimately determined that an
Indemnified Party is not entitled to indemnification hereunder; provided, that
the Indemnifying Party may require such Indemnified Party to undertake to
reimburse all such fees and expenses to the extent it is finally judicially
determined that such Indemnified Party is not entitled to indemnification
hereunder).

                                      -10-
<PAGE>

                  (d) CONTRIBUTION. If a claim for indemnification under Section
5(a) or 5(b) is unavailable to an Indemnified Party because of a failure or
refusal of a governmental authority to enforce such indemnification in
accordance with its terms (by reason of public policy or otherwise), then each
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Losses, in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Party and Indemnified Party in connection with the
actions, statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations. The relative fault of such Indemnifying
Party and Indemnified Party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission of a material fact,
has been taken or made by, or relates to information supplied by, such
Indemnifying, Party or Indemnified Party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable by a party as a result
of any Losses shall be deemed to include, subject to the limitations set forth
in Section 5(c), any reasonable attorneys' or other reasonable fees or expenses
incurred by such party in connection with any Proceeding to the extent such
party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party in
accordance with its terms.

              The parties hereto agree that it would not be just and equitable
if contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
No Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.

              The indemnity and contribution agreements contained in this
Section are in addition to any liability that the Indemnifying Parties may have
to the Indemnified Parties

         6.       RULE 144.

              As long as any Holder owns Conversion Shares, Warrants or Warrant
Shares, the Company covenants to timely file (or obtain extensions in respect
thereof and file within the applicable grace period) all reports required to be
filed by the Company after the date hereof pursuant to Section 13(a) or 15(d) of
the Exchange Act and to promptly furnish the Holders with true and complete
copies of all such filings. As long as any Holder owns Conversion Shares,
Warrants or Warrant Shares, if the Company is not required to file reports
pursuant to Section 13(a) or 15(d) of the Exchange Act, it will prepare and
furnish to the Holders and make publicly available in accordance with Rule
144(c) promulgated under the Securities Act annual and quarterly financial
statements, together with a discussion and analysis of such financial statements
in form and substance substantially similar to those that would otherwise be
required to be included in reports required by Section 13(a) or 15(d) of the
Exchange Act, as well as any other information required thereby, in the time
period that such filings would have been required to have been made under the
Exchange Act. The Company further covenants that it will take such further
action as any Holder may reasonably request, all to the extent required from
time to time to enable such Person to sell Conversion Shares and Warrant Shares

                                      -11-
<PAGE>

without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144 promulgated under the Securities Act, including
providing any legal opinions relating to such sale pursuant to Rule 144. Upon
the request of any Holder, the Company shall deliver to such Holder a written
certification of a duly authorized officer as to whether it has complied with
such requirements.

         7.       MISCELLANEOUS.

                  (a) REMEDIES. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. The
Company and each Holder agree that monetary damages would not provide adequate
compensation for any losses incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.

                  (b) NO INCONSISTENT AGREEMENTS. Neither the Company nor any of
its subsidiaries has, as of the date hereof entered into and currently in
effect, nor shall the Company or any of its subsidiaries, on or after the date
of this Agreement, enter into any agreement with respect to its securities that
is inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. Except as disclosed in SCHEDULE
2.1(C) of the Purchase Agreement, neither the Company nor any of its
subsidiaries has previously entered into any agreement currently in effect
granting any registration rights with respect to any of its securities to any
Person. Without limiting the generality of the foregoing, without the written
consent of the Holders of a majority of the then outstanding Registrable
Securities, the Company shall not grant to any Person the right to request the
Company to register any securities of the Company under the Securities Act
unless the rights so granted are subject in all respects to the prior rights in
full of the Holders set forth herein, and are not otherwise in conflict with the
provisions of this Agreement.

                  (c) NO PIGGYBACK ON REGISTRATIONS. Neither the Company nor any
of its security holders (other than the Holders in such capacity pursuant hereto
or as disclosed in SCHEDULE 2.1(C) of the Purchase Agreement) may include
securities of the Company in the Registration Statement, and the Company shall
not after the date hereof enter into any agreement providing such right to any
of its securityholders, unless the right so granted is subject in all respects
to the prior rights in full of the Holders set forth herein, and is not
otherwise in conflict with the provisions of this Agreement.

                  (d) PIGGY-BACK REGISTRATIONS. If at any time when there is not
an effective Registration Statement covering (i) Conversion Shares or (ii)
Warrant Shares, the Company shall determine to prepare and file with the
Commission a registration statement relating to an offering for its own account
or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the

                                      -12-
<PAGE>

Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, the Company shall send to each holder of Registrable Securities
written notice of such determination and, if within thirty (30) days after
receipt of such notice, any such holder shall so request in writing, (which
request shall specify the Registrable Securities intended to be disposed of by
the Purchasers), the Company will cause the registration under the Securities
Act of all Registrable Securities which the Company has been so requested to
register by the holder, to the extent requisite to permit the disposition of the
Registrable Securities so to be registered, provided that if at any time after
giving written notice of its intention to register any securities and prior to
the effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register or to
delay registration of such securities, the Company may, at its election, give
written notice of such determination to such holder and, thereupon, (i) in the
case of a determination not to register, shall be relieved of its obligation to
register any Registrable Securities in connection with such registration (but
not from its obligation to pay expenses in accordance with Section 4 hereof),
and (ii) in the case of a determination to delay registering, shall be permitted
to delay registering any Registrable Securities being registered pursuant to
this Section 7(d) for the same period as the delay in registering such other
securities. The Company shall include in such registration statement all or any
part of such Registrable Securities such holder requests to be registered;
PROVIDED, HOWEVER, that the Company shall not be required to register any
Registrable Securities pursuant to this Section 7(d) that are eligible for sale
pursuant to Rule 144(k) of the Securities Act. In the case of an underwritten
public offering, if the managing underwriter(s) or underwriter(s) should
reasonably object to the inclusion of the Registrable Securities in such
registration statement, then if the Company after consultation with the managing
underwriter should reasonably determine that the inclusion of such Registrable
Securities, would materially adversely affect the offering contemplated in such
registration statement, and based on such determination recommends inclusion in
such registration statement of fewer or none of the Registrable Securities of
the Holders, then (x) the number of Registrable Securities of the Holders
included in such registration statement shall be reduced pro-rata among such
Holders (based upon the number of Registrable Securities requested to be
included in the registration), if the Company after consultation with the
underwriter(s) recommends the inclusion of fewer Registrable Securities, or (y)
none of the Registrable Securities of the Holders shall be included in such
registration statement, if the Company after consultation with the
underwriter(s) recommends the inclusion of none of such Registrable Securities;
PROVIDED, HOWEVER, that if Securities are being offered for the account of other
persons or entities as well as the Company, such reduction shall not represent a
greater fraction of the number of Registrable Securities intended to be offered
by the Holders than the fraction of similar reductions imposed on such other
persons or entities (other than the Company).

                  (e) FAILURE TO FILE REGISTRATION STATEMENT AND OTHER EVENTS.
The Company and the Purchasers agree that the Holders will suffer damages if the
Registration Statement is not filed on or prior to the Filing Date and not
declared effective by the Commission on or prior to the Effectiveness Date and
maintained in the manner contemplated herein during the Effectiveness Time or if
certain other events described below occur. The Company and the Holders further
agree that it would not be feasible to ascertain the extent of such damages with
precision. Accordingly, if (A) the Registration Statement is not filed on or

                                      -13-
<PAGE>

prior to the Filing Date, or is not declared effective by the Commission on or
prior to the Effectiveness Date (or in the event an additional Registration
Statement is filed because the actual number of shares of Common Stock into
which the Notes are convertible and the Warrants are exercisable exceeds the
number of shares of Common Stock initially registered is not filed and declared
effective with the time periods set forth in Section 2), or (B) the Company
fails to file with the Commission a request for acceleration in accordance with
Rule 461 promulgated under the Securities Act within five (5) Business Days of
the date that the Company is notified (orally or in writing, whichever is
earlier) by the Commission that a Registration Statement will not be "reviewed,"
or not subject to further review, or (C) the Registration Statement is filed
with and declared effective by the Commission but thereafter ceases to be
effective as to all Registrable Securities at any time prior to the expiration
of the Effectiveness Period, without being succeeded immediately by a subsequent
Registration Statement filed with and declared effective by the Commission, or
(D) trading in the Common Stock shall be suspended or if the Common Stock is
delisted from the OTCBB or other exchange for any reason for more than three
Business Days in the aggregate, or (E) the conversion rights of the Holders are
suspended for any reason, or (F) the Company breaches in a material respect any
covenant or other material term or condition to the Transaction Documents (other
than a representation or warranty contained therein) or any other agreement,
document, certificate or other instrument delivered in connection with the
transactions contemplated hereby and thereby, and such breach continues for a
period of thirty days after written notice thereof to the Company, or (G) the
Company has breached Section 3(n) (any such failure or breach, other than a
failure that results from a breach by a Holder of its obligations under the
Transaction Documents, being referred to as an "EVENT," and for purposes of
clauses (A) and (E) the date on which such Event occurs, or for purposes of
clause (B) the date on which such five day period is exceeded, or for purposes
of clause (C) after more than fifteen Business Days, or for purposes of clause
(D) the date on which such three Business Day period is exceeded, or for clause
(F) the date on which such thirty day period is exceeded, being referred to as
"EVENT DATE"), the Company shall pay, at the option of the Holder, an amount in
cash or shares of Common Stock, as liquidated damages to each Holder equal to 3%
for the first calendar month and 4% per calendar month thereafter or portion
thereof of the principal amount of the Notes held by such Holder plus the
principal amount of any Notes that have been converted to the extent any of the
Conversion Shares issued upon such conversion have not been sold, which
liquidated damages shall be calculated upon based upon the actual number of days
elapsed from the Event Date until the applicable Event is cured. Payments to be
made pursuant to this Section 7(e) shall be due and payable immediately upon
demand in immediately available funds. If the Holder elects to be paid in shares
of Common Stock, the number of such shares of Common Stock shall be based on the
liquidated damage amount divided by the Conversion Rate (as defined in the
Note).

                  (f) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and each of the Holders. Notwithstanding the foregoing, a waiver or consent to
depart from the provisions hereof with respect to a matter that relates
exclusively to the rights of Holders and that does not directly or indirectly
affect the rights of other Holders may be given by Holders of at least a
majority of the Registrable Securities to which such waiver or consent relates;
PROVIDED, HOWEVER, that the provisions of this sentence may not be amended,

                                      -14-
<PAGE>

modified, or supplemented except in accordance with the provisions of the
immediately preceding sentence.

                  (g) NOTICES. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earlier of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified for notice prior to 5:00 p.m., Lake Forest
time, on a Business Day, (ii) the Business Day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
telephone number specified for notice later than 5:00 p.m., Lake Forest time, on
any date and earlier than 11:59 p.m., Lake Forest time, on such date, (iii) the
Business Day following the date of mailing, if sent by nationally recognized
overnight courier service or (iv) actual receipt by the party to whom such
notice is required to be given. The addresses for such communications shall be
with respect to each Holder at its address set forth under its name on SCHEDULE
1 attached hereto, or with respect to the Company, addressed to:

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

or to such other address or addresses or facsimile number or numbers as any such
party may most recently have designated in writing to the other parties hereto
by such notice. Copies of notices to the Company shall be sent to Rutan &
Tucker, LLP, 611 Anton Boulevard, Suite 1400, Costa Mesa, California 92626,
Attention: Larry A. Cerutti, Esq., Facsimile No.: (714) 546-9035.

                  (h) SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and permitted
assigns and shall inure to the benefit of each Holder and its successors and
permitted assigns. The Company may not assign this Agreement or any of its
rights or obligations hereunder without the prior written consent of each
Holder. Each Purchaser may assign its rights hereunder in the manner and to the
Persons as permitted under this Agreement and the Purchase Agreement.

                  (i) ASSIGNMENT OF REGISTRATION RIGHTS. The rights of each
Holder hereunder, including the right to have the Company register for resale
Registrable Securities in accordance with the terms of this Agreement, shall be
automatically assignable by each Holder to any Affiliate of such Holder or any
other Holder or Affiliate of any other Holder of all or a portion of the Notes
or the Registrable Securities if: (i) the Holder agrees in writing with the
transferee or assignee to assign such rights, and a copy of such agreement is
furnished to the Company within a reasonable time after such assignment, (ii)
the Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (a) the name and address of such transferee or
assignee, and (b) the securities with respect to which such registration rights
are being transferred or assigned, (iii) following such transfer or assignment
the further disposition of such securities by the transferee or assignees is

                                      -15-
<PAGE>

restricted under the Securities Act and applicable state securities laws, (iv)
at or before the time the Company receives the written notice contemplated by
clause (ii) of this Section, the transferee or assignee agrees in writing with
the Company to be bound by all of the provisions of this Agreement, (v) such
transfer shall have been made in accordance with the applicable requirements of
the Purchase Agreement, and (vi) at least 100,000 shares of Registrable
Securities (appropriately adjusted for any stock dividend, split or combination
of the Common Stock) are being transferred to such transferee or assignee in
connection with such assignment of rights. In addition, each Holder shall have
the right to assign its rights hereunder to any other Person with the prior
written consent of the Company, which consent shall not be unreasonably
withheld. The rights to assignment shall apply to the Holders (and to
subsequent) successors and assigns.

                  (j) COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which when so executed shall be deemed to be an
original and, all of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature were the original
thereof.

                  (k) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to principles of conflicts of law thereof.

                  (l) CUMULATIVE REMEDIES. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.

                  (m) SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held to be invalid, illegal, void or
unenforceable in any respect, the remainder of the terms, provisions, covenants
and restrictions set forth herein shall remain in full force and effect and
shall in no way be affected, impaired or invalidated, and the parties hereto
shall use their reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.

                  (n) HEADINGS. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.

                  (o) SHARES HELD BY THE COMPANY AND ITS AFFILIATES. Whenever
the consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
its Affiliates (other than any Holder or transferees or successors or assigns
thereof if such Holder is deemed to be an Affiliate solely by reason of its
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.

                                      -16-
<PAGE>

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

COMPANY:                                    TELENETICS CORPORATION

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

PURCHASERS:

                                               /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

                                      -17-

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