Document:

EXHIBIT  10.54

                          AMERICAN ECOLOGY CORPORATION
                         2002 MANAGEMENT INCENTIVE PLAN
                                  JULY 31, 2002
                                  -------------

I.     PURPOSE  OF  THE  PLAN.

The purpose of the American Ecology Corporation 2002 Management Incentive Plan
(the "Plan") is to advance the interests of the American Ecology Corporation
stockholders by providing certain of its key employees, for the 2002 fiscal
year, with incentive compensation consistent with the interest of the
stockholders through the achievement of pre-established, objective performance
goals.

                               II.     Eligibility
                                       -----------
Eligibility in the Plan is limited to key executives, senior management and
other key employees of American Ecology Corporation and its subsidiaries (the
"Company"). The Compensation Committee of the Company's Board of Directors (for
purposes of the Plan, the "Plan Administrator") will approve the Plan and
designate those employees who are eligible to participate in the Plan.

A listing of approved employees ("Participants"), their respective Initial Base
Percentage ("IBP") shall be maintained and administered by the Chief Financial
Officer ("CFO"), under the direction of the Plan Administrator and is attached
hereto as Exhibit A. Exhibit A may be changed from time to time as additional
Participants are added or deleted to the Plan or as otherwise changed in the
discretion of the Plan Administrator.

Participation in the Plan supercedes any prior agreements, either written or
verbal. Participants, including new employees, may be added to the Plan during
the year, at the sole discretion of the Plan Administrator. Any payment made to
any Plan Participant added to the Plan after initial approval by the Company's
Board of Directors, shall be pro-rated, based on the number of days in 2002 such
employee was a Participant in the Plan, unless otherwise stipulated by the Plan
Administrator. To be eligible to receive an incentive compensation award (a
"Bonus Award") under the Plan, a Participant must have been employed on a
full-time basis by the Company for the entire 12 months of 2002 (the
"Performance Period"), except for new employees added to the Plan during the
Performance Period by the Plan Administrator. To receive any Bonus Award granted
under the Plan, a Plan Participant must be employed on the last day of the
Performance Period and at the date of any such payment. Plan Participants whose
employment with the Company has been terminated, for any reason whatsoever,
prior to the payment of any Bonus Award, shall not be eligible to receive any
payment hereunder.

III.     PARTICIPANT  GROUPS
The Plan Administrator will segregate Plan Participants into one of two groups:

     -    Executive Management
     -    Senior Management

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<PAGE>
     a.   The Executive Management group shall be comprised of the Chief
          Executive Officer ("CEO") and the Chief Financial Officer ("CFO"). One
          Hundred percent (100%) of the Executive Management group's Bonus Award
          shall be based upon achievement of the Operating Income and Cash Flow
          Targets, weighted equally, attached hereto as Exhibit B.

     b.   The Senior Management group shall be comprised the Corporate
          Controller, the Director of Hazardous Waste Operations, Site Managers,
          the Director of Information Systems, and any other key employees
          designated by the Plan Administrator. Fifty percent (50%) of the
          Senior Management group's Bonus Award shall be based upon achievement
          of the Operating Income Target and Cash Flow Targets, weighted
          equally, attached here to as Exhibit B. Fifty percent (50%) shall be
          awarded at the discretion of the CEO or CFO based on but not limited
          to the following factors: site financial performance, regulatory
          compliance, health and safety records, achievement of specific
          performance objectives as laid out by executive management, and
          observed factors such as teamwork, attitude, and cooperation.

IV.    TARGETED FINANCIAL PERFORMANCE

The Company's Board of Directors has approved the following Operating Income and
Cash Flow Targets for the Performance Period, adjusted for a new accounting
standard, as follows:

                                            100%         120%
                                            ----         ----
                 Operating Profit       $4,731,000     $5,677,200
                Operating Cash Flow     $4,178,252     $5,013,902

V.     BONUS  AWARDS

Any and all Bonus Awards will be based on the annual, audited financial
statements for the Performance Period, prepared in accordance with generally
accepted accounting principles, provided to the Plan Administrator. For purposes
of the Plan, "Operating Income" is defined as Gross Profit less Selling, General
and Administrative Expenses after any accrual for Bonus Awards. Cash Flow is
defined Operating Income plus depreciation amortization (EBITDA) plus or minus
the change in Accounts Receivable (including any unbilled revenue) plus or minus
the change in Accounts Payable less capital expenditures.

The Company shall pay Bonus Awards to Plan Participants upon certification by
the Plan Administrator that the Operating Income or Cash Flow Target for the
Performance Period has been achieved or surpassed. All Bonus Award payments
shall be made within a reasonable time after receipt of the annual audited
financial statements of the Company for the Performance Period, but in any event
not later than March 31, 2003 (provided such audited financial statements are
available as of such date).

In the event the Company has achieved 120% of the Operating Income or Cash Flow
Target for the Performance Period, Plan Participants shall be eligible to
receive a Bonus Award in an amount equal to their Initial Base Percentage of
annual salary (as set forth in Exhibit B) plus an addition 50% of the IBP.

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One-time gains or losses or extraordinary events, as reported in the Company's
audited financial statements, may be excluded from or may not be factored into
the Bonus Awards solely at the discretion of the Plan Administrator.

VI.     PROCEDURE

The Plan Administrator shall have full power, discretion and authority to
administer and interpret the Plan, including the calculation and verification of
all Bonus Awards, and to establish rules and procedures for its administration,
as the Plan Administrator deems necessary and appropriate. Any interpretation of
the Plan or other act of the Plan Administrator in administering the Plan shall
be final and binding on all Plan Participants. No member of the Plan
Administrator or the Board of Directors shall be liable for any action,
interpretation, or construction made in good faith with respect to the Plan. No
member of the Plan Administrator or the Board of Directors, except for any
management members of the Board of Directors who shall recuse themselves from
any vote relating to the Plan, shall participate in the Plan. The Company shall
indemnify, to the fullest extent permitted by law, each member of the Board who
becomes liable in any civil action or proceeding with respect to decisions made
relating to the Plan. The CFO shall provide the Plan Administrator with a
quarterly report of Participants in the Plan and their respective annual
salaries, along with any other information that the Plan Administrator may
request from time to time.

A Plan Participant may be removed from the Plan, with no right to any Bonus
Award under the Plan, if it is determined in the discretion of the Plan
Administrator that any of the following have occurred:
          i.   Insubordination, misconduct, malfeasance, or any formal
               disciplinary action taken by the Company.
          ii.  Demotion: If a Plan Participant is removed from the Participant
               group that made him or her an eligible Participant under the
               Plan, then such employee shall be deemed to be ineligible for
               participation in the Plan and shall not receive any Bonus Award
               under the Plan.

VII.      PLAN  AMENDMENT  AND  TERMINATION.

This Plan terminates automatically on December 31, 2002, unless extended by the
Company's Board of Directors.

VIII.     MISCELLANEOUS  PROVISIONS.

     a.   Employment Rights. The Plan does not constitute a contract of
          employment and participation in the Plan will not give a Participant
          the right to continue in the employ of the Company on a full-time,
          part-time or other basis. Participation in the Plan will not give any
          Participant any right or claim to any benefit under the Plan, unless
          such right or claim has specifically been granted by the Plan
          Administrator under the terms of the Plan.

     b.   Plan Administrator's Decision Final. Any interpretation of the Plan
          and any decision on any matter pertaining to the Plan that is made by
          the Plan Administrator in its discretion in good faith shall be
          binding on all persons.

     c.   Governing Law. Except to the extent superseded by the laws of the
          United States, the laws of the State of Idaho, without regard to its
          conflicts of laws principles, shall govern in all matters relating to
          the Plan.

     d.   Interests Not Transferable. Any interests of Participants under the
          Plan may not be voluntarily sold, transferred, alienated, assigned or
          encumbered, other than by will or pursuant to the laws of descent and
          distribution. Notwithstanding the foregoing, if a Participant dies
          during the Performance Period, then a pro rata portion of the Bonus
          Award earned by such deceased Participant shall be paid to the
          deceased Participant's beneficiary, as designed in writing by such
          Participant; provided, however, that if the deceased Participant has
          not designated a beneficiary, then such amount shall be payable to the
          deceased Participant's estate.

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<PAGE>
     e.   Severability. In the event any provision of the Plan shall be held to
          be illegal or invalid for any reason, such illegality or invalidity
          shall not affect the remaining parts of the Plan, and the Plan shall
          be construed and enforced as if such illegal or invalid provisions had
          never been contained in the Plan.

     f.   Withholding. The Company will withhold from any amounts payable under
          the Plan all federal, state, city and local taxes as shall be legally
          required.

     g.   Effect on Other Plans or Agreements. Payments or benefits provided to
          a Participant under any stock, deferred compensation, savings,
          retirement or other employee benefit plan are governed solely by the
          terms of each of such plans.

Effective  Date.

     This Plan is effective as of July 25, 2002, the date of its approval by the
     Board of Directors of the Company.

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<PAGE>
<TABLE>
<CAPTION>
                                    Exhibit A
                             2002 Plan Participants

Executive Group:

                                                         % Payout at   % Payout at
                                                         ------------  ------------
Name                                Position             100% Target   120% Target
------------------------  -----------------------------  ------------  ------------
<S>                       <C>                            <C>           <C>

Stephen A. Romano         Chief Executive Officer                 25%         37.5%
James R. Baumgardner      Chief Financial Officer                 15%         22.5%

Senior Management Group:
Scott Nicholson           Director Hazardous Operations           10%           15%
Michael Gilberg           Vice President & Controller             10%           15%
Tom Hayes                 Site Manager, Richland                   8%           12%
Joe Kramer                Site Manager, TECO                       8%           12%
Simon Bell                Site Manager, Grand View                 8%           12%
Dieter Pawlik             Site Manager, Oak Ridge                  8%           12%
John Cooper               Director of Information                  8%           12%
                          Systems
</TABLE>

                                       33
<PAGE>THIS NOTE AND THE COMMON STOCK ISSUABLE ON EXERCISE OF THE CONVERSION OPTION SET
FORTH IN THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND
MAY  NOT  BE SOLD OR TRANSFERRED IN THE ABSENCE OF (a) AN EFFECTIVE REGISTRATION
STATEMENT  FOR THIS NOTE AND/OR COMMON STOCK UNDER THE SECURITIES ACT OF 1933 OR
(b)  AN  OPINION  REASONABLY  SATISFACTORY TO SAFEGUARD HEALTH ENTERPRISES, INC.
FROM  COUNSEL  FOR  SAFEGUARD  HEALTH  ENTERPRISES, INC. OR FROM COUNSEL FOR THE
PROPOSED  TRANSFEROR  TO  THE  EFFECT  THAT THE TRANSFER MAY BE EFFECTED WITHOUT
REGISTRATION.

TRANSFER OF THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF
THIS  NOTE  ARE  SUBJECT  TO  THE  TERMS AND PROVISIONS OF A REGISTRATION RIGHTS
AGREEMENT  DATED  THE  SAME DATE AS THIS NOTE, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL  OFFICE OF SAFEGUARD HEALTH ENTERPRISES, INC. THIS NOTE AND THE SHARES
OF COMMON STOCK ISSUABLE ON CONVERSION OF THIS NOTE MAY NOT BE SOLD OR OTHERWISE
DISPOSED, EXCEPT IN ACCORDANCE WITH THAT AGREEMENT. A COPY OF THE AGREEMENT WILL
BE  FURNISHED  WITHOUT CHARGE TO THE HOLDER OF THIS NOTE ON RECEIPT BY SAFEGUARD
HEALTH ENTERPRISES, INC. AT ITS PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE
OF  A  WRITTEN  REQUEST  FROM  THE  HOLDER  REQUESTING  A  COPY.

                           CONVERTIBLE PROMISSORY NOTE

Borrower:     SAFEGUARD  HEALTH  ENTERPRISES,  INC.

Holder:     JACK  R.  ANDERSON

Initial Principal Amount:  $2,000,000              Date of Note:  August 8, 2002

     1.   PROMISE  TO  PAY, INTEREST RATE.  For value received, SafeGuard Health
Enterprises,  Inc.,  a Delaware corporation ("BORROWER"), promises to pay to the
order  of  Jack  R. Anderson ("HOLDER"), in lawful money of the United States of
America,  the  sum of Two Million and 00/100 Dollars ($2,000,000), together with
interest  assessed  on  a  fixed-rate  basis at a rate of seven percent (7%) per
annum.

     2.   MATURITY.  Borrower shall pay the outstanding principal amount of this
Note,  together  with any accrued unpaid interest, on the earliest of (a) August
7,  2005, or (b) at the Holder's election, the occurrence of a Change in Control
(as  defined  in  the  next  sentence), all subject to the right of acceleration
described  below  (the  "MATURITY DATE"). A "CHANGE OF CONTROL" means (w) equity
holders  of  Borrower  approve  a  liquidation  of  all  or substantially all of
Borrower's assets; (x) a sale, lease, exchange, or other transfer of all or more
than  50%  in  value of the assets of Borrower in one transaction or a series of
transactions;  (y)  a  merger,  consolidation,  reorganization,  tender  offer,
exchange offer, or share exchange in which securities possessing more than fifty
percent  (50%)  of  the  total  combined  voting power of Borrower's outstanding
securities  are  transferred to a person or persons different from those persons
holding those securities prior to such transaction; or (z) the occurrence of any
event,  transaction,  or

<PAGE>
arrangement  that  results in any person or group other than the shareholders of
Borrower  prior  to  such  event,  transaction,  or  arrangement  becoming  the
beneficial  owner,  either  directly  or  indirectly,  of  a  majority  of  the
outstanding  Common  Stock.

     3.   PAYMENTS.  Except  as otherwise provided in this Note, this Note shall
be  due  and  payable in equal monthly installments of principal and interest in
the  amount  of Sixty-One Thousand Seven Hundred Fifty-Four and 19/100th Dollars
($61,754.19),  and  in  a  final payment of all outstanding principal and unpaid
accrued  interest  on the Maturity Date. Each payment will be due and payable on
the  first Business Day of each month of each year during the term of this Note,
commencing on the first Business Day of the first full month that commences more
than  fifteen  days  after this Note is executed and delivered. Borrower may not
prepay  this  Note  without  Holder's  prior  consent.

     In  the  event  a  portion  of  this Note is converted into Common Stock of
SafeGuard  pursuant  to  Section  11  of  this  Note,  the amount of the monthly
installments  of  principal  and  interest specified above will be adjusted. The
parties  will  recalculate  the  amount  of  the  equal  monthly installments of
principal  and  interest  based  on  the  outstanding principal amount after the
conversion  and  interest  thereon  over  the  remaining  term  of  this  Note.

     4.   OTHER  TRANSACTION DOCUMENTS.  Borrower shall be subject to the terms,
conditions,  and  covenants of and shall comply with the provisions set forth in
any  agreements  related  to  this  Note.

     5.   BORROWER'S  AFFIRMATIVE COVENANTS.  Until full payment and performance
of  all  obligations  of  Borrower  under  this  Note,  Borrower  shall:

          (a)  Compliance.  Comply,  and cause its subsidiaries to comply,in all
               ----------
     material  respects with all applicable laws, ordinances, rules, regulations
     and  governmental  requirements.

          (b)  Conduct  of Business: Maintenance of Corporate Status.  Continue,
               -----------------------------------------------------
     and  cause  each  of its subsidiaries to continue, to engage in business of
     the  same  general  type as now conducted by Borrower and its subsidiaries,
     and  preserve,  renew  and  keep  in  full force and effect, and cause each
     subsidiary  to  preserve,  renew  and  keep in full force and effect, their
     respective  corporate existence and their respective rights, privileges and
     franchises  necessary  or  desirable  in  the  normal  conduct of business;
     provided,  however,  if  Borrower in good faith determines the action to be
     --------   -------
     in  the best interest of the Borrower and not materially disadvantageous to
     Borrower, Borrower may terminate the corporate existence of any subsidiary,
     surrender any license or certificate of authority of any subsidiary or sell
     the  capital  stock  of  any  subsidiary.

          (c)  Deliver Stock Certificates.  On conversion of all or part of this
               --------------------------
     Note,  promptly issue and deliver to Holder a certificate for the number of
     full  shares  of  Common  Stock  issuable  upon  such  conversion  and,  if
     applicable,  a  new  Note  evidencing  any  remaining  principal amount not
     converted,  in  a  form  substantially  identical  to  this  Note.

                                        2
<PAGE>
          (d)  Reserve  Common  Stock.  Reserve  and  keep  available, free from
               ----------------------
     preemptive  rights, from its authorized shares of Common Stock, the maximum
     number  of  shares  that  are  issuable  upon  conversion  of  this  Note.

          (e)  Taxes.  Accurately  prepare  and  timely  file,  and  cause  each
               -----
     subsidiary  to accurately prepare and timely file, all tax returns required
     by  law  to  be  filed  on behalf of Borrower or subsidiary, as applicable.
     Borrower  and  each  subsidiary shall promptly pay and discharge all taxes,
     assessments  and  governmental  charges or levies imposed by applicable law
     upon  them  or upon their income or profit, or upon their properties, real,
     personal  or  mixed;  provided, however,  that  neither  Borrower  nor  any
                           --------  -------
     subsidiary  shall  be  required  to  pay  or cause to be paid any such tax,
     assessment,  charge  or  levy  if  the same will not at the time be due and
     payable  or  if  the  validity  thereof  is  contested  in  good  faith  by
     appropriate  proceedings;  provided  further,  however,  that  Borrower and
                                --------  -------   -------
     each  subsidiary  shall  pay all such taxes, assessments, charges or levies
     forthwith  whenever,  as  the  result  of proceedings to foreclose any lien
     which  attached  as  security  therefore,  foreclosure on such lien appears
     imminent,  or  will  obtain  a surety bond or take such other steps as will
     prevent  such  foreclosure.

     6.   BORROWER'S NEGATIVE COVENANTS. Until it fully pays and performs all of
its  obligations  under  this  Note,  Borrower  shall  not:

          (a)  Dividends  and  Redemptions.  Declare any dividends on any shares
               ---------------------------
     of  any  class of its capital stock, or apply any of its property or assets
     to  the  purchase,  redemption or other retirement of, or set apart any sum
     for the payment of any dividends on, or for the purchase, retirement of, or
     make any other distribution or reduction of capital or otherwise in respect
     of, any shares of its capital stock; provided, however, that Borrower shall
                                          --------  -------
     be  permitted  to  take  any  such  actions  so long as at the time of such
     action:  (i)  there is not an Event of Default under this Note or condition
     with  the  passage  of  time or notice will constitute an Event of Default;
     (ii)  the  total  amount  of  the  consideration  paid  does not exceed the
     cumulative  net  income  of  Borrower from and after February 28, 2002; and
     (iii)  such  action  does  not  result  in  a  disproportionate  payment to
     Borrower's  shareholders on an as-converted basis, unless all of Borrower's
     shareholders  first  had  been given the same opportunity to participate in
     such  action.

          (b)  Restrict  Performance.  Enter  into  any agreements that restrict
               ---------------------
     its  right  or  ability  to  perform  under  this  Note.

          (c)  Related  Party  Transactions.  Enter  into any transaction with a
               ----------------------------
     Related  Party,  except  for  (i) transactions entered in good faith and on
     terms comparable to those that could be obtained from an unaffiliated third
     party, and (ii) the consulting agreement in effect on the date of this Note
     between  Borrower  and  Steven  J.  Baileys.  For purposes of the foregoing
     provision,  the  term  "RELATED  PARTY"  means  any  person who directly or
     indirectly  controls,  is  controlled  by,  or  under  common control with,
     Borrower  or  any  subsidiary, including an officer, director, or holder of
     more than 10% of the Borrower's or any subsidiary's capital stock, a spouse
     or relative of any of the foregoing persons, and any entity of which any of
     the  foregoing  persons  is a member, officer, director, employee,

                                        3
<PAGE>
     partner, trustee, or a direct or indirect beneficial owner of any equity or
     beneficial  interest  of  5%  or  more.

          (d)  Borrower  Actions.  Without  the Holder's prior consent, cause or
               -----------------
     permit  Borrower  to  do  any  of  the  following:

               (i)  create,  assume, issue or incur debt in excess of $1,000,000
          in  the  aggregate, excluding ordinary trade payables and that certain
          $2,625,000  Promissory Note to be issued to Nicholas M. Kavouklis, DMD
          (the  "Kavouklis  Note")  pursuant  to  that  certain  Stock  Purchase
          Agreement,  dated  April  24,  2002  relating  to  the purchase of the
          capital  stock  of  Paramount  Dental  Plan,  Inc.  by  Borrower  (the
          "Paramount  Stock  Purchase  Agreement");

               (ii)  redeem  any  of  its  outstanding  stock;

               (iii) create  financial obligations (other than traditional (and
          not  synthetic) operating leases) that are not reported as liabilities
          or obligations to pay on the balance sheet of the financial statements
          of  Borrower,  whether  the  obligations  are leases, lease-purchases,
          non-recourse financing, or other means or methods commonly referred to
          as  "off-balance  sheet  financing";

               (iv)  extend,  endorse,  or  guarantee,  or  become  a  surety,
          accommodation  party,  or  responsible  for, any indebtedness or other
          obligation of any other person, except for guarantees and endorsements
          made  in  connection  with  the  deposit  of  items for collection; or

               (v)  prepay,  redeem,  retire, or otherwise acquire for value any
          indebtedness  in  amounts  greater  or at times earlier than required,
          other  than  payment  of  accounts  payable  in the usual and ordinary
          course  of  business.

     7.   SECURITY.  This  Note  is  unsecured.

     8.   DEFAULT.  Each of the following shall constitute an "Event of Default"
under  this  Note:

          (a)  Non-payment.  Borrower  fails to pay in full within five (5) days
               -----------
     of  the  date when due any principal, interest, fee or other amount payable
     to  the  Holder  under this Note or any other obligation of Borrower to the
     Holder,  whether  at  maturity  or otherwise and fails to cure such default
     within  five  (5)  days after written notice of such default from Holder to
     Borrower,  provided,  however,  if Holder previously provided Borrower with
                --------   -------
     two  (2)  written  notices  of default pursuant to this Section 8(a) in any
     twelve-month  period, Holder shall not be required to provide Borrower with
     a  written  notice  of  such  default;

          (b)  Breach  of  Representation or Warranty.  A material breach of any
               --------------------------------------
     representation  or  warranty  made  by Borrower in this Note or any related
     agreement  and  the  failure to cure such breach or violation within twenty
     (20) days after written notice

                                        4
<PAGE>
     thereof  from Holder to Borrower (but only if the breach or violation is of
     a  nature  that  it  can  be  cured);

          (c)  Breach  of  Covenant.  A  breach  of  or  failure  by Borrower to
               --------------------
     perform  any  covenant or obligation of Borrower set out or contemplated in
     this  Note  or any related agreement and the failure to cure such breach or
     violation  within twenty (20) days after written notice thereof from Holder
     to Borrower (but only if the breach or violation is of a nature that it can
     be  cured);

          (d)  Voluntary  Bankruptcy and Insolvency Proceedings.  Borrower files
               ------------------------------------------------
     a petition in bankruptcy or for reorganization or for an arrangement or any
     composition,  readjustment,  liquidation,  dissolution  or  similar  relief
     pursuant  to  the  Federal  Bankruptcy Code or under any similar present or
     future  federal  law  or  the  law  of  any  other jurisdiction or shall be
     adjudicated  a  bankrupt or become insolvent, or consent to the appointment
     of  or  taking  possession  by  a  receiver, liquidator, assignee, trustee,
     custodian, sequester (or other similar official) of the Borrower or for all
     or  any  substantial part of the property of the Borrower, or shall make an
     assignment  for the benefit of its creditors, or shall admit in writing its
     in ability to pay its debts generally as they become due, or shall take any
     corporate  action,  in  furtherance  or  any  of  the  foregoing;

          (e)  Adjudication  of  Bankruptcy.  A  petition  or  answer  is  filed
               ----------------------------
     proposing  the adjudication of Borrower as a bankrupt or its reorganization
     or  arrangement, or any composition, readjustment, liquidation, dissolution
     or  similar  relief  with  respect to it pursuant to the Federal Bankruptcy
     Code  or  under any similar present or future federal law or the law of any
     other  jurisdiction  applicable  to  Borrower  and  such  petition  is  not
     dismissed  within sixty (60) days after the date of service on Borrower; or

          (f)  Other  Defaults.  There  shall  occur any default under any other
               ---------------
     indenture,  agreement  or instrument evidencing or securing indebtedness of
     Borrower or under any of Borrower's capital leases, which default shall not
     be  cured  within  any  applicable  cure  period  for such default, if such
     indebtedness  of Borrower is an amount greater than $1,000,000 in each case
     or  in  the  aggregate,  provided, however, Borrower shall not be deemed in
                              --------  -------
     default under any capital lease as a result of a good faith dispute between
     Borrower and the lessor regarding the exercise price of a fair market value
     purchase  option  of  the  equipment  under  such  capital  lease.

     9.   HOLDER'S  RIGHTS ON DEFAULT. On the occurrence of an Event of Default,
the Holder may (i) declare this Note to be immediately due and payable, in which
case  this  Note shall become due and payable both as to principal and interest,
and initiate legal action for collection of this Note, and (ii) pursue the other
remedies  under  applicable  law  or  any  related  agreement  that Holder deems
appropriate.

     10.  DEFAULT  RATE  OF  INTEREST.  From and after an Event of Default until
the  default  is cured, interest shall accrue on this Note in an amount equal to
twelve  percent  (12%)  per  annum.

                                        5
<PAGE>
     11.  CONVERSION.

          (a)  The Holder of this Note has the right at the Holder's option, but
     only  prior  to  payment  in full of the principal balance of this Note, to
     convert  this  Note in whole or in part, into fully paid and non-assessable
     shares  of  Common  Stock of Borrower, at any time after twelve (12) months
     after  the date of this Note, in minimum installments of at least $500,000.
     The  number of shares of Common Stock into which this Note may be converted
     (the  "CONVERSION  SHARES") shall be determined by dividing the outstanding
     principal  balance  hereof to be converted by the Conversion Price (defined
     below)  in  effect  at  the  time  of  conversion.  The  "CONVERSION PRICE"
     initially will be $l.625, and will be adjusted as hereinafter provided (the
     "CONVERSION  PRICE").

          (b)  To convert this Note, the Holder shall surrender this Note at the
     principal  office  of  Borrower  in  Aliso  Viejo, California together with
     written  notice to Borrower of the election to convert this Note, and shall
     state  the  principal  amount  to be converted. Unless the shares of Common
     Stock  issuable on conversion are to be issued in the same name as the name
     in  which  this  Note  is  registered, this Note shall be accompanied by an
     instrument  of transfer, in form satisfactory to Borrower, duly executed by
     the  Holder  or  the  Holder's authorized attorney, together with an amount
     sufficient  to  pay  any  transfer  or similar tax. Borrower shall promptly
     issue,  execute and deliver to the Holder a certificate or certificates for
     the  number of shares of Common Stock to which the Holder shall be entitled
     upon  the  conversion. The conversion shall be deemed to have been effected
     immediately  prior  to  the  close  of business on the date that the Holder
     surrenders  the  Note,  and the person entitled to receive shares of Common
     Stock  issuable  upon  conversion  will  be treated for all purposes as the
     record  holder  or  holders of such shares of Common Stock as of that date.
     All  shares  of Common Stock delivered on conversion of this Note will upon
     delivery  be duly and validly issued and fully paid and nonassessable, free
     of  all  Liens  and  charges  and  not  subject  to  any preemptive rights.

          (c)  Borrower  shall  pay  all interest on the principal amount of the
     Note surrendered for conversion accrued to the date of conversion. Borrower
     shall  pay  any  and  all  taxes,  documentary,  stamp  or similar issue or
     transfer taxes that are payable with respect to the issuance or delivery of
     Common  Stock on conversion of this Note; provided, that the Borrower shall
     not  be required to pay any tax payable in respect of any transfer involved
     in  the  issue  or  delivery of shares of Common Stock in a name other than
     that  of  the  Holder.

     12.  ADJUSTMENT  ON  CHANGES  IN  STOCK.

          (a) Generally. The Conversion Price and the number of shares of Common
              ---------
     Stock  issuable  upon  the  conversion  of  this  Note  shall be subject to
     adjustment  for transactions entered into after the date hereof as follows:

               (i)  Except as hereinafter provided in Section 12(c), if Borrower
          shall  at  any  time after the execution date hereof issue or sell any
          shares  of Common Stock (including shares held in Borrower's treasury)
          for  a  consideration per share less than the Conversion Price (or, if
          an  adjusted  Conversion  Price  shall  be  in

                                        6
<PAGE>
          effect  by  reason  of  a previous adjustment under this Section 12 as
          provided  below,  then  less  than the adjusted Conversion Price), the
          Conversion  Price  shall  be  reduced  to the price (calculated to the
          nearest  cent,  a  half  cent  or  more  being considered a full cent)
          determined  by  multiplying the Conversion Price in effect immediately
          prior  to  the time of such issue or sale by a fraction, the numerator
          of  which  will be the sum of (A) the number of shares of Common Stock
          outstanding  immediately prior to such issue or sale multiplied by the
          Conversion  Price  in  effect  immediately prior to such issue or sale
          plus (B) the consideration received by the Borrower upon such issue or
          sale,  and  the  denominator  of which shall be the product of (Y) the
          total  number  of shares of Common Stock outstanding immediately after
          such  issue  or sale, multiplied by (Z) the Conversion Price in effect
          immediately  prior  to  such  issue  or  sale.

               (ii)  In  case  of the issuance or sale of shares of Common Stock
          for  a consideration part or all of which shall be cash, the amount of
          cash  consideration therefore shall be deemed to be the amount of cash
          received  by  Borrower  for such shares (or, if shares of Common Stock
          are  offered by Borrower for subscription, the subscription price, or,
          if shares of Common Stock shall be sold to underwriters or dealers for
          public  offering  without  a subscription offering, the initial public
          offering  price)  without deducting therefrom any compensation paid or
          discount  allowed  in  the  sale,  underwriting or purchase thereof by
          underwriters  or  dealers or others performing similar services or any
          expenses  incurred  in  connection  therewith.

               (iii)  In  case  of  the  issuance  or  sale (otherwise than as a
          dividend  or  other  distribution  on  or  subdivision of any stock of
          Borrower or on conversion or exchange of other securities of Borrower)
          of  shares  of  Common  Stock for a consideration part or all of which
          shall  be  other  than cash, the amount of the consideration therefore
          other than cash shall be deemed to be the value of such consideration,
          as  determined in good faith by the Board of Directors of Borrower, at
          or  about,  but  as  of,  the  date  of the adoption of the resolution
          authorizing  such issuance for a consideration other than cash of such
          Common  Stock  immediately  prior to the close of business on the date
          fixed  for  the  determination of security holders entitled to receive
          such  Common  Stock.

               (iv)  Shares of Common Stock issuable by way of dividend or other
          distribution  on  or  subdivision  of  any  stock of Borrower shall be
          deemed  to  have been issued immediately after the opening of business
          on  the  date  following  the  date  fixed  for  the  determination of
          stockholders  entitled  to receive such dividend or other distribution
          or  subdivision.

          (b)  For  purposes of subparagraph (a)(i), the following subparagraphs
     (b)(i)  to (b)(viii) also apply to conversion of this Note to Common Stock:

               (i)  Issuance  of  Rights or Options. In case the Borrower in any
                    -------------------------------
          manner  issues  (whether  directly  or  by  assumption  in a merger or
          otherwise)  warrants  or other rights to subscribe for or purchase, or
          options  to  purchase, Common Stock

                                        7
<PAGE>
          or  stock  or  securities  convertible into or exchangeable for Common
          Stock  (the  warrants,  rights  or  options  are  "OPTIONS"  and  the
          convertible  or  exchangeable  stock  or  securities  are "CONVERTIBLE
          SECURITIES"), whether or not the Options or Convertible Securities are
          immediately  exercisable,  and  the price per share (determined, for a
          formula  price,  based  on  current  circumstances or, if dependent on
          future  circumstances, facts that would result in the lowest price per
          share)  for which Common Stock is issuable on the Options' exercise or
          on  the  conversion  or  exchange  of  the  Convertible  Securities
          (determined  by  dividing (1) the total amount, if any, payable to the
          Borrower  as  consideration  for  the Option grant, plus the aggregate
          amount  of  additional  consideration  payable  to the Borrower on the
          Option  exercise,  plus,  in  the  case  of any Options that relate to
          Convertible Securities, any consideration payable on the issue or sale
          of  the Convertible Securities and on their conversion or exchange, by
          (2)  the  total  number  of  shares  of Common Stock issuable upon the
          Options'  exercise  or  on  the  conversion or exchange of Convertible
          Securities  issuable  on  the  Options'  exercise)  is  less  than the
          Conversion  Price  in  effect immediately before the Option grant, the
          total  number  of  shares  of  Common  Stock  issuable on the Options'
          exercise  or  on  conversion or exchange of any Convertible Securities
          issuable on the Options' exercise will be deemed issued for such price
          per  share  on  the  date of the Options' grant and thereafter will be
          deemed  outstanding.  Except  as  otherwise  provided  in subparagraph
          (b)(iii),  the  Conversion Price will not be further adjusted when the
          Common  Stock  is  actually  issued  on  exercise  of  the  Options or
          conversion  or  exchange  of  Convertible  Securities.

               (ii)  Issuance  of  Convertible Securities.  In case the Borrower
                     ------------------------------------
          in any manner issues (whether directly or by assumption in a merger or
          otherwise)  or sells Convertible Securities, whether or not the rights
          to  exchange  or  convert  the  Convertible Securities are immediately
          exercisable,  and  the  price  per share (determined, in the case of a
          formula  price, on the basis of current circumstances or, if dependent
          on  future  circumstances,  the facts would result in the lowest price
          per  share)  for which Common Stock is issuable upon the conversion or
          exchange  (determined  by dividing (1) the total amount payable to the
          Borrower  as  consideration  for  the issue or sale of the Convertible
          Securities,  plus the aggregate amount of additional consideration, if
          any, payable to the Borrower on the conversion or exchange; by (2) the
          total  number  of  shares  of  Common  Stock issuable on conversion or
          exchange  of  all  such  Convertible  Securities)  is  less  than  the
          Conversion  Price in effect immediately before the issue or sale, then
          the total number of shares of Common Stock issuable upon conversion or
          exchange of the Convertible Securities will be deemed to be issued for
          such  price  per  share  as  of  the  date of the issue or sale of the
          Convertible  Securities  and  thereafter  will  be deemed outstanding,
          provided  that  (a)  except  as  provided in subparagraph (b)(iii), no
          further adjustment of the Conversion Price will be made otherwise when
          the  Common  Stock is actually issued on conversion or exchange of the
          Convertible  Securities  and  (b)  the  Conversion  Price  will not be
          further  adjusted pursuant to this subsection for the issue or sale of
          Convertible  Securities  on  the  exercise  of Options to purchase the
          Convertible  Securities  if  the  Conversion Price has been or

                                        8
<PAGE>
          will  be  adjusted for the transaction pursuant to other provisions of
          this  paragraph  (b).

               (iii)  Change  in  Option  Price  or  Conversion  Rate.  Upon the
                      -----------------------------------------------
          happening  of  any  of  the  following events, namely, if the purchase
          price  provided  for  in any Option referenced in subparagraph (b)(i),
          the  additional  consideration, if any, payable upon the conversion or
          exchange  of  any  Convertible  Securities referred to in subparagraph
          (b)(i)  or  (b)(ii),  or  the  rate  at  which  Convertible Securities
          referred  to in subparagraph (b)(i) or (b)(ii) are convertible into or
          exchangeable  for Common Stock changes at any time (including, but not
          limited  to,  changes  under  or  by  reason of provisions designed to
          protect  against dilution), the Conversion Price in effect at the time
          of  such  event will be readjusted to the Conversion Price which would
          have  been  effective  at  that  time  had  the Options or Convertible
          Securities still outstanding provided for such changed purchase price,
          additional  consideration or conversion rate, as the case may be, when
          initially  granted,  issued  or  sold;  and  on  the expiration of the
          Options  or  the  termination  of  a  right to convert or exchange any
          Convertible  Securities,  the  Conversion Price then in effect will be
          increased  to  the  Conversion Price that would have been in effect at
          the  time  of  the  expiration  or  termination  had  the  Options  or
          Convertible  Securities  never  been  issued.

               (iv)  Stock  Dividends  and  Subdivisions.  In  case the Borrower
                     -----------------------------------
          declares  a  dividend  or makes any other distribution on stock of the
          Borrower  payable in Common Stock, Options, or Convertible Securities,
          the  Common Stock, Options, or Convertible Securities, as the case may
          be, issuable in payment of the dividend or distribution will be deemed
          to  have  been  issued  or  sold  (as  of  the  record  date)  without
          consideration  (except  for  the consideration payable to exercise any
          Options  or  convert any Convertible Securities). In case the Borrower
          subdivides  its  outstanding  shares  of  Common  Stock into a greater
          number  of  shares,  the  Conversion  Price  then  in  effect  will be
          proportionately  reduced  to  reflect  the  subdivision.  In  case the
          Borrower  combines its outstanding shares of Common Stock into a fewer
          number  of  shares,  the  Conversion  Price  then  in  effect  will be
          proportionately  increased  to  reflect the combination. An adjustment
          made  pursuant  to  this  paragraph  (b)(iv)  will  become  effective
          retroactively (x) in the case of any such dividend or distribution, to
          a  date immediately following the close of business on the record date
          for  determination  of the holders of Common Stock entitled to receive
          such  dividend  or  distribution,  or  (y)  in  the  case  of any such
          subdivision  or  combination, to the close of business on the day upon
          which  such  corporate  action  becomes  effective.

               (v)  Consideration  for  Stock.  In  case  any  shares  of Common
                    -------------------------
          Stock, Options, or Convertible Securities are issued or sold for cash,
          the  consideration  deemed  to be received will be the amount actually
          received  by  the Borrower, without deduction of any expenses incurred
          or  any underwriting commissions or concessions paid or allowed by the
          Borrower  in  connection with the issuance or sale. In case any shares
          of Common Stock, Options, or Convertible Securities are issued or sold
          for  a  consideration other than cash, the amount of the consideration

                                        9
<PAGE>
          other  than  cash  received  by the Borrower will be the fair value of
          such consideration as determined in good faith by the Borrower's Board
          of  Directors,  without  deduction  of  any  expenses  incurred or any
          underwriting  commissions  or  concessions  paid  or  allowed  by  the
          Borrower  in  connection  with  the  issuance  or  sale.

               (vi)  Record Date.  If the Borrower does not set a record date to
                     -----------
          determine  the  holders  of its Common Stock entitled (1) to receive a
          dividend  or  other  distribution payable in Common Stock, Options, or
          Convertible  Securities  or  (2)  to  subscribe for or purchase Common
          Stock,  Options,  or  Convertible  Securities, the record date will be
          deemed  to  be  the  date of the issue or sale of the shares of Common
          Stock  deemed  to  have  been issued or sold upon the declaration of a
          dividend  or  the  making  of  another distribution or the date of the
          granting  of  such  right of subscription or purchase, as the case may
          be.

               (vii)  Treasury  Shares.  The  number  of  shares of Common Stock
                      ----------------
          outstanding at any given time does not include shares owned or held by
          or  for  the  account of Borrower, and its disposition of these shares
          will  be  considered  an issue or sale of Common Stock for purposes of
          this  Section  12.

               (viii)  Reports as to Adjustments.  Whenever the Conversion Price
                       -------------------------
          is  adjusted  as  provided in this subsection, any adjustment shall be
          rounded to three decimal points and Borrower will promptly compute the
          adjustment  and  furnish  to  the  Holder  a  certificate, signed by a
          principal  financial  officer  of  Borrower,  setting  forth  the  new
          Conversion  Price  and the number of shares of Common Stock into which
          the  Note  is  convertible  as  a  result  of  the adjustment, a brief
          statement  of  the  facts requiring the adjustment, the computation of
          the  adjustment,  and  when  the  adjustment  will  become  effective.

          (c)  Certain  Issues  of  Common  Stock  Excepted. Notwithstanding the
               --------------------------------------------
     foregoing  provisions,  Borrower  will  not  be  required  to  adjust  the
     Conversion  Price  as  a  result  of  the  following  transactions:

               (i)  the  issuance  or  sale of Common Stock upon the exercise of
          options or rights or upon the conversion or exchange of convertible or
          exchangeable securities in any case where the adjustment was made upon
          the  issuance  of such options, rights, or convertible or exchangeable
          securities  by  reason  of  the  provisions  of  Section  12;

               (ii)  the issuance to employees, directors, consultants or others
          with  similar  relationships  with  Borrower  or  its  subsidiaries of
          options  to  purchase, at a price equal to or in excess of fair market
          value  as determined by the Board of Directors of Borrower at the time
          of  grant, shares of Common Stock and the issuance of shares of Common
          Stock  upon  the  exercise  of  any  such  options;

                                       10
<PAGE>
               (iii) the issuance or sale of shares of Common Stock to officers,
          directors  or  employees of, or consultants to, Borrower pursuant to a
          grant  or  plan  approved  by  the  Board  of  Directors  of Borrower;

               (iv)  the  issuance  of shares of Common Stock or any security or
          instrument exchangeable for or convertible into shares of Common Stock
          in  connection  with  any  acquisition  of  assets,  securities,  or a
          business  or  any exchange of securities to acquire all or part of any
          business, provided that such acquisition or exchange has been approved
          by  the  Board  of  Directors  of  Borrower;

               (v) the issuance of Common Stock for any contribution by Borrower
          to  its  401(k)  plan;

               (vi)  the  issuance  of  Common  Stock upon the conversion of the
          preferred stock of Borrower and the stock options of Borrower that are
          outstanding  on  the  date  of  this  Note;

               (vii)  the  issuance  of  Common  Stock  or other securities upon
          conversion  of  this  Note;  and

               (viii)  the  issuance  of  Common Stock pursuant to the Paramount
          Stock  Purchase  Agreement  and upon conversion of the Kavouklis Note.

          (d)  Adjustments  for  Merger.  Consolidation, etc. In the case of any
               ---------------------------------------------
     classification, reclassification, or other reorganization of the Borrower's
     capital  stock,  or  in  the  case  of  the  merger or consolidation of the
     Borrower  with  or  into  another corporation, or the conveyance to another
     corporation  of all or any major portion of the Borrower's assets, then, as
     part  of  the  classification,  reclassification, merger, consolidation, or
     conveyance,  adequate provision will be made for the Holder, on exercise of
     its  conversion  privilege, to receive on the same basis and conditions set
     forth  in Section 11 (as modified by Section 12) with respect to the Common
     Stock,  the stock, securities, or other property that the Holder would have
     been  entitled to receive on such classification, reclassification, merger,
     consolidation,  or  conveyance,  if the Holder had exercised the conversion
     privilege  immediately before the classification, reclassification, merger,
     consolidation,  or  conveyance,  and in any such case appropriate provision
     will  be made with respect to the rights and interests of the Holder to the
     end  that  the  provisions  of  Section  11  (including without limitation,
     provision  for  adjustment of the Conversion Price in this Section 12) will
     be  applicable  to  the  shares  of  stock,  securities,  or other property
     deliverable  on  the  exercise  of  the  conversion  privilege;  and,  as a
     condition of any consolidation, merger, or conveyance, any corporation that
     succeeds  to  the  Borrower  by  reason  of  the  merger,  consolidation or
     conveyance  will  assume  the  obligation  to  deliver,  on exercise of the
     conversion  privilege,  the  shares  of  stock,  securities  or  other
     considerations  that  the  Holder  is  entitled to receive pursuant to this
     Note.

          (e)  Certain  Notices.  If  at  any  time  Borrower  proposes  to:
               ----------------

               (i)  declare  a  cash  dividend  on  its  Common  Stock;

                                       11
<PAGE>
               (ii)  declare  a dividend on its Common Stock payable in stock or
          make  a  special  dividend or other distribution to the holders of its
          Common  Stock;

               (iii)  reorganize,  or  reclassify  the  capital  stock  of  the
          Borrower, or consolidate, merge or otherwise combine with, or sell all
          or  substantially  all  of  its  assets  to,  another  corporation;

               (iv)  voluntarily or involuntarily dissolve, liquidate or wind up
          the  affairs  of  the  Borrower;  or

               (v)  redeem  or  purchase  any  shares  of  its  capital stock or
          securities  convertible  into  its  capital  stock;

     then,  Borrower  shall give to the Holder, by certified or registered mail,
     (A)  at  least  twenty (20) days' prior written notice of the date on which
     the  books  of  Borrower  shall  close  or  a record shall be taken for the
     dividend,  distribution or subscription rights or for determining rights to
     vote  in  respect  of  any  such  reorganization,  reclassification,
     consolidation,  merger,  sale,  dissolution, liquidation or winding up, and
     (B)  in  the  case of such reorganization, reclassification, consolidation,
     merger,  sale, dissolution, liquidation or winding up, at least twenty (20)
     days'  prior written notice of the date when the event will take place. Any
     notice  required  by clause (A) shall also specify, in the case of any such
     dividend,  distribution  or  subscription  rights,  the  date  on which the
     holders  of  Common Stock will be entitled thereto, and any notice required
     by  clause  (B) shall specify the date on which the holders of Common Stock
     shall  be  entitled  to exchange their Common Stock for securities or other
     property  deliverable  upon  such  reorganization,  reclassification,
     consolidation, merger, sale, dissolution, liquidation or winding up, as the
     case  may  be.

          (f)  Distributions  to  Shareholders.  If  Borrower  does  any  of the
               -------------------------------
     following  (a  "DILUTIVE  EVENT")  after  the  execution  date of the Stock
     Purchase  Agreement  (but  before  conversion  of this Note): (i) makes any
     distribution  of its assets to holders of its Common Stock as a liquidation
     or  partial  liquidation or return of capital; (ii) declares or distributes
     to  the  holders  of  Common  Stock  (A)  a noncash dividend payable in any
     property  or  securities  of  Borrower, (B) any cash payable by dividend or
     otherwise  out  of  the  capital  surplus (as distinguished from the earned
     surplus)  of  Borrower,  or (C) cash, property, or securities in connection
     with a spin-off, split-up, or similar transaction; then upon the conversion
     of this Note after the record date for, or the occurrence of, each Dilutive
     Event, the Holder will be entitled to receive, in addition to the shares of
     Common  Stock  otherwise  issuable  upon conversion of this Note, the other
     securities  and  property  (including  cash)  resulting from every Dilutive
     Event that the Holder would have been entitled to receive if the Holder had
     (1)  converted this Note immediately before the Dilutive Event and had been
     the  record owner of the number of shares of Common Stock issuable pursuant
     to  the  conversion  since  that  time,  and  (2) had participated in every
     Dilutive Event as a holder of that number of shares of Common Stock and had
     retained  all shares of Common Stock and other or additional securities and
     property  (including  cash)  receivable  during  that  period, after giving
     effect  to  all  the  Dilutive  Events  that  occurred  during that period.
     Whenever  an  adjustment  occurs  in  the  number  or  kind  of

                                       12
<PAGE>
     securities  and  other  property (including cash) issuable or distributable
     upon  conversion  of  this Note, the Borrower promptly shall deliver to the
     Holder  a  notice  describing  in reasonable detail the facts requiring the
     adjustment  and  the  number  and  kind  of  securities  and other property
     (including  cash)  issuable  upon  conversion  of  this  Note  after  the
     adjustment.

     13.  WAIVERS. Except as expressly set forth herein, Borrower waives demand,
presentment  for  payment,  protest, notice of protest and notice of nonpayment.
Any  discharge or release of any party who is or may be liable to Holder for the
indebtedness  represented by this Note will not have the effect of releasing any
other  party or parties, which will remain liable to Holder. Holder's acceptance
of  payment  other  than  in accordance with the terms of this Note, or Holder's
subsequent  agreement  to  extend  or  modify  the  repayment terms, or Holder's
failure  or  delay  in exercising any rights or remedies granted to Holder, will
likewise not have the effect of releasing Borrower or any other party or parties
from  their  respective obligations to Holder. In addition, any failure or delay
on  the  part  of  Holder  to exercise any of the rights and remedies granted to
Holder  shall not have the effect of waiving any of Holder's rights and remedies
under  this  Note. Any partial exercise of any rights and/or remedies granted to
Holder  shall  furthermore  not be construed as a waiver of any other rights and
remedies,  it  being  Borrower's  intent  and agreement that Holder's rights and
remedies  shall be cumulative in nature. Should any default event occur or exist
under  this  Note, any waiver or forbearance on the part of Holder to pursue the
rights and remedies available to Holder will bind Holder only to the extent that
Holder  agrees  in  writing  to  the  waiver  or  forbearance.

     14.  CAPTION  HEADINGS.  Caption  headings of the sections of this Note are
for  convenience  purposes only and are not to be used to interpret or to define
their  provisions.  In this Note, whenever the context so requires, the singular
includes  the  plural  and  the  plural  also  includes  the  singular.

     15.  SEVERABILITY.  If  any  provision  of this Note is held to be invalid,
illegal or unenforceable by any court, that provision shall be deleted from this
Note  and  the  balance  of  this  Note  shall  be interpreted as if the deleted
provision  never  existed.

     16.  SAVINGS  CLAUSE.  Borrower  and  Holder intend to comply strictly with
applicable  law regulating the maximum allowable rate or amount of interest that
Holder  may  charge  and  collect on the loan by Holder to Borrower evidenced by
this  Note.  Accordingly,  and  notwithstanding  anything  in  this  Note to the
contrary,  the  maximum,  aggregate  amount  of  interest  and  other  charges
constituting  interest  under  applicable  law  that are payable, chargeable, or
receivable  under  the  Note shall not exceed the maximum amount of interest now
allowed by applicable law or any greater amount of interest allowed because of a
future  amendment  to  existing  law. Borrower is not liable for any interest in
excess  of  the  maximum  lawful  amount,  and  any  excess  interest charged or
collected  by  Holder will constitute an inadvertent mistake and, if charged but
not  paid,  will be cancelled automatically, or if paid, will be either refunded
to  Borrower  or credited against the outstanding principal balance of the Note,
at  the  election  of  Borrower.

     17.  ATTORNEY'S  FEES  AND COSTS.  In the event of an Event of Default, and
in the event that thereafter this Note is placed in the hands of an attorney for
collection,  or  in the

                                       13
<PAGE>
event  this  Note  is collected in whole or in part through legal proceedings of
any  nature,  then  and in any such case Borrower promises to pay all reasonable
costs  of  collection,  including  but not limited to reasonable attorneys' fees
incurred by the Holder hereof on account of such collection, whether or not suit
is  filed.

     18.  WAIVER OF JURY TRIAL.  BORROWER AND HOLDER KNOWINGLY, VOLUNTARILY, AND
INTENTIONALLY  WAIVE  ALL  RIGHTS  TO  A  JURY TRIAL IN ANY LAWSUIT, PROCEEDING,
COUNTERCLAIM,  OR  OTHER  LITIGATION ARISING UNDER OR RELATING TO THIS NOTE, THE
STOCK  PURCHASE AGREEMENT AND ANY OF THE RELATED AGREEMENTS. BORROWER AND HOLDER
HAVE  FULLY DISCUSSED THIS PROVISION AND AGREE THAT THIS WAIVER IS SUBJECT TO NO
EXCEPTIONS AND WAS A MATERIAL INDUCEMENT FOR HOLDER TO MAKE THE LOAN TO BORROWER
EVIDENCED  BY  THIS  NOTE.

     19.  GOVERNING  LAW;  VENUE.  The  laws  of  the  State of Delaware and the
federal  laws  of  the  United  States  of  America, excluding the laws of those
jurisdictions  pertaining  to  the  resolution  of  conflict  with laws of other
jurisdictions,  govern  the  validity,  construction,  enforcement,  and
interpretation  of  this  Note.

     20.  VOTING  RIGHTS.  The Holder of this Note shall have no right and power
to  vote  the  shares  of  Common  Stock  into which this Note is convertible as
determined from time to time by the provisions hereof unless and until this Note
is  converted  and  such  shares  are  issued  to  the  Holder.

     21.  TRANSFERABILITY.  This Note evidenced hereby may not be pledged, sold,
assigned  or transferred except upon satisfaction of the conditions specified in
the  legend  on  the  face  of  this  certificate.

     22.  SUCCESSORS AND ASSIGNS.  All of the covenants, stipulations, promises,
and  agreements  in  this  Note  by  or  on  behalf  of  Borrower shall bind its
successors  and  assigns,  whether  so expressed or not; provided, however, that
                                                         --------  -------
Borrower may not, without the prior written consent of the Holder hereof, assign
any  rights, duties, or obligations under this Note. Any assignment in violation
of  the  foregoing  shall  be  null  and  void.

                  (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)

                                       14
<PAGE>
IN  WITNESS  WHEREOF, the Borrower has executed this Note as of the day and year
first  written  above.

                                    BORROWER:

                                   SAFEGUARD  HEALTH  ENTERPRISES,  INC.,
                                   a  Delaware  corporation

                                   By:   /s/  James  E.  Buncher
                                       -----------------------------------
                                       James  E.  Buncher
                                       President  and  Chief  Executive  Officer

                                   By:   /s/  Ronald  I.  Brendzel
                                       -----------------------------------
                                       Ronald  I.  Brendzel
                                       Senior  Vice  President  and  Secretary

                                       15
<PAGE>
                               ELECTION TO CONVERT
                               -------------------

To  the  Chief  Financial  Officer  of  SafeGuard  Health  Enterprises,  Inc.

     The  undersigned  owner  of  the  accompanying  Convertible Promissory Note
hereby  irrevocably exercises the option to convert to shares of Common Stock in
accordance with the terms of such Note, and directs that the shares issuable and
deliverable  upon  such conversion be issued in the name of and delivered to the
undersigned.

Dated:  __________________________________

COMPLETE  FOR  REGISTRATION  OF  SHARES  OF  COMMON  STOCK ON THE STOCK TRANSFER
RECORDS  MAINTAINED  BY  THE  COMPANY:

________________________________________________________________________________
Name of Note Holder

Name(s)  or  Entities in which Common Stock Certificate(s) are to be registered:

________________________________________________________________________________
Address:_____________________________

_____________________________________
JACK  R.  ANDERSON

_____________________________________
Taxpayer Identification Number

                        Principal Portion to be converted
                               (if less than all)

                              $___________________

                       Shares of Common Stock to be Issued

                           ___________________ shares

                                       16
<PAGE>

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00045-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00045-of-00352.parquet"}]]