Document:

Exhibit
4.5

THIS
WARRANT AND THE SHARES OF COMMON STOCK WHICH MAY BE PURCHASED UPON THE EXERCISE
OF THIS WARRANT HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT AND HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH SALE, OFFER,
PLEDGE OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF THE ACT AND OF ANY APPLICABLE STATE SECURITIES
LAWS.

ITEC
ENVIRONMENTAL GROUP INC.

COMMON
STOCK PURCHASE WARRANT

 

 

	No. 1 	
       Void after February 15,
  2010

 

THIS
CERTIFIES THAT, for value received, Gary M. De Laurentiis (the "Holder") is
entitled to subscribe for and purchase 2,457,370 shares (as such number of
shares shall be adjusted pursuant to Section 3 hereof, thus adjusting the per
share Exercise Price) of the fully paid and nonassessable Common Stock, $0.001
par value (the "Shares"), of Itec Environmental Group, Inc., a Delaware
corporation (the "Company"), at the exercise price of $.06 per share (the
"Exercise Price"), subject to the provisions and upon the terms and conditions
hereinafter set forth. 

1.
 Method of
Exercise; Payment.

(a)
 Cash
Exercise. The purchase rights represented by this Warrant may be exercised by
the Holder, in whole or in part, by the surrender of this Warrant (with the
notice of exercise form attached hereto as Exhibit
A duly
executed) at the principal office of the Company, and by the payment to the
Company, by certified, cashier's or other check acceptable to the Company or by
wire transfer to an account designated by the Company, of an amount equal to the
aggregate Exercise Price of the Shares being purchased.

(b)
 Net Issue
Exercise. In lieu of exercising this Warrant, the Holder may elect to receive
Shares equal to the value of this Warrant (or the portion thereof being
canceled) by surrender of this Warrant at the principal office of the Company
together with notice of such election, in which event the Company shall issue to
the Holder a number of Shares computed using the following formula:

 

1

 

	
       X = Y (A-B)

	
       A

 

 

	Where X              	=
       the number of the Shares to be issued to the
Holder.

	Y                 	=
       the number of the Shares purchasable under this
Warrant.

	A                
    	=
       the fair market value of one Share on the date of
      determination.

 

	B                
    	= 
       the per share Exercise Price (as adjusted to the date of such
      calculation).

(c)
 Fair
Market Value. For purposes of this Section 1, the per share fair market value of
the Shares shall mean:

(i)
 If the
Company's Common Stock is publicly traded, the per share fair market value of
the Shares shall be the average of the closing prices of the Common Stock as
quoted on the Nasdaq National Market or the principal exchange on which the
Common Stock is listed, or if not so listed then the fair market value shall be
the average of the closing bid prices of the Common Stock as published in The
Wall Street Journal, in each case for the fifteen (15) trading days ending five
(5) trading days prior to the date of determination of fair market
value;

(ii)
 If the
Company's Common Stock is not so publicly traded, the per share fair market
value of the Shares shall be such fair market value as is determined in good
faith by the Board of Directors of the Company after taking into consideration
factors it deems appropriate, including, without limitation, recent sale and
offer prices of the capital stock of the Company in private transactions
negotiated at arm's length.

(d)
 Stock
Certificates. In the event of any exercise of the rights represented by this
Warrant, certificates for the Shares so purchased shall be delivered to the
Holder within a reasonable time and, unless this Warrant has been fully
exercised or has expired, a new Warrant representing the shares with respect to
which this Warrant shall not have been exercised shall also be issued to the
Holder within such time.

2.
 Stock
Fully Paid; Reservation of Shares. All of the Shares issuable upon the exercise
of the rights represented by this Warrant will, upon issuance and receipt of the
Exercise Price therefor, be fully paid and nonassessable, and free from all
taxes, liens and charges with respect to the issue thereof. During the period
within which the rights represented by this Warrant may be exercised, the
Company shall at all times have authorized and reserved for issuance sufficient
shares of its Common Stock to provide for the exercise of the rights represented
by this Warrant.

3.
 Adjustments.
Subject to the provisions of Section 11 hereof, the number and kind of
securities purchasable upon the exercise of this Warrant and the Exercise Price
therefor shall be subject to adjustment from time to time upon the occurrence of
certain events, as follows:

(a)
 Reclassification.
In the case of any reclassification or change of securities of the class
issuable upon exercise of this Warrant (other than a change in par value, or
from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), or in case of any merger of the Company
with or into another corporation (other than a merger with another corporation
in which the Company is the acquiring and the surviving corporation and which
does not result in any reclassification or change of outstanding securities
issuable upon exercise of this Warrant), or in case of any sale of all or
substantially all of the assets of the Company, the Company, or such successor
or purchasing corporation, as the case may be, shall duly execute and deliver to
the holder of this Warrant a new Warrant (in form and substance reasonably
satisfactory to the holder of this Warrant), or the Company shall make
appropriate provision without the issuance of a new Warrant, so that the holder
of this Warrant shall have the right to receive, at a total purchase price not
to exceed that payable upon the exercise of the unexercised portion of this
Warrant, and in lieu of the shares of Common Stock theretofore issuable upon
exercise of this Warrant, (i) the kind and amount of shares of stock, other
securities, money and property receivable upon such reclassification, change,
merger or sale by a holder of the number of shares of Common Stock then
purchasable under this Warrant, or (ii) in the case of such a merger or sale in
which the consideration paid consists all or in part of assets other than
securities of the successor or purchasing corporation, at the option of the
Holder of this Warrant, the securities of the successor or purchasing
corporation having a value at the time of the transaction equivalent to the fair
market value of the Common Stock at the time of the transaction. The provisions
of this subparagraph (a) shall similarly apply to successive reclassifications,
changes, mergers and transfers.

 

 

2

 

(b)
 Stock
Splits, Dividends and Combinations. In the event that the Company shall at any
time subdivide the outstanding shares of Common Stock or shall issue a stock
dividend on its outstanding shares of Common Stock the number of Shares issuable
upon exercise of this Warrant immediately prior to such subdivision or to the
issuance of such stock dividend shall be proportionately increased, and the
Exercise Price shall be proportionately decreased, and in the event that the
Company shall at any time combine the outstanding shares of Common Stock the
number of Shares issuable upon exercise of this Warrant immediately prior to
such combination shall be proportionately decreased, and the Exercise Price
shall be proportionately increased, effective at the close of business on the
date of such subdivision, stock dividend or combination, as the case may
be.

4.
 Notice of
Adjustments. Whenever the number of Shares purchasable hereunder or the Exercise
Price thereof shall be adjusted pursuant to Section 3 hereof, the Company shall
provide notice to the Holder setting forth, in reasonable detail, the event
requiring the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated, and the number and class of shares which may be
purchased thereafter and the Exercise Price therefor after giving effect to such
adjustment.

5.
 Fractional
Shares. This Warrant may not be exercised for fractional shares. In lieu of
fractional shares the Company shall make a cash payment therefor based upon the
Exercise Price then in effect and the fair market value of the shares then
obtaining (calculated in accordance with Section 1(c) hereof as if the shares
were the Shares referred to in such Section).

6.
 Representations
of the Company. The Company represents that all corporate actions on the part of
the Company, its officers, directors and shareholders necessary for the sale and
issuance of the Shares pursuant hereto and the performance of the Company's
obligations hereunder were taken prior to and are effective as of the effective
date of this Warrant.

7.
 Representations
and Warranties by the Holder. The Holder represents and warrants to the Company
as follows:

(a)
 This
Warrant and the Shares issuable upon exercise thereof are being acquired for its
own account, for investment and not with a view to, or for resale in connection
with, any distribution or public offering thereof within the meaning of the
Securities Act of 1933, as amended (the "Act"). Upon exercise of this Warrant,
the Holder shall, if so requested by the Company, confirm in writing, in a form
satisfactory to the Company, that the securities issuable upon exercise of this
Warrant are being acquired for investment and not with a view toward
distribution or resale.

(b)
 The
Holder understands that the Warrant and the Shares have not been registered
under the Act by reason of their issuance in a transaction exempt from the
registration and prospectus delivery requirements of the Act pursuant to Section
4(2) thereof, and that they must be held by the Holder indefinitely, and that
the Holder must therefore bear the economic risk of such investment
indefinitely, unless a subsequent disposition thereof is registered under the
Act or is exempted from such registration. The Holder further understands that
the Shares have not been qualified under the California Securities Law of 1968
(the "California Law") by reason of their issuance in a transaction exempt from
the qualification requirements of the California Law pursuant to Section
25102(f) thereof, which exemption depends upon, among other things, the bona
fide nature of the Holder's investment intent expressed above.

(c)
 The
Holder has such knowledge and experience in financial and business matters that
it is capable of evaluating the merits and risks of the purchase of this Warrant
and the Shares purchasable pursuant to the terms of this Warrant and of
protecting its interests in connection therewith.

(d)
 The
Holder is able to bear the economic risk of the purchase of the Shares pursuant
to the terms of this Warrant.

 

 

3

 

8.
 Restrictive
Legend.

The
Shares (unless registered under the Act) shall be stamped or imprinted with a
legend in substantially the following form:

THE
SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT
WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF, AND
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH
SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT
STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT.

9.
 Restrictions
Upon Transfer and Removal of Legend.

(a)
 The
Company need not register a transfer of this Warrant or Shares bearing the
restrictive legend set forth in Section 8 hereof, unless the conditions
specified in such legend are satisfied. The Company may also instruct its
transfer agent not to register the transfer of the Shares, unless one of the
conditions specified in the legend referred to in Section 8 hereof is
satisfied.

(b)
 Notwithstanding
the provisions of paragraph (a) above, no opinion of counsel shall be necessary
for a transfer without consideration by any holder (i) if such holder is a
partnership, to a partner or retired partner of such partnership who retires
after the date hereof or to the estate of any such partner or retired partner,
or (ii) if such holder is a corporation, to a shareholder of such corporation,
or to any other corporation under common control, direct or indirect, with such
holder.

10.
 Rights of
Shareholders. No holder of this Warrant shall be entitled, as a Warrant holder,
to vote or receive dividends or be deemed the holder of any Shares or any other
securities of the Company which may at any time be issuable on the exercise
hereof for any purpose, nor shall anything contained herein be construed to
confer upon the holder of this Warrant, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to shareholders at any meeting thereof, or to give or
withhold consent to any corporate action (whether upon any recapitalization,
issuance of stock, reclassification of stock, change of par value,
consolidation, merger, conveyance, or otherwise) or to receive notice of
meetings, or to receive dividends or subscription rights or otherwise until the
Warrant shall have been exercised and the Shares purchasable upon the exercise
hereof shall have become deliverable, as provided herein. The holder of this
Warrant will not be entitled to share in the assets of the Company in the event
of a liquidation, dissolution or the winding up of the Company.

11.
 Notices.
All notices and other communications required or permitted hereunder shall be in
writing, shall be effective when given, and shall in any event be deemed to be
given upon receipt or, if earlier, (a) five (5) days after deposit with the U.S.
Postal Service or other applicable postal service, if delivered by first class
mail, postage prepaid, (b) upon delivery, if delivered by hand, (c) one business
day after the business day of deposit with Federal Express or similar overnight
courier, freight prepaid or (d) one business day after the business day of
facsimile transmission, if delivered by facsimile transmission with copy by
first class mail, postage prepaid, and shall be addressed (i) if to the Holder,
at the Holder's address as set forth on the books of the Company, and (ii) if to
the Company, at the address of its principal corporate offices (attention: Gary
De Laurentiis, President and CEO), with a copy to David M. Otto, The Otto Law
Group, PLLC, 900 Fourth Avenue, Suite 3140, Seattle, WA 98164 or at such other
address as a party may designate by ten (10) days advance written notice to the
other party pursuant to the provisions above.

12.
 Independent
Legal Advice. Each of the parties
hereto represents and warrants (a) that it, she or he has read
and understands each of the provisions set forth herein, that he, she or it has
had the opportunity to consult with counsel of his, her or its own choice in
connection with this Agreement and to have each of the provisions set forth
herein fully explained by such counsel, and that this Agreement is entered into
freely, voluntarily, and without any duress or undue influence of any nature by,
or on behalf of, any person or entity and (b) that each of the Parties, together
with its, his or her attorneys, has made such investigation of the facts
pertaining to this settlement and this release, and of all the matters
pertaining thereto, as it, she or he deems necessary.

 

 

4

 

13. Piggy
Back Registration of the Shares. If the Company proposes to register any of its
securities under the Securities Act (other than pursuant to a Form S-4, Form S-8
or any other successor form of limited purpose), it will give written notice by
registered mail at least thirty (30) business days prior to the filing of each
such registration statement to the Holder of its intention to do so. If the
Holder notifies the Company within twenty (20) business days after receipt of
any such notice of its desire to include any of the Shares in such proposed
registration statement, the Company shall afford the Holder the opportunity to
have any such amount of the Shares registered under such registration
statement.

14. Governing
Law. This Warrant and all actions arising out of or in connection with this
Agreement shall be governed by and construed in accordance with the laws of the
State of California, without regard to the conflicts of law provisions of the
State of California or of any other state.

 

	 	 	 
	 	ITEC
      ENVIRONMENTAL GROUP, INC.
	 
 	 
 	 
 
		By:  	/s/ 
	 	
      

      Name: Frederick W. Smith, Jr.
	 	Title:
CFO

 

 

5

 

EXHIBIT
A

 

 

NOTICE OF EXERCISE

 

 

 

 

	TO:    	
      Itec
      Environmental Group, Inc.

      
      693 Hi Tec Parkway, Suite 3

      Oakdale, CA 95361

      Attention:
President

 

	 	
      1.
      
	
      The
      undersigned hereby elects to purchase __________ Shares of Itec
      Environmental Group, Inc. pursuant to the terms of the attached
      Warrant.

 

	 	
      2.
	
      Method
      of Exercise (Please initial the applicable
blank):

	 	
      ___
      
	
      The
      undersigned elects to exercise the attached Warrant by means of a cash
      payment, and tenders herewith or by concurrent wire transfer payment in
      full for the purchase price of the shares being purchased, together with
      all applicable transfer taxes, if any.

	 	
      ___
      
	
      The
      undersigned elects to exercise the attached Warrant by means of the net
      exercise provisions of Section 1(b) of the
Warrant.

	 	
      3.
      
	
      Please
      issue a certificate or certificates representing said Shares in the name
      of the undersigned or in such other name as is specified
      below:

 

	 	
	 	(Name)
	 	 
	 	 
	 	 
	 	 
	 	(Address)

 

 

4.
 The
undersigned hereby represents and warrants that the aforesaid Shares are being
acquired for the account of the undersigned for investment and not with a view
to, or for resale, in connection with the distribution thereof, and that the
undersigned has no present intention of distributing or reselling such shares
and all representations and warranties of the undersigned set forth in Section 7
of the attached Warrant are true and correct as of the date hereof.

 

	 	
	 	
      (Signature)
	 
	 	 	 
	 	
      Title: 
	 
	 	 	 
	 	 
	 	
      (Date)
	 

 

 

6EXHIBIT 4.2

THIS NOTE AND THE SECURITIES  REPRESENTED  HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED.  THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS
TO THE SECURITIES  UNDER SAID ACT OR AN OPINION OF COUNSEL  SATISFACTORY  TO THE
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.

                            DETTO TECHNOLOGIES, INC.

                    SUBORDINATED CONVERTIBLE PROMISSORY NOTE

                                                                January 15, 2004

$743,358                                                     Seattle, Washington

      FOR VALUE RECEIVED,  DETTO  TECHNOLOGIES,  INC., a Washington  corporation
("Company"),  promises to pay to Calvin  Cheung,  ("Holder"),  or his registered
assigns,  the  principal  sum of $743,358,  or such lesser  amount as shall then
equal the outstanding  principal amount hereof,  together with interest from the
date of this  Note on the  unpaid  principal  balance  at a rate  equal to eight
percent (8%) per annum. This Note shall represent:  (i) all amounts owing by the
Company to the Holder pursuant to the promissory notes previously  issued by the
Company to Holder on August 20, 2002, September 6, 2002 and September 3, 2003 as
amended (the "Previous  Notes")  including all interest  through the above date.
This Note shall replace and supercede, in their entirety the Previous Notes. The
Holder hereby  understands and agrees that, upon execution hereof,  the Previous
Notes  will  be  deemed  to  have  been  cancelled  and  all  rights  thereunder
extinguished.

      All unpaid  principal,  together with any then unpaid and accrued interest
and other amounts payable hereunder, shall be due and payable (unless previously
converted  pursuant  to Section 6 hereof) on the earlier of (i) January 15, 2005
(the "Maturity  Date") or (ii) when such amounts are declared due and payable by
the Holder or made automatically due and payable upon or after the occurrence of
an Event of Default (as defined  below).  The  following  is a statement  of the
rights of Holder and the conditions to which this Note is subject,  and to which
the Holder hereof, by the acceptance of this Note, agrees:

      1.    DEFINITIONS.  As used in this Note, the following  capitalized terms
have the following meanings:

            (a)   "Holder" shall mean the Person  specified in the  introductory
paragraph  of this Note or any  Person  who shall at the time be the  registered
holder of this Note.

            (b)   "Indebtedness"   of  a  Person  shall  mean  and  include  the
aggregate amount of, without duplication (i) all obligations for borrowed money,
(ii) all  obligations  evidenced by bonds,  debentures,  notes or other  similar
instruments,  (iii)  all  obligations  to pay the  deferred  purchase  price  of
property  or services  (other than  accounts  payable  incurred in the  ordinary
course of business  determined in accordance with generally accepted  accounting
principals),  (iv) all  obligations  with  respect  to capital  leases,  (v) all
guaranty  obligations,  (vi)  all  obligations  created  or  arising  under  any
conditional  sale or other title  retention  agreement  with respect to property
acquired  by  such  Person,  and  (vii)  all  reimbursement  and  other  payment
obligations, contingent or otherwise, in respect of letters of credit.

<PAGE>

            (c)   "Company"  includes the corporation  initially  executing this
Note and any Person which shall succeed to or assume the  obligations of Company
under this Note.

            (d)   "Person" shall mean and include an individual,  a partnership,
a corporation  (including a business  trust),  a joint stock company,  a limited
liability  company,  an  unincorporated  association,  a joint  venture or other
entity or a governmental authority.

            (e)   "Senior    Indebtedness"    shall   mean,   unless   expressly
subordinated  to or made on a parity with the  amounts due under this Note,  the
principal of (and premium, if any), unpaid interest on and amounts reimbursable,
fees,  expenses,  costs of enforcement and other amounts due in connection with,
Indebtedness of Company to Coamerica  Bank,  Access Finacial or other current or
future institutional Indebtedness.

      2.    INTEREST.  Accrued  interest  on this Note  shall be payable at such
time as the outstanding  principal  amount hereof shall be paid in full. If this
Note is converted pursuant to Section 6 hereof, the accrued interest may, at the
election  of the  Company,  be paid in  shares of Common  Stock (as  defined  in
Section 6(a) below).

      3.    EVENTS OF DEFAULT.  The  occurrence  of any of the  following  shall
constitute an "Event of Default" under this Note:

            (a)   Failure to Pay. The Company shall fail in any material respect
to pay (i) any  principal  payment  for a period of three days from the due date
thereof or (ii) any interest or other payment  required  under the terms of this
Note on the date due and such  payment  shall not have been made within  fifteen
(15) days of  Company's  receipt of Holder's  written  notice to Company of such
failure to pay; or

            (b)   Breaches of Covenants.  The Company shall fail in any material
respect to observe or perform any covenant,  obligation,  condition or agreement
contained  in this Note (other than those  covenants  specified  in Section 3(a)
hereof) and (i) such  failure is not  remedied,  cured or waived for a period of
thirty (30) days after the Company  has notice of the  failure,  or (ii) if such
failure is not curable  within such  thirty (30) day period,  but is  reasonably
capable of cure within sixty (60) days,  either (A) such failure shall  continue
for sixty (60) days or (B) Company  shall not have  commenced a cure in a manner
reasonably satisfactory to Holder within the initial thirty (30) day period; or

            (c)   Representations and Warranties. Any representation or warranty
made by Company to Holder in this Note shall be untrue in any  material  respect
when made; or

            (d)   Voluntary  Bankruptcy or Insolvency  Proceedings.  The Company
shall  (i) apply for or  consent  to the  appointment  of a  receiver,  trustee,
liquidator  or  custodian  of  itself  or of all or a  substantial  part  of its
property,  (ii) be unable,  or admit in writing its inability,  to pay its debts
generally as they mature, (iii) make a general assignment for the benefit of its
or any of its creditors, (iv) be dissolved or liquidated in full or in part, (v)
become  insolvent  (as  such  term  may be  defined  or  interpreted  under  any
applicable statute),  (vi) commence a voluntary case or other proceeding seeking
liquidation,  reorganization or other relief with respect to itself or its debts
under any bankruptcy, insolvency or other similar law now or hereafter in effect
or consent to any such relief or to the  appointment of or taking  possession of
its  property  by any  official  in an  involuntary  case  or  other  proceeding
commenced  against it, or (vii) take any action for the purpose of effecting any
of the foregoing; or

            (e)   Involuntary Bankruptcy or Insolvency Proceedings.  Proceedings
for the appointment of a receiver,  trustee,  liquidator or custodian of Company
or of all or a substantial part of the property thereof,  or an involuntary case
or other proceedings  seeking  liquidation,  reorganization or other relief with
respect to Company or the debts  thereof  under any  bankruptcy,  insolvency  or
other similar law now or hereafter in effect shall be commenced and an order for
relief entered or such  proceeding  shall not be dismissed or discharged  within
thirty (30) days of commencement.

                                       2
<PAGE>

      4.    RIGHTS OF HOLDER UPON DEFAULT.  Upon the  occurrence or existence of
an Event of Default  pursuant to Paragraphs  3(a),  (b) or (c) hereof and at any
time  thereafter  during the  continuance of such Event of Default,  Holder may,
acting  alone  and  by  written  notice  to  Company,  declare  all  outstanding
obligations  payable by Company  hereunder  to be  immediately  due and  payable
without  presentment,  demand,  protest or any other notice of any kind,  all of
which are hereby  expressly  waived,  anything  contained herein to the contrary
notwithstanding.  Upon the  occurrence  or  existence  of any  Event of  Default
described in Paragraphs  3(d) and 3(e) hereof,  immediately  and without notice,
all outstanding  obligations  payable by Company  hereunder shall  automatically
become immediately due and payable, without presentment,  demand, protest or any
other notice of any kind,  all of which are hereby  expressly  waived,  anything
contained herein to the contrary  notwithstanding.  In addition to the foregoing
remedies,  upon the occurrence or existence of any Event of Default,  Holder may
exercise  any other  right,  power or remedy  otherwise  permitted to it by law,
either by suit in equity or by action at law, or both.

      5.    SUBORDINATION;  SECURITY. The indebtedness evidenced by this Note is
hereby expressly  subordinated,  to the extent and in the manner hereinafter set
forth,  in right of  payment to the prior  payment  in full of all of  Company's
current and future  Senior  Indebtedness.  Subject to the prior  approval of the
holders of Senior Indebtedness, the indebtedness evidenced by this Note shall be
subject  to a  subordinated  security  interest  to that held by the  holders of
Senior  Indebtedness,  and the Company shall, within a reasonable amount of time
following  the date hereof,  file all  necessary  documentation  evidencing  the
perfection  of  such  security  interest  with  the  Washington   Department  of
Licensing.

      6.    CONVERSION.

            (a)   Voluntary  Conversion.  The  holder of this Note will have the
option,  in its sole  discretion,  to  convert  this  Note  into  shares  of the
Company's Common Stock ("Common Stock").  The conversion price at which the Note
shall convert into shares of Common Stock shall be $.15 per share.

            (c)   Issuance of Securities on  Conversion.  As soon as practicable
after  conversion of this Note,  the Company,  at its expense,  will cause to be
issued in the name of and delivered to the Holder of this Note, a certificate or
certificates  representing the number of fully paid and nonassessable  shares of
Common Stock to which Holder shall be entitled on such conversion. No fractional
shares will be issued on conversion of this Note.

            (d)   Termination  of Rights.  All rights with  respect to this Note
shall  terminate  upon the  issuance of shares of the Common  Stock  issued upon
conversion  of this  Note,  whether  or not  this  Note  has  been  surrendered.
Notwithstanding  the foregoing,  the Holder agrees to surrender this Note to the
Company for cancellation as soon as is practicable  following conversion of this
Note.

      7.    SUCCESSORS  AND  ASSIGNS.  Subject to the  restrictions  on transfer

described in Section 9 below,  the rights and  obligations of Company and Holder
shall be binding upon and benefit the successors, assigns, heirs, administrators
and transferees of the parties.

      8.    WAIVER AND  AMENDMENT.  Any  provision  of this Note may be amended,
waived or modified upon the written consent of Company and Holder.

                                       3
<PAGE>

      9.    TRANSFER OF THIS NOTE OR SECURITIES  ISSUABLE ON CONVERSION  HEREOF.
This Note and the  securities  into which this Note may be converted may only be
transferred with the written consent of Company and Holder.

      10.   TREATMENT OF NOTE.  To the extent  permitted  by generally  accepted
accounting  principles,  Company will treat, account and report the Note as debt
and not equity for  accounting  purposes and with  respect to any returns  filed
with federal, state or local tax authorities.

      11.   NOTICES. All notices and other communications  required or permitted
hereunder shall be in writing,  shall be effective when given,  and shall in any
event be deemed to be given upon receipt or, if earlier, (a) five (5) days after
deposit with the U.S.  Postal Service or other  applicable  postal  service,  if
delivered by first class mail, postage prepaid, (b) upon delivery,  if delivered
by hand,  (c) one  business  day after the  business day of deposit with Federal
Express or similar  overnight  courier,  freight prepaid or (d) one business day
after the  business day of a facsimile  transmission,  if delivered by facsimile
transmission  with  copy by first  class  mail,  postage  prepaid,  and shall be
addressed (i) if to the Holder, at the Holder's address as set forth in the Note
Purchase Agreement or on the register maintained by the Company,  and (ii) if to
the Company,  at the address of its principal  corporate  offices  (Attn:  Chief
Executive Officer), or at such other address as a party may designate by written
notice to the other party pursuant to the provisions above.

      12.   PAYMENT; PREPAYMENT.

            (a)   Payment shall be made in lawful tender of the United States.

            (b)   The  Company  shall  have the  right to  prepay  at any  time,
without  penalty,  in whole or in part, the unpaid principal and interest due on
this Note.

      13.   GOVERNING  LAW.  This  Note  and all  actions  arising  out of or in
connection  with this Note shall be governed by and construed in accordance with
the laws of the State of  Washington,  without  regard to the  conflicts  of law
provisions of the State of Washington or of any other state.

                                       4

<PAGE>

IN WITNESS WHEREOF, the Company has caused this Note to be issued as of the date
first written above.

                                              DETTO TECHNOLOGIES, INC.
                                              a Washington corporation

                                              By:
                                                 -------------------------------

                                              Title:
                                                   -----------------------------

                            ACKNOWLEDGMENT BY HOLDER

      By its  signature  below,  the Holder  hereby  acknowledges,  understands,
agrees and confirms that this Note shall represent: (i) all amounts owing by the
Company to the Holder pursuant to the promissory notes previously  issued by the
Company to Holder on August 20,  2002 and  September  6, 2002 and  September  3,
2003, as amended (the "Previous Notes") including all interest through the above
date.  The Holder also  understands  and agrees that this Note shall replace and
supercede,  in their  entirety,  the  Previous  Notes and that,  upon  execution
hereof,  the Previous Notes will be deemed to have been cancelled and all rights
thereunder extinguished.

      This  Note may be  executed  in any  number  of  counterparts,  and by the
different parties on different  counterpart  signature pages, all of which taken
together shall constitute one and the same agreement.  Any of the parties hereto
may  execute  this  Note  by  signing  any  such  counterpart  and  each of such
counterparts shall for all purposes be deemed to be an original.

                                              CALVIN CHEUNG

                                              By:
                                                --------------------------------

                                              Title:
                                                   -----------------------------

                                       5

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