EXHIBIT 4.20





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



                          SECURED CONVERTIBLE DEBENTURE

Palo Alto, California
September  12, 2003                                                    $250,000

                  FOR VALUE RECEIVED, AMNIS SYSTEMS INC., a Delaware corporation
(hereinafter  called the  "Borrower"),  hereby  promises  to pay to the order of
Stonestreet  Limited Partnership or registered assigns (the "Holder") the sum of
Two Hundred  Fifty  Thousand  Dollars  ($250,000),  on  September  12, 2005 (the
"Maturity Date"),  and to pay interest on the unpaid principal balance hereof at
the rate of twelve  percent (12%) per annum from  September 12, 2003 (the "Issue
Date")  until the same  becomes  due and  payable,  whether at  maturity or upon
acceleration or by prepayment or otherwise.  Any amount of principal or interest
on this Debenture  which is not paid when due shall bear interest at the rate of
fifteen percent (15%) per annum from the due date thereof until the same is paid
("Default Interest").  Interest shall commence accruing on the issue date, shall
be computed on the basis of a 365-day year and the actual number of days elapsed
and shall be payable, at the option of the Holder, either quarterly on March 31,
June 30,  September  30 and  December 31 of each year  beginning on December 31,
2003,  or at the time of  conversion  of the  principal  to which such  interest
relates in accordance  with Article I below.  All payments due hereunder (to the
extent not  converted  into  common  stock,  $.0001 par value per share,  of the
Borrower (the "Common Stock") in accordance with the terms hereof) shall be made
in lawful  money of the  United  States  of  America  or,  at the  option of the
Borrower,  in whole or in part, in shares of Common Stock of the Borrower valued
at the then applicable  Conversion Price (as defined herein). All payments shall
be made at such  address as the Holder shall  hereafter  give to the Borrower by
written  notice  made in  accordance  with  the  provisions  of this  Debenture.
Whenever any amount expressed to be due by the terms of this Debenture is due on
any day which is not a business  day, the same shall  instead be due on the next
succeeding day which is a business day and, in the case of any interest  payment
date  which  is not the  date on  which  this  Debenture  is paid in  full,  the
extension of the due date  thereof  shall not be taken into account for purposes
of  determining  the  amount  of  interest  due on  such  date.  As used in this
Debenture,  the term  "business  day" shall mean any day other than a  Saturday,

<PAGE>

Sunday or a day on which commercial  banks in the city of Palo Alto,  California
are  authorized  or required by law or executive  order to remain  closed.  Each
capitalized term used herein, and not otherwise defined,  shall have the meaning
ascribed thereto in that certain Securities Purchase Agreement,  dated September
12, 2003,  pursuant to which this Debenture was originally issued (the "Purchase
Agreement").

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

                  The following terms shall apply to this Debenture:

                          ARTICLE I. CONVERSION RIGHTS

         1.1 Conversion  Right.  Subject to filing the  Certificate of Amendment
(as defined in Section  4(1) of the Purchase  Agreement),  the Holder shall have
the right from time to time, and at any time on or prior to the later of (i) the
Maturity Date and (ii) the date of payment in full of the outstanding  principal
amount of this Debenture plus accrued and unpaid  interest and any other amounts
owed to the Holder under the Debenture or  Transaction  Documents (as defined in
Section  2(h) of the  Purchase  Agreement)  to  convert  all or any  part of the
outstanding  and unpaid  principal  amount of this Debenture into fully paid and
non-assessable  shares of Common Stock, as such Common Stock exists on the Issue
Date,  or any shares of capital  stock or other  securities of the Borrower into
which such  Common  Stock  shall  hereafter  be changed or  reclassified  at the
conversion  price (the  "Conversion  Price")  determined  as provided  herein (a
"Conversion");  provided, however, that in no event shall the Holder be entitled
to convert  any  portion  of this  Debenture  in excess of that  portion of this
Debenture upon conversion of which the sum of (1) the number of shares of Common
Stock  beneficially owned by the Holder and its affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership of the
unconverted  portion of the Debentures or the unexercised or unconverted portion
of any other  security  of the  Borrower  (including,  without  limitation,  the
warrants issued by the Borrower pursuant to the Purchase Agreement) subject to a
limitation  on  conversion or exercise  analogous to the  limitations  contained
herein)  and (2) the  number  of  shares  of  Common  Stock  issuable  upon  the
conversion  of  the  portion  of  this  Debenture  with  respect  to  which  the
determination  of this  proviso  is  being  made,  would  result  in  beneficial
ownership by the Holder and its affiliates of more than 9.9% of the  outstanding
shares of Common Stock.  The Borrower shall have the authority and obligation to
determine  whether the restriction  contained in this Section 1.1 will limit any
conversion  hereunder  and to the  extent  that a Borrower  determines  that the
limitation contained in this Section applies, the determination of which portion
of this Debenture is convertible shall be the  responsibility  and obligation of
each such  Borrower.  A Borrower may allocate which of the equity of the Company
deemed  beneficially owned by such Borrower shall be included in the 9.9% amount
described  above and which shall be  allocated  to the excess  above  9.9%.  For
purposes  of the  proviso  to the  immediately  preceding  sentence,  beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended,  and Regulations 13D-G  thereunder,  except as


                                       2
<PAGE>

otherwise  provided in clause (1) of such proviso.  The Holder of this Debenture
may waive the limitations set forth herein by sixty-one (61) days written notice
to the  Company.  The  number of shares of Common  Stock to be issued  upon each
conversion of this  Debenture  shall be  determined  by dividing the  Conversion
Amount (as defined below) by the applicable  Conversion  Price then in effect on
the date specified in the notice of conversion,  in the form attached  hereto as
Exhibit A (the "Notice of Conversion"),  delivered to the Borrower by the Holder
in accordance with Section 1.4 below;  provided that the Notice of Conversion is
submitted by facsimile (or by other means  resulting in, or reasonably  expected
to result in, notice) to the Borrower  before 6:00 p.m.,  Palo Alto,  California
time on such  conversion  date (the  "Conversion  Date").  The term  "Conversion
Amount" means, with respect to any conversion of this Debenture,  the sum of (1)
the principal  amount of this Debenture to be converted in such  conversion plus
(2)  accrued  and  unpaid  interest,  if any,  on such  principal  amount at the
interest  rates  provided  in this  Debenture  to the  Conversion  Date plus (3)
Default  Interest,  if  any,  on the  amounts  referred  to in  the  immediately
preceding  clauses (1) and/or (2) plus (4) at the Holder's  option,  any amounts
owed to the Holder  pursuant  to Sections  1.3 and 1.4(g)  hereof or pursuant to
Section  2(c)  of  that  certain  Registration  Rights  Agreement,  dated  as of
September  12, 2003,  executed in connection  with the initial  issuance of this
Debenture and the other Debentures  issued on the Issue Date (the  "Registration
Rights Agreement").

         1.2 Conversion Price.

                  (a)  Calculation of Conversion  Price.  The  Conversion  Price
shall be the lesser of (i) the Variable Conversion Price (as defined herein) and
(ii) the Fixed Conversion Price (as defined herein)  (subject,  in each case, to
equitable  adjustments for stock splits,  stock dividends or rights offerings by
the Borrower  relating to the  Borrower's  securities  or the  securities of any
subsidiary of the Borrower, combinations,  recapitalization,  reclassifications,
extraordinary distributions and similar events). The "Variable Conversion Price"
shall mean the  Applicable  Percentage  (as defined  herein)  multiplied  by the
Market Price (as defined herein). "Market Price" means the average of the lowest
three (3) Trading  Prices (as  defined  below) for the Common  Stock  during the
thirty  (30)  Trading  Day period  ending one  Trading Day prior to the date the
Conversion  Notice is sent by the  Holder to the  Borrower  via  facsimile  (the
"Conversion Date").  "Trading Price" means, for any security as of any date, the
lowest  intraday  trading  price on the  Over-the-Counter  Bulletin  Board  (the
"OTCBB") as reported by Bloomberg or, if the OTCBB is not the principal  trading
market for such  security,  the intraday  trading  price of such security on the
principal securities exchange or trading market where such security is listed or
traded or, if no intraday  trading price of such security is available in any of
the foregoing manners,  the average of the intraday trading prices of any market
makers for such  security  that are listed in the "pink  sheets" by the National
Quotation  Bureau,  Inc.  If the Trading  Price  cannot be  calculated  for such
security on such date in the manner provided  above,  the Trading Price shall be
the fair market value as mutually  determined by the Borrower and the holders of
a  majority  in  interest  of the  Debentures  being  converted  for  which  the
calculation  of the  Trading  Price  is  required  in  order  to  determine  the
Conversion Price of such  Debentures.  "Trading Day" shall mean any day on which
the Common  Stock is  actually  traded  for any  period on the OTCBB,  or on the
principal  securities  exchange or other  securities  market on which the Common
Stock is then being traded. "Applicable Percentage" shall mean 65.0%. The "Fixed
Conversion Price" shall mean $.05.



                                       3
<PAGE>

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

                  (c)  Injunction - Posting of Bond. In the event a Holder shall
elect to convert a Note or part thereof,  the Company may not refuse  conversion
based on any claim that such Holder or any one  associated  or  affiliated  with
such Holder has been engaged in any  violation of law, or for any other  reason,
unless,  an injunction  from a court,  on notice,  restraining  and or enjoining
conversion  of all or part of said Note shall have been sought and  obtained and
the  Company  has posted a surety  bond for the  benefit  of such  Holder in the
amount of 130% of the amount of the Note,  which is  subject to the  injunction,
which bond shall remain in effect until the completion of arbitration/litigation
of the dispute and the  proceeds of which shall be payable to such Holder to the
extent Holder obtains judgment.

         1.3 Authorized  Shares.  Subject to filing the Certificate of Amendment
(as defined in Section 4(1) of the Purchase  Agreement),  the Borrower covenants
that during the period the  conversion  right exists,  the Borrower will reserve
from its  authorized  and unissued  Common Stock a sufficient  number of shares,
free from  preemptive  rights,  to provide for the issuance of Common Stock upon
the full conversion of this Debenture and the other  Debentures  issued pursuant
to the  Purchase  Agreement.  The  Borrower  is  required  at all  times to have
authorized and reserved two times the number of shares that is actually issuable
upon full  conversion of the Debentures  (based on the  Conversion  Price of the
Debentures  or the  Exercise  Price of the Warrants in effect from time to time)
(the  "Reserved  Amount").  The Reserved  Amount shall be increased from time to
time in accordance with the Borrower's  obligations  pursuant to Section 4(h) of
the Purchase  Agreement.  Subject to filing the  Certificate  of  Amendment  (as
defined in Section 4(1) of the Purchase Agreement), the Borrower represents that
upon  issuance,  such  shares will be duly and  validly  issued,  fully paid and
non-assessable.  In addition, if the Borrower shall issue any securities or make


                                       4
<PAGE>

any change to its capital  structure  which would change the number of shares of
Common Stock into which the Debentures  shall be convertible at the then current
Conversion  Price,  the Borrower shall at the same time make proper provision so
that  thereafter  there shall be a  sufficient  number of shares of Common Stock
authorized  and reserved,  free from  preemptive  rights,  for conversion of the
outstanding  Debentures.  The Borrower (i) acknowledges  that it has irrevocably
instructed  its  transfer  agent  to issue  certificates  for the  Common  Stock
issuable upon conversion of this Debenture, and (ii) agrees that its issuance of
this Debenture  shall  constitute  full authority to its officers and agents who
are charged with the duty of executing  stock  certificates to execute and issue
the necessary  certificates  for shares of Common Stock in  accordance  with the
terms and conditions of this Debenture.

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

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

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



                                       5
<PAGE>

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

         1.4 Method of Conversion.

                  (a)  Mechanics of  Conversion.  Subject to Section  1.1,  this
Debenture  may be  converted  by the Holder in whole or in part at any time from
time to time after the Issue Date, by (A) submitting to the Borrower a Notice of
Conversion (by facsimile or other reasonable  means of communication  dispatched
on the Conversion Date prior to 6:00 p.m., Palo Alto,  California  time) and (B)
subject to Section 1.4(b),  surrendering  this Debenture at the principal office
of the Borrower.

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

                  (c) Payment of Taxes.  The  Borrower  shall not be required to
pay any tax which may be  payable in respect  of any  transfer  involved  in the
issue and delivery of shares of Common Stock or other  securities or property on
conversion  of this  Debenture  in a name  other  than that of the Holder (or in
street  name),  and the  Borrower  shall not be required to issue or deliver any
such  shares or other  securities  or  property  unless  and until the person or
persons (other than the Holder or the custodian in whose street name such shares
are to be held for the Holder's  account)  requesting the issuance thereof shall


                                       6
<PAGE>

have paid to the Borrower  the amount of any such tax or shall have  established
to the satisfaction of the Borrower that such tax has been paid.

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

                  (e)  Obligation  of Borrower  to Deliver  Common  Stock.  Upon
receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed to
be the holder of record of the Common Stock issuable upon such  conversion,  the
outstanding  principal  amount and the amount of accrued and unpaid  interest on
this  Debenture  shall be reduced to reflect such  conversion,  and,  unless the
Borrower  defaults  on its  obligations  under this  Article I, all rights  with
respect to the portion of this  Debenture  being so  converted  shall  forthwith
terminate except the right to receive the Common Stock or other securities, cash
or other assets,  as herein provided,  on such  conversion.  If the Holder shall
have given a Notice of Conversion as provided herein, the Borrower's  obligation
to issue and deliver the  certificates  for Common  Stock shall be absolute  and
unconditional,  irrespective  of the  absence  of any  action  by the  Holder to
enforce the same,  any waiver or consent with respect to any provision  thereof,
the  recovery  of any  judgment  against any person or any action to enforce the
same,  any failure or delay in the  enforcement  of any other  obligation of the
Borrower  to the  holder of record,  or any  setoff,  counterclaim,  recoupment,
limitation or termination,  or any breach or alleged breach by the Holder of any
obligation to the Borrower,  and  irrespective of any other  circumstance  which
might  otherwise  limit  such  obligation  of  the  Borrower  to the  Holder  in
connection with such conversion.  The Conversion Date specified in the Notice of
Conversion  shall be the Conversion  Date so long as the Notice of Conversion is
received by the Borrower before 6:00 p.m., Palo Alto,  California  time, on such
date.

                  (f) Delivery of Common Stock by Electronic  Transfer.  In lieu
of delivering physical certificates  representing the Common Stock issuable upon
conversion,  provided the  Borrower's  transfer  agent is  participating  in the
Depository  Trust Company ("DTC") Fast Automated  Securities  Transfer  ("FAST")
program,  upon  request  of the Holder and its  compliance  with the  provisions
contained in Section 1.1 and in this  Section  1.4,  the Borrower  shall use its
best efforts to cause its transfer agent to  electronically  transmit the Common
Stock  issuable  upon  conversion  to the  Holder by  crediting  the  account of
Holder's Prime Broker with DTC through its Deposit  Withdrawal  Agent Commission
("DWAC") system.



                                       7
<PAGE>

                  (g) Failure to Deliver Common Stock Prior to Deadline. Without
in any way  limiting  the Holder's  right to pursue  other  remedies,  including
actual damages and/or  equitable  relief,  the parties agree that if delivery of
the Common Stock issuable upon conversion of this Debenture is more than two (2)
days after the Deadline (other than a failure due to the circumstances described
in Section 1.3 above,  which  failure  shall be governed  by such  Section)  the
Borrower  shall pay to the Holder in cash,  as  liquidated  damages and not as a
penalty,  for each $5,000 of principal amount being  converted,  $50 per Trading
Day  (increasing  to $100 per Trading Day on the third Trading Day following the
Deadline and  increasing  to $200 per Trading Day on the sixth Trading Day after
the Deadline) for each Trading Day after the Deadline until the shares of Common
Stock are  delivered.  Such cash amount shall be paid to Holder by the fifth day
of the month  following  the month in which it has  accrued or, at the option of
the  Holder (by  written  notice to the  Borrower  by the first day of the month
following  the month in which it has  accrued),  shall be added to the principal
amount of this  Debenture,  in which  event  interest  shall  accrue  thereon in
accordance with the terms of this Debenture and such additional principal amount
shall be  convertible  into Common  Stock in  accordance  with the terms of this
Debenture.

                  (h) Buy-In.  In addition to any other rights  available to the
Holder,  if the Company fails to deliver to the Holder such shares issuable upon
conversion of a Note by the Deadline and if ten (10) days after the Deadline the
Holder purchases (in an open market  transaction or otherwise)  shares of Common
Stock to deliver in  satisfaction  of a sale by such Holder of the Common  Stock
which the Subscriber  anticipated  receiving upon such  conversion (a "Buy-In"),
then the Company  shall pay in cash to the Holder (in  addition to any  remedies
available to or elected by the  Subscriber) the amount by which (A) the Holder's
total purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased  exceeds (B) the aggregate  principal  and/or interest
amount of the Note for which such  conversion was not timely  honored,  together
with interest thereon at a rate of 15% per annum, accruing until such amount and
any  accrued  interest  thereon is paid in full (which  amount  shall be paid as
liquidated damages and not as a penalty).  For example,  if the Holder purchases
shares of Common  Stock  having a total  purchase  price of  $11,000  to cover a
Buy-In with  respect to an  attempted  conversion  of $10,000 of note  principal
and/or  interest,  the Company shall be required to pay the Holder $1,000,  plus
interest.  The Holder shall provide the Company  written  notice  indicating the
amounts  payable to the Holder in respect of the Buy-In.  The  delivery  date by
which Common Stock must be  delivered  pursuant to this Section  shall be tolled
for the amount of days that the Holder does not deliver  information  reasonably
requested by the Company's transfer agent.

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



                                       8
<PAGE>

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

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

         1.6 Effect of Certain Events.

                  (a) Effect of Merger, Consolidation, Etc. At the option of the
Holder,  the sale,  conveyance or disposition of all or substantially all of the
assets of the Borrower,  the  effectuation  by the Borrower of a transaction  or
series of related transactions in which more than 50% of the voting power of the
Borrower  is  disposed  of,  or the  consolidation,  merger  or  other  business
combination  of the Borrower with or into any other Person (as defined below) or
Persons when the Borrower is not the survivor shall either:  (i) be deemed to be
an Event of Default (as defined in Article  III)  pursuant to which the Borrower
shall  be  required  to pay to the  Holder  upon  the  consummation  of and as a
condition to such  transaction an amount equal to the Default Amount (as defined
in Article III) or (ii) be treated  pursuant to Section 1.6(b) hereof.  "Person"


                                       9
<PAGE>

shall mean any individual,  corporation, limited liability company, partnership,
association, trust or other entity or organization.

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

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

                  (d) Adjustment Due to Dilutive Issuance. If the Company or any
subsidiary thereof, as applicable, at any time while Debentures are outstanding,
shall  offer,  sell,  grant any option to purchase  or offer,  sell or grant any
right to reprice its securities,  or otherwise  dispose of or issue (or announce
any offer,  sale,  grant or any option to  purchase  or other  disposition)  any
Common  Stock or any  equity  or equity  equivalent  securities  (including  any
equity,  debt or  other  instrument  that is at any time  over the life  thereof


                                       10
<PAGE>

convertible into or exchangeable for Common Stock) (collectively,  "Common Stock
Equivalents") entitling any person to acquire shares of Common Stock, at a price
per share less than the  Conversion  Price (if the holder of the Common Stock or
Common Stock  Equivalent  so issued  shall at any time,  whether by operation of
purchase price adjustments, reset provisions,  floating conversion,  exercise or
exchange  prices or otherwise,  or due to warrants,  options or rights per share
which is issued in connection with such issuance,  be entitled to receive shares
of Common  Stock at a price per share which is less than the  Conversion  Price,
such  issuance  shall be deemed to have  occurred  for less than the  Conversion
Price),  then,  the Conversion  Price shall be adjusted for such  conversions as
Holders  shall  indicate  in its  Conversion  Notices  to equal the  conversion,
exchange or purchase  price for such Common  Stock or Common  Stock  Equivalents
(including any reset provisions thereof) at issue. Such adjustment shall be made
whenever such Common Stock or Common Stock  Equivalents are issued.  The Company
shall notify the Holder in writing, no later than the business day following the
issuance of any Common Stock or Common Stock Equivalent subject to this section,
indicating therein the applicable  issuance price, or of applicable reset price,
exchange price, conversion price and other pricing terms.

                  (e) Purchase  Rights.  If, at any time when any Debentures are
issued and outstanding, the Borrower issues any convertible securities or rights
to  purchase  stock,  warrants,  securities  or other  property  (the  "Purchase
Rights") pro rata to the record  holders of any class of Common Stock,  then the
Holder of this Debenture will be entitled to acquire,  upon the terms applicable
to such Purchase Rights,  the aggregate  Purchase Rights which such Holder could
have  acquired  if such  Holder  had held the  number of shares of Common  Stock
acquirable  upon complete  conversion of this Debenture  (without  regard to any
limitations on conversion contained herein) immediately before the date on which
a record is taken for the grant, issuance or sale of such Purchase Rights or, if
no such record is taken, the date as of which the record holders of Common Stock
are to be determined for the grant, issue or sale of such Purchase Rights.

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



         1.7 Status as Stockholder. Upon submission of a Notice of Conversion by
a Holder,  (i) the shares covered thereby (other than the shares,  if any, which
cannot be issued  because their  issuance  would exceed such Holder's  allocated
portion  of the  Reserved  Amount  or  Maximum  Share  Amount)  shall be  deemed
converted  into shares of Common Stock and (ii) the Holder's  rights as a Holder
of such converted portion of this Debenture shall cease and terminate, excepting
only the right to receive  certificates  for such shares of Common  Stock and to


                                       11
<PAGE>

any remedies provided herein or otherwise  available at law or in equity to such
Holder  because of a failure by the  Borrower  to comply  with the terms of this
Debenture.   Notwithstanding  the  foregoing,  if  a  Holder  has  not  received
certificates  for all shares of Common Stock prior to the tenth (10th)  business
day after the  expiration  of the Deadline  with respect to a conversion  of any
portion of this  Debenture  for any reason,  then  (unless the Holder  otherwise
elects to retain  its  status as a holder of Common  Stock by so  notifying  the
Borrower) the Holder shall regain the rights of a Holder of this  Debenture with
respect to such  unconverted  portions of this Debenture and the Borrower shall,
as soon as practicable,  return such unconverted  Debenture to the Holder or, if
the Debenture has not been surrendered,  adjust its records to reflect that such
portion of this Debenture has not been converted. In all cases, the Holder shall
retain all of its rights and remedies  (including,  without limitation,  (i) the
right to receive  Conversion  Default  Payments  pursuant  to Section 1.3 to the
extent  required  thereby  for  such  Conversion   Default  and  any  subsequent
Conversion  Default and (ii) the right to have the Conversion Price with respect
to subsequent  conversions  determined  in accordance  with Section 1.3) for the
Borrower's failure to convert this Debenture.

                         ARTICLE II. CERTAIN COVENANTS

         2.1  Distributions on Capital Stock. So long as the Borrower shall have
any obligation under this Debenture, the Borrower shall not without the Holder's
written consent (a) pay, declare or set apart for such payment,  any dividend or
other distribution  (whether in cash, property or other securities) on shares of
capital stock other than  dividends on shares of Common Stock solely in the form
of  additional  shares of Common Stock or (b) directly or  indirectly or through
any subsidiary  make any other payment or distribution in respect of its capital
stock except for distributions  pursuant to any shareholders'  rights plan which
is approved by a majority of the Borrower's disinterested directors.

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

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

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



                                       12
<PAGE>

         2.5  Advances  and  Loans.  So  long as the  Borrower  shall  have  any
obligation  under this Debenture,  the Borrower shall not,  without the Holder's
written consent,  lend money, give credit or make advances to any person,  firm,
joint  venture  or  corporation,   including,   without  limitation,   officers,
directors, employees, subsidiaries and affiliates of the Borrower, except loans,
credits or advances  (a) in  existence or committed on the date hereof and which
the Borrower has informed  Holder in writing prior to the date hereof,  (b) made
in the ordinary course of business or (c) not in excess of $25,000.

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

                         ARTICLE III. EVENTS OF DEFAULT

         If any of the following events of default (each, an "Event of Default")
shall occur:

         3.1 Failure to Pay Principal or Interest. The Borrower fails to pay the
principal  hereof or interest  thereon  when due on this  Debenture,  whether at
maturity, upon acceleration or otherwise.

         3.2  Conversion  and the Shares.  The Borrower fails to issue shares of
Common Stock to the Holder (or announces or threatens that it will not honor its
obligation to do so) upon exercise by the Holder of the conversion rights of the
Holder in accordance  with the terms of this Debenture (for a period of at least
seven  (7) days,  if such  failure  is  solely as a result of the  circumstances
governed by Section 1.3 and the  Borrower is using its best efforts to authorize
a sufficient number of shares of Common Stock as soon as practicable),  fails to
transfer  or  cause  its  transfer  agent  to  transfer  (electronically  or  in
certificated  form) any  certificate  for shares of Common  Stock  issued to the
Holder upon  conversion of or otherwise  pursuant to this  Debenture as and when
required by this Debenture or the  Registration  Rights  Agreement,  or fails to
remove any restrictive legend (or to withdraw any stop transfer  instructions in
respect thereof) on any certificate for any shares of Common Stock issued to the
Holder upon  conversion of or otherwise  pursuant to this  Debenture as and when
required by this Debenture or the  Registration  Rights  Agreement (or makes any
announcement,  statement  or  threat  that it  does  not  intend  to  honor  the
obligations  described in this  paragraph)  and any such failure shall  continue
uncured (or any  announcement,  statement or threat not to honor its obligations
shall not be rescinded  in writing)  for five (5) days after the Borrower  shall
have been notified thereof in writing by the Holder.



                                       13
<PAGE>

         3.3 Failure to Timely File  Registration  or Effect  Registration.  The
Borrower fails to file the Registration  Statement on or before October 5, 2003,
or obtain  effectiveness  with the  Securities  and Exchange  Commission  of the
Registration  Statement  on or before  January  3,  2004,  or such  Registration
Statement  lapses  in effect  (or  sales  cannot  otherwise  be made  thereunder
effective,  whether by reason of the  Borrower's  failure to amend or supplement
the  prospectus  included  therein in accordance  with the  Registration  Rights
Agreement or otherwise) for more than twenty (20) consecutive days or forty (40)
days in any  twelve  month  period  after  the  Registration  Statement  becomes
effective;

         3.4 Breach of Covenants. The Borrower breaches any material covenant or
other  material  term or  condition  contained  in  Sections  1.3 or 1.6 of this
Debenture,  Sections  4(c),  4(e),  4(h),  4(i),  4(j),  4(l),  4(m) or 5 of the
Purchase  Agreement or Section 2 of the  Registration  Rights Agreement and such
breach  continues for a period of five (5) days after written  notice thereof to
the Borrower from the Holder;

         3.5 Failure to Pay Standard Liquidated Damages and/or other amounts due
under Transaction  Documents.  The Borrower fails to pay any Standard Liquidated
Damages due under the  Securities  Purchase  Agreement or any other  amounts due
under the  Transaction  Documents  within  five (5) days  after  written  notice
thereof to the Borrower from the Holder.

         3.6  Failure to remove  legend  from  shares  upon valid 144 sale.  The
Borrower  fails to instruct its transfer agent to remove any legends from shares
of Common  Stock  eligible to be sold under Rule 144 of the  Securities  Act and
issue such unlegended  certificates to the Holder within three (3) business days
of the  Holder's  request  so long  as the  Holder  has  provided  the  standard
representations regarding the Rule 144 sale.

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

         3.8 Receiver or Trustee. The Borrower or any subsidiary of the Borrower
shall make an assignment  for the benefit of creditors,  or apply for or consent
to the appointment of a receiver or trustee for it or for a substantial  part of
its  property or  business,  or such a receiver or trustee  shall  otherwise  be
appointed;

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



                                       14
<PAGE>

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

         3.11 Delisting of Common Stock. The Borrower shall fail to maintain the
listing of the Common  Stock on at least one of the OTCBB,  the Nasdaq  National
Market, the Nasdaq SmallCap Market, the New York Stock Exchange, or the American
Stock Exchange;

         3.12 Failure to File the  Certificate of Amendment.  The Borrower shall
fail to file the Certificate of Amendment according to the timeline as set forth
in  Section  4(l) of the  Securities  Purchase  Agreement  or at any time  after
September 30, 2003 fail to have sufficient  shares reserved  pursuant to Section
3(c) of the Securities Purchase Agreement.

         3.13 Default Under Other  Debentures.  An Event of Default has occurred
and is  continuing  under any of the other  Debentures  issued  pursuant  to the
Purchase Agreement or any other stock purchase agreement,

then,  upon the occurrence and during the  continuation  of any Event of Default
specified in Section 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 3.7, 3.9, 3.11, 3.12, or 3.13
at the option of the Holders of a majority of the aggregate  principal amount of
the outstanding Debentures issued pursuant to the Purchase Agreement exercisable
through the  delivery of written  notice to the  Borrower by such  Holders  (the
"Default  Notice"),  and upon the occurrence of an Event of Default specified in
Section 3.6 or 3.8, the Debentures shall become  immediately due and payable and
the Borrower shall pay to the Holder,  in full  satisfaction  of its obligations
hereunder,  an amount  equal to the greater of (i) 135% times the sum of (w) the
then outstanding  principal amount of this Debenture plus (x) accrued and unpaid
interest on the unpaid principal amount of this Debenture to the date of payment
(the  "Mandatory  Prepayment  Date") plus (y) Default  Interest,  if any, on the
amounts  referred to in clauses (w) and/or (x) plus (z) any amounts  owed to the
Holder pursuant to Sections 1.3 and 1.4(g) hereof or pursuant to Section 2(c) of
the Registration Rights Agreement (the then outstanding principal amount of this
Debenture  to the date of payment  plus the amounts  referred to in clauses (x),
(y) and (z)  shall  collectively  be  known  as the  "Default  Sum") or (ii) the
"parity  value" of the Default Sum to be prepaid,  where  parity value means (a)
the highest  number of shares of Common Stock  issuable  upon  conversion  of or
otherwise  pursuant to such Default Sum in  accordance  with Article I, treating
the Trading Day  immediately  preceding  the  Mandatory  Prepayment  Date as the
"Conversion Date" for purposes of determining the lowest  applicable  Conversion
Price,  unless the Default  Event arises as a result of a breach in respect of a
specific  Conversion  Date in  which  case  such  Conversion  Date  shall be the
Conversion  Date),  multiplied  by (b) the highest  Closing Price for the Common
Stock during the period  beginning on the date of first  occurrence of the Event
of  Default  and  ending  one day prior to the  Mandatory  Prepayment  Date (the
"Default  Amount") and all other amounts  payable  hereunder  shall  immediately
become due and payable, all without demand,  presentment or notice, all of which
hereby  are  expressly  waived,  together  with all  costs,  including,  without
limitation,  legal fees and  expenses,  of  collection,  and the Holder shall be
entitled  to  exercise  all other  rights and  remedies  available  at law or in
equity. If the Borrower fails to pay the Default Amount within five (5) business
days of written  notice  that such  amount is due and  payable,  then the Holder
shall  have the right at any time,  so long as the  Borrower  remains in default
(and so long and to the extent that there are sufficient  authorized shares), to
require the Borrower,  upon written notice, to immediately issue, in lieu of the
Default  Amount,  the number of shares of Common Stock of the Borrower  equal to
the Default Amount divided by the Conversion Price then in effect.



                                       15
<PAGE>

                           ARTICLE IV. MISCELLANEOUS

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

         4.2 Notices.  Any notice herein required or permitted to be given shall
be in writing and may be  personally  served or  delivered by courier or sent by
United  States  mail and  shall be deemed to have been  given  upon  receipt  if
personally served (which shall include telephone line facsimile transmission) or
sent by courier or three (3) days after  being  deposited  in the United  States
mail, certified,  with postage pre-paid and properly addressed, if sent by mail.
For the  purposes  hereof,  the  address of the Holder  shall be as shown on the
records of the Borrower;  and the address of the Borrower shall be 3450 Hillview
Avenue, Palo Alto, California 94304,  facsimile number:  650-855-0222.  Both the
Holder and the Borrower may change the address for service by service of written
notice to the other as herein provided.

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

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

         4.5 Cost of  Collection.  If  default  is made in the  payment  of this
Debenture,  the  Borrower  shall  pay the  Holder  hereof  costs of  collection,
including reasonable attorneys' fees.

         4.6 Governing  Law. THIS AGREEMENT  SHALL BE ENFORCED,  GOVERNED BY AND
CONSTRUED IN ACCORDANCE  WITH THE LAWS OF THE STATE OF NEW YORK,  WITHOUT REGARD
TO THE  PRINCIPLES OF CONFLICT OF LAWS.  THE PARTIES HERETO HEREBY SUBMIT TO THE
EXCLUSIVE  JURISDICTION  OF THE STATE COURTS OR THE UNITED STATES FEDERAL COURTS
LOCATED IN NEW YORK WITH RESPECT TO ANY DISPUTE  ARISING  UNDER THIS  AGREEMENT,
THE  AGREEMENTS  ENTERED  INTO  IN  CONNECTION   HEREWITH  OR  THE  TRANSACTIONS


                                       16
<PAGE>

CONTEMPLATED HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN
INCONVENIENT  FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING.  BOTH PARTIES
FURTHER  AGREE THAT  SERVICE OF PROCESS  UPON A PARTY MAILED BY FIRST CLASS MAIL
SHALL BE DEEMED IN EVERY RESPECT  EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN
ANY SUCH SUIT OR PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO
SERVE  PROCESS IN ANY OTHER MANNER  PERMITTED BY LAW.  BOTH PARTIES AGREE THAT A
FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE
AND MAY BE ENFORCED IN OTHER  JURISDICTIONS  BY SUIT ON SUCH  JUDGMENT OR IN ANY
OTHER  LAWFUL  MANNER.  THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE  ARISING
UNDER THIS AGREEMENT SHALL BE RESPONSIBLE  FOR ALL FEES AND EXPENSES,  INCLUDING
ATTORNEYS'  FEES,  INCURRED  BY THE  PREVAILING  PARTY IN  CONNECTION  WITH SUCH
DISPUTE.

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

         4.8  Allocations  of Maximum  Share  Amount and  Reserved  Amount.  The
Maximum  Share Amount and Reserved  Amount shall be allocated pro rata among the
Holders of Debentures based on the principal amount of such Debentures issued to
each Holder. Each increase to the Maximum Share Amount and Reserved Amount shall
be allocated  pro rata among the Holders of  Debentures  based on the  principal
amount of such Debentures held by each Holder at the time of the increase in the
Maximum  Share  Amount or Reserved  Amount.  In the event a Holder shall sell or
otherwise  transfer any of such Holder's  Debentures,  each transferee  shall be
allocated  a pro rata  portion of such  transferor's  Maximum  Share  Amount and
Reserved  Amount.  Any portion of the Maximum  Share  Amount or Reserved  Amount
which  remains  allocated  to any  person  or  entity  which  does  not hold any
Debentures shall be allocated to the remaining  Holders of Debentures,  pro rata
based on the principal amount of such Debentures then held by such Holders.

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



                                       17
<PAGE>

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

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

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

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



                                       18
<PAGE>

                         ARTICLE V. OPTIONAL PREPAYMENT

         5.1  Optional  Prepayment.  Notwithstanding  anything  to the  contrary
contained  in this  Article  V, for not more than  sixty (60) days from the date
hereof,  so long as (i) no Event of Default or Trading Market  Prepayment  Event
shall have  occurred and be  continuing,  and (ii) the Borrower has a sufficient
number of  authorized  shares of Common Stock  reserved  for issuance  upon full
conversion  of the  Debentures,  then at any time  after  the  Issue  Date,  the
Borrower  shall have the right,  exercisable  on not less than ten (10)  Trading
Days prior written notice to the Holders of the Debentures (which notice may not
be sent to the Holders of the  Debentures  until the  Borrower is  permitted  to
prepay  the  Debentures  pursuant  to this  Section  5.1),  to prepay all of the
outstanding  Debentures  in  accordance  with this  Section  5.1.  Any notice of
prepayment  hereunder  (an  "Optional  Prepayment")  shall be  delivered  to the
Holders of the Debentures at their registered  addresses  appearing on the books
and records of the Borrower and shall state (1) that the Borrower is  exercising
its right to prepay all of the  Debentures  issued on the Issue Date and (2) the
date of prepayment  (the "Optional  Prepayment  Notice").  On the date fixed for
prepayment (the "Optional  Prepayment Date"), the Borrower shall make payment of
the Optional  Prepayment  Amount (as defined  below) to or upon the order of the
Holders as  specified by the Holders in writing to the Borrower at least one (1)
business day prior to the Optional  Prepayment  Date. If the Borrower  exercises
its right to prepay the  Debentures,  the  Borrower  shall  make  payment to the
holders of an amount in cash (the "Optional  Prepayment  Amount") equal to 130%,
for the first 60 days from the date hereof and 150%  thereafter,  multiplied  by
the sum of (w) the then outstanding  principal amount of this Debenture plus (x)
accrued and unpaid interest on the unpaid  principal amount of this Debenture to
the Optional  Prepayment Date plus (y) Default Interest,  if any, on the amounts
referred  to in  clauses  (w) and (x) plus (z) any  amounts  owed to the  Holder
pursuant to Sections  1.3 and 1.4(g)  hereof or pursuant to Section  2(c) of the
Registration  Rights  Agreement (the then  outstanding  principal amount of this
Debenture  to the date of payment  plus the amounts  referred to in clauses (x),
(y) and (z)  shall  collectively  be known as the  "Optional  Prepayment  Sum").
Notwithstanding notice of an Optional Prepayment, the Holders shall at all times
prior to the Optional  Prepayment  Date maintain the right to convert all or any
portion  of the  Debentures  in  accordance  with  Article I and any  portion of
Debentures so converted after receipt of an Optional Prepayment Notice and prior
to the  Optional  Prepayment  Date set forth in such  notice and  payment of the
aggregate Optional Prepayment Amount shall be deducted from the principal amount
of Debentures which are otherwise subject to prepayment pursuant to such notice.
If the  Borrower  delivers  an Optional  Prepayment  Notice and fails to pay the
Optional  Prepayment  Amount due to the Holders of the Debentures within two (2)
business days following the Optional Prepayment Date, the Borrower shall forever
forfeit its right to redeem the Debentures pursuant to this Section 5.1.



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                                       19
<PAGE>



         IN WITNESS WHEREOF,  Borrower has caused this Debenture to be signed in
its name by its duly authorized officer this 12 day of September, 2003.


                                    AMNIS SYSTEMS INC.


                                    By:    ______________________________
                                           Scott Mac Caughern
                                           Chairman and Chief Executive Officer




                                       20
<PAGE>


                                                                    EXHIBIT A

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

                  The   undersigned   hereby   irrevocably   elects  to  convert
$________principal amount of the Debenture (defined below) into shares of common
stock,  par value $.0001 per share  ("Common  Stock"),  of Amnis Systems Inc., a
Delaware  corporation  (the  "Borrower")  according  to  the  conditions  of the
convertible  debentures  of the  Borrower  dated as of  September__,  2003  (the
"Debentures"),  as of the date written below.  If securities are to be issued in
the name of a person other than the  undersigned,  the undersigned  will pay all
transfer  taxes  payable with respect  thereto and is  delivering  herewith such
certificates.  No fee will be charged to the Holder for any  conversion,  except
for transfer  taxes,  if any. A copy of each  Debenture  is attached  hereto (or
evidence of loss, theft or destruction thereof).

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

              Name of DTC Prime Broker:
              Account Number:

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

              Name:
              Address:

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

                    Date of Conversion:___________________________
                    Applicable Conversion Price:____________________
                    Number of Shares of Common Stock to be Issued Pursuant to
                    Conversion of the Debentures:______________
                    Signature:___________________________________
                    Name:______________________________________
                    Address:____________________________________

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


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