NEITHER THIS DEBENTURE NOR THE SECURITIES ISSUABLE UPON CONVERSION OF
            THIS DEBENTURE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION
            OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
            REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES
            ACT), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
            EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
            AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
            AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES. THIS DEBENTURE AND THE
            SECURITIES ISSUABLE UPON CONVERSION OF THIS DEBENTURE MAY BE PLEDGED IN
            CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
            SECURITIES.

Original Issue Date:  January 30, 2003

$8,500,000

No. 1

MILLENNIUM CELL INC.  SECURED CONVERTIBLE DEBENTURE DUE ON THE
            THIRD YEAR ANNIVERSARY OF THE ORIGINAL ISSUE DATE

THIS DEBENTURE is one of a series of duly
            authorized and issued debentures of Millennium Cell Inc., a corporation
            organized under the laws of the state of Delaware (the "Company"),
            designated as its Secured Convertible Debentures, due on the third year
            anniversary of the Original Issue Date (as defined herein) in the aggregate
            principal amount of Eight Million Five Hundred Thousand Dollars ($8,500,000)
            (collectively, the "Secured Debentures").

FOR VALUE RECEIVED, the Company promises to
            pay to the order of Pine Ridge Financial, Inc. or its registered assigns (the
            "Holder") the principal sum of Eight Million Five Hundred Thousand
            Dollars ($8,500,000) and any additional sums due pursuant to the terms hereof
            on the third year anniversary of the Original Issue Date, or such earlier date
            as the Secured Debentures are required or permitted to be repaid hereunder
            ("Maturity Date"), and to pay interest to the Holder on the principal
            amount of this Secured Debenture in accordance with the provisions hereof. This
            Secured Debenture is subject to the following additional provisions.

1.  Definitions. As used in this
            Secured Debenture, the following terms shall have the meanings set forth in
            this Section 1:

> Adjustment Date" means the
>               tenth Trading Day following the Delivery Date.

> "Adjustment Notice" means a
>               written notice delivered by the Company to a Holder pursuant to Section 6(c),
>               indicating the Companys intent to adjust the Conversion Price pursuant to
>               Section 6(c).
>             "Adjustment Percentage" means, as
>               of any Adjustment Date, if the Holder shall have converted prior thereto,
>               pursuant to Section 6(c) of the Secured Debentures or the Exchange Debentures
>               or Section 5(c) of the Unsecured Debenture, as applicable), an aggregate
>               principal amount of Debentures between: (i) $0 and $2,500,000, 88%; (ii)
>               $2,500,001 and $5,000,000, 90%; (iii) $5,000,001 and $7,500,000, 92%; (iv)
>               $7,500,001 to $10,000,000, 94%; and (v) $10,000,001 to $12,000,000, 96%.
>             "Bankruptcy Event" means any of
>               the following events: (a) the Company or any subsidiary thereof commences a
>               case or other proceeding under any bankruptcy, reorganization, arrangement,
>               adjustment of debt, relief of debtors, dissolution, insolvency or Liquidation
>               or similar law of any jurisdiction relating to the Company or any subsidiary
>               thereof; (b) there is commenced against the Company or any subsidiary thereof
>               any such case or proceeding that is not dismissed within 60 days after
>               commencement; (c) the Company or any subsidiary thereof is adjudicated
>               insolvent or bankrupt or any order of relief or other order approving any such
>               case or proceeding is entered; (d) the Company or any subsidiary thereof
>               suffers any appointment of any custodian or the like for it or any substantial
>               part of its property that is not discharged or stayed within 60 days; (e) the
>               Company or any subsidiary thereof makes a general assignment for the benefit of
>               creditors; (f) the Company or any subsidiary thereof fails to pay, or states
>               that it is unable to pay or is unable to pay, its debts generally as they
>               become due; (g) the Company or any subsidiary thereof calls a meeting of its
>               creditors with a view to arranging a composition, adjustment or restructuring
>               of its debts; or (h) the Company or any subsidiary thereof, by any act or
>               failure to act, expressly indicates its consent to, approval of or acquiescence
>               in any of the foregoing or takes any corporate or other action for the purpose
>               of effecting any of the foregoing.
>             "Business Day" means any day
>               except Saturday, Sunday and any day which shall be a federal legal holiday or a
>               day on which banking institutions in the State of New York or the State of New
>               Jersey are authorized or required by law or other governmental action to close.
>             "Change of Control" means the
>               occurrence of any of: (i) an acquisition after the date hereof by an individual
>               or legal entity or "group" (as described in Rule 13d-5(b)(1) promulgated under
>               the Exchange Act) of effective control (whether through legal or beneficial
>               ownership of capital stock of the Company, by contract or otherwise) of in
>               excess of 33% of the voting securities of the Company, (ii) a replacement at
>               one time or over time of more than one-half of the members of the Company's
>               board of directors which is not approved by a majority of those individuals who
>               are members of the board of directors on the date hereof (or by those
>               individuals who are serving as members of the board of directors on any date
>               whose nomination to the board of directors was approved by a majority of the
>               members of the board of directors who are members on the date hereof), (iii)
>               the merger of the Company with or into another entity that is not wholly-owned
>               by the Company, consolidation or sale of 50% or more of the assets of the

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> Company in one or a series of related transactions, or (iv) the
>               execution by the Company of an agreement to which the Company is a party or by
>               which it is bound, providing for any of the events set forth above in (i), (ii)
>               or (iii).
>             "Closing Price" means, for any
>               date, the price determined by the first of the following clauses that applies:
>               (a) if the Common Stock is then listed or quoted on an Eligible Market, the
>               closing sales price per share of the Common Stock for such date (or the nearest
>               preceding date) on the primary Eligible Market on which the Common Stock is
>               then listed or quoted; (b) if the Common Stock is not then listed or quoted on
>               an Eligible Market and if prices for the Common Stock are then quoted on the
>               OTC Bulletin Board (or any successor thereto), the closing sales price per
>               share of the Common Stock for such date (or the nearest preceding date) on the
>               OTC Bulletin Board (or any successor thereto); (c) if the Common Stock is not
>               then listed or quoted on an Eligible Market or the OTC Bulletin Board (or any
>               successor thereto) and if prices for the Common Stock are then reported in the
>               Pink Sheets published by the National Quotation Bureau Incorporated
>               (or a similar organization or agency succeeding to its functions of reporting
>               prices), the most recent sales price per share of the Common Stock so reported;
>               or (d) in all other cases, the fair market value of a share of Common Stock as
>               determined by an independent appraiser selected in good faith by the Holder.
>             "Commission" means the Securities
>               and Exchange Commission.
>             "Common Stock" means the
>               Companys common stock, $.001 par value, and stock of any other class into
>               which such shares may be reclassified or changed.
>             "Common Stock Equivalents" means
>               any securities of the Company or a subsidiary thereof which entitle the holder
>               thereof to acquire Common Stock at any time, including without limitation, any
>               debt, preferred stock, rights, options, warrants or other instrument that is at
>               any time convertible into or exchangeable for, or otherwise entitles the holder
>               thereof to receive, Common Stock or other securities that entitle the holder to
>               receive, directly or indirectly, Common Stock.
>             "Company Conversion Date" means
>               the tenth (10th) day immediately following the date a Company
>               Conversion Notice together with the Conversion Schedule is delivered to the
>               Holder pursuant to Section 6(b).
>             "Company Conversion Notice" means
>               a written notice in the form attached hereto as Exhibit B.
>             "Company Prepayment Price"
>               for any Secured Debentures which shall be subject to prepayment pursuant to
>               Section 8(a), shall equal the sum of: (i) 105% of the principal amount of
>               Secured Debentures to be prepaid, plus all accrued and unpaid interest thereon,
>               and (ii) all other amounts, costs, expenses and liquidated damages due in
>               respect of such Secured Debentures.
>             "Conversion Date" means either a
>               Holder Conversion Date, a Company Conversion Date or an Adjustment Date.

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> "Conversion Notice" means either a
>               Holder Conversion Notice or a Company Conversion Notice.
>             "Conversion Price" means the
>               Initial Conversion Price, subject to adjustment from time to time pursuant to
>               Sections 6(c) (solely with respect to conversions pursuant to Section 6(c)) and
>               6(j).
>             "Debentures" shall have the
>               meaning set forth in the Purchase Agreement.
>             "Delivery Date" means the date an
>               Adjustment Notice is delivered to the Holder pursuant to Section 6(c).
>             "Eligible Market" means any of
>               the New York Stock Exchange, the American Stock Exchange, the Nasdaq or the
>               Nasdaq Small Cap Market.
>             "Exchange Act" means the
>               Securities Exchange Act of 1934, as amended.
>             "Exchange Debentures" means
>               unsecured convertible debentures in the form attached hereto as Exhibit
>               C, issuable from time to time upon exchange of Secured Debentures pursuant
>               to Section 7 hereof.
>             "Equity Conditions" means, with
>               respect to a specified issuance of Common Stock, that each of the following
>               conditions is satisfied: (i) the number of authorized but unissued and
>               otherwise unreserved shares of Common Stock is sufficient for such issuance;
>               (ii) such shares of Common Stock are registered for resale by the Holder
>               pursuant to an effective registration statement, and the prospectus thereunder
>               is available for use by the Holder to sell such shares or all such shares may
>               be sold without volume restrictions pursuant to Rule 144(k) under the
>               Securities Act; (iii) the Common Stock is listed or quoted (and is not
>               suspended from trading) on an Eligible Market and such shares of Common Stock
>               are approved for listing on such Eligible Market upon issuance; (iv) such
>               issuance would be permitted in full without violating Section 6(d)(i) or the
>               rules or regulations of the Eligible Market on which such shares are listed or
>               quoted; (v) no Event of Default nor any event that with the passage of time and
>               without being cured would constitute a Event of Default has occurred and not
>               been cured, and (vii) no public announcement of a pending or proposed Change of
>               Control transaction has occurred that has not been consummated.
>             "Event of Default" means the
>               occurrence of any one of the following events (whatever the reason and whether
>               it shall be voluntary or involuntary or effected by operation of law or
>               pursuant to any judgment, decree or order of any court, or any order, rule or
>               regulation of any administrative or governmental body):
>             (i) the
>               occurrence of an Event of Default (as defined in either the Unsecured
>               Debentures or the Exchange Debentures) pursuant to the Unsecured Debentures or
>               the Exchange Debentures (whether or not declared by an applicable holder of
>               such debenture and regardless whether or not any such debenture is
>               outstanding); or

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> (ii)
>               either: (A) the Letter of Credit (as defined in Section 2(a)) shall be revoked,
>               withdrawn, terminated or disaffirmed by the Bank (as defined in Section 2(a))
>               or (B) the Holder shall have received notification from the Bank pursuant to
>               the Letter of Credit that the Letter of Credit shall not be renewed and: (x) 45
>               days shall have elapsed since the delivery of such notification, (y) such
>               non-renewal shall not have been withdrawn by the Bank prior to such
>               45th day and (z) the Company shall not have delivered a substitute
>               letter of credit in form and substance satisfactory to the Holder in its sole
>               and absolute discretion.
>             "Final Release Date" means,
>               subsequent to the date the Registration Statements covering the resale of the
>               shares of Common Stock issuable upon conversion of all then outstanding
>               Debentures has been declared effective by the Commission, the tenth
>               (10th) Trading Day immediately following a period of twenty
>               consecutive Trading Days during which the VWAP on each of such twenty
>               consecutive Trading Days is greater than $5.10 (subject to equitable adjustment
>               for stock splits, recombinations and similar events).
>             "Holder Conversion Date"
>               means the date a Holder Conversion Notice together with the Conversion Schedule
>               is delivered to the Company pursuant to Section 6(a).
>             "Holder Conversion Notice"
>               means a written notice in the form attached hereto as Exhibit A.
>             "Holder Prepayment Price" for any
>               Secured Debentures required to be prepaid pursuant to: (x) Section 9(b)(i),
>               shall equal the sum of: (i) the principal amount of Secured Debentures to be
>               prepaid, plus all accrued and unpaid interest thereon and (ii) all other
>               amounts, costs, expenses and liquidated damages due in respect of such Secured
>               Debentures and (y) Section 9(b)(ii), shall equal the sum of: (i) 110% of the
>               principal amount of Secured Debentures to be prepaid, plus all accrued and
>               unpaid interest thereon and (ii) all other amounts, costs, expenses and
>               liquidated damages due in respect of such Secured Debentures.
>             "Initial Conversion Price" shall
>               equal $4.25 (subject to equitable adjustment for stock splits, recombinations
>               and similar events).
>             "Interest Payment Date" means each
>               March 31, June 30, September 30 and December 31, beginning on the first such
>               date following the Original Issue Date, except if such date is not a Trading
>               Day, in which case such Interest Payment Date shall be the next succeeding
>               Trading Day.
>             "Index Price" means the average of
>               the VWAPs for the 10 consecutive Trading Days immediately following the
>               Delivery Date.
>             "Interest Rate" means a rate of
>               interest paid from time to time on money market accounts held at the Bank.
>             "Liquidation" means for any
>               Person, any liquidation, dissolution or winding-up of such Person, whether
>               voluntary or involuntary, by operation or law or otherwise.

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> "Mandatory Convertible Amount"
>               means $300,000, that any respect to each Adjustment Date, such amount may be
>               increased up to $2,500,000 by mutual consent of the Holder and the Company
>               reached prior to the applicable Adjustment Date.
>             "Mandatory Prepayment Amount"
>               means for any Secured Debentures: (I) with respect to an Event of Default
>               hereunder pursuant to under clauses (i)-(xii) of an Unsecured Debenture, shall
>               equal the sum of: (i) the greater of (A) 130% of the principal amount of
>               Secured Debentures to be prepaid and, if applicable, the Reinstated Principal,
>               plus all accrued and unpaid interest thereon, and (B) the principal amount of
>               Secured Debentures to be prepaid and, if applicable, the Reinstated Principal,
>               plus all accrued and unpaid interest thereon, divided by the Conversion Price
>               on the Trading Day immediately preceding (x) the date of the Event of Default
>               or (y) the date the Mandatory Prepayment Amount is paid in full, whichever is
>               less, multiplied by the Closing Price on (x) the date of the Event of Default
>               or (y) the date the Mandatory Prepayment Amount is paid in full, whichever is
>               greater, and (ii) all other amounts, costs, expenses and liquidated damages due
>               in respect of such Secured Debentures; (II) with respect to an Event of Default
>               hereunder pursuant to clause (xiii) of an Unsecured Debenture, shall equal the
>               sum of: (i) 100% of the principal amount of Secured Debentures to be prepaid,
>               plus 100% of all accrued and unpaid interest thereon and (ii) all other
>               amounts, costs, expenses and liquidated damages due in respect of such Secured
>               Debentures; and (III) with respect to an Event of Default hereunder pursuant to
>               clause (xiv) of an Unsecured Debenture, shall equal the sum of: (i) the
>               principal amount of Secured Debentures to be prepaid, plus of all accrued and
>               unpaid interest thereon and (ii) all other amounts, costs, expenses and
>               liquidated damages due in respect of such Secured Debentures.
>             "Nasdaq" means the Nasdaq National
>               Market.
>             "Original Issue Date" means the
>               date of the first issuance of any Secured Debentures, regardless of the number
>               of transfers of any particular Secured Debenture and regardless of the number
>               of certificates which may be issued to evidence such Secured Debentures.
>             "Person" means an individual or
>               corporation, partnership, trust, incorporated or unincorporated association,
>               joint venture, limited liability company, joint stock company, government (or
>               an agency or subdivision thereof) or other entity of any kind.
>             "Proceeding" means an action,
>               claim, suit, investigation or proceeding (including, without limitation, an
>               investigation or partial proceeding, such as a deposition), whether commenced
>               or threatened in writing concerning the interpretation, enforcement or defense
>               of any transaction contemplated by any Transaction Document (whether brought
>               against a party hereto or such parties affiliates, directors, officers,
>               employees or agents).
>             "Purchase Agreement" means the
>               Securities Purchase Agreement, dated as of October 31, 2002, to which the
>               Company and the original Holders are parties, as amended, modified or
>               supplemented from time to time in accordance with its terms.

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> "Registration Rights Agreement"
>               means the Registration Rights Agreement, dated as of October 31, 2002, to which
>               the Company and the original Holders are parties, as amended, modified or
>               supplemented from time to time in accordance with its terms.
>             "Registration Statement" shall
>               have the meaning set forth in the Registration Rights Agreement.
>             "Reinstated Principal" means the
>               principal amount of Secured Debentures converted during the ten Trading Days
>               preceding the delivery of an Event of Default Notice, for which the Company
>               issued or was obligated to issue Underlying Shares to the Holder.
>             "Securities Act" means the
>               Securities Act of 1933, as amended.
>             "Subsidiary" shall have the
>               meaning set forth in the Purchase Agreement.
>             "Trading Day" means: (a) a day on
>               which the shares of Common Stock are traded on an Eligible Market, or (b) if
>               the shares of Common Stock are not listed on an Eligible Market, a day on which
>               the shares of Common Stock are traded in the over-the-counter market, as
>               reported by the OTC Bulletin Board, or (c) if the shares of Common Stock are
>               not quoted on the OTC Bulletin Board, a day on which the shares of Common Stock
>               are quoted in the over-the-counter market as reported by the National Quotation
>               Bureau Incorporated (or any similar organization or agency succeeding its
>               functions of reporting prices); provided, that in the event that the
>               shares of Common Stock are not listed or quoted as set forth in (a), (b) and
>               (c) hereof, then Trading Day shall mean a Business Day.
>             "Transaction Documents" shall have
>               the meaning set forth in the Purchase Agreement.
>             "Underlying Shares" means,
>               collectively, the shares of Common Stock issuable upon conversion of Secured
>               Debentures in accordance with the terms hereof.
>             "Unsecured Debentures" shall have
>               the meaning set forth in the Purchase Agreement.
>             "VWAP" means on any particular
>               Trading Day or for any particular period, the volume weighted average trading
>               price per share of Common Stock on such date or for such period on an Eligible
>               Market as reported by Bloomberg L.P., or any successor performing similar
>               functions.
>             "Warrants" shall have the meaning
>               set forth in the Purchase Agreement.

2.  Letter of Credit

(a)  This Secured Debenture is the debenture referred to in an
            irrevocable letter of credit issued by Wachovia Bank, National Association (the
            Bank) in favor of the Holder in an original amount of the
            aggregate original principal amount of the Secured

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Debentures, a copy of which is annexed hereto as Annex A (the
            Letter of Credit). The Company hereby acknowledges that the
            Holder and any subsequent Holder shall be entitled to the benefits of the
            Letter of Credit and covenants and agrees that it will not impair the
            Holders rights under the Letter of Credit and (except to the extent
            provided in Section 2(b)) shall maintain the Letter of Credit in full force and
            effect.

(b)  The Holder agrees that the face
            amount of the Letter of Credit shall be reduced from time to time pursuant to
            the terms set forth below:

(i) subsequent to each Conversion Date, the face amount of the
            Letter of Credit shall be reduced on the date on which the Holder receives the
            Underlying Shares it is entitled to receive subsequent to such Conversion Date
            pursuant to Section 6(e), by an amount equal to the principal amount of Secured
            Debentures converted on such Conversion Date less any interest payment accreted
            to principal up to such date;

(ii) the face amount of the Letter of Credit shall be reduced by an
            amount equal to the Holder Prepayment Price or the Company Prepayment Price
            paid by the Company pursuant to the delivery of a Holder Prepayment Notice or
            Company Prepayment Notice, as applicable, as set forth in Section 8, upon
            receipt by the Holder of such payment;

(iii) the face amount of the Letter of Credit shall be reduced by
            an amount equal to the principal amount of Secured Debentures being exchanged
            pursuant to Section 7 into Exchange Debentures, upon receipt by the Holder of
            such Exchange Debenture; and

(iv) on the Final Release Date and provided that: (A) the
            Equity Conditions are satisfied on such date with respect to the Underlying
            Shares issuable upon conversion in full of the then outstanding principal
            amount of Secured Debentures and (B) the Underlying Shares issuable upon
            conversion in full of the then outstanding principal amount of Secured
            Debentures would not violate Section 6(d)(i), the Letter of Credit shall be
            canceled and shall cease to secure any Secured Debentures which may be
            outstanding as of such Final Release Date.

(c)  The Holder shall, within five
            Trading Days of the occurrence of any of the events set forth in Section 2(b),
            provide the Bank with Exhibit C attached to the Letter of Credit
            indicating the occurrence of such event.

(d)  Upon the failure of the Company to
            timely pay to the Holder any amount which is then due and payable to the Holder
            under this Secured Debenture, whether pursuant to Section 8, Section 9 or any
            other applicable Section herein, the Holder shall be entitled to draw on the
            Letter of Credit to the extent of any such payment or payments so due to the
            Holder is not timely paid by the Company.

(e)  Any amounts received by the Holder
            pursuant to a draw on the Letter of Credit shall be applied against all
            unsatisfied obligations of the Company under this Secured Debenture.

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3. Interest.

(a)
              The Company shall pay interest to the Holder on the aggregate
            unconverted and then outstanding principal amount of this Secured Debenture
            (including any interest added to such principal in accordance with this Section
            2) at an annual rate equal to the Interest Rate, payable quarterly in arrears
            on each Interest Payment Date. Interest shall be calculated on the basis of a
            360-day year and shall accrue daily commencing on the Original Issue Date.
            Subject to the conditions and limitations set forth below, the Company will pay
            interest under this Secured Debenture either (i) in cash, or (ii) by delivering
            by the third Trading Day following the Interest Payment Date, a number of
            freely tradable shares of Common Stock equal to the quotient obtained by
            dividing the amount of such interest by the arithmetic average of the VWAP for
            the five Trading Days immediately preceding (but not including) the Interest
            Payment Date. To pay the interest payable on an Interest Payment Date in freely
            tradable shares of Common Stock, the Company must deliver written notice to the
            Holder indicating its election to make such stock payment at least 20 calendar
            days prior to such Interest Payment Date, but the Company may indicate in any
            such notice that the election contained therein shall continue for subsequent
            Interest Payment Dates until revised on not less than 20 calendar days notice
            prior to an Interest Payment Date. Failure to timely provide such written
            notice shall be deemed an election by the Company to pay such interest in cash.
            All interest payable on any Interest Payment Date must be paid in the same
            manner.

(b)   Notwithstanding the foregoing,
            the Company may not pay interest in shares of Common Stock unless, on the
            Interest Payment Date, the Equity Conditions are satisfied with respect to all
            of the Underlying Shares then issuable upon conversion in full of all
            outstanding Secured Debentures. If the Company is required but fails to pay
            interest in cash on any Interest Payment Date, the Holder may (but shall not be
            required to), by notice to the Company, treat such interest as if it had been
            accreted to the principal amount of this Secured Debenture as of such Interest
            Payment Date.

4. Registration of Secured
            Debentures. The Company shall register the Secured Debentures upon records
            to be maintained by the Company for that purpose (the "Secured Debenture
            Register") in the name of each record holder thereof from time to time. The
            Company may deem and treat the registered Holder as the absolute owner hereof
            for the purpose of any conversion hereof or any payment of interest hereon, and
            for all other purposes, absent actual notice to the contrary.

5. Registration of Transfers and
            Exchanges. The Company shall register the transfer of any portion of this
            Secured Debenture in the Secured Debenture Register upon surrender of this
            Secured Debenture to the Company at its address for notice set forth herein.
            Upon any such registration or transfer, a new debenture, in substantially the
            form of this Secured Debenture (any such new debenture, a "New Secured
            Debenture"), evidencing the portion of this Secured Debenture so
            transferred shall be issued to the transferee and a New Secured Debenture
            evidencing the remaining portion of this Secured Debenture not so transferred,
            if any, shall be issued to the transferring Holder. The acceptance of the New
            Secured Debenture by the transferee thereof shall be deemed the acceptance by
            such transferee of all of the rights and obligations of a holder of a Secured
            Debenture. This Secured Debenture is exchangeable for an

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equal aggregate principal amount of Secured Debentures of different
            authorized denominations, as requested by the Holder surrendering the same. No
            service charge or other fee will be imposed in connection with any such
            registration of transfer or exchange. Transfers of this Secured Debenture and
            the Underlying Shares issuable on conversion thereof hereby are governed by
            Section 4.1 of the Purchase Agreement.

6. Conversion

(a)  At the option of the
            Holder. The principal amount of this Secured Debenture then outstanding is
            convertible into shares of Common Stock at the Conversion Price (subject to
            limitations set forth in Section 6(d)), at the option of the Holder, at any
            time and from time to time from and after the Original Issue Date. Holders
            shall effect conversions under this Section 6(a), by delivering to the Company
            a Holder Conversion Notice together with a schedule in the form of Schedule
            1 attached hereto (the "Conversion Schedule"). The number of
            Underlying Shares issuable upon any conversion hereunder shall (subject to
            limitations set forth in Section 6(d)) equal the outstanding principal amount
            of this Secured Debenture to be converted divided by the Initial Conversion
            Price. If the Holder is converting less than all of the principal amount
            represented by this Secured Debenture, or if a conversion hereunder may not be
            effected in full due to the application of Section 6(d)(i), the Company shall
            honor such conversion to the extent permissible hereunder and shall promptly
            deliver to the Holder a Conversion Schedule indicating the principal amount
            which has not been converted.

(b)
              At the option of the Company. Subject to the conditions set
            forth in this Section 6(b) and Section 6(d), at any time after the first year
            anniversary of the Original Issue Date, the Company may require a conversion,
            at the Conversion Price and on the Company Conversion Date, of all or a portion
            of the outstanding principal amount of this Secured Debenture if: (i) both: (A)
            the average of the Closing Prices during any 30 consecutive Trading Days is
            equal to or greater than $5.10 (subject to equitable adjustments for stock
            splits, recapitalizations and similar events) and (B) the Closing Price for
            each of 15 Trading Days (which need not be consecutive) during such 30
            consecutive Trading Day period is equal to or greater than $5.10 (subject to
            equitable adjustments for stock splits, recapitalizations and similar events)
            and (ii) all of the Equity Conditions are satisfied as of the Company
            Conversion Date with respect to all of the Underlying Shares potentially
            issuable in connection with such proposed conversion. The Company shall
            exercise its right to require conversions hereunder by delivering to the Holder
            a Company Conversion Notice together with a Conversion Schedule within 10
            Business Days of the satisfaction of the condition set forth in clause (i) of
            the immediately preceding sentence. Notwithstanding anything herein to the
            contrary, if any of the conditions set forth in clauses (i) and (ii) herein
            shall cease to be in effect during the period between the date of the delivery
            of the Company Conversion Notice and the Company Conversion Date, then the
            Holder subject to such conversion may elect, by written notice to the Company
            given at any time after any such conditions shall cease to be in effect, to
            invalidate ab initio such conversion. The number of Underlying Shares
            issuable upon any conversion hereunder shall (subject to limitations set forth
            in Section 6(d)) equal the outstanding principal amount of this Secured
            Debenture to be converted (including any interest payments accreted to
            principal pursuant to the terms hereof) divided by the Initial Conversion
            Price. The conversion subject to each Company Conversion Notice, once given,
            shall be irrevocable as to the

-10-

Company. If the conversion of a principal amount of Secured Debentures
            indicated in a Company Conversion Notice would result in the issuance to the
            Holder of Underlying Shares in excess of the amount permitted pursuant to
            Section 6(d)(i), the Holder shall notify the Company of this fact and the
            Company shall: (x) honor the conversion for the maximum principal amount of
            Secured Debentures permitted, pursuant to Section 6(d)(i), to be converted on
            such Company Conversion Date and (y) cancel the Company Conversion Notice with
            respect to the portion of the principal amount of Secured Debentures the
            conversion of which would violate Section 6(d)(i). Notwithstanding anything
            herein to the contrary, the Company shall not be entitled to deliver a Company
            Conversion Notice prior to the 10th Business Day following the
            delivery of a company conversion notice pursuant to any Debenture.

(c)  Companys option to adjust
            Conversion Price and force conversion. At any time and from time to time
            after the date the Registration Statement covering the resale of the Underlying
            Shares issuable upon conversion of the Secured Debentures has been declared
            effective by the Commission, the Company shall have the option, upon the
            delivery of an Adjustment Notice to the Holder, to adjust the Conversion Price
            then in effect with respect to the Mandatory Convertible Amount applicable to
            such Adjustment Notice to equal the lesser of: (A) the Initial Conversion Price
            and (B) the product of (x) the applicable Adjustment Percentage and (y) the
            Index Price. Subject to the terms hereof (including, without limitation,
            Section 6(d)(i)), on each Adjustment Date immediately following the delivery of
            an Adjustment Notice, the applicable Mandatory Convertible Amount shall be
            converted into Underlying Shares at the Conversion Price as adjusted on such
            Adjustment Date pursuant to the terms of the immediately preceding sentence,
            provided, that such conversion shall only occur if all of the Equity
            Conditions are satisfied as of the Adjustment Date with respect to all of the
            Underlying Shares potentially issuable in connection with such proposed
            conversion. Notwithstanding anything herein to the contrary, the Company shall
            not be entitled to deliver an Adjustment Notice prior to the tenth
            (10th) Trading Day immediately following the immediately preceding
            Delivery Date hereunder or a delivery date under any Debenture. If a conversion
            of the Mandatory Convertible Amount would result in the issuance to the Holder
            of Underlying Shares in excess of the amount permitted pursuant to Section
            6(d)(i), the Holder shall notify the Company of this fact and the Company
            shall: (x) honor the conversion for the maximum principal amount of Secured
            Debentures permitted, pursuant to Section 6(d)(i), to be converted on the
            applicable Adjustment Date and (y) cancel the portion of the Mandatory
            Convertible Amount the conversion of which would violate Section 6(d)(i).

(d)  Certain Conversion
            Restrictions

(i)  Notwithstanding
            anything to the contrary contained herein, the number of shares of Common Stock
            that may be acquired by a Holder upon any conversion of Secured Debentures (or
            otherwise in respect hereof) shall be limited to the extent necessary to insure
            that, following such conversion (or other issuance), the total number of shares
            of Common Stock then beneficially owned by such Holder and its affiliates and
            any other Persons whose beneficial ownership of Common Stock would be
            aggregated with such Holders for purposes of Section 13(d) of the
            Exchange Act, does not exceed 9.999% of the total number of issued and
            outstanding shares of Common Stock (including for such purpose the shares of
            Common Stock issuable upon such conversion). For such purposes, beneficial
            ownership shall be determined in accordance with Section 13(d) of the Exchange
            Act and the rules and regulations promulgated

-11-

thereunder. Each delivery of a Holder Conversion Notice hereunder will
            constitute a representation by the applicable Holder that it has evaluated the
            limitation set forth in this paragraph and determined that issuance of the full
            number of Underlying Shares issuable in respect of such Conversion Notice does
            not violate the restriction contained in this paragraph. This provision shall
            not restrict the number of shares of Common Stock which a Holder may receive or
            beneficially own in order to determine the amount of securities or other
            consideration that such Holder may receive in the event of a merger, sale or
            other business combination or reclassification involving the Company as
            contemplated herein.

(ii)  [intentionally left
            blank].

(e)
              Mechanics of Conversion. By the third Trading Day after each
            Conversion Date, the Company shall issue or cause to be issued and cause to be
            delivered to or upon the written order of the Holder and in such name or names
            as the Holder may designate a certificate for the Underlying Shares issuable
            upon such conversion which, unless required by the Purchase Agreement, shall be
            free of all restrictive legends. The Holder, or any Person so designated by the
            Holder to receive Underlying Shares, shall be deemed to have become the holder
            of record of such Underlying Shares as of the Conversion Date. If the
            Companys transfer agent is eligible to participate in the Depositary
            Trust Corporation DWAC system and no legends are required to be included on the
            certificates representing Underlying Shares pursuant to the Purchase Agreement,
            the Company shall, upon request of the Holder, use its best efforts to deliver
            Underlying Shares hereunder electronically through the Depository Trust
            Corporation or another established clearing corporation performing similar
            functions.

(f)  To
            effect conversions hereunder, the Holder shall not be required to physically
            surrender this Secured Debenture unless the aggregate principal amount
            represented by such Secured Debenture is being converted, in which event, the
            Holder shall deliver such Secured Debenture promptly to the Company (it being
            understood that such delivery is not a condition precedent to the
            Companys obligations to deliver Underlying Shares upon such conversion).
            Conversions hereunder shall have the effect of lowering the outstanding
            principal amount represented by such Secured Debenture in an amount equal to
            the applicable conversion, which shall be evidenced by entries set forth in the
            Conversion Schedule which will be maintained by the Company and the Holder and
            be binding on both parties absent manifest error.

(g)  The Companys obligations to
            issue and deliver Underlying Shares upon conversion of this Secured Debenture
            in accordance with the terms hereof (including, without limitations, Section
            6(d)) are absolute and unconditional, irrespective of any action or inaction by
            the Holder to enforce the same, any waiver or consent with respect to any
            provision hereof, the recovery of any judgment against any Person or any action
            to enforce the same, or any setoff, counterclaim, recoupment, limitation or
            termination, or any breach or alleged breach by the Holder or any other Person
            of any obligation to the Company or any violation or alleged violation of law
            by the Holder or any other Person, and irrespective of any other circumstance
            which might otherwise limit such obligation of the Company to the Holder in
            connection with the issuance of such Underlying Shares.

-12-

(h)  
            If by the third Trading Day after a Conversion Date the Company fails to
            deliver to the Holder such Underlying Shares in such amounts and in the manner
            required pursuant to Section 6(e), then the Holder will have the right to
            rescind such conversion.

(i)  
            If by the third Trading Day after a Conversion Date the Company fails to
            deliver to the Holder such Underlying Shares in such amounts and in the manner
            required pursuant to Section 6(e), and if after such third Trading Day 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 Underlying
            Shares which the Holder anticipated receiving upon such conversion (a
            Buy-In), then the Company shall (A) pay in cash to the
            Holder (in addition to any remedies available to or elected by the Holder) the
            amount by which (x) the Holders total purchase price (including brokerage
            commissions, if any) for the shares of Common Stock so purchased exceeds (y)
            the amount obtained by multiplying (1) the aggregate number of Underlying
            Shares that the Company was required to deliver to the Holder in connection
            with the conversion at issue by (2) the Closing Price at the time of the
            obligation giving rise to such purchase obligation and (B) at the option of the
            Holder, either reinstate the principal amount of Secured Debentures and
            equivalent number of Underlying Shares for which such conversion was not timely
            honored or deliver to the Holder the number of shares of Common Stock that
            would have been issued had the Company timely complied with its conversion and
            delivery obligations hereunder. For example, if the Holder purchases Common
            Stock having a total purchase price of $11,000 to cover a Buy-In with respect
            to an attempted conversion of Secured Debentures with a market price on the
            date of conversion totaling $10,000, under clause (A) of the immediately
            preceding sentence, the Company shall be required to pay the Holder $1,000. The
            Holder shall provide the Company written notice indicating the amounts payable
            to the Holder in respect of the Buy-In.

(j)  Adjustments
            to Conversion Price. The Conversion Price in effect on any Conversion Date
            shall be subject to adjustments in accordance with this Section 6(j):

(i)  Stock
            Dividends and Splits. If the Company, at any time while any Secured
            Debentures are outstanding, (i) pays a stock dividend on its Common Stock or
            otherwise makes a distribution on any class of capital stock that is payable in
            shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into
            a larger number of shares, or (iii) combines outstanding shares of Common Stock
            into a smaller number of shares, then in each such case the Conversion Price
            shall be multiplied by a fraction of which the numerator shall be the number of
            shares of Common Stock outstanding immediately before such event and of which
            the denominator shall be the number of shares of Common Stock outstanding
            immediately after such event. Any adjustment made pursuant to clause (i) of
            this paragraph shall become effective immediately after the record date for the
            determination of stockholders entitled to receive such dividend or
            distribution, and any adjustment pursuant to clause (ii) or (iii) of this
            paragraph shall become effective immediately after the effective date of such
            subdivision or combination.

(ii)  Additional
            Distributions. If the Company, at any time while any Secured Debentures are
            outstanding, shall distribute to all holders of Common Stock (and not to
            Holders) evidences of its indebtedness or assets or rights or warrants to
            subscribe for or purchase any security, then in each such case the Conversion
            Price at which the principal amount of Secured Debentures shall thereafter be
            convertible shall be determined by multiplying

-13-

the Conversion Price in effect immediately prior to the record date fixed
            for determination of stockholders entitled to receive such distribution by a
            fraction of which the denominator shall be the Closing Price determined as of
            the record date mentioned above, and of which the numerator shall be such
            Closing Price on such record date less the then fair market value at such
            record date of the portion of such assets or evidence of indebtedness so
            distributed applicable to one outstanding share of Common Stock as determined
            by the Board of Directors in good faith. In either case the adjustments shall
            be described in a statement provided to the Holders of the portion of assets or
            evidences of indebtedness so distributed or such subscription rights applicable
            to one share of Common Stock. Such adjustment shall be made whenever any such
            distribution is made and shall become effective immediately after the record
            date mentioned above.

(iii)  Subsequent
            Equity Sales. If the Company or any subsidiary thereof, as applicable, at
            any time while this Secured Debenture is outstanding, shall issue shares of
            Common Stock or 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 issued in connection with such issuance, be
            entitled to receive shares of Common Stock at a price less than the Conversion
            Price, such issuance shall be deemed to have occurred for less than the
            Conversion Price), then, at the option of the Holder for such conversions as it
            shall indicate, the Conversion Price shall be adjusted to mirror 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
            Trading 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. No further adjustments shall be made to the Conversion Price
            upon the actual issuance of Common Stock upon conversion or exercise of the
            applicable Common Stock Equivalent. Notwithstanding the foregoing, no
            adjustment will be made under this Section 6(j)(iii) in respect of:

(A) Any
            grant of an option or warrant for Common Stock or issuance of any shares of
            Common Stock upon the exercise of any options or warrants to employees,
            officers and directors of or consultants to the Company pursuant to any stock
            option plan, employee stock purchase plan or similar plan or incentive or
            consulting arrangement approved by the Companys board of directors;

(B) Any
            rights or agreements to purchase Common Stock Equivalents outstanding on the
            date hereof and as specified in Schedule 3.1(g) to the Purchase Agreement (but
            not as to any amendments or other modifications to the number of Common Stock
            issuable thereunder, the terms set forth therein, or the exercise price set
            forth therein);

(C) Any
            Common Stock or Common Stock Equivalents issued for consideration other than
            cash pursuant to a merger, consolidation, acquisition or other

-14-

similar business combination;

(D) Any
            issuances of Common Stock or Common Stock Equivalents to a Person which is or
            will be, itself or through its subsidiaries, an operating company in a business
            related to or complementary with the business of the Company and in which the
            Company receives reasonably material benefits in addition to the investment of
            funds, but shall not include a transaction in which the Company is issuing
            securities primarily for the purpose of raising capital or to an entity whose
            primary business is investing in securities;

(E) Any
            Common Stock Equivalents that entitle the holders thereof to acquire up to
            500,000 shares of Common Stock issued pursuant to any equipment leasing
            arrangement;

(F) Any
            Common Stock or Common Stock Equivalents issued to pay all or a portion of any
            investment banking, finders or similar fee or commission, which entitles the
            holders thereof to acquire shares of Common Stock at a price not less than the
            market price of the Common Stock on the date of such issuance and which is not
            subject to any adjustments other than on account of stock splits and reverse
            stock splits;

(G) A
            bona fide underwritten public offering of the Common Stock resulting in gross
            proceeds in excess of $15 million to the Company (it being understood that
            equity line transactions, including any on going warrant financing, or any
            similar arrangements shall not constitute a bona fide underwritten public
            offering of the Common Stock for the purposes hereof);

(H) Any
            adjustment to the Conversion Price pursuant to Section 6(c); or

(I) The
            issuance of any Debentures or Warrants pursuant to the Purchase Agreement or
            the issuance of any shares of Common Stock upon conversion and exercise,
            respectively, of Debentures and Warrants or upon exercise of warrants issued by
            the Company on June 19, 2002 to Pine Ridge Financial, Inc. and ZLP Master
            Technology Fund, Ltd.

(iv)  Calculations.
            All calculations under this Section 6(j) shall be made to the nearest cent or
            the nearest 1/100th of a share, as the case may be. The number of shares of
            Common Stock outstanding at any given time shall not include shares owned or
            held by or for the account of the Company, and the disposition of any such
            shares shall be considered an issue or sale of Common Stock.

(v)   Notice of
            Adjustments. Whenever the Conversion Price is adjusted pursuant to the
            terms hereof the Company shall promptly mail to each Holder, a notice setting
            forth the Conversion Price after such adjustment and setting forth a brief
            statement of the facts requiring such adjustment.

(k)  Fundamental Transactions. If, at any time while this Secured Debenture is
            outstanding: (i) the Company effects any merger or consolidation of the Company
            with or into another Person, (ii) the Company effects any sale of all or
            substantially all of its

-15-



assets in one or a series of related transactions, (iii) any tender offer
            or exchange offer (whether by the Company or another Person) is completed
            pursuant to which holders of Common Stock are permitted to tender or exchange
            their shares for other securities, cash or property, or (iv) the Company
            effects any reclassification of the Common Stock or any compulsory share
            exchange pursuant to which the Common Stock is effectively converted into or
            exchanged for other securities, cash or property (in any such case, a
            "Fundamental Transaction"), then the Holder shall have the right
            thereafter to receive, upon conversion of the outstanding principal amount of
            this Secured Debenture, the same amount and kind of securities, cash or
            property as it would have been entitled to receive upon the occurrence of such
            Fundamental Transaction if it had been, immediately prior to such Fundamental
            Transaction, the holder of the number of Underlying Shares then issuable upon
            conversion in full of the outstanding principal amount of this Secured
            Debenture (the "Alternate Consideration"). For purposes of any such
            exercise, the determination of the Conversion Price shall be appropriately
            adjusted to apply to such Alternate Consideration based on the amount of
            Alternate Consideration issuable in respect of one share of Common Stock in
            such Fundamental Transaction, and the Company shall apportion the Conversion
            Price among the Alternate Consideration in a reasonable manner reflecting the
            relative value of any different components of the Alternate Consideration. If
            holders of Common Stock are given any choice as to the securities, cash or
            property to be received in a Fundamental Transaction, then the Holder shall be
            given the same choice as to the Alternate Consideration it receives upon any
            conversion of the outstanding principal amount of this Secured Debenture
            following such Fundamental Transaction. At the Holder's option and request, any
            successor to the Company or surviving entity in such Fundamental Transaction
            shall, either (i) issue to the Holder a new debenture substantially in the form
            of this Secured Debenture and consistent with the foregoing provisions
            (omitting Section 6(j)(iii) hereof) and evidencing the Holder's right to
            purchase the Alternate Consideration at the Conversion Price upon conversion
            thereof, or (ii) purchase the Secured Debenture from the Holder for a purchase
            price, payable in cash within five Trading Days after such request (or, if
            later, on the effective date of the Fundamental Transaction), equal to the
            Black Scholes value of the remaining unconverted portion of the outstanding
            principal amount of this Secured Debenture (together with any accrued but
            unpaid interest thereon) on the date of the Fundamental Transaction as well as
            assumptions reasonably mutually acceptable to the Company and the Holder,
            provided that for purposes of such calculation, the market price of the Common
            Stock shall be the closing bid price of the Common Stock on the Trading Day
            immediately preceding the public announcement of the Fundamental Transaction
            and the volatility factor shall be determined by reference to the 12 month
            average industry volatility measures. The terms of any agreement pursuant to
            which a Fundamental Transaction is effected shall include terms requiring any
            such successor or surviving entity to comply with the provisions of this
            paragraph (k) and insuring that the Secured Debenture (or any such replacement
            security) will be similarly adjusted upon any subsequent transaction analogous
            to a Fundamental Transaction.

(l)  Reclassifications; Share Exchanges. In case of any reclassification of the
            Common Stock, or any compulsory share exchange pursuant to which the Common
            Stock is converted into other securities, cash or property (other than
            compulsory share exchanges which constitute Change of Control Transactions),
            the Holders of the Secured Debentures then outstanding shall have the right
            thereafter to convert such shares only into the shares of stock and other
            securities, cash and property receivable upon or deemed to be held by holders
            of Common Stock following such reclassification or share exchange, and the
            Holders shall be entitled upon

-16-

such event to receive such amount of securities, cash or property as a
            holder of the number of shares of Common Stock of the Company into which such
            shares of Secured Debentures could have been converted immediately prior to
            such reclassification or share exchange would have been entitled. This
            provision shall similarly apply to successive reclassifications or share
            exchanges.

(m)  Notice
            of Corporate Events. If (a) the Company shall declare a dividend (or any
            other distribution) on the Common Stock, (b) the Company shall declare a
            special nonrecurring cash dividend on or a redemption of the Common Stock, (c)
            the Company shall authorize the granting to all holders of Common Stock rights
            or warrants to subscribe for or purchase any shares of capital stock of any
            class or of any rights, (d) the approval of any stockholders of the Company
            shall be required in connection with any Change of Control transaction or
            Fundamental Transaction, (e) the entering into an agreement to effectuate a
            Change of Control transaction or Fundamental Transaction, or (f) the Company
            shall authorize the Liquidation of the Company; then the Company shall file a
            press release or Current Report on Form 8-K to disclose such occurrence and
            notify the Holders at their last addresses as they shall appear upon the stock
            books of the Company, at least 20 calendar days prior to the applicable record
            or effective date hereinafter specified, a notice stating (x) the date on which
            a record is to be taken for the purpose of such dividend, distribution,
            redemption, rights or warrants, or if a record is not to be taken, the date as
            of which the holders of Common Stock of record to be entitled to such dividend,
            distributions, redemption, rights or warrants are to be determined or (y) the
            date on which any such Change of Control transaction or Fundamental Transaction
            is expected to become effective or close, and the date as of which it is
            expected that holders of Common Stock of record shall be entitled to exchange
            their Common Stock for securities, cash or other property deliverable upon any
            such Change of Control Transaction or Fundamental Transaction. Holders are
            entitled to convert principal amount of this Secured Debenture during the
            20-day period commencing the date of such notice to the effective date of the
            event triggering such notice.

(n)  The
            Company covenants that it will at all times reserve and keep available out of
            its authorized and unissued shares of Common Stock solely for the purpose of
            issuance upon conversion of Secured Debentures, each as herein provided, free
            from preemptive rights or any other actual contingent purchase rights of
            persons other than the Holders, not less than such number of shares of Common
            Stock as shall be issuable upon the conversion of all outstanding principal
            amount of Secured Debentures. The Company covenants that all shares of Common
            Stock that shall be so issuable shall, upon issue, be duly and validly
            authorized and issued and fully paid and nonassessable.

(o)  Upon
            a conversion hereunder the Company shall not be required to issue stock
            certificates representing fractions of shares of Common Stock, but may if
            otherwise permitted, make a cash payment in respect of any final fraction of a
            share based on the Closing Price on the applicable Conversion Date. If any
            fraction of an Underlying Share would, except for the provisions of this
            Section 6(o), be issuable upon a conversion hereunder, the Company shall pay an
            amount in cash equal to the Conversion Price multiplied by such fraction.

(p)  The
            issuance of certificates for Common Stock on conversion of principal amount of
            this Secured Debenture shall be made without charge to the Holders thereof

-17-

for any documentary stamp or similar taxes that may be payable in respect
            of the issue or delivery of such certificate, provided that the Company shall
            not be required to pay any tax that may be payable in respect of any transfer
            involved in the issuance and delivery of any such certificate upon conversion
            in a name other than that of the Holder of such Secured Debentures so
            converted.

(q)  Any
            and all notices or other communications or deliveries to be provided by the
            Holders, including, without limitation, any Conversion Notice, shall be in
            writing and delivered personally, by facsimile or sent by a nationally
            recognized overnight courier service, addressed to the attention of the Chief
            Financial Officer of the Company addressed to 1 Industrial Way West, Eatontown,
            New Jersey, Facsimile No.: (732) 542-4010, or to such other address or
            facsimile number as shall be specified in writing by the Company for such
            purpose. Any and all notices or other communications or deliveries to be
            provided by the Company hereunder shall be in writing and delivered personally,
            by facsimile or sent by a nationally recognized overnight courier service,
            addressed to each Holder at the facsimile telephone number or address of such
            Holder appearing on the books of the Company, or if no such facsimile telephone
            number or address appears, at the principal place of business of the Holder.
            Any notice or other communication or deliveries hereunder shall be deemed given
            and effective on the earliest of (i) the date of transmission, if such notice
            or communication is delivered via facsimile at the facsimile telephone number
            specified in this Section 6(q) prior to 6:30 p.m. (New York City time)(with
            confirmation of transmission), (ii) the date after the date of transmission, if
            such notice or communication is delivered via facsimile at the facsimile
            telephone number specified in this Section 6(q) later than 6:30 p.m. (New York
            City time) on any date and earlier than 11:59 p.m. (New York City time) on such
            date (with confirmation of transmission), (iii) upon receipt, if sent by a
            nationally recognized overnight courier service, or (iv) upon actual receipt by
            the party to whom such notice is required to be given.

7.  Automatic Exchange of Principal Amount
            of Secured Debentures

(a)  If,
            at any time and from time to time, subsequent to a conversion of the
            outstanding principal amount of either Unsecured Debentures or Exchange
            Debentures (collectively, the Target Debentures) both: (x)
            the outstanding principal amount of the last-issued Target Debentures then held
            by the Holder is less than $1,000,000 and (y) the Additional Registration
            Statement (as defined in the Registration Rights Agreement) filed pursuant to
            the Registration Rights Agreement in connection with the occurrence of the
            event described in clause (x) has been declared effective by the Commission and
            is not subject to any actual or threatened stop order or suspension, then the
            lesser of: (i) $3,000,000 principal amount of Secured Debentures plus accrued
            and unpaid interest thereon and (ii) the outstanding principal amount of
            Secured Debentures and all accrued and unpaid interest thereon, will be
            automatically exchanged for an Exchange Debenture in an equal aggregate
            principal amount.

(b)   In order to effectuate such
            automatic exchanges, upon the occurrence of the conditions set forth in Section
            7(a), the Holder shall promptly tender to the Company this Secured Debenture
            and the Company shall promptly tender to the Holder an Exchange Debenture in
            the aggregate principal amount of the principal amount (plus accrued and unpaid
            interest) of Secured Debenture being exchanged and (if applicable) a new
            Secured Debenture reflecting the principal amount not being exchanged. The date
            a Holder receives such

-18-

Exchange Debentures shall be referred to as an Exchange
            Date. Each Exchange Debenture issued pursuant to this Section 7 will
            mature on the ninth (9th) month anniversary of the applicable
            Exchange Date, provided, that such maturity date may be extended by
            mutual consent of the Holder and the Company on six occasions by 30 days.

8.  Prepayments Upon Events
            of Default. Upon the occurrence of an Event of Default, each Holder shall
            (in addition to all other rights it may have hereunder or under applicable
            law), have the right exercisable at the sole option of such Holder, and by
            delivery of a written notice to the Company to require the Company (an
            "Event of Default Notice"), to prepay all or a portion of the Secured
            Debentures then held by such Holder and, at the option of the Holder, all or a
            portion of the Reinstated Principal, for an amount, in cash, equal to the
            Mandatory Prepayment Amount. The Mandatory Prepayment Amount shall be due and
            payable within five Trading Days of the date of the Event of Default Notice.
            For purposes of this Section 8, principal amount of Secured Debentures shall
            remain outstanding until such date as the Holder shall have received Underlying
            Shares upon a conversion (or attempted conversion) thereof that meets the
            requirements hereof. Notwithstanding anything herein to the contrary, upon the
            occurrence of a Bankruptcy Event, all outstanding principal and accrued but
            unpaid interest on this Secured Debenture shall immediately become due and
            payable in full in cash, without any further action by the Holder, and the
            Company shall immediately be obligated to pay the Mandatory Prepayment Amount
            pursuant to this paragraph as if the Holder had delivered a Event of Default
            Notice immediately prior to the occurrence of any such Event of Default. The
            Holder need not provide and the Company hereby waives any presentment, demand,
            protest or other notice of any kind, and the Holder may immediately and without
            expiration of any grace period enforce any and all of its rights and remedies
            hereunder and all other remedies available to it under applicable law. Such
            declaration may be rescinded and annulled by Holder at any time prior to
            payment hereunder. No such rescission or annulment shall affect any subsequent
            Event of Default or impair any right consequent thereon.

9.  Other Prepayments

(a)  Prepayment at the Option of the
            Company.

(i)  At
            any time following the Original Issue Date and prior to the Maturity Date, upon
            delivery of a written notice to the Holder (a Company Prepayment
            Notice and the date such notice is delivered by the Company, the
            Company Notice Date), the Company shall be entitled to
            prepay a principal amount of Secured Debentures equal to the lesser of (x) the
            aggregate outstanding principal amount of Secured Debentures then held by the
            Holder and (y) the principal amount of Secured Debentures which may be
            converted without violation of Section 6(d)(i), in either case, for an amount
            in cash equal to the Company Prepayment Price. The Holder may convert any
            portion of the outstanding principal amount of the Secured Debentures subject
            to a Company Prepayment Notice prior to the date that the Company Prepayment
            Price is due and paid in full. Once delivered, the Company shall not be
            entitled to rescind a Company Prepayment Notice.

(ii)  The
            Company Prepayment Price shall be due on the 30th Trading Day
            immediately following the Company Notice Date. Any such prepayment shall be

-19-

free of any claim of subordination. If any portion of the Company
            Prepayment Price shall not be timely paid by the Company, interest shall accrue
            thereon at the rate of 12% per annum (or the maximum rate permitted by
            applicable law, whichever is less) until the Company Prepayment Price plus all
            such interest is paid in full, which payment shall constitute liquidated
            damages and not a penalty. In addition, if any portion of the Company
            Prepayment Price remains unpaid after such date, the Holder subject to such
            prepayment may elect by written notice to the Company to invalidate ab
            initio such Company Prepayment Notice with respect to the unpaid amount,
            notwithstanding anything herein contained to the contrary. If the Holder makes
            such an election, this Secured Debenture shall be reinstated with respect to
            such unpaid amount and the Company shall no longer have any prepayment rights
            under this Section 9.

(b)  Prepayment
            at the Option of the Holder.

(i)  At any
            time following June 30, 2003 and prior to the Maturity Date, the Holder shall
            have the right, exercisable at the sole option of the Holder, and by delivery
            of a written notice (a Holder Prepayment Notice and the date
            such notice is delivered by the Holder, the Holder Notice
            Date) to the Company, to require the Company to prepay all or a
            portion of the Secured Debentures then held by the Holder for an amount in
            cash, equal to the Holder Prepayment Price which shall be due and payable on
            the 20th Trading Day following the Holder Notice Date.
            Notwithstanding anything herein to the contrary, the Holder shall only be
            entitled to deliver a Holder Prepayment Notice pursuant to the terms hereof if:
            (x) on or prior to June 30, 2003, there has not occurred an automatic exchange
            pursuant to Section 7 hereof for a minimum of $3,000,000 of aggregate principal
            amount of Secured Debentures, provided, that such date shall be extended
            to September 30, 2003 if the Company shall have filed the first Additional
            Registration Statement with the Commission, (y) on or prior to December 31,
            2003, there have not occurred automatic exchanges pursuant to Section 7 hereof
            for a minimum of $6,000,000 of aggregate principal amount of Secured Debentures
            or (z) on or prior to June 30, 2004, there have not occurred automatic
            exchanges pursuant to Section 7 hereof for all of the original principal amount
            of Secured Debentures.

(ii)  In
            addition to prepayment rights under Section 9(b)(i), if an Additional
            Registration Statement filed pursuant to the Registration Rights Agreement in
            connection with the occurrence of the event described in Section 7(a)(x) has
            been not been declared effective by the Commission by its applicable
            Effectiveness Date (as defined in the Registration Rights Agreement), the
            Holder shall have the right, exercisable at the sole option of the Holder, and
            by delivery of Holder Prepayment Notice to the Company, to require the Company
            to prepay all or a portion of the Secured Debentures then held by the Holder
            for an amount in cash, equal to the Holder Prepayment Price which shall be due
            and payable on the 20th Trading Day following the Holder Notice
            Date.

(iii)   If any
            portion of the Holder Prepayment Price due pursuant to the terms hereof remains
            unpaid after the 20th Trading Day following the Holder Notice Date,
            the Holder may elect by written notice to the Company to invalidate ab
            initio such Holder Prepayment Notice with respect to the unpaid amount,
            notwithstanding anything herein contained to the contrary. If the Holder makes
            such an election, this Secured Debenture shall be reinstated with respect to
            such unpaid amount. For purposes of this Section 9, principal amount of Secured
            Debentures shall remain outstanding until such date as the Holder shall have
            received

-20-

Underlying Shares upon a conversion (or attempted conversion) thereof
            that meets the requirements hereof. The Holder may convert any portion of the
            outstanding principal amount of the Secured Debentures subject to a prepayment
            hereunder prior to the date that the Holder Prepayment Price is due and paid in
            full.

10.  Ranking. This Secured Debenture
            ranks pari passu with all other Secured Debentures now or hereafter issued
            pursuant to the Transaction Documents. Except as set forth in Schedule
            3.1(x) to the Purchase Agreement, no indebtedness of the Company is senior
            to this Secured Debenture in right of payment, whether with respect of
            interest, damages or upon liquidation or dissolution or otherwise. Other than
            in connection with the Companys reimbursement obligation to the Bank
            pursuant to the Letter of Credit and except as set forth in Schedule
            3.1(x) to the Purchase Agreement, the Company will not, and will not permit
            any Subsidiary to, directly or indirectly, enter into, create, incur, assume or
            suffer to exist indebtedness of any kind, on or with respect to any of its
            property or assets now owned or hereafter acquired or any interest therein or
            any income or profits therefrom, that is senior in any respect to the
            Companys obligations under the Secured Debentures.

11.  Miscellaneous.

(a)  
            This Secured Debenture shall be binding on and inure to the benefit of the
            parties hereto and their respective successors and assigns. This Secured
            Debenture may be amended only in writing signed by the Company and the Holder
            and their successors and assigns.

(b)  Subject
            to Section 11(a), above, nothing in this Secured Debenture shall be
            construed to give to any Person other than the Company and the Holder any legal
            or equitable right, remedy or cause under this Secured Debenture. This Secured
            Debenture shall inure to the sole and exclusive benefit of the Company and the
            Holder.

(c)  
            All questions concerning the construction, validity, enforcement and
            interpretation of this Secured Debenture shall be governed by and construed and
            enforced in accordance with the internal laws of the State of New York, without
            regard to the principles of conflicts of law thereof. Each party agrees that
            all Proceedings shall be commenced exclusively in the state and federal courts
            sitting in the City of New York, Borough of Manhattan (the New York
            Courts). Each party hereto hereby irrevocably submits to the
            exclusive jurisdiction of the New York Courts for any proceeding, and hereby
            irrevocably waives, and agrees not to assert in any Proceeding, any claim that
            it is not personally subject to the jurisdiction of any New York Court or that
            a New York Court is an inconvenient forum for such Proceeding. Each party
            hereto hereby irrevocably waives personal service of process and consents to
            process being served in any such Proceeding by mailing a copy thereof via
            registered or certified mail or overnight delivery (with evidence of delivery)
            to such party at the address in effect for notices to it under this Secured
            Debenture and agrees that such service shall constitute good and sufficient
            service of process and notice thereof. Nothing contained herein shall be deemed
            to limit in any way any right to serve process in any manner permitted by law.
            Each party hereto hereby irrevocably waives, to the fullest extent permitted by
            applicable law, any and all right to trial by jury in any legal Proceeding. If
            either party shall commence a Proceeding, then the prevailing

-21-

party in such Proceeding shall be reimbursed by the other party for its
            attorneys fees and other costs and expenses incurred with the
            investigation, preparation and prosecution of such Proceeding.

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

(e)  
            In case any one or more of the provisions of this Secured Debenture shall be
            invalid or unenforceable in any respect, the validity and enforceability of the
            remaining terms and provisions of this Secured Debenture shall not in any way
            be affected or impaired thereby and the parties will attempt in good faith to
            agree upon a valid and enforceable provision which shall be a commercially
            reasonable substitute therefor, and upon so agreeing, shall incorporate such
            substitute provision in this Secured Debenture.

(f)  
            No provision of this Secured Debenture may be waived or amended except in a
            written instrument signed, in the case of an amendment, by the Company and the
            Holder or, or, in the case of a waiver, by the Holder. No waiver of any default
            with respect to any provision, condition or requirement of this Secured
            Debenture shall be deemed to be a continuing waiver in the future or a waiver
            of any subsequent default or a waiver of any other provision, condition or
            requirement hereof, nor shall any delay or omission of either party to exercise
            any right hereunder in any manner impair the exercise of any such right.

(g)  If it shall be found that
            any interest due hereunder shall violate applicable laws governing usury, the
            applicable rate of interest due hereunder shall be reduced to the maximum
            permitted rate of interest under such law.

-22-

(h)  Except pursuant to Sections 8 and
            9 hereunder, the outstanding principal amount and interest under this Secured
            Debenture may not be prepaid by the Company without the prior written consent
            of the Holder.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, the Company has caused
            this Secured Debenture to be duly executed by a duly authorized officer as of
            the date first above indicated.

| | MILLENNIUM CELL INC.           
| | -------------------------------
| |                                
| |                                
| | By: /s/ Norman R. Harpster, Jr.
| | Name: Norman R. Harpster, Jr.  
| | Title: Chief Financial Officer 

-24-

EXHIBIT A

HOLDER CONVERSION NOTICE

(To be Executed by the Registered Holder in order to convert Secured
            Debentures)

The undersigned hereby elects to convert
            the principal amount of Secured Debenture indicated below, into shares of
            Common Stock of Millennium Cell Inc., as of the date written below. If shares
            are to be issued in the name of a Person other than undersigned, the
            undersigned will pay all transfer taxes payable with respect thereto and is
            delivering herewith such certificates and opinions as reasonably requested by
            the Company in accordance therewith. No fee will be charged to the Holder for
            any conversion, except for such transfer taxes, if any. All terms used in this
            notice shall have the meanings set forth in the Secured Debenture.

Conversion calculations:

| | ________________________________________________
                   Date to Effect Conversion                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ________________________________________________
                   Principal amount of Secured Debenture owned prior to conversion                                                                                                                      
| | ________________________________________________
                   Principal amount of Secured Debenture to be Converted (including
                   _______________ of interest added under Section 3(b) of the Secured
                   Debenture)
| |                                                                                                                                                                                                                                                          
| | ________________________________________________Principal
                   amount of Secured Debenture remaining after Conversion                                                                                                                      
| | _________________________________________________
                   Number of shares of Common Stock to be Issued                                                                                                                                       
| | __________________________________________________
                   Applicable Conversion Price                                                                                                                                                        
| | __________________________________________________Name of
                   Holder                                                                                                                                                                      
| | By:_______________________________________________                                                                                                                                                                                                       
| | Name:Title:                                                                                                                                                                                                                                              

|[ ] | By the delivery of this Conversion Notice
                   the Holder represents and warrants to the Company that its ownership of the
                   Common Stock does not exceed the restrictions set forth in Section 6(d)(i) of
                   the Secured Debenture.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                    

EXHIBIT B

COMPANY CONVERSION NOTICE

(To be executed by the Company in order to convert the Secured
            Debenture)

The undersigned in the name and on behalf
            of Millennium Cell Inc., hereby elects to convert the principal amount of
            Secured Debenture indicated below, into shares of Common Stock of Millennium
            Cell Inc., as of the date written below. If shares are to be issued in the name
            of a Person other than undersigned, the undersigned will pay all transfer taxes
            payable with respect thereto and is delivering herewith such certificates and
            opinions as reasonably requested by the Company in accordance therewith. No fee
            will be charged to the Holder for any conversion, except for such transfer
            taxes, if any. All terms used in this notice shall have the meanings set forth
            in the Secured Debenture.

Conversion calculations:

| | ________________________________________________
                   Date to Effect Conversion                                                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ________________________________________________Principal amount of Secured
                   Debenture owned prior to conversion                                                                                                                                                                                                                                                                
| | ________________________________________________
                   Principal amount of Secured Debenture to be Converted (including
                   _______________ of interest added under Section 3(b) of the Secured
                   Debenture)                                                                                                                                         
| | ___________________________________________________
                   Principal amount of Secured Debenture remaining after Conversion
                   _________________________________________________ Number of shares of
                   Common Stock to be Issued
                   __________________________________________________ Applicable Conversion
                   Price
| | __________________________________________________
                   Name of Holder By:___________________________________Name:
                   Title:                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                   
| | MILLENNIUM CELL INC.                                                                                                                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                   
| | By:_______________________________________________                                                                                                                                                                                                                                                                                                                                                
| | Name:Title:                                                                                                                                                                                                                                                                                                                                                                                       

-2-

Schedule 1

CONVERSION SCHEDULE

Secured Debentures due on the third year anniversary of the Original
            Issue Date in the aggregate principal amount of $8,500,000 issued by Millennium
            Cell Inc. This Conversion Schedule reflects conversions made under the above
            referenced Secured Debentures.

Dated:





|Date of Conversion | Amount ofConversion | AggregatePrincipalAmountRemainingSubsequent toConversion | Applicable
                   ConversionPrice
|------------------ | ------------------- | -------------------------------------------------------- | ---------------------------------------------
|                   |                     |                                                          |                                              
|                   |                     |                                                          |                                              
|                   |                     |                                                          |                                              
|                   |                     |                                                          |                                              
|                   |                     |                                                          |                                              
|                   |                     |                                                          |                                              
|                   |                     |                                                          |                                              
|                   |                     |                                                          |                                              
|                   |                     |                                                          |                                              
|                   |                     |                                                          |                                              
|                   |                     |                                                          |                                              
|                   |                     |                                                          |                                              
|                   |                     |                                                          |                                              
|                   |                     |                                                          |                                              
|                   |                     |                                                          |                                              

-3-