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: December 26, 2002  $1,750,000

No. 1

MILLENNIUM CELL INC.  UNSECURED CONVERTIBLE DEBENTURE  DUE ON
            JUNE 26, 2003



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 Unsecured Convertible Debentures, due on June 26, 2003 in the
            aggregate principal amount of Three Million Five Hundred Thousand Dollars
            ($3,500,000) (collectively, the "Unsecured 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 One Million Seven Hundred and Fifty
            Thousand Dollars ($1,750,000) and any additional sums due pursuant to the terms
            hereof on June 26, 2003, or such earlier date as the Unsecured Debentures are
            required or permitted to be repaid hereunder ("Maturity Date"),
            provided, that such Maturity Date may be extended by mutual consent of
            the Company and the Holder on up to six occasions by 30 days, and to pay
            interest to the Holder on the principal amount of this Unsecured Debenture in
            accordance with the provisions hereof. This Unsecured Debenture is subject to
            the following additional provisions.

1. Definitions. As used in this
            Unsecured 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 5(c),
            indicating the Company's intent to adjust the Conversion Price pursuant to
            Section 5(c).

"Adjustment Percentage" means, as
            of any Adjustment Date, if the Holder shall have converted prior thereto,
            (pursuant to Section 5(c), of the Unsecured Debentures or Section 6(c) of the
            Secured Debentures or Exchange Debentures (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

-2-

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 5(b).

"Company Conversion Notice" means a
            written notice in the form attached hereto as Exhibit B.

"Company Prepayment Price" for any
            Unsecured Debentures which shall be subject to prepayment pursuant to Section
            7(a), shall equal the sum of: (i) 110% of the principal amount of Unsecured
            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 Unsecured Debentures.

"Conversion Date" means either a
            Holder Conversion Date, a Company Conversion Date or an Adjustment Date.

-3-

"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 5(c) (solely with respect to conversions pursuant to Section 5(c)) and
            5(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 5(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.

"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 5(d)(i), Section
            5(d)(ii) 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) any
            default in the payment of principal or liquidated damages in respect of any
            Unsecured Debentures, as and when the same becomes due and payable (whether by
            acceleration or otherwise), or any default in the payment of interest in
            respect of any Unsecured Debentures, within five Business Days of when the same
            becomes due and payable;

(ii) a
            Bankruptcy Event;

(iii) the
            Common Stock is not listed or quoted, or is suspended from trading, on an
            Eligible Market for an aggregate of twelve Trading Days (which need

-4-

not be consecutive Trading Days), provided, that voluntary
            suspensions of the Common Stock from an Eligible Market by the Company for less
            than one hour at a time to disseminate material information shall not be
            included within such number of Trading Days;

(iv) the
            Company shall fail for any reason to deliver certificates representing
            Underlying Shares issuable upon a conversion hereunder that comply with the
            provisions hereof prior to the fifth Business Day after the Conversion Date or
            the Company shall provide notice to any Holder, including by way of public
            announcement, at any time, of its intention not to comply with requests for
            conversion of Unsecured Debentures in accordance with the terms hereof;

(v) the
            Company shall fail to have available a sufficient number of authorized and
            unreserved shares of Common Stock to issue to such Holder upon a conversion
            hereunder;

(vi) the
            Company shall fail for any reason to pay in full the amount of cash due
            pursuant to a Buy-In within seven days after notice therefor is delivered
            hereunder or shall fail to pay any liquidated damages due pursuant to the
            Transaction Documents within seven days of the date of the request for such
            payment;

(vii) the
            occurrence of a Change of Control;

(viii)
            during the Effectiveness Period (as defined in the Registration Rights
            Agreement) relating to the First Registration Statement, the effectiveness of
            the First Registration Statement lapses for any reason or the Holder shall not
            be permitted to resell Registrable Securities (as defined in the Registration
            Rights Agreement) under the First Registration Statement, in either case, for
            more than seven consecutive Trading Days or an aggregate of twenty Trading Days
            (which need not be consecutive Trading Days);

(ix) the
            Company defaults in the timely performance of any other obligation under the
            Transaction Documents (other than in connection with the failure to issue the
            maximum aggregate principal amount of Secured Debentures due to the inability
            of the Company to obtain the Shareholder Approval) and such default continues
            uncured for a period of five Trading Days after the date on which notice of
            such default is first given to the Company by the Holder (it being understood
            that no prior notice need be given in the case of a default that cannot
            reasonably be cured within five Trading Days);

(x) an Event
            (as defined in the Registration Rights Agreement) shall not have been cured to
            the satisfaction of the Holder prior to the expiration of ten days from the
            Event Date (as defined in the Registration Rights Agreement) relating thereto;

(xi) the
            Company or any Subsidiary defaults in any of its obligations under any other
            debenture or any mortgage, credit agreement or other facility, indenture
            agreement, factoring agreement or other instrument under which there may be

-5-

issued, or by which there may be secured or evidenced, any indebtedness
            for borrowed money or money due under any long term leasing or factoring
            arrangement of the Company or any Subsidiary in an amount exceeding $500,000,
            whether such indebtedness now exists or is hereafter created, and such default
            results in such indebtedness becoming or being declared due and payable prior
            to the date on which it would otherwise become due and payable;

(xii) the
            occurrence of an Event of Default (as defined in the Debentures) under any
            Debenture or the occurrence of any event that, with the passage of time and
            without being cured, would constitute an Event of Default (as defined in the
            Debentures) under any Debenture;

(xiii) the
            ratio of the Company's Unsecured Cash and Cash-Equivalents balances to
            Unsecured Indebtedness shall be less than 1.25 to 1; or

(xiv)
            either: (x) the average of the Closing Prices during a 20 consecutive Trading
            Day period shall be less than $0.75 (subject to equitable adjustment for stock
            splits, recombinations and similar events) or (y) the average of the Closing
            Prices during a 10 consecutive Trading Day period shall be less than $0.50
            (subject to equitable adjustment for stock splits, recombinations and similar
            events).

First Registration Statement" shall
            have the meaning set forth in the Registration Rights Agreement.

"Holder Conversion Date" means the
            date a Holder Conversion Notice together with the Conversion Schedule is
            delivered to the Company pursuant to Section 5(a).

"Holder Conversion Notice" means a
            written notice in the form attached hereto as Exhibit A.

"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 4%.

"Liquidation" means for any Person,
            any liquidation, dissolution or winding-up of such Person, whether voluntary or
            involuntary, by operation or law or otherwise.

-6-

"Mandatory Convertible Amount"
            means $300,000, provided, 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 Unsecured Debentures: (I) with respect to an Event of Default under
            clauses (i)-(xii) hereof, shall equal the sum of: (i) the greater of (A) 130%
            of the principal amount of Unsecured Debentures to be prepaid and, if
            applicable, the Reinstated Principal, plus all accrued and unpaid interest
            thereon, and (B) the principal amount of Unsecured 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
            Unsecured Debentures; (II) with respect to an Event of Default under clause
            (xiii) hereof, shall equal the sum of: (i) 125% of the principal amount of
            Unsecured Debentures to be prepaid, plus 125% of all accrued and unpaid
            interest thereon and (ii) all other amounts, costs, expenses and liquidated
            damages due in respect of such Unsecured Debentures; and (III) with respect to
            an Event of Default under clause (xiv) hereof, shall equal the sum of: (i) the
            principal amount of Unsecured 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 Unsecured Debentures.

"Nasdaq" means the Nasdaq National
            Market.

"Original Issue Date" means the
            date of the first issuance of any Unsecured Debentures, regardless of the
            number of transfers of any particular Unsecured Debenture and regardless of the
            number of certificates which may be issued to evidence such Unsecured
            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.

-7-

"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.

"Reinstated Principal" means the
            principal amount of Unsecured 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.

"Secured Debentures" shall have the
            meaning set forth in the Purchase Agreement.

"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 Unsecured
            Debentures in accordance with the terms hereof.

"Unsecured Cash and Cash
            Equivalents" refers to cash and cash-equivalent balances that is not
            pledged to collateralize the Letter of Credit (as defined in the Purchase
            Agreement), if any, or otherwise available for use by the Company in its
            operations, excluding the deferred royalty income described in Schedule
            3.1(x) to the Purchase Agreement.

"Unsecured Indebtedness" means any
            indebtedness of the Company, excluding any Secured Debentures, any other
            similar outstanding secured debentures of the Company issued to Ballard Power
            Systems, Inc. and any outstanding deferred royalty income described in
            Schedule 3.1(x) to 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.

-8-

"Warrants" shall have the meaning
            set forth in the Purchase Agreement.

2. Interest.

(a) The
            Company shall pay interest to the Holder on the aggregate unconverted and then
            outstanding principal amount of this Unsecured 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 Unsecured 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 Unsecured 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 Unsecured
            Debenture as of such Interest Payment Date.

3. Registration of Unsecured
            Debentures. The Company shall register the Unsecured Debentures upon
            records to be maintained by the Company for that purpose (the "Unsecured
            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.

4. Registration of Transfers and
            Exchanges. The Company shall register the transfer of any portion of this
            Unsecured Debenture in the Unsecured Debenture Register upon surrender of this
            Unsecured 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 Unsecured Debenture (any such new debenture, a "New Unsecured
            Debenture"), evidencing the portion of this Unsecured Debenture so
            transferred shall be issued to the transferee and a New Unsecured Debenture
            evidencing the remaining portion of this Unsecured Debenture not so
            transferred, if any, shall be issued to the transferring Holder. The acceptance
            of the New

-9-

Unsecured 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 Unsecured Debenture. This Unsecured Debenture is exchangeable for an equal
            aggregate principal amount of Unsecured 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 Unsecured Debenture and the Underlying
            Shares issuable on conversion thereof hereby are governed by Section 4.1 of the
            Purchase Agreement.

5. Conversion

(a) At
            the option of the Holder. The principal amount of this Unsecured Debenture
            then outstanding is convertible into shares of Common Stock at the Conversion
            Price (subject to limitations set forth in Section 5(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 5(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 5(d)) equal the outstanding
            principal amount of this Unsecured 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 Unsecured Debenture, or if a conversion
            hereunder may not be effected in full due to the application of Section
            5(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 5(b) and Section 5(d), at any time after the first year anniversary of
            the Original Issue Date, the Company may require a conversion of principal
            amount of this Unsecured Debenture, at the Conversion Price and on the Company
            Conversion Date, of all or a portion of the outstanding principal amount of
            this Unsecured 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 5(d)) equal the
            outstanding principal amount of this Unsecured Debenture to be converted
            (including any interest payments

-10-

accreted to principal pursuant to the terms hereof) divided by the
            Conversion Price. The conversion subject to each Company Conversion Notice,
            once given, shall be irrevocable as to the Company. If the conversion of a
            principal amount of Unsecured 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 5(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 Unsecured Debentures permitted, pursuant to
            Section 5(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 Unsecured Debentures the conversion of which would violate Section
            5(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 First Registration Statement 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 5(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 5(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 Unsecured Debentures permitted, pursuant to Section
            5(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 5(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
            Unsecured 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

-11-

determined in accordance with Section 13(d) of the Exchange Act and the
            rules and regulations promulgated 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) If the Company has not previously obtained Shareholder Approval (as
            defined below), then the Company may not issue in excess of the Issuable
            Maximum upon conversions of the Unsecured Debentures. The "Issuable
            Maximum" means a number of shares equal to 2,973,847, less: any number of
            shares of Common Stock previously issued upon conversion of any Debenture and
            exercise of any Warrants. Each Holder shall be entitled to a portion of the
            Issuable Maximum equal to the quotient obtained by dividing: (x) the principal
            amount of Unsecured Debentures issued and sold to such Holder on the Original
            Issue Date by (y) the aggregate principal amount of Unsecured Debentures issued
            and sold by the Company on the Original Issue Date. If any Holder shall no
            longer hold Unsecured Debentures, then such Holder's remaining portion of the
            Issuable Maximum shall be allocated pro-rata among the remaining Holders. If on
            any Conversion Date: (A) the aggregate number of shares of Common Stock that
            would then be issuable upon conversion in full of all then outstanding
            principal amount of Unsecured Debentures would exceed the Issuable Maximum, and
            (B) the Company shall not have previously obtained the vote of shareholders, as
            may be required by the applicable rules and regulations of the Nasdaq (or any
            successor entity) applicable to approve the issuance of shares of Common Stock
            in excess of the Issuable Maximum pursuant to the terms hereof (the
            "Shareholder Approval"), then, the Company shall issue to the converting
            Holder a number of shares of Common Stock equal to such Holder's pro-rata
            portion (which shall be calculated pursuant to the terms hereof) of the
            Issuable Maximum and, with respect to the remainder of the principal amount of
            Unsecured Debentures then held by such Holder for which a conversion would
            result in an issuance of shares of Common Stock in excess of such Holder's
            pro-rata portion (which shall be calculated pursuant to the terms hereof) of
            the Issuable Maximum (the "Excess Principal Amount"), the applicable
            Holder shall have the right to require the Company to either: (1) obtain the
            Shareholder Approval applicable to such issuance as soon as is possible, but in
            any event not later than the 90th day after such request, or (2) pay cash, in
            an amount equal to the Excess Principal Amount (and accrued and unpaid interest
            thereon). If a Holder shall have elected the first option pursuant to the
            immediately preceding sentence and the Company shall have failed to obtain the
            Shareholder Approval on or prior to the 90th day after such request, then
            within three (3) days of such 90th day, the Company shall pay cash to such
            Holder an amount equal to Excess Principal Amount (and accrued and unpaid
            interest thereon). Notwithstanding anything herein to the contrary, if on any
            date other than a Conversion Date: (A) the aggregate number of shares of Common
            Stock that would then be issuable upon conversion in full of all then
            outstanding principal amount of Unsecured Debentures would exceed the Issuable
            Maximum, and (B) the Company shall not have previously obtained the Shareholder
            Approval, then, the Holder shall be entitled to require the Company to pay to
            it in cash an amount equal to the principal amount of Unsecured Debentures (and
            accrued and unpaid interest thereon) then held by such Holder for which a
            potential

-12-

conversion on such date would result in an issuance of shares of Common
            Stock in excess of such Holder's pro-rata portion (which shall be calculated
            pursuant to the terms hereof) of the Issuable Maximum. The outstanding
            principal amount of Unsecured Debentures shall be reduced by the Excess
            Principal Amount upon the Holder's receipt of the Excess Principal Amount
            pursuant to the terms hereof. The Company and the Holder understand and agree
            that shares of Common Stock issued to and then held by the Holder as a result
            of conversions of Unsecured Debentures shall not be entitled to cast votes on
            any resolution to obtain Shareholder Approval pursuant hereto.

(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 Unsecured Debenture unless the aggregate principal amount
            represented by such Unsecured Debenture is being converted, in which event, the
            Holder shall deliver such Unsecured 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 Unsecured 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 Unsecured Debenture in accordance with the terms hereof (including,
            without limitations, Section 5(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.

(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 5(e), then the Holder will have the right to rescind such
            conversion.

-13-

(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 5(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 Unsecured 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 Unsecured 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
            5(j):

(i) Stock Dividends and Splits. If the Company, at any time while any
            Unsecured 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
            Unsecured 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 Unsecured Debentures shall
            thereafter be convertible shall be determined by multiplying 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

-14-

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 Unsecured 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 5(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 similar
            business combination;

(D) Any issuances of Common Stock or Common Stock

-15-

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 5(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 5(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 Unsecured 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 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

-16-

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 Unsecured 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 Unsecured
            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 Unsecured 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 Unsecured Debenture and consistent with the foregoing provisions
            (omitting Section 5(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 Unsecured 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 Unsecured 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 Unsecured 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 Unsecured 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 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 Unsecured Debentures could have been
            converted immediately prior to such reclassification or share exchange would
            have

-17-

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 Unsecured 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 Unsecured 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 Unsecured 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 5(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 Unsecured Debenture shall be made without charge to the Holders thereof
            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

-18-

certificate upon conversion in a name other than that of the Holder of
            such Unsecured 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 5(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 5(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.

6. 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 Unsecured 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 6 principal amount of Unsecured 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 Unsecured 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.

-19-

7. Prepayment at the Option of the
            Company.

(a) 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 Unsecured Debentures equal to the lesser of (x) the
            aggregate outstanding principal amount of Unsecured Debentures then held by the
            Holder and (y) the principal amount of Unsecured Debentures which may be
            converted without violation of Section 5(d)(i), in either case, for an amount
            in cash equal to the Company Prepayment Price. Notwithstanding anything herein
            to the contrary, the Company shall only be entitled to deliver a Company
            Prepayment Notice pursuant to the terms hereof if the Equity Conditions are
            satisfied with respect to all shares of Common Stock issuable upon a Company
            Notice Date. If any of Equity Conditions shall cease to be in effect during the
            period between the Company Notice Date and the date the Company Prepayment
            Price is paid in full, then the Holder subject to such prepayment may elect, by
            written notice to the Company given at any time after any of the Equity
            Conditions shall cease to be in effect, to invalidate ab initio such
            optional prepayment, notwithstanding anything herein contained to the contrary.
            The Holder may convert any portion of the outstanding principal amount of the
            Unsecured 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.

(b) The
            Company Prepayment Price shall be due on the 30th Trading Day
            immediately following the Company Notice Date. Any such prepayment shall be
            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 invalidateab 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
            Unsecured Debenture shall be reinstated with respect to such unpaid amount and
            the Company shall no longer have any prepayment rights under this Section 7.

8. Ranking. This Unsecured
            Debenture ranks pari passu with all other Unsecured 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 Unsecured 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
            Wachovia Bank, National Association pursuant to the Letter of Credit to be
            issued in connection with the issuance of the Secured Debentures 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

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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
            Unsecured Debentures.

9. Miscellaneous.

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

(b) Subject
            to Section 9(a), above, nothing in this Unsecured 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 Unsecured Debenture. This
            Unsecured 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 Unsecured 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 Unsecured 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 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
            Unsecured 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 Unsecured Debenture shall be invalid
            or unenforceable in any respect, the validity and enforceability of the
            remaining terms and provisions of this Unsecured 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 Unsecured Debenture.

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(f) No
            provision of this Unsecured 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 Unsecured
            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 5(d)(ii), 6 and 7 hereunder, the outstanding principal
            amount and interest under this Unsecured 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]



-23-

IN WITNESS WHEREOF, the Company has caused
            this Unsecured 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





EXHIBIT A

HOLDER CONVERSION NOTICE



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

The undersigned hereby elects to convert
            the principal amount of Unsecured 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 Unsecured Debenture.

Conversion calculations:



> ________________________________________________ Date to
>                                Effect Conversion
>                           ________________________________________________ Principal
>                                amount of Unsecured Debenture owned prior to conversion
>                           ________________________________________________ Principal
>                                amount of Unsecured Debenture to be Converted (including _______________ of
>                                interest added under Section 2(b) of the Unsecured Debenture)
>                           ___________________________________________________
>                                Principal amount of Unsecured 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 5(d)(i) of the
>                                Unsecured Debenture.



EXHIBIT B

COMPANY CONVERSION NOTICE



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



The undersigned in the name and on behalf
            of Millennium Cell Inc., hereby elects to convert the principal amount of
            Unsecured 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 Unsecured Debenture.

Conversion calculations:

> ________________________________________________ Date to
>                                Effect Conversion
>                           ________________________________________________ Principal
>                                amount of Unsecured Debenture owned prior to conversion
>                           ________________________________________________ Principal
>                                amount of Unsecured Debenture to be Converted (including _______________ of
>                                interest added under Section 2(b) of the Unsecured Debenture)
>                           ___________________________________________________
>                                Principal amount of Unsecured 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:

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Schedule 1

CONVERSION SCHEDULE

Unsecured Debentures due on June 26, 2003 in the aggregate principal
            amount of $3,500,000 issued by Millennium Cell Inc. This Conversion Schedule
            reflects conversions made under the above referenced Unsecured Debentures.

Dated:



|Date of Conversion | Amount of Conversion | Aggregate Principal Amount
                   Remaining Subsequent to Conversion | Applicable Conversion Price
|------------------ | -------------------- | -------------------------------------------------------------------------------- | ---------------------------
|                   |                      |                                                                                  |                            
|                   |                      |                                                                                  |                            
|                   |                      |                                                                                  |                            
|                   |                      |                                                                                  |                            
|                   |                      |                                                                                  |                            
|                   |                      |                                                                                  |                            
|                   |                      |                                                                                  |                            
|                   |                      |                                                                                  |                            
|                   |                      |                                                                                  |                            
|                   |                      |                                                                                  |                            
|                   |                      |                                                                                  |                            
|                   |                      |                                                                                  |                            
|                   |                      |                                                                                  |                            
|                   |                      |                                                                                  |                            
|                   |                      |                                                                                  |                            









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