DEBENTURE

NEITHER THESE  SECURITIES  NOR THE  SECURITIES  INTO WHICH THESE  SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE  COMMISSION OR
THE  SECURITIES  COMMISSION  OF ANY STATE IN  RELIANCE  UPON AN  EXEMPTION  FROM
REGISTRATION  UNDER  RULE  504  OF  REGULATION  D  PROMULGATED  UNDER  THE  U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES LAWS.

US $400,000                                             December 31, 2005



                 8% CONVERTIBLE DEBENTURE DUE DECEMBER 31, 2008

         THIS  DEBENTURE  of  Mendocino  Capital  Partners,   Inc.,  a  Delaware
corporation  (the "Company") in the aggregate  principal  amount of Four Hundred
Thousand  Dollars (US $400,000),  is designated as its $400,000,  8% Convertible
Debenture due December 31, 2005 (the "Debentures").

         FOR VALUE  RECEIVED,  the Company  promises  to pay to Arrakis  Select,
Ltd.or its registered assigns (the "Holder"),  the principal sum of Four Hundred
Thousand Dollars (US $400,000),  on or prior to December 31, 2005 (the "Maturity
Date") and to pay  interest  to the Holder on the  principal  sum at the rate of
eight  percent (8%) per annum.  Interest  shall accrue daily  commencing  on the
Original  Issuance  Date (as  defined in Section 1 below) in the form of cash or
common stock of the Company  selected by the Holder subject to the provisions of
Section 2(b) hereof,  until payment in full of the principal sum,  together with
all accrued and unpaid  interest,  has been made or duly provided for. If at any
time after the  Original  Issuance  Date an Event of Default has occurred and is
continuing, interest shall accrue at the rate of fifteen percent (15%) per annum
from the date of the Event of Default and the applicable cure period through and
including the date of payment.  Interest due and payable hereunder shall be paid
to the person in whose name this Debenture (or one or more successor Debentures)
is registered on the records of the Company regarding registration and transfers
of the  Debentures  (the  "Debenture  Register");  provided,  however,  that the
Company's  obligation to a transferee of this Debenture shall arise only if such
transfer,  sale or other  disposition  is made in accordance  with the terms and
conditions hereof and of applicable  securities laws. A transfer of the right to
receive  principal and interest under this Debenture shall be transferable  only
through an appropriate entry in the Debenture Register as provided herein.

         If the Company in order to  consummate a merger (the  "Merger")  enters
into a merger  agreement or similar  agreement  with other  parties (the "Merger
Partners"), the Merger Partners will effective upon the consummation of any such
Merger assume all of the obligations,  jointly and severally,  with the Company,
under this Debenture and substitute the Company's Common Stock,  into which this
Debenture is  convertible,  for common stock of such Merger  Partner ("MP Common
Stock").  If the Merger  occurs,  then (i)  references  herein to Company Common
Stock shall be references to MP Common Stock and (ii) any references the Company
shall be read as references to the MP that issued the MP Common Stock as if this
Debenture  were  issued on the date  hereof by the MP that  issued the MP Common
Stock and the  Company  shall have no  further  obligations  to issue  shares of
Common Stock hereunder. For the benefit of the Holder, the Company shall use its
best efforts to effectuate the intentions of this paragraph.

         If  there  is  a  Merger  all  of  the  provisions  of  this  Debenture
(specifically  including  Section  4) shall be read and  interpreted  as if this
Debenture  was issued by the Merger  Partner  issuing the MP Common Stock on the
date hereof and this Debenture was initially convertible into MP Common Stock.

         This Debenture is subject to the following additional provisions:

         Section 1.        Definitions.   As used in this Agreement, the
following terms shall have the following
meanings:

         "Adjusted  Conversion  Price" means the lesser of the Fixed  Conversion
Price or the Floating  Conversion Price one day prior to the record date set for
the determination of stockholders entitled to receive dividends,  distributions,
rights or warrants as provided for in Sections 4(c)(ii), (iii) and (iv).

         "Company"  shall mean the  Company  or in the event  there is a Merger,
shall mean such Merger Partner that issues the MP Common Stock.

         "Common  Stock" shall mean the Common  Stock of the Company,  par value
$.001,  and in the event there is a Merger,  shall mean the MP Common  Stock (as
adjusted for any reverse splits, forward splits,  combination,  reclassification
or stock dividend).

         "Conversion Date" shall have the meaning set forth in Section 4(a)
 hereof.

         "Conversion  Ratio"  means,  at any time, a fraction,  the numerator of
which is the then  outstanding  principal  amount  represented by the Debentures
plus accrued but unpaid  interest  thereon,  and the denominator of which is the
conversion price at such time.

         "Fixed  Conversion  Price"  shall have the meaning set forth in Section
4(c)i hereof.

         "Floating Conversion Price" shall have the meaning set forth in Section
4(c)i hereof.

         "Maximum Conversion" shall have the meaning set forth in Section
 4(c)(i) hereof.

         "Notice of Conversion" shall have the meaning set forth in Section
4(a) hereof.

         "Original  Issuance  Date" shall mean the date of the first issuance of
this Debenture regardless of the number of transfers hereof.

         Section 2.  Denominations  of Debentures;  Interest on Debentures.  The
Debentures  are  exchangeable  for  an  equal  aggregate   principal  amount  of
Debentures  of different  authorized  denominations,  as requested by the Holder
surrendering  the same, but shall not be issuable in  denominations of less than
integral multiplies of One Thousand Dollars (US$1,000.00).  No service charge to
the Holder will be made for such registration of transfer or exchange.

         Section 3.        Events of Default and Remedies.

         I. "Event of Default," when used herein, means any one of the following
events  (whatever  the reason and whether any such event 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):

         (a) any default in the payment of the  principal of or interest on this
Debenture  as and when the same  shall  become  due and  payable  either  at the
Maturity Date, by acceleration, conversion, or otherwise;

          (b) the Company  shall fail to observe or perform any other  covenant,
agreement  or warranty  contained  in, or  otherwise  commit any breach of, this
Debenture,  and such failure or breach shall not have been remedied  within five
(5) Business Days of its receipt of notice of such failure or breach;

         (c) the  occurrence  of any event or breach or default  by the  Company
hereunder and , if there is a cure period, such failure or breach shall not have
been remedied within the cure period provided for therein;

         (d) the Company or any of its  Subsidiaries  shall commence a voluntary
case under the United  States  Bankruptcy  Code as now or hereafter in effect or
any  successor  thereto  (the  "Bankruptcy  Code");  or an  involuntary  case is
commenced  against the Company under the Bankruptcy Code and the petition is not
controverted  within  thirty (30) days,  or is not  dismissed  within sixty (60)
days,  after  commencement  of the case;  or a  "custodian"  (as  defined in the
Bankruptcy  Code) is appointed  for, or takes charge of, all or any  substantial
part  of the  property  of  the  Company  or the  Company  commences  any  other
proceeding under any reorganization,  arrangement, adjustment of debt, relief of
debtors,   dissolution,   insolvency  or  liquidation  or  similar  law  of  any
jurisdiction whether now or hereafter in effect relating to the Company or there
is commenced  against the Company any such proceeding which remains  undismissed
for a period of sixty (60) days;  or the  Company is  adjudicated  insolvent  or
bankrupt;  or any  order of  relief or other  order  approving  any such case or
proceeding is entered;  or the Company  suffers any appointment of any custodian
or the like  for it or any  substantial  part of its  property  which  continues
undischarged  or unstayed for a period of thirty (30) days; or the Company makes
a general assignment for the benefit of creditors;  or the Company shall fail to
pay, or shall state in writing  that it is unable to pay its debts  generally as
they become due; or the  Company  shall call a meeting of its  creditors  with a
view to arranging a composition or adjustment of its debts; or the Company shall
by  any  act  or  failure  to  act  indicate  its  consent  to,  approval  of or
acquiescence in any of the foregoing;  or any corporate or other action is taken
by the Company for the purpose of effecting any of the foregoing;

         (e) the  Company  shall  default  in any of its  obligations  under any
mortgage,  indenture or instrument under which there may be issued,  or by which
there may be secured or evidenced,  any indebtedness of the Company in an amount
exceeding One Hundred Thousand Dollars ($100,000.00),  whether such indebtedness
now exists or shall  hereafter be created and such default  shall result in such
indebtedness  becoming or being  declared  due and payable  prior to the date on
which it would otherwise become due and payable;

         (f) the Company shall have its Common Stock deleted or delisted, as the
case  may be,  from  the  American  Stock  Exchange,  OTCBB  or  other  national
securities  exchange or market on which such Common  Stock is listed for trading
or suspended from trading thereon,  and shall not have its Common Stock relisted
or have such suspension lifted, as the case may be, within ten (10) Trading Days
of such deletion or delisting;

         (g) notwithstanding anything herein to the contrary, but subject to the
limitations set forth in the Debentures, the Company shall fail to deliver share
certificates  representing  the  shares  of  Common  Stock  to  be  issued  upon
conversion  of the  Debentures  within  three  (3)  Business  Days  after to the
Company's receipt of notice;

         (h) the Company shall issue a press release, or otherwise make publicly
known,  that it is not honoring a properly executed and duly delivered Notice of
Conversion  complying  with  the  terms  of  this  Debenture,   for  any  reason
whatsoever; and

         (i) the  Company  issues  or  enters  into an  agreement  to issue  any
convertible security, any equity line of credit, or any security issued pursuant
to Rule 504 of Regulation D promulgated  under the Securities Act, other than to
the Purchaser or any of its Affiliates or assigns,  during the period commencing
on the date hereof and ending on the five year  anniversary of the  Post-Closing
Date.

         II. (a) If any Event of Default  occurs,  and  continues  beyond a cure
period,  if any,  then  the  Holder  may,  by  written  notice  to the  Company,
accelerate all of the payments due under this Debenture by declaring all amounts
so due under this Debenture, whereupon the same shall become immediately due and
payable without presentment, demand, protest or other notice of any kind, all of
which are waived by the Company,  notwithstanding  anything  contained herein to
the  contrary,  and the Holder may  immediately  and without  expiration  of any
additional 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 the  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.  This shall include,  but not be
limited to the right to temporary,  preliminary and permanent  injunctive relief
without the requirement of posting any bond or undertaking.

         (b) The Holder may thereupon  proceed to protect and enforce its rights
either  by suit in  equity  and/or  by  action  at law or by  other  appropriate
proceedings  whether for the specific  performance  (to the extent  permitted by
law) of any covenant or agreement  contained in this  Debenture or in aid of the
exercise  of any power  granted in this  Debenture,  and  proceed to enforce the
payment of any of the  Debentures  held by it, and to enforce any other legal or
equitable right of such Holder.

         (c) Except as expressly provided for herein,  the Company  specifically
(i)  waives  all  rights  it may have (A) to  notice  of  nonpayment,  notice of
default, demand, presentment,  protest and notice of protest with respect to any
of the  obligations  hereunder  or the shares of Common  Stock and (B) notice of
acceptance  hereof or of any other action taken in reliance  hereon,  notice and
opportunity  to be heard  before the  exercise by the Holder of the  remedies of
self-help,  set-off,  or other  summary  procedures  and all other  demands  and
notices of any type or  description  except for cure  periods,  if any; and (ii)
releases the Holder, its officers,  directors,  agents,  employees and attorneys
from all  claims  for loss or damage  caused by any act or failure to act on the
part of the Holder,  its officers,  attorneys,  agents,  directors and employees
except for gross negligence or willful misconduct.

         (d) As a  non-exclusive  remedy,  upon  the  occurrence  of an Event of
Default, the Holder may convert the remaining principal amount of the Debentures
and accrued  interest thereon at the lesser of the Fixed Conversion Price or the
Floating  Conversion  Price upon giving a Notice of  Conversion  to the Company.
Except as otherwise  provided  herein,  the Company  shall not have the right to
object to the conversion or the calculation of the applicable  conversion price,
absent manifest error.

         III. To  effectuate  the terms and  provision  of this  Debenture,  the
Holder  may give  notice of any  default  to the  Attorney-in-Fact  as set forth
herein  and  give a  copy  of  such  notice  to the  Company  and  its  counsel,
simultaneously,  and  request the  Attorney-in-Fact  to comply with the terms of
this Debenture and all agreements entered into on behalf of the Company.

         Section 4.        Conversion.

         (a) The unpaid  principal amount of this Debenture shall be convertible
into  shares of Common  Stock at the  Conversion  Ratio as  defined  above,  and
subject to the  Limitation  on Conversion  described in  subsection  (k), at the
option  of the  Holder,  in whole or in part,  at any  time,  commencing  on the
Original  Issuance Date. Such shares of Common Stock shall be under  restriction
pursuant to Rule 144 of the Securities  Act. Any  conversion  under this Section
4(a) shall be for a minimum principal amount of $1,000.00 of the Debentures plus
the interest  accrued and due thereon.  The Holder shall effect  conversions  by
surrendering  the Debenture to be converted to the Company Agent,  together with
the form of notice attached hereto as Appendix I ("Notice of Conversion") in the
manner set forth in Section 4(j) hereof. Each Notice of Conversion shall specify
the  principal  amount of  Debentures to be converted and the date on which such
conversion  is to be effected  (the  "Conversion  Date") which date shall not be
less than two (2) Business Days after the date on which the Notice of Conversion
is  delivered  to the  Company.  Subject to the last  paragraph  of Section 4(b)
hereof,  each Notice of Conversion,  once given,  shall be  irrevocable.  If the
Holder is converting  less than all of the principal  amount  represented by the
Debentures tendered by the Holder in the Notice of Conversion, the Company shall
deliver to the Holder a new Debenture for such principal  amount as has not been
converted  within two (2) Business Days of the Conversion  Date. Upon conversion
in full of the Debentures or upon the Maturity Date, the Holder shall return the
Debentures to the Company for cancellation.

         (b) Not later than two (2) Business Days after the Conversion Date, the
Company  shall  deliver  to  the  Holder  (i)  a  certificate  or   certificates
representing  the  number  of shares of Common  Stock  being  acquired  upon the
conversion of the Debentures, and once the Debentures so converted in part shall
have been  surrendered  to the Company,  the Company shall deliver to the Holder
Debentures  in  the  principal  amount  of the  Debentures  not  yet  converted;
provided, however, that the Company shall not be obligated to issue certificates
evidencing  the  shares  of  Common  Stock  issuable  upon   conversion  of  the
Debentures,  until the  Debentures  are either  delivered for  conversion to the
Company or any transfer agent for the Debentures or Common Stock,  or the Holder
notifies the Company that such  Debentures  have been lost,  stolen or destroyed
and provides an affidavit of loss and an agreement reasonably  acceptable to the
Company indemnifying the Company from any loss incurred by it in connection with
such loss,  theft or  destruction.  In the case of a  conversion  pursuant  to a
Notice of Conversion,  if such  certificate or certificates are not delivered by
the date required  under this Section 4(b),  the Holder shall be entitled,  upon
providing  written notice to the Company at any time on or before its receipt of
such  certificate or certificates  thereafter,  to rescind such  conversion,  in
which event, the Company shall  immediately  return the Debentures  tendered for
conversion.

         (c) The conversion price for the Debentures in effect on any Conversion
Date shall be the lesser of (a) $0.01 (the "Fixed Conversion Price") and (b) one
hundred percent (100%) of the average of the three (3) lowest closing bid prices
per share of the Common Stock  during the forty (40)  Trading  Days  immediately
preceding the  Conversion  Date (the  "Floating  Conversion  Price");  provided,
however,  that the aggregate  maximum  number of shares of Common Stock that the
First  Debenture  and  Second  Debenture  may be  converted  into shall be Three
Million  (3,000,000)  shares (the "Maximum  Conversion");  and further provided,
however,  that upon the Maximum  Conversion,  the Company may, at its option (a)
increase  the  Maximum  Conversion  or  redeem  the  unconverted  amount  of the
Debentures in whole or in part at one hundred  twenty five percent (125%) of the
unconverted  amount of such  Debentures  being  redeemed  plus accrued  interest
thereon. For purposes of determining the closing bid price on any day, reference
shall be to the  closing  bid price for a share of Common  Stock on such date on
the OTCBB (or such other exchange, market, or other system that the Common Stock
is then traded on), as reported on Bloomberg,  L.P. (or similar  organization or
agency succeeding to its functions of reporting prices).

                  (ii) If the Company,  at any time while any of the  Debentures
are outstanding, (a) shall pay a stock dividend or otherwise make a distribution
or  distributions on shares of its Common Stock payable in shares of its capital
stock (whether  payable in shares of its Common Stock or of capital stock of any
class), (b) subdivide outstanding shares of Common Stock into a larger number of
shares, (c) combine  outstanding shares of Common Stock into a smaller number of
shares,  or (d) issue by  reclassification  any shares of  capital  stock of the
Company,  the Fixed  Conversion  Price as applied in  Section  4(c)(i)  shall be
multiplied  by a fraction,  the numerator of which shall be the number of shares
of Common Stock of the Company outstanding immediately before such event and the
denominator  of which shall be the number of shares of Common Stock  outstanding
immediately  after giving effect to such event.  Any adjustment made pursuant to
this Section 4(c)(ii) shall become effective  immediately  after the record date
for the  determination  of  stockholders  entitled to receive  such  dividend or
distribution and shall become effective  immediately after the effective date in
the case of a  subdivision,  combination or  reclassification,  provided that no
adjustment  shall  be made if the  Company  does  not  complete  such  dividend,
distribution, subdivision, combination or reclassification.

                  (iii)  If,  at  any  time  while  any of  the  Debentures  are
outstanding,  the Company  issues or sells shares of Common  Stock,  or options,
warrants or other  rights to  subscribe  for or purchase  shares of Common Stock
(excluding shares of Common Stock issuable upon the conversion of the Debentures
or upon the exercise of options,  warrants or conversion rights granted prior to
the date  hereof) and at a price per share less than the Per Share  Market Value
of the Common  Stock at the issue date  mentioned  below,  the Fixed  Conversion
Price shall be  multiplied  by a fraction,  the  numerator of which shall be the
number of shares of Common Stock (excluding treasury shares, if any) outstanding
on the date of issuance  of such  shares,  options,  warrants or rights plus the
number  of shares  which the  aggregate  offering  price of the total  number of
shares so  offered  would  purchase  at such Per  Share  Market  Value,  and the
denominator  of which shall be the number of shares of Common  Stock  (excluding
treasury  shares,  if any)  outstanding on the date of issuance of such options,
rights or warrants plus the number of additional  shares of Common Stock offered
for  subscription  or purchase.  Such  adjustment  shall be made  whenever  such
options,  rights or warrants  are issued  (and if such  adjustment  is made,  no
further  adjustment  will be made when such  options,  rights  or  warrants  are
exercised), and shall become effective immediately after the record date for the
determination  of  stockholders  entitled  to receive  such  options,  rights or
warrants.  However,  upon the  expiration  of any  options,  right or warrant to
purchase  Common Stock,  the issuance of which  resulted in an adjustment in the
conversion  price  designated in Section 4(c)(i) hereof pursuant to this Section
4(c)(iii), if any such options, right or warrant shall expire and shall not have
been  exercised,   the  Fixed  Conversion  Price  shall  immediately  upon  such
expiration  be  recomputed  and effective  immediately  upon such  expiration be
increased  to the  price  which it would  have been  (but  reflecting  any other
adjustments  in the  conversion  price made  pursuant to the  provisions of this
Section 4 after the issuance of such rights or warrants)  had the  adjustment of
the conversion price made upon the issuance of such options,  rights or warrants
been made on the basis of offering for subscription or purchase only that number
of shares of Common Stock actually  purchased upon the exercise of such options,
rights or warrants  actually  exercised.  There will be no adjustment under this
Section  4(c)(iii) if Common Stock is issued due to the exercise of (x) employee
stock options that were issued to such employee, or (y) other options,  warrants
or rights to  subscribe  for or  purchase  that,  in any case,  are issued at an
exercise or subscription price equal to Per Share Market Value.

                  (iv) If, at any time while  Debentures  are  outstanding,  the
Company  distributes  to all  holders  of Common  Stock  (and not to  holders of
Debentures)  evidences of Company  indebtedness or assets, or rights or warrants
to  subscribe  for or purchase  any  security  (excluding  those  referred to in
Section  4(c)(iii)  hereof),  then, in each such case, the  conversion  price at
which each Debenture then outstanding  shall thereafter be convertible  shall be
determined by multiplying (A) the Fixed Conversion  Price in effect  immediately
prior to the record date fixed for  determination  of  stockholders  entitled to
receive such distribution by a fraction, the numerator of which shall be the Per
Share  Market  Value  of the  Common  Stock  determined  as of the  record  date
mentioned  above  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 and the  denominator  of which shall be the Per Share Market Value of
the Common Stock on such record date; provided,  however, that in the event of a
distribution  exceeding ten percent (10%) of the net assets of the Company, such
fair market  value  shall be  determined  by a  nationally  recognized  or major
regional  investment  banking  firm  or  firm of  independent  certified  public
accountants  of  nationally  recognized  standing  (which  may be the firm  that
regularly  examines the financial  statements  of the Company) (an  "Appraiser")
selected in good faith by the holders of a majority of the  principal  amount of
the Debentures then outstanding;  and provided, further, that the Company, after
receipt of the  determination by such Appraiser,  shall have the right to select
an additional Appraiser,  in which case such fair market value shall be equal to
the average of the  determinations  by each such  Appraiser.  In either case the
adjustments  shall be  described  in a statement  provided to the Holder and all
other   holders  of  Debentures  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.  The Company  shall pay all fees and expenses of any  Appraiser  selected
under this Section 4(c)(iv).

                  (v) All calculations under this Section 4 shall be made to the
nearest  1/1000th of a cent or the nearest  1/1000th of a share, as the case may
be. Any  calculation  equal to or over .005 shall be rounded up to the next cent
or share  and any  calculation  less  than  .005  shall be  rounded  down to the
previous cent or share.

                  (vi)  In the  event  the  conversion  price  is  not  adjusted
pursuant to Section  4(c)(ii) or (v), within two (2) Business Days following the
occurrence  of an event  described  therein and, in the case of Section  4c(iv),
within three (3) Business Days  following the  determination  of the fair market
value by the  Appraiser(s),  the  Holder  shall  have the right to  require  the
Company  to  redeem  the   Debentures   at  125%  of  the  Purchase   Price  and
simultaneously  pay such amount and all accrued  interest  and  dividends to the
Holder pursuant to the written instructions  provided by the Holder. The Company
will have two (2) Business Days to make the appropriate adjustment from the time
the  Company is  provided  with  written  notice from the Holder of a failure to
comply with this Section 4.

                  (vii) Whenever the Fixed Conversion Price is adjusted pursuant
to Section  4(c)(ii),(iii)  or (iv),  the Company  shall within two (2) Business
Days after the  determination of the new Fixed Conversion Price mail and fax (in
the  manner set forth in  Section  4(j)  hereof) to the Holder and to each other
holder of Debentures, a notice ("Company Notice of Conversion Price Adjustment")
setting forth the Fixed Conversion Price after such adjustment and setting forth
a brief statement of the facts requiring such adjustment.

                  (viii) In case of any  reclassification  of the Common  Stock,
any consolidation or merger of the Company with or into another person, the sale
or  transfer  of all or  substantially  all of the assets of the  Company or any
compulsory  share exchange  pursuant to which the Common Stock is converted into
other  securities,  cash or  property,  then  each  holder  of  Debentures  then
outstanding shall have the right thereafter to convert such Debentures only into
the shares of stock and other securities and property  receivable upon or deemed
to  be  held  by  holders  of  Common  Stock  following  such  reclassification,
consolidation, merger, sale, transfer or share exchange (except in the event the
property is cash, then the Holder shall have the right to convert the Debentures
and receive cash in the same manner as other stockholders), and the Holder shall
be entitled  upon such event to receive such amount of securities or property as
the holder of shares of the Common Stock into which such  Debentures  could have
been  converted  immediately  prior  to  such  reclassification,  consolidation,
merger, sale, transfer or share exchange would have been entitled.  The terms of
any such consolidation,  merger,  sale, transfer or share exchange shall include
such terms so as to  continue  to give to the  Holder  the right to receive  the
securities or property set forth in this Section  4(c)(viii) upon any conversion
following such consolidation,  merger,  sale,  transfer or share exchange.  This
provision shall similarly apply to successive reclassifications, consolidations,
mergers, sales, transfers or share exchanges;

                  (ix)     If:

                           (A) the  Company  shall  declare a dividend  (or any
                              other  distribution)  on its Common
                                Stock; or

                           (B) the Company shall declare a special non-recurring
                                cash dividend  redemption of its
                                Common Stock; or

                           (C)  the  Company  shall  authorize  the grant to all
                                holders of the Common  Stock  rights or warrants
                                to  subscribe  for or  purchase  any  shares  of
                                capital stock of any class or of any rights; or

                           (D)  the approval of any  stockholders of the Company
                                shall  be  required  in   connection   with  any
                                reclassification  of  the  Common  Stock  of the
                                Company (other than a subdivision or combination
                                of the outstanding  shares of Common Stock), any
                                consolidation  or merger to which the Company is
                                a  party,   any  sale  or  transfer  of  all  or
                                substantially  all of the assets of the Company,
                                or any  compulsory  share  exchange  whereby the
                                Common Stock is converted into other securities,
                                cash or property; or

                           (E) the Company shall  authorize the voluntary or
                              involuntary  dissolution,  liquidation
                                or winding-up of the affairs of the Company;


then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Debentures,  and shall cause to be mailed and faxed
to the Holder and each other holder of the  Debentures  at their last  addresses
and facsimile  number set forth in the  Debenture  Register at least twenty (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 such  reclassification,
consolidation,  merger, sale, transfer, share exchange, dissolution, liquidation
or  winding-up is expected to become  effective,  and the date as of which it is
expected  that  holders of Common  Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other property  deliverable  upon
such reclassification,  consolidation,  merger, sale, transfer,  share exchange,
dissolution,  liquidation or winding-up;  provided, however, that the failure to
mail such  notice or any defect  therein  or in the  mailing  thereof  shall not
affect the  validity of the  corporate  action  required to be specified in such
notice.

         (d) If at any time  conditions  shall  arise by  reason  of  action  or
failure to act by the Company, which action or failure to act, in the opinion of
the Board of Directors of the Company,  is not  adequately  covered by the other
provisions  hereof and which might materially and adversely affect the rights of
the Holder and all other  holders of Debentures  (different  or  distinguishable
from the effect  generally  on rights of  holders of any class of the  Company's
capital  stock),  the Company shall, at least twenty (20) calendar days prior to
the effective date of such action,  mail and fax a written notice to each holder
of  Debentures  briefly  describing  the action  contemplated,  and an Appraiser
selected  by the  holders of majority  in  principal  amount of the  outstanding
Debentures shall give its opinion as to the adjustment, if any (not inconsistent
with the standards  established  in this Section 4 and the  Debentures),  of the
conversion price (including,  if necessary,  any adjustment as to the securities
into which Debentures may thereafter be convertible) and any distribution  which
is or would be required to preserve  without  diluting the rights of the holders
of  Debentures;  provided,  however,  that the  Company,  after  receipt  of the
determination  by such  Appraiser,  shall have the right to select an additional
Appraiser,  in which case the  adjustment  shall be equal to the  average of the
adjustments  recommended by each such Appraiser.  The Company shall pay all fees
and expenses of any Appraiser  selected  under this Section  4(d).  The Board of
Directors of the Company shall make the  adjustment  recommended  forthwith upon
the  receipt  of such  opinion  or  opinions  or the  taking of any such  action
contemplated,  as the case may be; provided, however, that no such adjustment of
the  conversion  price shall be made which,  in the opinion of the  Appraiser(s)
giving the  aforesaid  opinion or  opinions,  would result in an increase of the
conversion price above the conversion price then in effect.

         (e) Subject to the terms and  limitations  set forth in the  Debentures
including  without  limitation,  Sections  4.14 and 4.28  thereof,  the  Company
covenants and agrees that it shall, at all times, reserve and keep available out
of its authorized  and unissued  Common Stock solely for the purpose of issuance
upon  conversion of the  Debentures  as herein  provided,  free from  preemptive
rights or any other actual contingent  purchase rights of persons other than the
Holder of the Debentures, two (2) times such number of shares of Common Stock as
shall be issuable  (taking  into account the  adjustments  and  restrictions  of
Section  4(c) and Section  4(d) hereof)  upon the  conversion  of the  aggregate
principal  amount of the  outstanding  Debentures.  The Company  covenants that,
subject to the  limitations set forth in this Section 4(e), all shares of Common
Stock that shall be issuable  upon  conversion  of the  Debentures  shall,  upon
issuance,  be duly  and  validly  authorized  and  issued  and  fully  paid  and
non-assessable.

        (f) No  fractional  shares  of Common  Stock  shall be  issuable  upon a
conversion  hereunder  and the number of shares to be issued shall be rounded up
to the nearest  whole share.  If a  fractional  share  interest  arises upon any
conversion hereunder, the Company shall eliminate such fractional share interest
by issuing to the Holder an additional full share of Common Stock.

         (g) The issuance of a certificate or certificates  for shares of Common
Stock upon  conversion  of the  Debentures  shall be made without  charge to the
Holder for any documentary stamp or similar taxes that may be payable in respect
of the issuance 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 and the  Company  shall not be  required to
issue or  deliver  such  certificates  unless  or until the  person  or  persons
requesting  the  issuance  thereof  shall have paid to the Company the amount of
such tax or shall have  established to the satisfaction of the Company that such
tax has been paid.

         (h)      The Debentures converted into Common Stock shall be canceled
upon conversion.

         (i) On the  Maturity  Date,  the  unconverted  principal  amount of the
Debentures  and all interest due thereon shall either be paid off in full by the
Company  or, if payment in full is not  received  within two (2)  Business  Days
after the Maturity Date,  convert  automatically  into shares of Common Stock at
the lesser of the Fixed  Conversion  Price and the Floating  Conversion Price as
set forth in Section 4(c)(i).

         (j) Each Notice of Conversion shall be given by facsimile no later than
4:00 pm  California  time on any  Business  Day. Any such notice shall be deemed
given and effective  upon the  transmission  of such  facsimile at the facsimile
telephone of the Company (with printed  confirmation  of  transmission).  In the
event  that the  Company  receives  the  Notice of  Conversion  after  6:00 p.m.
California  time on such day,  or the  Holder  receives  the  Company  Notice of
Conversion  Price  Adjustment  after 6:00 p.m.  California time, any such notice
shall be deemed to have been given on the next Business Day.

                  (k) the  conversion  rights of the  Purchaser set forth in the
Debentures shall be limited,  solely to the extent required,  from time to time,
such that,  unless the Purchaser  gives written notice 75 days in advance to the
Company of the  Purchaser's  intention to exceed the Limitation on Conversion as
defined herein,  with respect to all or a specified amount of the Debentures and
the  corresponding  number of the  Underlying  Shares in no  instance  shall the
Purchaser (singularly, together with any Persons who in the determination of the
Purchaser,  together with the  Purchaser,  constitute a group as defined in Rule
13d-5 of the Exchange  Act) be entitled to convert the  Debentures to the extent
such conversion would result in the Purchaser beneficially owning more than five
percent (5%) of the outstanding shares of Common Stock of the Company. For these
purposes,  beneficial  ownership  shall be defined and  calculated in accordance
with Rule 13d-3,  promulgated under the Exchange Act (the foregoing being herein
referred to as the  "Limitation on  Conversion");  provided,  however,  that the
Limitation on Conversion  shall not apply to any forced or automatic  conversion
pursuant to this Agreement or the Debentures;  and provided, further that if the
Purchaser  shall have  declared  an Event of Default  and,  if a cure  period is
provided,  the  Company  shall not have  properly  and fully cured such Event of
Default  within any such cure period,  the provisions of this Section 4.18 shall
be null and void from and after such date. The Company shall,  promptly upon its
receipt  of a  Notice  of  Conversion  tendered  by the  Purchaser  (or its sole
designee) for the Debentures,  as applicable,  notify the Purchaser by telephone
and by  facsimile  (the  "Debenture  Notice")  of the number of shares of Common
Stock outstanding on such date and the number of Underlying Shares,  which would
be issuable to the Purchaser (or its sole  designee,  as the case may be) if the
conversion  requested in such Notice of Conversion were effected in full and the
number  of  shares  of  Common  Stock  outstanding  giving  full  effect to such
conversion  whereupon,  in  accordance  with  the  Debentures,   notwithstanding
anything to the  contrary set forth in the  Debentures,  the  Purchaser  may, by
notice  to the  Company  within  one  (1)  Business  Day of its  receipt  of the
Debenture Notice by facsimile, revoke such conversion to the extent (in whole or
in part) that such Purchaser determines that such conversion would result in the
ownership  by such  Purchaser  of  shares  of  Common  Stock  in  excess  of the
Limitation on  Conversion.  The Debenture  Notice shall begin the 75 day advance
notice required in this subsection (k).

         Section  5.  Redemption  of  Debentures.  (a) At  any  time  after  the
Execution  Date,  so long as no Event of Default  has  occurred  and,  if a cure
period is  provided,  has not been cured,  the Company  shall have the option to
redeem any unconverted  amount of the Debentures,  either in part or whole, upon
no less than thirty (30) days written  notice  thereof  given to the Holder (the
"Redemption  Notice"),  at  one  hundred  twenty  five  percent  (125%)  of  the
unconverted  amount  of  the  Debentures  plus  accrued  interest  thereon  (the
"Redemption Price").  Notwithstanding anything contained herein to the contrary,
if the  Company  decides  to  redeem  the  outstanding  principal  amount of the
Debenture  under the second proviso in the first sentence of Section  4(c)(i) of
this  Debenture,  the  Company  shall  have three (3)  Business  Days from their
decision to redeem the Debenture in order to effectuate  the  redemption of such
principal amount of the outstanding Debenture.

         (b)  Within  three  (3)  Business  Days  prior  to the date  fixed  for
redemption in the  Redemption  Notice,  the Company shall deposit the Redemption
Price by wire  transfer to the  Company's  transfer  agent.  Upon receipt of the
Redemption  Price, on such redemption date, the transfer agent shall release the
Redemption  Price to the  Holder  and return  the  remaining  Debentures  to the
Company.

         (c) In the event that the Company fails to deposit the Redemption Price
in the  transfer  agent's  account  within the time  allocated  in Section  5(b)
hereof, then the redemption shall be declared null and void.

         Section 6.        Intentionally Omitted.

         Section 7.  Absolute  Payment  Obligation;  Limitation  on  Prepayment.
Except as expressly  provided herein, no provision of this Debenture shall alter
or impair the obligation of the Company, which is absolute and unconditional, to
pay the principal of, and interest on, this  Debenture at the time,  place,  and
rate, and in the coin or currency, herein prescribed. This Debenture is a direct
obligation  of the  Company.  This  Debenture  ranks  pari  passu with all other
Debentures now or hereafter issued under the terms set forth herein. The Company
may not prepay any portion of the outstanding principal amount on the Debentures
except in accordance with Sections 4(c)(i) or 5 hereof.

         Section  8. No Rights of  Stockholders.  Except as  otherwise  provided
herein,  this  Debenture  shall not entitle the Holder to any of the rights of a
stockholder of the Company,  including without limitation,  the right to vote on
or consent to any action,  to receive dividends and other  distributions,  or to
receive  any notice  of, or to attend,  meetings  of  stockholders  or any other
proceedings  of the Company,  unless and to the extent  converted into shares of
Common Stock in accordance with the terms hereof.

         Section 9. Loss,  Theft,  Mutilation or Destruction.  If this Debenture
shall be mutilated,  lost,  stolen or  destroyed,  the Company shall execute and
deliver,  in exchange and substitution for and upon  cancellation of a mutilated
Debenture,  or in lieu of or in  substitution  for a lost,  stolen or  destroyed
Debenture,  a new  Debenture  for the  principal  amount  of this  Debenture  so
mutilated,  lost,  stolen or destroyed  but only upon receipt of an affidavit of
such loss,  theft or  destruction  of such  Debenture,  and, if requested by the
Company, an agreement to indemnity the Company in form reasonably  acceptable to
the Company.

         Section 10.  Governing  Law.  This  Debenture  shall be governed by and
construed  and enforced in  accordance  with the  internal  laws of the State of
California  without  regard to the  principles of conflicts of law thereof.  Any
action to enforce the terms of this Debenture, or any other Transaction Document
shall be exclusively brought in the state and/or federal courts in the state and
county of California.  Service of process in any action by the Holder to enforce
the terms of this  Debenture  may be made by serving a copy of the  summons  and
complaint,  in addition to any other relevant documents, by commercial overnight
courier to the Company at its principal address.

         Section 11. Notices.  Any notice,  request,  demand,  waiver,  consent,
approval or other  communication  which is required or  permitted to be given to
any party  hereunder  shall be in writing and shall be deemed duly given only if
delivered  to the  party  personally  or sent to the  party  by  facsimile  upon
electronic  confirmation  receipt (promptly followed by a hard-copy delivered in
accordance  with this Section 12) or three days after being mailed by registered
or certified mail (return receipt  requested),  with postage and registration or
certification  fees  thereon  prepaid,  or  if  sent  by  nationally  recognized
overnight  courier,  one day after being  mailed,  addressed to the party at its
principal address or such other address as may be designated hereafter by notice
given pursuant to the terms of this Section 11.

         Section 12. Waiver. Any waiver by the Company or the Holder of a breach
of any provision of this Debenture  shall not operate as or be construed to be a
waiver  of any  other  breach of such  provision  or of any  breach of any other
provision of this Debenture.  The failure of the Company or the Holder to insist
upon strict  adherence to any term of this  Debenture  on one or more  occasions
shall not be  considered a waiver or deprive that party of the right  thereafter
to insist upon strict adherence to that term or any other term of this Debenture
in any other occasion. Any waiver must be in writing.

         Section 13.  Invalidity.  If any provision of this Debenture is held to
be invalid, illegal or unenforceable, the balance of this Debenture shall remain
in effect,  and if any  provision  is held to be  inapplicable  to any person or
circumstance,  it shall nevertheless  remain applicable to all other persons and
circumstances.

         Section 14.       Payment  Dates.  Whenever any payment or other
 obligation  hereunder  shall be due on a day other than a Business Day, such
 payment shall be made on the next following Business Day.

         Section 15.       Transfer;  Assignment.  This Debenture may not be
  transferred or assigned,  in whole or in part, at any time,  except in
compliance by the transferor and the transferee with applicable  federal and
state securities laws.

         Section  16.  Future  Financing.  If,  at any time  this  Debenture  is
outstanding,  the  Company,  or its  successors  in  interest  due  to  mergers,
consolidations and/or acquisitions (the "Successors-in-Interest"),  is funded an
amount equal to or exceeding Five Million  United States  dollars  ($5,000,000),
the Company or the Successors-in-Interest, as the case may be, agrees to pay the
Purchaser  an  amount  equal to One  Hundred  Fifty  Percent  (150%) of the then
outstanding Debenture (the "Lump Sum Payment").  Upon the Purchaser's receipt of
the Lump Sum Payment, any and all remaining obligations then outstanding between
the  Company  or the  Successors-in-Interest,  as the  case  may  be,  and  this
Debenture shall be deem satisfied, and this Debenture shall be terminated.  This
provision shall survive both Closing and Post-Closing.

         Section 17. Fees of Enforcement. In the event any Party commences legal
action to enforce its rights  under this  Debenture,  the  non-prevailing  party
shall pay all  reasonable  costs and  expenses  (including  but not  limited  to
reasonable   attorney's   fees,   accountant's   fees,   appraiser's   fees  and
investigative fees) incurred in enforcing such rights.







                            [Signature Page Follows]


<PAGE>


         IN WITNESS  WHEREOF,  the Company has caused this instrument to be duly
executed  by an officer  thereunto  duly  authorized  as of the date first above
indicated.
                                             Mendocino Capital Partners, Inc.


Attest: ______________________               By: ______________________________
                                                    Name:
                                           Title:       Chief Executive Officer


<PAGE>


                                   APPENDIX I


                              NOTICE OF CONVERSION
                          AT THE ELECTION OF THE HOLDER

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

Except as provided by Section 4(b) of the  Debentures,  the  undersigned  hereby
irrevocably  elects to convert  the  attached  Debenture  into  shares of Common
Stock, par value [$0.001] per share (the "Common Stock"),  of Mendocino  Capital
Partners,  Inc. (the  "Company"),  or, if a Merger (as defined in the Debenture)
has  occurred,  into  shares of MP Common  Stock (as  defined in the  Debenture)
according to the provisions  hereof, 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 fees will be  charged to the  Holder,  except for
transfer taxes, if any.



Conversion calculations:

Date to Effect Conversion



                              Principal Amount of Debentures to be Converted


                                           Interest to be Converted or Paid



                      Applicable Conversion Price (Pursuant to Section 4(c)(v))


                                             Number of Shares to be Issued Upon
Conversion



                                             Signature



                                             Name



                                            Address




                                   APPENDIX I


                              NOTICE OF CONVERSION
                          AT THE ELECTION OF THE HOLDER

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

Except as provided by Section 4(b) of the  Debentures,  the  undersigned  hereby
irrevocably  elects to convert  the  attached  Debenture  into  shares of Common
Stock,  par value $0.00] per share (the "Common  Stock"),  of Mendocino  Capital
Partners,  Inc. (the  "Company"),  or, if a Merger (as defined in the Debenture)
has  occurred,  into  shares of MP Common  Stock (as  defined in the  Debenture)
according to the provisions  hereof, 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 fees will be  charged to the  Holder,  except for
transfer taxes, if any.


Conversion calculations:

                            Date to Effect Conversion



                              Principal Amount of Debentures to be Converted



                            Interest to be Converted or Paid



                     Applicable Conversion Price (Pursuant to Section 4(c)(v))
                               Number of Shares to be Issued Upon Conversion



                                             Signature



                                             Name



                                            Address