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                                                                    EXHIBIT 4.11

                                                                       EXHIBIT C

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:
                                                                             [ ]

                                                                            $[ ]
No. [  ]

                              MILLENNIUM CELL INC.
                              CONVERTIBLE DEBENTURE
                                   DUE ON [ ]

         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 Convertible Debentures,
due on the ninth month anniversary of the Original Issue Date (as defined in
Section 1) in the aggregate principal amount of [ ] Million Dollars ($[ ])
(collectively, the "EXCHANGE DEBENTURES").

         FOR VALUE RECEIVED, the Company promises to pay to the order of [ ] or
its registered assigns (the "HOLDER") the principal sum of [ ] Dollars ($[ ])
and any additional sums due pursuant to the terms hereof on the ninth month
anniversary of the Original Issue Date or such earlier date as the Exchange
Debentures are required or permitted to be repaid hereunder ("MATURITY DATE"),
provided, that such maturity date may be extended by mutual consent of the
Holder and the Company on six occasions by 30 days, and to pay interest to the
Holder on the principal amount of this Debenture in accordance with the
provisions hereof. This Exchange Debenture is subject to the following
additional provisions.

         1. Definitions. As used in this Exchange 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.
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         "ADJUSTMENT NOTICE" means a written notice delivered by the Company to
a Holder pursuant to Section 6(c), indicating the Company's intent to adjust the
Conversion Price pursuant to Section 6(c).

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

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Company in one or a series of related transactions, or (iv) the execution by the
Company of an agreement to which the Company is a party or by which it is bound,
providing for any of the events set forth above in (i), (ii) or (iii).

         "CLOSING PRICE" means, for any date, the price determined by the first
of the following clauses that applies: (a) if the Common Stock is then listed or
quoted on an Eligible Market, the closing sales price per share of the Common
Stock for such date (or the nearest preceding date) on the primary Eligible
Market on which the Common Stock is then listed or quoted; (b) if the Common
Stock is not then listed or quoted on an Eligible Market and if prices for the
Common Stock are then quoted on the OTC Bulletin Board (or any successor
thereto), the closing sales price per share of the Common Stock for such date
(or the nearest preceding date) on the OTC Bulletin Board(or any successor
thereto); (c) if the Common Stock is not then listed or quoted on an Eligible
Market or the OTC Bulletin Board (or any successor thereto)and if prices for the
Common Stock are then reported in the "Pink Sheets" published by the National
Quotation Bureau Incorporated (or a similar organization or agency succeeding to
its functions of reporting prices), the most recent sales price per share of the
Common Stock so reported; or (d) in all other cases, the fair market value of a
share of Common Stock as determined by an independent appraiser selected in good
faith by the Holder.

         "COMMISSION" means the Securities and Exchange Commission.

         "COMMON STOCK" means the Company's common stock, $.001 par value, and
stock of any other class into which such shares may be reclassified or changed.

         "COMMON STOCK EQUIVALENTS" means any securities of the Company or a
subsidiary thereof which entitle the holder thereof to acquire Common Stock at
any time, including without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time convertible into or
exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock or other securities that entitle the holder to receive, directly or
indirectly, Common Stock.

         "COMPANY CONVERSION DATE" means the tenth (10th) day immediately
following the date a Company Conversion Notice together with the Conversion
Schedule is delivered to the Holder pursuant to Section 6(b).

         "COMPANY CONVERSION NOTICE" means a written notice in the form attached
hereto as Exhibit B.

         "COMPANY PREPAYMENT PRICE" for any Exchange Debentures which shall be
subject to prepayment pursuant to Section 8(a), shall equal the sum of: (i) 105%
of the principal amount of Exchange 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 Exchange Debentures.

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

                                      -3-
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         "CONVERSION NOTICE" means either a Holder Conversion Notice or a
Company Conversion Notice.

         "CONVERSION PRICE" means the Initial Conversion Price, subject to
adjustment from time to time pursuant to Sections 6(c) (solely with respect to
conversions pursuant to Section 6(c)) and 6(j).

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

         "DELIVERY DATE" means the date an Adjustment Notice is delivered to the
Holder pursuant to Section 6(c).

         "ELIGIBLE MARKET" means any of the New York Stock Exchange, the
American Stock Exchange, the Nasdaq or the Nasdaq Small Cap Market.

         "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

         "EQUITY CONDITIONS" means, with respect to a specified issuance of
Common Stock, that each of the following conditions is satisfied: (i) the number
of authorized but unissued and otherwise unreserved shares of Common Stock is
sufficient for such issuance; (ii) such shares of Common Stock are registered
for resale by the Holder pursuant to an effective registration statement, and
the prospectus thereunder is available for use by the Holder to sell such shares
or all such shares may be sold without volume restrictions pursuant to Rule
144(k) under the Securities Act; (iii) the Common Stock is listed or quoted (and
is not suspended from trading) on an Eligible Market and such shares of Common
Stock are approved for listing on such Eligible Market upon issuance; (iv) such
issuance would be permitted in full without violating Section 6(d)(i) or the
rules or regulations of the Eligible Market on which such shares are listed or
quoted; (v) no Event of Default nor any event that with the passage of time and
without being cured would constitute a Event of Default has occurred and not
been cured, and (vii) no public announcement of a pending or proposed Change of
Control transaction has occurred that has not been consummated.

         "EVENT OF DEFAULT" means the occurrence of any one of the following
events (whatever the reason and whether it shall be voluntary or involuntary or
effected by operation of law or pursuant to any judgment, decree or order of any
court, or any order, rule or regulation of any administrative or governmental
body):

         the occurrence of an Event of Default (as defined in either the
Unsecured Debentures or the Secured Debentures) pursuant to the Unsecured
Debentures or the Secured Debentures (whether or not declared by an applicable
holder of such debenture and regardless whether or not any such debenture is
then outstanding).

         "HOLDER CONVERSION DATE" means the date a Holder Conversion Notice
together with the Conversion Schedule is delivered to the Company pursuant to
Section 6(a).

         "HOLDER CONVERSION NOTICE" means a written notice in the form attached
hereto as Exhibit A.

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         "HOLDER PREPAYMENT PRICE" for any Exchange Debentures required to be
prepaid pursuant to Section 8(b) shall equal the sum of: (i) the principal
amount of Exchange 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 Exchange Debentures.

         "INITIAL CONVERSION PRICE" shall equal $4.25 (subject to equitable
adjustment for stock splits, recombinations and similar events).

         "INTEREST PAYMENT DATE" means each March 31, June 30, September 30 and
December 31, beginning on the first such date following the Original Issue Date,
except if such date is not a Trading Day, in which case such Interest Payment
Date shall be the next succeeding Trading Day.

         "INDEX PRICE" means the average of the VWAP's for the 10 consecutive
Trading Days immediately following the Delivery Date.

         "INTEREST RATE" means a rate of interest paid from time to time on
money market accounts held at the Bank.

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

         "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 Exchange Debentures: (I)
with respect to an Event of Default hereunder pursuant to clauses (i)-(xii) of
an Unsecured Debenture, shall equal the sum of: (i) the greater of (A) 130% of
the principal amount of Exchange Debentures to be prepaid and, if applicable,
the Reinstated Principal, plus all accrued and unpaid interest thereon, and (B)
the principal amount of Exchange 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 Exchange Debentures; (II) with respect
to an Event of Default hereunder pursuant to clause (xiii) of an Unsecured
Debenture, shall equal the sum of: (i) 125% of the principal amount of Exchange
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 Exchange Debentures; and (III) with respect to an Event of
Default hereunder pursuant to clause (xiv) of an Unsecured Debenture, shall
equal the sum of: (i) the principal amount of Exchange Debentures to be prepaid,
plus of all accrued and unpaid interest thereon and (ii) all other

                                      -5-
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amounts, costs, expenses and liquidated damages due in respect of such Exchange
Debentures.

         "NASDAQ" means the Nasdaq National Market.

         "ORIGINAL ISSUE DATE" means the date of the first issuance of any
Exchange Debentures, regardless of the number of transfers of any particular
Exchange Debenture and regardless of the number of certificates which may be
issued to evidence such Exchange 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.

         "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of October 31, 2002, to which the Company and the original
Holders are parties, as amended, modified or supplemented from time to time in
accordance with its terms.

         "REGISTRATION STATEMENT" shall have the meaning set forth in the
Registration Rights Agreement.

         "REINSTATED PRINCIPAL" means the principal amount of Exchange
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

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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 Exchange Debentures in accordance with the terms
hereof.

         "UNSECURED DEBENTURES" shall have the meaning set forth in the Purchase
Agreement.

         "VWAP" means on any particular Trading Day or for any particular
period, the volume weighted average trading price per share of Common Stock on
such date or for such period on an Eligible Market as reported by Bloomberg
L.P., or any successor performing similar functions.

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

         2. [intentionally left blank].

         3. Interest.

            (a) The Company shall pay interest to the Holder on the aggregate
unconverted and then outstanding principal amount of this Exchange 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 Exchange 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.

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            (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 Exchange 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
Exchange Debenture as of such Interest Payment Date.

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

         5. Registration of Transfers and Exchanges. The Company shall register
the transfer of any portion of this Exchange Debenture in the Exchange Debenture
Register upon surrender of this Exchange 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 Exchange Debenture (any such new
debenture, a "NEW EXCHANGE DEBENTURE"), evidencing the portion of this Exchange
Debenture so transferred shall be issued to the transferee and a New Exchange
Debenture evidencing the remaining portion of this Exchange Debenture not so
transferred, if any, shall be issued to the transferring Holder. The acceptance
of the New Exchange 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 Exchange Debenture. This Exchange Debenture is exchangeable for an equal
aggregate principal amount of Exchange 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 Exchange Debenture and the Underlying
Shares issuable on conversion thereof hereby are governed by Section 4.1 of the
Purchase Agreement.

         6. Conversion

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

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

            (c) Company's option to adjust Conversion Price and force
conversion. At any time and from time to time after the date the Registration
Statement covering the resale of the Underlying Shares issuable upon conversion
of the Exchange Debentures has been declared effective by the Commission, the
Company shall have the option, upon the delivery of an Adjustment Notice to the
Holder, to adjust the Conversion Price then in effect with respect to the
Mandatory Convertible Amount applicable to such Adjustment Notice to equal the
lesser of: (A) the Initial Conversion Price and (B) the product of (x) the
applicable Adjustment Percentage and (y) the Index Price. Subject to the terms
hereof (including, without limitation, Section 6(d)(i)), on each Adjustment Date
immediately following the delivery of an Adjustment Notice, the applicable
Mandatory Convertible Amount shall be converted into Underlying Shares at the
Conversion Price as adjusted on such Adjustment Date pursuant to the terms of
the immediately preceding sentence, provided, that such conversion shall only
occur if

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all of the Equity Conditions are satisfied as of the Adjustment Date with
respect to all of the Underlying Shares potentially issuable in connection with
such proposed conversion. Notwithstanding anything herein to the contrary, the
Company shall not be entitled to deliver an Adjustment Notice prior to the tenth
(10th) Trading Day immediately following the immediately preceding Delivery Date
hereunder or a delivery date under any Debenture. If a conversion of the
Mandatory Convertible Amount would result in the issuance to the Holder of
Underlying Shares in excess of the amount permitted pursuant to Section 6(d)(i),
the Holder shall notify the Company of this fact and the Company shall: (x)
honor the conversion for the maximum principal amount of Exchange Debentures
permitted, pursuant to Section 6(d)(i), to be converted on the applicable
Adjustment Date and (y) cancel the portion of the Mandatory Convertible Amount
the conversion of which would violate Section 6(d)(i).

            (d) Certain Conversion Restrictions.

                (i) Notwithstanding anything to the contrary contained herein,
the number of shares of Common Stock that may be acquired by a Holder upon any
conversion of Exchange Debentures (or otherwise in respect hereof) shall be
limited to the extent necessary to insure that, following such conversion (or
other issuance), the total number of shares of Common Stock then beneficially
owned by such Holder and its affiliates and any other Persons whose beneficial
ownership of Common Stock would be aggregated with such Holder's for purposes of
Section 13(d) of the Exchange Act, does not exceed 9.999% of the total number of
issued and outstanding shares of Common Stock (including for such purpose the
shares of Common Stock issuable upon such conversion). For such purposes,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder. Each delivery
of a Holder Conversion Notice hereunder will constitute a representation by the
applicable Holder that it has evaluated the limitation set forth in this
paragraph and determined that issuance of the full number of Underlying Shares
issuable in respect of such Conversion Notice does not violate the restriction
contained in this paragraph. This provision shall not restrict the number of
shares of Common Stock which a Holder may receive or beneficially own in order
to determine the amount of securities or other consideration that such Holder
may receive in the event of a merger, sale or other business combination or
reclassification involving the Company as contemplated herein.

                (ii) [intentionally left blank]

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

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            (f) To effect conversions hereunder, the Holder shall not be
required to physically surrender this Exchange Debenture unless the aggregate
principal amount represented by such Exchange Debenture is being converted, in
which event, the Holder shall deliver such Exchange 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 Exchange 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 Exchange Debenture in accordance with the terms hereof
(including, without limitations, Section 6(d)) are absolute and unconditional,
irrespective of any action or inaction by the Holder to enforce the same, any
waiver or consent with respect to any provision hereof, the recovery of any
judgment against any Person or any action to enforce the same, or any setoff,
counterclaim, recoupment, limitation or termination, or any breach or alleged
breach by the Holder or any other Person of any obligation to the Company or any
violation or alleged violation of law by the Holder or any other Person, and
irrespective of any other circumstance which might otherwise limit such
obligation of the Company to the Holder in connection with the issuance of such
Underlying Shares.

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

            (i) If by the third Trading Day after a Conversion Date the Company
fails to deliver to the Holder such Underlying Shares in such amounts and in the
manner required pursuant to Section 6(e), and if after such third Trading Day
the Holder purchases (in an open market transaction or otherwise) shares of
Common Stock to deliver in satisfaction of a sale by such Holder of the
Underlying Shares which the Holder anticipated receiving upon such conversion (a
"BUY-IN"), then the Company shall (A) pay in cash to the Holder (in addition to
any remedies available to or elected by the Holder) the amount by which (x) the
Holder's total purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased exceeds (y) the amount obtained by
multiplying (1) the aggregate number of Underlying Shares that the Company was
required to deliver to the Holder in connection with the conversion at issue by
(2) the Closing Price at the time of the obligation giving rise to such purchase
obligation and (B) at the option of the Holder, either reinstate the principal
amount of Exchange 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 Exchange 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.

                                      -11-
<PAGE>
            (j) Adjustments to Conversion Price. The Conversion Price in effect
on any Conversion Date shall be subject to adjustments in accordance with this
Section 6(j):

                (i) Stock Dividends and Splits. If the Company, at any time
while any Exchange 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 Exchange 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 Exchange 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 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 Exchange 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

                                      -12-
<PAGE>
notify the Holder in writing, no later than the Trading Day following the
issuance of any Common Stock or Common Stock Equivalent subject to this section,
indicating therein the applicable issuance price, or of applicable reset price,
exchange price, conversion price and other pricing terms. No further adjustments
shall be made to the Conversion Price upon the actual issuance of Common Stock
upon conversion or exercise of the applicable Common Stock Equivalent.
Notwithstanding the foregoing, no adjustment will be made under this Section
6(j)(iii) in respect of:

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

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

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

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

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

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

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

                    (H) Any adjustment to the Conversion Price pursuant to

                                      -13-
<PAGE>
Section 6(c); or

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

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

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

            (k) Fundamental Transactions. If, at any time while this Exchange
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 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 Exchange 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 Exchange
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 Exchange 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
Exchange Debenture and consistent with the foregoing provisions (omitting
Section 6(j)(iii) hereof) and evidencing the Holder's right to purchase the
Alternate Consideration at the Conversion Price

                                      -14-
<PAGE>
upon conversion thereof, or (ii) purchase the Exchange 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 Exchange 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 Exchange 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 Exchange 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 Exchange Debentures could have been
converted immediately prior to such reclassification or share exchange would
have been entitled. This provision shall similarly apply to successive
reclassifications or share exchanges.

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

                                      -15-
<PAGE>
Fundamental Transaction. Holders are entitled to convert principal amount of
this Exchange 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 Exchange 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 Exchange Debentures. The Company covenants that all shares
of Common Stock that shall be so issuable shall, upon issue, be duly and validly
authorized and issued and fully paid and nonassessable.

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

            (p) The issuance of certificates for Common Stock on conversion of
principal amount of this Exchange 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 certificate upon
conversion in a name other than that of the Holder of such Exchange Debentures
so converted.

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

                                      -16-
<PAGE>
transmission), (iii) upon receipt, if sent by a nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice is
required to be given.

         7. [intentionally left blank]

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

         9. Other Prepayments

            (a) Prepayment at the Option of the Company.

                (i) At any time following the Original Issue Date and prior to
the Maturity Date, upon delivery of a written notice to the Holder (a "COMPANY
PREPAYMENT NOTICE" and the date such notice is delivered by the Company, the
"COMPANY NOTICE DATE"), the Company shall be entitled to prepay a principal
amount of Exchange Debentures equal to the lesser of (x) the aggregate
outstanding principal amount of Exchange Debentures then held by the Holder and
(y) the principal amount of Exchange Debentures which may be converted without
violation of Section 6(d)(i), in either case, for an amount in cash equal to the
Company Prepayment Price. 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

                                      -17-
<PAGE>
optional prepayment, notwithstanding anything herein contained to the contrary.
The Holder may convert any portion of the outstanding principal amount of the
Exchange Debentures subject to a Company Prepayment Notice prior to the date
that the Company Prepayment Price is due and paid in full. Once delivered, the
Company shall not be entitled to rescind a Company Prepayment Notice.

                (ii) The Company Prepayment Price shall be due on the 30th
Trading Day immediately following the Company Notice Date. Any such prepayment
shall be free of any claim of subordination. If any portion of the Company
Prepayment Price shall not be timely paid by the Company, interest shall accrue
thereon at the rate of 12% per annum (or the maximum rate permitted by
applicable law, whichever is less) until the Company Prepayment Price plus all
such interest is paid in full, which payment shall constitute liquidated damages
and not a penalty. In addition, if any portion of the Company Prepayment Price
remains unpaid after such date, the Holder subject to such prepayment may elect
by written notice to the Company to invalidate ab initio such Company Prepayment
Notice with respect to the unpaid amount, notwithstanding anything herein
contained to the contrary. If the Holder makes such an election, this Exchange
Debenture shall be reinstated with respect to such unpaid amount and the Company
shall no longer have any prepayment rights under this Section 9.

            (b) [intentionally left blank]

         10. Ranking. This Exchange Debenture ranks pari passu with all other
Exchange 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 Exchange 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 (as defined in the Purchase Agreement) and except as set forth
in Schedule 3.1(x) to the Purchase Agreement, the Company will not, and will not
permit any Subsidiary to, directly or indirectly, enter into, create, incur,
assume or suffer to exist indebtedness of any kind, on or with respect to any of
its property or assets now owned or hereafter acquired or any interest therein
or any income or profits therefrom, that is senior in any respect to the
Company's obligations under the Exchange Debentures.

         11. Miscellaneous.

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

            (b) Subject to Section 11(a), above, nothing in this Exchange
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 Exchange
Debenture. This Exchange Debenture shall inure to the sole and exclusive benefit
of the Company and the Holder.

                                      -18-
<PAGE>
            (c) All questions concerning the construction, validity, enforcement
and interpretation of this Exchange 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 Exchange 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 Exchange 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 Exchange
Debenture shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Exchange 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 Exchange Debenture.

            (f) No provision of this Exchange 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
Exchange 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.

                                      -19-
<PAGE>
            (h) Except pursuant to Sections 8 and 9 hereunder, the outstanding
principal amount and interest under this Exchange 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]

                                      -20-
<PAGE>
         IN WITNESS WHEREOF, the Company has caused this Exchange Debenture to
be duly executed by a duly authorized officer as of the date first above
indicated.

                                    MILLENNIUM CELL INC.

                                    By:________________________________
                                    Name:
                                    Title:

                                      -21-
<PAGE>
                                    EXHIBIT A

                            HOLDER CONVERSION NOTICE

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

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

Conversion calculations:

                                    ____________________________________________
                                    Date to Effect Conversion

                                    ____________________________________________
                                    Principal amount of Exchange Debenture owned
                                    prior to conversion

                                    ____________________________________________
                                    Principal amount of Exchange Debenture to be
                                    Converted (including _______________ of
                                    interest added under Section 3(b) of the
                                    Exchange Debenture)

                                    ____________________________________________
                                    Principal amount of Exchange 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
         Exchange Debenture.
<PAGE>
                                    EXHIBIT B
                            COMPANY CONVERSION NOTICE

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

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

Conversion calculations:
                                    ____________________________________________
                                    Date to Effect Conversion

                                    ____________________________________________
                                    Principal amount of Exchange Debenture owned
                                    prior to conversion

                                    ____________________________________________
                                    Principal amount of Exchange Debenture to be
                                    Converted (including _______________ of
                                    interest added under Section 3(b) of the
                                    Exchange Debenture)

                                    ____________________________________________
                                    Principal amount of Exchange Debenture
                                    remaining after Conversion

                                    ____________________________________________
                                    Number of shares of Common Stock to be
                                    Issued

                                    ____________________________________________
                                    Applicable Conversion Price

                                    ____________________________________________

                                    Name of Holder By:__________________________
                                    Name:
                                    Title:

                                    MILLENNIUM CELL INC.

                                    By:_________________________________________
                                    Name:
                                    Title:

                                      -2-
<PAGE>
                                   SCHEDULE 1

                               CONVERSION SCHEDULE

Exchange Debentures due on [ ] in the aggregate principal amount of $[ ] issued
by Millennium Cell Inc. This Conversion Schedule reflects conversions made under
the above referenced Exchange Debentures.

                                     Dated:

<TABLE>
<CAPTION>
Date of Conversion      Amount of      Aggregate Principal     Applicable Conversion
                       Conversion      Amount Remaining            Price
                                         Subsequent to
                                          Conversion
<S>                    <C>             <C>                     <C>

</TABLE>

                                      -3-<PAGE>
                                                                    EXHIBIT 4.12

                                                                       EXHIBIT B

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:
                                                                           [   ]

                                                                           $[  ]
No. [  ]

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

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

      FOR VALUE RECEIVED, the Company promises to pay to the order of [ ] or its
registered assigns (the "HOLDER") the principal sum of [ ] Dollars ($[ ]) and
any additional sums due pursuant to the terms hereof on the third year
anniversary of the Original Issue Date, or such earlier date as the Secured
Debentures are required or permitted to be repaid hereunder ("MATURITY DATE"),
and to pay interest to the Holder on the principal amount of this Secured
Debenture in accordance with the provisions hereof. This Secured Debenture is
subject to the following additional provisions.

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

            "ADJUSTMENT DATE" means the tenth Trading Day following the
      Delivery Date.
<PAGE>
            "ADJUSTMENT NOTICE" means a written notice delivered by the Company
      to a Holder pursuant to Section 6(c), indicating the Company's intent to
      adjust the Conversion Price pursuant to Section 6(c).

            "ADJUSTMENT PERCENTAGE" means, as of any Adjustment Date, if the
      Holder shall have converted prior thereto, pursuant to Section 6(c) of the
      Secured Debentures or the Exchange Debentures or Section 5(c) of the
      Unsecured Debenture, as applicable), an aggregate principal amount of
      Debentures between: (i) $0 and $2,500,000, 88%; (ii) $2,500,001 and
      $5,000,000, 90%; (iii) $5,000,001 and $7,500,000, 92%; (iv) $7,500,001 to
      $10,000,000, 94%; and (v) $10,000,001 to $12,000,000, 96%.

            "BANKRUPTCY EVENT" means any of the following events: (a) the
      Company or any subsidiary thereof commences a case or other proceeding
      under any bankruptcy, reorganization, arrangement, adjustment of debt,
      relief of debtors, dissolution, insolvency or Liquidation or similar law
      of any jurisdiction relating to the Company or any subsidiary thereof; (b)
      there is commenced against the Company or any subsidiary thereof any such
      case or proceeding that is not dismissed within 60 days after
      commencement; (c) the Company or any subsidiary thereof is adjudicated
      insolvent or bankrupt or any order of relief or other order approving any
      such case or proceeding is entered; (d) the Company or any subsidiary
      thereof suffers any appointment of any custodian or the like for it or any
      substantial part of its property that is not discharged or stayed within
      60 days; (e) the Company or any subsidiary thereof makes a general
      assignment for the benefit of creditors; (f) the Company or any subsidiary
      thereof fails to pay, or states that it is unable to pay or is unable to
      pay, its debts generally as they become due; (g) the Company or any
      subsidiary thereof calls a meeting of its creditors with a view to
      arranging a composition, adjustment or restructuring of its debts; or (h)
      the Company or any subsidiary thereof, by any act or failure to act,
      expressly indicates its consent to, approval of or acquiescence in any of
      the foregoing or takes any corporate or other action for the purpose of
      effecting any of the foregoing.

            "BUSINESS DAY" means any day except Saturday, Sunday and any day
      which shall be a federal legal holiday or a day on which banking
      institutions in the State of New York or the State of New Jersey are
      authorized or required by law or other governmental action to close.

            "CHANGE OF CONTROL" means the occurrence of any of: (i) an
      acquisition after the date hereof by an individual or legal entity or
      "group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange
      Act) of effective control (whether through legal or beneficial ownership
      of capital stock of the Company, by contract or otherwise) of in excess of
      33% of the voting securities of the Company, (ii) a replacement at one
      time or over time of more than one-half of the members of the Company's
      board of directors which is not approved by a majority of those
      individuals who are members of the board of directors on the date hereof
      (or by those individuals who are serving as members of the board of
      directors on any date whose nomination to the board of directors was
      approved by a majority of the members of the board of directors who are
      members on the date hereof), (iii) the merger of the Company with or into
      another entity that is not wholly-owned by the Company, consolidation or
      sale of 50% or more of the assets of the

                                      -2-
<PAGE>
      Company in one or a series of related transactions, or (iv) the execution
      by the Company of an agreement to which the Company is a party or by which
      it is bound, providing for any of the events set forth above in (i), (ii)
      or (iii).

            "CLOSING PRICE" means, for any date, the price determined by the
      first of the following clauses that applies: (a) if the Common Stock is
      then listed or quoted on an Eligible Market, the closing sales price per
      share of the Common Stock for such date (or the nearest preceding date) on
      the primary Eligible Market on which the Common Stock is then listed or
      quoted; (b) if the Common Stock is not then listed or quoted on an
      Eligible Market and if prices for the Common Stock are then quoted on the
      OTC Bulletin Board (or any successor thereto), the closing sales price per
      share of the Common Stock for such date (or the nearest preceding date) on
      the OTC Bulletin Board (or any successor thereto); (c) if the Common Stock
      is not then listed or quoted on an Eligible Market or the OTC Bulletin
      Board (or any successor thereto) and if prices for the Common Stock are
      then reported in the "Pink Sheets" published by the National Quotation
      Bureau Incorporated (or a similar organization or agency succeeding to its
      functions of reporting prices), the most recent sales price per share of
      the Common Stock so reported; or (d) in all other cases, the fair market
      value of a share of Common Stock as determined by an independent appraiser
      selected in good faith by the Holder.

            "COMMISSION" means the Securities and Exchange Commission.

            "COMMON STOCK" means the Company's common stock, $.001 par value,
      and stock of any other class into which such shares may be reclassified or
      changed.

            "COMMON STOCK EQUIVALENTS" means any securities of the Company or a
      subsidiary thereof which entitle the holder thereof to acquire Common
      Stock at any time, including without limitation, any debt, preferred
      stock, rights, options, warrants or other instrument that is at any time
      convertible into or exchangeable for, or otherwise entitles the holder
      thereof to receive, Common Stock or other securities that entitle the
      holder to receive, directly or indirectly, Common Stock.

            "COMPANY CONVERSION DATE" means the tenth (10th) day immediately
      following the date a Company Conversion Notice together with the
      Conversion Schedule is delivered to the Holder pursuant to Section 6(b).

            "COMPANY CONVERSION NOTICE" means a written notice in the form
      attached hereto as Exhibit B.

            "COMPANY PREPAYMENT PRICE" for any Secured Debentures which shall be
      subject to prepayment pursuant to Section 8(a), shall equal the sum of:
      (i) 105% of the principal amount of Secured Debentures to be prepaid, plus
      all accrued and unpaid interest thereon, and (ii) all other amounts,
      costs, expenses and liquidated damages due in respect of such Secured
      Debentures.

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

                                      -3-
<PAGE>
            "CONVERSION NOTICE" means either a Holder Conversion Notice or a
      Company Conversion Notice.

            "CONVERSION PRICE" means the Initial Conversion Price, subject to
      adjustment from time to time pursuant to Sections 6(c) (solely with
      respect to conversions pursuant to Section 6(c)) and 6(j).

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

            "DELIVERY DATE" means the date an Adjustment Notice is delivered to
      the Holder pursuant to Section 6(c).

            "ELIGIBLE MARKET" means any of the New York Stock Exchange, the
      American Stock Exchange, the Nasdaq or the Nasdaq Small Cap Market.

            "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
      amended.

            "EXCHANGE DEBENTURES" means unsecured convertible debentures in the
      form attached hereto as Exhibit C, issuable from time to time upon
      exchange of Secured Debentures pursuant to Section 7 hereof.

            "EQUITY CONDITIONS" means, with respect to a specified issuance of
      Common Stock, that each of the following conditions is satisfied: (i) the
      number of authorized but unissued and otherwise unreserved shares of
      Common Stock is sufficient for such issuance; (ii) such shares of Common
      Stock are registered for resale by the Holder pursuant to an effective
      registration statement, and the prospectus thereunder is available for use
      by the Holder to sell such shares or all such shares may be sold without
      volume restrictions pursuant to Rule 144(k) under the Securities Act;
      (iii) the Common Stock is listed or quoted (and is not suspended from
      trading) on an Eligible Market and such shares of Common Stock are
      approved for listing on such Eligible Market upon issuance; (iv) such
      issuance would be permitted in full without violating Section 6(d)(i) or
      the rules or regulations of the Eligible Market on which such shares are
      listed or quoted; (v) no Event of Default nor any event that with the
      passage of time and without being cured would constitute a Event of
      Default has occurred and not been cured, and (vii) no public announcement
      of a pending or proposed Change of Control transaction has occurred that
      has not been consummated.

            "EVENT OF DEFAULT" means the occurrence of any one of the following
      events (whatever the reason and whether it shall be voluntary or
      involuntary or effected by operation of law or pursuant to any judgment,
      decree or order of any court, or any order, rule or regulation of any
      administrative or governmental body):

                        (i) the occurrence of an Event of Default (as defined in
      either the Unsecured Debentures or the Exchange Debentures) pursuant to
      the Unsecured Debentures or the Exchange Debentures (whether or not
      declared by an applicable holder of such debenture and regardless whether
      or not any such debenture is outstanding); or

                                      -4-
<PAGE>
                        (ii) either: (A) the Letter of Credit (as defined in
      Section 2(a)) shall be revoked, withdrawn, terminated or disaffirmed by
      the Bank (as defined in Section 2(a)) or (B) the Holder shall have
      received notification from the Bank pursuant to the Letter of Credit that
      the Letter of Credit shall not be renewed and: (x) 45 days shall have
      elapsed since the delivery of such notification, (y) such non-renewal
      shall not have been withdrawn by the Bank prior to such 45th day and (z)
      the Company shall not have delivered a substitute letter of credit in form
      and substance satisfactory to the Holder in its sole and absolute
      discretion.

            "FINAL RELEASE DATE" means, subsequent to the date the Registration
      Statements covering the resale of the shares of Common Stock issuable upon
      conversion of all then outstanding Debentures has been declared effective
      by the Commission, the tenth (10th) Trading Day immediately following a
      period of twenty consecutive Trading Days during which the VWAP on each of
      such twenty consecutive Trading Days is greater than $5.10 (subject to
      equitable adjustment for stock splits, recombinations and similar events).

            "HOLDER CONVERSION DATE" means the date a Holder Conversion Notice
      together with the Conversion Schedule is delivered to the Company pursuant
      to Section 6(a).

            "HOLDER CONVERSION NOTICE" means a written notice in the form
      attached hereto as Exhibit A.

            "HOLDER PREPAYMENT PRICE" for any Secured Debentures required to be
      prepaid pursuant to: (x) Section 9(b)(i), shall equal the sum of: (i) the
      principal amount of Secured Debentures to be prepaid, plus all accrued and
      unpaid interest thereon and (ii) all other amounts, costs, expenses and
      liquidated damages due in respect of such Secured Debentures and (y)
      Section 9(b)(ii), shall equal the sum of: (i) 110% of the principal amount
      of Secured Debentures to be prepaid, plus all accrued and unpaid interest
      thereon and (ii) all other amounts, costs, expenses and liquidated damages
      due in respect of such Secured Debentures.

            "INITIAL CONVERSION PRICE" shall equal $4.25 (subject to equitable
      adjustment for stock splits, recombinations and similar events).

            "INTEREST PAYMENT DATE" means each March 31, June 30, September 30
      and December 31, beginning on the first such date following the Original
      Issue Date, except if such date is not a Trading Day, in which case such
      Interest Payment Date shall be the next succeeding Trading Day.

            "INDEX PRICE" means the average of the VWAP's for the 10 consecutive
      Trading Days immediately following the Delivery Date.

            "INTEREST RATE" means a rate of interest paid from time to time on
      money market accounts held at the Bank.

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

                                      -5-
<PAGE>
            "MANDATORY CONVERTIBLE AMOUNT" means $300,000, that any respect to
      each Adjustment Date, such amount may be increased up to $2,500,000 by
      mutual consent of the Holder and the Company reached prior to the
      applicable Adjustment Date.

            "MANDATORY PREPAYMENT AMOUNT" means for any Secured Debentures: (I)
      with respect to an Event of Default hereunder pursuant to under clauses
      (i)-(xii) of an Unsecured Debenture, shall equal the sum of: (i) the
      greater of (A) 130% of the principal amount of Secured Debentures to be
      prepaid and, if applicable, the Reinstated Principal, plus all accrued and
      unpaid interest thereon, and (B) the principal amount of Secured
      Debentures to be prepaid and, if applicable, the Reinstated Principal,
      plus all accrued and unpaid interest thereon, divided by the Conversion
      Price on the Trading Day immediately preceding (x) the date of the Event
      of Default or (y) the date the Mandatory Prepayment Amount is paid in
      full, whichever is less, multiplied by the Closing Price on (x) the date
      of the Event of Default or (y) the date the Mandatory Prepayment Amount is
      paid in full, whichever is greater, and (ii) all other amounts, costs,
      expenses and liquidated damages due in respect of such Secured Debentures;
      (II) with respect to an Event of Default hereunder pursuant to clause
      (xiii) of an Unsecured Debenture, shall equal the sum of: (i) 100% of the
      principal amount of Secured Debentures to be prepaid, plus 100% of all
      accrued and unpaid interest thereon and (ii) all other amounts, costs,
      expenses and liquidated damages due in respect of such Secured Debentures;
      and (III) with respect to an Event of Default hereunder pursuant to clause
      (xiv) of an Unsecured Debenture, shall equal the sum of: (i) the principal
      amount of Secured Debentures to be prepaid, plus of all accrued and unpaid
      interest thereon and (ii) all other amounts, costs, expenses and
      liquidated damages due in respect of such Secured Debentures.

            "NASDAQ" means the Nasdaq National Market.

            "ORIGINAL ISSUE DATE" means the date of the first issuance of any
      Secured Debentures, regardless of the number of transfers of any
      particular Secured Debenture and regardless of the number of certificates
      which may be issued to evidence such Secured Debentures.

             "PERSON" means an individual or corporation, partnership, trust,
      incorporated or unincorporated association, joint venture, limited
      liability company, joint stock company, government (or an agency or
      subdivision thereof) or other entity of any kind.

            "PROCEEDING" means an action, claim, suit, investigation or
      proceeding (including, without limitation, an investigation or partial
      proceeding, such as a deposition), whether commenced or threatened in
      writing concerning the interpretation, enforcement or defense of any
      transaction contemplated by any Transaction Document (whether brought
      against a party hereto or such parties affiliates, directors, officers,
      employees or agents).

            "PURCHASE AGREEMENT" means the Securities Purchase Agreement, dated
      as of October 31, 2002, to which the Company and the original Holders are
      parties, as amended, modified or supplemented from time to time in
      accordance with its terms.

                                      -6-
<PAGE>
            "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
      Agreement, dated as of October 31, 2002, to which the Company and the
      original Holders are parties, as amended, modified or supplemented from
      time to time in accordance with its terms.

            "REGISTRATION STATEMENT" shall have the meaning set forth in the
      Registration Rights Agreement.

             "REINSTATED PRINCIPAL" means the principal amount of Secured
      Debentures converted during the ten Trading Days preceding the delivery of
      an Event of Default Notice, for which the Company issued or was obligated
      to issue Underlying Shares to the Holder.

            "SECURITIES ACT" means the Securities Act of 1933, as amended.

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

            "TRADING DAY" means: (a) a day on which the shares of Common Stock
      are traded on an Eligible Market, or (b) if the shares of Common Stock are
      not listed on an Eligible Market, a day on which the shares of Common
      Stock are traded in the over-the-counter market, as reported by the OTC
      Bulletin Board, or (c) if the shares of Common Stock are not quoted on the
      OTC Bulletin Board, a day on which the shares of Common Stock are quoted
      in the over-the-counter market as reported by the National Quotation
      Bureau Incorporated (or any similar organization or agency succeeding its
      functions of reporting prices); provided, that in the event that the
      shares of Common Stock are not listed or quoted as set forth in (a), (b)
      and (c) hereof, then Trading Day shall mean a Business Day.

            "TRANSACTION DOCUMENTS" shall have the meaning set forth in the
      Purchase Agreement.

            "UNDERLYING SHARES" means, collectively, the shares of Common Stock
      issuable upon conversion of Secured Debentures in accordance with the
      terms hereof.

            "UNSECURED DEBENTURES" shall have the meaning set forth in the
      Purchase Agreement.

             "VWAP" means on any particular Trading Day or for any particular
      period, the volume weighted average trading price per share of Common
      Stock on such date or for such period on an Eligible Market as reported by
      Bloomberg L.P., or any successor performing similar functions.

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

            2.    Letter of Credit.

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

                                      -7-
<PAGE>
Debentures, a copy of which is annexed hereto as Annex A (the "LETTER OF
CREDIT"). The Company hereby acknowledges that the Holder and any subsequent
Holder shall be entitled to the benefits of the Letter of Credit and covenants
and agrees that it will not impair the Holder's rights under the Letter of
Credit and (except to the extent provided in Section 2(b)) shall maintain the
Letter of Credit in full force and effect.

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

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

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

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

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

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

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

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

                                      -8-
<PAGE>
            3.    Interest.

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

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

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

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

                                      -9-
<PAGE>
equal aggregate principal amount of Secured Debentures of different authorized
denominations, as requested by the Holder surrendering the same. No service
charge or other fee will be imposed in connection with any such registration of
transfer or exchange. Transfers of this Secured Debenture and the Underlying
Shares issuable on conversion thereof hereby are governed by Section 4.1 of the
Purchase Agreement.

            6.    Conversion

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

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

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

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

                  (d)   Certain Conversion Restrictions.

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

                                      -11-
<PAGE>
thereunder. Each delivery of a Holder Conversion Notice hereunder will
constitute a representation by the applicable Holder that it has evaluated the
limitation set forth in this paragraph and determined that issuance of the full
number of Underlying Shares issuable in respect of such Conversion Notice does
not violate the restriction contained in this paragraph. This provision shall
not restrict the number of shares of Common Stock which a Holder may receive or
beneficially own in order to determine the amount of securities or other
consideration that such Holder may receive in the event of a merger, sale or
other business combination or reclassification involving the Company as
contemplated herein.

                        (ii)  [intentionally left blank].

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

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

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

                                      -12-
<PAGE>
                  (h) If by the third Trading Day after a Conversion Date the
Company fails to deliver to the Holder such Underlying Shares in such amounts
and in the manner required pursuant to Section 6(e), then the Holder will have
the right to rescind such conversion.

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

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

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

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

                                      -13-
<PAGE>
the Conversion Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the Closing Price determined as of
the record date mentioned above, and of which the numerator shall be such
Closing Price on such record date less the then fair market value at such record
date of the portion of such assets or evidence of indebtedness so distributed
applicable to one outstanding share of Common Stock as determined by the Board
of Directors in good faith. In either case the adjustments shall be described in
a statement provided to the Holders of the portion of assets or evidences of
indebtedness so distributed or such subscription rights applicable to one share
of Common Stock. Such adjustment shall be made whenever any such distribution is
made and shall become effective immediately after the record date mentioned
above.

                        (iii) Subsequent Equity Sales.  If the Company or any
subsidiary thereof, as applicable, at any time while this Secured Debenture is
outstanding, shall issue shares of Common Stock or Common Stock Equivalents
entitling any Person to acquire shares of Common Stock, at a price per share
less than the Conversion Price (if the holder of the Common Stock or Common
Stock Equivalent so issued shall at any time, whether by operation of purchase
price adjustments, reset provisions, floating conversion, exercise or exchange
prices or otherwise, or due to warrants, options or rights issued in connection
with such issuance, be entitled to receive shares of Common Stock at a price
less than the Conversion Price, such issuance shall be deemed to have occurred
for less than the Conversion Price), then, at the option of the Holder for such
conversions as it shall indicate, the Conversion Price shall be adjusted to
mirror the conversion, exchange or purchase price for such Common Stock or
Common Stock Equivalents (including any reset provisions thereof) at issue. Such
adjustment shall be made whenever such Common Stock or Common Stock Equivalents
are issued. The Company shall notify the Holder in writing, no later than the
Trading Day following the issuance of any Common Stock or Common Stock
Equivalent subject to this section, indicating therein the applicable issuance
price, or of applicable reset price, exchange price, conversion price and other
pricing terms. No further adjustments shall be made to the Conversion Price upon
the actual issuance of Common Stock upon conversion or exercise of the
applicable Common Stock Equivalent. Notwithstanding the foregoing, no adjustment
will be made under this Section 6(j)(iii) in respect of:

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

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

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

                                      -14-
<PAGE>
similar business combination;

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

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

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

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

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

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

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

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

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

                                      -15-
<PAGE>
assets in one or a series of related transactions, (iii) any tender offer or
exchange offer (whether by the Company or another Person) is completed pursuant
to which holders of Common Stock are permitted to tender or exchange their
shares for other securities, cash or property, or (iv) the Company effects any
reclassification of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is effectively converted into or exchanged for other
securities, cash or property (in any such case, a "FUNDAMENTAL TRANSACTION"),
then the Holder shall have the right thereafter to receive, upon conversion of
the outstanding principal amount of this Secured Debenture, the same amount and
kind of securities, cash or property as it would have been entitled to receive
upon the occurrence of such Fundamental Transaction if it had been, immediately
prior to such Fundamental Transaction, the holder of the number of Underlying
Shares then issuable upon conversion in full of the outstanding principal amount
of this Secured Debenture (the "ALTERNATE CONSIDERATION"). For purposes of any
such exercise, the determination of the Conversion Price shall be appropriately
adjusted to apply to such Alternate Consideration based on the amount of
Alternate Consideration issuable in respect of one share of Common Stock in such
Fundamental Transaction, and the Company shall apportion the Conversion Price
among the Alternate Consideration in a reasonable manner reflecting the relative
value of any different components of the Alternate Consideration. If holders of
Common Stock are given any choice as to the securities, cash or property to be
received in a Fundamental Transaction, then the Holder shall be given the same
choice as to the Alternate Consideration it receives upon any conversion of the
outstanding principal amount of this Secured Debenture following such
Fundamental Transaction. At the Holder's option and request, any successor to
the Company or surviving entity in such Fundamental Transaction shall, either
(i) issue to the Holder a new debenture substantially in the form of this
Secured Debenture and consistent with the foregoing provisions (omitting Section
6(j)(iii) hereof) and evidencing the Holder's right to purchase the Alternate
Consideration at the Conversion Price upon conversion thereof, or (ii) purchase
the Secured Debenture from the Holder for a purchase price, payable in cash
within five Trading Days after such request (or, if later, on the effective date
of the Fundamental Transaction), equal to the Black Scholes value of the
remaining unconverted portion of the outstanding principal amount of this
Secured Debenture (together with any accrued but unpaid interest thereon) on the
date of the Fundamental Transaction as well as assumptions reasonably mutually
acceptable to the Company and the Holder, provided that for purposes of such
calculation, the market price of the Common Stock shall be the closing bid price
of the Common Stock on the Trading Day immediately preceding the public
announcement of the Fundamental Transaction and the volatility factor shall be
determined by reference to the 12 month average industry volatility measures.
The terms of any agreement pursuant to which a Fundamental Transaction is
effected shall include terms requiring any such successor or surviving entity to
comply with the provisions of this paragraph (k) and insuring that the Secured
Debenture (or any such replacement security) will be similarly adjusted upon any
subsequent transaction analogous to a Fundamental Transaction.

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

                                      -16-
<PAGE>
such event to receive such amount of securities, cash or property as a holder of
the number of shares of Common Stock of the Company into which such shares of
Secured Debentures could have been converted immediately prior to such
reclassification or share exchange would have been entitled. This provision
shall similarly apply to successive reclassifications or share exchanges.

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

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

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

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

                                      -17-
<PAGE>
for any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate, provided that the Company shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion in a name
other than that of the Holder of such Secured Debentures so converted.

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

            7.    Automatic Exchange of Principal Amount of Secured Debentures.

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

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

                                      -18-
<PAGE>
Exchange Debentures shall be referred to as an "EXCHANGE DATE." Each Exchange
Debenture issued pursuant to this Section 7 will mature on the ninth (9th) month
anniversary of the applicable Exchange Date, provided, that such maturity date
may be extended by mutual consent of the Holder and the Company on six occasions
by 30 days.

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

            9.    Other Prepayments

                  (a)   Prepayment at the Option of the Company.

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

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

                                      -19-
<PAGE>
free of any claim of subordination. If any portion of the Company Prepayment
Price shall not be timely paid by the Company, interest shall accrue thereon at
the rate of 12% per annum (or the maximum rate permitted by applicable law,
whichever is less) until the Company Prepayment Price plus all such interest is
paid in full, which payment shall constitute liquidated damages and not a
penalty. In addition, if any portion of the Company Prepayment Price remains
unpaid after such date, the Holder subject to such prepayment may elect by
written notice to the Company to invalidate ab initio such Company Prepayment
Notice with respect to the unpaid amount, notwithstanding anything herein
contained to the contrary. If the Holder makes such an election, this Secured
Debenture shall be reinstated with respect to such unpaid amount and the Company
shall no longer have any prepayment rights under this Section 9.

                  (b)   Prepayment at the Option of the Holder.

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

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

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

                                      -20-
<PAGE>
Underlying Shares upon a conversion (or attempted conversion) thereof that meets
the requirements hereof. The Holder may convert any portion of the outstanding
principal amount of the Secured Debentures subject to a prepayment hereunder
prior to the date that the Holder Prepayment Price is due and paid in full.

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

            11.   Miscellaneous.

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

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

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

                                      -21-
<PAGE>
party in such Proceeding shall be reimbursed by the other party for its
attorney's fees and other costs and expenses incurred with the investigation,
preparation and prosecution of such Proceeding.

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

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

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

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

                                      -22-
<PAGE>
                  (h)Except pursuant to Sections 8 and 9 hereunder, the
outstanding principal amount and interest under this Secured Debenture may not
be prepaid by the Company without the prior written consent of the Holder.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                            SIGNATURE PAGE FOLLOWS]

                                      -23-
<PAGE>
      IN WITNESS WHEREOF, the Company has caused this Secured Debenture to be
duly executed by a duly authorized officer as of the date first above indicated.

                                             MILLENNIUM CELL INC.

                                             By:________________________________
                                             Name:
                                             Title:

                                      -24-
<PAGE>
                                    EXHIBIT A

                            HOLDER CONVERSION NOTICE

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

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

Conversion calculations:

                        --------------------------------------------------------
                        Date to Effect Conversion

                        --------------------------------------------------------
                        Principal amount of Secured Debenture owned prior to
                        conversion

                        --------------------------------------------------------
                        Principal amount of Secured Debenture to be Converted
                        (including                 of interest added under
                                   ---------------
                        Section 3(b) of the Secured Debenture)

                        --------------------------------------------------------
                        Principal amount of Secured Debenture remaining after
                        Conversion

                        --------------------------------------------------------
                        Number of shares of Common Stock to be Issued

                        --------------------------------------------------------
                        Applicable Conversion Price

                        --------------------------------------------------------
                        Name of Holder
                        By:
                            ----------------------------------------------------
                        Name:
                        Title:

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

                            COMPANY CONVERSION NOTICE

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

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

Conversion calculations:
                        --------------------------------------------------------
                        Date to Effect Conversion

                        --------------------------------------------------------
                        Principal amount of Secured Debenture owned prior to
                        conversion

                        --------------------------------------------------------
                        Principal amount of Secured Debenture to be Converted
                        (including                 of interest added under
                                   --------------- Section 3(b)
                        of the Secured Debenture)

                        --------------------------------------------------------
                        Principal amount of Secured Debenture remaining after
                        Conversion

                        --------------------------------------------------------
                        Number of shares of Common Stock to be Issued

                        --------------------------------------------------------
                        Applicable Conversion Price

                        --------------------------------------------------------
                        Name of Holder
                        By:
                            ----------------------------------------------------
                        Name:
                        Title:

                        MILLENNIUM CELL INC.

                        By:
                            ----------------------------------------------------
                        Name:
                        Title:

                                      -2-
<PAGE>
                                   SCHEDULE 1

                               CONVERSION SCHEDULE

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

                                     Dated:

<TABLE>
<CAPTION>
Date of Conversion        Amount of       Aggregate    Applicable Conversion
                         Conversion       Principal            Price
                                            Amount
                                          Remaining
                                          Subsequent
                                              to
                                          Conversion
<S>                      <C>              <C>          <C>

</TABLE>

                                      -3-

<PAGE>

                                    ANNEX A

OUR CREDIT NO.          ISSUE DATE    EXPIRY DATE       LETTER OF CREDIT AMOUNT
--------------          ----------    -----------       -----------------------

     XXX                __/__/ 2002   __/__/2003        USD $8,500,000

    BENEFICIARY                                                 APPLICANT
-----------------------                                    -------------------
PINE RIDGE FINANCIAL, INC.          .                      MILLENNIUM CELL INC.
C/O CAVALLO CAPITAL CORP.                                  1 INDUSTRIAL WAY WEST
660 MADISON AVENUE, 18TH FLOOR                             EATONTOWN, NJ 07724
NEW YORK, NEW YORK  10022

DEAR BENEFICIARY:

WE HEREBY  ESTABLISH  OUR CLEAN  STANDBY  LETTER  OF  CREDIT IN YOUR  FAVOR,  AS
BENEFICIARY, WHICH IS AVAILABLE BY PAYMENT AGAINST THE FOLLOWING DOCUMENTS:

1)   A DOCUMENT TITLED ON ITS FACE "SIGHT DRAFT" IN ACCORDANCE WITH EXHIBIT A,
      ATTACHED HERETO AND APPROPRIATELY COMPLETED.

2)   AN ORIGINAL OF A "CERTIFICATE  OF DRAW", IN THE FORM OF EXHIBIT B, ATTACHED
     HERETO,  APPROPRIATELY COMPLETED AND SIGNED BY AN AUTHORIZED OFFICER OF THE
     BENEFICIARY.

3)   THE ORIGINAL OF THIS LETTER OF CREDIT AND ALL  AMENDMENTS,  IF ANY, FOR OUR
     ENDORSEMENT.  (IF YOUR DEMAND  REPRESENTS A PARTIAL DRAWING  HEREUNDER,  WE
     WILL ENDORSE THE ORIGINAL CREDIT AND RETURN SAME TO YOU FOR POSSIBLE FUTURE
     CLAIMS.  IF,  HOWEVER,  YOUR DEMAND  REPRESENTS  A FULL  DRAWING OR IF SUCH
     DRAWING IS PRESENTED ON THE DAY OF THE RELEVANT  EXPIRATION DATE HEREOF, WE
     WILL HOLD THE ORIGINAL FOR OUR FILES AND REMOVE SAME FROM CIRCULATION.)

THIS LETTER OF CREDIT SETS FORTH IN FULL THE TERMS OF OUR  UNDERTAKING  AND SUCH
UNDERTAKING SHALL NOT IN ANY WAY BE MODIFIED,  AMENDED OR AMPLIFIED BY REFERENCE
TO ANY  DOCUMENT  OR  INSTRUMENT  REFERRED  TO HEREIN OR IN WHICH THIS LETTER OF
CREDIT IS  REFERRED  TO OR TO WHICH THIS  LETTER OF CREDIT  RELATES AND ANY SUCH
REFERENCE SHALL NOT BE DEEMED TO INCORPORATE HEREIN BY REFERENCE ANY DOCUMENT OR
INSTRUMENT.

IT IS A CONDITION OF THIS LETTER OF CREDIT THAT IT SHALL BE DEEMED AUTOMATICALLY
EXTENDED  WITHOUT  AMENDMENT  FOR ONE YEAR FROM THE PRESENT OR ANY FUTURE EXPIRY
DATE UNLESS AT LEAST 60 DAYS  (SIXTY  DAYS) PRIOR TO SUCH  EXPIRATION  DATE,  WE
NOTIFY YOU IN WRITING BY CERTIFIED MAIL OR EXPRESS  COURIER THAT WE ELECT NOT TO
RENEW THIS LETTER OF CREDIT FOR ANY SUCH  ADDITIONAL  ONE YEAR PERIOD.  HOWEVER,
THIS STANDBY  LETTER OF CREDIT SHALL NOT BE EXTENDED  BEYOND  __/__/2005*  WHICH
WILL BE CONSIDERED THE FINAL EXPIRATION DATE.

WE ENGAGE WITH YOU THAT ALL DOCUMENTS  PRESENTED IN COMPLIANCE WITH THE TERMS OF
THIS LETTER OF CREDIT WILL BE DULY HONORED BY US IF DELIVERED TO WACHOVIA  BANK,
NATIONAL ASSOCIATION,  ATTN: LETTER OF CREDIT DEPARTMENT, MAIL CODE NC 6034, 401
LINDEN STREET, WINSTON-SALEM, NORTH CAROLINA 27101, PRIOR TO 3 P.M. ON OR BEFORE
THE EXPIRATION DATE HEREOF.

                                SEE CONTINUATION

[Debenture maturity plus 10 Trading Days]

<PAGE>

ATTACHED TO AND FORMING PART OF STANDBY CREDIT NO. XXX PAGE TWO

UPON  RECEIPT  BY THE  UNDERSIGNED  OF A  CERTIFICATE  IN THE FORM OF  EXHIBIT C
ATTACHED HERETO SIGNED BY AN AUTHORIZED OFFICER OF BENEFICIARY, STATING THAT THE
AGGREGATE  OUTSTANDING  PRINCIPAL  AMOUNT OF THE  DEBENTURE  HAS BEEN REDUCED BY
EITHER  PAYMENT  OR  CONVERSION  INTO  CAPITAL  STOCK OR  UNSECURED  CONVERTIBLE
DEBENTURES AND SETTING FORTH THE AMOUNT OF SUCH  REDUCTION,  AND  ACCOMPANIED BY
THE ORIGINAL COPY OF THIS STANDBY LETTER OF CREDIT, WE WILL ENDORSE THIS STANDBY
LETTER OF CREDIT TO REFLECT A REDUCTION OF THE UNDRAWN FACE AMOUNT THEREOF BY AN
AMOUNT EQUAL TO THE AMOUNT OF SUCH  REDUCTION AS SET FORTH IN SUCH  CERTIFICATE,
AND WILL RETURN SUCH STANDBY LETTER OF CREDIT TO BENEFICIARY.  IT IS A CONDITION
OF THIS LETTER OF CREDIT THAT DOCUMENTS MAY ALSO BE PRESENTED AT THE COUNTERS OF
OUR NEW YORK  BRANCH  LOCATED AT 11 PENN PLAZA,  NEW YORK,  NY 10001 FOR FURTHER
DELIVERY  TO  WACHOVIA  BANK,  NATIONAL  ASSOCIATION,  ATTN:  LETTER  OF  CREDIT
DEPARTMENT, MAIL CODE NC 6034, 401 LINDEN STREET, WINSTON-SALEM,  NORTH CAROLINA
27101.

NOTE:  IN THE EVENT  THAT THE  BENEFICIARY  ELECTS TO PRESENT  DOCUMENTS  AT THE
COUNTER OF OUR NEW YORK BRANCH,  THE BENEFICIARY MUST  IMMEDIATELY  INSTRUCT THE
BRANCH  MANAGER  [insert  name] TO CONTACT ONE OF THE  FOLLOWING  PERSONS IN THE
STANDBY LETTER OF CREDIT DEPARTMENT:

1)  LUISA CIARDI, SUPERVISOR (336) 735-3365
2)  RHoNDA SULIER, MANAGER (336) 735-3370

EXCEPT SO FAR AS  OTHERWISE  EXPRESSLY  STATED  HEREIN  THIS LETTER OF CREDIT IS
SUBJECT TO THE  "INTERNATIONAL  STANDBY  PRACTICES 98 (15P 98),  PUBLICATION NO.
590." ALL INQUIRIES  REGARDING THIS CREDIT SHOULD BE DIRECTED TO US AT OUR PHONE
NUMBER 1-800-776-3862.

----------------------------------------
         AUTHORIZED SIGNATURE

<PAGE>

                                   EXHIBIT A

                                  SIGHT DRAFT

$__________________                                             [CITY], [STATE]
                                                                [MONTH] __, 200_

     AT SIGHT, PAY TO THE ORDER OF PINE RIDGE FINANCIAL, INC. THE SUM OF [AMOUNT
IN WORDS] DOLLARS ($__________).

     VALUE RECEIVED, AND CHARGE TO THE ACCOUNT OF MILLENNIUM CELL INC.

     DRAWN UNDER WACHOVIA BANK, NATIONAL ASSOCIATION STANDBY LETTER OF CREDIT
NO. XXX, DATED ______, 2002, ISSUED BY WACHOVIA BANK, NATIONAL ASSOCIATION IN
FAVOR OF PINE RIDGE FINANCIAL, INC. FOR THE ACCOUNT OF MILLENNIUM CELL INC.

                                             PINE RIDGE FINANCIAL, INC.

                                             BY:____________________
                                             NAME:
                                             TITLE:

PLEASE REMIT PROCEEDS TO OUR ACCOUNT AT:

<PAGE>

                                   EXHIBIT B

                              CERTIFICATE OF DRAW

     THE UNDERSIGNED HEREBY CERTIFIES TO WACHOVIA BANK, NATIONAL ASSOCIATION
(THE "BANK") WITH REFERENCE TO THE STANDBY LETTER OF CREDIT NO. XXX (THE "LETTER
OF CREDIT") ISSUED BY THE BANK IN FAVOR OF [PURCHASER],THAT:

1.   I AM THE __________ OF PINE RIDGE FINANCIAL, INC. AND AM AUTHORIZED TO
     EXECUTE AND DELIVER THIS CERTIFICATE TO THE BANK ON BEHALF OF PINE RIDGE
     FINANCIAL, INC.

2.   PURSUANT TO SECTION 2(d) OF THE SECURED CONVERTIBLE DEBENTURE DATED

     _________ ___, 2002, MADE BY MILLENNIUM CELL INC. PAYABLE TO THE ORDER OF
     PINE RIDGE FINANCIAL, INC. IN THE ORIGINAL PRINCIPAL AMOUNT OF $8,500,000
     (THE "DEBENTURE"),PINE RIDGE FINANCIAL, INC. IS ENTITLED TO $_____________
     UNDER THE LETTER OF CREDIT.

3.   THE AMOUNT OF THE LETTER OF CREDIT DISBURSEMENT DEMANDED HEREBY IS
     $--------------.

     IN WITNESS WHEREOF, I HAVE HEREUNTO SET MY HAND THIS __ DAY OF _____ 200__.

                                             PINE RIDGE FINANCIAL, INC.

                                             BY:___________________________
                                             NAME:
                                             TITLE:

<PAGE>
                                   EXHIBIT C

                            CERTIFICATE OF REDUCTION

     THE UNDERSIGNED HEREBY CERTIFIES TO  WACHOVIA BANK, NATIONAL ASSOCIATION
(THE "BANK") WITH REFERENCE TO THE STANDBY LETTER OF CREDIT NO. XXX (THE "LETTER
OF CREDIT") ISSUED BY THE BANK IN FAVOR OF PINE RIDGE FINANCIAL, INC., THAT:

1.  I AM THE ____________ OF PINE RIDGE FINANCIAL, INC. AND AM AUTHORIZED TO
                             -
    EXECUTE AND DELIVER THIS CERTIFICATE TO THE BANK ON BEHALF OF PINE RIDGE
    FINANCIAL, INC.

2.  THE UNDRAWN FACE AMOUNT OF THE LETTER OF CREDIT AS OF THE DATE HEREOF
    EQUALS $__________.

3.  THE AGGREGATE  OUTSTANDING  PRINCIPAL  AMOUNT UNDER THE SECURED  CONVERTIBLE
    DEBENTURE  DATED ________ __, 2002 MADE BY MILLENNIUM  CELL INC.  PAYABLE TO
    THE ORDER OF PINE RIDGE FINANCIAL,  INC. IN THE ORIGINAL PRINCIPAL AMOUNT OF
    $8,500,000 (THE  "DEBENTURE")  HAS BEEN REDUCED BY [PAYMENT IN THE AMOUNT OF
    $______ BY MILLENNIUM  CELL INC.] [VIRTUE OF THE CONVERSION OF $_________ OF
    SUCH  PRINCIPAL  AMOUNT  OUTSTANDING ON THE DEBENTURE INTO SHARES OF CAPITAL
    STOCK OR  UNSECURED  CONVERTIBLE  DEBENTURES  OF MILLENNIUM  CELL  INC.] ON
    ______, 200_. 4.   WE CONSENT  TO A  REDUCTION IN THE  UNDRAWN  FACE  AMOUNT
    OF THE LETTER OF CREDIT BY  $[INSERT  DOLLAR AMOUNT SET FORTH IN  PARAGRAPH
    3 ABOVE] AS OF [INSERT DATE SET FORTH IN PARAGRAPH 3 ABOVE].

5.  THE ORIGINAL COPY OF THE LETTER OF CREDIT IS ATTACHED HERETO.

     IN WITNESS WHEREOF, I HAVE HEREUNTO SET MY HAND THIS __ DAY OF _____ 200__.

                                         PINE RIDGE FINANCIAL, INC.

                                         BY:________________________
                                         NAME:
                                         TITLE:

                                         MILLENNIUM CELL INC.

                                         BY:________________________
                                         NAME:
                                         TITLE:

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