Document:

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                                                                   Exhibit 10.28

QUICKSIL
1971 N. Capitol Avenue
San Jose, CA 95132

Tel: 408.935.7800 Fax: 408.935.7813

SUBLEASE AGREEMENT BETWEEN
QUICKSIL, INC and Measurement Specialties

1.   PARTIES. This sublease, dated August 1, 2002, is made by and between
QuickSil, Inc., a California Corporation, (herein called "Sublessor") and
Measurement Specialties, Inc. a New Jersey Corporation (herein called
"Sublessee').

2.   PREMISES. Sublessor hereby subleases to Sublessee and Sublessee hereby
subleases from the Sublessor for the term, at the rental, and upon all of the
conditions set forth herein, that certain real property situated in the County
of Santa Clara, State of California, commonly known as 1971 N. Capitol Avenue
Unit A and described as all of that certain office and manufacturing area
compromising approximately 4,682 square feet of building, being the
northeasterly portion of a larger building compromising approximately 30,000
square feet of building including herein in the subject premises. Said real
property, including the land and all improvements thereon, is hereinafter
called the "Premises". A diagram fully describing the subleased Premises is
attached as Exhibit "A" and made a part hereon by this reference.

3.   TERM, EXTENSIONS & COMMENCEMENT

3.1a TERM.     The term of this Sublease shall be for three (3) years
commencing on August 1st 2002 and ending on August 1st 2005, unless sooner
terminated pursuant to any provision hereof.

3.1b. LEASE EXTENSIONS - The term of the lease may be extended by the Sublessee,
at its option, in two annual lease extensions by providing 6 months advanced
notice for the first annual lease extension before the expiration of the
original three year term, and for the second extension, by providing six months
notice prior to the expiration of the first lease extension period. The base
rent for each annual lease extension will not exceed a 3% in base rent for each
lease extension.

3.1c. Commencement Lease will commence upon the date that the Subleased Premises
is delivered to Sublessee with a certificate of occupancy.

3.2  DELAYS IN COMMENCEMENT. Sublessee will not have any obligation to pay rent
or additional rent until the commencement date has occurred. Notwithstanding
said commencement date, if for any reason Sublessor cannot deliver possession
of the Premises to Sublessee on said date, Sublessor shall not be subject to
any liability therefore, nor shall such failure affect the validity of this
Sublease or the obligations of Sublessee hereunder or extend the term hereof,
but in such case Sublessee shall not be

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obligated to pay rent until possession of the Premises is tendered to Sublessee,
provided, however, that if Sublessor shall not have delivered possession of the
Premises within sixty (60) days from said commencement date, Sublessee may at
Sublessee's option by notice in writing to Sublessor within ten (10) days
thereafter, cancel this Sublease, in which event the parties shall be discharged
all obligations thereunder, If sublessee occupies the Premises prior to said
commencement date, such occupancy shall be subject to all provisions hereof,
such occupancy shall not advance the termination date and Sublessee shall pay
rent for such period at the INITIAL monthly rates set forth below.

4. RENT. Sublessee shall pay to Sublessor as base rent for the Premises equal
monthly payments $7,656.89 plus 100% of separately metered electric service to
the Sublessee premises estimated at $7400 per month, plus 17.3% of estimated
variable operating expenses for common building supplies, common building
utilities, common building maintenance and supplies, building property tax and
building insurance, these variable monthly expenses estimated at $13,089.88 for
a total base rent plus estimated monthly expenses of $20,261.73 in advance on
the first day of each month of the term hereof. Adjustments for actual variable
expenses will be adjusted from the following months rent payment. Sublessee
shall pay Sublessor upon execution hereof $20,261.73 as rent for the first month
of the Sublease term.

Rent for any period during the term which is for less than one month shall be a
prorate portion of the monthly installment. Rent shall be payable in lawful
money of the United States to Sublessor at the address stated herein or to such
other person or at such other place as Sublessor may designate in writing.

5. SECURITY DEPOSIT. Sublessee shall deposit with Sublessor upon execution
hereof $30,392.60 as security for Sublessee's faithful performance of
Sublessee's obligations hereunder. If Sublessee fails to pay rent or other
charges due hereunder, or otherwise defaults with respect to any provision of
this Sublease beyond any applicable notice and cure periods, Sublessor may use,
apply or retain all or any portion of said deposit for the payment of any rent
or other charge in default or payment of any other sum to which Sublessor may
become obligated by reason of Sublessee's default, or to compensate Sublessor
for any loss or damage which Sublessor may suffer thereby. If Sublessor so uses
or applies all or any portion of said deposit, Sublessee shall within ten (10)
days after written demand therefore deposit cash with Sublessor in an amount
sufficient to restore said material breach of this Sublease. In the event that
Sublessor performs all of Sublessor's obligations hereunder, said deposit, or so
much thereof as has not theretofore been applied by Sublessor, shall be
returned, without payment of interest or other increment for its use to
Sublessee (or at Sublessor's option, to the last assignee, if any, of
Sublessee's interest hereunder) at the expiration of the term hereof and after
Sublessee has vacated the Premises. No trust relationship is created herein
between Sublessor and Sublessee with respect to said security deposit.

6. USE.

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6.1 USE. The Premises shall be used and occupied only for semiconductor
manufacturing, research and development, distribution and general office use,
and for no other purpose.

6.2 COMPLIANCE WITH LAW.
(a) Sublessor warrants to Sublessee that the Premises in its existing state,
but without regard to the use for which Sublessee will use the Premises", does
not violate any applicable building code regulation or ordinance at the time
that this Sublessee is executed. In the event that it is determined that this
warranty has been violated, then it shall be the obligation of the Sublessor,
after written notice from Sublessee, to promptly, at Sublessor's sole cost and
expense, rectify any such violation. In the event that Sublessee does not give
the Sublessor written notice of the violation of this warranty within one (1)
year from the commencement of the term of this Sublease, it shall be
conclusively deemed that such violation did not exist and the correction of the
same shall be the obligation of the Sublessee.
(b) Except as provided in paragraph 6.2(a), Sublessee shall, at Sublessee's
expense, comply promptly with all applicable statutes, ordinances, rules,
regulations, orders, restrictions of record, and requirements in effect during
the term or any part of the term hereof regulating the use by Sublessee of the
Premises. Sublessee shall not use or permit the use of the Premises in any
manner that will tend to create waste or a nuisance or, if there shall be more
than one tenant of the building containing the Premises, which shall tend to
disturb such other tenants. Sublessee shall only be responsible for compliance
with laws relating to Sublessee's specific use of the Subleased Premises and
that Sublessee will not be required to make any repairs that are structural or
capital in nature unless such repairs are due to the Sublessee's specific use
of the Subleased Premises.

6.3 CONDITION OF PREMISES. Except as provided in paragraph 6.2(a), Sublessee
hereby accepts the Premises in their condition existing as of the date of the
execution hereof, subject to all applicable zoning, municipal, county and state
laws, ordinances, and regulations governing and regulating the use of the
Premises, and accepts this Sublease subject thereto and to all matters
disclosed thereby and by any exhibits attached hereto. Sublessee acknowledges
that neither Sublessor nor Sublessor's agents have made any representation or
warranty as to the suitability of the Premises for the conduct of Sublessee's
business.

7. APPLICABILITY OF MASTER LEASE PROVISIONS.

7.1 Sublessor is the lessee of the Premises by virtue of a lease, hereinafter
referred to as - the "Master Lease", a copy of which is attached hereto as
Exhibit "B", dated wherein         is the lessor, hereinafter referred to as
the "Master Lease".

7.2 This Sublease is and shall be at all times subject and subordinate to the
Master Lease.
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7.3  The terms, conditions and respective obligations of Sublessor and Sublessee
to each other under this Sublease shall be identical to the terms and conditions
of the Master Lease as they relate to the subleased Premises, unless otherwise
stated herein. In addition, in the event that any provisions of the Master Lease
are directly contradicted by any provision of this Sublease, the terms of this
Sublease document shall control over the terms of the Master Lease document.
Therefore, except as other stated, for the purpose of this Sublease document,
wherever the term "Lessor is used in the Master Lease it shall be deemed to
meant the Sublessor herein, and wherever the term "Lessee" is used in the Master
Lease it shall be deemed to mean the Sublessee herein.
Notwithstanding the foregoing, the references to "Lessor" in Paragraphs 22 and
23 of the Addendum attached to the Master Lease ("Addendum") shall mean only the
Master Lessor; the references to "Lessor" in Paragraph 24 of the Addendum shall
mean both the Master Lessor and the Sublessor; and the references to "Lessee" in
Paragraph 9.1 and 9.2, Article 10, and in the last sentence in Paragraph 14 of
the Master Lease and in Paragraphs 22 and 23 of the Addendum shall mean only the
Sublessor. In no event, however, shall any of said exceptions operate to limit
the liability of Sublessee for damages caused to any portion of the Premises
described in the Master Lease as a result of the actions, conduct or negligence
of Sublessee. Unless otherwise stated, all referenced to the "Premises" herein
shall mean only the subleased Premises and common area appurtenant thereto.
Unless otherwise stated, all references to this "Lease" shall mean this
Sublease.

7.4  During the term of this Sublease and for all periods subsequent for
obligations which have arisen prior to the termination of this Sublease,
Sublessee does hereby expressly assume to perform and comply with, for the
benefit of Sublessor under the Master Lessor each and every obligation of
Sublessor under the Master Lease relating to the subleased Premises, except for
the following paragraphs of the Master Lease which shall be excluded or altered
as specified. In addition, the obligations set forth in Paragraphs 8.3 and 10
of the Master Lease and in Paragraphs 22 and 26(c) of the Addendum shall remain
the sole obligation of Sublessor, subject to reimbursement by Sublessee of its
pro rata share of the cost incurred by Sublessor for the specified insurance,
real property taxes, and management fees. In no event shall any of the
exclusions or alterations described in this Paragraph 7.4 limit the liability
of Sublessee for damages caused to any portion or negligence of Sublessee.
(a) The following paragraphs of the Master Lease shall be excluded from this
Sublease in their entirety: 1, 2, 3.1, 3.2, 4.1, 5, 7.1, the first sentence of
Paragraph 7.4, 8.3, 8.6, 9.4, 11 and 21 and the following paragraphs in the
Addendum: the third sentence of Paragraph 18, Paragraph 19(a), Paragraph 26(a)
and 26(b), 34, 35, 36, 37, and 38.

7.5  The obligations that Sublessee has assumed under paragraph 7.4 hereof are
hereinafter referred to as the "Sublessee's Assumed Obligations". The
obligations that Sublessee has not assumed under paragraph 7.4 hereof are
hereinafter referred to as the "Sublessor's Remaining Obligations". Subject to
the reimbursement provisions set forth in paragraph 12.2 and 12.3 below,
Sublessor's Remaining Obligations include the obligation to keep in good order,
condition and repair the "Property" (i.e., 1971 North Capitol Avenue, San Jose,
California, APN 244-31-012), and every part thereof,

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structural and non-structural, including without limitation, the plumbing;
heating; air-conditioning; ventilating; electrical; exterior walls; interior
walls, fixtures, ceiling, floors, windows, doors, plate glass and skylights
(except those located in Sublessee's Premises); fighting facilities;
foundations; roofs (interior and exterior); landscaping; driveways; parking
lots; fences; and signs located on said Property and the sidewalks and parkways
adjacent to said Property. Sublessor's Remaining Obligations also include the
obligation to rebuild the Property under Paragraph 9.1 of the Master Lease and
to replace any structural elements of the Property, including foundations,
roofs, and load-bearing walls at its sole cost and expense, with the exception
that this Paragraph shall in no way limit or affect the liability of Sublessee
for damages caused to any portion of the Property by the actions or negligence
of Sublessee.

7.6  Sublessee shall hold Sublessor free and harmless of and from all liability,
judgments, costs, damages, claims or demands, including reasonable attorneys'
fees arising out of Sublessee's failure to comply with or perform Sublessee's
Assumed Obligations. Sublessor shall hold Sublessee free and harmless of and
from all liability, judgments, costs, damages, claims or demands, including
reasonable attorneys' fees arising out of Sublessor's failure to comply with or
perform Sublessor's Remaining Obligations. Sublessor agrees to promptly provide
Sublessee with any notices received from the Master Lessor respecting the
Property.

7.7  Sublessor agrees to maintain the Master Lease during the entire terms of
this Sublease, subject, however, to any earlier termination of the Master Lease
without the fault of the Sublessor, and to comply with or perform Sublessor's
Remaining Obligations and to hold Sublessee free and harmless of and from all
liability, judgments, costs, damages, claims or demands arising out of
Sublessor's failure to comply with or perform Sublessor's Remaining Obligations.

7.8  Sublessor represents to Sublessee that the Master Lease is in full force
and effect and that no default exists on the part of any party to the Master
Lease. Sublessor further represents and warrants to Sublessee as follows: (i)
the document attached as Exhibit "B" to this Agreement is a complete copy of the
Master Lease (including Addendum to Master Lease) and that the Master Lease
represents the entire agreement between Sublessor and Master Lessor with respect
to the lease of the subleased Premises, (ii) Sublessor has not assigned,
encumbered or subleased Premises, (iii) no litigation is pending or threatened
with respect to the Property which could adversely affect the Premises or
Sublessor's ability to perform its obligations under the Sublease, and (iv) the
expiration date of the Master Lease is not scheduled to expire prior to the
expiration of the term thereof Sublessor's representations and warranties under
this Paragraph shall survive the termination of the Sublease.

8.   INSURANCE

8.1  LIABILITY INSURANCE. Sublessee shall, at Sublessee's expense obtain and
keep in force during the term of this Lease a policy of Combined Single Limit,
Bodily Injury and
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Property Damage Insurance Insuring Sublessor and Sublessee against any liability
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant thereto. Such insurance shall be combined single limit
policy in an amount not less than $3,000,000.00. The policy shall contain cross
liability endorsements and shall insure performance by Sublessee of indemnity
provisions of this Paragraph 8. The limits of said insurance shall not, however,
limit liability of Sublessee hereunder. In the event that the Premises
constitute a part of a larger property said insurance should have a Sublessor's
Protective Liability endorsement attached thereof If Sublessee shall fail to
procure and maintain said insurance, Sublessor may, but shall not be required
to, procure and maintain the same, but at the expense of Sublessee. Not more
frequently than each three (3) years, if, in the reasonable opinion of
Sublessor, the amount of liability insurance required hereunder is not adequate,
Sublessee shall increase said insurance coverage as required by Sublessor.
Provided, however, that in no event shall the amount of the liability insurance
increase be more than fifty percent greater than the amount thereof during the
preceding three (3) years of the term of this Lease. However, the failure of
Sublessor to require any additional insurance coverage shall not be deemed to
relieve Sublessee from any obligations under this Lease.

8.2  EXEMPTION OF LESSOR FROM LIABILITY, (The following sentence shall be added
to the end of this Paragraph): Notwithstanding any of the above, Sublessee shall
not be liable for any such injury, loss or damage which is caused by or results
from the negligence or willful misconduct of Sublessor, its employees or
contractors.

9.  CONSENT OF MASTER LESSOR.

9.1 In the event that the Master Lease requires that Sublessor obtain the
consent of Master Lessor to any subletting by Sublessor, this Sublease shall
not be effective unless, within fifteen (15) days after execution hereof and
Sublessor's written notice to Master Lessor as required by Paragraph 24(a) of
the Addendum to Master Lease, Master Lessor signs this Sublease thereby giving
its consent to this Subletting.

9.2 In the event that the obligations of the Sublessor under the Master Lease
have been guaranteed by third parties then neither this Sublease, nor the
Master Lessor's consent, shall be effective unless, within 10 days of the date
hereof said guarantors sign this Sublease thereby giving their consent to this
Sublease and the terms thereof.

9.3 In the event that Master Lessor does give such consent then:
(a) Such consent will not release Sublessor of its obligations or alter the
primary liability of Sublessor to pay the rent and perform and comply with all
of the obligations of Sublessor to be performed under the Master Lease.

(b) The acceptance of rent by Master Lessor from Sublessee or any one else
liable under the Master Lease shall not be deemed a waiver by Master Lessor of
any provisions of the Master Lease.

(c) The consent to this Sublease shall not constitute consent to any subsequent
subletting or assignment.
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(d) In the event of any default of Sublessor under the Master Lease, Master
Lessor may proceed directly against Sublessor, any guarantors or anyone else
liable under the Master Lease or this Sublease without first exhausting Master
Lessor's remedies against any other person or entity liable thereon to Master
Lessor.

(e) Master Lessor may consent to subsequent subletting and assignments of the
Master Lease or this Sublease or any amendments or modifications thereto without
notifying Sublessor nor any one else liable under the Master Lease and without
obtaining their consent and such action shall not relieve such persons from
liability.

(f) In the event that Sublessor shall default in its obligations under the
Master Lease, then Master Lessor, at its option and without being obligated to
do so, may require Sublessee to attorn to Master Lessor in which event Master
Lessor shall undertake the obligations of Sublessor under this Sublease from the
time of the exercise of said option to termination of this Sublease, but Master
Lessor shall not be liable for any prepaid rents nor any security deposit paid
by Sublessee, nor shall Master Lessor be liable for any other defaults of the
Sublessor under the Sublease.

9.4 The signatures of the Master Lessor and any Guarantors of Sublessor at the
end of this document shall constitute their consent to the terms of this
Sublease.

9.5 Master Lessor acknowledges that, to the best of Master Lessor's knowledge,
no default presently exists under the Master Lease of obligations to be
performed by Sublessor and that the Master Lease is full force and effect.

9.6 In the event that the Sublessor defaults under its obligations to be
performed under the Master Lease by Sublessor, Master Lessor agrees to deliver
to Sublessee a copy of any such notice of default. Sublessee shall have the
right to cure any default of Sublessor described in any notice of default within
ten (10) days after service of such notice of default on Sublessee. If Sublessee
cures such default, then Sublessee shall have the right of reimbursements and
offset from and against Sublessor.

10

10.1 Master Lessor agrees, by its consent to this Sublease, that if Sublessee
shall exercise any option or right of first refusal granted to Sublessee by
Master Lessor in connection with this Sublease, or any option or right
substantially similar thereto either to extend the Master Lease, to renew the
Master Lease, to purchase the Premises or any part thereof, or to lease or
purchase adjacent property which Master Lessor may own or in which Master Lessor
has an interest, or if Broker is the procuring cause of any other lease or sale
entered into between Sublessee and Master Lessor pertaining to the Premises, any
party thereof, or any adjacent property which Master Lessor shall pay Broker a
fee, in cash, in accordance with the schedule of Broker in effect at the time of
its consent to this Sublease.

10.2 Any fee due from Sublessor or Master Lessor hereunder shall be due and
payable upon the exercise of any option to extend or renew, as to any extension
or renewal upon the execution of any new lease, as to a new lease transaction or
the exercise of a right of first refusal to lease, or at the close of escrow, as
to the exercise of any option to purchase or other sale transaction.

10.3 Any transferee of Sublessor's interest in this Sublease, or of Master
Lessor's interest in the Master Lease, by accepting an assignment thereof, shall
be deemed to have assumed the respective obligations of Sublessor or Master
Lessor under this Paragraph 10. Broker shall be deemed to be a third-party
beneficiary of this Paragraph 10.]
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11.  ATTORNEY'S FEES. If any party named herein brings an action to enforce the
terms hereof or to declare rights hereunder, the prevailing party in any such
action, on trial and appeal, shall be entitled to his reasonable attorney's
fees to be paid by the losing party as fixed by the Court.

12.  MISCELLANEOUS ADDITIONAL PROVISIONS.

12.1 UTILITIES.  For the purpose of this Sublease, Sublessee's pro rata share
of the building maintenance cost shall be calculated to be 17.3%. With regard
to utilities, it is agreed that Sublessee shall be given use of a dedicated 400
amp sub-panel. Sublessee shall be billed monthly for Sublessee's share of
utilities used by Sublessee which are not separately metered.

12.2 OPERATING EXPENSES.  Sublessee shall reimburse Sublessor its pro rata share
(17.3%) of the reasonable cost of operating, maintaining and repairing the
Property, monthly with its rent payment, provided, however, that Sublessee
shall not reimburse Sublessor for the following costs: leasing expenses;
capital expenses, except that Sublessee shall pay (i) its proportionate share
of the amortized portion of any capital expenses (amortized over the useful
life of the capital item in accordance with generally accepted accounting
principals), and (ii) the entire capital expense if required to be incurred due
to the acts or negligence of Sublessee; penalties and fines not due to the act
or omission of Sublessee; financing costs and debt service; Hazardous Materials
(except as otherwise provided herein); costs attributable to the
disproportionate use of utilities or services by Sublessor or any of its other
subtenants or assignees; depreciation and amortization; general overhead and
administrative costs of Sublessor which are separate or in excess of the 17.3%
reimbursable share described above; costs to correct construction defects;
costs relating to the repair or replacement of the structural elements of the
Property which are not due to the actions or negligence of Sublessee; and costs
occasioned by casualty or acts of God.

12.3 REPAIR AND MAINTENANCE.  At all times during the Sublease term, and at its
sole cost except as otherwise provided herein, Sublessee shall clean, keep and
maintain the Premises in good order, condition and repair. With respect to
utility facilities serving the Premises (including electrical wiring and
conduits, gas lines, water pipes, and plumbing and sewage fixtures and pipes),
Sublessee shall be responsible for the maintenance and repair of any such
facilities only up to the point where such utility services are distributed to
the Premises. All repairs and replacements required of Sublessee shall be made
in a good and workmanlike manner. Notwithstanding anything in this Sublease to
the contrary, Sublessee shall not be responsible for the performance of, nor
the cost of repair and maintenance: (i) necessitated by the acts of omissions
of Sublessor or its agents, employees, or contractors; (ii) necessitated by the
occurrence of any peril required to be insured hereunder (except that Sublessee
shall be required to pay its proportionate share of any deductibles); (iii)
which requires the construction or installation of any item which would
properly be capitalized under generally accepted accounting principles, except

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where occasioned by the actions or negligence of Sublessee, except that
Sublessee shall in any even be responsible for a pro-rated portion of such cost
which is equivalent to the length of this Sublease, all of which shall be the
responsibility of Sublessor.

12.4 AMENDMENT OR MODIFICATION. Sublessor and Master Lessor shall not amend or
modify the Master Lease in any way so as to adversely affect Sublessee, or its
interest hereunder or materially restricts Sublessee' rights hereunder, without
the prior written consent of Sublessee, shall not be unreasonably withheld or
delayed.

12.5 QUIET ENJOYMENT-RIGHT TO CURE. Sublessee shall peacefully have, hold and
enjoy the Premises subject to the terms and conditions of this Sublease. In the
event, however, that Sublessor defaults in the performance or observance of any
of Sublessor's Remaining Obligations (as defined in this Sublease) without the
fault of Sublessee, or fails to enforce, for Sublessee's benefit, Master
Lessor's obligations under the Master Lease, then Sublessee shall give Sublessor
written notice specifying in what manner Sublessor has defaulted, and if such
default shall not be cured by Sublessor within thirty (30) days thereafter
(except that is such default cannot be cured within said thirty (30-day period,
this period shall be extended for an additional reasonable time, provided that
Sublessor commences to cure such default within such thirty (30)-day period and
proceeds diligently thereafter to effect such cure as quickly as possible), then
in addition, Sublessee shall be entitled, at Sublessee's option, to cure such
default and promptly collect from Sublessor Sublessee's reasonable expense in so
doing (including, without limitation, reasonable attorneys' fees and court
costs). Sublessee shall not be required, however, to wait the entire cure period
described herein if earlier action is required or mandated by a third party to
comply with the Master Lease or with any applicable governmental law, regulation
or order.

12.6 DAMAGE IN LAST YEAR OF TERM. Notwithstanding anything to the contrary in
the Sublease, if twenty-five percent (25%) or more of the replacement cost of
the Premises or the building in which the Premises are located is destroyed or
damaged without fault of Sublessee during the last twelve (12) months of the
Sublease term, or if any casualty not caused by Sublessee would reasonably take
longer than one hundred twenty (120) days to repair, then Sublessee may, at its
option, terminate this Sublease as of the date of the occurrence of the damage.
If Sublessee does not elect to terminate the Sublease within thirty (30) days
after the date of the damage, then Paragraph 9.1 or 9.3 shall govern the repair
of such damage, as the case may be.

12.7 AUTHORIZATION TO DIRECT SUBLEASE PAYMENTS. Sublessor hereby acknowledges
that Sublessor's failure to pay the Monthly Base Rent, Additional Rent and other
sums owing by Sublessor to Master Lessor under the Master Lease will cause
Sublessee to incur damages, costs and expenses not contemplated by this
Sublease, especially in those cases where Sublessee has paid sums to Sublessor
hereunder which correspond in whole or in part to the amounts owing by Sublessor
to Master Lessor under the Master Lease. Accordingly, Sublessee shall have the
right to pay all rent and other sums owing by Sublessee to Sublessor hereunder
for those items which are also owed by Sublessor to Master Lessor under the
Master Lease directly to Master Lessor if Sublessee reasonably believes that
Sublessor has failed to make any payment required to be made by Sublessor to
Master Lessor under the Master Lease and Sublessor fails to provide
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adequate proof of payment within two (2) business days after Sublessee's written
demand requesting such proof. Any sums paid directly by Sublessee to Master
Lessor in accordance with this Paragraph shall be credited toward the amounts
payable by Sublessee to Sublessor under this Sublease.

12.8 TERMINATION OF MASTER LEASE. Notwithstanding anything to the contrary in
the Sublease, in the event of any termination of the Master Lease, Sublessee
shall attorn to Master Lessor and perform ALL of Sublessee's obligations under
the Sublease directly to Master Lessor as if Master Lessor were the sublessor
under the Sublease. If Sublessee is not, at the time of the notice from Master
Lessor of its intent to terminate the Master Lease, in default beyond any
applicable cure period, Master Lessor shall continue to recognize the estate of
Sublessee created under this Sublease. If Sublessee is not in default as
aforesaid, the Sublease shall continue with the same force and effect as if
Master Lessor and Sublessee had entered into a lease on the same provisions as
those contained in the Sublease.

12.9 OBLIGATION OF SUBLESSEE TO REIMBURSE FOR INCREASED COSTS. To the extent
that the occupancy and/or use of the sublease Premises is the sole and proximate
cause of an increase in the insurance or tax liability of Sublessor in
connection with Sublessor's obligations under the Master Lease, Sublessee agrees
to pay the amount of same within thirty (30) days of receiving written
notification from Sublessor. Said notice shall be accompanied by any and all
available documentation which supports said request for payment.

12.10 ADDITIONAL INSURANCE REQUIREMENTS OF SUBLESSEE. In addition to the above
Sublessee specifically agrees that it shall, at its sole expense, obtain and
keep in force during the term of this Sublease an insurance policy which insures
Sublessee in an adequate amount against any loss or damage due loss of business,
as well as a policy insuring from any and all loss or damage or personal
property, fixtures, equipment or tenant improvements belonging to Sublessee.

13. CHANGES IN LEGAL REQUIREMENT DURING LEASE TERM. Under Paragraph 6.2,
Sublessee is obligated at its sole expense to comply with all laws affecting the
Premises in effect on the commencement date of the lease term. In addition,
Sublessee at its sole expense will comply with all new laws or changes in
existing law enacted after such commencement date during the term of this
Sublease to the extent applicable to the Premises. Sublessee shall only be
responsible for compliance with laws relating to Sublessee's specific use of the
Subleased Premises and that Sublessee will not be required to make any repairs
that are structural or capital in nature unless such repairs are due to the
Sublessee's specific use of the Subleased Premises. If any ordinance rule or
regulation requires alterations or repairs to the building which would be
required irrespective of the nature of the tenancy, Sublessor shall make those
repairs or alterations at Sublessor's sole cost and expense. Sublessor will be
responsible for compliance with all applicable laws related to the balance of
the Leased Premises, the parking area and the common areas. It is the intention
of the parties that Sublessee will bear all costs relating to the Premises
during the lease term, including without limitation any and all costs

<PAGE>
relating to compliance with laws relating to the promises. For purposes of this
paragraph, "laws" means all laws, codes, and other promulgations of lawful
governmental or quasi-governmental authority. Notwithstanding anything to the
contrary in this Sublease, and unless otherwise stated herein, Sublessee shall
not be required to construct any improvements in the Premises which are
properly capitalized under generally accepted accounting principles in order to
comply with any such laws or underwriters' requirements, unless such compliance
is necessitated solely because of Sublessee's particular or unique use of the
Premises or because of any alterations or other improvements made to the
Premises by Sublessee.

14.  COMPLIANCE WITH LAWS. Sublessee, at it sole expense, shall comply with all
applicable governmental rules, regulations, codes, ordinances, statutes,
directives and other requirements (collectively, "ENVIRONMENTAL LAWS")
respecting the transport, use, storage, maintenance, generation, manufacture,
handling, discharge, release or disposal of Hazardous Materials in or on the
Premises or in the groundwater or soils underneath the same by the Sublessee or
the Entities occurring at any time prior to the expiration or sooner
termination of the term of this Sublease and vacation of the Premises by
Sublessee, at its sole cost, shall (1) perform all investigations, cleanup and
other response actions in, on, or about the Premises which may be required to
Sublessee or Sublessor by any governmental authority, and (2) remove and
dispose of all such Hazardous Materials located in, on, or about the Premises.
All actions by Sublessee pursuant to the preceding sentence shall be taken in
full compliance with all Environmental Laws. Without limiting the generality of
the foregoing, Sublessee shall at its sole cost: (1) at all times use, handle,
generate, store transport, and dispose of Hazardous Materials in compliance
with all Environmental Laws; (2) make any and all improvements to the Premises
necessary to assure the lawful and safe use, handling, generation, storage,
transportation, and disposal of Hazardous Materials; and (3) ensure that valid
permits have been obtained and maintained as required by all Environmental Laws
concerning the activities of Sublessee and its agents, employees, contractors,
sublessees and invitees. Sublessee will have no liability for any pre-existing
environmental condition or condition caused by the Sublessor. Sublessor will be
responsible for compliance with all environmental laws with respect to the
balance of the leased premises. Sublessee's obligations to remove and dispose
of hazardous materials will be limited to those materials placed on the
Subleased Premises by Sublessee.

15.  INDEMNITY. Sublessee hereby indemnifies and agrees to protect, defend and
hold harmless Sublessor, its members, partners, directors, employees, assigns,
lenders, successors, agents, representatives, and their respective insurers from
and against all costs (including, but not limited to, environmental response
costs), expenses, claims, judgments, losses, demands, liabilities, causes of
action, governmental directives, proceedings and hearings, including attorneys'
experts' fees and costs, relating to the transport, use, storage, maintenance,
generation, manufacture, handling, discharge, release or disposal of Hazardous
Materials by Sublessee or any other Entities in or on the Premises or in the
groundwater or soils underneath the same occurring at any time prior to the
expiration or sooner termination of the term of this Sublease and vacation of
the Premises by the Sublessee, and/or relating to the breach of any of the
obligations of

<PAGE>
Sublessee under this Paragraph 19. Without limiting the foregoing, in the event
Hazardous Materials exist in or on the Premises, or, in the groundwater or
soils underneath the Premises by the Sublessee or the Entities, Sublessee shall
reimburse Sublessor for (i) losses in or reductions to rental income, and (ii)
any diminution in the fair market value of the Premises or other affected
property. Sublessor indemnifies and holds Sublessee harmless from all
pre-existing environmental conditions, conditions caused by the Sublessor and
any conditions in, on or under the balance of the Leased Premises.

16. MAINTENANCE AND REPAIR. Sublessee's obligation to repair and maintain the
subleases Premises shall include the obligation to replace where necessitated
due to the actions or negligence of Sublessee.

17. SURRENDER. In addition to any obligations Sublessee may have regarding
Hazardous Materials upon expiration or sooner termination of the term of the
Sublease as set forth in Paragraph 19 above, Sublessee shall surrender the
Premises to Sublessor on the last day of the term of this Sublease, or on any
sooner termination, with all interior walls cleaned, all interior painted
surfaces repainted in the original color, or holes in walls repaired, all
carpets shampooed and cleaned, and all floors cleaned and waxed.

On the expiration date or sooner termination of the term, Sublessee will
deliver to Sublessor all keys to the Subleased Premises which are in its
possession and/or control, will quit and surrender the Subleased Premises to
Sublessor in good condition and repair, reasonable wear and tear excepted.

18. The following provisions should be added to the sublease as new sections:

      (a) Sublessor and Sublessee represent on to the other that neither party
has dealt with any other real estate brokerage firm with regard to the leasing
of the Subleased Premises pursuant to the terms of this Sublease. Each party
agrees to indemnify the other against any and all liability, cost, claim or
expense including, but not limited to attorneys' fees and expenses, arising out
of claims or demands from any party for brokerage commission brought against
such party in connection with or respect of this Sublease.

      (b) Sublessor represents that Sublessor has not received a notice of
default or termination of the Master Lease nor has any event occurred which,
with the passage of time, would constitute a default under the Master Lease.

      (c) If Sublessor, at any time during the term of this Sublease, shall
fail to pay such charges for which Sublessor is responsible under the Master
Lease or this Sublease or shall fail to perform any covenants or agreement in
this Sublease contained on the part of Sublessor to be performed, then, and
in any such event or events Sublessee may, after the continuance of any such
failure or default for ten (10) days after notice in writing thereof is given
by Sublessee to Sublessor, make such payments and do such work and otherwise
perform Sublessor's covenants all on behalf of and at the expense of Sublessor.

<PAGE>
The Sublessor agrees to pay to Sublessee forthwith the amount of the payment so
made or the cost and expense incurred, failing which Sublessor agrees that
Sublessee may deduct the amount thereof out of the rental payments and other
payments thereafter becoming due to Sublessor pursuant to the provisions of this
Sublease, without liability or forfeiture, and may apply the same to payment of
such indebtedness of Sublessor to Sublessee until such indebtedness is fully
paid as herein provided.

     (d)  Sublessor shall arrange with the Landlord spaces on the Building
directory for use by Sublessee.

     (e)  Sublessor should waive all rights it may have, including any
statutory lien, to Sublessee's personal property, including without limitation,
Sublessee's inventory, trade fixtures and equipment, and Sublessor agrees to
request that the Landlord agree to such a waiver.

19. ASSIGNMENT OF SUBLEASE, SUBLETTING AND DEFAULT.

19.1 Sublessor hereby assigns and transfers to Master Lessor the Sublessor's
interest in this Sublease and all rentals and income arising therefrom, subject
however to the terms of Paragraph 8.2 hereof.

19.2 Master Lessor, by executing this document, agrees that until a default
shall occur in the performance of Sublessor's Obligations under the Master
Lease, that Sublessor may receive, collects and enjoy the rents accruing under
this Sublease. However, if Sublessor shall default in the performance of its
obligations to Master Lessor then Master Lessor may, at its option, receive
and collect, directly from Sublessee, all rent owing and to be owed under this
Sublease. Master Lessor shall not, by reason of this assignment of the Sublease
nor by reason of the collection of the rents from the Sublessee, be deemed
liable to Sublessee for any failure of the Sublessor to perform and comply with
Sublessor's Remaining Obligations.

19.3 Sublessor hereby irrevocably authorizes and directs Sublessee, upon
receipt of any written notice from the Master Lessor stating that a default
exists in the performance of Sublessor's obligations under the Master Lease, to
pay to Master Lessor the rents due and to become due under the Sublease.
Sublessor agrees that Sublessee shall have the right to rely upon any such
statement and request from Master Lessor, and Sublessee shall pay such rents to
Master Lessor without any obligation or right to inquire as to whether such
default exists and notwithstanding any notice from or claim from Sublessor to
the contrary and Sublessor shall have no right or claim against Sublessee for
any such rents so paid by Sublessee.

19.4 No changes or modifications shall be made to this Sublease without the
consent of Master Lessor.

19.5 Assignment and Subletting.
<PAGE>
(b)(First paragraph - top of p.9 of Addendum]
Each such assignment or sublease agreement shall recite that it is and shall be
subject and subordinate to the provisions of this Lease, that the assignee or
sublessee accepts such assignments or sublease and agrees to perform all of the
obligations of Lessee hereunder relating to the subleased Premises. In the event
Lessor shall consent to an assignment or sublease, Lessee shall nonetheless
remain primarily liable for all obligations and liabilities of Lessee under this
Lease, including but not limited to the payment of rent. Lessee agrees to
reimburse Lessor upon demand for reasonable attorneys' fees incurred by Lessor
in connection with the negotiation, review, and documentation of any such
requested assignment or subleasing. Lessee hereby stipulates that the foregoing
terms and conditions are reasonable.

If this Sublease has been filled in it has been prepared for submission to your
attorney for his approval. No representation or recommendation is made by the
real estate broker or its agents or employees as to the legal sufficiency, legal
effect, or tax consequences of this Sublease or the transaction relating
thereto.

Executed at Quicksil on
September 25 2002
Address 1971 N. Capitol Ave.
San Jose, Ca. 95132

                                     By: QuickSil, Inc. a California Corporation

                                     /s/ S. Mitchell
                                     -------------------------------------------

                                     Title  Director of Operations
                                            ------------------------------------
                                                       "Sublessor"

                                     By: Measurement Specialties

                                     /s/ J. Victor Chatigny
                                     -------------------------------------------
                                     J. Victor Chatigny

                                     Vice President and General Manager, Sensors
                                     Division
                                                       "Sublessee"<PAGE>
                                                                     EXHIBIT 4.1

NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER 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, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.

                                              Date of Issuance: October 22, 2002

                                                                       $____,000

                            7% CONVERTIBLE DEBENTURE

                              DUE OCTOBER 22, 2005

THIS DEBENTURE is one of a series of duly authorized and issued debentures of
Authentidate Holding Corp., a Delaware corporation, having a principal place of
business at 2165 Technology Drive, Schenectady, New York 12308 (the "Company"),
designated as its 7% Convertible Debentures, due October 22, 2005 in the
aggregate principal amount of $3,700,000 (the "Debentures").

      FOR VALUE RECEIVED, the Company promises to pay to
_____________________________ or its registered assigns (the "Holder"), the
principal sum of $_____________ on October 22, 2005 or such earlier date as the
Debentures are required or permitted to be repaid as provided hereunder (the
"Maturity Date") and to pay interest to the Holder on the aggregate unconverted
and then outstanding principal amount of this Debenture at the rate of 7% per
annum, payable quarterly on March 1, June 1, September 1 and December 1,
beginning on December 1, 2002 and on each Conversion Date (as defined herein)
and on the Maturity Date (each such date, an "Interest Payment Date"), in cash
or shares of Common Stock (as defined in Section 5) at the Interest Conversion
Rate; provided, however, payment in shares of Common Stock may only occur if:
(i) there is an effective Underlying Shares Registration Statement pursuant to
which the Holder is permitted to utilize the prospectus thereunder to resell all
of the shares of Common
<PAGE>
Stock to be issued in lieu of cash (and the Company believes, in good faith,
that such effectiveness will continue uninterrupted for the foreseeable future),
(ii) the Common Stock is listed for trading on a Principal Market (and the
Company believes, in good faith, that trading of the Common Stock on a Principal
Market will continue uninterrupted for the foreseeable future), and (iii) there
is a sufficient number of authorized but unissued and otherwise unreserved
shares of Common Stock for the issuance of all of the share issuable pursuant to
the Transaction Documents, including the shares to be issued for interest in
lieu of cash. The Company may not prepay any portion of the principal amount or
interest on this Debenture without the prior written consent of the Holder.
Subject to the terms and conditions herein, the decision whether to pay interest
hereunder in shares of Common Stock or cash shall be at the discretion of the
Company. Not less than 20 Trading Days (as defined in Section 5) prior to each
Interest Payment Date, the Company shall provide the Holder with written notice
of its election to pay interest hereunder either in cash or shares of Common
Stock (the Company may indicate in such notice that the election contained in
such notice shall continue for later periods until revised). Subject to the
aforementioned conditions, failure to timely provide such written notice shall
be deemed an election by the Company to pay the interest on such Conversion Date
in cash. Interest shall be calculated on the basis of a 360-day year and shall
accrue daily commencing on the Original Issue Date (as defined in Section 5)
until payment in full of the principal sum, together with all accrued and unpaid
interest and other amounts which may become due hereunder, has been made.
Interest hereunder will be paid to the Person (as defined in Section 5) in whose
name this Debenture is registered on the records of the Company regarding
registration and transfers of Debentures (the "Debenture Register"). All overdue
accrued and unpaid interest to be paid hereunder shall entail a late fee at the
rate of 8% per annum (or such lower maximum amount of interest permitted to be
charged under applicable law) ("Late Fee") which will accrue daily, from the
date such interest is due hereunder through and including the date of payment.

      This Debenture is subject to the following additional provisions:

      Section 1. This Debenture is exchangeable for an equal aggregate principal
amount of Debentures of different authorized denominations, as requested by the
Holder surrendering the same. No service charge will be made for such
registration of transfer or exchange.

      Section 2. This Debenture has been issued subject to certain investment
representations of the original Holder set forth in the Purchase Agreement (as
defined in Section 5) and may be transferred or exchanged only in compliance
with the Purchase Agreement and applicable federal and state securities laws and
regulations. Prior to due presentment to the Company for transfer of this
Debenture, the Company and any agent of the Company may treat the Person (as
defined in Section 5) in whose name this Debenture is duly registered on the
Debenture Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Debenture is
overdue, and neither the Company nor any such agent shall be affected by notice
to the contrary.

                                       2
<PAGE>
      Section 3. Events of Default.

            (a) "Event of Default", wherever used herein, means any one of the
      following events (whatever the reason and whether it shall be voluntary or
      involuntary or effected by operation of law or pursuant to any judgment,
      decree or order of any court, or any order, rule or regulation of any
      administrative or governmental body):

                  (i) any default in the payment of the principal of, interest
            (including any Late Fees) on or liquidated damages in respect of,
            any Debentures, as and when the same shall become due and payable
            (whether on a Conversion Date or the Maturity Date or by
            acceleration or otherwise) which default is not cured, if possible
            to cure, within 3 days of notice of such default sent by the Holder;

                  (ii) the Company shall fail to observe or perform any other
            covenant, agreement or warranty contained in, or otherwise commit
            any breach of any of the Transaction Documents (as defined in
            Section 5)(other than a breach by the Company of its obligations to
            deliver shares of Common Stock to the Holder upon conversion or
            interest payment which breach is addressed in clause (x) below)
            which is not cured, if possible to cure, within 5 days of notice of
            such default sent by the Holder (except with respect to breaches
            pursuant to Sections 4.1, 4.8 and 4.9 of the Purchase Agreement and
            Section 3(a) of the Warrant);

                  (iii) the Company or any of its subsidiaries shall commence,
            or there shall be commenced against the Company or any such
            subsidiary a case under any applicable bankruptcy or insolvency laws
            as now or hereafter in effect or any successor thereto, or the
            Company commences any other proceeding under any reorganization,
            arrangement, adjustment of debt, relief of debtors, dissolution,
            insolvency or liquidation or similar law of any jurisdiction whether
            now or hereafter in effect relating to the Company or any subsidiary
            thereof or there is commenced against the Company or any subsidiary
            thereof any such bankruptcy, insolvency or other proceeding which
            remains undismissed for a period of 60 days; or 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; or the Company or any subsidiary thereof suffers any
            appointment of any custodian or the like for it or any substantial
            part of its property which continues undischarged or unstayed for a
            period of 60 days; or the Company or any subsidiary thereof makes a
            general assignment for the benefit of creditors; or the Company
            shall fail to pay, or shall state that it is unable to pay, or shall
            be unable to pay, its debts generally as they become due; or the
            Company or any subsidiary thereof shall call a meeting of its
            creditors with a view to arranging a composition, adjustment or
            restructuring of its debts; or the Company or any subsidiary thereof
            shall by any act or failure to act expressly indicate its consent
            to, approval of or acquiescence in any of the foregoing; or any

                                       3
<PAGE>
            corporate or other action is taken by the Company or any subsidiary
            thereof for the purpose of effecting any of the foregoing;

                  (iv) the Company shall default in any of its obligations under
            any other Debenture or any mortgage, credit agreement or other
            facility, indenture agreement, factoring agreement or other
            instrument under which there may be issued, or by which there may be
            secured or evidenced any indebtedness for borrowed money or money
            due under any long term leasing or factoring arrangement of the
            Company in an amount exceeding $150,000, whether such indebtedness
            now exists or shall hereafter be created and such default shall
            result in such indebtedness becoming or being declared due and
            payable prior to the date on which it would otherwise become due and
            payable;

                  (v) the Common Stock shall not be eligible for quotation on or
            quoted for trading on the Nasdaq SmallCap Market, New York Stock
            Exchange, American Stock Exchange or the Nasdaq National Market
            (each, a "Principal Market") and shall not again be eligible for and
            quoted or listed for trading thereon within five Trading Days;

                  (vi) the Company shall be a party to any Change of Control
            Transaction (as defined in Section 5), shall agree to sell or
            dispose all or in excess of 33% of its assets in one or more
            transactions (whether or not such sale would constitute a Change of
            Control Transaction)(other than a sale of the stock or assets of DJS
            Marketing Group, Inc.), or shall redeem or repurchase more than 2%
            of its outstanding shares of Common Stock or other equity securities
            of the Company (other than redemptions of Underlying Shares (as
            defined in Section 5));

                  (vii) an Underlying Shares Registration Statement (as defined
            in Section 5) shall not have been declared effective by the
            Commission (as defined in Section 5) on or prior to the 180th
            calendar day after the Original Issue Date;

                  (viii) if, during the Effectiveness Period (as defined in the
            Registration Rights Agreement (as defined in Section 5)), the
            effectiveness of the Underlying Shares Registration Statement lapses
            for any reason or the Holder shall not be permitted to resell
            Registrable Securities (as defined in the Registration Rights
            Agreement) under the Underlying Shares Registration Statement, in
            either case, for more than 10 consecutive Trading Days or 20
            non-consecutive Trading Days during any 12 month period; provided,
            however, that in the event that the Company is negotiating a merger,
            consolidation, acquisition or sale of all or substantially all of
            its assets or a similar transaction and in the written opinion of
            counsel to the Company, the underlying Shares Registration
            Statement, would be required to be amended to include information
            concerning such transactions or the parties thereto that is not
            available or may not be publicly disclosed at the time, the Company
            shall

                                       4
<PAGE>
            be permitted an additional 10 non-consecutive Trading Days during
            any 12 month period relating to such an event;

                  (ix) an Event (as defined in the Registration Rights
            Agreement) shall not have been cured to the satisfaction of the
            Holder prior to the expiration of thirty days from the Event Date
            (as defined in the Registration Rights Agreement) relating thereto
            (other than an Event resulting from a failure of an Underlying
            Shares Registration Statement to be declared effective by the
            Commission on or prior to the 120th calendar day after the Original
            Issue Date, which shall be covered by Section 3(a)(vii));

                  (x) the Company shall fail for any reason to deliver
            certificates to a Holder prior to the seventh Trading Day after a
            Conversion Date pursuant to and in accordance with Section 4(b) or
            the Company shall provide notice to the Holder, including by way of
            public announcement, at any time, of its intention not to comply
            with requests for conversions of any Debentures in accordance with
            the terms hereof; or

                  (xi) the Company shall fail for any reason to deliver the
            payment in cash pursuant to a Buy-In (as defined herein) within
            seven days after notice thereof is delivered hereunder.

            (b) If any Event of Default occurs and is continuing, the full
principal amount of this Debenture (and, at the Holder's option, all other
Debentures then held by such Holder), together with interest and other amounts
owing in respect thereof, to the date of acceleration shall become at the
Holder's election, immediately due and payable in cash. The aggregate amount
payable upon an Event of Default shall be equal to the Mandatory Prepayment
Amount (as defined in Section 5). Interest shall accrue on the Mandatory
Prepayment Amount hereunder from the 5th day after such amount is due (being the
date of an Event of Default) through the date of prepayment in full thereof in
an amount equal to the Late Fee, to accrue daily from the date such payment is
due hereunder through and including the date of payment. All Debentures for
which the full prepayment price hereunder shall have been paid in accordance
herewith shall promptly be surrendered to or as directed by the Company. 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 and the Holder shall have all rights as a Debenture holder until such
time, if any, as the full payment under this Section shall have been received by
it. No such rescission or annulment shall affect any subsequent Event of Default
or impair any right consequent thereon.

      Section 4. Conversion.

                                       5
<PAGE>

      (a) (i) At any time after the Closing Date, this Debenture shall be
      convertible into shares of Common Stock at the option of the Holder, in
      whole or in part at any time and from time to time (subject to the
      limitations on conversion set forth in Section 4(a)(ii) hereof). The
      Holder shall effect conversions by delivering to the Company the form of
      conversion notice attached hereto as Annex A (a "Conversion Notice"),
      specifying therein the principal amount of Debentures to be converted and
      the date on which such conversion is to be effected (a "Conversion Date")
      and shall contain a completed schedule in the form of Schedule 1 to the
      Conversion Notice (as amended on each Conversion Date, the "Conversion
      Schedule") reflecting the remaining principal amount of this Debenture and
      all accrued and unpaid interest thereon subsequent to the conversion at
      issue. If no Conversion Date is specified in a Conversion Notice, the
      Conversion Date shall be the date that such Conversion Notice is provided
      hereunder. To effect conversions hereunder, the Holder shall not be
      required to physically surrender Debentures to the Company unless the
      entire principal amount of this Debenture has been so converted.
      Conversions hereunder shall have the effect of lowering the outstanding
      principal amount of this Debenture plus all accrued and unpaid interest
      thereon in an amount equal to the applicable conversion, which shall be
      evidenced by entries set forth in the Conversion Schedule. The Holder and
      the Company shall maintain records showing the principal amount converted
      and the date of such conversions. The Company shall deliver any objection
      to the figures represented in the Conversion Schedules within 1 Business
      Day of receipt of such notice. In the event of any dispute or discrepancy,
      the records of the Holder shall be controlling and determinative in the
      absence of manifest error. The Holder and any assignee, by acceptance of
      this Debenture, acknowledge and agree that, by reason of the provisions of
      this paragraph, following conversion of a portion of this Debenture, the
      unpaid and unconverted principal amount of this Debenture may be less than
      the amount stated on the face hereof. The Holder shall provide to each and
      any assignee a copy of the Conversion Schedule and shall provide the
      Company with proof of delivery of such Conversion Schedule.

            (ii)  Certain Conversion Restrictions.

                  (A)   A Holder may not convert Debentures or receive shares of
                        Common Stock as payment of interest hereunder to the
                        extent such conversion or receipt of such interest
                        payment would result in the Holder, together with its
                        affiliates, beneficially owning (as determined in
                        accordance with Section 13(d) of the Exchange Act and
                        the rules promulgated thereunder) in excess of 4.999% of
                        the then issued and outstanding shares of Common Stock,
                        including shares issuable upon conversion of, and
                        payment of interest on, the Debentures held by such
                        Holder after application of this Section. To ensure
                        compliance with this restriction, the Holder will be
                        deemed to

                                       6
<PAGE>
                        represent to the Company each time it delivers a
                        Conversion Notice that such Conversion Notice has not
                        violated the restrictions set forth in this paragraph.
                        If the Holder has delivered a Conversion Notice for a
                        principal amount of Debentures that, without regard to
                        any other shares that the Holder or its affiliates may
                        beneficially own, would result in the issuance in excess
                        of the permitted amount hereunder, the Company shall
                        notify the Holder of this fact and shall honor the
                        conversion for the maximum principal amount permitted to
                        be converted on such Conversion Date in accordance with
                        the periods described in Section 4(b) and, at the option
                        of the Holder, either retain any principal amount
                        tendered for conversion in excess of the permitted
                        amount hereunder for future conversions or return such
                        excess principal amount to the Holder. In the event of a
                        merger or consolidation of the Company with or into
                        another Person, this paragraph shall not apply with
                        respect to a determination of the number of shares of
                        common stock issuable upon conversion in full of the
                        Debentures if such determination is necessary to
                        establish the Securities or other assets which the
                        holder of Common Stock shall be entitled to receive upon
                        the effectiveness of such merger or consolidation.
                        Notwithstanding the foregoing, the Company shall be
                        allowed to complete a Forced Conversion as contemplated
                        in Section 4a.(iv) hereof regardless of the number of
                        shares owned by Purchaser.

                  (B)   If the Company has not obtained Shareholder Approval (as
                        defined below), then the Company may not issue upon
                        conversion of the Debentures, in the aggregate, in
                        excess of 19.999% of the number of shares of Common
                        Stock outstanding on the Trading Day immediately
                        preceding the Original Issue Date, less any shares of
                        Common Stock issued upon exercise of the Warrants issued
                        Holders of the Debentures on the Original Issue Date
                        pursuant to the Purchase Agreement (such number of
                        shares, the "Issuable Maximum"). Each Holder shall be
                        entitled to a portion of the Issuable Maximum equal to
                        the quotient obtained by dividing (x) the aggregate
                        principal amount of the Debenture(s) issued and sold to
                        such Holder on the Original Issue Date by (y) the number
                        of the Debenture aggregate principal amount of all
                        Debentures issued and sold by the Company on the
                        Original Issue Date. If any Holder shall no longer hold
                        the Debenture(s), then such Holder's remaining portion
                        of the

                                       7

<PAGE>
                        Issuable Maximum shall be allocated pro-rata among the
                        remaining Holders. If on any Conversion Date: (A) the
                        applicable conversion price then in effect is such that
                        the shares issuable under this Debenture on any
                        Conversion Date together with the aggregate number of
                        shares of Common Stock that would then be issuable upon
                        conversion in full of all then outstanding Debentures,
                        together with any shares of Common Stock previously
                        issued upon conversion of the Debenture theretofore
                        issuable under the Debentures and Warrants would exceed
                        the Issuable Maximum, and (B) the Company shall not have
                        previously obtained the vote of shareholders (the
                        "Shareholder Approval"), if any, as may be required by
                        the applicable rules and regulations of the Nasdaq
                        National Stock Market (or any successor entity)
                        applicable to approve the issuance of shares of Common
                        Stock in excess of the Issuable Maximum pursuant to the
                        terms hereof, then the Company shall issue to the Holder
                        requesting a conversion a number of shares of Common
                        Stock equal to such Holder's pro-rata portion (which
                        shall be calculated pursuant to the terms hereof) of the
                        Issuable Maximum and, with respect to the remainder of
                        the aggregate principal amount of the Debentures
                        (including any interest that shall have been added to
                        the principal amount pursuant to and in accordance with
                        Section 6(c)) then held by such Holder for which a
                        conversion in accordance with the applicable conversion
                        price would result in an issuance of shares of Common
                        Stock in excess of such Holder's pro-rata portion (which
                        shall be calculated pursuant to the terms hereof) of the
                        Issuable Maximum (the "Excess Principal"), the
                        converting Holder may require the Company to elect to
                        either: (1) use its best efforts to obtain the
                        Shareholder Approval applicable to such issuance as soon
                        as is possible, but in any event not later than the 90th
                        day after the date in which the Company determines (or
                        is notified by the Holder) that the Issuable Maximum
                        would be exceeded, or (2) by the tenth Trading Day
                        following such election or failure to timely elect, as
                        the case may be, pay cash to the converting Holder in an
                        amount equal to 100% of the principal amount for the
                        Excess Principal. The Company must make its election by
                        written notice to the Holders by the fifth Trading Day
                        after the date that the Company determines (or is
                        notified by the Holder) that the Issuable Maximum would
                        be exceeded. Failure to timely elect to seek Shareholder
                        Approval under this Section

                                       8
<PAGE>
                        shall be deemed an election by the Company to pay the
                        Mandatory Prepayment Amount for the Excess Principal in
                        cash. If the Company shall have elected the first option
                        pursuant to the immediately preceding sentence and the
                        Company shall have failed to obtain the Shareholder
                        Approval on or prior to the 90th day after the date in
                        which the Company determines (or is notified by a
                        Holder) that the Issuable Maximum would be exceeded,
                        then within three days of such 90th day, the Company
                        shall pay cash to the converting Holder an amount equal
                        to 100% of the principal amount for the Excess
                        Principal. If the Company fails to pay the Prepayment
                        Amount for the Excess Principal in full pursuant to this
                        Section after the date payable, the Company will pay
                        interest thereon at a rate of 7% per annum or such
                        lesser maximum amount that is permitted to be paid by
                        applicable law, to the converting Holder, accruing daily
                        from the date such payment is due until such amount,
                        plus all such interest thereon, is paid in full. The
                        Company and the Holder understand and agree that shares
                        of Common Stock issued to and then held by the Holder as
                        a result of conversions of Debentures shall not be
                        entitled to cast votes on any resolution to obtain
                        Shareholder Approval pursuant hereto.

            (iii) Underlying Shares Issuable Upon Conversion and Pursuant to
Interest.

                  (A)   Conversion of Principal Amount. The number of shares of
                        Common Stock issuable upon a conversion shall be
                        determined by the quotient obtained by dividing (x) the
                        outstanding principal amount of this Debenture to be
                        converted and (y) the Conversion Price, and

                  (B)   Payment of Interest in Underlying Shares. The number of
                        shares of Common Stock issuable upon payment of interest
                        under this Debenture shall be the number determined by
                        (x) the product of (I) the outstanding principal amount
                        of this Debenture to be converted and (II) the product
                        of (aa) the quotient obtained by dividing 7% by 360 and
                        (bb) the number of days for which such principal amount
                        was outstanding, divided by (y) the applicable Interest
                        Conversion Rate, provided, that if the Company shall
                        have elected to pay the interest due on an Interest
                        Payment Date in cash pursuant to the terms hereof,
                        subsection (2) shall not be used in the

                                       9
<PAGE>
                        calculation of the number of shares of Common Stock
                        issuable upon a conversion hereunder.

                  (B)   Notwithstanding anything to the contrary contained
            herein, if on any Conversion Date:

                        (1) the number of shares of Common Stock at the time
                  authorized, unissued and unreserved for all purposes, or held
                  as treasury stock, is insufficient to pay interest hereunder
                  in shares of Common Stock, unless the Company pays interest in
                  cash;

                        (2) such shares of Common Stock to be paid as interest:
                  (x) are not registered for resale pursuant to an effective
                  Underlying Shares Registration Statement and (y) may not be
                  sold immediately pursuant to Rule 144 promulgated under the
                  Securities Act;

                        (3) the Common Stock shall fail to be listed or quoted
                  for trading on a Principal Market; or

                        (4) the Company has failed to timely satisfy its
                  conversion obligations hereunder.

                  then, at the option of the Holder, the Company, in lieu of
            delivering shares of Common Stock pursuant to this Section 4, shall
            deliver, within seven Trading Days of each applicable Conversion
            Date, an amount in cash equal to the product of the number of shares
            of Common Stock otherwise deliverable to the Holder in connection
            with such Conversion Date and the highest VWAP during the period
            commencing on the Conversion Date and ending on the Trading Day
            prior to the date such payment is made.

            (b) (i) Not later than seven Trading Days after any Conversion Date,
            the Company will deliver to the Holder (A) a certificate or
            certificates for the Shares of Common Stock which shall be free of
            restrictive legends and trading restrictions (other than those
            required by the Purchase Agreement) representing the number of
            shares of Common Stock being acquired upon the conversion of
            Debentures and (B) a bank check in the amount of accrued and unpaid
            interest (if the Company has timely elected or is required to pay
            accrued interest in cash). The Company shall, upon request of the
            Holder, if available and if allowed under applicable securities
            laws, use its best efforts to deliver any certificate or
            certificates required to be delivered by the Company under this
            Section electronically through the Depository Trust Corporation or
            another established clearing corporation performing similar
            functions. If in the case of any Conversion Notice such certificate
            or certificates are not delivered to or as directed by the
            applicable Holder by the seventh Trading Day

                                       10
<PAGE>
            after a Conversion Date, the Holder shall be entitled by written
            notice to the Company at any time on or before its receipt of such
            certificate or certificates thereafter, to rescind such conversion,
            in which event the Company shall immediately return the certificates
            representing the principal amount of Debentures tendered for
            conversion.

            (ii) If the Company fails for any reason to deliver to the Holder
            such certificate or certificates pursuant to Section 4(b)(i) by the
            seventh Trading Day after the Conversion Date, the Company shall pay
            to such Holder, in cash, as liquidated damages and not as a penalty,
            for each $5,000 of principal amount being converted, $50 per Trading
            Day (increasing to $100 per Trading Day after 3 Trading Days and
            increasing to $200 per Trading Day 6 Trading Days after such damages
            begin to accrue) for each Trading Day after such seventh Trading Day
            until such certificates are delivered. Nothing herein shall limit a
            Holder's right to pursue actual damages or declare an Event of
            Default pursuant to Section 3 herein for the Company's failure to
            deliver certificates representing shares of Common Stock upon
            conversion within the period specified herein and such Holder shall
            have the right to pursue all remedies available to it at law or in
            equity including, without limitation, a decree of specific
            performance and/or injunctive relief. The exercise of any such
            rights shall not prohibit the Holders from seeking to enforce
            damages pursuant to any other Section hereof or under applicable
            law. Notwithstanding anything herein to the contrary, in the event a
            Holder is entitled to collect liquidated damages hereunder and
            liquidated damages pursuant to Section 4.1(c) of the Purchase
            Agreement and/or Section 4(b)(iii) below, the Holder shall be
            limited to collect, at its option, of such remedies, only one such
            remedy on any given occasion.

            (iii) In addition to any other rights available to the Holder, if
            the Company fails for any reason to deliver to the Holder such
            certificate or certificates pursuant to Section 4(b)(i) by the
            seventh Trading Day after the Conversion Date, and if after such
            third Trading Day the Holder is required by its brokerage firm to
            purchase (in an open market transaction or otherwise) 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 Common Stock
            so purchased exceeds (y) the product of (1) the aggregate number of
            shares of Common Stock that such Holder anticipated receiving from
            the conversion at issue multiplied by (2) the market price of the
            Common Stock at the time of the sale giving rise to such purchase
            obligation and (B) at the option of the Holder, either reissue
            Debentures in principal amount equal to the principal amount of the
            attempted conversion or deliver to the Holder the number of shares
            of Common Stock that would have been issued had the Company timely
            complied with its delivery requirements under Section 4(b)(i). For
            example, if the

                                       11
<PAGE>
            Holder purchases Common Stock having a total purchase price of
            $11,000 to cover a Buy-In with respect to an attempted conversion of
            Debentures with respect to which the market price of the Underlying
            Shares on the date of conversion was a total of $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. Notwithstanding anything contained herein
            to the contrary, if a Holder requires the Company to make payment in
            respect of a Buy-In for the failure to timely deliver certificates
            hereunder and the Company timely pays in full such payment, the
            Company shall not be required to pay such Holder liquidated damages
            under Section 4(b)(ii) in respect of the certificates resulting in
            such Buy-In. Notwithstanding anything to the contrary herein, in the
            event a Holder is entitled to collect liquidated damages hereunder
            and liquidated damages pursuant to Section 4.1(d) of the Purchase
            Agreement and/or Section 4(b)(ii) above, the Holder shall be limited
            to collect, at its option, of such remedies, only one such remedy on
            any given occasion.

            (iv) Notwithstanding anything herein to the contrary, if after the
            Effective Date the VWAP for any 15 consecutive Trading Days exceeds
            150% of the then effective Set Price, the Company may, within 2
            Trading Days of any such period, deliver a notice to the Holder (a
            "Forced Conversion Notice" and the date such notice is received by
            the Holder, the "Forced Conversion Notice Date") to cause the Holder
            to immediately convert all or part of the then outstanding principal
            amount of Debentures pursuant to Section 4(a)(i) and the Holder
            shall surrender (if the entire Debenture is converted) this
            Debenture to the Company for conversion within 5 Trading Days of the
            Forced Conversion Notice Date. The Company may only effect a Forced
            Conversion Notice if each of the following shall be true: (i) the
            Company shall have duly honored all conversions occurring by virtue
            of one or more Conversion Notices prior to the Forced Conversion
            Date, (ii) there is an effective Underlying Shares Registration
            Statement pursuant to which the Holder is permitted to utilize the
            prospectus thereunder to resell all of the Underlying Shares issued
            to the Holder and all of the Underlying Shares as are issuable to
            the Holder upon conversion in full of this Debenture subject to the
            Forced Conversion Notice (and the Company believes, in good faith,
            that such effectiveness will continue uninterrupted for the
            foreseeable future), (iii) the Common Stock is listed for trading on
            a Principal Market (and the Company believes, in good faith, that
            trading of the Common Stock on a Principal Market will continue
            uninterrupted for the foreseeable future), (iv) all liquidated
            damages and other amounts owing in respect of the Debentures and
            Underlying Shares shall have been paid or will, concurrently with
            the issuance of the Underlying Shares, be paid in cash; (v) there is
            a sufficient number of authorized but unissued and otherwise
            unreserved shares of Common Stock for the issuance of all the
            Underlying Shares as are issuable to the Holder upon conversion in
            full of the Debentures subject to the Forced Conversion Notice; (vi)
            no Event of Default nor any event that with the passage of time
            would constitute an Event of Default has occurred

                                       12
<PAGE>
            and is continuing; and (vii) no public announcement of a pending or
            proposed Change of Control Transaction or Fundamental Transaction
            has occurred that has not been consummated.

            (c) (i) The conversion price in effect on any Conversion Date shall
            be equal to $2.50 (subject to adjustment herein)(the "Set Price").

            (ii) If the Company, at any time while the Debentures are
            outstanding: (A) shall pay a stock dividend or otherwise make a
            distribution or distributions on shares of its Common Stock or any
            other equity or equity equivalent securities payable in shares of
            Common Stock, (B) subdivide outstanding shares of Common Stock into
            a larger number of shares, (C) combine (including by way of reverse
            stock split) outstanding shares of Common Stock into a smaller
            number of shares, or (D) issue by reclassification of shares of the
            Common Stock any shares of capital stock of the Company, then the
            Set Price shall be multiplied by a fraction of which the numerator
            shall be the number of shares of Common Stock (excluding treasury
            shares, if any) outstanding before such event and of which the
            denominator shall be the number of shares of Common Stock
            outstanding after such event. Any adjustment made pursuant to this
            Section shall become effective immediately after the record date for
            the determination of stockholders entitled to receive such dividend
            or distribution and shall become effective immediately after the
            effective date in the case of a subdivision, combination or
            re-classification.

            (iii) If the Company, at any time while Debentures are outstanding,
            shall issue rights, options or warrants to all holders of Common
            Stock (and not to Holders) entitling them to subscribe for or
            purchase shares of Common Stock at a price per share less than the
            VWAP at the record date mentioned below, then the Set Price shall be
            multiplied by a fraction, of which the denominator shall be the
            number of shares of the Common Stock (excluding treasury shares, if
            any) outstanding on the date of issuance of such rights or warrants
            plus the number of additional shares of Common Stock offered for
            subscription or purchase, and of which the numerator shall be the
            number of shares of the Common Stock (excluding treasury shares, if
            any) outstanding on the date of issuance of such rights or warrants
            plus the number of shares which the aggregate offering price of the
            total number of shares so offered would purchase at such VWAP. Such
            adjustment shall be made whenever such rights or warrants are
            issued, and shall become effective immediately after the record date
            for the determination of stockholders entitled to receive such
            rights, options or warrants.

            (iv) If the Company or any subsidiary thereof, as applicable, at any
            time while Debentures are outstanding, shall offer, sell, grant any
            option to purchase or offer, sell or grant any right to reprice its
            securities, or otherwise dispose of or issue (or announce any offer,
            sale, grant or any option to purchase or other disposition) any

                                       13
<PAGE>
            Common Stock or any equity or equity equivalent securities
            (including any equity, debt or other instrument that is at any time
            over the life thereof convertible into or exchangeable for Common
            Stock) (collectively, "Common Stock Equivalents") entitling any
            Person to acquire shares of Common Stock, at a price per share less
            than the Set Price ("Dilutive Issuance"), as adjusted hereunder (if
            the holder of the Common Stock or Common Stock Equivalent so issued
            shall at any time, whether by operation of purchase price
            adjustments, reset provisions, floating conversion, exercise or
            exchange prices or otherwise, or due to warrants, options or rights
            per share which is issued in connection with such issuance, be
            entitled to receive shares of Common Stock at a price per share
            which is less than the Set Price, such issuance shall be deemed to
            have occurred for less than the Set Price), then, the Set Price
            shall be reduced by multiplying the Set Price by a fraction, the
            numerator of which is the number of shares of Common Stock
            outstanding immediately prior to the Dilutive Issuance plus the
            number of shares of Common Stock which the offering price for such
            Dilutive Issuance would purchase at the Set Price, and the
            denominator of which shall be the sum of the number of shares of
            Common Stock outstanding immediately prior to the Dilutive Issuance
            plus the number of shares of Common Stock so issued or issuable in
            connection with the Dilutive Issuance. Such adjustment shall be made
            whenever such Common Stock or Common Stock Equivalents are issued.
            The Company shall notify the Holder in writing, no later than the
            business day following the issuance of any Common Stock or Common
            Stock Equivalent subject to this section, indicating therein the
            applicable issuance price, or of applicable reset price, exchange
            price, conversion price and other pricing terms. Notwithstanding the
            foregoing, no adjustment will be made under this sub section (iv) in
            respect of (A) the granting of options to employees, officers and
            directors of the Company pursuant to any stock option plan duly
            adopted by the Company or to the issuance of Common Stock upon
            exercise of such options or (B) the issuance of up to 100,000 shares
            of Common Stock, in the aggregate, to consultants or advisors to the
            Company for services to be rendered to the Company by such
            consultants or advisors or (C) Convertible Securities outstanding as
            of October 1, 2002.

            (v) If the Company, at any time while 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
            Set Price shall be determined by multiplying such 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 VWAP determined as of the record
            date mentioned above, and of which the numerator shall be such VWAP
            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 the 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

                                       14
<PAGE>
            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.

            (vi) 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, the Holders shall
            have the right thereafter to, at their option, (A) convert the then
            outstanding principal amount, together with all accrued but unpaid
            interest and any other amounts then owing hereunder in respect of
            this Debenture only into the shares of stock and other securities,
            cash and property receivable upon or deemed to be held by holders of
            the Common Stock following such reclassification or share exchange,
            and the Holders of the Debentures shall be entitled upon such event
            to receive such amount of securities, cash or property as the shares
            of the Common Stock of the Company into which the then outstanding
            principal amount, together with all accrued but unpaid interest and
            any other amounts then owing hereunder in respect of this Debenture
            could have been converted immediately prior to such reclassification
            or share exchange would have been entitled or (B) require the
            Company to prepay the aggregate of its outstanding principal amount
            of Debentures, plus all interest and other amounts due and payable
            thereon, at a price determined in accordance with Section 3(b). The
            entire prepayment price shall be paid in cash. This provision shall
            similarly apply to successive reclassifications or share exchanges.

            (vii) All calculations under this Section 4 shall be made to the
            nearest cent or the nearest 1/100th of a share, as the case may be.

            (viii) Whenever the Set Price is adjusted pursuant to any of Section
            4(c)(ii) - (v), the Company shall promptly mail to each Holder a
            notice setting forth the Set Price after such adjustment and setting
            forth a brief statement of the facts requiring such adjustment.

            (ix) 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 the 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 reclassification of the Common Stock, any
            consolidation or merger to which the Company is a party, any sale or
            transfer of all or substantially all of the assets of the Company,
            of any compulsory share exchange whereby the Common Stock is
            converted into other securities, cash or property; (E) the Company
            shall authorize the voluntary or involuntary dissolution,
            liquidation or winding up of the affairs of the Company; then, in
            each case, the Company shall cause to be filed at each office or

                                       15
<PAGE>
            agency maintained for the purpose of conversion of the Debentures,
            and shall cause to be mailed to 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 the Common Stock of
            record to be entitled to such dividend, distributions, redemption,
            rights or warrants are to be determined or (y) the date on which
            such reclassification, consolidation, merger, sale, transfer or
            share exchange is expected to become effective or close, and the
            date as of which it is expected that holders of the Common Stock of
            record shall be entitled to exchange their shares of the Common
            Stock for securities, cash or other property deliverable upon such
            reclassification, consolidation, merger, sale, transfer or share
            exchange; provided, that the failure to mail such notice or any
            defect therein or in the mailing thereof shall not affect the
            validity of the corporate action required to be specified in such
            notice. Holders are entitled to convert Debentures during the 20-day
            period commencing the date of such notice to the effective date of
            the event triggering such notice.

            (x) Fundamental Transactions. If, at any time while this Debenture
            is outstanding, (A) the Company effects any merger or consolidation
            of the Company with or into another Person, (B) the Company effects
            any sale of all or substantially all of its assets in one or a
            series of related transactions (other than the sale of capital stock
            or assets of DJS Marketing Group, Inc.), (C) 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 (D) 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 upon any subsequent conversion of this
            Debenture, the Holder shall have the right to receive, for each
            Underlying Share that would have been issuable upon such conversion
            absent such Fundamental Transaction, the same kind and amount 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 one share of Common Stock (the "Alternate Consideration").
            For purposes of any such conversion, 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

                                       16
<PAGE>
            choice as to the Alternate Consideration it receives upon any
            conversion of this Debenture following such Fundamental Transaction.
            To the extent necessary to effectuate the foregoing provisions, any
            successor to the Company or surviving entity in such Fundamental
            Transaction shall issue to the Holder a new debenture consistent
            with the foregoing provisions and evidencing the Holder's right to
            convert such debenture into Alternate Consideration. 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 (c)
            and insuring that this Debenture (or any such replacement security)
            will be similarly adjusted upon any subsequent transaction analogous
            to a Fundamental Transaction. If any Fundamental Transaction
            constitutes or results in a Change of Control Transaction, then at
            the request of the Holder delivered before the 90th day after such
            Fundamental Transaction, the Company (or any such successor or
            surviving entity) will purchase the 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 120% of the remaining unconverted
            principal amount of this Debenture on the date of such request, plus
            all accrued and unpaid interest thereon, plus all other accrued and
            unpaid amounts due hereunder.

            (xi) Notwithstanding the foregoing, no adjustment will be made under
            this paragraph (c) in respect of (A) the granting of options to
            employees, officers and directors of the Company pursuant to any
            stock option plan duly adopted by a majority of the non-employee
            members of the Board of Directors of the Company or a majority of
            the members of a committee of non-employee directors established for
            such purpose, (B) the issuance of up to 100,000 shares of Common
            Stock, in the aggregate, to consultants or advisors to the Company
            for services to be rendered to the Company by such consultants or
            advisors, (C) upon the exercise of this Debenture or any other
            Debenture of this series or of any other series or security issued
            by the Company in connection with the offer and sale of this
            Company's securities pursuant to the Purchase Agreement, or (D) upon
            the exercise of or conversion of any Convertible Securities, options
            or warrants issued and outstanding on the Original Issue Date.

            (e) 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 the Debentures and payment
      of interest on the 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 the
      Common Stock as shall (subject to any additional requirements of the
      Company as to reservation of such shares set forth in the Purchase
      Agreement) be issuable (taking into account the adjustments and
      restrictions of Section 4(b)) upon the conversion of the outstanding
      principal amount of the Debentures and payment of interest hereunder. The
      Company covenants that all shares of Common Stock that shall be so
      issuable shall, upon issue, be duly and validly authorized, issued and
      fully paid, nonassessable and, if the Underlying Shares Registration
      Statement has

                                       17
<PAGE>
      been declared effective under the Securities Act, registered for public
      sale in accordance with such Underlying Shares Registration Statement.

            (f) Upon a conversion hereunder the Company shall not be required to
      issue stock certificates representing fractions of shares of the Common
      Stock, but may if otherwise permitted, make a cash payment in respect of
      any final fraction of a share based on the VWAP at such time. If the
      Company elects not, or is unable, to make such a cash payment, the Holder
      shall be entitled to receive, in lieu of the final fraction of a share,
      one whole share of Common Stock.

            (g) The issuance of certificates for shares of the Common Stock on
      conversion of the Debentures 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 Debentures so converted and the Company shall not be required to
      issue or deliver such certificates unless or until the person or persons
      requesting the issuance thereof shall have paid to the Company the amount
      of such tax or shall have established to the satisfaction of the Company
      that such tax has been paid.

            (h) Any and all notices or other communications or deliveries to be
      provided by the Holders hereunder, including, without limitation, any
      Conversion Notice, shall be in writing and delivered personally, by
      facsimile, sent by a nationally recognized overnight courier service or
      sent by certified or registered mail, postage prepaid, addressed to the
      Company, at the address set forth above, facsimile number (518) 346-3644,
      Attn: Dennis Bunt or such other address or facsimile number as the Company
      may specify for such purposes by notice to the Holders delivered in
      accordance with this Section. 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, sent by a nationally recognized
      overnight courier service or sent by certified or registered mail, postage
      prepaid, 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
      prior to 5:30 p.m. (New York City time), (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 later than
      5:30 p.m. (New York City time) on any date and earlier than 11:59 p.m.
      (New York City time) on such date, (iii) four days after deposit in the
      United States mail, (iv) the Business Day following the date of mailing,
      if sent by nationally recognized overnight courier service, or (v) upon
      actual receipt by the party to whom such notice is required to be given.
      All notices or other communications or deliveries

                                       18
<PAGE>
      given hereunder, if delivered via facsimile, shall be followed with a copy
      delivered by a U.S. nationally recognized overnight courier service.

      Section 5. Definitions. For the purposes hereof, the following terms shall
have the following meanings:

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

            "Change of Control Transaction" means the occurrence after the date
      hereof 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 within a one year period 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 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). Notwithstanding the foregoing, a "Change of Control Transaction"
      shall not include a sale by the Company of the Company's DJS Marketing
      Group, Inc. subsidiary, whether by way of merger, sale or stock or sale of
      assets.

            "Commission" means the Securities and Exchange Commission.

            "Common Stock" means the common stock, $0.001 par value per share,
      of the Company and stock of any other class into which such shares may
      hereafter have been reclassified or changed.

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

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

            "Interest Conversion Rate" means 93% of the lesser of (i) the
      average of the 15 VWAPs immediately prior to the applicable Interest
      Payment Date or (ii) the average of the 15 VWAPs immediately prior to the
      date the applicable interest payment shares are issued and delivered if
      after the Interest Payment Date.

                                       19
<PAGE>
            "Mandatory Prepayment Amount" for any Debentures shall equal the sum
      of (i) the greater of: (A) 120% of the principal amount of Debentures to
      be prepaid, plus all accrued and unpaid interest thereon, plus all other
      accrued and unpaid amounts due hereunder, or (B) the principal amount of
      Debentures to be prepaid, plus all accrued and unpaid interest thereon,
      plus all other accrued and unpaid amounts due hereunder, divided by the
      Conversion Price on (x) the date the Mandatory Prepayment Amount is
      demanded or otherwise due or (y) the date the Mandatory Prepayment Amount
      is paid in full, whichever is less, multiplied by the VWAP on (x) the date
      the Mandatory Prepayment Amount is demanded or otherwise due 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 Debentures.

            "Original Issue Date" shall mean the date of the first issuance of
      the Debentures regardless of the number of transfers of any Debenture and
      regardless of the number of instruments which may be issued to evidence
      such Debenture.

            "Person" means a corporation, an association, a partnership,
      organization, a business, an individual, a government or political
      subdivision thereof or a governmental agency.

            "Purchase Agreement" means the Securities Purchase Agreement, dated
      as of the Original Issue Date, to which the Company and the original
      Holder 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 the Original Issue Date, to which the Company and
      the original Holder are parties, as amended, modified or supplemented from
      time to time in accordance with its terms.

            "Securities Act" means the Securities Act of 1933, as amended, and
      the rules and regulations promulgated thereunder.

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

            "Trading Day" means (a) a day on which the shares of Common Stock
      are traded on the Principal Market on which the shares of Common Stock are
      then listed or quoted, or (b) if the shares of Common Stock are not quoted
      on a Principal Market, 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.

                                       20
<PAGE>
            "Underlying Shares" means the shares of Common Stock issuable upon
      conversion of Debentures or as payment of interest in accordance with the
      terms hereof.

            "Underlying Shares Registration Statement" means a registration
      statement meeting the requirements set forth in the Registration Rights
      Agreement, covering among other things the resale of the Underlying Shares
      and naming the Holder as a "selling stockholder" thereunder.

            "VWAP" 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 a Principal Market or the OTC Bulletin Board, the daily volume
      weighted average price of the Common Stock for such date (or the nearest
      preceding date) on the Principal Market (or OTC Bulletin Board) on which
      the Common Stock is then listed or quoted as reported by Bloomberg
      Financial L.P. (based on a trading day from 9:30 a.m. ET to 4:02 p.m.
      Eastern Time) using the VAP function; (b) if the Common Stock is not then
      listed or quoted on a Principal Market or the OTC Bulletin Board 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 bid price per share of the Common Stock so reported; or
      (c) in all other cases, the fair market value of a share of Common Stock
      as determined by a nationally recognized independent appraiser selected in
      good faith by Purchasers holding a majority of the outstanding principal
      amount of Debentures.

   Section 6. Except as expressly provided herein, no provision of this
Debenture shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of, interest and liquidated damages (if
any) on, this Debenture at the time, place, and rate, and in the coin or
currency, herein prescribed. This Debenture is a direct obligation of the
Company. This Debenture ranks pari passu with all other Debentures now or
hereafter issued under the terms set forth herein. As long as there are
Debentures outstanding, the Company shall not and shall cause it subsidiaries
not to, without the consent of the Holders, (a) amend its certificate of
incorporation, bylaws or other charter documents so as to adversely affect any
rights of the Holders; (b) repay, repurchase or offer to repay, repurchase or
otherwise acquire shares of its Common Stock or other equity securities other
than as to the Underlying Shares to the extent permitted or required under the
Transaction Documents; or (c) enter into any agreement with respect to any of
the foregoing.

   Section 7. If this Debenture shall be mutilated, lost, stolen or destroyed,
the Company shall execute and deliver, in exchange and substitution for and upon
cancellation of a mutilated Debenture, or in lieu of or in substitution for a
lost, stolen or destroyed debenture, a new Debenture for the principal amount of
this Debenture so mutilated, lost, stolen or destroyed but only upon receipt of
evidence of such loss, theft or destruction of such Debenture, and of the
ownership hereof, and indemnity, if requested, all reasonably satisfactory to
the Company.

                                       21
<PAGE>
   Section 8. No indebtedness of the Company is senior to this Debenture in
right of payment, whether with respect to interest, damages or upon liquidation
or dissolution or otherwise. The Company will not and will not permit any of its
subsidiaries to, directly or indirectly, enter into, create, incur, assume or
suffer to exist any 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 Debentures.

   Section 9. All questions concerning the construction, validity, enforcement
and interpretation of this 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
legal proceedings concerning the interpretations, enforcement and defense of the
transactions contemplated by any of the Transaction Documents (whether brought
against a party hereto or its respective affiliates, directors, officers,
shareholders, employees or agents) shall be commenced 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 the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, or such New York Courts are improper or
inconvenient venue for such proceeding. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or 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 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 arising out of or relating to
this Debenture or the transactions contemplated hereby. If either party shall
commence an action or proceeding to enforce any provisions of this Debenture,
then the prevailing party in such action or proceeding shall be reimbursed by
the other party for its attorneys fees and other costs and expenses incurred
with the investigation, preparation and prosecution of such action or
proceeding.

   Section 10. Any waiver by the Company or the Holder of a breach of any
provision of this Debenture shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Debenture. The failure of the Company or the Holder to insist upon strict
adherence to any term of this Debenture on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Debenture. Any waiver
must be in writing.

   Section 11. If any provision of this Debenture is invalid, illegal or
unenforceable, the balance of this Debenture shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances. If it

                                       22
<PAGE>
shall be found that any interest or other amount deemed interest due hereunder
shall violate applicable laws governing usury, the applicable rate of interest
due hereunder shall automatically be lowered to equal the maximum permitted rate
of interest. The Company covenants (to the extent that it may lawfully do so)
that it shall not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay, extension or usury law or
other law which would prohibit or forgive the Company from paying all or any
portion of the principal of or interest on the Debentures as contemplated
herein, wherever enacted, now or at any time hereafter in force, or which may
affect the covenants or the performance of this indenture, and the Company (to
the extent it may lawfully do so) hereby expressly waives all benefits or
advantage of any such law, and covenants that it will not, by resort to any such
law, hinder, delay or impeded the execution of any power herein granted to the
Holder, but will suffer and permit the execution of every such as though no such
law has been enacted.

   Section 12. Whenever any payment or other obligation hereunder shall be due
on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day.

                              *********************

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

                                    AUTHENTIDATE HOLDING CORP.

                                    By:_____________________________________
                                        Name:
                                        Title:

<PAGE>
                                    ANNEX A

                              NOTICE OF CONVERSION

The undersigned hereby elects to convert principal and, if specified, interest
under the 7% Convertible Debenture of Authentidate Holding Corp., (the
"Company") due on October 22, 2005, into shares of common stock, $0.001 par
value per share (the "Common Stock"), of the Company according to the conditions
hereof, as of the date written below. If shares are to be issued in the name of
a person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto and is delivering herewith such certificates 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.

By the delivery of this Notice of Conversion the undersigned represents and
warrants to the Company that its ownership of the Company's Common Stock does
not exceed the amounts determined in accordance with Section 13(d) of the
Exchange Act, specified under Section 4 of this Debenture.

The undersigned agrees to comply with the prospectus delivery requirements under
the applicable securities laws in connection with any transfer of the aforesaid
shares of Common Stock.

Conversion calculations:
                               Date to Effect Conversion:

                               Principal Amount of Debentures to be Converted

                               Payment of Interest in Kind  [  ] Yes   [  ] No
                                        If yes, $ _______ of Interest Accrued on
                                        Account of Conversion at Issue

                               Number of shares of Common Stock to be Issued:

                               Applicable Conversion Price:

                               Signature:

                               Name:

                               Address:
<PAGE>
                                   SCHEDULE 1

                               CONVERSION SCHEDULE

7% Convertible Debentures due on October 22, 2005, in the aggregate principal
amount of $           issued by Authentidate Holding Corp. This Conversion
           ----------
Schedule reflects conversions made under Section 4 of the above referenced
Debenture.

                                     Dated:

<TABLE>
<CAPTION>
================================================================================
                                            Aggregate Principal
                                             Amount Remaining
                                              Subsequent to
Date of Conversion                             Conversion
(or for first entry,                          (or original
Original Issue Date)  Amount of Conversion  Principal Amount)    Company Attest
--------------------------------------------------------------------------------
<S>                   <C>                   <C>                  <C>

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

================================================================================
</TABLE>

                                       26

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