MTI MICROFUEL CELLS INC. SECURED CONVERTIBLE PROMISSORYNOTE NEGOTIATED CONVERSION AGREEMENT

     NOW, THEREFORE, in consideration of the mutual promises contained herein and other good and valuable consideration, receipt of which is hereby acknowledged, the parties to Agreement agree as follows:

     1. Consummation of Negotiated Conversion.

          a. Immediately upon the execution of this Agreement by the Company and Purchasers holding a majority in interest of the Notes, the Negotiated Conversion of all the outstanding principal and accrued interest under the Notes shall be consummated in accordance with the terms of the Notes and the Negotiated Conversion Calculation set forth above, and the Company shall issue to the Purchasers such number of shares of the Company’s Common Stock as set forth on Exhibit A attached hereto in full satisfaction of all principal and accrued interest outstanding under the Notes.

          b. Upon consummation of the Negotiated Conversion, all Notes shall be satisfied in full and each Purchaser shall surrender all Notes held thereby, duly endorsed, at the principal offices of the Company as required pursuant to Section 2(b) of the Notes.

          c. As soon as practicable following surrender of a Purchaser’s Note(s), the Company shall issue and deliver to such Purchaser a certificate or certificates for the number of shares to which such Purchaser is entitled upon the Negotiated Conversion.

          d. Upon consummation of the Negotiated Conversion of the Notes, the Company will be forever released from all its obligations and liabilities under the Notes, the Purchase Agreement and the Security Agreement.

     2. Termination of Security Interest. Immediately upon the consummation of the Negotiated Conversion, the security interest granted under the Security Agreement shall terminate and all rights to the Collateral (as defined therein) shall revert to the Company, and each Purchaser agrees to authenticate and deliver to the Company such documents as the Company may reasonably request to evidence such termination.

     3. Purchaser Warrants. Upon consummation of the Negotiated Conversion and in accordance with Section 1 of the Warrants, the Warrant(s) issued to each Purchaser under the Purchase Agreement shall be exercisable for up to the number of shares of Company Common Stock equal to (x) 10% of such Purchaser’s aggregate original principal amount of the Note(s) issued thereto, divided by (y) the Negotiated Conversion Price, rounded down to the nearest whole share, at a per share purchase price equal to the Negotiated Conversion Price per share rounded to the nearest 1/100 of a cent ($0.001), as set forth on Exhibit A hereto.

     4. Company Stockholder Warrants; Waiver of Adjustment and Notice. The Company and each of the Purchasers further agree and acknowledge that, as an incentive for the Company to agree to the terms of the Negotiated Conversion set forth herein, the Company shall issue to each current Company stockholder (including MTI), without consideration and immediately prior to the consummation of the Negotiated Conversion, a warrant (“Company Warrant”) exercisable after one (1) year for up to 50% of the aggregate number of shares of Common Stock each such Company stockholder currently holds in the Company, at $0.070 per share and with a term of seven (7) years, in substantially the form attached hereto as Exhibit B. Each Purchaser hereby waives (i) any adjustments to the number of shares issuable upon exercise of, or exercise price of, the Warrants held thereby in connection with the issuance of the Company Warrants, and (ii) any notice requirements under the Warrants with respect to the issuance of the Company Warrants.

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