SETTLEMENT AGREEMENT

This Settlement Agreement ("Agreement") is made as of January 29, 2006 by and
among Composite Technology Corporation, a Nevada corporation (the "Company") and
Bushido Capital Master Fund, LP, (the "Investor,") (and collectively with the
Company the "Parties") with reference to the following recitals:

                                    RECITALS

         Whereas, the Company and the Investor entered into a Securities
Purchase Agreement dated as of September 23, 2005 (the "Convertible Note
Purchase Agreement") pursuant to which the Company issued a Senior Convertible
Note dated October 13, 2005 (the "Convertible Note") and warrants to purchase
the common stock of the Company to each of the Investor (the "Convertible Note
Warrants");

         Whereas, the Company approached the Investor to enter into the present
Agreement to settle the Company's obligations under the Convertible Note;

         NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the Parties agree:

         1. Recitals. The recitals above are incorporated in this Agreement by
reference.

         2. Settlement and Release of Claims. The Investor, generally and
specifically, forever release, discharge, forgive and acquit the Company and its
officers, directors, employees, agents, insurers, limited partners, partners,
shareholders, independent contractors and attorneys of and from any and all
claims, demands, liabilities, actions, causes of action, damages, expenses, and
obligations at law or in equity, including but not limited to costs and
attorney's fees, arising out of or in any way related to the portions of the
Convertible Note Purchase Agreement relating to the Convertible Notes, the
Convertible Note and any other agreements or instruments entered into by the
Company pursuant to the Convertible Note Purchase Agreement relating to the
Convertible Notes; provided, that the foregoing release shall not apply to any
claims, demands, liabilities, actions, causes of action, damages, expenses, and
obligations at law or in equity that are not currently known to such Investor.
This release applies only to the Convertible Note as contemplated in this
Settlement Agreement.

         3. Payment for Settlement of Dispute. In consideration for the
immediate settlement of the Company's obligations under the Convertible Note,
the Company agrees (i) to accept the conversion of the Convertible Note as
provided for herein and (ii) to issue 109,012 shares of the Company's common
stock, representing a settlement of $187,500 payable in restricted shares of the
Company at a price per share equal to $1.72, the closing price of the Company's
common stock on January 27, 2006 (the "Settlement Payment Shares").

         4. Piggyback Registration Rights. If, following the date of this
Agreement (but without any obligation to do so), the Company proposes to file a
registration statement to register any of its common stock under the Securities
Act of 1933, as amended, in connection with the public offering of such
securities (other than a registration on Form S-4 or S-8 or any form substituted
therefore), the Company shall, at such time, promptly give each Investor written
notice of such registration. Upon the written request of the Investor given
within 5 days after receipt of such notice from the Company to each such
Investor, the Company shall include all of the Settlement Payment Shares on such
registration statement that each the Investor has requested to be registered.
The Company shall have the right to terminate or withdraw any registration
initiated by it prior to the effectiveness of such registration whether or not
any Investor has elected to include the Settlement Payment Shares in such
registration.

         5. Full Conversion of the Convertible Note. On entry into force of this
Agreement, the Investor shall fully convert the entire outstanding principal of
the Convertible Note into common stock of the Company at $1.55 per share in
accordance with the terms of the Convertible Note. Certificates representing
such common stock shall be dispatched by overnight courier from the transfer
agent within 2 business days to the address set forth on the signature page of
this Agreement. The signature of the present Agreement shall constitute a Notice
of Conversion under the terms of the Convertible Note and in accordance with the
terms hereof, which conversion shall be revocable by the Investor in the event
that the Settlement Payment Shares are not delivered within 5 business days.


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Agreement on the Settlement of the Convertible Notes                      Page 1
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         If within three (3) Business Days after the date hereof, the Company
shall fail to issue and deliver a certificate to the Investor for the number of
shares set forth herein, and if on or after such third Business Day but prior to
the Company's cure of such failure, the Investor purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in satisfaction of a
sale by the Investor of shares of Common Stock issuable upon this settlement and
conversion that the Investor anticipated receiving from the Company (a
"Buy-In"), then the Company shall, within three (3) Business Days after the
Investor's request and in the Investor's discretion, either (i) pay cash to the
Investor in an amount equal to the Investor's total purchase price (including
reasonable brokerage commissions, if any) for the shares of Common Stock so
purchased (the "Buy-In Price"), at which point the Company's obligation to
deliver such certificate (and to issue such shares) shall terminate, or (ii)
promptly honor its obligation to deliver to the Investor a certificate or
certificates representing such shares and pay cash to the Investor in an amount
equal to the excess (if any) of the Buy-In Price over the product of (A) such
number of shares deliverable hereunder, times (B) the Closing Bid Price on the
date of exercise.

         6. Payment of Interest Accrued. Interest on the Convertible Note
accrued through January 29, 2006 shall be payable in cash on the next Interest
Date, as that term is defined in the Convertible Notes, or March 31, 2006.

         7. Entry into Force. This Agreement shall enter into force as soon as
Convertible Note holders representing a minimum of two thirds (2/3) of the
outstanding Convertible Notes or $4 million in value have agreed to settle their
Convertible Notes, provided however, such settlements shall have been executed
prior to 9:00 am Eastern Standard Time on Monday, January 30, 2006 and
transmitted to the Company.

         8. Effect on Other Instruments. The Investor hereby agrees that the
provisions of this Agreement and the consummation of the transactions set forth
herein shall not cause any default, price adjustments or other similar effects
in any other agreement or instrument (including, but not limited to the
Convertible Note Warrants) to which that Investor and the Company are parties,
and the Investor hereby waives any and all such effect to the extent the
provisions of this Agreement would cause such effect to which that Investor and
the Company are parties.

         9. Uniform Treatment. In the event that the Company pays to any other
holder of a Convertible Note consideration for the conversion of Convertible
Notes that is more than is being paid to the Investor pursuant to this
Settlement Agreement per dollar of principal amount of Convertible Notes, then
the Company shall inform the Investor of such additional consideration paid and
shall be obliged to pay additional consideration to the Investor equal to the
additional consideration paid to such other holder per dollar of principal
amount of Convertible Notes multiplied by the aggregate principal amount of
Convertible Notes of such Investor converted hereunder..

         10. Miscellaneous.

                  A. Successors. This Agreement shall bind and inure to the
benefit of the parties hereto and to their respective heirs, personal
representatives, successors and assigns.

                  B. Amendments. This Agreement may be amended or modified only
by a writing executed by the parties affected by such modifications.


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Agreement on the Settlement of the Convertible Notes                      Page 2
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                  C. Entire Agreement. All prior oral representations made by
the Parties or any of their respective officers, employees, agents and
representatives are abrogated. There are no agreements or understandings
concerning or relating to the matters set forth herein except those expressly
contained or referenced in this Agreement.

                  D. Governing Law. This Agreement shall in all respects be
governed by the laws of the State of New York.

                  E. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, and which together
shall constitute one and the same instrument.

                  F. Captions. Captions and paragraph headings are for
convenience only, and shall not be used in the construction or interpretation of
this Agreement. This Agreement shall be construed in accordance with its fair
meaning and neither for nor against any party.

                  G. Severability. If any provision of this Agreement is deemed
to be unenforceable as illegal or contrary to public policy, such provision
shall be deemed automatically amended to the extent necessary to permit such
provision to be enforced, but otherwise shall be severed from the remaining
provisions of this Agreement, which shall remain in full force and effect.

                  H. Additional Covenants of Parties. Each of the Parties shall
promptly take such further action and execute and deliver such further
instruments and documents as may reasonably be requested from time to time to
carry out the provisions of this Agreement.

                  I. Counsel. The Parties acknowledge that they have had an
opportunity to consult with counsel concerning this Agreement and its effect on
their respective rights and obligations and that the Company has encouraged them
to do so.

                  J. Notice. All notices, payments, requests, information and
demands which either party hereto may desire, or may be required to give or make
to the other party hereto, shall be given or made to such party by hand
delivery, by deposit in the United States mail, postage prepaid, or by
telecopier transmission to the number set forth in the Convertible Note Purchase
Agreement.

                  K. Public Disclosure. The terms and conditions of this
Agreement shall be made public before 9:30am EST Monday, January 30, 2006.
Following the public disclosure of the terms and conditions of this Agreement,
the Investor shall not be in possession of any material, nonpublic information
received from the Company or any of its Subsidiaries, or any of its respective
officers, directors, employees or agents, that has not been disclosed in such
public disclosure.

                  L. Facsimile Signatures. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof. Signed Agreements sent to the Company by facsimile
must be sent to 1-949-660-1533.

                           [signature pages to follow]


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Agreement on the Settlement of the Convertible Notes                      Page 3
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         IN WITNESS WHEREOF, the Parties hereto have caused this Settlement
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

COMPANY:

COMPOSITE TECHNOLOGY CORPORATION

-----------------------------
By:      Benton H Wilcoxon
Its:     Chief Executive Officer

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                      SIGNATURE PAGE FOR INVESTOR FOLLOWS]


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Agreement on the Settlement of the Convertible Notes                      Page 4
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         IN WITNESS WHEREOF, the Parties hereto have caused this Settlement
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

INVESTOR:

BUSHIDO CAPITAL MASTER FUND LP

-----------------------------
By:      Christopher Rossman
Its:     Managing Director

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