SECURITIES PURCHASE AGREEMENT

      This  Securities  Purchase  Agreement  (this  "AGREEMENT")  is dated as of
August 17, 2004 among Composite  Technology  Corporation,  a Nevada  corporation
(the  "COMPANY"),  and each purchaser  identified on the signature  pages hereto
(each,  including its successors and assigns, a "PURCHASER" and collectively the
"PURCHASERS").

      WHEREAS,  subject to the terms and  conditions set forth in this Agreement
and  pursuant to Section  4(2) of the  Securities  Act of 1933,  as amended (the
"SECURITIES  ACT") and Rule 506 promulgated  thereunder,  the Company desires to
issue and sell to each Purchaser, and each Purchaser, severally and not jointly,
desires to purchase  from the Company,  securities  of the Company as more fully
described in this Agreement.

      NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement,  and for  other  good and  valuable  consideration  the  receipt  and
adequacy of which are hereby acknowledged, the Company and each Purchaser agrees
as follows:

                                   ARTICLE I.

                                   DEFINITIONS

      1.1  DEFINITIONS.  In  addition  to the terms  defined  elsewhere  in this
Agreement:  (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Debentures (as defined herein),  and (b) the
following terms have the meanings indicated in this Section 1.1:

            "ACTION"  shall have the  meaning  ascribed  to such term in Section
      3.1(j).

            "AFFILIATE"  means any Person that,  directly or indirectly  through
      one or more  intermediaries,  controls  or is  controlled  by or is  under
      common  control  with a Person,  as such  terms are used in and  construed
      under Rule 144 under the Securities Act. With respect to a Purchaser,  any
      investment  fund or managed  account  that is  managed on a  discretionary
      basis by the same  investment  manager as such Purchaser will be deemed to
      be an Affiliate of such Purchaser.

            "CLOSING"  means  the  closing  of  the  purchase  and  sale  of the
      Debentures and Warrants pursuant to SECTION 2.1.

            "CLOSING  DATE" means the  Trading  Day when all of the  Transaction
      Documents  have been  executed  and  delivered by the  applicable  parties
      thereto, and all conditions  precedent to (i) the Purchasers'  obligations
      to pay the  Subscription  Amount  and (ii) the  Company's  obligations  to
      deliver the Debentures and Warrants have been satisfied or waived.

            "COMMISSION" means the Securities and Exchange Commission.


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            "COMMON  STOCK"  means the common  stock of the  Company,  par value
      $0.001 per share,  and any  securities  into which such common stock shall
      hereinafter have been reclassified into.

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

            "COMPANY COUNSEL" means Richardson & Patel, LLP.

            "CONVERSION  PRICE" shall have the meaning  ascribed to such term in
      the Debentures.

            "CUSTODIAL  AGENT" shall have the meaning set forth in the Custodial
      Agreement.

            "CUSTODIAL  AGREEMENT" means the Custodial and Security Agreement in
      substantially  the  form  of  EXHIBIT  E  hereto  executed  and  delivered
      contemporaneously with this Agreement.

            "DEBENTURES"  means,  the 6% Convertible  Debentures due, subject to
      the terms therein, three years from their date of issuance,  issued by the
      Company to the Purchasers hereunder, in the form of EXHIBIT A.

            "DISCLOSURE  SCHEDULES" shall have the meaning ascribed to such term
      in Section 3.1 hereof.

            "EFFECTIVE  DATE"  means  the  date  that the  initial  Registration
      Statement  filed  by  the  Company  pursuant  to the  Registration  Rights
      Agreement is first declared effective by the Commission.

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

            "EXEMPT  ISSUANCE"  means the issuance of (a) shares of Common Stock
      or options to employees,  officers or directors of the Company pursuant to
      any stock or option  plan duly  adopted by the Board of  Directors  of the
      Company,  (b)  securities  upon  the  exercise  of or  conversion  of  any
      securities issued hereunder,  convertible securities,  options or warrants
      issued and outstanding on the date of this  Agreement,  provided that such
      securities  have not been  amended  since  the date of this  Agreement  to
      increase the number of such securities,  (c) securities issued pursuant to
      acquisitions or strategic  transactions,  provided any such issuance shall
      only be to a Person  which is,  itself or  through  its  subsidiaries,  an
      operating  company  in a business  synergistic  with the  business  of the
      Company  and in which the  Company  receives  benefits  in addition to the
      investment  of funds,  but shall not  include a  transaction  in which the
      Company is issuing securities primarily for the purpose of raising capital
      or to an entity whose primary business is investing in securities,  (d) up
      to  1,500,000  shares of Common  Stock  issued  to  non-affiliates  of the
      Company in connection  with services  rendered to or to be rendered to the
      Company,  (e) up to 6,896,552  shares of Common Stock issued to Stagecoach
      LLC or its  affiliates in connection  with an investment in the Company or
      its Subsidiaries  without registration rights and (f) up to 250,000 shares
      of Common  Stock in the  aggregate  in any 12 month  period  issued to any
      lender of the Company and its Subsidiaries in connection with a settlement
      of any debt instrument or lawsuit, or a waiver of a default under any debt
      instrument.


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<PAGE>

            "FW" means  Feldman  Weinstein  LLP with  offices  at 420  Lexington
      Avenue, Suite 2620, New York, New York 10170-0002.

            "GAAP"  shall  have the  meaning  ascribed  to such term in  Section
      3.1(h) hereof.

            "LIENS" means a lien,  charge,  security  interest,  encumbrance  or
      other restriction.

            "MARKET PRICE" shall mean $1.52.

            "MATERIAL  ADVERSE  EFFECT" shall have the meaning  assigned to such
      term in Section 3.1(b) hereof.

            "MATERIAL  PERMITS" shall have the meaning  ascribed to such term in
      Section 3.1(m).

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

            "PROCEEDING"  means  an  action,   claim,  suit,   investigation  or
      proceeding  (including,  without  limitation,  an investigation or partial
      proceeding, such as a deposition), whether commenced or threatened.

            "REGISTRATION   RIGHTS  AGREEMENT"  means  the  Registration  Rights
      Agreement, dated the date hereof, among the Company and the Purchasers, in
      the form of EXHIBIT B attached hereto.

            "REGISTRATION  STATEMENT" means a registration statement meeting the
      requirements set forth in the  Registration  Rights Agreement and covering
      the resale of the  Underlying  Shares by each Purchaser as provided for in
      the Registration Rights Agreement.

            "REQUIRED APPROVALS" shall have the meaning ascribed to such term in
      Section 3.1(e).

            "REQUIRED  MINIMUM"  means,  as of any date,  the maximum  aggregate
      number of shares of Common  Stock then issued or  potentially  issuable in
      the future pursuant to the Transaction Documents, including any Underlying
      Shares  issuable  upon  exercise or conversion in full of all Warrants and
      Debentures  (including Underlying Shares issuable as payment of interest),
      ignoring any conversion or exercise limits set forth therein, and assuming
      that  the  Conversion  Price  is at all  times  on and  after  the date of
      determination  75%  of the  then  Conversion  Price  on  the  Trading  Day
      immediately prior to the date of determination.


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<PAGE>

            "RULE 144" means Rule 144 promulgated by the Commission  pursuant to
      the Securities  Act, as such Rule may be amended from time to time, or any
      similar rule or  regulation  hereafter  adopted by the  Commission  having
      substantially the same effect as such Rule.

            "SEC  REPORTS"  shall  have the  meaning  ascribed  to such  term in
      Section 3.1(h) hereof.

            "SECURITIES" means the Debentures,  the Warrants, the Warrant Shares
      and the Underlying Shares.

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

            "SUBSCRIPTION  AMOUNT" means,  as to each  Purchaser,  the aggregate
      amount to be paid for  Debentures  and  Warrants  purchased  hereunder  as
      specified  below  such  Purchaser's  name  on the  signature  page of this
      Agreement and next to the heading "Subscription  Amount", in United States
      Dollars and in immediately available funds.

            "SUBSIDIARY"  means any  subsidiary  of the  Company as set forth on
      SCHEDULE 3.1(A).

            "TRADING  DAY" means a day on which the Common  Stock is traded on a
      Trading Market.

            "TRADING  MARKET" means the following  markets or exchanges on which
      the Common  Stock is listed or quoted for trading on the date in question:
      the Nasdaq  SmallCap  Market,  the American Stock  Exchange,  the New York
      Stock Exchange, the Nasdaq National Market or the OTC Bulletin Board.

            "TRANSACTION  DOCUMENTS" means this Agreement,  the Debentures,  the
      Warrants,  the Registration Rights Agreement,  the Custodial Agreement and
      any  other  documents  or  agreements  executed  in  connection  with  the
      transactions contemplated hereunder.

            "UNDERLYING  SHARES" means the shares of Common Stock  issuable upon
      conversion of the  Debentures and upon exercise of the Warrants and issued
      and issuable in lieu of the cash payment of interest on the Debentures.


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<PAGE>

            "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 Trading Market, the daily volume weighted average price of the
      Common Stock for such date (or the nearest  preceding date) on the primary
      Trading  Market  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. EST to 4:02 p.m.  Eastern  Time) using the VAP  function;  (b) if the
      Common  Stock is not then  listed or quoted on the  Trading  Market 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  principal  amount of
      Debentures then outstanding.

            "WARRANTS" means collectively the Common Stock purchase warrants, in
      the form of  EXHIBIT C  delivered  to the  Purchasers  at the  Closing  in
      accordance with Sections  2.2(a)(iii)-(iv) hereof, which Warrants shall be
      exercisable immediately and have a term of exercise equal to 4 years.

            "WARRANT  SHARES"  means the shares of Common  Stock  issuable  upon
      exercise of the Warrants.

                                  ARTICLE II.

                                PURCHASE AND SALE

      2.1  CLOSING.  On the  Closing  Date,  upon the terms and  subject  to the
conditions set forth herein,  concurrent with the execution and delivery of this
Agreement by the parties hereto,  the Company agrees to sell, and each Purchaser
agrees  to  purchase  in  the  aggregate,  severally  and  not  jointly,  up  to
$15,000,000 principal amount of the Debentures.  Each Purchaser shall deliver to
the Company via wire transfer or a certified check  immediately  available funds
equal to  their  Subscription  Amount  and the  Company  shall  deliver  to each
Purchaser  their  respective  Debenture and Warrants as  determined  pursuant to
Sections  2.2(a)(iii)  - (iv) and the  other  items  set  forth in  Section  2.2
issuable  at the  Closing.  Upon  satisfaction  of the  conditions  set forth in
Section 2.2, the Closing shall occur at the offices of the Custodial  Agent,  or
such other location as the parties shall mutually agree.

      2.2   DELIVERIES.

            a)    On the Closing Date,  the Company shall deliver or cause to be
                  delivered  to the  Custodial  Agent  for the  benefit  of each
                  Purchaser the following:

                  (i)   this Agreement duly executed by the Company;

                  (ii)  a  Debenture  with a  principal  amount  equal  to  such
                        Purchaser's Subscription Amount,  registered in the name
                        of such Purchaser;

                  (iii) a Warrant  registered  in the name of such  Purchaser to
                        purchase up to a number of shares of Common  Stock equal
                        to 17.5% of such Purchaser's Subscription Amount divided
                        by the  Market  Price  immediately  prior  to  the  date
                        hereof, with an exercise price equal to $1.75;


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<PAGE>

                  (iv)  a Warrant  registered  in the name of such  Purchaser to
                        purchase up to a number of shares of Common  Stock equal
                        to 17.5% of such Purchaser's Subscription Amount divided
                        by the  Market  Price  immediately  prior  to  the  date
                        hereof, with an exercise price equal to $1.82;

                  (v)   the  Registration  Rights Agreement duly executed by the
                        Company;

                  (vi)  the  Custodial  Agreement  duly executed by the Company;
                        and

                  (vii) a legal  opinion  of  Company  Counsel,  in the  form of
                        EXHIBIT D attached hereto.

            (b)   On the Closing Date,  each Purchaser shall deliver or cause to
                  be delivered to the Custodial Agent the following:

                  (i)   this Agreement duly executed by such Purchaser;

                  (ii)  such Purchaser's Subscription Amount by wire transfer to
                        the account as specified in writing by the Company;

                  (iii) the Registration  Rights Agreement duly executed by such
                        Purchaser; and

                  (iv)  the Custodial Agreement duly executed by such Purchaser.

      2.3   CLOSING CONDITIONS.

            a)    The  obligations of the Company  hereunder in connection  with
                  the Closing are subject to the following conditions being met:

                  (i)   the accuracy in all material  respects  when made and on
                        the Closing Date of the  representations  and warranties
                        of the Purchasers contained herein;

                  (ii)  all   obligations,   covenants  and  agreements  of  the
                        Purchasers  required to be  performed at or prior to the
                        Closing Date shall have been performed; and

                  (iii) the delivery by the Purchasers of the items set forth in
                        Section 2.2(b) of this Agreement.

            b)    The  respective  obligations  of the  Purchasers  hereunder in
                  connection  with the  Closing  are  subject  to the  following
                  conditions being met:

                  (i)   the  accuracy  in all  material  respects on the Closing
                        Date  of  the  representations  and  warranties  of  the
                        Company contained herein;


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<PAGE>


                  (ii)  all obligations, covenants and agreements of the Company
                        required to be performed at or prior to the Closing Date
                        shall have been performed;

                  (iii) the  delivery  by the  Company of the items set forth in
                        Section 2.2(a) of this Agreement;

                  (iv)  there  shall have been no Material  Adverse  Effect with
                        respect to the Company since the date hereof; and

                  (v)   From the date hereof to the Closing Date, trading in the
                        Common  Stock  shall  not  have  been  suspended  by the
                        Commission  (except  for any  suspension  of  trading of
                        limited  duration  agreed  to  by  the  Company,   which
                        suspension  shall be  terminated  prior to the Closing),
                        and, at any time prior to the Closing  Date,  trading in
                        securities  generally as reported by Bloomberg Financial
                        Markets  shall not have been  suspended  or limited,  or
                        minimum  prices  shall  not  have  been  established  on
                        securities whose trades are reported by such service, or
                        on any Trading  Market,  nor shall a banking  moratorium
                        have been  declared  either by the United  States or New
                        York State authorities nor shall there have occurred any
                        material  outbreak or escalation of hostilities or other
                        national or international  calamity of such magnitude in
                        its effect on, or any  material  adverse  change in, any
                        financial  market which, in each case, in the reasonable
                        judgment of each Purchaser,  makes it  impracticable  or
                        inadvisable to purchase the Debentures at the Closing.

                                  ARTICLE III.

                         REPRESENTATIONS AND WARRANTIES

      3.1  REPRESENTATIONS  AND  WARRANTIES OF THE COMPANY.  Except as set forth
under the  corresponding  section of the disclosure  schedules  delivered to the
Purchasers  concurrently herewith (the "DISCLOSURE  SCHEDULES") which Disclosure
Schedules  shall  be  deemed  a  part  hereof,  the  Company  hereby  makes  the
representations and warranties set forth below to each Purchaser.

            (a) SUBSIDIARIES. All of the direct and indirect subsidiaries of the
      Company are set forth on SCHEDULE  3.1(A).  The Company owns,  directly or
      indirectly,  all of the capital  stock or other  equity  interests of each
      Subsidiary free and clear of any Liens, and all the issued and outstanding
      shares of capital  stock of each  Subsidiary  are  validly  issued and are
      fully paid,  non-assessable  and free of preemptive  and similar rights to
      subscribe for or purchase securities.  If the Company has no subsidiaries,
      then references in the Transaction  Documents to the Subsidiaries  will be
      disregarded.


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<PAGE>


            (b)  ORGANIZATION  AND  QUALIFICATION.  Each of the  Company and the
      Subsidiaries  is an  entity  duly  incorporated  or  otherwise  organized,
      validly  existing and in good standing under the laws of the  jurisdiction
      of its  incorporation or organization (as applicable),  with the requisite
      power and authority to own and use its  properties and assets and to carry
      on its  business  as  currently  conducted.  Neither  the  Company nor any
      Subsidiary  is in  violation  or default of any of the  provisions  of its
      respective  certificate  or  articles  of  incorporation,  bylaws or other
      organizational  or  charter  documents.   Each  of  the  Company  and  the
      Subsidiaries is duly qualified to conduct business and is in good standing
      as a foreign corporation or other entity in each jurisdiction in which the
      nature  of the  business  conducted  or  property  owned by it makes  such
      qualification necessary, except where the failure to be so qualified or in
      good  standing,  as the  case may be,  could  not  have or  reasonably  be
      expected  to  result in (i) a  material  adverse  effect on the  legality,
      validity or  enforceability of any Transaction  Document,  (ii) a material
      adverse effect on the results of operations,  assets, business,  prospects
      or  financial  condition of the Company and the  Subsidiaries,  taken as a
      whole,  or (iii) a material  adverse  effect on the  Company's  ability to
      perform in any material  respect on a timely basis its  obligations  under
      any Transaction  Document (any of (i), (ii) or (iii), a "MATERIAL  ADVERSE
      EFFECT") and no Proceeding  has been  instituted in any such  jurisdiction
      revoking,  limiting or curtailing  or seeking to revoke,  limit or curtail
      such power and authority or qualification.

            (c)  AUTHORIZATION;  ENFORCEMENT.  The  Company  has  the  requisite
      corporate  power  and  authority  to  enter  into  and to  consummate  the
      transactions  contemplated  by  each  of  the  Transaction  Documents  and
      otherwise  to carry out its  obligations  thereunder.  The  execution  and
      delivery  of each of the  Transaction  Documents  by the  Company  and the
      consummation by it of the transactions contemplated thereby have been duly
      authorized  by all  necessary  action  on the part of the  Company  and no
      further  action is required by the Company in connection  therewith  other
      than in connection with the Required Approvals.  Each Transaction Document
      has been (or upon  delivery  will have been) duly  executed by the Company
      and, when delivered in accordance  with the terms hereof,  will constitute
      the valid and binding  obligation of the Company  enforceable  against the
      Company in  accordance  with its terms except (i) as limited by applicable
      bankruptcy,  insolvency,  reorganization,  moratorium  and  other  laws of
      general application  affecting  enforcement of creditors' rights generally
      and (ii) as limited  by laws  relating  to the  availability  of  specific
      performance, injunctive relief or other equitable remedies.

            (d) NO CONFLICTS.  The  execution,  delivery and  performance of the
      Transaction  Documents by the Company and the  consummation by the Company
      of the other  transactions  contemplated  thereby do not and will not: (i)
      conflict   with  or  violate  any   provision  of  the  Company's  or  any
      Subsidiary's  certificate  or articles of  incorporation,  bylaws or other
      organizational or charter documents,  or (ii) conflict with, or constitute
      a default  (or an event  that with  notice or lapse of time or both  would
      become a default)  under,  result in the  creation of any Lien upon any of
      the  properties  or assets of the  Company or any  Subsidiary,  or give to
      others any rights of termination,  amendment, acceleration or cancellation
      (with or without notice, lapse of time or both) of, any agreement,  credit
      facility,  debt or other  instrument  (evidencing  a Company or Subsidiary
      debt or  otherwise)  or other  understanding  to which the  Company or any
      Subsidiary  is a party or by which any property or asset of the Company or
      any  Subsidiary  is bound or  affected,  or (iii)  subject to the Required
      Approvals,  conflict  with or  result  in a  violation  of any law,  rule,
      regulation,  order, judgment,  injunction,  decree or other restriction of
      any court or  governmental  authority to which the Company or a Subsidiary
      is subject  (including federal and state securities laws and regulations),
      or by which any property or asset of the Company or a Subsidiary  is bound
      or affected; except in the case of each of clauses (ii) and (iii), such as
      could not have or reasonably  be expected to result in a Material  Adverse
      Effect.


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<PAGE>


            (e) FILINGS,  CONSENTS AND APPROVALS. The Company is not required to
      obtain any consent, waiver, authorization or order of, give any notice to,
      or make any  filing or  registration  with,  any  court or other  federal,
      state, local or other governmental authority or other Person in connection
      with  the  execution,  delivery  and  performance  by the  Company  of the
      Transaction Documents, other than (i) filings required pursuant to Section
      4.6, (ii) the filing with the  Commission of the  Registration  Statement,
      (iii) the notice and/or  application(s) to each applicable  Trading Market
      for the issuance and sale of the  Debentures  and Warrants and the listing
      of the  Underlying  Shares  for  trading  thereon  in the time and  manner
      required  thereby  and (iv) the filing of Form D with the  Commission  and
      such filings as are required to be made under  applicable state securities
      laws (collectively, the "REQUIRED APPROVALS").

            (f) ISSUANCE OF THE SECURITIES. The Debentures and Warrants are duly
      authorized and, when issued and paid for in accordance with the applicable
      Transaction  Documents,  will be duly and validly  issued,  fully paid and
      nonassessable,  free and clear of all Liens  imposed by the Company  other
      than restrictions on transfer  provided for in the Transaction  Documents.
      The  Underlying  Shares,  when issued in accordance  with the terms of the
      Transaction   Documents,   will  be   validly   issued,   fully  paid  and
      nonassessable,  free and clear of all Liens  imposed by the  Company.  The
      Company has reserved  from its duly  authorized  capital stock a number of
      shares of Common  Stock for  issuance  of the  Underlying  Shares at least
      equal to the Required Minimum on the date hereof. The Company has not, and
      to the  knowledge  of the  Company,  no Affiliate of the Company has sold,
      offered for sale or  solicited  offers to buy or otherwise  negotiated  in
      respect of any  security (as defined in Section 2 of the  Securities  Act)
      that  would be  integrated  with the offer or sale of the  Debentures  and
      Warrants  in a manner  that  would  require  the  registration  under  the
      Securities  Act  of  the  sale  of  the  Debentures  and  Warrants  to the
      Purchasers,  or that  would be  integrated  with the  offer or sale of the
      Debentures  and Warrants for purposes of the rules and  regulations of any
      Trading Market.


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<PAGE>

            (g)  CAPITALIZATION.   The  capitalization  of  the  Company  is  as
      described  in the  Company's  most recent  periodic  report filed with the
      Commission. The Company has not issued any capital stock since such filing
      other than  pursuant to the exercise of employee  stock  options under the
      Company's  stock option  plans,  the issuance of shares of Common Stock to
      employees  pursuant to the  Company's  employee  stock  purchase  plan and
      pursuant  to the  conversion  or  exercise  of  outstanding  Common  Stock
      Equivalents.  No Person has any right of first refusal,  preemptive right,
      right  of  participation,  or any  similar  right  to  participate  in the
      transactions contemplated by the Transaction Documents. Except as a result
      of the  purchase and sale of the  Debentures  and  Warrants,  there are no
      outstanding  options,  warrants,  script  rights to subscribe to, calls or
      commitments of any character whatsoever relating to, or securities, rights
      or obligations  convertible into or exchangeable for, or giving any Person
      any right to  subscribe  for or acquire,  any shares of Common  Stock,  or
      contracts,  commitments,  understandings  or  arrangements  by  which  the
      Company  or any  Subsidiary  is or may  become  bound to issue  additional
      shares  of  Common  Stock,   or  securities  or  rights   convertible   or
      exchangeable  into shares of Common  Stock.  The  issuance and sale of the
      Debentures  and Warrants  will not obligate the Company to issue shares of
      Common Stock or other securities to any Person (other than the Purchasers)
      and will not  result in a right of any  holder of  Company  securities  to
      adjust  the  exercise,  conversion,  exchange  or reset  price  under such
      securities.  All of the outstanding shares of capital stock of the Company
      are  validly  issued,  fully paid and  nonassessable,  have been issued in
      compliance  with all federal and state  securities  laws, and none of such
      outstanding  shares was issued in  violation of any  preemptive  rights or
      similar  rights  to  subscribe  for or  purchase  securities.  No  further
      approval or authorization  of any  stockholder,  the Board of Directors of
      the  Company  or  others  is  required  for the  issuance  and sale of the
      Securities.  Except  as  disclosed  in  the  SEC  Reports,  there  are  no
      stockholders  agreements,  voting  agreements or other similar  agreements
      with  respect to the  Company's  capital  stock to which the  Company is a
      party or, to the  knowledge  of the  Company,  between or among any of the
      Company's stockholders.

            (h) SEC  REPORTS;  FINANCIAL  STATEMENTS.  The Company has filed all
      reports  required  to be  filed  by it under  the  Securities  Act and the
      Exchange Act,  including  pursuant to Section 13(a) or 15(d) thereof,  for
      the two years  preceding  the date hereof (or such  shorter  period as the
      Company  was  required  by law  to  file  such  material)  (the  foregoing
      materials,  including the exhibits thereto, being collectively referred to
      herein as the "SEC  REPORTS")  on a timely  basis or has  received a valid
      extension of such time of filing and has filed any such SEC Reports  prior
      to the expiration of any such extension. As of their respective dates, the
      SEC Reports complied in all material respects with the requirements of the
      Securities  Act and the Exchange Act and the rules and  regulations of the
      Commission  promulgated  thereunder,  and  none of the SEC  Reports,  when
      filed,  contained  any untrue  statement of a material  fact or omitted to
      state a material fact required to be stated  therein or necessary in order
      to make the statements  therein, in light of the circumstances under which
      they were made, not  misleading.  The financial  statements of the Company
      included  in  the  SEC  Reports  comply  in  all  material  respects  with
      applicable  accounting  requirements  and the rules and regulations of the
      Commission with respect  thereto as in effect at the time of filing.  Such
      financial  statements  have been prepared in accordance with United States
      generally  accepted  accounting  principles  applied on a consistent basis
      during the periods involved ("GAAP"), except as may be otherwise specified
      in  such  financial  statements  or the  notes  thereto  and  except  that
      unaudited  financial  statements may not contain all footnotes required by
      GAAP, and fairly present in all material  respects the financial  position
      of the Company and its  consolidated  subsidiaries as of and for the dates
      thereof and the results of operations  and cash flows for the periods then
      ended,  subject,  in  the  case  of  unaudited   statements,   to  normal,
      immaterial, year-end audit adjustments.


                                       10
<PAGE>


            (i) MATERIAL  CHANGES.  Since June 30, 2004,  except as specifically
      disclosed in the SEC Reports,  (i) there has been no event,  occurrence or
      development that has had or that could reasonably be expected to result in
      a  Material  Adverse  Effect,  (ii)  the  Company  has  not  incurred  any
      liabilities  (contingent  or otherwise)  other than (A) trade payables and
      accrued  expenses  incurred in the ordinary course of business  consistent
      with past practice and (B) liabilities not required to be reflected in the
      Company's  financial  statements  pursuant  to  GAAP  or  required  to  be
      disclosed in filings made with the  Commission,  (iii) the Company has not
      altered its method of  accounting,  (iv) the  Company has not  declared or
      made  any  dividend  or  distribution  of cash or  other  property  to its
      stockholders or purchased,  redeemed or made any agreements to purchase or
      redeem any shares of its capital  stock and (v) the Company has not issued
      any equity  securities  to any  officer,  director  or  Affiliate,  except
      pursuant to existing Company stock option plans. The Company does not have
      pending before the Commission  any request for  confidential  treatment of
      information.

            (j)  LITIGATION.  There  is no  action,  suit,  inquiry,  notice  of
      violation, proceeding or investigation pending or, to the knowledge of the
      Company,  threatened  against or affecting the Company,  any Subsidiary or
      any of their  respective  properties  before or by any court,  arbitrator,
      governmental or administrative  agency or regulatory  authority  (federal,
      state,  county,  local or foreign)  (collectively,  an "ACTION") which (i)
      adversely  affects or challenges the legality,  validity or enforceability
      of any of the  Transaction  Documents or the Securities or (ii) could,  if
      there were an  unfavorable  decision,  have or  reasonably  be expected to
      result  in  a  Material  Adverse  Effect.  Neither  the  Company  nor  any
      Subsidiary,  nor any  director  or  officer  thereof,  is or has  been the
      subject of any Action involving a claim of violation of or liability under
      federal or state  securities  laws or a claim of breach of fiduciary duty.
      There has not been,  and to the  knowledge  of the  Company,  there is not
      pending or contemplated, any investigation by the Commission involving the
      Company or any current or former  director or officer of the Company.  The
      Commission  has not issued any stop order or other  order  suspending  the
      effectiveness  of any  registration  statement filed by the Company or any
      Subsidiary under the Exchange Act or the Securities Act.

            (k) LABOR  RELATIONS.  No material  labor dispute  exists or, to the
      knowledge of the Company, is imminent with respect to any of the employees
      of the Company which could  reasonably be expected to result in a Material
      Adverse Effect.

            (l)  COMPLIANCE.  Neither the Company nor any  Subsidiary  (i) is in
      default  under or in violation of (and no event has occurred  that has not
      been waived that, with notice or lapse of time or both,  would result in a
      default by the Company or any  Subsidiary  under),  nor has the Company or
      any Subsidiary  received  notice of a claim that it is in default under or
      that it is in violation of, any indenture, loan or credit agreement or any
      other agreement or instrument to which it is a party or by which it or any
      of its  properties is bound  (whether or not such default or violation has
      been waived),  (ii) is in violation of any order of any court,  arbitrator
      or governmental body, or (iii) is or has been in violation of any statute,
      rule  or  regulation  of any  governmental  authority,  including  without
      limitation all foreign,  federal,  state and local laws  applicable to its
      business except in each case as could not have a Material Adverse Effect.


                                       11
<PAGE>


            (m) REGULATORY PERMITS. The Company and the Subsidiaries possess all
      certificates,   authorizations  and  permits  issued  by  the  appropriate
      federal,  state,  local or foreign  regulatory  authorities  necessary  to
      conduct  their  respective  businesses  as  described  in the SEC Reports,
      except  where  the  failure  to  possess  such  permits  could not have or
      reasonably be expected to result in a Material  Adverse Effect  ("MATERIAL
      PERMITS"),  and neither the Company nor any  Subsidiary  has  received any
      notice of proceedings  relating to the revocation or  modification  of any
      Material Permit.

            (n) TITLE TO ASSETS.  The Company and the Subsidiaries have good and
      marketable  title in fee simple to all real property owned by them that is
      material to the business of the Company and the  Subsidiaries and good and
      marketable  title in all personal  property owned by them that is material
      to the business of the Company and the Subsidiaries, in each case free and
      clear of all Liens, except for Liens as do not materially affect the value
      of such  property and do not  materially  interfere  with the use made and
      proposed to be made of such  property by the Company and the  Subsidiaries
      and Liens for the payment of federal, state or other taxes, the payment of
      which is neither  delinquent  nor subject to penalties.  Any real property
      and facilities  held under lease by the Company and the  Subsidiaries  are
      held by them under valid,  subsisting and enforceable  leases of which the
      Company and the Subsidiaries are in compliance.

            (o) PATENTS AND TRADEMARKS.  The Company and the Subsidiaries  have,
      or have  rights to use,  all  patents,  patent  applications,  trademarks,
      trademark applications,  service marks, trade names, copyrights,  licenses
      and other similar rights  necessary or material for use in connection with
      their respective  businesses as described in the SEC Reports and which the
      failure to so have could have a Material Adverse Effect (collectively, the
      "INTELLECTUAL  PROPERTY  RIGHTS").  Neither the Company nor any Subsidiary
      has received a written notice that the  Intellectual  Property Rights used
      by the Company or any Subsidiary  violates or infringes upon the rights of
      any  Person.  To the  knowledge  of the  Company,  all  such  Intellectual
      Property Rights are enforceable.

            (p)  INSURANCE.  The  Company  and the  Subsidiaries  are insured by
      insurers of recognized  financial  responsibility  against such losses and
      risks and in such amounts as are prudent and  customary in the  businesses
      in which the  Company and the  Subsidiaries  are  engaged.  To the best of
      Company's  knowledge,  such insurance  contracts and policies are accurate
      and  complete.  Neither the Company nor any  Subsidiary  has any reason to
      believe that it will not be able to renew its existing  insurance coverage
      as and when such  coverage  expires  or to obtain  similar  coverage  from
      similar  insurers as may be necessary  to continue its business  without a
      significant increase in cost.


                                       12
<PAGE>


            (q) TRANSACTIONS WITH AFFILIATES AND EMPLOYEES.  Except as set forth
      in the SEC Reports,  none of the officers or directors of the Company and,
      to the  knowledge of the Company,  none of the employees of the Company is
      presently a party to any  transaction  with the Company or any  Subsidiary
      (other than for services as employees, officers and directors),  including
      any contract,  agreement or other arrangement providing for the furnishing
      of services to or by, providing for rental of real or personal property to
      or from, or otherwise requiring payments to or from any officer,  director
      or such employee or, to the knowledge of the Company,  any entity in which
      any officer,  director, or any such employee has a substantial interest or
      is an officer,  director,  trustee or  partner,  in each case in excess of
      $60,000  other  than (i) for  payment  of  salary or  consulting  fees for
      services  rendered,  (ii) reimbursement for expenses incurred on behalf of
      the Company and (iii) for other employee benefits,  including stock option
      agreements under any stock option plan of the Company.

            (r) SARBANES-OXLEY;  INTERNAL ACCOUNTING CONTROLS. The Company is in
      material  compliance with all provisions of the Sarbanes-Oxley Act of 2002
      which are  applicable  to it as of the Closing  Date.  The Company and the
      Subsidiaries  maintain a system of internal accounting controls sufficient
      to provide  reasonable  assurance  that (i)  transactions  are executed in
      accordance  with  management's  general or specific  authorizations,  (ii)
      transactions are recorded as necessary to permit  preparation of financial
      statements in conformity  with GAAP and to maintain asset  accountability,
      (iii) access to assets is permitted only in accordance  with  management's
      general or specific  authorization,  and (iv) the recorded  accountability
      for assets is compared with the existing  assets at  reasonable  intervals
      and  appropriate  action is taken  with  respect to any  differences.  The
      Company has established  disclosure controls and procedures (as defined in
      Exchange Act Rules  13a-15(e) and  15d-15(e)) for the Company and designed
      such   disclosure   controls  and   procedures  to  ensure  that  material
      information relating to the Company,  including its subsidiaries,  is made
      known  to  the  certifying  officers  by  others  within  those  entities,
      particularly  during the period in which the Company's most recently filed
      periodic  report  under  the  Exchange  Act,  as the case may be, is being
      prepared.   The  Company's   certifying   officers   have   evaluated  the
      effectiveness  of the  Company's  controls and  procedures  as of the date
      prior to the filing date of the most recently filed periodic  report under
      the Exchange Act (such date, the "EVALUATION DATE"). The Company presented
      in its most  recently  filed  periodic  report  under the Exchange Act the
      conclusions of the  certifying  officers  about the  effectiveness  of the
      disclosure  controls and procedures  based on their  evaluations as of the
      Evaluation Date. Since the Evaluation Date, there have been no significant
      changes in the  Company's  internal  controls  (as such term is defined in
      Item 307(b) of Regulation S-K under the Exchange Act) or, to the Company's
      knowledge,  in other factors that could significantly affect the Company's
      internal controls.

            (s) CERTAIN FEES. No brokerage or finder's fees or  commissions  are
      or will be payable  by the  Company to any  broker,  financial  advisor or
      consultant,  finder,  placement agent,  investment  banker,  bank or other
      Person with respect to the  transactions  contemplated  by this Agreement.
      The Purchasers  shall have no obligation  with respect to any fees or with
      respect to any claims made by or on behalf of other  Persons for fees of a
      type  contemplated  in this Section that may be due in connection with the
      transactions contemplated by this Agreement.


                                       13
<PAGE>


            (t) PRIVATE  PLACEMENT.  Assuming  the  accuracy  of the  Purchasers
      representations  and warranties set forth in Section 3.2, no  registration
      under  the  Securities  Act is  required  for the  offer  and  sale of the
      Debentures and Warrants by the Company to the  Purchasers as  contemplated
      hereby.  The  issuance  and  sale of the  Securities  hereunder  does  not
      contravene the rules and regulations of the Trading Market.

            (u) INVESTMENT COMPANY.  The Company is not, and is not an Affiliate
      of,  and  immediately  after  receipt of payment  for the  Debentures  and
      Warrants,  will not be or be an  Affiliate  of,  an  "investment  company"
      within the meaning of the Investment Company Act of 1940, as amended.  The
      Company  shall conduct its business in a manner so that it will not become
      subject to the Investment Company Act.

            (v)  REGISTRATION  RIGHTS.  Except as disclosed in the  Registration
      Rights  Agreement,  no Person has any right to cause the Company to effect
      the  registration  under  the  Securities  Act  of any  securities  of the
      Company.

            (w) LISTING AND MAINTENANCE REQUIREMENTS. The Company's Common Stock
      is  registered  pursuant to Section  12(g) of the  Exchange  Act,  and the
      Company  has taken no action  designed  to, or which to its  knowledge  is
      likely to have the effect of,  terminating the  registration of the Common
      Stock under the Exchange Act nor has the Company received any notification
      that the Commission is contemplating  terminating such  registration.  The
      Company  has not, in the 12 months  preceding  the date  hereof,  received
      notice  from any Trading  Market on which the Common  Stock is or has been
      listed or quoted to the effect that the Company is not in compliance  with
      the  listing or  maintenance  requirements  of such  Trading  Market.  The
      Company  is,  and  has no  reason  to  believe  that  it  will  not in the
      foreseeable future continue to be, in compliance with all such listing and
      maintenance requirements.

            (x) APPLICATION OF TAKEOVER  PROTECTIONS.  The Company and its Board
      of Directors have taken all necessary  action,  if any, in order to render
      inapplicable any control share acquisition,  business combination,  poison
      pill  (including  any  distribution  under a  rights  agreement)  or other
      similar  anti-takeover   provision  under  the  Company's  Certificate  of
      Incorporation  (or similar charter  documents) or the laws of its state of
      incorporation  that is or could become  applicable to the  Purchasers as a
      result of the Purchasers and the Company  fulfilling their  obligations or
      exercising their rights under the Transaction Documents, including without
      limitation as a result of the Company's issuance of the Securities and the
      Purchasers' ownership of the Securities.

            (y) DISCLOSURE.  The Company  confirms that neither it nor any other
      Person  acting on its behalf has provided any of the  Purchasers  or their
      agents  or  counsel  with  any  information   that  constitutes  or  might
      constitute material,  nonpublic  information.  The Company understands and
      confirms that the  Purchasers  will rely on the foregoing  representations
      and covenants in effecting  transactions in securities of the Company. All
      disclosure provided to the Purchasers  regarding the Company, its business
      and  the  transactions   contemplated  hereby,  including  the  Disclosure
      Schedules to this Agreement, furnished by or on behalf of the Company with
      respect to the  representations  and  warranties  made herein are true and
      correct with respect to such  representations  and  warranties  and do not
      contain  any  untrue  statement  of a  material  fact or omit to state any
      material fact necessary in order to make the statements  made therein,  in
      light of the circumstances under which they were made, not misleading. The
      Company  acknowledges  and agrees that no Purchaser  makes or has made any
      representations   or   warranties   with   respect  to  the   transactions
      contemplated hereby other than those specifically set forth in Section 3.2
      hereof.


                                       14
<PAGE>

            (z) NO INTEGRATED OFFERING. Assuming the accuracy of the Purchasers'
      representations  and  warranties  set forth in Section  3.2,  neither  the
      Company, nor any of its affiliates,  nor any Person acting on its or their
      behalf  has,  directly  or  indirectly,  made any  offers  or sales of any
      security or solicited any offers to buy any security,  under circumstances
      that would  cause this  offering  of the  Debentures  and  Warrants  to be
      integrated  with  prior  offerings  by the  Company  for  purposes  of the
      Securities  Act  or  any  applicable   shareholder   approval  provisions,
      including,  without  limitation,  under the rules and  regulations  of any
      exchange or automated  quotation  system on which any of the securities of
      the Company are listed or designated.

            (aa) SOLVENCY. Based on the financial condition of the Company as of
      the Closing Date after giving  effect to the receipt by the Company of the
      proceeds from the sale of the Debentures and Warrants  hereunder,  (i) the
      Company's  fair saleable  value of its assets exceeds the amount that will
      be required to be paid on or in respect of the  Company's  existing  debts
      and other  liabilities  (including known  contingent  liabilities) as they
      mature;  (ii) the Company's  assets do not constitute  unreasonably  small
      capital  to carry  on its  business  for the  current  fiscal  year as now
      conducted  and as proposed to be  conducted  including  its capital  needs
      taking into account the particular  capital  requirements  of the business
      conducted by the Company,  and projected capital  requirements and capital
      availability  thereof;  and (iii) the  current  cash flow of the  Company,
      together with the proceeds the Company would receive, were it to liquidate
      all of its assets,  after taking into account all anticipated  uses of the
      cash,  would be sufficient to pay all amounts on or in respect of its debt
      when such amounts are required to be paid.  The Company does not intend to
      incur debts  beyond its  ability to pay such debts as they mature  (taking
      into account the timing and amounts of cash to be payable on or in respect
      of its debt).

            (bb) FORM S-3  ELIGIBILITY.  The Company is eligible to register the
      resale of the  Underlying  Shares for resale by the  Purchaser on Form S-3
      promulgated under the Securities Act.

            (cc) TAX STATUS.  Except for matters that would not, individually or
      in the  aggregate,  have or reasonably be expected to result in a Material
      Adverse  Effect,  the Company and each  Subsidiary has filed all necessary
      federal,  state and foreign  income and franchise tax returns and has paid
      or  accrued  all  taxes  shown  as due  thereon,  and the  Company  has no
      knowledge  of a tax  deficiency  which  has been  asserted  or  threatened
      against the Company or any Subsidiary.


                                       15
<PAGE>


            (dd) NO GENERAL  SOLICITATION.  Neither  the  Company nor any person
      acting on behalf of the Company has offered or sold any of the  Debentures
      and Warrants by any form of general  solicitation or general  advertising.
      The Company has offered the  Debentures  and Warrants for sale only to the
      Purchasers and certain other "accredited  investors" within the meaning of
      Rule 501 under the Securities Act.

            (ee) FOREIGN  CORRUPT  PRACTICES.  Neither the  Company,  nor to the
      knowledge  of the Company,  any agent or other person  acting on behalf of
      the Company,  has (i) directly or  indirectly,  used any corrupt funds for
      unlawful  contributions,  gifts,  entertainment or other unlawful expenses
      related to foreign or domestic political activity,  (ii) made any unlawful
      payment to foreign or domestic government officials or employees or to any
      foreign or domestic  political  parties or campaigns from corporate funds,
      (iii) failed to disclose  fully any  contribution  made by the Company (or
      made by any  person  acting on its  behalf of which the  Company is aware)
      which is in violation of law, or (iv) violated in any material respect any
      provision of the Foreign Corrupt Practices Act of 1977, as amended

            (ff)  ACCOUNTANTS.  The  Company's  accountants  are  set  forth  on
      SCHEDULE 3.1(FF) of the Disclosure  Schedule.  To the Company's knowledge,
      such accountants,  who the Company expects will express their opinion with
      respect to the financial statements to be included in the Company's Annual
      Report  on  Form  10-KSB  for the  year  ending  September  30,  2004  are
      independent accountants as required by the Securities Act.

            (gg)  SENIORITY.  As of the Closing  Date,  no  indebtedness  of the
      Company is senior to the  Debentures  in right of  payment,  whether  with
      respect to interest or upon  liquidation  or  dissolution,  or  otherwise,
      other than  indebtedness  secured by  purchase  money  security  interests
      (which is senior only as to underlying assets covered thereby) and capital
      lease  obligations  (which  is  senior  only  as to the  property  covered
      thereby).

            (hh) NO  DISAGREEMENTS  WITH  ACCOUNTANTS AND LAWYERS.  There are no
      disagreements of any kind presently existing, or reasonably anticipated by
      the Company to arise,  between  the  accountants  and lawyers  formerly or
      presently  employed by the Company and the Company is current with respect
      to any fees owed to its accountants and lawyers.

            (ii) ACKNOWLEDGMENT  REGARDING  PURCHASERS'  PURCHASE OF SECURITIES.
      The Company  acknowledges and agrees that each of the Purchasers is acting
      solely in the  capacity of an arm's length  purchaser  with respect to the
      Transaction  Documents  and  the  transactions  contemplated  hereby.  The
      Company  further  acknowledges  that no Purchaser is acting as a financial
      advisor or  fiduciary  of the Company (or in any  similar  capacity)  with
      respect to this Agreement and the transactions contemplated hereby and any
      advice given by any Purchaser or any of their  respective  representatives
      or  agents  in  connection  with  this  Agreement  and  the   transactions
      contemplated  hereby is merely  incidental to the Purchasers'  purchase of
      the  Debentures  and  Warrants.  The Company  further  represents  to each
      Purchaser  that the  Company's  decision to enter into this  Agreement has
      been  based  solely  on the  independent  evaluation  of the  transactions
      contemplated hereby by the Company and its representatives.


                                       16
<PAGE>


      3.2  REPRESENTATIONS  AND  WARRANTIES OF THE  PURCHASERS.  Each  Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of the Closing Date to the Company as follows:

            (a)  ORGANIZATION;  AUTHORITY.  Such  Purchaser  is an  entity  duly
      organized,  validly  existing and in good  standing  under the laws of the
      jurisdiction of its organization with full right, corporate or partnership
      power and  authority  to enter  into and to  consummate  the  transactions
      contemplated by the  Transaction  Documents and otherwise to carry out its
      obligations  thereunder.  The execution,  delivery and performance by such
      Purchaser of the  transactions  contemplated  by this  Agreement have been
      duly  authorized by all necessary  corporate or similar action on the part
      of such Purchaser.  Each  Transaction  Document to which it is a party has
      been duly executed by such Purchaser, and when delivered by such Purchaser
      in accordance with the terms hereof, will constitute the valid and legally
      binding obligation of such Purchaser, enforceable against it in accordance
      with its terms, except (i) as limited by general equitable  principles and
      applicable bankruptcy,  insolvency,  reorganization,  moratorium and other
      laws of general  application  affecting  enforcement of creditors'  rights
      generally,  (ii)  as  limited  by laws  relating  to the  availability  of
      specific  performance,  injunctive relief or other equitable  remedies and
      (iii)  insofar  as  indemnification  and  contribution  provisions  may be
      limited by applicable law.

            (b) PURCHASER  REPRESENTATION.  Such Purchaser  understands that the
      Securities are "restricted  securities" and have not been registered under
      the Securities Act or any applicable state securities law and is acquiring
      the  Securities as principal for its own account and not with a view to or
      for distributing or reselling such Securities or any part thereof,  has no
      present  intention  of  distributing  any of  such  Securities  and has no
      arrangement  or  understanding   with  any  other  persons  regarding  the
      distribution  of such  Securities  (this  representation  and warranty not
      limiting such  Purchaser's  right to sell the  Securities  pursuant to the
      Registration  Statement or otherwise in compliance with applicable federal
      and state securities laws). Such Purchaser is acquiring the Debentures and
      Warrants hereunder in the ordinary course of its business.  Such Purchaser
      does not have any agreement or understanding, directly or indirectly, with
      any Person to distribute any of the Securities.

            (c)  PURCHASER  STATUS.  At the time such  Purchaser was offered the
      Debentures and Warrants, it was, and at the date hereof it is, and on each
      date on which it exercises any Warrants or converts any Debentures it will
      be either:  (i) an  "accredited  investor"  as defined in Rule  501(a)(1),
      (a)(2),  (a)(3),  (a)(7) or  (a)(8)  under  the  Securities  Act or (ii) a
      "qualified  institutional  buyer" as  defined  in Rule  144A(a)  under the
      Securities  Act.  Such  Purchaser  is not required to be  registered  as a
      broker-dealer under Section 15 of the Exchange Act.


                                       17
<PAGE>


            (d) EXPERIENCE OF SUCH PURCHASER.  Such  Purchaser,  either alone or
      together with its representatives,  has such knowledge, sophistication and
      experience  in  business  and  financial  matters  so as to be  capable of
      evaluating  the  merits  and risks of the  prospective  investment  in the
      Debentures and Warrants, and has so evaluated the merits and risks of such
      investment.  Such  Purchaser  is  able  to bear  the  economic  risk of an
      investment  in the  Debentures  and Warrants  and, at the present time, is
      able to afford a complete loss of such investment.

            (e) GENERAL  SOLICITATION.  Such  Purchaser  is not  purchasing  the
      Debentures and Warrants as a result of any advertisement,  article, notice
      or other communication  regarding the Debentures and Warrants published in
      any newspaper,  magazine or similar media or broadcast over  television or
      radio or presented  at any seminar or any other  general  solicitation  or
      general advertisement.

            (f) SHORT SALES.  Each Purchaser  represents that prior to execution
      of this Agreement,  neither it nor any Person over which the Purchaser has
      direct  control,  have made any net short  sales of, or granted any option
      for the  purchase of or entered  into any  hedging or similar  transaction
      with the same economic effect as a net short sale, in the Common Stock.

            (g)  DISCLOSURE  OF  INFORMATION.  Such  Purchaser  believes  it has
      received all the  information it considers  necessary or  appropriate  for
      deciding  whether to purchase the Debentures and Warrants.  Such Purchaser
      further  represents  that it has had an  opportunity  to ask questions and
      receive answers from the Company regarding the terms and conditions of the
      offering of the  Debentures  and  Warrants and the  business,  properties,
      prospects  and  financial  condition of the Company.  Such  Purchaser  has
      reviewed the  Company's  Annual  Report on Form 10K-SB for the fiscal year
      ended September 30, 2003 (the "10K-SB"),  including,  without  limitation,
      all of the Risk Factors set forth therein and in the  Company's  Form SB-2
      filed  February  13,  2004,  as amended  (the "RISK  FACTORS").  Each such
      Purchaser  understands  and accepts all of the Risk Factors in  connection
      with such  Purchaser's  investment  in the  Debentures  and  Warrants.  In
      addition,  each Purchaser has reviewed and is aware of the information set
      forth in all SEC  Reports  filed  with the SEC  since  the  filing  of the
      10K-SB.   The   foregoing,   however,   does  not  limit  or  modify   the
      representations  and  warranties  of the  Company  in  Section  3 of  this
      Agreement or the right of the Purchasers to rely thereon.


            The Company  acknowledges  and agrees that each  Purchaser  does not
      make or has not made any representations or warranties with respect to the
      transactions  contemplated  hereby other than those specifically set forth
      in this Section 3.2.


                                       18
<PAGE>


                                  ARTICLE IV.

                         OTHER AGREEMENTS OF THE PARTIES

      4.1   TRANSFER RESTRICTIONS.

            (a) The Securities may only be disposed of in compliance  with state
      and federal securities laws. In connection with any transfer of Securities
      other than pursuant to an effective registration statement or Rule 144, to
      the Company or to an  Affiliate  of a Purchaser  or in  connection  with a
      pledge as  contemplated  in Section  4.1(b),  the  Company may require the
      transferor  thereof  to  provide  to the  Company  an  opinion  of counsel
      selected by the transferor and reasonably  acceptable to the Company,  the
      form and substance of which opinion  shall be reasonably  satisfactory  to
      the  Company,   to  the  effect  that  such   transfer  does  not  require
      registration of such transferred Securities under the Securities Act. As a
      condition of transfer,  any such  transferee  shall agree in writing to be
      bound by the  terms of this  Agreement  and  shall  have the  rights  of a
      Purchaser under this Agreement and the Registration Rights Agreement.

            (b) The Purchasers  agree to the imprinting,  so long as is required
      by this  Section  4.1(b),  of a  legend  on any of the  Securities  in the
      following form:

      [NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES
      ARE [EXERCISABLE]  [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  REASONABLY
      ACCEPTABLE TO THE COMPANY 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.


                                       19
<PAGE>


            The Company  acknowledges  and agrees that a Purchaser may from time
      to time pledge pursuant to a bona fide margin  agreement with a registered
      broker-dealer  or  grant  a  security  interest  in  some  or  all  of the
      Securities to a financial  institution that is an "accredited investor" as
      defined in Rule 501(a) under the Securities Act and who agrees to be bound
      by the provisions of this Agreement and the Registration  Rights Agreement
      and, if required under the terms of such  arrangement,  such Purchaser may
      transfer pledged or secured Securities to the pledgees or secured parties.
      Such a pledge or transfer  would not be subject to approval of the Company
      and no legal  opinion of legal  counsel of the pledgee,  secured  party or
      pledgor  shall be required in  connection  therewith.  Further,  no notice
      shall be required of such pledge. At the appropriate  Purchaser's expense,
      the Company will execute and deliver such  reasonable  documentation  as a
      pledgee  or  secured  party  of  Securities  may  reasonably   request  in
      connection with a pledge or transfer of the Securities,  including, if the
      Securities are subject to registration pursuant to the Registration Rights
      Agreement,   the  preparation  and  filing  of  any  required   prospectus
      supplement  under  Rule  424(b)(3)  under  the  Securities  Act  or  other
      applicable provision of the Securities Act to appropriately amend the list
      of Selling Stockholders thereunder.

            (c) Certificates  evidencing the Underlying Shares shall not contain
      any legend (including the legend set forth in Section 4.1(b) hereof):  (i)
      while a  registration  statement  (including the  Registration  Statement)
      covering  the resale of such  security is effective  under the  Securities
      Act, or (ii) following any sale of such Underlying Shares pursuant to Rule
      144, or (iii) if such  Underlying  Shares are eligible for sale under Rule
      144(k),   or  (iv)  if  such  legend  is  not  required  under  applicable
      requirements of the Securities Act (including judicial interpretations and
      pronouncements issued by the staff of the Commission);  PROVIDED, HOWEVER,
      in connection with the issuance of the Underlying Shares,  each Purchaser,
      severally  and not jointly  with the other  Purchasers,  hereby  agrees to
      adhere  to and abide by all  prospectus  delivery  requirements  under the
      Securities Act and rules and  regulations of the  Commission.  The Company
      shall cause its counsel to issue a legal opinion to the Company's transfer
      agent  promptly  after the  Effective  Date if required  by the  Company's
      transfer  agent to effect the removal of the legend  hereunder.  If all or
      any  portion of a  Debenture  or Warrant is  converted  or  exercised  (as
      applicable) at a time when there is an effective registration statement to
      cover the resale of the Underlying  Shares,  or if such Underlying  Shares
      may be sold under Rule 144(k) or if such legend is not otherwise  required
      under  applicable  requirements of the Securities Act (including  judicial
      interpretations  thereof) then such Underlying Shares shall be issued free
      of all legends. The Company agrees that following the Effective Date or at
      such time as such legend is no longer  required under this Section 4.1(c),
      it will,  no later than three  Trading  Days  following  the delivery by a
      Purchaser to the Company or the Company's  transfer agent of a certificate
      representing  Underlying Shares, as applicable,  issued with a restrictive
      legend (such third  Trading Day, the "LEGEND  REMOVAL  DATE"),  deliver or
      cause to be delivered to such  Purchaser a certificate  representing  such
      shares that is free from all  restrictive  and other legends.  The Company
      may not make any  notation  on its  records  or give  instructions  to any
      transfer  agent of the Company that enlarge the  restrictions  on transfer
      set forth in this Section.

            (d) Subject to Section 4.10 of this  Agreement,  in addition to such
      Purchaser's  other  available  remedies,   the  Company  shall  pay  to  a
      Purchaser,  in cash, as partial  liquidated  damages and not as a penalty,
      for each  $1,000 of  Underlying  Shares  (based on the VWAP of the  Common
      Stock on the date such Securities are submitted to the Company's  transfer
      agent)  delivered  for  removal of the  restrictive  legend and subject to
      Section 4.1(c),  $10 per Trading Day for each Trading Day after the Legend
      Removal Date until such certificate is delivered without a legend. Nothing
      herein shall limit such Purchaser's right to pursue actual damages for the
      Company's failure to deliver  certificates  representing any Securities as
      required by the Transaction  Documents,  and such Purchaser 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.


                                       20
<PAGE>


            (e)  Each  Purchaser,  severally  and not  jointly  with  the  other
      Purchasers,  agrees  that  the  removal  of the  restrictive  legend  from
      certificates  representing  Securities as set forth in this Section 4.1 is
      predicated  upon the Company's  reliance that the Purchaser  will sell any
      Securities  pursuant  to  either  the  registration  requirements  of  the
      Securities Act, including any applicable prospectus delivery requirements,
      or an exemption therefrom.

      4.2 ACKNOWLEDGMENT OF DILUTION. The Company acknowledges that the issuance
of the  Securities  may result in dilution of the  outstanding  shares of Common
Stock,  which dilution may be substantial under certain market  conditions.  The
Company  further   acknowledges  that  its  obligations  under  the  Transaction
Documents,  including without  limitation its obligation to issue the Underlying
Shares pursuant to the Transaction Documents, are unconditional and absolute and
not  subject  to any  right  of  set  off,  counterclaim,  delay  or  reduction,
regardless  of the effect of any such dilution or any claim the Company may have
against any Purchaser and  regardless of the dilutive  effect that such issuance
may have on the ownership of the other stockholders of the Company.

      4.3 FURNISHING OF INFORMATION.  As long as any Purchaser owns  Securities,
the Company  covenants to timely file (or obtain  extensions in respect  thereof
and file within the applicable grace period) all reports required to be filed by
the Company  after the date hereof  pursuant to the Exchange Act. As long as any
Purchaser  owns  Securities,  if the  Company is not  required  to file  reports
pursuant to the Exchange Act, it will prepare and furnish to the  Purchasers and
make publicly  available in accordance  with Rule 144(c) such  information as is
required for the Purchasers to sell the  Securities  under Rule 144. The Company
further  covenants  that it will  take  such  further  action  as any  holder of
Securities may reasonably request,  all to the extent required from time to time
to enable such Person to sell such  Securities  without  registration  under the
Securities Act within the limitation of the exemptions provided by Rule 144.

      4.4  INTEGRATION.  The Company  shall not sell,  offer for sale or solicit
offers to buy or  otherwise  negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Debentures  and Warrants in a manner that would require the  registration
under the  Securities  Act of the sale of the  Debentures  and  Warrants  to the
Purchasers or that would be integrated  with the offer or sale of the Debentures
and Warrants for purposes of the rules and regulations of any Trading Market.

      4.5  CONVERSION  AND EXERCISE  PROCEDURES.  The form of Notice of Exercise
included in the  Warrants and the form of Notice of  Conversion  included in the
Debentures set forth the totality of the  procedures  required of the Purchasers
in order to exercise the Warrants or convert the Debentures. No additional legal
opinion or other information or instructions shall be required of the Purchasers
to exercise their Warrants or convert their Debentures.  The Company shall honor
exercises of the Warrants and  conversions  of the  Debentures and shall deliver
Underlying Shares in accordance with the terms,  conditions and time periods set
forth in the Transaction Documents.


                                       21
<PAGE>


      4.6 SECURITIES LAWS DISCLOSURE; PUBLICITY. The Company shall, by 8:30 a.m.
Eastern time on the Trading Day following the date hereof, issue a press release
or file a Current Report on Form 8-K, in each case reasonably acceptable to each
Purchaser disclosing the material terms of the transactions contemplated hereby.
The  Company and each  Purchaser  shall  consult  with each other in issuing any
other press releases with respect to the transactions  contemplated  hereby, and
neither  the  Company nor any  Purchaser  shall issue any such press  release or
otherwise  make any such  public  statement  without  the prior  consent  of the
Company,  with  respect to any press  release of any  Purchaser,  or without the
prior  consent  of each  Purchaser,  with  respect  to any press  release of the
Company,  which  consent  shall not  unreasonably  be  withheld,  except if such
disclosure is required by law, in which case the disclosing party shall promptly
provide  the  other  party  with  prior  notice  of  such  public  statement  or
communication.  Notwithstanding  the  foregoing,  the Company shall not publicly
disclose the name of any Purchaser,  or include the name of any Purchaser in any
filing with the Commission or any regulatory  agency or Trading Market,  without
the prior written consent of such  Purchaser,  except (i) as required by federal
securities law in connection with the registration statement contemplated by the
Registration Rights Agreement and (ii) to the extent such disclosure is required
by law or Trading  Market  regulations,  in which case the Company shall provide
the Purchasers  with prior notice of such  disclosure  permitted under subclause
(i) or (ii).

      4.7  SHAREHOLDERS  RIGHTS  PLAN.  No claim will be made or enforced by the
Company or, to the knowledge of the Company, any other Person that any Purchaser
is an "Acquiring  Person" under any shareholders  rights plan or similar plan or
arrangement in effect or hereafter adopted by the Company, or that any Purchaser
could be deemed to trigger the  provisions of any such plan or  arrangement,  by
virtue of  receiving  Securities  under the  Transaction  Documents or under any
other  agreement  between  the  Company and the  Purchasers.  The Company  shall
conduct  its  business  in a manner so that it will not  become  subject  to the
Investment Company Act.

      4.8 NON-PUBLIC INFORMATION.  The Company covenants and agrees that neither
it nor any other Person  acting on its behalf will provide any  Purchaser or its
agents or counsel with any  information  that the Company  believes  constitutes
material non-public information,  unless prior thereto such Purchaser shall have
executed  a written  agreement  regarding  the  confidentiality  and use of such
information.  The Company  understands and confirms that each Purchaser shall be
relying on the foregoing representations in effecting transactions in securities
of the Company.

      4.9 USE OF PROCEEDS.  Except as set forth on SCHEDULE 4.9 attached hereto,
the  Company  shall use the net  proceeds  from the sale of the  Debentures  and
Warrant Shares for (a) working capital purposes, (b) for the Company's CTC Cable
Corporation  Subsidiary,  (c) general  Company  corporate  overhead  and (d) the
maintenance  and development of the Company's  intellectual  property rights and
not  for  the  satisfaction  of any  portion  of  the  Company's  or  any  other
Subsidiary's  debt (other than payment of trade payables in the ordinary  course
of the Company's business and prior practices),  further investment in any other
Subsidiary,  to redeem any Company equity or equity-equivalent  securities or to
settle any outstanding litigation.

      4.10 TOLLING OF LIQUIDATED DAMAGES. Each Purchaser acknowledges and agrees
that with respect to amounts  that may become  payable to such  Purchaser  under
Section 4.1(d) of this  Agreement,  Section  2(e)(v) of the Warrant and Sections
4(d)(iv) and (v) of the Debenture,  such  Purchaser  shall not seek payment from
the Company,  and the Company  shall not be required to make any such  payments,
until such time as the amounts  accrued under such sections  exceeds  $20,000 in
the  aggregate  at which  point all  accrued  but unpaid  amounts  shall  become
immediately due and payable.


                                       22
<PAGE>


      4.11 INDEMNIFICATION.  Each party to this Agreement ("INDEMNIFYING PARTY")
will  indemnify  and hold the  other  parties  and  their  directors,  officers,
shareholders,  partners,  employees and agents (each,  an  "INDEMNIFIED  PARTY")
harmless   from  any  and  all   losses,   liabilities,   obligations,   claims,
contingencies,  damages,  costs and expenses,  including all judgments,  amounts
paid in  settlements,  court costs and reasonable  attorneys'  fees and costs of
investigation that any such Indemnified Party may suffer or incur as a result of
or relating to (a) any  misrepresentation,  breach or inaccuracy,  of any of the
representations,  warranties,  covenants or agreements made by the  Indemnifying
Party in this  Agreement  or in the other  Transaction  Documents or (b) for the
benefit of each  Indemnified  Parties relating to the Purchaser only, any action
instituted against a Purchaser,  or any of them or their respective  Affiliates,
by any  stockholder  of the Company who is not an Affiliate  of such  Purchaser,
with  respect  to any  of  the  transactions  contemplated  by  the  Transaction
Documents  (unless  such  action  is  based  upon a breach  of such  Purchaser's
representation,  warranties or covenants under the Transaction  Documents or any
agreements or  understandings  such Purchaser may have with any such stockholder
or any  violations by the Purchaser of state or federal  securities  laws or any
conduct by such Purchaser which constitutes  fraud,  gross  negligence,  willful
misconduct  or  malfeasance).  If  any  action  shall  be  brought  against  any
Indemnified  Party in respect of which  indemnity may be sought pursuant to this
Agreement,  such Indemnified Party shall promptly notify the Indemnifying  Party
in  writing,  and the  Indemnifying  Party  shall  have the right to assume  the
defense thereof with counsel of its own choosing.  Any  Indemnified  Party shall
have the right to employ separate  counsel in any such action and participate in
the defense  thereof,  but the fees and expenses of such counsel shall be at the
expense  of such  Indemnified  Party  except to the extent  that the  employment
thereof has been specifically  authorized by the Indemnifying  Party in writing,
the  Indemnifying  Party has failed after a reasonable  period of time to assume
such defense and to employ counsel or in such action there is, in the reasonable
opinion of such  separate  counsel,  a material  conflict on any material  issue
between  the  position  of the  Indemnifying  Party  and  the  position  of such
Indemnified  Party. The Indemnifying Party will not be liable to any Indemnified
Party  under  this  Section  4.11 for any  settlement  by an  Indemnified  Party
effected without the Indemnifying Party's prior written consent, which shall not
be unreasonably  withheld or delayed;  or to the extent,  but only to the extent
that a loss,  claim,  damage or liability  is  attributable  to any  Indemnified
Party's  breach  of  any  of  the  representations,   warranties,  covenants  or
agreements made by the Purchasers in this Agreement or in the other  Transaction
Documents. In no event shall the liability of any Purchaser be greater in amount
than the dollar amount of the net proceeds  received by such  Purchaser upon the
sale of the Underlying Shares and in no event shall the liability of the Company
be greater in amount than the dollar amount of the net proceeds  received by the
Company from the Sale of the Debenture and Warrant to the Purchasers.

      4.12 RESERVATION AND LISTING OF SECURITIES.

            (a) The Company  shall  maintain a reserve from its duly  authorized
      shares of Common Stock for issuance pursuant to the Transaction  Documents
      in such amount as may be required to fulfill its obligations in full under
      the Transaction Documents.


                                       23
<PAGE>


            (b) If, on any date,  the number of  authorized  but  unissued  (and
      otherwise  unreserved)  shares of Common  Stock is less than the  Required
      Minimum on such date, then the Board of Directors of the Company shall use
      commercially  reasonable  efforts to amend the  Company's  certificate  or
      articles  of  incorporation  to  increase  the  number of  authorized  but
      unissued  shares of Common Stock to at least the Required  Minimum at such
      time,  as soon as  possible  and in any event not later  than the 75th day
      after such date.

            (c) The Company  shall,  if  applicable:  (i) in the time and manner
      required by the Trading Market,  prepare and file with such Trading Market
      an additional  shares listing  application  covering a number of shares of
      Common  Stock at least equal to the  Required  Minimum on the date of such
      application,  (ii) take all steps necessary to cause such shares of Common
      Stock to be approved for listing on the Trading Market as soon as possible
      thereafter,  (iii) provide to the Purchasers evidence of such listing, and
      (iv)  maintain the listing of such Common Stock on any date at least equal
      to the  Required  Minimum on such date on such  Trading  Market or another
      Trading Market.

      4.13 INTENTIONALLY OMITTED.

      4.14  SUBSEQUENT  EQUITY  SALES.  From the date hereof until the Effective
Date,  neither the Company nor any Subsidiary shall issue shares of Common Stock
or Common Stock Equivalents;  provided,  however,  this period shall be extended
for the number of Trading  Days  during  such period in which (y) trading in the
Common Stock is suspended by any Trading Market,  or (z) following the Effective
Date, the Registration  Statement is not effective or the prospectus included in
the  Registration  Statement may not be used by the Purchasers for the resale of
the Underlying Shares.  Notwithstanding  the foregoing,  this Section 4.14 shall
not apply in respect of an Exempt  Issuance.  In addition to the limitations set
forth herein,  from the date hereof until such time as no Purchaser holds any of
the  Debentures or Warrants,  the Company shall be prohibited  from effecting or
entering  into an agreement to effect any financing by the Company or any of its
Subsidiaries of Common Stock or Common Stock  Equivalents  involving a "VARIABLE
RATE  TRANSACTION" or an "MFN  TRANSACTION"  (each as defined  below).  The term
"VARIABLE RATE TRANSACTION" shall mean a transaction in which the Company issues
or  sells  (i)  any  debt  or  equity  securities  that  are  convertible  into,
exchangeable  or  exercisable  for, or include  the right to receive  additional
shares of Common Stock either (A) at a conversion,  exercise or exchange rate or
other  price that is based upon  and/or  varies  with the  trading  prices of or
quotations for the shares of Common Stock at any time after the initial issuance
of such  debt or  equity  securities,  or (B)  with a  conversion,  exercise  or
exchange  price  that is subject to being  reset at some  future  date after the
initial  issuance  of such debt or equity  security  or upon the  occurrence  of
specified or contingent events directly or indirectly related to the business of
the Company or the market for the Common Stock. The term "MFN TRANSACTION" shall
mean a  transaction  in which the Company  issues or sells any  securities  in a
capital raising transaction or series of related transactions which grants to an
investor the right to receive  additional shares based upon future  transactions
of the Company on terms more  favorable  than those  granted to such investor in
such offering for the purpose of circumventing the  anti-dilution  rights of the
Purchasers.


                                       24
<PAGE>


      4.15 EQUAL TREATMENT OF PURCHASERS.  No consideration  shall be offered or
paid to any  person  to amend or  consent  to a waiver  or  modification  of any
provision of any of the Transaction  Documents unless the same  consideration is
also offered to all of the parties to the Transaction  Documents.  Further,  the
Company shall not make any payment of principal or interest on the Debentures in
amounts  which  are   disproportionate  to  the  respective   principal  amounts
outstanding  on  the  Debentures  at  any  applicable  time.  For  clarification
purposes,  this provision constitutes a separate right granted to each Purchaser
by the Company and negotiated  separately by each Purchaser,  and is intended to
treat for the Company the Debenture  holders as a class and shall not in any way
be construed as the  Purchasers  acting in concert or as a group with respect to
the purchase, disposition or voting of Securities or otherwise.

                                   ARTICLE V.

                                  MISCELLANEOUS

      5.1  TERMINATION.  This Agreement may be terminated by any  Purchaser,  by
written notice to the other parties,  if the Closing has not been consummated on
or before  August 17, 2004;  provided that no such  termination  will affect the
right of any party to sue for any breach by the other party (or parties).

      5.2 FEES AND EXPENSES. At the Closing, the Company has agreed to reimburse
Midsummer Capital, LLC ("MIDSUMMER") up to $40,000, for its actual,  reasonable,
out-of-pocket  legal fees and expenses,  of which the Company paid $20,000 prior
to the Closing. The Company shall deliver, prior to the Closing, a completed and
executed copy of the Closing  Statement,  attached  hereto as ANNEX A. Except as
expressly set forth in the  Transaction  Documents to the  contrary,  each party
shall pay the fees and expenses of its advisers, counsel,  accountants and other
experts,  if any, and all other expenses  incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this Agreement.
The Company shall pay all transfer  agent fees,  stamp taxes and other taxes and
duties levied in connection with the issuance of any Securities.

      5.3  ENTIRE  AGREEMENT.  The  Transaction  Documents,  together  with  the
exhibits and schedules thereto,  contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.

      5.4 NOTICES.  Any and all notices or other  communications  or  deliveries
required or permitted to be provided  hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of  transmission,  if
such notice or  communication is delivered via facsimile at the facsimile number
set forth on the signature  pages  attached  hereto prior to 5:30 p.m. (New York
City  time)  on a  Trading  Day,  (b) the next  Trading  Day  after  the date of
transmission,  if such notice or communication is delivered via facsimile at the
facsimile  number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading
Day, (c) the second  Trading Day following the date of mailing,  if sent by U.S.
nationally  recognized  overnight courier service, or (d) upon actual receipt by
the party to whom such  notice is  required  to be given.  The  address for such
notices and communications shall be as set forth on the signature pages attached
hereto.


                                       25
<PAGE>


      5.5 AMENDMENTS;  WAIVERS.  No provision of this Agreement may be waived or
amended except in a written instrument  signed, in the case of an amendment,  by
the Company and Purchasers  holding at least 66% of the Underlying  Shares (on a
converted  and  unconverted  basis)  or, in the case of a  waiver,  by the party
against whom enforcement of any such waiver is sought.  No waiver of any default
with respect to any provision,  condition or requirement of this Agreement shall
be deemed to be a continuing  waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise  any right  hereunder in
any manner impair the exercise of any such right.

      5.6  CONSTRUCTION.  The headings herein are for  convenience  only, do not
constitute a part of this  Agreement  and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent,  and no
rules of strict construction will be applied against any party.

      5.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the parties and their  successors and permitted  assigns.  The
Company may not assign this  Agreement  or any rights or  obligations  hereunder
without the prior written  consent of each  Purchaser.  Any Purchaser may assign
any or all of its  rights  under  this  Agreement  to any  Person  to whom  such
Purchaser  assigns or transfers any Securities,  provided such transferee agrees
in  writing to be bound,  with  respect to the  transferred  Securities,  by the
provisions hereof that apply to the "Purchasers".

      5.8 NO  THIRD-PARTY  BENEFICIARIES.  This  Agreement  is intended  for the
benefit of the parties  hereto and their  respective  successors  and  permitted
assigns and is not for the benefit of, nor may any provision  hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.11.

      5.9 GOVERNING LAW. All questions  concerning the  construction,  validity,
enforcement and interpretation of the Transaction Documents 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 this Agreement and
any other Transaction  Documents  (whether brought against a party hereto or its
respective affiliates,  directors, officers, shareholders,  employees or agents)
shall be commenced  exclusively  in the state and federal  courts sitting in the
City of New  York.  Each  party  hereby  irrevocably  submits  to the  exclusive
jurisdiction  of the state and federal  courts  sitting in the City of New York,
borough  of  Manhattan  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, that such suit, action or proceeding is 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  Agreement  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. The parties  hereby waive all
rights  to a trial  by jury.  If  either  party  shall  commence  an  action  or
proceeding to enforce any  provisions  of the  Transaction  Documents,  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.


                                       26
<PAGE>


      5.10 SURVIVAL.  The representations and warranties  contained herein shall
survive  the  Closing  and  the  delivery,  exercise  and/or  conversion  of the
Debentures and Warrants, as applicable for the applicable statue of limitations.

      5.11   EXECUTION.   This   Agreement  may  be  executed  in  two  or  more
counterparts,  all of which when taken  together shall be considered one and the
same agreement and shall become effective when  counterparts have been signed by
each party and  delivered  to the other  party,  it being  understood  that both
parties need not sign the same  counterpart.  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.

      5.12  SEVERABILITY.  If any  provision  of  this  Agreement  is held to be
invalid or unenforceable in any respect,  the validity and enforceability of the
remaining  terms  and  provisions  of  this  Agreement  shall  not in any way be
affected or impaired  thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor,  and upon so
agreeing, shall incorporate such substitute provision in this Agreement.

      5.13  RESCISSION AND  WITHDRAWAL  RIGHT.  Notwithstanding  anything to the
contrary  contained in (and  without  limiting  any similar  provisions  of) the
Transaction  Documents,  whenever  any  Purchaser  exercises a right,  election,
demand or option  under a  Transaction  Document and the Company does not timely
perform its related  obligations within the periods therein provided,  then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice,  demand or election in whole
or in part  without  prejudice  to its  future  actions  and  rights;  PROVIDED,
HOWEVER,  in the case of a rescission of a conversion of a Debenture or exercise
of a Warrant,  the  Purchaser  shall be  required to return any shares of Common
Stock subject to any such rescinded conversion or exercise notice.

      5.14   REPLACEMENT  OF  SECURITIES.   If  any  certificate  or  instrument
evidencing any Securities is mutilated,  lost, stolen or destroyed,  the Company
shall  issue or cause to be issued in  exchange  and  substitution  for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument,  but only upon receipt of evidence reasonably satisfactory to the
Company  of such  loss,  theft  or  destruction  and  customary  and  reasonable
indemnity,  if requested.  The  applicants  for a new  certificate or instrument
under  such  circumstances  shall  also  pay any  reasonable  third-party  costs
associated with the issuance of such replacement Securities.


                                       27
<PAGE>


      5.15  REMEDIES.  In  addition to being  entitled  to  exercise  all rights
provided herein or granted by law,  including  recovery of damages,  each of the
Purchasers  and the Company will be entitled to specific  performance  under the
Transaction  Documents.  The  parties  agree that  monetary  damages  may not be
adequate  compensation  for  any  loss  incurred  by  reason  of any  breach  of
obligations  described in the  foregoing  sentence and hereby agrees to waive in
any action for specific  performance  of any such  obligation the defense that a
remedy at law would be adequate.

      5.16 PAYMENT SET ASIDE.  To the extent that the Company makes a payment or
payments to any Purchaser  pursuant to any  Transaction  Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such  enforcement  or exercise or any part thereof are  subsequently
invalidated,  declared to be fraudulent or  preferential,  set aside,  recovered
from, disgorged by or are required to be refunded,  repaid or otherwise restored
to the  Company,  a  trustee,  receiver  or  any  other  person  under  any  law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable  cause of action),  then to the extent of any such  restoration
the  obligation  or part thereof  originally  intended to be satisfied  shall be
revived and  continued  in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.

      5.17 USURY. To the extent it may lawfully do so, the Company hereby agrees
not to insist upon or plead or in any manner  whatsoever  claim, and will resist
any and all efforts to be compelled  to take the benefit or advantage  of, usury
laws wherever enacted, now or at any time hereafter in force, in connection with
any claim, action or proceeding that may be brought by any Purchaser in order to
enforce any right or remedy under any Transaction Document.  Notwithstanding any
provision to the contrary contained in any Transaction Document, it is expressly
agreed  and  provided  that  the  total  liability  of  the  Company  under  the
Transaction  Documents  for payments in the nature of interest  shall not exceed
the maximum lawful rate authorized  under  applicable law (the "MAXIMUM  RATE"),
and, without  limiting the foregoing,  in no event shall any rate of interest or
default  interest,  or both of them,  when aggregated with any other sums in the
nature  of  interest  that  the  Company  may  be  obligated  to pay  under  the
Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum
contract  rate of  interest  allowed by law and  applicable  to the  Transaction
Documents is  increased  or  decreased  by statute or any official  governmental
action subsequent to the date hereof,  the new maximum contract rate of interest
allowed by law will be the Maximum Rate applicable to the Transaction  Documents
from the  effective  date  forward,  unless such  application  is  precluded  by
applicable law. If under any circumstances whatsoever, interest in excess of the
Maximum  Rate  is  paid  by  the  Company  to  any  Purchaser  with  respect  to
indebtedness  evidenced  by the  Transaction  Documents,  such  excess  shall be
applied  by  such  Purchaser  to  the  unpaid  principal  balance  of  any  such
indebtedness  or be refunded to the Company,  the manner of handling such excess
to be at such Purchaser's election.


                                       28
<PAGE>


      5.18  INDEPENDENT  NATURE  OF  PURCHASERS'  OBLIGATIONS  AND  RIGHTS.  The
obligations of each Purchaser under any Transaction Document are several and not
joint with the  obligations of any other  Purchaser,  and no Purchaser  shall be
responsible  in any way for the  performance  of the  obligations  of any  other
Purchaser under any Transaction  Document.  Nothing  contained  herein or in any
Transaction  Document,  and no action taken by any Purchaser  pursuant  thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint  venture  or any other kind of entity,  or create a  presumption  that the
Purchasers  are in any way acting in concert or as a group with  respect to such
obligations or the transactions  contemplated by the Transaction Document.  Each
Purchaser  shall be  entitled to  independently  protect and enforce its rights,
including without  limitation the rights arising out of this Agreement or out of
the other  Transaction  Documents,  and it shall not be necessary  for any other
Purchaser  to be  joined  as an  additional  party  in any  proceeding  for such
purpose.  Each Purchaser has been  represented by its own separate legal counsel
in their review and  negotiation of the  Transaction  Documents.  For reasons of
administrative  convenience only,  Purchasers and their respective  counsel have
chosen to communicate  with the Company through FW. FW does not represent all of
the  Purchasers  but only  Midsummer.  The  Company  has  elected to provide all
Purchasers with the same terms and Transaction  Documents for the convenience of
the  Company  and not  because  it was  required  or  requested  to do so by the
Purchasers.

      5.19  LIQUIDATED  DAMAGES.  The Company's  obligations  to pay any partial
liquidated  damages or other amounts owing under the Transaction  Documents is a
continuing  obligation of the Company and shall not  terminate  until all unpaid
partial liquidated damages and other amounts have been paid  notwithstanding the
fact that the instrument or security  pursuant to which such partial  liquidated
damages or other amounts are due and payable shall have been canceled.


                            (Signature Pages Follow)


                                       29
<PAGE>


      IN WITNESS  WHEREOF,  the  parties  hereto  have  caused  this  Securities
Purchase   Agreement  to  be  duly  executed  by  their  respective   authorized
signatories as of the date first indicated above.



COMPOSITE TECHNOLOGY CORPORATION                        ADDRESS FOR NOTICE:
                                                        -------------------


By:_____________________________
     Name:
     Title:

With a copy to (which shall not constitute notice):

                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                      SIGNATURE PAGE FOR PURCHASER FOLLOWS]


                                       30
<PAGE>


        [PURCHASER SIGNATURE PAGES TO CPTC SECURITIES PURCHASE AGREEMENT]

      IN WITNESS WHEREOF,  the undersigned have caused this Securities  Purchase
Agreement to be duly executed by their respective  authorized  signatories as of
the date first indicated above.


Name of Investing Entity: ______________________________________________________

Signature of Authorized Signatory of Investing Entity: _________________________

Name of Authorized Signatory: __________________________________________________

Title of Authorized Signatory: _________________________________________________

Email Address of Authorized Entity:_____________________________________________




Address for Notice of Investing Entity:






Address for Delivery of Securities for Investing Entity (if not same as above):






Subscription Amount:
Warrant Shares:

EIN Number:  [PROVIDE THIS UNDER SEPARATE COVER]

                           [SIGNATURE PAGES CONTINUE]



                                       31
<PAGE>

                                                                         ANNEX A


                                CLOSING STATEMENT

Pursuant to the attached  Securities  Purchase  Agreement,  dated as of the date
hereto,  the  purchasers  shall  purchase up to  $15,000,000  of Debentures  and
Warrants  from  Composite  Technology  Corporation,  a Nevada  corporation  (the
"COMPANY").  All  funds  will  be  wired  into a  trust  account  maintained  by
____________,  counsel to the Company. All funds will be disbursed in accordance
with this Closing Statement.

DISBURSEMENT DATE:        August ___, 2004


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


I.    PURCHASE PRICE

                    GROSS PROCEEDS TO BE RECEIVED IN TRUST           $

II.   DISBURSEMENTS

                                                                     $
                                                                     $
                                                                     $
                                                                     $
                                                                     $

TOTAL AMOUNT DISBURSED:                                              $

WIRE INSTRUCTIONS:

To: _____________________________________


To: _____________________________________



                                       32
<PAGE>

                                                                       EXHIBIT A

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
REASONABLY  ACCEPTABLE  TO THE COMPANY TO SUCH  EFFECT,  THE  SUBSTANCE OF WHICH
SHALL  BE  REASONABLY  ACCEPTABLE  TO THE  COMPANY.  THESE  SECURITIES  AND  THE
SECURITIES  ISSUABLE  UPON  CONVERSION  OF THESE  SECURITIES  MAY BE  PLEDGED IN
CONNECTION  WITH A BONA  FIDE  MARGIN  ACCOUNT  OR OTHER  LOAN  SECURED  BY SUCH
SECURITIES.

Original Issue Date: August 17, 2004
Original Conversion Price (subject to adjustment herein): $1.67

                                                                $---------------


                        6% SECURED CONVERTIBLE DEBENTURE
                               DUE AUGUST 17, 2007

      THIS DEBENTURE is one of a series of duly authorized and issued 6% Secured
Convertible   Debentures   of  Composite   Technology   Corporation,   a  Nevada
corporation, having a principal place of business at 2026 McGaw Ave., Irvine, CA
92614 (the "COMPANY"),  designated as its 6% Secured Convertible Debenture,  due
August 17, 2007 (the "DEBENTURES").

      FOR    VALUE    RECEIVED,    the    Company    promises    to    pay    to
________________________ or its registered assigns (the "HOLDER"), the principal
sum of  $_______________  on  August  ___,  2007  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 in accordance with the
provisions  hereof.  This  Debenture  is  subject  to the  following  additional
provisions:

      SECTION  1.DEFINITIONS.  For the purposes hereof, in addition to the terms
defined elsewhere in this Debenture: (a) capitalized terms not otherwise defined
herein have the meanings given to such terms in the Purchase Agreement,  and (b)
the following terms shall have the following meanings:


                                       1
<PAGE>


            "ALTERNATE  CONSIDERATION"  shall  have  the  meaning  set  forth in
      Section 5(e)(iii).

            "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 51% of the voting securities of the Company, or
      (ii) a replacement  at one time or within a three 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),  or (iii) 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) or
      (ii).

            "COMMISSION" means the Securities and Exchange Commission.

            "COMMON  STOCK" means the common stock,  par value $0.001 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)
      hereof.

            "CONVERSION PRICE" shall have the meaning set forth in Section 4(b).

            "CONVERSION  SHARES" means the shares of Common Stock  issuable upon
      conversion of Debentures or as payment of interest in accordance  with the
      terms hereof.

            "DTC"  shall  have the  meaning  as set  forth in  Section  6(b)(iv)
      hereof.

            "DWAC"  shall  have the  meaning  as set forth in  Section  6(b)(iv)
      hereof.

            "DAILY CONVERSION PRICE" shall have the meaning set forth in Section
      6(b)(ii) hereof.

            "DAILY  REDEMPTION  AMOUNT"  means  the  Monthly  Redemption  Amount
      divided by 18 Trading Days.


                                       2
<PAGE>


            "DAILY REDEMPTION MAXIMUM" means the greater of (i) $27,778 and (ii)
      the product of (a) 25% and (b) the trading volume on the applicable  Daily
      Redemption Date and (c) the VWAP on the applicable Daily Redemption Date.

            "DAILY  REDEMPTION  PERIOD"  means the 18 Trading Day period  during
      which the Company may elect to pursue a daily redemption.

            "DILUTIVE ISSUANCE" shall have the meaning set forth in Section 5(b)
      hereof.

            "EFFECTIVENESS  PERIOD" shall have the meaning given to such term in
      the Registration Rights Agreement.

            "EQUITY  CONDITIONS" shall mean, during the period in question,  (i)
      the  Company  shall have duly  honored  all  conversions  and  redemptions
      scheduled  to occur  or  occurring  by  virtue  of one or more  Conversion
      Notices,  if any, (ii) all  liquidated  damages and other amounts owing in
      respect  of the  Debentures  shall  have  been  paid;  (iii)  there  is an
      effective Registration Statement pursuant to which the Holder is permitted
      to utilize the prospectus  thereunder to resell all of the shares issuable
      pursuant to the Transaction  Documents (and the Company believes,  in good
      faith,  that  such  effectiveness  will  continue  uninterrupted  for  the
      foreseeable  future),  (iv) the Common  Stock is  trading  on the  Trading
      Market  and  all of  the  shares  issuable  pursuant  to  the  Transaction
      Documents  are listed for  trading on a Trading  Market  (and the  Company
      believes,  in good faith,  that  trading of the Common  Stock on a Trading
      Market will continue  uninterrupted for the foreseeable future), (v) there
      is a sufficient number of authorized but unissued and otherwise unreserved
      shares of Common  Stock for the  issuance  of all of the  shares  issuable
      pursuant  to the  Transaction  Documents,  (vi) there is then  existing no
      Event of Default or event which, with the passage of time or the giving of
      notice,  would  constitute  an Event of  Default,  (vii) all of the shares
      issued or issuable pursuant to the transaction documents in full, ignoring
      for such purposes any conversion or exercise limitation therein, would not
      violate the limitation set forth in Section 4(c)(ii), and (viii) no public
      announcement  of  a  pending  or  proposed   Fundamental   Transaction  or
      acquisition transaction has occurred that has not been consummated.

            "EVENT OF DEFAULT" shall have the meaning set forth in Section 8.

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

            "FUNDAMENTAL  TRANSACTION"  shall  have  the  meaning  set  forth in
      Section 5(e)(iii) hereof.

            "FORCED  CONVERSION  NOTICE"  shall  have the  meaning  set forth in
      Section 6(c).

            "FORCE  CONVERSION  NOTICE DATE" shall have the meaning set forth in
      Section 6(c).

            "INTEREST  CONVERSION RATE" means 93% of the average of the 20 VWAPs
      immediately prior to the applicable Interest Payment Date.


                                       3
<PAGE>


            "LATE FEES" shall have the meaning set forth in section 2(d).

            "MANDATORY PREPAYMENT AMOUNT" for any Debentures shall equal the sum
      of (i) the greater of: (A) 110% of the  principal  amount of Debentures to
      be  prepaid,  plus all  accrued and unpaid  interest  thereon,  or (B) the
      principal  amount of Debentures to be prepaid,  plus all other accrued and
      unpaid interest  hereon,  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.

            "MONTHLY  REDEMPTION"  shall mean the  redemption  of the  Debenture
      pursuant to Section 6(b) hereof.

            "MONTHLY  REDEMPTION AMOUNT" shall mean, as to a Monthly Redemption,
      the dollar amount  specified in the Company's  Redemption  Notice,  in the
      aggregate among all Holders.

            "MONTHLY   REDEMPTION   PERIOD"  shall  mean  the  18  Trading  Days
      immediately following a Redemption Date.

            "OPTIONAL  REDEMPTION"  shall have the  meaning set forth in Section
      6(a).

            "OPTIONAL  REDEMPTION  NOTICE"  shall have the  meaning set forth in
      Section 6(a).

            "OPTIONAL  REDEMPTION  AMOUNT" shall mean the sum of (i) 130% of the
      principal  amount of the Debenture then  outstanding  and (ii) accrued but
      unpaid interest.

            "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 August __, 2004,  to which the Company and the  original  Holder are
      parties,  as  amended,  modified  or  supplemented  from  time  to time in
      accordance with its terms.


                                       4
<PAGE>


            "REDEMPTION   DATE"  means  the  1st  Trading  Day  of  each  month,
      commencing on the first calendar month after the Effective Date and ending
      on the earlier of (i) the 20 month anniversary of such date, (ii) the full
      redemption or conversion of this  Debenture or (iii) the release of all of
      the Collateral.

            "REDEMPTION  NOTICE"  shall mean the notice  from the Company to the
      Holder of its  option to  exercise  a Monthly  Redemption,  via  facsimile
      transmission in accordance  with Section 5.4 of the Purchase  Agreement as
      to the Monthly Redemption Amount.

            "REDEMPTION PERIOD" means the period commencing on the first Trading
      Day of the first calendar month after the Effective Date and ending on the
      earlier  of (i) the 20  month  anniversary  of such  date,  (ii)  the full
      redemption  of  this  Debenture  or  (iii)  the  release  of  all  of  the
      Collateral.

            "REGISTRATION   RIGHTS  AGREEMENT"  means  the  Registration  Rights
      Agreement,  dated as of the date of the Purchase  Agreement,  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  STATEMENT" means a registration statement meeting the
      requirements  set forth in the  Registration  Rights  Agreement,  covering
      among  other  things  the resale of the  Conversion  Shares and naming the
      Holder as a "selling stockholder" thereunder.

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

            "SETTLEMENT  DATE"  shall  have the  meaning as set forth in Section
      6(b) hereof.

            "SETTLEMENT  PERIOD"  shall have the meaning as set forth in Section
      6(b)(iv) hereof.

            "SETTLEMENT  STATEMENT"  shall  have  the  meaning  as set  forth in
      Section 6(b) hereof.

            "SUBSIDIARY"  shall  have  the  meaning  given  to such  term in the
      Purchase Agreement.

            "THRESHOLD  PERIOD"  shall  have the  meaning  given to such term in
      Section 6(c).

            "TRADING  DAY" means a day on which the Common  Stock is traded on a
      Trading Market.

            "TRADING  MARKET" means the following  markets or exchanges on which
      the Common  Stock is listed or quoted for trading on the date in question:
      the Nasdaq  SmallCap  Market,  the American Stock  Exchange,  the New York
      Stock Exchange, the Nasdaq National Market or the OTC Bulletin Board.

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


                                       5
<PAGE>


            "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 Trading Market, the daily volume weighted average price of the
      Common Stock for such date (or the nearest  preceding date) on the primary
      Trading  Market  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. EST to 4:02 p.m.  Eastern  Time) using the VAP  function;  (b) if the
      Common  Stock is not then  listed or quoted on the  Trading  Market 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  principal  amount of
      Debentures then outstanding.

      SECTION 2.INTEREST.

            a) PAYMENT OF INTEREST IN CASH OR COMMON  STOCK.  The Company  shall
      pay  interest  to  the  Holder  on  the  aggregate  unconverted  and  then
      outstanding  principal  amount  of this  Debenture  at the  rate of 6% per
      annum,  payable  quarterly on March 31, June 30, September 30 and December
      31,  beginning on the first such date after the Original Issue Date and on
      each Conversion Date (as to that principal  amount then being  converted),
      on each Redemption Date (as to that principal  amount then being redeemed)
      and on the Maturity  Date (except that, if any such date is not a Business
      Day, then such payment shall be due on the next  succeeding  Business Day)
      (each such date, an "INTEREST  PAYMENT DATE"), in cash or shares of Common
      Stock at the Interest Conversion Rate, or a combination thereof; PROVIDED,
      HOWEVER, payment in shares of Common Stock may only occur if during the 20
      Trading Days immediately prior to the applicable Interest Payment Date all
      of the Equity  Conditions  have been met and the Company  shall have given
      the Holder notice in  accordance  with the notice  requirements  set forth
      below.

            b) COMPANY'S  ELECTION TO PAY INTEREST IN COMMON  STOCK.  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 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).  Within 20
      Trading Days prior to an Interest  Payment Date,  the  Company's  election
      (whether  specific to an Interest  Payment  Date or  continuous)  shall be
      irrevocable   as  to  such   Interest   Payment   Date.   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
      Interest Payment Date in cash.


                                       6
<PAGE>


            c) INTEREST CALCULATIONS.  Interest shall be calculated on the basis
      of a 360-day year and shall accrue daily  commencing on the Original Issue
      Date 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.  Payment of interest in shares of Common Stock shall  otherwise
      occur pursuant to Section 4(d)(ii) and only for purposes of the payment of
      interest  in  shares,  the  Interest  Payment  Date  shall be  deemed  the
      Conversion  Date.  Interest  shall  cease to accrue  with  respect  to any
      principal amount converted, provided that the Company in fact delivers the
      Conversion  Shares  within the time period  required by Section  4(d)(ii).
      Interest hereunder will be paid to the Person in whose name this Debenture
      is registered  on the records of the Company  regarding  registration  and
      transfers of Debentures  (the "DEBENTURE  REGISTER").  Except as otherwise
      provided  herein,  if at any time the Company pays  interest  partially in
      cash and partially in shares of Common  Stock,  then such payment shall be
      distributed  ratably among the Holders based upon the principal  amount of
      Debentures held by each Holder.

            d) LATE FEE.  All  overdue  accrued  and unpaid  interest to be paid
      hereunder  shall  entail a late fee at the rate of 18% 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.  Notwithstanding
      anything to the contrary contained herein, if on any Interest Payment Date
      the Company has elected to pay interest in Common Stock and is not able to
      pay accrued  interest in the form of Common Stock because it does not then
      satisfy the  conditions  for payment in the form of Common Stock set forth
      above,  then,  at the  option  of the  Holder,  the  Company,  in  lieu of
      delivering  either  shares of Common  Stock  pursuant to this Section 2 or
      paying the regularly  scheduled  cash  interest  payment,  shall  deliver,
      within three  Trading Days of each  applicable  Interest  Payment 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 the payment
      of interest due on such Interest  Payment Date and the highest VWAP during
      the  period  commencing  on the  Interest  Payment  Date and ending on the
      Trading Day prior to the date such payment is made.

            e)  PREPAYMENT.  Except as  otherwise  set forth in this  Debenture,
      including,  without  limitation,  Section 5(b), the Company may not prepay
      any portion of the principal  amount of this  Debenture  without the prior
      written consent of the Holder.

      SECTION 3. REGISTRATION OF TRANSFERS AND EXCHANGES.

            a) DIFFERENT  DENOMINATIONS.  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.

            b)  INVESTMENT  REPRESENTATIONS.  This  Debenture  has  been  issued
      subject to certain  investment  representations of the original Holder set
      forth in the Purchase  Agreement and may be  transferred or exchanged only
      in compliance with the Purchase Agreement and applicable federal and state
      securities laws and regulations.


                                       7
<PAGE>


            c) RELIANCE ON DEBENTURE  REGISTER.  Prior to due presentment to the
      Company for transfer of this  Debenture,  the Company and any agent of the
      Company  may  treat  the  Person  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.

      SECTION 4. CONVERSION.

            a) VOLUNTARY  CONVERSION.  At any time after the Original Issue Date
      until this Debenture is no longer  outstanding,  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(c)(i) hereof). The Holder
      shall effect  conversions  by delivering to the Company the form of Notice
      of  Conversion  attached  hereto as ANNEX A (a  "NOTICE  OF  CONVERSION"),
      specifying  therein the principal amount of Debentures to be converted and
      the date on which such conversion is to be effected (a "CONVERSION DATE").
      If no  Conversion  Date  is  specified  in a  Notice  of  Conversion,  the
      Conversion  Date  shall be the date that  such  Notice  of  Conversion  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  plus all  accrued and unpaid
      interest thereon has been so converted.  Conversions  hereunder shall have
      the effect of lowering the outstanding  principal amount of this Debenture
      in an  amount  equal to the  applicable  conversion.  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
      any Notice of Conversion  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.

            b)  CONVERSION   PRICE.  The  conversion  price  in  effect  on  any
      Conversion Date shall be equal to $1.67 (subject to adjustment herein)(the
      "CONVERSION PRICE").


                                       8
<PAGE>

            c) CONVERSION LIMITATIONS.

                  i.  HOLDER'S   RESTRICTION  ON   CONVERSION.   Other  than  in
            connection  with  conversions  occurring upon and in connection with
            the Company's  exercise of its rights  pursuant to Sections 6(b) and
            6(c), the Company shall not effect any conversion of this Debenture,
            and the Holder  shall not have the right to convert  any  portion of
            this Debenture, pursuant to Section 4(a) or otherwise, to the extent
            that after giving effect to such  conversion,  the Holder  (together
            with the Holder's affiliates), as set forth on the applicable Notice
            of  Conversion,  would  beneficially  own in  excess of 4.99% of the
            number of shares of the Common Stock  outstanding  immediately after
            giving  effect to such  conversion.  For  purposes of the  foregoing
            sentence, the number of shares of Common Stock beneficially owned by
            the Holder and its affiliates  shall include the number of shares of
            Common Stock issuable upon conversion of this Debenture with respect
            to which the determination of such sentence is being made, but shall
            exclude the number of shares of Common Stock which would be issuable
            upon (A) conversion of the remaining,  nonconverted  portion of this
            Debenture  beneficially owned by the Holder or any of its affiliates
            and (B) exercise or conversion of the  unexercised  or  nonconverted
            portion of any other securities of the Company  (including,  without
            limitation,  any other  Debentures  or the  Warrants)  subject  to a
            limitation  on conversion  or exercise  analogous to the  limitation
            contained  herein  beneficially  owned by the  Holder  or any of its
            affiliates.  Except  as set  forth in the  preceding  sentence,  for
            purposes of this  Section  4(c)(i),  beneficial  ownership  shall be
            calculated in accordance  with Section 13(d) of the Exchange Act. To
            the extent that the  limitation  contained in this section  applies,
            the  determination  of whether  this  Debenture is  convertible  (in
            relation  to other  securities  owned by the  Holder) and of which a
            portion  of this  Debenture  is  convertible  shall  be in the  sole
            discretion  of  such  Holder.   To  ensure   compliance   with  this
            restriction,  the Holder will be deemed to  represent to the Company
            each time it  delivers a Notice of  Conversion  that such  Notice of
            Conversion  has not  violated  the  restrictions  set  forth in this
            paragraph  and the  Company  shall have no  obligation  to verify or
            confirm the  accuracy of such  determination.  For  purposes of this
            Section 4(c)(i),  in determining the number of outstanding shares of
            Common  Stock,  the  Holder  may rely on the  number of  outstanding
            shares of Common Stock as reflected in (x) the Company's most recent
            Form  10-QSB or Form  10-KSB,  as the case may be, (y) a more recent
            public  announcement  by the Company or (z) any other  notice by the
            Company or the Company's  Transfer Agent setting forth the number of
            shares of Common Stock outstanding. Upon the written or oral request
            of the Holder,  the Company  shall  within two Trading  Days confirm
            orally  and in  writing to the Holder the number of shares of Common
            Stock  then  outstanding.  In any case,  the  number of  outstanding
            shares of Common Stock shall be  determined  after giving  effect to
            the  conversion or exercise of securities of the Company,  including
            this Debenture, by the Holder or its affiliates since the date as of
            which  such  number  of  outstanding  shares  of  Common  Stock  was
            reported.


                                       9
<PAGE>


                  ii. HOLDER'S RESTRICTION ON CONVERSION.  The Company shall not
            effect any  conversion of this  Debenture,  and the Holder shall not
            have the right to convert any portion of this Debenture, pursuant to
            Section 4(a) or otherwise, to the extent that after giving effect to
            such conversion, the Holder (together with the Holder's affiliates),
            as  set  forth  on  the  applicable  Notice  of  Conversion,   would
            beneficially  own in excess of 9.99% of the  number of shares of the
            Common Stock  outstanding  immediately  after giving  effect to such
            conversion.  For purposes of the foregoing  sentence,  the number of
            shares of Common  Stock  beneficially  owned by the  Holder  and its
            affiliates  shall  include  the  number of  shares  of Common  Stock
            issuable upon conversion of this Debenture with respect to which the
            determination  of such sentence is being made, but shall exclude the
            number of shares of Common  Stock which  would be issuable  upon (A)
            conversion of the remaining,  nonconverted portion of this Debenture
            beneficially  owned by the Holder or any of its  affiliates  and (B)
            exercise or conversion of the unexercised or nonconverted portion of
            any other securities of the Company (including,  without limitation,
            any other  Debentures  or the  Warrants)  subject to a limitation on
            conversion or exercise analogous to the limitation  contained herein
            beneficially owned by the Holder or any of its affiliates. Except as
            set forth in the  preceding  sentence,  for purposes of this Section
            4(c)(ii),  beneficial  ownership  shall be  calculated in accordance
            with  Section  13(d) of the  Exchange  Act.  To the extent  that the
            limitation  contained in this section applies,  the determination of
            whether  this  Debenture  is  convertible   (in  relation  to  other
            securities  owned  by the  Holder)  and of which a  portion  of this
            Debenture is  convertible  shall be in the sole  discretion  of such
            Holder. To ensure compliance with this restriction,  the Holder will
            be deemed to represent to the Company each time it delivers a Notice
            of Conversion  that such Notice of  Conversion  has not violated the
            restrictions  set forth in this paragraph and the Company shall have
            no   obligation   to  verify  or  confirm   the   accuracy  of  such
            determination. For purposes of this Section 4(c)(ii), in determining
            the number of  outstanding  shares of Common  Stock,  the Holder may
            rely  on the  number  of  outstanding  shares  of  Common  Stock  as
            reflected  in (x) the  Company's  most  recent  Form  10-QSB or Form
            10-KSB, as the case may be, (y) a more recent public announcement by
            the Company or (z) any other notice by the Company or the  Company's
            Transfer  Agent  setting  forth the number of shares of Common Stock
            outstanding.  Upon the written or oral  request of the  Holder,  the
            Company shall within two Trading Days confirm  orally and in writing
            to the Holder the number of shares of Common Stock then outstanding.
            In any case, the number of outstanding  shares of Common Stock shall
            be determined  after giving effect to the  conversion or exercise of
            securities of the Company,  including this Debenture,  by the Holder
            or its  affiliates  since  the  date  as of  which  such  number  of
            outstanding shares of Common Stock was reported.

            d) MECHANICS OF CONVERSION


                  i.  CONVERSION  SHARES  ISSUABLE UPON  CONVERSION OF PRINCIPAL
            AMOUNT.  The  number  of  shares of  Common  Stock  issuable  upon a
            conversion hereunder shall be determined by the quotient obtained by
            dividing (x) the outstanding  principal  amount of this Debenture to
            be converted by (y) the Conversion Price.

                  ii. DELIVERY OF CERTIFICATE  UPON  CONVERSION.  Not later than
            five  Trading  Days after any  Conversion  Date,  the  Company  will
            deliver to the Holder (A) a certificate or certificates representing
            the Conversion Shares 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 (including,  if so timely
            elected by the  Company,  shares of Common  Stock  representing  the
            payment of accrued  interest)  and (B) a bank check in the amount of
            accrued  and unpaid  interest  (if the  Company is  required  to pay
            accrued interest in cash). The Company shall 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.


                                       10
<PAGE>


                  iii.  FAILURE TO DELIVER  CERTIFICATES.  If in the case of any
            Notice  of  Conversion  such  certificate  or  certificates  are not
            delivered  to or as directed by the  applicable  Holder by the fifth
            Trading Day 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.

                  iv. PARTIAL LIQUIDATED DAMAGES. Subject to Section 4.10 of the
            Purchase  Agreement,  if the Company fails for any reason to deliver
            to the Holder such  certificate or certificates  pursuant to Section
            4(d)(ii) by the fifth  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  $1000  of  principal  amount  being
            converted, $10 per Trading Day for each Trading Day after such fifth
            Trading Day until such  certificates  are  delivered.  The Company's
            obligations  to  issue  and  deliver  the  Conversion   Shares  upon
            conversion of this Debenture in accordance with the terms hereof are
            absolute and  unconditional,  irrespective of any action or inaction
            by the  Holder to  enforce  the same,  any  waiver or  consent  with
            respect  to any  provision  hereof,  the  recovery  of any  judgment
            against any Person or any action to enforce the same, or any setoff,
            counterclaim,  recoupment,  limitation or termination, or any breach
            or  alleged  breach  by  the  Holder  or  any  other  Person  of any
            obligation to the Company or any  violation or alleged  violation of
            law by the Holder or any other person, and irrespective of any other
            circumstance  which might  otherwise  limit such  obligation  of the
            Company  to the  Holder  in  connection  with the  issuance  of such
            Conversion  Shares;  PROVIDED,  HOWEVER,  such  delivery  shall  not
            operate as a waiver by the  Company of any such  action the  Company
            may have against the Holder. In the event a Holder of this Debenture
            shall  elect  to  convert  any or all of the  outstanding  principal
            amount hereof,  the Company may not refuse  conversion  based on any
            claim that the Holder or any one  associated or affiliated  with the
            Holder of has been engaged in any violation of law, agreement or for
            any other reason,  unless,  an injunction  from a court,  on notice,
            restraining  and or  enjoining  conversion  of all or  part  of this
            Debenture  shall have been sought and obtained and the Company posts
            a surety bond for the benefit of the Holder in the amount of 150% of
            the principal amount of this Debenture outstanding, which is subject
            to the  injunction,  which  bond  shall  remain in effect  until the
            completion of arbitration/litigation of the dispute and the proceeds
            of which  shall be payable  to such  Holder to the extent it obtains
            judgment.  In the absence of an injunction  precluding the same, the
            Company shall issue Conversion Shares or, if applicable,  cash, upon
            a properly noticed conversion. Nothing herein shall limit a Holder's
            right to  pursue  actual  damages  or  declare  an Event of  Default
            pursuant  to Section 8 herein for the  Company's  failure to deliver
            Conversion Shares 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.


                                       11
<PAGE>


                  v. FAILURE TO TIMELY  DELIVER  CERTIFICATES  UPON  CONVERSION.
            Subject to Section  4.10 of the Purchase  Agreement,  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(d)(ii)  by the seventh  Trading Day after the
            Conversion Date, and if after such seventh 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  Conversion  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 actual sale price of the Common  Stock at the
            time of the sale (including  brokerage  commissions,  if any) 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(d)(ii).  For example,  if the Holder
            purchases  Common Stock having a total  purchase price of $11,000 to
            cover a Buy-In with respect to an attempted conversion of Debentures
            with respect to which the actual sale price of the Conversion Shares
            at the time of the sale (including  brokerage  commissions,  if any)
            giving rise to such purchase obligation 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(d)(iv) in respect of the  certificates  resulting in
            such Buy-In.

                  vi.  RESERVATION  OF  SHARES  ISSUABLE  UPON  CONVERSION.  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 Debenture,  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(d))  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  Registration  Statement is then effective  under the Securities
            Act, registered for public sale in accordance with such Registration
            Statement.


                                       12
<PAGE>


                  vii.  FRACTIONAL  SHARES.  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.

                  viii.  TRANSFER TAXES. 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.

      SECTION 5.CERTAIN ADJUSTMENTS.

            a) STOCK  DIVIDENDS  AND STOCK SPLITS.  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 (which,  for avoidance of doubt,  shall not include
      any  shares  of  Common  Stock  issued  by the  Company  pursuant  to this
      Debenture,  including  as interest  thereon),  (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  Conversion  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.


                                       13
<PAGE>


            b)  SUBSEQUENT  EQUITY  SALES.  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 Common Stock or Common Stock  Equivalents  entitling any
      Person to acquire shares of Common Stock,  at an effective price per share
      less than the then Conversion  Price  ("DILUTIVE  ISSUANCE"),  as adjusted
      hereunder  (if the holder of the Common Stock or Common Stock  Equivalents
      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 an  effective  price per share  which is less than the
      Conversion  Price, such issuance shall be deemed to have occurred for less
      than the Conversion Price), then from the Original Issue Date until the 12
      month  anniversary of the Effective  Date,  the Conversion  Price shall be
      reduced to equal the effective conversion,  exchange or purchase price for
      such  Common  Stock or  Common  Stock  Equivalents  (including  any  reset
      provisions  thereof)  at issue  and from the 12 month  anniversary  of the
      Effective  Date  until  this  Debenture  is  no  longer  outstanding,  the
      Conversion  Price  shall  be  adjusted  downward,  but  never  upward,  by
      multiplying the Conversion 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 Conversion
      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;  PROVIDED,  HOWEVER, from the 31
      month   anniversary  of  the  Original  Issue  Date  until  the  36  month
      anniversary  of the  Original  Issue Date,  if the Company uses all of the
      proceeds  from  a  Dilutive   Issuance  to  redeem  the  entire  remaining
      outstanding  principal  amount of the Debentures,  then the Holder of this
      Debenture  shall not  receive an  adjustment  to the  Conversion  Price as
      provided in this  Section.  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  Equivalents  subject to this
      section,   indicating  therein  the  applicable   issuance  price,  or  of
      applicable reset price, exchange price, conversion price and other pricing
      terms.


                                       14
<PAGE>


            c) PRO  RATA  DISTRIBUTIONS.  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  Conversion  Price shall be determined by  multiplying  such
      Conversion Price in effect  immediately prior to the record date fixed for
      determination of stockholders  entitled to receive such  distribution by a
      fraction of which the  denominator  shall be the 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 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.

            d) CALCULATIONS. All calculations under this Section 5 shall be made
      to the nearest cent or the nearest 1/100th of a share, as the case may be.
      For  purposes  of this  Section  5, the  number of shares of Common  Stock
      outstanding as of a given date shall be the sum of the number of shares of
      Common Stock (excluding treasury shares, if any) outstanding.

            e) NOTICE TO HOLDERS.

                  i.  ADJUSTMENT TO CONVERSION  PRICE.  Whenever the  Conversion
            Price is  adjusted  pursuant  to any of this  Section 5, the Company
            shall  promptly  mail to each  Holder a  notice  setting  forth  the
            Conversion  Price after such  adjustment  and setting  forth a brief
            statement of the facts  requiring  such  adjustment.  If the Company
            issues a variable rate security,  despite the prohibition thereon in
            the Purchase  Agreement,  the Company shall be deemed to have issued
            Common  Stock or Common  Stock  Equivalents  at the lowest  possible
            conversion  or  exercise  price  at  which  such  securities  may be
            converted or exercised  in the case of a Variable  Rate  Transaction
            (as  defined in the  Purchase  Agreement),  or the  lowest  possible
            adjustment  price in the case of an MFN  Transaction  (as defined in
            the Purchase Agreement).


                                       15
<PAGE>

                  ii. NOTICE TO ALLOW  CONVERSION BY HOLDER.  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  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.

                  iii.  FUNDAMENTAL  TRANSACTION.  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,  (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 (not including a reverse or forward stock split) 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 Conversion 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  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.  In the event of a Fundamental 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  outstanding
            principal  amount of this  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 principal  amount of the Debenture  then
            outstanding  plus any  accrued  but unpaid  interest  and other fees
            owing thereon on such date.


                                       16
<PAGE>


                  iv.  EXEMPT  ISSUANCE.   Notwithstanding  the  foregoing,   no
            adjustment will be made under this Section 5 in respect of an Exempt
            Issuance.

      SECTION 6. REDEMPTION AND FORCED CONVERSION.

            a)  OPTIONAL  REDEMPTION  AT  ELECTION  OF  COMPANY.  Subject to the
      provisions  of this  Section 6, the  Company  may  deliver a notice to the
      Holders  (an  "OPTIONAL  REDEMPTION  NOTICE"  and the date such  notice is
      deemed delivered hereunder,  the "OPTIONAL REDEMPTION NOTICE DATE") of its
      irrevocable election to redeem all of the then outstanding Debentures, for
      an amount,  in cash, equal to the Optional  Redemption  Amount on the 30th
      Trading Day following the Optional  Redemption Notice Date (such date, the
      "OPTIONAL   REDEMPTION   DATE"   and  such   redemption,   the   "OPTIONAL
      REDEMPTION").  The  Optional  Redemption  Amount  is  due in  full  on the
      Optional  Redemption  Date.  The  Company  may  only  effect  an  optional
      redemption  if during the period  commencing  on the  Optional  Redemption
      Notice Date through to the Optional  Redemption  Date,  each of the Equity
      Conditions  shall  have been met.  If any of the Equity  Conditions  shall
      cease to be  satisfied at any time during the  required  period,  then the
      Holder may elect to nullify the Optional  Redemption  Notice in which case
      the  Optional  Redemption  Notice shall be null and void,  AB INITIO.  The
      Company  covenants  and agrees that it will honor all  Conversion  Notices
      tendered  from the time of  delivery  of the  Optional  Redemption  Notice
      through the date all amounts owing  thereon are due and paid in full.  The
      payment of cash  pursuant to an Optional  Redemption  shall be made on the
      Optional  Redemption  Date.  If any  portion  of the cash  payment  for an
      Optional Redemption shall not be paid by the Company by the respective due
      date,  interest  shall accrue thereon at the rate of 18% per annum (or the
      maximum rate  permitted by  applicable  law,  whichever is less) until the
      payment of the Optional  Redemption  Amount plus all amounts owing thereon
      is paid in full. Alternatively,  if any portion of the Optional Redemption
      Amount  remains  unpaid  after  such  date,  the  Holders  subject to such
      redemption  may elect,  by written notice to the Company given at any time
      thereafter,  to  invalidate  AB INITIO  such  redemption,  notwithstanding
      anything herein  contained to the contrary,  and, with respect the failure
      to honor an Optional  Redemption  only,  the Company shall have no further
      right to exercise such Optional Redemption Right. Notwithstanding anything
      to the contrary in this Section 6, the Company's  determination  to redeem
      in cash or shares of  Common  Stock  shall be  applied  ratably  among the
      Holders based upon the principal amount of Debentures then outstanding and
      held by such Holders.


                                       17
<PAGE>


            b) MONTHLY REDEMPTION.

                  i. So long as any  Collateral  (as  defined  in the  Custodial
            Agreement) remains in the possession of the Custodian (as defined in
            the Custodial Agreement),  at any time during the Redemption Period,
            on each Redemption  Date, the Company may give each Holder notice of
            its  intention  to redeem  each  Holder's  Pro Rata  Portion  of the
            Monthly  Redemption  Amount  stated in such  Redemption  Notice plus
            accrued but unpaid interest,  the sum of all liquidated  damages and
            any  other  amounts  then  owing to such  Holder in  respect  of the
            Debenture;   PROVIDED,   HOWEVER,   the  aggregate  of  the  Monthly
            Redemption  Amounts shall not exceed  $10,000,000 for the Redemption
            Period and any given Monthly  Redemption Amount shall not exceed the
            remaining  amount of  Collateral;  PROVIDED,  FURTHER,  the  Monthly
            Redemption  Amount  shall be  divided  by 18 to  produce  the  Daily
            Redemption  Amount and it is this Daily  Redemption  Amount that the
            Company  will pay to the Holder.  For  purposes  of this  subsection
            only,  "PRO RATA  PORTION" is the ratio of (x) the Secured  Proceeds
            then  attributable  to such Purchaser  pursuant to, and held in, the
            Custodial  Agreement  and (y) the sum of all Secured  Proceeds  then
            held by the Custodian.

                  ii. The Monthly Redemption Amount shall only be paid in shares
            of  Common  Stock.  The  Conversion  Shares  issued  pursuant  to  a
            Redemption  Notice shall have a conversion price equal to 93% of the
            VWAP for each Trading Day during the  Redemption  Period (the "DAILY
            CONVERSION  PRICE").  The  number  of  Conversion  Shares  issued in
            connection with a Redemption  Notice,  subject to adjustment for any
            stock  dividend,  stock split,  stock  combination  or other similar
            event  affecting  the Common Stock  during such  Monthly  Redemption
            Period,  shall  be the  sum  of  the  quotients  of  (a)  the  Daily
            Redemption Amount for each Trading Day during the Monthly Redemption
            Period  divided by (b) the Daily  Conversion  Price for such Trading
            Day,  with the first such Trading Day occurring on the first Trading
            Day after the receipt of the Redemption Notice.

                  iii.  Notwithstanding  anything  herein to the contrary,  each
            Daily  Redemption  Amount  shall  not  be  greater  than  the  Daily
            Redemption  Maximum,  and if such Daily Redemption Amount is greater
            than the Daily Redemption Maximum, then such Daily Redemption Amount
            shall  equal  the Daily  Redemption  Maximum  (aggregated  among all
            Holders).


                                       18
<PAGE>


                  iv. Each  Monthly  Redemption  shall be settled as between the
            Company  and the  Holder  on every  third  Trading  Day of a Monthly
            Redemption  Period  beginning  on the  fourth  Trading  Day of  such
            Monthly  Redemption  Period (each such date a "SETTLEMENT  DATE" and
            the 3  Trading  Days  immediately  prior  to  the  Settlement  Date,
            "SETTLEMENT  PERIOD").  On each Settlement Date, the Company and the
            Holder  shall  execute  a  settlement   statement  (the  "SETTLEMENT
            Statement")  setting forth the number of Conversion  Shares issuable
            in connection with the Trading Days during the Settlement Period and
            each of the Daily  Conversion  Prices as to such Settlement  Period.
            Notwithstanding anything to the contrary hereunder, unless waived by
            the Holder,  partial  settlement of a Monthly  Redemption  shall not
            occur on the  applicable  Settlement  Date if during the  Settlement
            Period and on the Settlement Date the Equity  Conditions (other than
            clause (viii) therein) have not been met. Promptly upon execution of
            the  Settlement  Statement  (but in no event more than 1 Trading day
            after the execution of such  Settlement  Statement),  the Conversion
            Shares purchased pursuant to such Settlement Statement (that is, the
            sum of the  quotients  calculated  pursuant to clause (ii) above for
            the Trading Days during such  Settlement  Period) shall be delivered
            to the Depository  Trust Company ("DTC")  account of the Holder,  or
            its  designees,  as  designated  by the  Holder  in  the  Settlement
            Statement,  via DTC's Deposit  Withdrawal  Agent  Commission  system
            ("DWAC"). Upon the Company electronically delivering such Conversion
            Shares to the DTC  account  of the  Holder,  or its  designees,  the
            Holder  shall,  on the  same day  direct  to the  Custodian  to wire
            transfer immediately  available funds to the Company's bank account,
            as designated by the Company in the  Settlement  Statement,  for the
            portion  of  the  aggregate   Monthly   Redemption  Amount  of  such
            Conversion Shares settled on such Settlement Date. The provisions of
            Section  4(d) shall apply to any shares of Common Stock to be issued
            on any Settlement Date in connection with a Monthly Redemption.

                  v. Any  principal  amount of Debenture  voluntarily  converted
            pursuant to Section  4(a)  during any  Settlement  Period  until the
            Settlement  Date  shall be first  applied  to the  principal  amount
            subject  to the Daily  Redemption  Amounts  calculated  during  such
            Settlement  Period.  The  Holder  shall  indicate  in its  Notice of
            Conversion,  in its sole  discretion,  the specific Daily Redemption
            Amounts  during  such  Settlement  Period to be reduced by virtue of
            such  conversions.  Unless  otherwise  indicated  in the  Notice  of
            Conversion  by the Holder,  any principal  amount of this  Debenture
            voluntarily  converted  during  any  Settlement  Period  which is in
            excess  of the  Holder's  Pro Rata  Portion  of the sum of the Daily
            Redemption Amounts calculated during such Settlement Period shall be
            applied  against that portion of the  principal  amount which is not
            collateralized  by the  Custodial  Account  (i.e.  one-third  of the
            original principal  amount).  If no  un-collateralized  principal is
            outstanding at a time when the Holder  converts more than the sum of
            the Daily  Redemption  Amounts during a pending  Settlement  Period,
            such  excess  amount  shall be applied to the end of the  Redemption
            Period,  unless  otherwise  indicated in the Notice of Conversion by
            the Holder. For purposes of clarification,  so long as Collateral is
            held by the  Custodian on account of the Holder  pursuant to Section
            1(g)  therein,  a voluntary  conversion  during a Settlement  Period
            shall not reduce the amount of Collateral  released by the Custodian
            to the Company as a result of a Monthly Redemption.


                                       19
<PAGE>


                  vi.  The  payment  of  Common  Stock  pursuant  to  a  Monthly
            Redemption shall be made on the applicable Settlement Date.


            c)  FORCED  CONVERSION.   Notwithstanding  anything  herein  to  the
      contrary,  if  after  the  Effective  Date  each of the  VWAPs  for any 20
      consecutive  Trading Days (such period commencing only after the Effective
      Date,  such period the "THRESHOLD  PERIOD"))  exceeds the then  Conversion
      Price by at least 150%  (subject  to  adjustment  for  reverse and forward
      stock  splits,  stock  dividends,  stock  combinations  and other  similar
      transactions  of the  Common  Stock that occur  after the  Original  Issue
      Date),  the  Company  may,  within 2  Trading  Days of the end 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). The Company may only effect a Forced Conversion Notice if all of the
      Equity  Conditions are met through the applicable  Threshold  Period until
      the date of the applicable Forced Conversion.  Any Forced Conversion shall
      be applied  ratably to all Holders  based on their  initial  purchases  of
      Debentures pursuant to the Purchase Agreement.

      SECTION 7.NEGATIVE COVENANTS.  So long as any portion of this Debenture is
outstanding, the Company will not and will not permit any of its Subsidiaries to
directly or indirectly amend its certificate of incorporation,  bylaws or to her
charter documents so as to adversely affect any rights of the Holder.

      SECTION 8.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) that is not cured within 10 Trading
      Days after receipt of notice from a Purchaser:

                  i. any default in the payment of (A) the  principal  of amount
            of any  Debenture,  or (B)  interest  (including  Late  Fees) on, or
            liquidated  damages in respect of, any Debenture,  in each case free
            of any claim of subordination, 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,  solely in the case of an
            interest  payment or other  default  under clause (B) above,  is not
            cured, within 5 Trading Days;


                                       20
<PAGE>


                  ii. the  Company  shall  fail to observe or perform  any other
            covenant or  agreement  contained  in this  Debenture  or any of the
            other  Transaction  Documents (other than a breach by the Company of
            its obligations to deliver shares of Common Stock to the Holder upon
            conversion  which  breach is  addressed in clause (xii) below) which
            failure is not cured,  if  possible to cure,  within 5 Trading  Days
            after  notice  of such  default  sent by the  Holder or by any other
            Holder;

                  iii. a default or event of  default  (subject  to any grace or
            cure period  provided for in the applicable  agreement,  document or
            instrument)  shall occur under (A) any of the Transaction  Documents
            other  than the  Debentures,  or (B) any other  material  agreement,
            lease, document or instrument to which the Company or any Subsidiary
            is bound;

                  iv. any  representation  or warranty made herein, in any other
            Transaction  Document,  in any written statement  pursuant hereto or
            thereto, or in any other report,  financial statement or certificate
            made or delivered  to the Holder or any other  holder of  Debentures
            shall be untrue or incorrect in any material  respect as of the date
            when made or deemed made;

                  v. (i) 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 or any Subsidiary  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 (ii) 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 (iii) the Company or any Subsidiary thereof is
            adjudicated  by a  court  of  competent  jurisdiction  insolvent  or
            bankrupt;  or any order of relief or other order  approving any such
            case or proceeding is entered; or (iv) 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 (v) the  Company  or any
            Subsidiary  thereof  makes a general  assignment  for the benefit of
            creditors;  or (vi) 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 (vii) 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 (viii) 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 (ix) any corporate or other
            action is taken by the  Company or any  Subsidiary  thereof  for the
            purpose of effecting any of the foregoing;


                                       21
<PAGE>


                  vi. the Company or any Subsidiary  shall default in any of its
            obligations under 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  $500,000 and which  default shall have a Material
            Adverse Effect on the Company,  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;

                  vii. the Common  Stock shall not be eligible for  quotation on
            or quoted  for  trading  on a Trading  Market and shall not again be
            eligible  for and quoted or listed for trading  thereon  within five
            Trading Days;

                  viii.  the  Company  shall be a party to any Change of Control
            Transaction,  shall  agree to sell or dispose of all or in excess of
            51% of its assets in one or more  transactions  (whether or not such
            sale  would  constitute  a Change of Control  Transaction)  or shall
            redeem  or  repurchase   more  than  a  de  minimis  number  of  its
            outstanding shares of Common Stock or other equity securities of the
            Company (other than redemptions of Conversion Shares and repurchases
            of shares of Common  Stock or other equity  securities  of departing
            officers and  directors of the Company;  provided  such  repurchases
            shall  exceed  $100,000,  in the  aggregate,  for all  officers  and
            directors during the term of this Debenture);

                  ix. a  Registration  Statement  shall not have  been  declared
            effective by the  Commission on or prior to the  Effectiveness  Date
            (as defined in the Registration Rights Agreement);

                  x. if,  during the  Effectiveness  Period  (as  defined in the
            Registration   Rights   Agreement),   the   effectiveness   of   the
            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 Registration  Statement, in
            either  case,  for  more  than  30  consecutive  Trading  Days or 60
            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  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 be permitted an
            additional  10  consecutive  Trading  during  any  12  month  period
            relating to such an event;


                                       22
<PAGE>


                  xi. 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 Registration Statement to be declared
            effective by the  Commission on or prior to the  Effectiveness  Date
            (as defined in the Registration  Rights  Agreement),  which shall be
            covered by Section 8(a)(ix);

                  xii.  the  Company  shall  fail  for  any  reason  to  deliver
            certificates  to a Holder  prior to the  fifth  Trading  Day after a
            Conversion  Date pursuant to and in accordance  with Section 4(d) 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;

                  xiii.  the  Company  shall fail for any reason to deliver  the
            payment in cash pursuant to a Buy-In (as defined herein) within five
            Trading Days after notice thereof is delivered hereunder; or

                  xiv.  the Company  shall fail to have  available a  sufficient
            number of authorized and unreserved  shares of Common Stock to issue
            to such Holder upon a conversion hereunder.

            b) REMEDIES UPON EVENT OF DEFAULT.  If any Event of Default  occurs,
      the full principal  amount of this  Debenture,  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. Commencing 5 days after the occurrence of any
      Event  of  Default  that  results  in the  eventual  acceleration  of this
      Debenture, the interest rate on this Debenture shall accrue at the rate of
      18% per annum,  or such lower maximum  amount of interest  permitted to be
      charged under  applicable law. All Debentures for which the full Mandatory
      Prepayment  Amount  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.


                                       23
<PAGE>

      SECTION 9. MISCELLANEOUS.

            a)  NOTICES.   Any  and  all  notices  or  other  communications  or
      deliveries  to be provided by the Holders  hereunder,  including,  without
      limitation,  any Notice of  Conversion,  shall be in writing and delivered
      personally,  by  facsimile,  sent  by a  nationally  recognized  overnight
      courier service, addressed to the Company, at the address set forth above,
      facsimile  number (949) 428-8515,  ATTN:  BENTON H. WILCOXON 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
      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) the second Business Day following the date
      of mailing, if sent by nationally recognized overnight courier service, or
      (iv) upon  actual  receipt by the party to whom such notice is required to
      be given.

            b) ABSOLUTE  OBLIGATION.  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  ranks  PARI PASSU with all other  Debentures  now or  hereafter
      issued under the terms set forth herein.

            c) SECURITY INTEREST.  This Debenture is a direct debt obligation of
      the Company and, pursuant to the Custodial Agreement is secured by a first
      priority  perfected  security interest in the Secured Proceeds (as defined
      by  the  Custodial  Agreement)  held  by  the  Custodian  pursuant  to the
      Custodial Agreement for the benefit of the Holders.

            d)  LOST  OR  MUTILATED  DEBENTURE.   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.


                                       24
<PAGE>


            e)  GOVERNING  LAW.  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.

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


                                       25
<PAGE>


            g)  SEVERABILITY.  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 shall be found that any interest or other amount
      deemed interest due hereunder  violates  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 this Debenture 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.

            h) NEXT  BUSINESS  DAY.  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.

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


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


                                       26
<PAGE>


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



                        COMPOSITE TECHNOLOGY CORPORATION

                        By:__________________________________________
                           Name:
                           Title:



                                       27
<PAGE>


                                                                         ANNEX A

                              NOTICE OF CONVERSION

      The  undersigned  hereby elects to convert  principal under the 6% Secured
Convertible Debenture of Composite Technology Corporation,  a Nevada corporation
(the "COMPANY"), due on August ___, 2007, into shares of common stock, par value
$0.001  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 Common Stock __ yes  __ no
                                If yes, $_____ of Interest Accrued on Account
                                of Conversion at Issue.

                           Number  of  shares of Common Stock to be issued:

                           Signature:

                           Name:

                           Address:


                                       28
<PAGE>


                                   SCHEDULE 1

                               CONVERSION SCHEDULE

The 6% Secured Convertible  Debentures due on August ___, 2007, in the aggregate
principal amount of  $____________  issued by Composite  Technology  Corporation
This Conversion Schedule reflects  conversions made under Section 4 of the above
referenced Debenture.

                                     Dated:

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


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


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


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


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


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


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


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


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


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


                                       29
<PAGE>

                                                                       EXHIBIT B

                          REGISTRATION RIGHTS AGREEMENT

      This Registration  Rights Agreement (this "AGREEMENT") is made and entered
into as of August 17,  2004 among  Composite  Technology  Corporation,  a Nevada
corporation  (the  "COMPANY"),  and the purchasers  signatory  hereto (each such
purchaser  is a  "PURCHASER"  and all such  purchasers  are,  collectively,  the
"PURCHASERS").

      This  Agreement is made  pursuant to the  Securities  Purchase  Agreement,
dated as of the date hereof among the Company and the Purchasers  (the "PURCHASE
AGREEMENT").

      The Company and the Purchasers hereby agree as follows:

      1.    DEFINITIONS

      CAPITALIZED  TERMS USED AND NOT OTHERWISE  DEFINED HEREIN THAT ARE DEFINED
IN THE  PURCHASE  AGREEMENT  SHALL  HAVE THE  MEANINGS  GIVEN  SUCH TERMS IN THE
PURCHASE  AGREEMENT.  As used in this Agreement,  the following terms shall have
the following meanings:

      "ADVICE" shall have the meaning set forth in Section 6(d).

            "EFFECTIVENESS DATE" means, with respect to the initial Registration
      Statement required to be filed hereunder,  the 90th calendar day following
      the  Filing  Date (the 150th  calendar  day in the case of a review by the
      Commission)  and, with respect to any additional  Registration  Statements
      which may be required  pursuant to Section  3(c),  the 90th  calendar  day
      following the  applicable  Filing Date (the 150th calendar day in the case
      of a review of the Registration  Statement by the  Commission);  PROVIDED,
      HOWEVER,  in the event the Company is notified by the Commission  that one
      of the above Registration  Statements will not be reviewed or is no longer
      subject to further review and comments,  the Effectiveness Date as to such
      Registration  Statement  shall be the fifth Trading Day following the date
      on which  the  Company  is so  notified  if such date  precedes  the dates
      required above.

            "EFFECTIVENESS  PERIOD"  shall have the meaning set forth in Section
      2(a).

            "EVENT" shall have the meaning set forth in Section 2(b).

            "EVENT DATE" shall have the meaning set forth in Section 2(b).

            "FILING  DATE"  means,  with  respect  to the  initial  Registration
      Statement  required  hereunder,  the 30th  calendar day following the date
      hereof and, with respect to any additional  Registration  Statements which
      may be required  pursuant to Section 3(c), the 30th day following the date
      on which the Company  first knows,  or  reasonably  should have known that
      such additional Registration Statement is required hereunder.


                                       1
<PAGE>


            "HOLDER" or "HOLDERS"  means the holder or holders,  as the case may
      be, from time to time of Registrable Securities.

            "INDEMNIFIED  PARTY"  shall  have the  meaning  set forth in Section
      5(c).

            "INDEMNIFYING  PARTY"  shall have the  meaning  set forth in Section
      5(c).

            "LOSSES" shall have the meaning set forth in Section 5(a).

            "PROCEEDING"  means  an  action,   claim,  suit,   investigation  or
      proceeding  (including,  without  limitation,  an investigation or partial
      proceeding, such as a deposition), whether commenced or threatened.

            "PROSPECTUS"  means  the  prospectus   included  in  a  Registration
      Statement (including,  without limitation,  a prospectus that includes any
      information  previously  omitted  from a  prospectus  filed  as part of an
      effective  registration  statement in reliance upon Rule 430A  promulgated
      under the Securities  Act), as amended or  supplemented  by any prospectus
      supplement,  with  respect to the terms of the  offering of any portion of
      the Registrable  Securities covered by a Registration  Statement,  and all
      other   amendments   and   supplements   to  the   Prospectus,   including
      post-effective  amendments,  and all material incorporated by reference or
      deemed to be incorporated by reference in such Prospectus.

            "REGISTRABLE SECURITIES" means (i) all of the shares of Common Stock
      issuable  upon  conversion  in full of the  Debentures,  (ii)  all  shares
      issuable as interest on the Debentures  assuming all interest payments are
      made in shares of Common Stock and the Debentures are held until maturity,
      (iii) all Warrant Shares,  (iv) any securities issued or issuable upon any
      stock split,  dividend or other distribution  recapitalization  or similar
      event with respect to the foregoing and (v) any additional shares issuable
      in connection with any anti-dilution provisions in the Debentures.

            "REGISTRATION  STATEMENT" means the registration statements required
      to  be  filed  hereunder  and  any  additional   registration   statements
      contemplated  by Section 3(c),  including  (in each case) the  Prospectus,
      amendments and supplements to such  registration  statement or Prospectus,
      including pre- and post-effective  amendments,  all exhibits thereto,  and
      all material  incorporated  by reference or deemed to be  incorporated  by
      reference in such registration statement.

            "RULE 415" means Rule 415 promulgated by the Commission  pursuant to
      the Securities  Act, as such Rule may be amended from time to time, or any
      similar rule or  regulation  hereafter  adopted by the  Commission  having
      substantially the same purpose and effect as such Rule.

            "RULE 424" means Rule 424 promulgated by the Commission  pursuant to
      the Securities  Act, as such Rule may be amended from time to time, or any
      similar rule or  regulation  hereafter  adopted by the  Commission  having
      substantially the same purpose and effect as such Rule.


                                       2
<PAGE>


      2.    SHELF REGISTRATION

      (a) On or prior to each Filing Date,  the Company  shall  prepare and file
with the Commission a "Shelf" Registration Statement covering the resale of 150%
of the Registrable  Securities on such Filing Date for an offering to be made on
a continuous basis pursuant to Rule 415. The Registration  Statement shall be on
Form S-3 (except if the Company is not then  eligible to register for resale the
Registrable  Securities on Form S-3, in which case such registration shall be on
another  appropriate  form in accordance  herewith)  and shall  contain  (unless
otherwise  directed by the  Holders)  substantially  the "Plan of  Distribution"
attached hereto as ANNEX A. Subject to the terms of this Agreement,  the Company
shall use its best  efforts to cause the  Registration  Statement to be declared
effective  under the  Securities  Act as promptly  as possible  after the filing
thereof, but in any event prior to the applicable  Effectiveness Date, and shall
use its best efforts to keep such Registration  Statement continuously effective
under the  Securities  Act  until all  Registrable  Securities  covered  by such
Registration Statement have been sold or may be sold without volume restrictions
pursuant to Rule 144(k) as determined by the counsel to the Company  pursuant to
a written  opinion  letter  to such  effect,  addressed  and  acceptable  to the
Company's transfer agent and the affected Holders (the "EFFECTIVENESS  PERIOD").
The Company shall  immediately  notify the Holders of the  effectiveness  of the
Registration Statement on the same day that the Company receives notification of
the effectiveness from the Commission.  Failure to so notify the Holder within 1
Trading Day of such notification shall be deemed an Event under Section 2(b).

      (b) If:  (i) a  Registration  Statement  is not  filed  on or prior to its
Filing Date (if the Company files a Registration Statement without affording the
Holders the opportunity to review and comment on the same as required by Section
3(a),  the Company  shall not be deemed to have  satisfied  this clause (i)), or
(ii) the Company fails to file with the Commission a request for acceleration in
accordance  with Rule 461  promulgated  under the  Securities  Act,  within five
Trading  Days of the date that the  Company is  notified  (orally or in writing,
whichever is earlier) by the Commission  that a Registration  Statement will not
be  "reviewed,"  or not  subject  to  further  review,  or  (iii)  prior  to its
Effectiveness  Date,  the Company  fails to file a  pre-effective  amendment and
otherwise  respond in writing to comments  made by the  Commission in respect of
such Registration Statement within 15 Trading Days after the receipt of comments
by or notice from the Commission  that such amendment is required in order for a
Registration  Statement  to  be  declared  effective,  or  (iv)  a  Registration
Statement filed or required to be filed  hereunder is not declared  effective by
the Commission by its Effectiveness Date, or (v) after the Effectiveness Date, a
Registration Statement ceases for any reason to remain continuously effective as
to all Registrable  Securities for which it is required to be effective,  or the
Holders  are not  permitted  to utilize  the  Prospectus  therein to resell such
Registrable  Securities  for 10  consecutive  Trading  Days but no more  than an
aggregate  of 15 Trading  Days  during any  12-month  period  (which need not be
consecutive  Trading  Days) (any such failure or breach being  referred to as an
"EVENT",  and for  purposes  of clause  (i) or (iv) the date on which such Event
occurs,  or for  purposes of clause (ii) the date on which such five Trading Day
period is  exceeded,  or for  purposes  of clause  (iii) the date  which such 10
Trading Day period is exceeded,  or for purposes of clause (v) the date on which
such 10 or 15 Trading Day period,  as applicable,  is exceeded being referred to
as "EVENT  DATE"),  then in  addition  to any other  rights the Holders may have
hereunder or under  applicable  law, on each such Event Date and on each monthly
anniversary of each such Event Date (if the applicable Event shall not have been
cured by such date) until the applicable  Event is cured,  the Company shall pay
to each  Holder an amount in cash,  as partial  liquidated  damages and not as a
penalty,  equal to 2.0% of the  aggregate  purchase  price  paid by such  Holder
pursuant to the Purchase  Agreement for any Registrable  Securities then held by
such Holder. If the Company fails to pay any partial liquidated damages pursuant
to this  Section in full within seven days after the date  payable,  the Company
will pay  interest  thereon at a rate of 18% per annum (or such  lesser  maximum
amount that is permitted to be paid by applicable  law) to the Holder,  accruing
daily from the date such partial  liquidated damages are due until such amounts,
plus all such interest thereon, are paid in full. The partial liquidated damages
pursuant  to the terms  hereof  shall  apply on a daily  pro-rata  basis for any
portion of a month prior to the cure of an Event.


                                       3
<PAGE>


      3.    REGISTRATION PROCEDURES

      In connection with the Company's registration  obligations hereunder,  the
Company shall:

      (a)  Not  less  than  five  Trading  Days  prior  to the  filing  of  each
Registration  Statement or any related Prospectus or any amendment or supplement
thereto  (including  any  document  that would be  incorporated  or deemed to be
incorporated  therein by  reference),  the  Company  shall,  (i) furnish to each
Holder copies of all such documents proposed to be filed, which documents (other
than those  incorporated  or deemed to be  incorporated  by  reference)  will be
subject  to the  review  of such  Holders,  and  (ii)  cause  its  officers  and
directors,  counsel and independent  certified public  accountants to respond to
such inquiries as shall be necessary,  in the  reasonable  opinion of respective
counsel  to  conduct  a  reasonable  investigation  within  the  meaning  of the
Securities  Act. The Company  shall not file the  Registration  Statement or any
such Prospectus or any amendments or supplements thereto to which the Holders of
a majority of the Registrable  Securities shall reasonably object in good faith,
provided  that,  the Company is notified of such  objection  in writing no later
than 5 Trading  Days after the  Holders  have been so  furnished  copies of such
documents.   Each   Holder   agrees  to  furnish  to  the  Company  a  completed
Questionnaire  in the form  attached  to this  Agreement  as Annex B (a "SELLING
HOLDER  QUESTIONNAIRE")  not less than two Trading Days prior to the Filing Date
or by the end of the fourth  Trading Day following the date on which such Holder
receives draft materials in accordance with this Section.

      (b) (i) Prepare and file with the Commission  such  amendments,  including
post-effective  amendments,  to a Registration Statement and the Prospectus used
in  connection  therewith as may be necessary to keep a  Registration  Statement
continuously  effective  as to the  applicable  Registrable  Securities  for the
Effectiveness  Period and prepare and file with the Commission  such  additional
Registration Statements in order to register for resale under the Securities Act
all of the  Registrable  Securities;  (ii) cause the  related  Prospectus  to be
amended or supplemented by any required  Prospectus  supplement  (subject to the
terms of this Agreement), and as so supplemented or amended to be filed pursuant
to Rule 424;  (iii) respond as promptly as  reasonably  possible to any comments
received from the  Commission  with respect to a  Registration  Statement or any
amendment  thereto and as promptly as  reasonably  possible  provide the Holders
true and  complete  copies  of all  correspondence  from  and to the  Commission
relating to a Registration  Statement;  and (iv) comply in all material respects
with the  provisions of the  Securities Act and the Exchange Act with respect to
the  disposition  of  all  Registrable  Securities  covered  by  a  Registration
Statement  during the applicable  period in accordance  (subject to the terms of
this Agreement) with the intended  methods of disposition by the Holders thereof
set forth in such Registration  Statement as so amended or in such Prospectus as
so supplemented.


                                       4
<PAGE>


      (c)  If  during  the  Effectiveness  Period,  the  number  of  Registrable
Securities  at any time exceeds 90% of the number of shares of Common Stock then
registered in a Registration  Statement,  then the Company shall file as soon as
reasonably  practicable but in any case prior to the applicable  Filing Date, an
additional Registration Statement covering the resale by the Holders of not less
than 125% of the number of such Registrable Securities.

      (d) Notify the Holders of Registrable  Securities to be sold (which notice
shall,  pursuant to clauses  (ii)  through (vi)  hereof,  be  accompanied  by an
instruction  to suspend the use of the  Prospectus  until the requisite  changes
have been made) as promptly as reasonably  possible  (and, in the case of (i)(A)
below,  not less than five Trading Days prior to such filing) and (if  requested
by any such Person) confirm such notice in writing no later than one Trading Day
following  the day (i)(A) when a  Prospectus  or any  Prospectus  supplement  or
post-effective  amendment to a  Registration  Statement is proposed to be filed;
(B) when the Commission notifies the Company whether there will be a "review" of
such Registration  Statement and whenever the Commission  comments in writing on
such Registration  Statement (the Company shall provide true and complete copies
thereof and all written responses thereto to each of the Holders);  and (C) with
respect to a Registration  Statement or any post-effective  amendment,  when the
same has become  effective;  (ii) of any request by the  Commission or any other
Federal or state  governmental  authority  for  amendments or  supplements  to a
Registration Statement or Prospectus or for additional information; (iii) of the
issuance by the Commission or any other federal or state governmental  authority
of any stop order  suspending  the  effectiveness  of a  Registration  Statement
covering  any or all of the  Registrable  Securities  or the  initiation  of any
Proceedings  for  that  purpose;  (iv)  of the  receipt  by the  Company  of any
notification  with respect to the suspension of the  qualification  or exemption
from  qualification  of  any of  the  Registrable  Securities  for  sale  in any
jurisdiction,  or the  initiation  or  threatening  of any  Proceeding  for such
purpose;  (v) of the  occurrence  of any event or passage of time that makes the
financial  statements  included  in  a  Registration  Statement  ineligible  for
inclusion  therein  or  any  statement  made  in  a  Registration  Statement  or
Prospectus or any document  incorporated or deemed to be incorporated therein by
reference  untrue in any material  respect or that  requires any  revisions to a
Registration Statement,  Prospectus or other documents so that, in the case of a
Registration  Statement  or the  Prospectus,  as the  case  may be,  it will not
contain any untrue  statement  of a material  fact or omit to state any material
fact required to be stated therein or necessary to make the statements  therein,
in light of the  circumstances  under which they were made, not misleading;  and
(vi) the  occurrence  or existence  of any pending  corporate  development  with
respect to the Company that the Company  believes  may be material and that,  in
the  determination  of the  Company,  makes it not in the best  interest  of the
Company  to  allow  continued  availability  of the  Registration  Statement  or
Prospectus;  provided  that  any  and  all  of  such  information  shall  remain
confidential  to each Holder until such  information  otherwise  becomes public,
unless  disclosure  by  a  Holder  is  required  by  law;   PROVIDED,   FURTHER,
notwithstanding  each Holder's agreement to keep such information  confidential,
the Holders  make no  acknowledgement  that any such  information  is  material,
non-public information.


                                       5
<PAGE>


      (e) Use its commercially  reasonable efforts to avoid the issuance of, or,
if issued,  obtain the withdrawal of (i) any order suspending the  effectiveness
of a Registration  Statement,  or (ii) any suspension of the  qualification  (or
exemption from  qualification) of any of the Registrable  Securities for sale in
any jurisdiction, at the earliest practicable moment.

      (f) Furnish to each Holder, without charge, at least one conformed copy of
each such Registration Statement and each amendment thereto, including financial
statements  and  schedules,   all  documents   incorporated   or  deemed  to  be
incorporated  therein by reference to the extent  requested by such Person,  and
all exhibits to the extent requested by such Person  (including those previously
furnished  or  incorporated  by  reference)  promptly  after the  filing of such
documents with the Commission.

      (g) Promptly deliver to each Holder, without charge, as many copies of the
Prospectus  or  Prospectuses  (including  each  form  of  prospectus)  and  each
amendment  or  supplement  thereto as such  Persons  may  reasonably  request in
connection with resales by the Holder of Registrable Securities.  Subject to the
terms  of  this  Agreement,  the  Company  hereby  consents  to the  use of such
Prospectus  and each  amendment  or  supplement  thereto by each of the  selling
Holders in connection with the offering and sale of the  Registrable  Securities
covered by such Prospectus and any amendment or supplement thereto, except after
the giving on any notice pursuant to Section 3(d).

      (h) Prior to any resale of  Registrable  Securities  by a Holder,  use its
commercially  reasonable  efforts to register or qualify or  cooperate  with the
selling  Holders  in  connection  with the  registration  or  qualification  (or
exemption from the Registration or qualification) of such Registrable Securities
for the  resale  by the  Holder  under the  securities  or Blue Sky laws of such
jurisdictions  within the United  States as any Holder  reasonably  requests  in
writing,  to keep each  registration or qualification  (or exemption  therefrom)
effective  during the  Effectiveness  Period and to do any and all other acts or
things reasonably  necessary to enable the disposition in such  jurisdictions of
the Registrable  Securities  covered by each Registration  Statement;  provided,
that the Company  shall not be required to qualify  generally  to do business in
any jurisdiction  where it is not then so qualified,  subject the Company to any
material tax in any such jurisdiction  where it is not then so subject or file a
general consent to service of process in any such jurisdiction.

      (i) If requested by the Holders,  cooperate with the Holders to facilitate
the timely  preparation  and delivery of certificates  representing  Registrable
Securities to be delivered to a transferee pursuant to a Registration Statement,
which  certificates  shall be free,  to the  extent  permitted  by the  Purchase
Agreement, of all restrictive legends, and to enable such Registrable Securities
to be in such denominations and registered in such names as any such Holders may
request.


                                       6
<PAGE>


      (j) Upon the  occurrence of any event  contemplated  by this Section 3, as
promptly as reasonably possible under the circumstances  taking into account the
Company's good faith  assessment of any adverse  consequences to the Company and
its stockholders of the premature disclosure of such event, prepare a supplement
or amendment,  including a post-effective amendment, to a Registration Statement
or a supplement to the related Prospectus or any document incorporated or deemed
to be incorporated therein by reference, and file any other required document so
that,  as  thereafter  delivered,  neither  a  Registration  Statement  nor such
Prospectus will contain an untrue  statement of a material fact or omit to state
a  material  fact  required  to be  stated  therein  or  necessary  to make  the
statements  therein,  in light of the circumstances  under which they were made,
not misleading.  If the Company  notifies the Holders in accordance with clauses
(ii)  through  (v) of Section  3(d) above to suspend  the use of any  Prospectus
until the requisite  changes to such Prospectus have been made, then the Holders
shall  suspend use of such  Prospectus.  The Company  will use its  commercially
reasonable  efforts to ensure that the use of the  Prospectus  may be resumed as
promptly as is practicable.  The Company shall be entitled to exercise its right
under this Section 3(j) to suspend the availability of a Registration  Statement
and Prospectus, subject to the payment of partial liquidated damages pursuant to
Section 2(b),  for a period not to exceed 60 days (which need not be consecutive
days) in any 12 month period.

      (k) Comply with all applicable rules and regulations of the Commission.

      (l) The Company may require each selling  Holder to furnish to the Company
a certified  statement as to the number of shares of Common  Stock  beneficially
owned by such Holder and, if required by the Commission, the person thereof that
has voting and dispositive control over the Shares.  During any periods that the
Company  is  unable  to meet  its  obligations  hereunder  with  respect  to the
registration  of the Registrable  Securities  solely because any Holder fails to
furnish such information within three Trading Days of the Company's request, any
liquidated  damages  that are accruing at such time as to such Holder only shall
be tolled and any Event that may  otherwise  occur solely  because of such delay
shall be suspended as to such Holder only,  until such  information is delivered
to the Company.

      4.  REGISTRATION   EXPENSES.   All  fees  and  expenses  incident  to  the
performance  of or compliance  with this Agreement by the Company shall be borne
by the Company  whether or not any  Registrable  Securities are sold pursuant to
the Registration  Statement.  The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and filing fees
(including,  without  limitation,  fees and expenses (A) with respect to filings
required  to be made with the Trading  Market on which the Common  Stock is then
listed for trading,  and (B) in compliance with applicable  state  securities or
Blue Sky laws reasonably agreed to by the Company in writing (including, without
limitation, fees and disbursements of counsel for the Company in connection with
Blue  Sky  qualifications  or  exemptions  of  the  Registrable  Securities  and
determination  of the eligibility of the  Registrable  Securities for investment
under the laws of such jurisdictions as requested by the Holders), (ii) printing
expenses (including,  without limitation,  expenses of printing certificates for
Registrable   Securities  and  of  printing  prospectuses  if  the  printing  of
prospectuses  is  reasonably  requested  by the  holders  of a  majority  of the
Registrable Securities included in a Registration  Statement),  (iii) messenger,
telephone and delivery expenses,  (iv) fees and disbursements of counsel for the
Company, (v) Securities Act liability insurance,  if the Company so desires such
insurance,  and (vi) fees and  expenses  of all other  Persons  retained  by the
Company in connection with the consummation of the transactions  contemplated by
this  Agreement.  In addition,  the Company shall be responsible  for all of its
internal   expenses   incurred  in  connection  with  the  consummation  of  the
transactions contemplated by this Agreement (including,  without limitation, all
salaries  and  expenses  of its  officers  and  employees  performing  legal  or
accounting  duties),  the expense of any annual  audit and the fees and expenses
incurred in  connection  with the listing of the  Registrable  Securities on any
securities  exchange  as  required  hereunder.  In no event shall the Company be
responsible  for any  broker or  similar  commissions  or,  except to the extent
provided for in the Transaction Documents,  any legal fees or other costs of the
Holders.


                                       7
<PAGE>


      5.    INDEMNIFICATION

      (a) INDEMNIFICATION BY THE COMPANY. The Company shall, notwithstanding any
termination  of this  Agreement,  indemnify and hold  harmless each Holder,  the
officers,  directors,  agents,  brokers  (including  brokers  who offer and sell
Registrable  Securities  as  principal as a result of a pledge or any failure to
perform under a margin call of Common Stock),  investment advisors and employees
of each of them, each Person who controls any such Holder (within the meaning of
Section 15 of the  Securities  Act or Section  20 of the  Exchange  Act) and the
officers,  directors,  agents and employees of each such controlling  Person, to
the fullest  extent  permitted by  applicable  law, from and against any and all
losses,  claims,  damages,  liabilities,  costs (including,  without limitation,
reasonable attorneys' fees) and expenses (collectively,  "LOSSES"), as incurred,
arising  out of or  relating  to any untrue or  alleged  untrue  statement  of a
material fact contained in a Registration Statement,  any Prospectus or any form
of prospectus or in any  amendment or supplement  thereto or in any  preliminary
prospectus, or arising out of or relating to any omission or alleged omission of
a  material  fact  required  to be  stated  therein  or  necessary  to make  the
statements  therein  (in the case of any  Prospectus  or form of  prospectus  or
supplement  thereto,  in light of the circumstances  under which they were made)
not  misleading,  except to the extent,  but only to the  extent,  that (i) such
untrue statements or omissions are based solely upon information  regarding such
Holder  furnished  in writing to the  Company by such Holder  expressly  for use
therein,  or to the extent that such information  relates to such Holder or such
Holder's  proposed  method of  distribution  of  Registrable  Securities and was
reviewed and expressly approved in writing by such Holder expressly for use in a
Registration  Statement,  such  Prospectus  or such form of Prospectus or in any
amendment  or  supplement  thereto  (it being  understood  that the  Holder  has
approved  Annex A hereto for this  purpose) or (ii) in the case of an occurrence
of an event of the type  specified  in  Section  3(d)(ii)-(vi),  the use by such
Holder of an outdated or  defective  Prospectus  after the Company has  notified
such Holder in writing that the Prospectus is outdated or defective and prior to
the  receipt by such  Holder of the Advice  contemplated  in Section  6(d).  The
Company  shall  notify  the  Holders  promptly  of the  institution,  threat  or
assertion of any Proceeding  arising from or in connection with the transactions
contemplated by this Agreement of which the Company is aware.


                                       8
<PAGE>

      (b)  INDEMNIFICATION  BY HOLDERS.  Each Holder  shall,  severally  and not
jointly,  indemnify  and hold  harmless the Company,  its  directors,  officers,
agents and employees,  each Person who controls the Company  (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors,  officers,  agents or employees of such controlling  Persons,  to the
fullest  extent  permitted by applicable  law,  from and against all Losses,  as
incurred,  to the extent  arising out of or based solely upon: (x) such Holder's
failure to comply with the prospectus  delivery  requirements  of the Securities
Act or (y) any untrue or alleged  untrue  statement of a material fact contained
in any Registration Statement, any Prospectus,  or any form of prospectus, or in
any amendment or supplement thereto or in any preliminary prospectus, or arising
out of or  relating  to any  omission  or alleged  omission  of a material  fact
required to be stated  therein or necessary to make the  statements  therein not
misleading (i) to the extent, but only to the extent, that such untrue statement
or omission is  contained  in any  information  so  furnished in writing by such
Holder to the Company specifically for inclusion in such Registration  Statement
or such  Prospectus  or (ii) to the extent  that (1) such untrue  statements  or
omissions are based solely upon  information  regarding such Holder furnished in
writing to the  Company by such  Holder  expressly  for use  therein,  or to the
extent that such  information  relates to such Holder or such Holder's  proposed
method of distribution of Registrable  Securities and was reviewed and expressly
approved  in  writing  by such  Holder  expressly  for  use in the  Registration
Statement (it being  understood  that the Holder has approved Annex A hereto for
this purpose), such Prospectus or such form of Prospectus or in any amendment or
supplement  thereto or (2) in the case of an  occurrence of an event of the type
specified  in Section  3(d)(ii)-(vi),  the use by such  Holder of an outdated or
defective  Prospectus after the Company has notified such Holder in writing that
the  Prospectus is outdated or defective and prior to the receipt by such Holder
of the Advice  contemplated  in Section 6(e). In no event shall the liability of
any selling Holder  hereunder be greater in amount than the dollar amount of the
net proceeds received by such Holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation.

      (c) CONDUCT OF  INDEMNIFICATION  PROCEEDINGS.  If any Proceeding  shall be
brought or asserted  against  any Person  entitled to  indemnity  hereunder  (an
"INDEMNIFIED  PArty"),  such Indemnified  Party shall promptly notify the Person
from whom  indemnity is sought (the  "INDEMNIFYING  PARTY") in writing,  and the
Indemnifying Party shall have the right to assume the defense thereof, including
the employment of counsel  reasonably  satisfactory to the Indemnified Party and
the  payment  of all fees and  expenses  incurred  in  connection  with  defense
thereof; provided, that the failure of any Indemnified Party to give such notice
shall not relieve  the  Indemnifying  Party of its  obligations  or  liabilities
pursuant  to this  Agreement,  except  (and only) to the extent that it shall be
finally determined by a court of competent  jurisdiction (which determination is
not subject to appeal or further review) that such failure shall have prejudiced
the Indemnifying Party.


                                       9
<PAGE>


      An Indemnified  Party shall have the right to employ  separate  counsel in
any such Proceeding and to participate in the defense thereof,  but the fees and
expenses of such counsel  shall be at the expense of such  Indemnified  Party or
Parties  unless:  (1) the  Indemnifying  Party has agreed in writing to pay such
fees and  expenses;  (2) the  Indemnifying  Party shall have failed  promptly to
assume  the  defense  of  such  Proceeding  and  to  employ  counsel  reasonably
satisfactory to such Indemnified Party in any such Proceeding;  or (3) the named
parties to any such Proceeding  (including any impleaded  parties)  include both
such Indemnified  Party and the Indemnifying  Party, and such Indemnified  Party
shall reasonably believe that a material conflict of interest is likely to exist
if  the  same  counsel  were  to  represent  such  Indemnified   Party  and  the
Indemnifying  Party (in which  case,  if such  Indemnified  Party  notifies  the
Indemnifying  Party in writing that it elects to employ separate  counsel at the
expense of the Indemnifying  Party,  the  Indemnifying  Party shall not have the
right to assume the defense  thereof and the reasonable fees and expenses of one
separate  counsel  shall  be at the  expense  of the  Indemnifying  Party).  The
Indemnifying Party shall not be liable for any settlement of any such Proceeding
effected  without its written  consent,  which consent shall not be unreasonably
withheld.  No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of any pending Proceeding in respect of
which any  Indemnified  Party is a party,  unless  such  settlement  includes an
unconditional  release of such  Indemnified  Party from all  liability on claims
that are the subject matter of such Proceeding.

      Subject to the terms of this  Agreement,  all reasonable fees and expenses
of the Indemnified  Party (including  reasonable fees and expenses to the extent
incurred in connection with investigating or preparing to defend such Proceeding
in a manner not inconsistent with this Section) shall be paid to the Indemnified
Party,  as incurred,  within ten Trading Days of written  notice  thereof to the
Indemnifying  Party;  provided,   that  the  Indemnified  Party  shall  promptly
reimburse  the  Indemnifying  Party for that  portion of such fees and  expenses
applicable to such actions for which such  Indemnified  Party is not entitled to
indemnification  hereunder,  determined  based upon the  relative  faults of the
parties.

      (d)  CONTRIBUTION.  If a claim for  indemnification  under Section 5(a) or
5(b) is  unavailable  to an  Indemnified  Party (by  reason of public  policy or
otherwise),   then  each  Indemnifying  Party,  in  lieu  of  indemnifying  such
Indemnified  Party,  shall  contribute  to the  amount  paid or  payable by such
Indemnified  Party  as a  result  of  such  Losses,  in  such  proportion  as is
appropriate  to  reflect  the  relative  fault  of the  Indemnifying  Party  and
Indemnified  Party in connection with the actions,  statements or omissions that
resulted in such Losses as well as any other relevant equitable  considerations.
The relative fault of such  Indemnifying  Party and  Indemnified  Party shall be
determined by reference to, among other things,  whether any action in question,
including any untrue or alleged untrue  statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information  supplied by, such Indemnifying  Party or Indemnified Party, and the
parties'  relative intent,  knowledge,  access to information and opportunity to
correct or prevent  such  action,  statement  or  omission.  The amount  paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the  limitations set forth in this  Agreement,  any reasonable  attorneys' or
other reasonable fees or expenses  incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the  indemnification  provided for in this Section was  available to
such party in accordance with its terms.

      The  parties  hereto  agree  that it would  not be just and  equitable  if
contribution  pursuant  to  this  Section  5(d)  were  determined  by  pro  rata
allocation or by any other method of allocation  that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5(d), no Holder shall be required
to contribute, in the aggregate, any amount in excess of the amount by which the
proceeds  actually  received  by such  Holder  from the sale of the  Registrable
Securities subject to the Proceeding exceeds the amount of any damages that such
Holder has  otherwise  been  required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission, except in the case of fraud by
such Holder.


                                       10
<PAGE>


      The indemnity and contribution agreements contained in this Section are in
addition  to any  liability  that  the  Indemnifying  Parties  may  have  to the
Indemnified Parties.

      6.    MISCELLANEOUS

      (a) REMEDIES.  In the event of a breach by the Company or by a Holder,  of
any of their  obligations under this Agreement,  each Holder or the Company,  as
the case may be, in addition to being entitled to exercise all rights granted by
law and under this Agreement, including recovery of damages, will be entitled to
specific  performance of its rights under this  Agreement.  The Company and each
Holder agree that monetary damages would not provide  adequate  compensation for
any losses incurred by reason of a breach by it of any of the provisions of this
Agreement  and  hereby  further  agrees  that,  in the event of any  action  for
specific  performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.

      (b) NO PIGGYBACK ON  REGISTRATIONS.  Except as set forth on SCHEDULE  6(B)
attached hereto, neither the Company nor any of its security holders (other than
the Holders in such  capacity  pursuant  hereto) may include  securities  of the
Company in the Registration Statement other than the Registrable Securities. The
Company  shall  not file any other  registration  statements  until the  initial
Registration   Statement   required  hereunder  is  declared  effective  by  the
Commission,  provided that this SECTION 6(B) shall not prohibit the Company from
filing amendments to registration statements already filed.

      (c) COMPLIANCE.  Each Holder covenants and agrees that it will comply with
the prospectus  delivery  requirements of the Securities Act as applicable to it
in connection with sales of Registrable  Securities pursuant to the Registration
Statement.

      (d)  DISCONTINUED  DISPOSITION.  Each Holder agrees by its  acquisition of
such  Registrable  Securities that, upon receipt of a notice from the Company of
the occurrence of any event of the kind  described in Section 3(d),  such Holder
will forthwith  discontinue  disposition of such Registrable  Securities under a
Registration  Statement  until  such  Holder's  receipt  of  the  copies  of the
supplemented  Prospectus and/or amended Registration  Statement,  or until it is
advised in writing (the  "ADVICE") by the Company that the use of the applicable
Prospectus  may be resumed,  and, in either  case,  has  received  copies of any
additional  or  supplemental  filings  that are  incorporated  or  deemed  to be
incorporated  by reference in such  Prospectus or  Registration  Statement.  The
Company will use its best efforts to ensure that the use of the  Prospectus  may
be resumed as promptly as it  practicable.  The Company agrees and  acknowledges
that any  periods  during  which  the  Holder is  required  to  discontinue  the
disposition  of the  Registrable  Securities  hereunder  shall be subject to the
provisions of Section 2(b).

      (e)  PIGGY-BACK  REGISTRATIONS.  If at any time  during the  Effectiveness
Period  there is not an  effective  Registration  Statement  covering all of the
Registrable  Securities and the Company shall determine to prepare and file with
the  Commission  a  registration  statement  relating to an offering for its own
account or the account of others under the  Securities  Act of any of its equity
securities,  other than on Form S-4 or Form S-8 (each as  promulgated  under the
Securities Act) or their then  equivalents  relating to equity  securities to be
issued solely in connection  with any  acquisition  of any entity or business or
equity securities issuable in connection with the stock option or other employee
benefit  plans,  then the Company shall send to each Holder a written  notice of
such  determination  and, if within  fifteen days after the date of such notice,
any such Holder shall so request in writing,  the Company  shall include in such
registration  statement  all or any  part of such  Registrable  Securities  such
holder  requests to be  registered;  provided,  that,  the Company  shall not be
required to register any  Registrable  Securities  pursuant to this Section 6(e)
that are  eligible  for resale  pursuant  to Rule 144(k)  promulgated  under the
Securities  Act  or  that  are  the  subject  of a then  effective  Registration
Statement.


                                       11
<PAGE>


      (f) AMENDMENTS AND WAIVERS.  The provisions of this  Agreement,  including
the provisions of this sentence,  may not be amended,  modified or supplemented,
and waivers or  consents to  departures  from the  provisions  hereof may not be
given, unless the same shall be in writing and signed by the Company and Holders
of at least 66% of the then outstanding Registrable Securities.  Notwithstanding
the  foregoing,  a waiver or consent to depart from the  provisions  hereof with
respect to a matter that relates  exclusively  to the rights of Holders and that
does not directly or indirectly  affect the rights of other Holders may be given
by Holders of all of the Registrable  Securities to which such waiver or consent
relates;  PROVIDED,  HOWEVER,  that the  provisions  of this sentence may not be
amended,  modified,  or supplemented except in accordance with the provisions of
the immediately preceding sentence.

      (g) NOTICES.  Any and all notices or other  communications  or  deliveries
required or permitted to be provided  hereunder  shall be delivered as set forth
in the Purchase Agreement.

      (h) SUCCESSORS AND ASSIGNS.  This Agreement  shall inure to the benefit of
and be binding upon the successors and permitted  assigns of each of the parties
and shall  inure to the benefit of each  Holder.  The Company may not assign its
rights or obligations  hereunder without the prior written consent of all of the
Holders of the then-outstanding  Registrable Securities.  Each Holder may assign
their respective  rights hereunder in the manner and to the Persons as permitted
under the Purchase Agreement.

      (i)  NO  INCONSISTENT  AGREEMENTS.  Neither  the  Company  nor  any of its
subsidiaries has entered, as of the date hereof, nor shall the Company or any of
its  subsidiaries,  on or  after  the  date of this  Agreement,  enter  into any
agreement  with  respect  to its  securities,  that  would  have the  effect  of
impairing  the rights  granted to the  Holders in this  Agreement  or  otherwise
conflicts  with the  provisions  hereof.  Except as set forth on Schedule  6(b),
neither the Company nor any of its subsidiaries has previously  entered into any
agreement granting any registration rights with respect to any of its securities
to any Person that have not been satisfied in full.

      (j)  EXECUTION  AND  COUNTERPARTS.  This  Agreement may be executed in any
number of counterparts,  each of which when so executed shall be deemed to be an
original  and, all of which taken  together  shall  constitute  one and the same
Agreement.   In  the  event  that  any   signature  is  delivered  by  facsimile
transmission,  such  signature  shall create a valid  binding  obligation of the
party  executing  (or on whose behalf such  signature is executed) the same with
the same  force and  effect as if such  facsimile  signature  were the  original
thereof.


                                       12
<PAGE>


      (k) GOVERNING LAW. All questions  concerning the  construction,  validity,
enforcement  and  interpretation  of this Agreement shall be determined with the
provisions of the Purchase Agreement.

      (l) CUMULATIVE  REMEDIES.  The remedies provided herein are cumulative and
not exclusive of any remedies provided by law.

      (m) SEVERABILITY.  If any term, provision, covenant or restriction of this
Agreement is held by a court of competent  jurisdiction to be invalid,  illegal,
void or  unenforceable,  the remainder of the terms,  provisions,  covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected,  impaired or  invalidated,  and the parties hereto shall use
their commercially reasonable efforts to find and employ an alternative means to
achieve the same or substantially  the same result as that  contemplated by such
term, provision,  covenant or restriction.  It is hereby stipulated and declared
to be the  intention of the parties that they would have  executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.

      (n)  HEADINGS.  The  headings in this  Agreement  are for  convenience  of
reference only and shall not limit or otherwise affect the meaning hereof.

      (o) INDEPENDENT NATURE OF HOLDERS' OBLIGATIONS AND RIGHTS. The obligations
of each Holder  hereunder are several and not joint with the  obligations of any
other Holder  hereunder,  and no Holder shall be  responsible in any way for the
performance of the obligations of any other Holder hereunder.  Nothing contained
herein or in any other  agreement or document  delivered at any closing,  and no
action  taken by any  Holder  pursuant  hereto  or  thereto,  shall be deemed to
constitute the Holders as a partnership,  an association, a joint venture or any
other kind of entity,  or create a  presumption  that the Holders are in any way
acting  in  concert  with  respect  to  such  obligations  or  the  transactions
contemplated  by this  Agreement.  Each Holder  shall be entitled to protect and
enforce its rights,  including without limitation the rights arising out of this
Agreement, and it shall not be necessary for any other Holder to be joined as an
additional party in any proceeding for such purpose.


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


                                       13
<PAGE>



      IN WITNESS  WHEREOF,  the parties have executed this  Registration  Rights
Agreement as of the date first written above.



                                COMPOSITE TECHNOLOGY CORPORATION

                                By:__________________________________________
                                   Name:
                                   Title:


                       [SIGNATURE PAGE OF HOLDERS FOLLOWS]



                                       14
<PAGE>


                     [SIGNATURE PAGE OF HOLDERS TO CPTC RRA]


Name of Investing Entity: ______________________________________________________

Signature of Authorized Signatory of Investing Entity: _________________________

Name of Authorized Signatory: __________________________________________________

Title of Authorized Signatory: _________________________________________________



                           [SIGNATURE PAGES CONTINUE]



                                       15
<PAGE>

                              PLAN OF DISTRIBUTION

      Each Selling Stockholder (the "SELLING  STOCKHOLDERS") of the common stock
("COMMON STOCK") of Composite Technology Corporation,  a Nevada corporation (the
"COMPANY") and any of their pledgees,  assignees and successors-in-interest may,
from  time to time,  sell  any or all of their  shares  of  Common  Stock on the
Trading Market or any other stock exchange,  market or trading facility on which
the shares are traded or in private transactions. These sales may be at fixed or
negotiated  prices.  A  Selling  Stockholder  may  use  any  one or  more of the
following methods when selling shares:

            o     ordinary brokerage  transactions and transactions in which the
                  broker-dealer solicits purchasers;

            o     block trades in which the  broker-dealer  will attempt to sell
                  the shares as agent but may  position  and resell a portion of
                  the block as principal to facilitate the transaction;

            o     purchases by a  broker-dealer  as principal  and resale by the
                  broker-dealer for its account;

            o     an exchange  distribution  in accordance with the rules of the
                  applicable exchange;

            o     privately negotiated transactions;

            o     settlement  of short sales entered into after the date of this
                  prospectus;

            o     broker-dealers may agree with the Selling Stockholders to sell
                  a specified  number of such shares at a  stipulated  price per
                  share;

            o     a combination of any such methods of sale;

            o     through the writing or  settlement of options or other hedging
                  transactions,   whether   through  an  options   exchange   or
                  otherwise; or

            o     any other method permitted pursuant to applicable law.

      The Selling  Stockholders  may also sell  shares  under Rule 144 under the
Securities Act of 1933, as amended (the "SECURITIES ACT"), if available,  rather
than under this prospectus.

      Broker-dealers  engaged by the Selling  Stockholders may arrange for other
brokers-dealers to participate in sales.  Broker-dealers may receive commissions
or discounts from the Selling  Stockholders  (or, if any  broker-dealer  acts as
agent  for the  purchaser  of  shares,  from the  purchaser)  in  amounts  to be
negotiated.  Each  Selling  Stockholder  does not expect these  commissions  and
discounts  relating  to its sales of shares to exceed what is  customary  in the
types of transactions involved.


                                       16
<PAGE>


      In connection with the sale of our common stock or interests therein,  the
Selling  Stockholders may enter into hedging transactions with broker-dealers or
other  financial  institutions,  which may in turn  engage in short sales of the
common stock in the course of hedging the  positions  they  assume.  The Selling
Stockholders  may also sell shares of our common  stock short and deliver  these
securities  to close out their  short  positions,  or loan or pledge  the common
stock to  broker-dealers  that in turn may sell these  securities.  The  Selling
Stockholders   may  also  enter   into   option  or  other   transactions   with
broker-dealers  or other  financial  institutions or the creation of one or more
derivative  securities which require the delivery to such broker-dealer or other
financial  institution of shares offered by this  prospectus,  which shares such
broker-dealer  or  other  financial  institution  may  resell  pursuant  to this
prospectus (as supplemented or amended to reflect such transaction).

      The  Selling  Stockholders  and any  broker-dealers  or  agents  that  are
involved  in selling  the shares may be deemed to be  "underwriters"  within the
meaning of the Securities Act in connection with such sales. In such event,  any
commissions  received  by such  broker-dealers  or agents  and any profit on the
resale  of the  shares  purchased  by  them  may be  deemed  to be  underwriting
commissions or discounts under the Securities Act. Each Selling  Stockholder has
informed  the  Company  that it does not have any  agreement  or  understanding,
directly or indirectly, with any person to distribute the Common Stock.

      The Company is required to pay certain fees and  expenses  incurred by the
Company  incident to the  registration of the shares.  The Company has agreed to
indemnify the Selling Stockholders against certain losses,  claims,  damages and
liabilities, including liabilities under the Securities Act.

      Because Selling Stockholders may be deemed to be "underwriters" within the
meaning of the Securities  Act, they will be subject to the prospectus  delivery
requirements of the Securities Act. In addition,  any securities covered by this
prospectus  which qualify for sale pursuant to Rule 144 under the Securities Act
may be sold under Rule 144 rather  than  under  this  prospectus.  Each  Selling
Stockholder  has  advised  us that they have not  entered  into any  agreements,
understandings or arrangements  with any underwriter or broker-dealer  regarding
the sale of the resale shares.  There is no underwriter or  coordinating  broker
acting in connection  with the proposed sale of the resale shares by the Selling
Stockholders.

      We agreed to keep this  prospectus  effective until the earlier of (i) the
date on which  the  shares  may be resold by the  Selling  Stockholders  without
registration  and  without  regard to any volume  limitations  by reason of Rule
144(e) under the  Securities Act or any other rule of similar effect or (ii) all
of the shares have been sold  pursuant to the  prospectus  or Rule 144 under the
Securities  Act or any other rule of similar  effect.  The resale shares will be
sold only through  registered or licensed  brokers or dealers if required  under
applicable  state securities  laws. In addition,  in certain states,  the resale
shares may not be sold unless they have been registered or qualified for sale in
the applicable  state or an exemption  from the  registration  or  qualification
requirement is available and is complied with.

      Under applicable rules and regulations  under the Exchange Act, any person
engaged in the distribution of the resale shares may not  simultaneously  engage
in market making activities with respect to our common stock for a period of two
business days prior to the commencement of the  distribution.  In addition,  the
Selling  Stockholders  will be subject to applicable  provisions of the Exchange
Act and the rules and regulations thereunder,  including Regulation M, which may
limit the timing of  purchases  and sales of shares of our  common  stock by the
Selling Stockholders or any other person. We will make copies of this prospectus
available  to the Selling  Stockholders  and have  informed  them of the need to
deliver a copy of this  prospectus to each  purchaser at or prior to the time of
the sale.


                                       17
<PAGE>


                                                                         ANNEX B

                        COMPOSITE TECHNOLOGY CORPORATION

                 SELLING SECURITYHOLDER NOTICE AND QUESTIONNAIRE

      The  undersigned  beneficial  owner of common stock,  par value $0.001 per
share (the  "COMMON  STOCK"),  of  Composite  Technology  Corporation,  a Nevada
corporation (the "COMPANY"), (the "REGISTRABLE SECURITIES") understands that the
Company has filed or intends to file with the Securities and Exchange Commission
(the  "COMMISSION")  a  registration  statement on Form SB-2 (the  "REGISTRATION
STATEMENT") for the registration and resale under Rule 415 of the Securities Act
of 1933, as amended (the "SECURITIES  ACT"), of the Registrable  Securities,  in
accordance  with the terms of the  Registration  Rights  Agreement,  dated as of
August 17, 2004 (the "REGISTRATION RIGHTS AGREEMENT"), among the Company and the
Purchasers  named  therein.  A copy  of the  Registration  Rights  Agreement  is
available  from the Company  upon  request at the address set forth  below.  All
capitalized  terms not otherwise defined herein shall have the meanings ascribed
thereto in the Registration Rights Agreement.

      Certain   legal   consequences   arise  from  being  named  as  a  selling
securityholder  in  the  Registration  Statement  and  the  related  prospectus.
Accordingly, holders and beneficial owners of Registrable Securities are advised
to consult their own securities law counsel  regarding the consequences of being
named  or not  being  named  as a  selling  securityholder  in the  Registration
Statement and the related prospectus.

                                     NOTICE

      The  undersigned  beneficial  owner  (the  "SELLING   SECURITYHOLDER")  of
Registrable Securities hereby elects to include the Registrable Securities owned
by it and listed below in Item 3 (unless otherwise  specified under such Item 3)
in the Registration Statement.


                                       18
<PAGE>


The  undersigned  hereby  provides the following  information to the Company and
represents and warrants that such information is accurate:

                                  QUESTIONNAIRE

1.    NAME.

      (a)   Full Legal Name of Selling Securityholder

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


      (b)   Full Legal Name of Registered  Holder (if not the same as (a) above)
            through  which  Registrable  Securities  Listed  in Item 3 below are
            held:

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


      (c)   Full Legal Name of Natural  Control  Person  (which  means a natural
            person who directly you indirectly alone or with others has power to
            vote or dispose of the securities covered by the questionnaire):

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


2.    ADDRESS FOR NOTICES TO SELLING SECURITYHOLDER:

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

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

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

Telephone:
          ----------------------------------------------------------------------

Fax:
      --------------------------------------------------------------------------

Contact Person:
               -----------------------------------------------------------------

3.  BENEFICIAL OWNERSHIP OF REGISTRABLE SECURITIES:

      (a)   Type and Principal  Amount of  Registrable  Securities  beneficially
            owned:

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

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

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



                                       19
<PAGE>


4.    BROKER-DEALER STATUS:

      (a)   Are you a broker-dealer?

                                  Yes [_]       No [_]

      Note: If yes,  the  Commission's  staff has  indicated  that you should be
            identified as an underwriter in the Registration Statement.

      (b)   Are you an affiliate of a broker-dealer?

                                  Yes [_]       No [_]

      (c)   If you are an affiliate of a broker-dealer,  do you certify that you
            bought  the  Registrable   Securities  in  the  ordinary  course  of
            business,  and  at  the  time  of the  purchase  of the  Registrable
            Securities to be resold,  you had no  agreements or  understandings,
            directly  or   indirectly,   with  any  person  to  distribute   the
            Registrable Securities?

                                  Yes [_]       No [_]

      Note: If no,  the  Commission's  staff has  indicated  that you  should be
            identified as an underwriter in the Registration Statement.

5.    BENEFICIAL  OWNERSHIP  OF OTHER  SECURITIES  OF THE  COMPANY  OWNED BY THE
      SELLING SECURITYHOLDER.

      Except  as set  forth  below in this  Item 5, the  undersigned  is not the
      beneficial or registered owner of any securities of the Company other than
      the Registrable Securities listed above in Item 3.

      (a)   Type  and  Amount  of  Other  Securities  beneficially  owned by the
            Selling Securityholder:

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

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



                                       20
<PAGE>


6.    RELATIONSHIPS WITH THE COMPANY:

      Except  as  set  forth  below,  neither  the  undersigned  nor  any of its
      affiliates,  officers, directors or principal equity holders (owners of 5%
      of more of the equity securities of the undersigned) has held any position
      or office or has had any other material  relationship with the Company (or
      its predecessors or affiliates) during the past three years.

      State any exceptions here:


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

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



      The undersigned  agrees to promptly notify the Company of any inaccuracies
or changes in the information  provided herein that may occur  subsequent to the
date hereof at any time while the Registration Statement remains effective.

      By signing  below,  the  undersigned  consents  to the  disclosure  of the
information  contained  herein  in its  answers  to  Items 1  through  6 and the
inclusion of such  information  in the  Registration  Statement  and the related
prospectus.  The undersigned  understands  that such  information will be relied
upon by the Company in  connection  with the  preparation  or  amendment  of the
Registration Statement and the related prospectus.

      IN WITNESS WHEREOF the  undersigned,  by authority duly given,  has caused
this Notice and  Questionnaire  to be executed and delivered either in person or
by its duly authorized agent.



Dated:                               Beneficial Owner:
       ---------------------                           -------------------------

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


PLEASE FAX A COPY OF THE COMPLETED AND EXECUTED  NOTICE AND  QUESTIONNAIRE,  AND
RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:


                                       21
<PAGE>

                                                                       EXHIBIT C

NEITHER THESE  SECURITIES  NOR THE  SECURITIES  INTO WHICH THESE  SECURITIES ARE
EXERCISABLE 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
REASONABLY  ACCEPTABLE  TO THE COMPANY 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.

                          COMMON STOCK PURCHASE WARRANT

                To Purchase __________ Shares of Common Stock of

                        COMPOSITE TECHNOLOGY CORPORATION

      THIS COMMON STOCK PURCHASE  WARRANT (the  "WARRANT")  certifies  that, for
value received,  _____________ (the "Holder"),  is entitled,  upon the terms and
subject to the limitations on exercise and the conditions hereinafter set forth,
at any time on or after the date hereof (the "INITIAL  EXERCISE DATE") and on or
prior to the close of  business  on the four  year  anniversary  of the  Initial
Exercise Date (the "TERMINATION DATE") but not thereafter,  to subscribe for and
purchase  from  Composite  Technology  Corporation,  a Nevada  corporation  (the
"COMPANY"),  up to ______  shares (the "WARRANT  SHARES") of Common  Stock,  par
value $0.001 per share, of the Company (the "COMMON STOCK").  The purchase price
of one share of Common Stock (the "EXERCISE  PRICE") under this Warrant shall be
$____1, subject to adjustment hereunder.

      SECTION  1.DEFINITIONS.  Capitalized  terms used and not otherwise defined
herein shall have the meanings  set forth in that  certain  Securities  Purchase
Agreement (the "PURCHASE  AGREEMENT"),  dated August 17, 2004, among the Company
and the purchasers signatory thereto.

      SECTION 2.EXERCISE.

            a) EXERCISE OF WARRANT.  Exercise of the purchase rights represented
      by this  Warrant  may be made at any time or times on or after the Initial
      Exercise  Date and on or before the  Termination  Date by  delivery to the
      Company of a duly executed  facsimile  copy of the Notice of Exercise Form
      annexed  hereto (or such other  office or agency of the  Company as it may
      designate by notice in writing to the registered  Holder at the address of
      such Holder  appearing on the books of the  Company);  PROVIDED,  HOWEVER,
      within 5 Trading  Days of the date said Notice of Exercise is delivered to
      the Company, the Holder shall have surrendered this Warrant to the Company
      and the Company  shall have  received  payment of the  aggregate  Exercise
      Price of the shares thereby  purchased by wire transfer or cashier's check
      drawn on a United States bank.


--------------
1 50% of the Warrants shall have an exercise price equal to $1.75 and 50% of the
Warrants shall have an exercise price equal to $1.82.


                                       1
<PAGE>


            b) EXERCISE PRICE.  The Exercise Price of each share of Common Stock
      under this Warrant shall be $__________2, subject to adjustment hereunder.

            c) CASHLESS EXERCISE. If at any time after one year from the date of
      issuance of this  Warrant  there is no  effective  Registration  Statement
      registering  the resale of the  Warrant  Shares by the  Holder,  then this
      Warrant  may  also be  exercised  at such  time by  means  of a  "cashless
      exercise" in which the Holder  shall be entitled to receive a  certificate
      for the  number  of  Warrant  Shares  equal to the  quotient  obtained  by
      dividing [(A-B) (X)] by (A), where:

            (A)   = the VWAP on the Trading Day  immediately  preceding the date
                  of such election;

            (B)   = the Exercise Price of this Warrant, as adjusted; and

            (X)   = the number of Warrant Shares  issuable upon exercise of this
                  Warrant in accordance  with the terms of this Warrant by means
                  of a cash exercise rather than a cashless exercise.

            d)    EXERCISE LIMITATIONS.

                        i. HOLDER'S RESTRICTIONS.  The Holder shall not have the
                  right to  exercise  any portion of this  Warrant,  pursuant to
                  Section  2(c) or  otherwise,  to the extent that after  giving
                  effect to such issuance after exercise,  the Holder  (together
                  with the Holder's affiliates),  as set forth on the applicable
                  Notice of Exercise,  would beneficially own in excess of 4.99%
                  of the  number  of  shares  of the  Common  Stock  outstanding
                  immediately after giving effect to such issuance. For purposes
                  of the  foregoing  sentence,  the  number  of shares of Common
                  Stock  beneficially  owned by the  Holder  and its  affiliates
                  shall  include the number of shares of Common  Stock  issuable
                  upon  exercise  of this  Warrant  with  respect  to which  the
                  determination  of such  sentence  is  being  made,  but  shall
                  exclude  the number of shares of Common  Stock  which would be

--------------
2 50% of the Warrants  shall have an exercise  price equal to 115% of the Market
Price and 50% of the Warrants  shall have an exercise price equal to 120% of the
Market Price.


                                       2
<PAGE>

                  issuable  upon (A)  exercise  of the  remaining,  nonexercised
                  portion of this  Warrant  beneficially  owned by the Holder or
                  any of its  affiliates  and (B) exercise or  conversion of the
                  unexercised or nonconverted portion of any other securities of
                  the  Company  (including,   without   limitation,   any  other
                  Debentures or Warrants)  subject to a limitation on conversion
                  or  exercise  analogous  to the  limitation  contained  herein
                  beneficially  owned by the  Holder  or any of its  affiliates.
                  Except as set forth in the preceding sentence, for purposes of
                  this Section 2(d), beneficial ownership shall be calculated in
                  accordance  with Section  13(d) of the Exchange  Act, it being
                  acknowledged by Holder that the Company is not representing to
                  Holder that such  calculation  is in  compliance  with Section
                  13(d) of the Exchange Act and Holder is solely responsible for
                  any schedules required to be filed in accordance therewith. To
                  the extent that the limitation  contained in this Section 2(d)
                  applies,   the   determination  of  whether  this  Warrant  is
                  exercisable  (in  relation  to other  securities  owned by the
                  Holder) and of which a portion of this Warrant is  exercisable
                  shall  be in the  sole  discretion  of  such  Holder,  and the
                  submission of a Notice of Exercise  shall be deemed to be such
                  Holder's  determination of whether this Warrant is exercisable
                  (in relation to other  securities owned by such Holder) and of
                  which  portion of this  Warrant is  exercisable,  in each case
                  subject  to  such  aggregate  percentage  limitation,  and the
                  Company  shall have no  obligation  to verify or  confirm  the
                  accuracy of such  determination.  For purposes of this Section
                  2(d),  in  determining  the  number of  outstanding  shares of
                  Common Stock, the Holder may rely on the number of outstanding
                  shares of Common Stock as reflected in (x) the Company's  most
                  recent Form 10-Q or Form 10-K,  as the case may be, (y) a more
                  recent  public  announcement  by the  Company or (z) any other
                  notice by the Company or the Company's  Transfer Agent setting
                  forth the number of shares of Common Stock  outstanding.  Upon
                  the written or oral request of the Holder,  the Company  shall
                  within two Trading Days  confirm  orally and in writing to the
                  Holder the number of shares of Common Stock then  outstanding.
                  In any case, the number of outstanding  shares of Common Stock
                  shall be determined  after giving effect to the  conversion or
                  exercise of securities of the Company, including this Warrant,
                  by the  Holder  or its  affiliates  since the date as of which
                  such  number  of  outstanding   shares  of  Common  Stock  was
                  reported.


                        ii. Intentionally Omitted.

      e)    MECHANICS OF EXERCISE.

                        i.   AUTHORIZATION   OF  WARRANT  SHARES.   The  Company
                  covenants that all Warrant Shares which may be issued upon the
                  exercise of the purchase  rights  represented  by this Warrant
                  will, upon exercise of the purchase rights represented by this
                  Warrant,  be duly authorized,  validly issued,  fully paid and
                  nonassessable  and free from all taxes,  liens and  charges in
                  respect of the issue  thereof  (other than taxes in respect of
                  any transfer occurring contemporaneously with such issue). The
                  Company  covenants  that  during  the  period  the  Warrant is
                  outstanding,  it will reserve from its authorized and unissued
                  Common Stock a sufficient  number of shares to provide for the
                  issuance  of the  Warrant  Shares  upon  the  exercise  of any
                  purchase  rights  under  this  Warrant.  The  Company  further
                  covenants  that its issuance of this Warrant shall  constitute
                  full  authority  to its officers who are charged with the duty
                  of  executing  stock  certificates  to  execute  and issue the
                  necessary   certificates  for  the  Warrant  Shares  upon  the
                  exercise  of the  purchase  rights  under  this  Warrant.  The
                  Company  will  take  all  such  reasonable  action  as  may be
                  necessary to assure that such Warrant  Shares may be issued as
                  provided  herein  without  violation of any  applicable law or
                  regulation,  or of any requirements of the Trading Market upon
                  which the Common Stock may be listed.


                                       3
<PAGE>

                        ii. DELIVERY OF CERTIFICATES UPON EXERCISE. Certificates
                  for  shares  purchased  hereunder  shall be  delivered  to the
                  Holder  within 5 Trading Days from the delivery to the Company
                  of the Notice of Exercise Form,  surrender of this Warrant and
                  payment of the  aggregate  Exercise  Price as set forth  above
                  ("WARRANT SHARE DELIVERY DATE").  This Warrant shall be deemed
                  to have  been  exercised  on the  date the  Exercise  Price is
                  received by the Company. The Warrant Shares shall be deemed to
                  have been issued, and Holder or any other person so designated
                  to be named therein shall be deemed to have become a holder of
                  record of such  shares  for all  purposes,  as of the date the
                  Warrant  has been  exercised  by payment to the Company of the
                  Exercise  Price  and  all  taxes  required  to be  paid by the
                  Holder,  if any,  pursuant to Section  2(e)(vii)  prior to the
                  issuance of such shares, have been paid.

                        iii.  DELIVERY OF NEW WARRANTS  UPON  EXERCISE.  If this
                  Warrant shall have been  exercised in part, the Company shall,
                  at the time of delivery  of the  certificate  or  certificates
                  representing  Warrant Shares,  deliver to Holder a new Warrant
                  evidencing  the rights of Holder to purchase  the  unpurchased
                  Warrant  Shares called for by this Warrant,  which new Warrant
                  shall in all other respects be identical with this Warrant.

                        iv.  RESCISSION  RIGHTS. If the Company fails to deliver
                  to the Holder a certificate or certificates  representing  the
                  Warrant  Shares  pursuant  to  this  Section  2(e)(iv)  by the
                  Warrant  Share  Delivery  Date,  then the Holder will have the
                  right to rescind such exercise


                                       4
<PAGE>

                        v. BUY-IN  COMPENSATION.  Subject to Section 4.10 of the
                  Purchase Agreement,  in addition to any other rights available
                  to the Holder, if the Company fails to deliver to the Holder a
                  certificate or  certificates  representing  the Warrant Shares
                  pursuant  to an  exercise  on or before  the 2nd  Trading  Day
                  following the Warrant Share  Delivery  Date, and if after such
                  date the Holder is required  by its broker to purchase  (in an
                  open market  transaction or otherwise)  shares of Common Stock
                  to  deliver  in  satisfaction  of a sale by the  Holder of the
                  Warrant  Shares which the Holder  anticipated  receiving  upon
                  such exercise (a "BUY-IN"),  then the Company shall (1) pay in
                  cash to the Holder the amount by which (x) the Holder's  total
                  purchase price (including brokerage  commissions,  if any) for
                  the shares of Common Stock so purchased exceeds (y) the amount
                  obtained by multiplying  (A) the number of Warrant Shares that
                  the  Company  was   required  to  deliver  to  the  Holder  in
                  connection  with the  exercise at issue times (B) the price at
                  which the sell order giving rise to such  purchase  obligation
                  was  executed,  and (2) at the  option of the  Holder,  either
                  reinstate the portion of the Warrant and equivalent  number of
                  Warrant  Shares for which  such  exercise  was not  honored or
                  deliver to the  Holder  the  number of shares of Common  Stock
                  that would have been  issued had the Company  timely  complied
                  with its  exercise  and delivery  obligations  hereunder.  For
                  example,  if the Holder  purchases Common Stock having a total
                  purchase price of $11,000 to cover a Buy-In with respect to an
                  attempted exercise of shares of Common Stock with an aggregate
                  sale price giving rise to such purchase obligation of $10,000,
                  under  clause (1) 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,
                  together  with  applicable  confirmations  and other  evidence
                  reasonably  requested  by the  Company.  Nothing  herein shall
                  limit a Holder's right to pursue any other remedies  available
                  to it  hereunder,  at  law  or in  equity  including,  without
                  limitation, a decree of specific performance and/or injunctive
                  relief with respect to the Company's failure to timely deliver
                  certificates representing shares of Common Stock upon exercise
                  of the Warrant as required pursuant to the terms hereof.

                        vi. NO FRACTIONAL  SHARES OR SCRIP. No fractional shares
                  or scrip  representing  fractional shares shall be issued upon
                  the  exercise of this  Warrant.  As to any fraction of a share
                  which Holder would otherwise be entitled to purchase upon such
                  exercise,  the Company shall pay a cash  adjustment in respect
                  of such final  fraction  in an amount  equal to such  fraction
                  multiplied by the Exercise Price.

                        vii.   CHARGES,   TAXES  AND   EXPENSES.   Issuance   of
                  certificates  for Warrant  Shares shall be made without charge
                  to  the  Holder  for  any  issue  or  transfer  tax  or  other
                  incidental   expense  in  respect  of  the  issuance  of  such
                  certificate,  all of which taxes and expenses shall be paid by
                  the Company, and such certificates shall be issued in the name
                  of the Holder or in such name or names as may be  directed  by
                  the Holder; PROVIDED,  however, that in the event certificates
                  for  Warrant  Shares are to be issued in a name other than the
                  name of the Holder, this Warrant when surrendered for exercise
                  shall be accompanied by the  Assignment  Form attached  hereto
                  duly executed by the Holder; and the Company may require, as a
                  condition  thereto,   the  payment  of  a  sum  sufficient  to
                  reimburse it for any transfer tax incidental thereto.


                                       5
<PAGE>


                        viii.  CLOSING OF BOOKS.  The Company will not close its
                  stockholder  books or records in any manner which prevents the
                  timely exercise of this Warrant, pursuant to the terms hereof.

      SECTION 3. CERTAIN ADJUSTMENTS.

            a) STOCK  DIVIDENDS  AND SPLITS.  If the Company,  at any time while
      this Warrant is outstanding: (A) pays 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
      (which,  for  avoidance  of doubt,  shall not include any shares of Common
      Stock  issued by the Company  pursuant to this  Warrant),  (B)  subdivides
      outstanding  shares of Common  Stock into a larger  number of shares,  (C)
      combines  (including by way of reverse stock split)  outstanding shares of
      Common  Stock  into  a  smaller  number  of  shares,   or  (D)  issues  by
      reclassification of shares of the Common Stock any shares of capital stock
      of the Company,  then in each case the Exercise  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 3(a) 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.

            b)  SUBSEQUENT  EQUITY  SALES.  If the  Company  or  any  Subsidiary
      thereof,  as  applicable,  at any time while this Warrant is  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 Common Stock or Common Stock  Equivalents  entitling any
      Person to acquire shares of Common Stock,  at an effective price per share
      less than the then  Exercise  Price  (such  lower  price,  the "BASE SHARE
      PRICE"  and  such  issuances  collectively,  a  "DILUTIVE  ISSUANCE"),  as
      adjusted  hereunder  (if the  holder of the Common  Stock or Common  Stock
      Equivalents 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 an  effective  price per share which is
      less  than the  Exercise  Price,  such  issuance  shall be  deemed to have
      occurred  for less  than  the  Exercise  Price),  then,  from the  Initial
      Exercise Date until the 12 month  anniversary  of the Effective  Date, the
      Exercise Price shall be reduced to equal the Base Share price and from the
      12 month anniversary of the Effective Date until this Warrant is no longer
      outstanding,  the  Exercise  Price  shall be  reduced by  multiplying  the
      Exercise  Price by a  fraction,  the  numerator  of which is the number of
      shares of Common Stock  issued and  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 then
      Exercise  Price,  and the  denominator  of  which  shall be the sum of the
      number of shares of Common Stock issued and 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;  provided,
      HOWEVER,  from the 31 month anniversary of the Initial Exercise Date until
      the 36 month anniversary of the Initial Exercise Date, if the Company uses
      all of the  proceeds  from a Dilutive  Issuance to redeem the  outstanding
      principal amount of the Debentures,  then the Holder of this Warrant shall
      not  receive an  adjustment  to the  Exercise  Price as  provided  in this
      Section.  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  Equivalents  subject  to  this  section,
      indicating  therein the applicable  issuance price, or of applicable reset
      price, exchange price, conversion price and other pricing terms.


                                       6
<PAGE>


            c) PRO RATA DISTRIBUTIONS.  If the Company, at any time prior to the
      Termination Date, shall distribute to all holders of Common Stock (and not
      to Holders of the  Warrants)  evidences of its  indebtedness  or assets or
      rights or warrants to subscribe  for or purchase  any security  other than
      the Common Stock (which  shall be subject to Section  3(b)),  then in each
      such case the Exercise Price shall be adjusted by multiplying the Exercise
      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 per share  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 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.

            d) CALCULATIONS. All calculations under this Section 3 shall be made
      to the nearest cent or the nearest 1/100th of a share, as the case may be.
      For  purposes  of this  Section  3, the  number of shares of Common  Stock
      outstanding as of a given date shall be the sum of the number of shares of
      Common Stock (excluding treasury shares, if any) outstanding.

            e) NOTICE TO HOLDERS.

                  i. ADJUSTMENT TO EXERCISE  PRICE.  Whenever the Exercise Price
            is adjusted  pursuant to this Section 3, the Company shall  promptly
            mail to each Holder a notice  setting forth the Exercise Price after
            such  adjustment  and setting  forth a brief  statement of the facts
            requiring  such  adjustment.  If the Company  issues a variable rate
            security, despite the prohibition thereon in the Purchase Agreement,
            the Company  shall be deemed to have issued  Common  Stock or Common
            Stock  Equivalents  at the lowest  possible  conversion  or exercise
            price at which such  securities may be converted or exercised in the
            case of a Variable  Rate  Transaction  (as  defined in the  Purchase
            Agreement),  or the lowest possible  adjustment price in the case of
            an MFN Transaction (as defined in the Purchase Agreement.


                                       7
<PAGE>


                  ii.  NOTICE TO ALLOW  EXERCISE  BY HOLDER.  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 mailed to the Holder at its last  addresses  as it shall
            appear  upon  the  Warrant  Register  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.  The Holder is entitled to exercise this Warrant  during the
            20-day  period  commencing  the date of such notice to the effective
            date of the event triggering such notice

            f)  FUNDAMENTAL  TRANSACTION.  If, at any time while this Warrant 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,  (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
      Warrant,  the Holder  shall have the right to  receive,  for each  Warrant
      Share  that  would  have been  issuable  upon such  exercise  absent  such
      Fundamental  Transaction,  upon  exercise of this  Warrant,  the number of
      shares of Common Stock of the successor or acquiring corporation or of the
      Company, if it is the surviving corporation,  and Alternate  Consideration
      receivable upon or as a result of such  reorganization,  reclassification,
      merger,  consolidation  or disposition of assets by a Holder of the number
      of  shares  of  Common  Stock  for  which  this  Warrant  is   exercisable
      immediately  prior to such  event  (the  "ALTERNATE  CONSIDERATION").  For
      purposes of any such  exercise,  the  determination  of the Exercise 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 Exercise Price among the Alternate  Consideration in a
      reasonable   manner   reflecting  the  relative  value  of  any  different
      components of the Alternate Consideration.  If holders of Common Stock are
      given any choice as to the securities,  cash or property to be received in
      a Fundamental Transaction,  then the Holder shall be given the same choice
      as to the  Alternate  Consideration  it receives upon any exercise of this
      Warrant 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 warrant consistent with the foregoing  provisions and evidencing the
      Holder's right to exercise such warrant 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 (f) and insuring
      that this  Warrant (or any such  replacement  security)  will be similarly
      adjusted  upon  any  subsequent  transaction  analogous  to a  Fundamental
      Transaction.


                                       8
<PAGE>


            g) EXEMPT ISSUANCE.  Notwithstanding the foregoing,  no adjustments,
      Alternate  Consideration  nor notices shall be made,  paid or issued under
      this Section 3 in respect of an Exempt Issuance.

            h)  VOLUNTARY  ADJUSTMENT  BY  COMPANY.  The Company may at any time
      during the term of this Warrant reduce the then current  Exercise Price to
      any amount and for any period of time deemed  appropriate  by the Board of
      Directors of the Company.

      SECTION 4. TRANSFER OF WARRANT.

            a)  TRANSFERABILITY.  Subject  to  compliance  with  any  applicable
      securities  laws and the  conditions  set forth in Sections  5(a) and 4(d)
      hereof and to the  provisions  of Section 4.1 of the  Purchase  Agreement,
      this Warrant and all rights  hereunder  are  transferable,  in whole or in
      part,  upon  surrender  of this  Warrant  at the  principal  office of the
      Company,  together with a written assignment of this Warrant substantially
      in the form  attached  hereto duly  executed by the Holder or its agent or
      attorney and funds  sufficient to pay any transfer  taxes payable upon the
      making of such  transfer.  Upon such  surrender  and,  if  required,  such
      payment,  the Company  shall execute and deliver a new Warrant or Warrants
      in the  name of the  assignee  or  assignees  and in the  denomination  or
      denominations specified in such instrument of assignment,  and shall issue
      to the assignor a new Warrant  evidencing  the portion of this Warrant not
      so assigned,  and this Warrant shall promptly be cancelled.  A Warrant, if
      properly  assigned,  may be  exercised by a new holder for the purchase of
      Warrant Shares without having a new Warrant issued.


                                       9
<PAGE>


            b) NEW WARRANTS.  This Warrant may be divided or combined with other
      Warrants upon presentation  hereof at the aforesaid office of the Company,
      together with a written notice  specifying the names and  denominations in
      which new Warrants are to be issued,  signed by the Holder or its agent or
      attorney.  Subject to  compliance  with Section  4(a),  as to any transfer
      which may be involved in such division or  combination,  the Company shall
      execute and deliver a new Warrant or Warrants in exchange  for the Warrant
      or Warrants to be divided or combined in accordance with such notice.

            c) WARRANT REGISTER.  The Company shall register this Warrant,  upon
      records to be  maintained  by the Company for that purpose  (the  "WARRANT
      REGISTER"), in the name of the record Holder hereof from time to time. The
      Company may deem and treat the  registered  Holder of this  Warrant as the
      absolute  owner  hereof  for the  purpose  of any  exercise  hereof or any
      distribution  to the Holder,  and for all other  purposes,  absent  actual
      notice to the contrary.

            d) TRANSFER  RESTRICTIONS.  If, at the time of the surrender of this
      Warrant in connection  with any transfer of this Warrant,  the transfer of
      this Warrant shall not be registered pursuant to an effective registration
      statement under the Securities Act and under  applicable  state securities
      or blue sky laws, the Company may require, as a condition of allowing such
      transfer (i) that the Holder or transferee  of this  Warrant,  as the case
      may be, furnish to the Company a written opinion of counsel (which opinion
      shall be in form, substance and scope customary for opinions of counsel in
      comparable  transactions)  to the effect  that such  transfer  may be made
      without  registration  under the Securities Act and under applicable state
      securities or blue sky laws,  (ii) that the holder or  transferee  execute
      and  deliver to the  Company an  investment  letter in form and  substance
      acceptable to the Company and (iii) that the  transferee be an "accredited
      investor" as defined in Rule 501(a)(1),  (a)(2), (a)(3), (a)(7), or (a)(8)
      promulgated under the Securities Act or a qualified institutional buyer as
      defined in Rule 144A(a) under the Securities Act.

      SECTION 5. MISCELLANEOUS.

            a) TITLE TO WARRANT.  Prior to the  Termination  Date and subject to
      compliance  with  applicable  laws and  Section  4 of this  Warrant,  this
      Warrant and all rights hereunder are transferable, in whole or in part, at
      the  office or agency of the  Company  by the  Holder in person or by duly
      authorized  attorney,  upon  surrender of this Warrant  together  with the
      Assignment Form annexed hereto  properly  endorsed.  The transferee  shall
      sign an investment letter in form and substance reasonably satisfactory to
      the Company.

            b) NO RIGHTS AS SHAREHOLDER  UNTIL  EXERCISE.  This Warrant does not
      entitle the Holder to any voting  rights or other rights as a  shareholder
      of the Company  prior to the exercise  hereof.  Upon the surrender of this
      Warrant and the payment of the aggregate  Exercise Price (or by means of a
      cashless exercise), the Warrant Shares so purchased shall be and be deemed
      to be issued to such  Holder as the record  owner of such shares as of the
      close of business on the later of the date of such surrender or payment.


                                       10
<PAGE>


            c) LOSS,  THEFT,  DESTRUCTION OR MUTILATION OF WARRANT.  The Company
      covenants  that  upon  receipt  by  the  Company  of  evidence  reasonably
      satisfactory to it of the loss,  theft,  destruction or mutilation of this
      Warrant or any stock  certificate  relating to the Warrant Shares,  and in
      case of loss,  theft or destruction,  of indemnity or security  reasonably
      satisfactory to it (which,  in the case of the Warrant,  shall not include
      the posting of any bond),  and upon  surrender  and  cancellation  of such
      Warrant or stock  certificate,  if  mutilated,  the Company  will make and
      deliver a new Warrant or stock  certificate  of like tenor and dated as of
      such cancellation, in lieu of such Warrant or stock certificate.

            d) SATURDAYS,  SUNDAYS,  HOLIDAYS, ETC. If the last or appointed day
      for the taking of any action or the  expiration  of any right  required or
      granted herein shall be a Saturday,  Sunday or a legal holiday,  then such
      action may be taken or such right may be exercised on the next  succeeding
      day not a Saturday, Sunday or legal holiday.

            e) AUTHORIZED SHARES.

                  The  Company  covenants  that during the period the Warrant is
            outstanding, it will reserve from its authorized and unissued Common
            Stock a  sufficient  number of shares to provide for the issuance of
            the Warrant  Shares upon the exercise of any  purchase  rights under
            this Warrant.  The Company  further  covenants  that its issuance of
            this Warrant shall constitute full authority to its officers who are
            charged with the duty of executing stock certificates to execute and
            issue the  necessary  certificates  for the Warrant  Shares upon the
            exercise of the purchase rights under this Warrant. The Company will
            take all such  reasonable  action as may be necessary to assure that
            such  Warrant  Shares  may be  issued  as  provided  herein  without
            violation  of  any  applicable   law  or   regulation,   or  of  any
            requirements  of the Trading  Market upon which the Common Stock may
            be listed.

                  Except  and to the  extent as waived  or  consented  to by the
            Holder,  the  Company  shall not by any action,  including,  without
            limitation, amending its certificate of incorporation or through any
            reorganization,   transfer   of   assets,   consolidation,   merger,
            dissolution,  issue or sale of  securities  or any  other  voluntary
            action,  avoid or seek to avoid the observance or performance of any
            of the terms of this  Warrant,  but will at all times in good  faith
            assist in the  carrying  out of all such  terms and in the taking of
            all such actions as may be necessary or  appropriate  to protect the
            rights of Holder as set forth in this  Warrant  against  impairment.
            Without  limiting the generality of the foregoing,  the Company will
            (a) not  increase  the par  value of any  Warrant  Shares  above the
            amount payable therefor upon such exercise immediately prior to such
            increase in par value,  (b) take all such action as may be necessary
            or  appropriate  in order that the  Company  may validly and legally
            issue fully paid and nonassessable  Warrant Shares upon the exercise
            of this  Warrant,  and (c) use  commercially  reasonable  efforts to
            obtain all such  authorizations,  exemptions  or  consents  from any
            public  regulatory  body  having  jurisdiction  thereof  as  may  be
            necessary  to enable the  Company to perform its  obligations  under
            this Warrant.


                                       11
<PAGE>


            f)  JURISDICTION.   All  questions   concerning  the   construction,
      validity,   enforcement  and  interpretation  of  this  Warrant  shall  be
      determined in accordance with the provisions of the Purchase Agreement.

            g)  RESTRICTIONS.  The Holder  acknowledges  that the Warrant Shares
      acquired upon the exercise of this Warrant,  if not registered,  will have
      restrictions upon resale imposed by state and federal securities laws.

            h)  NONWAIVER  AND  EXPENSES.  No course of  dealing or any delay or
      failure  to  exercise  any right  hereunder  on the part of  Holder  shall
      operate as a waiver of such right or otherwise  prejudice Holder's rights,
      powers or remedies,  notwithstanding all rights hereunder terminate on the
      Termination  Date. If the Company  willfully and knowingly fails to comply
      with any provision of this Warrant,  which results in any material damages
      to the Holder,  the Company  shall pay to Holder such  amounts as shall be
      sufficient to cover any costs and expenses including,  but not limited to,
      reasonable  attorneys'  fees,  including  those of appellate  proceedings,
      incurred by Holder in  collecting  any amounts due  pursuant  hereto or in
      otherwise enforcing any of its rights, powers or remedies hereunder.

            i)  NOTICES.  Any  notice,  request or other  document  required  or
      permitted to be given or  delivered to the Holder by the Company  shall be
      delivered  in  accordance  with  the  notice  provisions  of the  Purchase
      Agreement.

            j) LIMITATION OF LIABILITY.  No provision  hereof, in the absence of
      any  affirmative  action by Holder to  exercise  this  Warrant or purchase
      Warrant Shares,  and no enumeration  herein of the rights or privileges of
      Holder,  shall give rise to any liability of Holder for the purchase price
      of any Common  Stock or as a  stockholder  of the  Company,  whether  such
      liability is asserted by the Company or by creditors of the Company.

            k) REMEDIES.  Holder,  in addition to being entitled to exercise all
      rights granted by law, including recovery of damages,  will be entitled to
      specific  performance of its rights under this Warrant. The Company agrees
      that  monetary  damages  would not be adequate  compensation  for any loss
      incurred by reason of a breach by it of the provisions of this Warrant and
      hereby agrees to waive the defense in any action for specific  performance
      that a remedy at law would be adequate.

            l) SUCCESSORS AND ASSIGNS.  Subject to applicable  securities  laws,
      this Warrant and the rights and obligations  evidenced  hereby shall inure
      to the benefit of and be binding  upon the  successors  of the Company and
      the  successors  and permitted  assigns of Holder.  The provisions of this
      Warrant are  intended  to be for the  benefit of all Holders  from time to
      time of this Warrant and shall be enforceable by any such Holder or holder
      of Warrant Shares.

            m)  AMENDMENT.  This  Warrant  may be  modified  or  amended  or the
      provisions  hereof waived with the written  consent of the Company and the
      Holder.

            n) SEVERABILITY.  Wherever possible,  each provision of this Warrant
      shall be  interpreted  in such manner as to be  effective  and valid under
      applicable  law, but if any  provision of this Warrant shall be prohibited
      by or invalid under applicable law, such provision shall be ineffective to
      the extent of such  prohibition or invalidity,  without  invalidating  the
      remainder of such provisions or the remaining provisions of this Warrant.


                                       12
<PAGE>


            o)  HEADINGS.  The  headings  used  in  this  Warrant  are  for  the
      convenience of reference only and shall not, for any purpose,  be deemed a
      part of this Warrant.

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


                                       13
<PAGE>


      IN WITNESS WHEREOF,  the Company has caused this Warrant to be executed by
its officer thereunto duly authorized.



Dated:  August 17, 2004

                                        COMPOSITE TECHNOLOGY CORPORATION

                                        By:_____________________________________
                                           Name:
                                           Title:



                                       14
<PAGE>


                               NOTICE OF EXERCISE


To:   Composite Technology Corporation

      (1) The undersigned  hereby elects to purchase  ________ Warrant Shares of
the Company  pursuant to the terms of the attached Warrant (only if exercised in
full), and tenders herewith payment of the exercise price in full, together with
all applicable transfer taxes, if any.

      (2) Payment shall take the form of (check applicable box):

                       [ ] in lawful money of the United States; or

                       [ ] the  cancellation  of such  number of Warrant
                       Shares as is necessary,  in  accordance  with the
                       formula set forth in subsection 3(d), to exercise
                       this Warrant  with respect to the maximum  number
                       of Warrant  Shares  purchasable  pursuant  to the
                       cashless   exercise   procedure   set   forth  in
                       subsection 3(d).

      (3) Please issue a certificate or certificates  representing  said Warrant
Shares in the name of the  undersigned  or in such  other  name as is  specified
below:

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

The Warrant Shares shall be delivered to the following:

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

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

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

      (4) ACCREDITED  INVESTOR.  The undersigned is an "accredited  investor" as
defined  in  Regulation  D  promulgated  under the  Securities  Act of 1933,  as
amended.

                                   [PURCHASER]


                                   By: ______________________________
                                         Name:
                                         Title:

                                   Dated:  ________________________


<PAGE>


                                 ASSIGNMENT FORM

                    (To assign the foregoing warrant, execute
                   this form and supply required information.
                 Do not use this form to exercise the warrant.)

      FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby
are hereby assigned to

_______________________________________________ whose address is


---------------------------------------------------------------.


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


                                        Dated:  ______________, _______


                               Holder's Signature:  ____________________________

                               Holder's Address:    ____________________________



Signature Guaranteed:  ___________________________________________


NOTE: The signature to this  Assignment Form must correspond with the name as it
appears on the face of the Warrant,  without  alteration or  enlargement  or any
change whatsoever,  and must be guaranteed by a bank or trust company.  Officers
of corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.

<PAGE>
                                   EXHIBIT D
                             FORM OF LEGAL OPINION



Ladies and Gentlemen:

         This opinion is furnished to you pursuant to the Securities Purchase
Agreement by and among the purchasers signatory thereto (the "Purchasers") and
Composite Technology Corporation, a Nevada corporation (the "Company"), dated as
of August 17, 2004 (the "Purchase Agreement"), which provides for the issuance
and sale by the Company of up to $15,000,000 principal amount of Debentures and
Warrants to purchase shares of the Company's Common Stock. All terms used herein
have the meanings defined for them in the Purchase Agreement unless otherwise
defined herein.

         We have acted as counsel for the Company in connection with the
negotiation of the Purchase Agreement, the Debentures, the Warrants, the
Custodial Agreement, and the Registration Rights Agreement (the Purchase
Agreement, the Debentures, the Warrants, the Custodial Agreement, and the
Registration Rights Agreement, collectively the "Agreements"). As counsel, we
have made such legal and factual examinations and inquiries as we have deemed
advisable or necessary for the purpose of rendering this opinion.

         In connection with this opinion, we have reviewed the documents of the
Company listed on Exhibit A hereto. As to factual matters, we have relied upon,
and assumed the accuracy, completeness and genuineness of the certificate of the
Chief Executive Officer of the Company (the "Officers' Certificate"),
certificates and oral representations of public officials and oral and written
representations made by the Company and its officers. We have made no
independent investigations of any of the facts stated in any such certificates
or representations; nothing, however, has come to our attention that would lead
us to believe such facts are inaccurate.

         With respect to our opinion in Paragraph 1 that the Company is in good
standing in its jurisdiction of incorporation, we have relied solely upon
written representations made to us in the Officers' Certificate and the
certificates of public officials attesting to the Company's good standing in
such jurisdiction.

         With respect to our opinion in Paragraph 2 hereof that the Debentures,
Warrants and the Underlying Shares will be duly authorized, validly issued,
fully paid and nonassessable, we have relied solely upon written representations
made to us in the Officer's Certificate and have assumed that such securities
will be evidenced by appropriate certificates, duly executed and delivered.


<PAGE>

         With respect to our opinion in Paragraphs 2 and 4, we have assumed full
disclosure to the Purchasers of all material facts and, with respect to
performance by the Company of its obligations under the Agreement, compliance by
the Company at such time with the requirements of the Securities Act of 1933, as
amended (the "Securities Act"), with applicable state securities laws and with
any rules, regulations or pronouncements issued or promulgated pursuant to such
laws.

         With respect to our opinion in Paragraphs 5 & 6, we have relied solely
upon written representations made to us in the Officer's Certificate and have
assumed that, with respect to Paragraph 5, to the extent the Company is in
violation of, subject to or a party to any order, writ, injunction, judgment or
decree of any court or government agency or instrumentality, that the Company's
violation, being subject to or a party to such order, writ, injunction, judgment
or decree would not have or reasonably be expected to result in a Material
Adverse Effect as defined in the Purchase Agreement.


         In addition, to the extent that our opinion relates to judgments or
decrees not disclosed to you, we have relied upon a representation made to us in
the Officers' Certificate. In rendering our opinion in Paragraphs 2, 3 and 4, to
the extent that such opinions relate to laws, rules and regulations it is
understood that we have not conducted any special investigation of laws, rules
or regulations, and our opinions with respect thereto are limited to such United
States and California laws, rules and regulations as in our experience are
normally applicable to transactions of the type contemplated by the Agreement.
To the extent the laws of any state other than the State of California govern
any of the opinions expressed herein, we have assumed that the laws of such
state are the same as the laws of the State of California.

         In addition, we have examined, among other things, originals or copies
of such corporate records of the Company, certificates of public officials and
such other documents and questions of law that we consider necessary or
advisable for the purpose of rendering this opinion. In such examination we have
assumed the genuineness of all signatures on original documents, the
authenticity and completeness of all documents submitted to us as originals, the
conformity to original documents of all copies submitted to us as copies
thereof, the legal capacity of natural persons, and the due execution and
delivery of all documents (except as to due execution and delivery by the
Company) where due execution and delivery are a prerequisite to the
effectiveness thereof.


<PAGE>

         As used in this opinion, the expression "to our knowledge" refers to
the current actual knowledge of the attorneys of this firm who have worked on
matters for the Company solely in connection with the Agreements and the
Warrants and the transactions contemplated thereby, and without any independent
investigation of any underlying facts or situations.

         For purposes of this opinion, we have assumed that you have all
requisite power and authority, and have taken any and all necessary corporate
action, to execute and deliver the Agreements, and we are assuming that the
representations and warranties made by each Purchaser in the Agreements and
pursuant thereto are true and correct.

         Based upon and subject to the foregoing, we are of the opinion that:

1. The Company is a corporation duly organized, validly existing and in good
standing under the laws of Nevada and has all requisite corporate power and
authority to carry on its business and to own, lease and operate its properties
and assets as described in the Company's SEC Reports. To our knowledge, the
Company does not have any subsidiaries and does not own more than fifty percent
(50%) of the outstanding capital stock of or control any other business entity
other than as disclosed in the Disclosure Schedules and the SEC Reports.

2. The Company has the requisite corporate power and authority to enter into and
perform its obligations under the Agreements and to issue the Debentures and
Warrants and the Underlying Shares. The execution and delivery of the Agreements
by the Company and the consummation by it of the transactions contemplated
thereby have been duly authorized by all necessary corporate action and no
further consent or authorization of the Company or its Board of Directors or
stockholders is required, and the issuance of the Underlying Shares will not
violate the corporate governance rules of the Trading Market as of the date of
this Opinion. Each of the Agreements has been duly executed and delivered, and
the Debentures and Warrants have been duly executed, issued and delivered by the
Company and each of the Agreements, the Debentures and the Warrants constitutes
valid and binding obligations of the Company enforceable against the Company in
accordance with their respective terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.

3. The execution, delivery and performance of the Agreements by the Company and
the consummation by the Company of the transactions contemplated thereby,
including, without limitation, the issuance of the Debentures, the Warrants and
the Underlying Shares, do not and will not (i) result in a violation of the
Company's Articles of Incorporation or By-Laws; (ii) conflict with, or
constitute a material default (or an event that with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture,
instrument or any "lock-up", refusal or similar provision of any underwriting or
similar agreement to which the Company is a party and that are attached as
exhibits to any of the Company's SEC Reports since the filing of the Company's
Annual Report on Form 10K-SB for the fiscal year ended September 30, 2003; or
(iii) result in a violation of any federal or state law, rule or regulation
applicable to the Company or by which any property or asset of the Company is
bound or affected, except for such violations as would not, individually or in
the aggregate, have a Material Adverse Effect. To our knowledge, the Company is
not in violation of any terms of its Articles of Incorporation or Bylaws.


<PAGE>


4. Assuming the accuracy of the representations and warranties of the Purchasers
contained in the Purchase Agreement, the issuance of the Debentures, the
Warrants, and the Underlying Shares in accordance with the Purchase Agreement
will be exempt from registration under the Securities Act. When so issued, the
Debentures, the Warrants and, upon conversion of the Debentures or exercise of
the Warrants in accordance with their respective terms, the Underlying Shares,
will be duly and validly issued, fully paid and nonassessable, and free of any
liens, encumbrances and preemptive or similar rights contained in the Company's
Article of Incorporation or Bylaws or, to our knowledge, in any agreement to
which the Company is party.

5. Except as disclosed in the Disclosure Schedules, we have not been engaged to
devote substantive attention to any claims, actions, suits, proceedings or
investigations that are pending against the Company or its properties, or
against any officer or director of the Company in his or her capacity as such.
To our knowledge, and except as disclosed in the Disclosure Schedules and the
SEC Reports, the Company is not a party to or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or government agency or
instrumentality.

6. The authorized capital stock of the Company consists of 200,000,000 shares of
Common Stock, par value $0.001 per share, of which shares 109,008,734 are
outstanding.



         This opinion is furnished to the Purchasers for their benefit in
connection with the transactions described above and may not be relied upon by
any other person or for any other purpose without our prior written consent,
except that the Company's transfer agent, or its successor agent, and the
Purchasers' respective brokers, or their successor agents, may rely upon this
opinion in acting as transfer agent with respect to the transactions
contemplated by the Agreements.


                                           Very truly yours,




                                           Nimish P. Patel
                                           Richardson & Patel LLP

<PAGE>



                                    EXHIBIT A


                  1.       The Securities Purchase Agreement.

                  2.       The form of Common Stock Purchase Warrant.

                  3.       The form of Registration Rights Agreement.

                  4.       The form of Debenture

                  5.       The form of Custodial and Security Agreement

                  6.       Officers' Certificate, dated as of August 17, 2004.

                  7.       The Articles of Incorporation of the Company, as
                           amended.

                  8.       The By-laws of the Company.

                  9.       A corporate resolution adopted by the board of
                           directors of the Company authorizing the consummation
                           of the transactions contemplated by the Purchase
                           Agreement.



<PAGE>

                                  SCHEDULE 3.1A
                                  SUBSIDIARIES

The Company owns all of the capital stock of the following subsidiary companies
(the "Subsidiaries"):

Transmission Technology Corporation, a Nevada corporation.

CTC Wind Systems Corporation, a Nevada corporation.

CTC Towers & Poles Corporation, a Nevada corporation.

CTC Cable Corporation, a Nevada corporation.

<PAGE>



                                SCHEDULE 3.1(FF)
                                  ACCOUNTANTS.

The Company's auditors are Singer Lewak Greenbaum & Goldstein LLP.




<PAGE>

                                                                       EXHIBIT E

                        CUSTODIAL AND SECURITY AGREEMENT

      THIS CUSTODIAL AND SECURITY  AGREEMENT  (this  "AGREEMENT")  is made as of
August  17,  2004,  by and  among  Composite  Technology  Corporation,  a Nevada
corporation  with an  address  at 2026  McGaw  Avenue,  Irvine,  CA  92614  (the
"COMPANY"),  the purchasers signatory hereto (each individually,  a "PURCHASER,"
and collectively, the "PURCHASERS"),  and Feldman Weinstein LLP, with an address
at 420 Lexington Avenue, Suite 2620, New York, New York 10170 (the "CUSTODIAN").
CAPITALIZED  TERMS USED BUT NOT DEFINED HEREIN SHALL HAVE THE MEANINGS SET FORTH
IN THE SECURITIES PURCHASE AGREEMENT REFERRED TO IN THE FIRST RECITAL.

                              W I T N E S S E T H:

      WHEREAS,  the Company and each  Purchaser has entered into the  Securities
Purchase Agreement of even date herewith (the "PURCHASE AGREEMENT"), pursuant to
which the  Purchasers  are  purchasing  the  Company's  6%  Secured  Convertible
Debentures  due three  years after  their date of  issuance  (collectively,  the
"SECURED DEBENTURES") and Warrants; and

      WHEREAS,  in order to induce the  Purchasers  to enter  into the  Purchase
Agreement and to purchase the Debentures,  and as a condition precedent thereto,
the Company has agreed to secure the payment and  performance of its obligations
under the Purchase  Agreement,  the  Debentures,  this  Agreement  and the other
Transaction  Documents by granting to the Purchasers a first  priority  security
interest in certain of the cash proceeds from the sale of the Debentures; and

      WHEREAS,  the Company and the Purchasers have requested that the Custodian
hold  two-thirds of the gross cash proceeds from the sale of the  Debentures for
the benefit of the Purchasers,  as secured parties, in accordance with the terms
hereof;

      WHEREAS, the Purchasers wish to initially appoint Midsummer Capital LLC as
a representative  of the Purchasers (the "PURCHASER  REPRESENTATIVE")  to act on
behalf of all of the  Purchasers  solely  with  respect to the  release of funds
pursuant to this Agreement.

      NOW, THEREFORE,  in consideration of the premises and the mutual covenants
hereinafter  contained,  and for  other  good and  valuable  consideration,  the
receipt and  sufficiency  of which are hereby  acknowledged,  the parties hereto
agree as follows:

      1.    CLOSING.

            (a) Upon the  Custodian's  receipt  from the  Purchasers  of, in the
      aggregate,  $15,000,000  into its escrow  account (the "ESCROW  ACCOUNT"),
      together with each  Purchaser's  executed  counterparts of this Agreement,
      the  Purchase  Agreement  and  the  Registration  Rights  Agreement,   the
      Custodian  shall  telephonically  advise  the  Company,  or the  Company's
      designated  attorney  or  agent,  of its  receipt  of such  funds and such
      documents.


<PAGE>

            (b) Wire transfers to the Custodian shall be made as follows:

                           STERLING NATIONAL BANK
                           622 3RD AVENUE
                           NEW YORK, NY 10017
                           Account Name:  Feldman Weinstein LLP
                           ABA ROUTING NO: 026007773
                           ACCT NO: 0814180101
                           Remark:  CPCT/[FUND NAME]

            (c) The Company,  upon receipt of the telephonic notice described in
      Section  1(a)  above,  shall  deliver to the  Custodian  the  certificates
      representing  the  Debentures  and  the  Warrants  to be  issued  to  each
      Purchaser at the Closing together with:

                  (i) a counterpart of the Registration  Rights Agreement,  duly
            executed by the Company;

                  (ii) the executed legal opinion of Company Counsel;

                  (iii) a counterpart of the Purchase  Agreement,  duly executed
            by the Company; and

                  (iv) a  counterpart  of this  Agreement,  duly executed by the
            Company.

            (d) In the event that the foregoing items have not been delivered to
      the  Custodian  by the  Company  within  five (5)  Trading  Days after the
      Custodian  has  received  all  of the  Subscription  Amounts  (net  of any
      permitted  deductions  pursuant  to the  Purchase  Agreement),  then  each
      Purchaser  shall  have an  independent  and  separate  right to demand and
      receive the return of its Subscription Amount.

            (e) Once the  Custodian  receives  all of the items  required  to be
      delivered  hereunder,  it shall wire the gross proceeds raised pursuant to
      the Purchase  Agreement per the written  instructions  of the Company less
      the  balance  of  $10,000,000  (the  "SECURED  PROCEEDS")  which  shall be
      initially  transferred  into a  separate  non-interest  bearing  custodian
      deposit  account of the Custodian (the "CUSTODIAN  ACCOUNT").  Thereafter,
      the  Custodian  Account shall be maintained by the Custodian in accordance
      with  the   terms  of  this   Agreement   and  may  be   invested   in  an
      interest-bearing  government  securities or  commercial  money market fund
      made  available  by the  Custodian's  bank or as  otherwise  directed in a
      writing  executed  by the Company and the  Purchaser  Representative.  The
      Custodian, by its execution and delivery of this Agreement,  hereby agrees
      to accept  receipt of the Secured  Proceeds and to hold such  proceeds for
      the benefit of the Purchasers, as secured parties.


                                       2
<PAGE>


            (f) After  transferring  the  Secured  Proceeds  into the  Custodian
      Account, the Custodian shall then arrange to have originals or counterpart
      originals of the Purchase  Agreement,  the Warrants,  the Debentures,  the
      Registration  Rights Agreement,  this Agreement and the opinion of counsel
      delivered to the appropriate parties.

            (g) The Custodian  shall hold the Secured  Proceeds in the Custodian
      Account, for the benefit of each Purchaser,  and not release such proceeds
      except as provided herein.  NOTWITHSTANDING  ANYTHING IN THIS AGREEMENT TO
      THE CONTRARY, AS TO ANY PURCHASER,  THE CUSTODIAN SHALL ONLY RELEASE FUNDS
      TO THE COMPANY OR A PURCHASER  UNDER THIS AGREEMENT TO THE EXTENT ALL SUCH
      RELEASES ON ACCOUNT OF SUCH  PURCHASER,  IN THE  AGGREGATE,  DO NOT EXCEED
      66.66% OF THE ORIGINAL  PRINCIPAL  AMOUNT OF DEBENTURES  PURCHASED BY SUCH
      PURCHASER PURSUANT TO THE PURCHASE AGREEMENT PLUS ACCRUED INTEREST.

            (h) The Purchasers  hereby appoint the Purchaser  Representative  as
      the  representative  of the  Purchasers  to act  on  behalf  of all of the
      Purchasers  with  respect  to  the  release  of  funds  pursuant  to  this
      Agreement.

      2.    RELEASE OF SECURED PROCEEDS.

            (a)  RELEASE  UPON  VOLUNTARY  CONVERSION  OF  DEBENTURES.  Upon the
      conversion  by a Purchaser of all or part of the  principal  amount of the
      Debenture(s) held by such Purchaser in excess of such Purchaser's Pro Rata
      Amount of the sum of  $5,000,000  ("PRO  RATA  AMOUNT"  as  defined in the
      Debenture),  (the "CONVERTED  PRINCIPAL  AMOUNT"),  such Purchaser and the
      Company  shall  promptly  thereafter  execute a joint  certificate  to the
      Custodian  certifying  that  such  Converted  Principal  Amount  has  been
      converted by the Purchaser (a "CONVERSION CERTIFICATE",  such release upon
      Conversion  shall be a "CONVERSION  RELEASE" and such date of a Conversion
      Release  shall be the  "CONVERSION  RELEASE  DATE").  Promptly  after  its
      receipt of a Conversion  Certificate,  the Custodian  shall release out of
      the Secured Proceeds, subject to the limitation set forth in Section 1(g),
      to the account  specified in the written  instructions of the Company,  an
      amount equal to the Converted Principal Amount.

            (b) RELEASE UPON THE VALUE OF COMMON STOCK.

                  (i)  Upon  written  notice  by the  Company  to the  Purchaser
            Representative  and the  Custodian  that either (i) the VWAP on each
            Trading Day for any 20  consecutive  Trading Days  commencing on the
            Original   Issue  Date  and  until  the  Debentures  are  no  longer
            outstanding (the "RELEASE  PERIOD") is greater than or equal to 150%
            of the  Conversion  Price (as defined in the Debenture) and provided
            that the Equity  Conditions are satisfied  during the 20 Trading Day
            period  preceding the Requested  Release  Notice or (ii) the VWAP on
            each Trading Day during the Release  Period is greater than or equal
            to 175% of the Conversion Price (each, a "REQUESTED RELEASE NOTICE")
            and provided that the Equity  Conditions are satisfied during the 20
            Trading Day period  preceding  the  Requested  Release  Notice,  the
            Company may request a release of the Secured  Proceeds such that the
            Custodian  shall  release  50% of the Secured  Proceeds  pursuant to
            Section  2(b)(i)  (the  "PARTIAL  RELEASE")  and 100% of the Secured
            Proceeds pursuant to Section 2(b)(ii) (the "FULL RELEASE") (the date
            of the Partial  Release and the Full  Release  shall be the "PARTIAL
            RELEASE DATE" and the "FULL  RELEASE  DATE",  respectively)  and the
            Purchaser  Representative  shall  join in such  request.  Prior to a
            Partial Release and a Full Release, the Purchaser Representative and
            the  Company  shall  execute a joint  certificate  to the  Custodian
            certifying that such release is permissible;  PROVIDED,  HOWEVER, if
            the Purchaser Representative does not execute a joint certificate to
            the Custodian or does not object to the Company and the Custodian to
            the execution of such joint certificate  within 5 Trading Days after
            written and confirmed  notice to the Purchaser  Representative  from
            the Company of such  request for  release  pursuant to this  Section
            2(b)(i),  then the Purchaser  Representative shall be deemed to have
            consented to such release.


                                       3
<PAGE>

                  (ii) If the  conditions  set forth in Section  2(b)(i) for the
            Partial Release or the Full Release are satisfied,  then, subject to
            the provisions of Sections 1(g) above,  the Custodian  shall release
            that portion of the Secured Proceeds equal to the Partial Release or
            Full Release,  as  applicable,  on the Partial  Release Date or Full
            Release Date, as applicable.

            (c) RELEASE UPON OPTIONAL  REDEMPTION  NOTICE. At any time after the
      occurrence  of an Optional  Redemption  Notice Date (as defined in Section
      6(a) of the Debenture),  the Company may, at its option, deliver a copy of
      the  Optional  Redemption  Notice  to the  Custodian.  If,  by the  Option
      Redemption  Date  (as  defined  in  Section  6(a) of the  Debenture),  the
      Custodian shall not have received written notice from a Purchaser named in
      the Optional Redemption Notice that it disputes such Optional  Redemption,
      then the Custodian shall release out of the Secured  Proceeds,  subject to
      the limitation set forth in Section 1(g), to each non-objecting  Purchaser
      named in the Optional  Redemption Notice who has not previously  converted
      the Debentures an amount equal to the principal amount of Debentures being
      redeemed  by the  Company.  In the event that a Purchaser  does  deliver a
      timely  notice to the  Custodian  and the Company  that it  disputes  such
      Option Redemption, then such dispute shall be resolved between the Company
      and the  Purchaser  by  arbitration  as  conducted  as provided in Section
      2(e)(ii).  The prevailing party in such hearing 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  arbitration
      proceeding but shall not be paid out of the Secured Proceeds.

            (d) RELEASE UPON CONSENT OF PURCHASERS.  Upon receipt by the Company
      of a written  consent of a Purchaser to release any portion of the Secured
      Proceeds,  the Company and such Purchaser shall execute and deliver to the
      Custodian a joint certificate (each, a "CONSENT  CERTIFICATE")  certifying
      that  consent to release such Secured  Proceeds has been  obtained,  which
      Consent Certificate shall include the amount of the Secured Proceeds to be
      released,  representations  from  such  Purchaser  as to  the  outstanding
      principal amount of the Debentures held by it at the time such consent was
      obtained, and a representation by the Company's chief executive officer as
      to the aggregate  principal  amount of the  Debentures  outstanding at the
      time consent was obtained.  Any Purchaser may consent or withhold  consent
      to any  such  release  of any of the  Secured  Proceeds  in its  sole  and
      absolute  discretion.  Upon  receipt  of  the  Consent  Certificate,   the
      Custodian shall release,  to the account of the Company  designated in the
      Consent  Certificate,  that  Purchaser's  Pro Rata  Portion of the Secured
      Proceeds  specified  in the Consent  Certificate.  If less than all of the
      Secured  Proceeds are  released,  the  remaining  amount,  for purposes of
      calculating  each  Purchaser's  rights  hereunder,  shall be  re-allocated
      according to such Purchaser's Pro Rata Portion.


                                       4
<PAGE>


            (e) RELEASE UPON AN EVENT OF DEFAULT.

                  (i) If, on the maturity date of the Debentures, any Debentures
            shall remain unpaid, then upon receipt by the Custodian of a written
            notice from a Purchaser holding such Debentures certifying that such
            Debentures  remain  unpaid,  the  Custodian  shall  release  to such
            Purchaser its Pro Rata Portion of the Secured Proceeds  remaining in
            the Custodian  Account relating to such Purchaser (but not more than
            the amount due under such Debentures then held by such Purchaser and
            amounts due under the  Purchase  Agreement to such  Purchaser),  and
            such  Secured  Proceeds  shall be applied to reduce  amounts due and
            owing to such  Purchaser  with  respect  to the  Debentures  and the
            Purchase  Agreement  as follows:  first,  to the payment of fees and
            expenses including  liquidated damages;  second, to interest payable
            in  cash  with  respect  to  the  Debentures;   and  third,  to  the
            outstanding principal under the Debentures.

                  (ii) At any time after the  occurrence of an Event of Default,
            any  Purchaser  may, at its  option,  deliver a  certificate  to the
            Custodian  and the  Company  specifying  the  nature of the Event of
            Default.  If, within ten days after its receipt of such certificate,
            the  Custodian  shall  not have  received  written  notice  from the
            Company  that it disputes the  occurrence  of such Event of Default,
            then the Custodian shall release to such Purchaser such  Purchaser's
            Pro Rata Portion of the Secured Proceeds  remaining in the Custodian
            Account.  In the event that the Company does deliver a timely notice
            to  the  Custodian   and  the   Purchaser   that  it  disputes  such
            determination,  then such  dispute  shall be  resolved  between  the
            Company and the Purchaser by arbitration  conducted as follows:  the
            arbitration  shall be  conducted  in New York,  New York,  before an
            arbitration  panel  of  three  arbitrators,  one of  whom  shall  be
            selected  by the  Purchaser,  one of whom shall be  selected  by the
            Company,  with the  remaining  arbitrator  to be agreed  upon by the
            first two. The arbitration shall be conducted in accordance with the
            commercial arbitration rules of the American Arbitration Association
            then in effect. Any arbitration decision or award shall be final and
            conclusive as to the parties to this Agreement and their  successors
            and assigns;  judgment upon such decision or award may be entered in
            any  competent  court.  In the event that the  arbitration  shall be
            decided in favor of the applicable Purchaser,  then upon delivery of
            a written copy of such decision by the  Purchaser to the  Custodian,
            the  Custodian  shall  promptly  release  the  Purchaser's  Pro Rata
            Portion of the remaining Secured Proceeds to the Purchaser.


                                       5
<PAGE>


            (f) RELEASE UPON  MONTHLY  REDEMPTION.  Upon  written  notice by the
      Company to the Purchaser  Representative  and the Custodian that a portion
      of the  Secured  Proceeds  has  been  converted  pursuant  to the  Monthly
      Redemption  (the  "MONTHLY  REDEMPTION   AMOUNT"),   then,  the  Purchaser
      Representative  and the Company shall promptly  thereafter execute a joint
      certificate  to the  Custodian  certifying  that such  Monthly  Redemption
      Amount  has  been  converted  (a  "REDEMPTION  CONVERSION   CERTIFICATE");
      PROVIDED,  HOWEVER,  if the  Purchaser  Representative  does not execute a
      Redemption  Conversion  Certificate to the Custodian within 3 Trading Days
      after written and confirmed  notice to the Purchaser  Representative  from
      the Company of such  request for release  pursuant to this  Section  2(f),
      then the  Purchaser  Representative  shall be deemed to have  consented to
      such release; PROVIDED,  HOWEVER, that there shall not be a deemed consent
      if the  Purchaser  Representative  objects  in good  faith  solely  to the
      calculations included in the Redemption Conversion Certificate within such
      3  Trading  Day  period.  Promptly  after  its  receipt  of  a  Redemption
      Conversion  Certificate,  the  Custodian  shall release out of the Secured
      Proceeds,  subject to the  limitation  set forth in Section  1(g),  to the
      account  specified in the written  instructions of the Company,  an amount
      equal to the Monthly Redemption Amount.

            (g)  RELEASE  UPON FORCED  CONVERSION.  Upon  written  notice by the
      Company and the Purchaser Representative to the Custodian that the Company
      has properly forced conversion of the Debentures, pursuant to Section 6(c)
      of the  Debentures,  then,  the Purchaser  Representative  and the Company
      shall  promptly  thereafter  execute a joint  certificate to the Custodian
      certifying that such amount under the Forced Conversion has been converted
      (a "FORCED CONVERSION CERTIFICATE");  PROVIDED,  HOWEVER, if the Purchaser
      Representative  does not execute a Forced  Conversion  Certificate  to the
      Custodian  or does not  object to the  Company  and the  Custodian  to the
      execution  of such Forced  Conversion  Certificate  within 5 Trading  Days
      after written and confirmed  notice to the Purchaser  Representative  from
      the Company of such  request for release  pursuant to this  Section  2(g),
      then the  Purchaser  Representative  shall be deemed to have  consented to
      such  release.   Promptly  after  its  receipt  of  a  Forced   Conversion
      Certificate,  the  Custodian  shall  release the  Secured  Proceeds to the
      account specified in the written instructions of the Company, in an amount
      equal to the ratio  that the  amount  of  principal  amount of  Debentures
      subject to the Forced Conversion bears to the outstanding principal amount
      of the Debentures.

            (h) PROCEDURE FOR RELEASE.  In the event that any Conversion Release
      Date, Partial Release Date, Full Release Date (collectively, the "RELEASE"
      and, the date of such Release,  the "RELEASE  DATE") is not a Business Day
      (as  defined  herein),  then such  Release  shall be deemed to be the next
      Business Day. "BUSINESS DAY" shall mean any day that is not a Saturday,  a
      Sunday or a day on which banks are  required or  permitted to be closed in
      the State of New York. In the event that any of the Secured Proceeds shall
      have been paid in whole or in part on or prior to the  applicable  Release
      Date, the Company shall provide immediate telephonic notice thereof to the
      Purchasers and to the Custodian, promptly followed by written confirmation
      to such parties,  and the amount requested  pursuant to such Release shall
      be reduced by the aggregate amount of payments  received by the Company in
      satisfaction of such Release.


                                       6
<PAGE>


      3.    SECURITY AGREEMENT.

            (a) GRANT. The Company hereby unconditionally and irrevocably grants
      to the Purchasers,  to secure the payment and performance in full when due
      of all of the Obligations  (as said term is defined  below),  a continuing
      first  priority  security  interest  in, and so pledges and assigns to the
      Purchasers  all of, the Secured  Proceeds  and any  interest  that accrues
      thereon  ("COLLATERAL").   "Obligations"  means  all  present  and  future
      indebtedness,  obligations,  covenants, duties and liabilities of any kind
      or nature of the  Company to the  Purchasers  (or any of them)  under this
      Agreement,  the Debentures and the other  Transaction  Documents,  in each
      case whether now or hereafter existing,  voluntary or involuntary,  direct
      or indirect, absolute or contingent,  liquidated or unliquidated,  whether
      or not jointly owed with others.  Without  limiting the  generality of the
      foregoing,  this  Agreement  secures  the  payment  of  all  amounts  that
      constitute part of the Obligations and would be owed by the Company to the
      Purchasers under the Transaction  Documents but for the fact that they are
      unenforceable  or not  allowable  due to the  existence  of a  bankruptcy,
      reorganization or similar  proceeding  involving the Company or any of the
      Company's Subsidiaries.

            (b) FURTHER ASSURANCES. The Company agrees that at any time and from
      time to time, at the expense of the Company,  the Company  shall  promptly
      execute  and deliver all further  instruments,  documents  and/or  control
      agreements  and  take  all  further  action,  that  may  be  necessary  or
      desirable,  or that the  Purchasers may  reasonably  request,  in order to
      perfect and protect  any  security  interest  granted or  purported  to be
      granted  hereby or to enable any  Purchaser  to  exercise  and enforce its
      rights and remedies hereunder with respect to any of the Collateral.

            (c) RIGHTS AND  REMEDIES.  At any time  after the  occurrence  of an
      Event of  Default,  and  without  any other  notice to or demand  upon the
      Company,   the  Purchasers  shall  have,  in  any  jurisdiction  in  which
      enforcement  hereof  is  sought,  in  addition  to all  other  rights  and
      remedies,  the rights and  remedies  of a secured  party under the Uniform
      Commercial  Code in effect from time to time in the State of New York (the
      "UCC") and any  additional  rights and remedies which may be provided to a
      secured party in any applicable jurisdiction.

            (d) POWER OF ATTORNEY.  The Company hereby  irrevocably  constitutes
      and appoints the Purchasers,  and each of them, and any officer,  partner,
      member or agent thereof, with full power of substitution,  as its true and
      lawful  attorneys-in-fact with full irrevocable power and authority in the
      name,  place  and stead of the  Company  or in their  own  names,  for the
      purpose of carrying out the terms of this  Agreement,  to take any and all
      appropriate  action and to execute any and all documents  and  instruments
      that may be  necessary  or  useful  to  accomplish  the  purposes  of this
      Agreement and,  without  limiting the generality of the foregoing,  hereby
      gives  said  attorneys  the power  and  right,  on behalf of the  Company,
      without  notice  to or  assent  by the  Company,  at any  time  after  the
      occurrence of an Event of Default,  to sell,  transfer,  pledge,  make any
      agreement with respect to or otherwise  dispose of or deal with any of the
      Collateral in such manner as is  consistent  with the UCC and as fully and
      completely as though the Purchasers  were the absolute  owners thereof for
      all  purposes,  and to do, at the Company's  expense,  at any time or from
      time to time, all acts and things which the  Purchasers  deem necessary or
      useful  to  protect,  preserve  or  realize  upon the  Collateral  and the
      security interest of the Purchasers therein, in order to effect the intent
      of this  Agreement,  all at least as fully and  effectively as the Company
      might do.


                                       7
<PAGE>


            (e) Intentionally Omitted.

            (f) MARSHALLING. All rights and remedies of the Purchasers hereunder
      and in respect of the Collateral and other  assurances of payment shall be
      cumulative  and in  addition  to all other  rights and  remedies,  however
      existing or  arising.  To the extent  that it  lawfully  may,  the Company
      hereby agrees that it will not invoke any law relating to the  marshalling
      of assets  which might cause a delay in or impede the  enforcement  of the
      rights  and  remedies  of  the  Purchasers   under  this  Agreement,   the
      Debentures,  the other Transaction Documents or under any other instrument
      creating or evidencing  any of the  Obligations  or under which any of the
      Obligations is  outstanding or by which any of the  Obligations is secured
      or  payment  thereof  is  otherwise  assured,  and to the  extent  that it
      lawfully may, the Company  hereby  irrevocably  waives the benefits of all
      such law.

            (g) NO  WAIVER,  ETC.  The  Purchasers  shall  not be deemed to have
      waived any of their  rights or remedies in respect of the  Obligations  or
      the  Collateral  unless such waiver  shall be in writing and signed by the
      Purchasers.  No  delay  or  omission  on the  part  of the  Purchasers  in
      exercising  any right or remedy shall operate as a waiver of such right or
      remedy or any other right or remedy.  A waiver on any one  occasion  shall
      not be  construed  as a bar to or  waiver  of any  right or  remedy on any
      future occasion. All rights and remedies of the Purchasers with respect to
      the  Obligations or the  Collateral,  whether  evidenced  hereby or by any
      other  document or  instrument,  shall be cumulative  and may be exercised
      singularly, alternatively, successively or concurrently at such time or at
      such times as the Purchasers deem expedient.

            (h)  CERTAIN  DEFINED  TERMS.  Terms used in this  Section 3 but not
      otherwise  defined in this  Agreement that are defined in the UCC (as such
      term is hereinafter defined) shall have the respective meanings given such
      terms therein;  PROVIDED,  HOWEVER, that if a term is defined in Article 9
      of the UCC differently  than in another Article of the UCC, then such term
      shall have the  meaning  specified  in Article 9. "UCC"  means the Uniform
      Commercial Code in effect from time to time in the State of New York.

      4.  CONDITIONS TO CUSTODIAN'S  DUTIES.  The acceptance by the Custodian of
its duties as such under this  Agreement is subject to the  following  terms and
conditions, which all of the parties to this Agreement hereby agree shall govern
and control with respect to the rights,  duties,  liabilities  and immunities of
the Custodian:

            (a) The  Custodian  is not a party to, nor is it bound by, any other
      agreement by which the other parties  hereto may be bound  (whether or not
      it has knowledge of such), other than as expressly herein set forth.


                                       8
<PAGE>


            (b) The  Custodian  shall be  protected  in acting  upon any written
      notice,  request,  waiver,  consent,  receipt or other  document which the
      Custodian,  in good faith,  believes to be genuine and what it purports to
      be. No waiver or any breach of any covenant or provision  herein contained
      shall be deemed a waiver of any preceding or succeeding breach thereof, or
      of any other covenant or provision herein contained.  No extension of time
      for  performance  of any obligation or act shall be deemed an extension of
      the time for performance of any other  obligation or act. If the Custodian
      reasonably  requires other or further  instruments in connection with this
      Agreement or obligations in respect hereto,  the necessary  parties hereto
      shall join in furnishing such instruments.

            (c) The  Custodian  shall be  indemnified  and held  harmless by the
      Company and the  Purchasers,  jointly and severally,  from and against any
      and all loss, expense,  fees (including  attorneys' fees) and damages that
      may be incurred  by the  Custodian  as a result of its  agreeing to act in
      such capacity and its performance of this  Agreement.  The Custodian shall
      not be  obligated  to any party for any error in  judgment  or for any act
      done or steps taken or omitted by it in good faith,  or for any mistake of
      fact or law,  or for  anything  which it may do or  refrain  from doing in
      connection  therewith,  except as a result of its own gross  negligence or
      willful  misconduct.  This  indemnity  includes the costs of enforcing the
      indemnification (including attorneys' fees).

            (d) The  Custodian  may  consult  with or retain  legal  counsel  in
      connection  with any dispute or question as to the  construction of any of
      the  provisions  hereof  or with  regard to its  duties  and shall be held
      harmless and protected by the Company and the Purchasers in acting in good
      faith in accordance with the instructions of such counsel.  Such counsel's
      fees and expenses  shall be paid as set forth in Section 4(f) hereof.  The
      Custodian may represent itself at its usual rates.

            (e) The Custodian shall not be responsible or liable for the default
      or misconduct of its agents,  attorneys or employees, if they are selected
      with reasonable care.

            (f) The Company will pay the  Custodian's  fees (at the  Custodian's
      customary hourly rate for legal services) and out-of-pocket  disbursements
      for time spent in performing its duties under this  Agreement,  and if any
      of Custodian's invoices are not paid in full within 30 days, the Custodian
      is directed to pay itself  directly from the Custodian  Account;  provided
      that  if fees  are  taken  directly  from  the  Custodian  Account  by the
      Custodian,  the  Purchasers  shall have no claim against the Custodian for
      such funds but shall have a claim  against the Company for  reimbursement.
      The Company shall  promptly  replenish any funds that are disbursed to the
      Custodian from the Custodian Account.

            (g) The  Custodian  shall have no obligation to seek to maximize the
      rate of interest on the Secured  Proceeds,  and shall be without liability
      to any person in respect thereof.


                                       9
<PAGE>


            (h) No modification of this Agreement shall,  without the consent of
      the Custodian and all other parties hereto,  modify the provisions of this
      Agreement relating to the duties,  obligations or rights of the Custodian.
      This  Agreement  is the final  expression  of,  and  contains  the  entire
      agreement  between,  the parties with respect to the subject matter hereof
      and supersedes all prior understandings with respect thereto.

      5.    CONFLICT WITH RESPECT TO COLLATERAL.

            (a) In the event that the  Custodian at any time receives or becomes
      aware of  conflicting  demands or claims with  respect to the  Collateral,
      this Agreement or its duties hereunder, the Custodian shall have the right
      to  discontinue  and refrain from any and all activities on its part under
      this  Agreement or in connection  herewith until such conflict is resolved
      to its satisfaction.

            (b) The Custodian shall have the further right to commence or defend
      any action or proceedings  for the  determination  of such  conflict.  The
      Company and the Purchasers  jointly and severally  agree to pay all costs,
      damages,  judgments and expenses,  including  reasonable  attorneys' fees,
      suffered or incurred by the Custodian in connection with or arising out of
      this Agreement and the transactions  described herein in the event of bona
      fide conflicting  claims or demands,  including,  but without limiting the
      generality  of  the  foregoing,  a suit  in  interpleader  brought  by the
      Custodian.  In the event that the Custodian files a suit in  interpleader,
      it shall  thereupon  be fully  released  and  discharged  from all further
      obligations to perform any and all duties or  obligations  imposed upon it
      by this  Agreement  (except it may not  release the  Collateral  except as
      designated by the court).

      6. ACKNOWLEDGEMENT. ALL PARTIES HERETO AGREE THAT THE CUSTODIAN IS COUNSEL
FOR  MIDSUMMER  CAPITAL,  LLC  ("MIDSUMMER")  AND SHALL BE ENTITLED TO REPRESENT
MIDSUMMER  WITH  RESPECT  TO  THE  PURCHASE   AGREEMENT  AND  THE   TRANSACTIONS
CONTEMPLATED THEREUNDER;  AND THE COMPANY AND EACH OTHER PURCHASER HEREBY WAIVES
ANY  RIGHT OR CLAIM TO OBJECT  TO SUCH  LEGAL  REPRESENTATION  BY  CUSTODIAN  OF
MIDSUMMER IN CONNECTION WITH THIS TRANSACTION.

      7.  RESIGNATION  OF  CUSTODIAN.  The  Custodian  may  at any  time  resign
hereunder by giving  written  notice of its  resignation  to the Company and the
Purchasers,  at  least  ten (10)  days  prior  to the  date  specified  for such
resignation to take effect, and upon the effective date of such resignation, all
property then held by the Custodian  hereunder  shall be delivered by it to such
Person as may be  designated  by the  Company  and the  Purchasers,  in writing,
whereupon all the Custodian's  obligations  hereunder shall cease and terminate.
If no such Person shall have been  designated by such date,  all  obligations of
the  Custodian  hereunder  shall,   nevertheless,   cease  and  terminate.   The
Custodian's sole responsibility  thereafter shall be to keep safely all property
then held by it and to deliver  the same to a Person  designated  by the parties
hereto or in  accordance  with the  directions of a final order or judgment of a
court of competent  jurisdiction,  or to file a suit in interpleader as provided
in Section 5 above.

      8. INTEREST ON SECURED PROCEEDS.  EXCEPT AS OTHERWISE  PROVIDED IN SECTION
1(E), the Custodian shall deposit the Secured Proceeds in a non-interest-bearing
account.  In the absence of an Event of Default,  all accrued interest,  if any,
shall be payable to the Company or its assignees at the direction of the Company
when actual paid.


                                       10
<PAGE>


      9.  SUCCESSORS  AND  ASSIGNS.  The  Purchasers  may  assign  their  rights
hereunder in  connection  with the transfer of  Debentures.  The Company may not
assign its rights under this Agreement. This Agreement shall be binding upon and
inure  to  the  benefit  of the  parties  hereto  and  their  respective  heirs,
administrators, successors and permitted assigns.

      10. GOVERNING LAW;  JURISDICTION.  THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, AND THE
PARTIES AGREE AND CONSENT TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL AND STATE
COURTS  LOCATED  IN NEW  YORK  COUNTY,  NEW  YORK IN ANY  ACTION  OR  PROCEEDING
HEREUNDER, AND TO SERVICE OF PROCESS BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED
(WHICH  SHALL  CONSTITUTE  "PERSONAL   SERVICE").   THE  PARTIES  HERETO  HEREBY
IRREVOCABLY  WAIVE,  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 AGREEMENT.

      11.  AMENDMENT.  No provision of this  Agreement  may be amended or waived
without  the  prior  written  consent  of the  Company  and all the  Purchasers;
PROVIDED,  HOWEVER,  that any provision relating to the duties,  obligations and
rights of the Custodian shall in addition require the approval of the Custodian,
as provided in Section 4 above.

      12.  NOTICES.  All  notices or other  communications  between  the parties
contemplated under, or relating to, this Agreement shall be in writing, shall be
signed  by each  person  giving  such  notice  or  communication,  and  shall be
delivered by hand,  reputable  overnight  courier or by certified  mail,  return
receipt requested,  to the parties at their respective addresses set forth above
or to such other  address as to which the  sending  party has  received  written
notice in accordance with this Section 12.

      13. THE PURCHASER REPRESENTATIVE.

            (a) APPOINTMENT. The Purchasers, by their acceptance of the benefits
      of the Agreement,  hereby designate Midsummer Capital LLC as the Purchaser
      Representative to act as specified herein.  Each Purchaser shall be deemed
      irrevocably to authorize the Purchaser  Representative to take such action
      on its  behalf  under  the  provisions  of this  Agreement  and any  other
      instruments  and agreements  referred to herein or therein and to exercise
      such powers and to perform such duties  hereunder  and  thereunder  as are
      specifically  delegated to or required of the Purchaser  Representative by
      the terms  hereof  and  thereof  and such other  powers as are  reasonably
      incidental  thereto.  The Purchaser  Representative may perform any of its
      duties hereunder by or through its agents or employees.

            (b) NATURE OF DUTIES.  The  Purchaser  Representative  shall have no
      duties  or  responsibilities  except  those  expressly  set  forth in this
      Agreement.  Neither the Purchaser  Representative nor any of its partners,
      members,  shareholders,  officers, directors, employees or agents shall be
      liable for any action  taken or omitted by it as such under the  Agreement
      or hereunder or in connection herewith or therewith,  unless caused by its
      or their gross negligence or willful conduct.  The duties of the Purchaser
      Representative  shall be  mechanical  and  administrative  in nature;  the
      Purchaser  Representative  shall not have by reason  of this  Agreement  a
      fiduciary  relationship  in respect of the Company or any  Purchaser;  and
      nothing in the Agreement, expressed or implied, is intended to or shall be
      so  construed  as  to  impose  upon  the  Purchaser   Representative   any
      obligations  in respect of this  Agreement  except as expressly  set forth
      herein and therein.


                                       11
<PAGE>


            (c) LACK OF RELIANCE ON THE PURCHASER REPRESENTATIVE.  Independently
      and without reliance upon the Purchaser Representative, each Purchaser, to
      the extent it deems  appropriate,  has made and shall continue to make (i)
      its own independent  investigation of the financial  condition and affairs
      of the Company and its  subsidiaries in connection  with such  Purchaser's
      investment  in  the  Company,   the  creation  and   continuance   of  the
      Obligations,  the transactions  contemplated by the Transaction Documents,
      and the taking or not taking of any action in  connection  therewith,  and
      (ii) its own  appraisal  of the  creditworthiness  of the  Company and its
      subsidiaries,  and of the value of the  Collateral  from time to time, and
      the Purchaser Representative shall have no duty or responsibility,  either
      initially  or on a continuing  basis,  to provide any  Purchaser  with any
      credit,  market or other information with respect thereto,  whether coming
      into its possession  before any Obligations are incurred or at any time or
      times thereafter. The Purchaser Representative shall not be responsible to
      Company  or any  Purchaser  for  any  recitals,  statements,  information,
      representations  or warranties  herein or in any document,  certificate or
      other writing  delivered in  connection  herewith,  or for the  execution,
      effectiveness,   genuineness,   validity,   enforceability,    perfection,
      collectibility,  priority or  sufficiency  of this  Agreement,  or for the
      financial  condition of the Company or the value of any of the Collateral,
      or be required to make any inquiry  concerning  either the  performance or
      observance  of  any  of  the  terms,  provisions  or  conditions  of  this
      Agreement,  or the financial condition of the Company, or the value of any
      of the Collateral,  or the existence or possible  existence of any default
      or Event of Default  under this  Agreement,  the  Debentures or any of the
      other Transaction Documents.

            (d) CERTAIN  RIGHTS OF THE PURCHASER  REPRESENTATIVE.  The Purchaser
      Representative shall have the right to take any action with respect to the
      Collateral,  on behalf of all of the Purchasers.  To the extent practical,
      the  Purchaser   Representative   shall  request   instructions  from  the
      Purchasers with respect to any material act or action  (including  failure
      to act) in connection with this Agreement, and shall be entitled to act or
      refrain from acting in  accordance  with the  instructions  of  Purchasers
      holding a majority in principal amount of Debentures; if such instructions
      are not provided despite the Purchaser  Representative's request therefor,
      the Purchaser Representative shall be entitled to refrain from such act or
      taking  such  action,  and if such  action is taken,  shall be entitled to
      appropriate  indemnification  from the Purchasers in respect of actions to
      be taken by the Purchaser Representative; and the Purchaser Representative
      shall  not incur  liability  to any  Person  by  reason of so  refraining.
      Without  limiting  the  foregoing,  no  Purchaser  shall have any right of
      action whatsoever against the Purchaser  Representative as a result of the
      Purchaser  Representative  acting or refraining  from acting  hereunder in
      accordance with the terms of the Agreement,  and the Company shall have no
      right to question or challenge the authority of, or the instructions given
      to, the Purchaser Representative pursuant to the foregoing.


                                       12
<PAGE>


            (e)  RELIANCE.  The  Purchaser  Representative  shall be entitled to
      rely,  and  shall  be  fully  protected  in  relying,  upon  any  writing,
      resolution, notice, statement,  certificate, telex, teletype or telecopier
      message,  cablegram,  radiogram,  order or  other  document  or  telephone
      message  signed,  sent or made by the proper  person or entity,  and, with
      respect to all legal matters  pertaining to this  Agreement and its duties
      thereunder, upon advice of counsel selected by it.

            (f)   INDEMNIFICATION.   The  Purchaser   Representative   shall  be
      indemnified and held harmless by the Company and the  Purchasers,  jointly
      and severally, from and against any and all loss, expense, fees (including
      attorneys'  fees)  and  damages  that  may be  incurred  by the  Purchaser
      Representative as a result of its agreeing to act in such capacity and its
      performance of this Agreement.  The Purchaser  Representative shall not be
      obligated  to any party for any error in  judgment  or for any act done or
      steps taken or omitted by it in good faith,  or for any mistake of fact or
      law, or for anything  which it may do or refrain from doing in  connection
      therewith,  except  as a result  of its own gross  negligence  or  willful
      misconduct.   This   indemnity   includes  the  costs  of  enforcing   the
      indemnification  (including  attorneys'  fees).  To the  extent  that  the
      Purchaser  Representative is not reimbursed and indemnified by the Company
      and/or  its  subsidiaries,  the  Purchasers  will  jointly  and  severally
      reimburse and indemnify  the  Purchaser  Representative,  in proportion to
      their initially purchased respective principal amounts of Debentures, from
      and  against  any  and  all  liabilities,  obligations,  losses,  damages,
      penalties,  actions, judgments, suits, costs, expenses or disbursements of
      any kind or nature  whatsoever  which may be imposed  on,  incurred  by or
      asserted  against the Purchaser  Representative  in performing  its duties
      hereunder  or under this  Agreement,  or in any way relating to or arising
      out of this Agreement except for those determined by a final judgment (not
      subject to further  appeal) of a court of competent  jurisdiction  to have
      resulted solely from the Purchaser  Representative's  own gross negligence
      or willful misconduct.

            (g) RESIGNATION BY THE PURCHASER REPRESENTATIVE.

                  (i)  The   Purchaser   Representative   may  resign  from  the
            performance  of all its functions and duties under this Agreement at
            any time by giving 30 days' prior written notice (as provided in the
            Agreement) to the Company and the Purchasers. Such resignation shall
            take  effect  upon  the   appointment   of  a  successor   Purchaser
            Representative pursuant to clauses (b) and (c) below.

                  (ii) Upon any such  notice  of  resignation,  the  Purchasers,
            acting  by  a  majority  in  interest,  shall  appoint  a  successor
            Purchaser Representative hereunder.

                  (iii) If a successor Purchaser  Representative  shall not have
            been  so  appointed   within  said  30-day  period,   the  Purchaser
            Representative    shall   then   appoint   a   successor   Purchaser
            Representative  who shall serve as  Purchaser  Representative  until
            such time, if any, as the Purchasers  appoint a successor  Purchaser
            Representative   as  provided  above.   If  a  successor   Purchaser
            Representative has not been appointed within such 30-day period, the
            Purchaser   Representative  may  petition  any  court  of  competent
            jurisdiction  or may  interplead the Company and the Purchasers in a
            proceeding   for   the   appointment   of  a   successor   Purchaser
            Representative,  and  all  fees,  including,  but  not  limited  to,
            extraordinary  fees associated  with the filing of interpleader  and
            expenses  associated  therewith,  shall be payable by the Company on
            demand.


                                       13
<PAGE>


IN WITNESS  WHEREOF,  the parties hereto have duly executed this Agreement as of
the day and year first above written.



COMPOSITE TECHNOLOGY CORPORATION

By:__________________________________________
     Name:
     Title:


CUSTODIAN:

FELDMAN WEINSTEIN LLP

By:__________________________________________
     Name:
     Title:


PURCHASER REPRESENTATIVE

MIDSUMMER CAPITAL LLC

By:___________________________________
Name:
Title:


                     [PURCHASERS' SIGNATURE PAGES TO FOLLOW]



                                       14
<PAGE>


            [PURCHASER'S SIGNATURE PAGE TO CPTC CUSTODIAL AGREEMENT]


Name of Investing Entity: ______________________________________________________

Signature of Authorized Signatory of Investing Entity: _________________________

Name of Authorized Signatory: __________________________________________________

Title of Authorized Signatory: _________________________________________________




               [ADDITIONAL PURCHASERS' SIGNATURE PAGES TO FOLLOW]



                                       15