Document:

EXHIBIT B-2
                                [FORM OF WARRANT]

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES  REPRESENTED BY THIS CERTIFICATE
NOR THE  SECURITIES  INTO  WHICH  THESE  SECURITIES  ARE  EXERCISABLE  HAVE BEEN
REGISTERED  UNDER THE  SECURITIES ACT OF 1933, AS AMENDED,  OR APPLICABLE  STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE,  SOLD,  TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE  REGISTRATION  STATEMENT  FOR
THE SECURITIES  UNDER THE SECURITIES ACT OF 1933, AS AMENDED,  OR (B) AN OPINION
OF COUNSEL,  IN A GENERALLY  ACCEPTABLE FORM, THAT  REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD  PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING  ARRANGEMENT  SECURED
BY THE SECURITIES.

                        COMPOSITE TECHNOLOGY CORPORATION

                        WARRANT TO PURCHASE COMMON STOCK

Warrant No.:_______________
Number of Shares of Common Stock:_____________
Date of Issuance: March ___, 2006 ("ISSUANCE DATE")

      Composite  Technology  Corporation,  a Nevada corporation (the "COMPANY"),
hereby  certifies  that,  for good and valuable  consideration,  the receipt and
sufficiency  of which are  hereby  acknowledged,  [HUDSON  BAY FUND,  LP] [OTHER
BUYERS],  the registered  holder hereof or its permitted assigns (the "HOLDER"),
is entitled, subject to the terms set forth below, to purchase from the Company,
at the Exercise Price (as defined below) then in effect,  upon surrender of this
Warrant to Purchase  Common Stock  (including  any  Warrants to Purchase  Common
Stock issued in exchange, transfer or replacement hereof, the "WARRANT"), at any
time or times on or after the date  hereof,  but not after 11:59 p.m.,  New York
time,  on the  Expiration  Date  (as  defined  below),  [2,000,000]  fully  paid
nonassessable  shares of Common Stock (as defined below) (the "WARRANT SHARES").
Except as otherwise defined herein, capitalized terms in this Warrant shall have
the  meanings  set forth in Section 15. This  Warrant is one of the  Warrants to
purchase Common Stock (the "SPA WARRANTS")  issued pursuant to Section 1 of that
certain  Securities  Purchase  Agreement,  dated  as  of  March  __,  2006  (the
"SUBSCRIPTION  DATE"), by and among the Company and the investors (the "BUYERS")
referred to therein (the "SECURITIES PURCHASE AGREEMENT").

<PAGE>

      1. EXERCISE OF WARRANT.

            (a)  Mechanics  of  Exercise.  Subject  to the terms and  conditions
hereof  (including,  without  limitation,  the  limitations set forth in Section
1(f)),  this  Warrant may be  exercised by the Holder on any day on or after the
date hereof,  in whole or in part, by (i) delivery of a written  notice,  in the
form  attached  hereto as Exhibit A (the  "EXERCISE  NOTICE"),  of the  Holder's
election  to  exercise  this  Warrant  and (ii) (A) payment to the Company of an
amount  equal to the  applicable  Exercise  Price  multiplied  by the  number of
Warrant  Shares as to which this  Warrant  is being  exercised  (the  "AGGREGATE
EXERCISE PRICE") in cash or wire transfer of immediately  available funds or (B)
by  notifying  the Company that this  Warrant is being  exercised  pursuant to a
Cashless Exercise (as defined in Section 1(d)). The Holder shall not be required
to  deliver  the  original  Warrant  in order to effect an  exercise  hereunder.
Execution  and delivery of the Exercise  Notice with respect to less than all of
the Warrant  Shares shall have the same effect as  cancellation  of the original
Warrant  and  issuance  of a new Warrant  evidencing  the right to purchase  the
remaining  number of  Warrant  Shares.  On or  before  the  first  Business  Day
following the date on which the Company has received each of the Exercise Notice
and the  Aggregate  Exercise  Price (or  notice  of a  Cashless  Exercise)  (the
"EXERCISE  DELIVERY  DOCUMENTS"),  the Company  shall  transmit by  facsimile an
acknowledgment of confirmation of receipt of the Exercise Delivery  Documents to
the Holder and the Company's transfer agent (the "TRANSFER AGENT"). On or before
the third  Business Day following the date on which the Company has received all
of the Exercise  Delivery  Documents (the "SHARE  DELIVERY  DATE"),  the Company
shall (X) provided that the Transfer  Agent is  participating  in The Depository
Trust  Company  ("DTC) Fast  Automated  Securities  Transfer  Program,  upon the
request of the Holder, credit such aggregate number of shares of Common Stock to
which the Holder is entitled  pursuant to such  exercise to the  Holder's or its
designee's  balance  account  with DTC  through  its  Deposit  Withdrawal  Agent
Commission  system, or (Y) if the Transfer Agent is not participating in the DTC
Fast  Automated  Securities  Transfer  Program,  issue and dispatch by overnight
courier to the address as  specified  in the  Exercise  Notice,  a  certificate,
registered  in the  Company's  share  register  in the name of the Holder or its
designee,  for the  number  of shares  of  Common  Stock to which the  Holder is
entitled  pursuant to such  exercise.  Upon delivery of the Exercise  Notice and
Aggregate  Exercise Price referred to in clause (ii)(A) above or notification to
the Company of a Cashless Exercise referred to in Section 1(d), the Holder shall
be deemed for all corporate  purposes to have become the holder of record of the
Warrant  Shares  with  respect  to  which  this  Warrant  has  been   exercised,
irrespective of the date of delivery of the certificates evidencing such Warrant
Shares. If this Warrant is submitted in connection with any exercise pursuant to
this Section 1(a) and the number of Warrant  Shares  represented by this Warrant
submitted  for  exercise  is greater  than the number of  Warrant  Shares  being
acquired upon an exercise,  then the Company shall as soon as practicable and in
no event  later  than three  Business  Days  after any  exercise  and at its own
expense,  issue a new Warrant (in accordance with Section 7(d)) representing the
right to purchase the number of Warrant Shares purchasable  immediately prior to
such exercise under this Warrant, less the number of Warrant Shares with respect
to which this Warrant is exercised.  No fractional shares of Common Stock are to
be issued upon the exercise of this Warrant,  but rather the number of shares of
Common Stock to be issued shall be rounded up to the nearest whole  number.  The
Company  shall pay any and all taxes  which may be payable  with  respect to the
issuance and delivery of Warrant Shares upon exercise of this Warrant.

                                      -2-
<PAGE>

      (b) Exercise Price.  For purposes of this Warrant,  "EXERCISE PRICE" means
$2.00 subject to adjustment as provided herein.

      (c) Company's Failure to Timely Deliver  Securities.  If the Company shall
fail for any  reason or for no reason to issue to the  Holder  within  three (3)
Business Days of receipt of the Exercise Delivery  Documents,  a certificate for
the  number  of  shares of Common  Stock to which  the  Holder is  entitled  and
register  such  shares of Common  Stock on the  Company's  share  register or to
credit the Holder's balance account with DTC for such number of shares of Common
Stock to which  the  Holder  is  entitled  upon the  Holder's  exercise  of this
Warrant, then, in addition to all other remedies available to the Holder, and if
on or after such Trading Day the Holder purchases (in an open market transaction
or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the
Holder of shares of Common Stock  issuable  upon such  exercise  that the Holder
anticipated  receiving  from the Company (a "BUY-IN"),  then the Company  shall,
within  three (3) Business  Days after the Holder's  request and in the Holder's
discretion, either (i) pay cash to the Holder in an amount equal to the Holder's
total purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased  (the "BUY-IN  PRICE"),  at which point the  Company's
obligation  to deliver  such  certificate  (and to issue  such  shares of Common
Stock) shall terminate,  or (ii) promptly honor its obligation to deliver to the
Holder a certificate or  certificates  representing  such shares of Common Stock
and pay cash to the  Holder in an  amount  equal to the  excess  (if any) of the
Buy-In  Price  over the  product  of (A) the  number of  shares of Common  Stock
purchased in the Buy-In, times (B) the actual sale price at the time of the sale
(excluding  brokerage  commissions,  if any) giving rise to the Buy-In  purchase
obligation.

      (d) Cashless  Exercise.  Notwithstanding  anything contained herein to the
contrary,  if at any time after a  registration  statement  covering the Warrant
Shares  that are the subject of an Exercise  Notice  (the  "UNAVAILABLE  WARRANT
SHARES") is not available for the resale of such  Unavailable  Warrant Shares at
the time of  exercise,  the Holder may, in its sole  discretion,  exercise  this
Warrant in whole or in part and,  in lieu of making the cash  payment  otherwise
contemplated  to be made to the  Company  upon such  exercise  in payment of the
Aggregate  Exercise Price,  elect instead to receive upon such exercise the "Net
Number" of shares of Common Stock determined  according to the following formula
(a "CASHLESS EXERCISE"):

                         Net Number = (A x B) - (A x C)

                                        B

                     For purposes of the foregoing formula:

            A= the total  number of shares with respect to which this Warrant is
            then being exercised.

            B= the Closing Sale Price of the shares of Common Stock (as reported
            by  Bloomberg)  on the date  immediately  preceding  the date of the
            Exercise Notice.

            C= the  Exercise  Price  then in effect for the  applicable  Warrant
            Shares at the time of such exercise.

                                      -3-
<PAGE>

            (e) Disputes.  In the case of a dispute as to the  determination  of
the Exercise Price or the  arithmetic  calculation  of the Warrant  Shares,  the
Company shall promptly issue to the Holder the number of Warrant Shares that are
not disputed and resolve such dispute in accordance with Section 12.

            (f)  Limitations  on Exercises;  Beneficial  Ownership.  The Company
shall not effect the exercise of this Warrant, and the Holder shall not have the
right to exercise this  Warrant,  to the extent that after giving effect to such
exercise,   such  Person   (together  with  such  Person's   affiliates)   would
beneficially  own in excess of 4.99% of the shares of Common  Stock  outstanding
immediately after giving effect to such exercise.  For purposes of the foregoing
sentence,  the aggregate number of shares of Common Stock  beneficially owned by
such  Person 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 shares of Common
Stock which would be issuable  upon (i) exercise of the  remaining,  unexercised
portion of this Warrant beneficially owned by such Person and its affiliates and
(ii) exercise or conversion of the  unexercised  or  unconverted  portion of any
other  securities  of the  Company  beneficially  owned by such  Person  and its
affiliates (including,  without limitation, any convertible notes or convertible
preferred  stock or warrants)  subject to a limitation on conversion or exercise
analogous  to the  limitation  contained  herein.  Except  as set  forth  in the
preceding sentence,  for purposes of this paragraph,  beneficial ownership shall
be calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended.  For purposes of this Warrant,  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 (1) the Company's most recent
Form 10-KSB, Form 10-QSB, Current Report on Form 8-K or other public filing with
the  Securities and Exchange  Commission,  as the case may be, (2) a more recent
public announcement by the Company or (3) any other notice by the Company or the
Transfer  Agent setting forth the number of shares of Common Stock  outstanding.
For any reason at any time, upon the written or oral request of the Holder,  the
Company  shall  within two Business  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 the
SPA Securities and the SPA Warrants,  by the Holder and its affiliates since the
date as of which such number of outstanding shares of Common Stock was reported.
By written  notice to the Company,  the Holder may from time to time increase or
decrease the Maximum  Percentage to any other  percentage not in excess of 9.99%
specified  in such  notice;  provided  that  (i) any such  increase  will not be
effective until the sixty-first (61st) day after such notice is delivered to the
Company,  and (ii) any such  increase or decrease  will apply only to the Holder
and not to any other holder of SPA Warrants.

                                      -4-
<PAGE>

            (g)  Accelerated  Maturity.  Notwithstanding  the foregoing,  in the
event  that the  Conditions  to  Accelerated  Maturity  (as  defined  below) are
satisfied, then the Company shall have the right to send a written notice to the
Holder on the Business Day  immediately  after the Measuring  Period (as defined
below)  indicating  that the  Expiration  Date shall be accelerated to the tenth
(10th) Trading Day (the "WARRANT  CANCELLATION  DATE") following receipt of such
written  notice;  provided,  that nothing in this  subsection  shall prevent the
Holder from exercising this Warrant, in whole or part, prior to such accelerated
Expiration  Date.  "CONDITIONS  TO  ACCELERATED  MATURITY"  means the  following
conditions:  (i) on each day during the period beginning on the first day of the
Measuring Period (as defined below) and ending on the Warrant Cancellation Date,
all of the  Warrant  Shares are freely  tradable,  without  restriction,  on the
Principal  Market,  (ii) on each day during the period beginning on the Issuance
Date and  ending on the  Warrant  Cancellation  Date,  the  Warrants  Shares are
designated for listing on the Principal Market and shall not have been suspended
from trading on such exchange; (iii) during the period beginning on the Issuance
Date and ending on and  including  the Warrant  Cancellation  Date,  the Company
shall have  delivered  unrestricted  Warrant  Shares  upon  exercise  of the SPA
Warrants to the  holders on a timely  basis;  and (iv) the trading  price of the
Common  Shares  during any ten (10)  consecutive  Trading  Days (the  "MEASURING
PERIOD") shall be at all times during such period no less than $2.50 (subject to
adjustment    for   stock   splits,    stock    dividends,    recapitalizations,
reorganizations,  reclassification,  combinations, reverse stock splits or other
similar  events);  provided,  that all  trades  executed  by the  Holder  or any
Affiliate  thereof below $2.50 shall be disregarded  for purposes of determining
compliance with clause (iv) of the Conditions to Accelerated Maturity.

            (h) Insufficient  Authorized Shares. If at any time while any of the
Warrants  remain  outstanding  the Company does not have a sufficient  number of
authorized  and  unreserved  shares of Common Stock to satisfy its obligation to
reserve for issuance  upon  exercise of the Warrants at least a number of shares
of Common Stock equal to 110% (the "REQUIRED  RESERVE  AMOUNT") of the number of
shares of Common  Stock as shall  from time to time be  necessary  to effect the
exercise  of  all  of  the  Warrants  then  outstanding  (an  "AUTHORIZED  SHARE
FAILURE"),  then the Company  shall  immediately  take all action  necessary  to
increase the Company's authorized shares of Common Stock to an amount sufficient
to allow the Company to reserve the  Required  Reserve  Amount for the  Warrants
then outstanding.  Without limiting the generality of the foregoing sentence, as
soon as  practicable  after the date of the  occurrence of an  Authorized  Share
Failure, but in no event later than sixty (60) days after the occurrence of such
Authorized  Share Failure,  the Company shall hold a meeting of its stockholders
for the  approval of an increase  in the number of  authorized  shares of Common
Stock.  In  connection  with  such  meeting,  the  Company  shall  provide  each
stockholder with a proxy statement and shall use its best efforts to solicit its
stockholders' approval of such increase in authorized shares of Common Stock and
to cause its board of  directors  to  recommend  to the  stockholders  that they
approve such proposal.

      2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The Exercise
Price and the number of Warrant  Shares  shall be adjusted  from time to time as
follows:

            (a) Adjustment  upon  Subdivision or Combination of Common Stock. If
the Company at any time on or after the  Subscription  Date  subdivides  (by any
stock split, stock dividend,  recapitalization or otherwise) one or more classes
of its outstanding  shares of Common Stock into a greater number of shares,  the
Exercise  Price  in  effect  immediately  prior  to  such  subdivision  will  be
proportionately reduced and the number of Warrant Shares will be proportionately
increased. If the Company at any time on or after the Subscription Date combines
(by  combination,  reverse stock split or otherwise)  one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the Exercise
Price in effect  immediately  prior to such combination will be  proportionately
increased and the number of Warrant  Shares will be  proportionately  decreased.
Any  adjustment  under this Section 2(b) shall become  effective at the close of
business on the date the subdivision or combination becomes effective.

                                      -5-
<PAGE>

            (b) Other Events.  If any event occurs of the type  contemplated  by
the  provisions  of  this  Section  2 but  not  expressly  provided  for by such
provisions  (including,  without limitation,  the granting of stock appreciation
rights,  phantom  stock rights or other rights with equity  features),  then the
Company's Board of Directors will make an appropriate adjustment in the Exercise
Price  and the  number of  Warrant  Shares so as to  protect  the  rights of the
Holder;  provided  that no such  adjustment  pursuant to this  Section 2(c) will
increase  the  Exercise  Price or  decrease  the  number  of  Warrant  Shares as
otherwise determined pursuant to this Section 2.

      3. RIGHTS UPON DISTRIBUTION OF ASSETS.  Other than events  contemplated in
Section  2(b),  if the  Company  shall  declare  or make any  dividend  or other
distribution  of its  assets (or  rights to  acquire  its  assets) to holders of
shares of Common  Stock,  by way of return of capital or  otherwise  (including,
without  limitation,  any  distribution  of cash,  stock  or  other  securities,
property or options by way of a dividend, spin off, reclassification,  corporate
rearrangement,   scheme  of  arrangement  or  other  similar   transaction)   (a
"Distribution"),  at any time after the issuance of this Warrant,  then, in each
such case:

            (a) any Exercise Price in effect  immediately  prior to the close of
business on the record date fixed for the  determination of holders of shares of
Common Stock entitled to receive the Distribution shall be reduced, effective as
of the  close  of  business  on  such  record  date,  to a price  determined  by
multiplying  such Exercise Price by a fraction of which (i) the numerator  shall
be the  Closing  Bid  Price of the  shares of Common  Stock on the  trading  day
immediately  preceding such record date minus the value of the  Distribution (as
determined in good faith by the Company's Board of Directors)  applicable to one
share of Common Stock,  and (ii) the denominator  shall be the Closing Bid Price
of the shares of Common  Stock on the trading  day  immediately  preceding  such
record date; and

            (b) the number of Warrant  Shares  shall be increased to a number of
shares  equal to the  number of shares of Common  Stock  obtainable  immediately
prior to the close of business on the record date fixed for the determination of
holders  of  shares  of  Common  Stock  entitled  to  receive  the  Distribution
multiplied  by the  reciprocal  of the  fraction  set  forth in the  immediately
preceding  paragraph (a); provided that in the event that the Distribution is of
shares of Common Stock (or common stock)  ("OTHER  SHARES OF COMMON STOCK") of a
company  whose common shares are traded on a national  securities  exchange or a
national  automated  quotation  system,  then the  Holder may elect to receive a
warrant to purchase  Other  Shares of Common Stock in lieu of an increase in the
number of Warrant Shares, the terms of which shall be identical to those of this
Warrant, except that such warrant shall be exercisable into the number of shares
of Other  Shares of Common  Stock  that  would  have been  payable to the Holder
pursuant to the Distribution  had the Holder exercised this Warrant  immediately
prior to such  record  date and with an  aggregate  exercise  price equal to the
product of the amount by which the exercise  price of this Warrant was decreased
with  respect  to the  Distribution  pursuant  to the  terms of the  immediately
preceding  paragraph  (a)  and  the  number  of  Warrant  Shares  calculated  in
accordance with the first part of this paragraph (b).

                                      -6-
<PAGE>

      4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.

            (a)  Purchase  Rights.  In addition to any  adjustments  pursuant to
Section 2 above, if at any time the Company grants, issues or sells any Options,
Convertible  Securities  or rights to purchase  stock,  warrants,  securities or
other  property pro rata to the record  holders of any class of shares of Common
Stock (the "PURCHASE RIGHTS"), then the Holder will be entitled to acquire, upon
the terms  applicable to such Purchase  Rights,  the aggregate  Purchase  Rights
which the Holder could have acquired if the Holder had held the number of shares
of Common Stock  acquirable  upon  complete  exercise of this  Warrant  (without
regard to any  limitations on the exercise of this Warrant)  immediately  before
the date on which a record  is taken  for the  grant,  issuance  or sale of such
Purchase Rights, or, if no such record is taken, the date as of which the record
holders of shares of Common Stock are to be determined  for the grant,  issue or
sale of such Purchase Rights.

            (b) Fundamental Transactions. The Company shall not enter into or be
party to a Fundamental  Transaction  unless (i) the Successor  Entity assumes in
writing all of the  obligations  of the Company under this Warrant and the other
Transaction  Documents in accordance  with the provisions of this Section (4)(b)
pursuant  to  written  agreements  in form  and  substance  satisfactory  to the
Required  Holders and approved by the Required Holders prior to such Fundamental
Transaction,  including  agreements  to deliver to each  holder of  Warrants  in
exchange for such  Warrants a security of the  Successor  Entity  evidenced by a
written instrument  substantially similar in form and substance to this Warrant,
including, without limitation, an adjusted exercise price equal to the value for
the  shares  of  Common  Stock  reflected  by  the  terms  of  such  Fundamental
Transaction,  and exercisable  for a  corresponding  number of shares of capital
stock  equivalent to the shares of Common Stock  acquirable and receivable  upon
exercise of this Warrant  (without  regard to any limitations on the exercise of
this Warrant) prior to such  Fundamental  Transaction,  and  satisfactory to the
Required  Holders and (ii) subject to Section 4(c) below,  the Successor  Entity
(including  its Parent  Entity) is a publicly  traded  corporation  whose common
stock is  quoted on or listed  for  trading  on an  Eligible  Market (a  "PUBLIC
SUCCESSOR").  Upon the occurrence of any Fundamental Transaction,  the Successor
Entity shall succeed to, and be substituted for (so that from and after the date
of such Fundamental Transaction, the provisions of this Warrant referring to the
"Company" shall refer instead to the Successor  Entity),  and may exercise every
right and power of the Company and shall  assume all of the  obligations  of the
Company under this Warrant with the same effect as if such Successor  Entity had
been  named  as  the  Company  herein.  Upon  consummation  of  the  Fundamental
Transaction,  the Successor Entity shall deliver to the Holder confirmation that
there  shall be issued  upon  exercise  of this  Warrant  at any time  after the
consummation of the Fundamental Transaction, in lieu of the shares of the Common
Stock (or other securities, cash, assets or other property) purchasable upon the
exercise of the Warrant prior to such  Fundamental  Transaction,  such shares of
publicly traded common stock (or their equivalent) of the Public  Successor,  as
adjusted in accordance  with the provisions of this Warrant.  In addition to and
not in substitution for any other rights hereunder, prior to the consummation of
any Fundamental  Transaction pursuant to which holders of shares of Common Stock
are  entitled  to  receive  securities  or other  assets  with  respect to or in
exchange for shares of Common Stock (a  "CORPORATE  EVENT"),  the Company  shall
make  appropriate  provision to insure that the Holder will  thereafter have the
right  to  receive  upon an  exercise  of this  Warrant  at any time  after  the
consummation of the Fundamental Transaction but prior to the Expiration Date, in
lieu of the shares of the Common  Stock (or other  securities,  cash,  assets or
other  property)  purchasable  upon the  exercise of the  Warrant  prior to such
Fundamental Transaction,  such shares of stock, securities,  cash, assets or any
other property whatsoever  (including warrants or other purchase or subscription
rights)  which the Holder would have been entitled to receive upon the happening
of such Fundamental Transaction had the Warrant been exercised immediately prior
to such  Fundamental  Transaction.  Provision  made  pursuant  to the  preceding
sentence  shall  be in a  form  and  substance  reasonably  satisfactory  to the
Required  Holders.  The  provisions  of this Section  shall apply  similarly and
equally to successive Fundamental Transactions and Corporate Events and shall be
applied without regard to any limitations on the exercise of this Warrant

                                      -7-
<PAGE>

            (c) Notwithstanding the foregoing and the provisions of Section 4(b)
above, in the event of a Fundamental  Transaction  where the Successor Entity is
not a Public  Successor,  if the Holder has not  exercised  the  Warrant in full
prior to the consummation of the Fundamental  Transaction,  then the Company may
enter into a Fundamental Transaction pursuant to which the Holder shall receive,
simultaneously with the consummation of the Fundamental Transaction,  in lieu of
the warrant referred to in Section 4(b) cash in the amount equal to the value of
the  remaining  unexercised  portion  of  this  Warrant  on  the  date  of  such
consummation,  which value shall be  determined  by use of the Black and Scholes
Option Pricing Model reflecting (A) a risk-free  interest rate  corresponding to
the U.S.  Treasury rate for a period equal to the remaining term of this Warrant
as of such date of request and (B) an expected  volatility  equal to the greater
of 60% and the 100 day volatility obtained from the HVT function on Bloomberg.

      5.  NONCIRCUMVENTION.  The Company  hereby  covenants  and agrees that the
Company  will not, by  amendment  of its  Articles of  Incorporation,  Bylaws or
through any reorganization, transfer of assets, consolidation, merger, scheme of
arrangement,  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,  and  will  at all  times  in good  faith  carry  out all the
provisions of this Warrant and take all action as may be required to protect the
rights of the Holder.  Without  limiting the  generality of the  foregoing,  the
Company  (i) shall not  increase  the par  value of any  shares of Common  Stock
receivable  upon the exercise of this Warrant  above the Exercise  Price then in
effect,  (ii) shall take all such actions as may be necessary or  appropriate in
order  that  the  Company   may  validly  and  legally   issue  fully  paid  and
nonassessable  shares of Common  Stock upon the  exercise of this  Warrant,  and
(iii) shall, so long as any of the SPA Warrants are outstanding, take all action
necessary  to reserve and keep  available  out of its  authorized  and  unissued
shares of Common Stock,  solely for the purpose of effecting the exercise of the
SPA Warrants, 110% of the number of shares of Common Stock as shall from time to
time be necessary to effect the  exercise of the SPA Warrants  then  outstanding
(without regard to any limitations on exercise).

      6.  WARRANT  HOLDER  NOT  DEEMED  A   STOCKHOLDER.   Except  as  otherwise
specifically  provided herein, the Holder, solely in such Person's capacity as a
holder of this Warrant, shall not be entitled to vote or receive dividends or be
deemed the holder of share  capital of the  Company for any  purpose,  nor shall
anything  contained  in this  Warrant be  construed  to confer  upon the Holder,
solely in such  Person's  capacity  as the  Holder of this  Warrant,  any of the
rights of a  shareholder  of the Company or any right to vote,  give or withhold
consent to any corporate  action  (whether any  reorganization,  issue of stock,
reclassification  of stock,  consolidation,  merger,  conveyance or  otherwise),
receive  notice of  meetings,  receive  dividends  or  subscription  rights,  or
otherwise,  prior to the issuance to the Holder of the Warrant Shares which such
Person is then  entitled to receive  upon the due exercise of this  Warrant.  In
addition,  nothing  contained in this Warrant shall be construed as imposing any
liabilities  on the Holder to purchase  any  securities  (upon  exercise of this
Warrant  or  otherwise)  or  as a  shareholder  of  the  Company,  whether  such
liabilities  are  asserted  by the  Company  or by  creditors  of  the  Company.
Notwithstanding this Section 6, the Company shall provide the Holder with copies
of the same  notices  and other  information  given to the  shareholders  of the
Company   generally,   contemporaneously   with  the   giving   thereof  to  the
shareholders.

                                      -8-
<PAGE>

      7. REISSUANCE OF WARRANTS.

            (a) Transfer of Warrant.  If this Warrant is to be transferred,  the
Holder shall  surrender this Warrant to the Company,  whereupon the Company will
forthwith  issue and  deliver  upon the order of the  Holder a new  Warrant  (in
accordance   with  Section   7(d)),   registered  as  the  Holder  may  request,
representing   the  right  to  purchase  the  number  of  Warrant  Shares  being
transferred  by the Holder and, if less then the total number of Warrant  Shares
then underlying this Warrant is being transferred,  a new Warrant (in accordance
with Section 7(d)) to the Holder  representing  the right to purchase the number
of Warrant Shares not being  transferred.  Applicable  transfer  taxes,  if any,
shall be paid by the Holder.

            (b) Lost, Stolen or Mutilated  Warrant.  Upon receipt by the Company
of  evidence  reasonably  satisfactory  to  the  Company  of  the  loss,  theft,
destruction  or mutilation of this Warrant,  and, in the case of loss,  theft or
destruction,  of any indemnification undertaking by the Holder to the Company in
customary form and, in the case of mutilation,  upon surrender and  cancellation
of this  Warrant,  the  Company  shall  execute  and deliver to the Holder a new
Warrant (in accordance with Section 7(d)) representing the right to purchase the
Warrant Shares then underlying this Warrant.

            (c)   Exchangeable   for   Multiple   Warrants.   This   Warrant  is
exchangeable, upon the surrender hereof by the Holder at the principal office of
the Company,  for a new Warrant or Warrants (in  accordance  with Section  7(d))
representing in the aggregate the right to purchase the number of Warrant Shares
then underlying this Warrant, and each such new Warrant will represent the right
to purchase  such portion of such Warrant  Shares as is designated by the Holder
at the  time  of  such  surrender;  provided,  however,  that  no  Warrants  for
fractional shares of Common Stock shall be given.

            (d)  Issuance of New  Warrants.  Whenever the Company is required to
issue a new Warrant pursuant to the terms of this Warrant,  such new Warrant (i)
shall be of like tenor with this Warrant, (ii) shall represent,  as indicated on
the face of such new  Warrant,  the right to purchase  the  Warrant  Shares then
underlying  this Warrant (or in the case of a new Warrant being issued  pursuant
to Section 7(a) or Section  7(c),  the Warrant  Shares  designated by the Holder
which,  when added to the number of shares of Common Stock  underlying the other
new Warrants issued in connection with such issuance, does not exceed the number
of Warrant Shares then  underlying  this Warrant),  (iii) shall have an issuance
date,  as  indicated  on the face of such new  Warrant  which is the same as the
Issuance  Date,  and (iv) shall  have the same  rights  and  conditions  as this
Warrant.

                                      -9-
<PAGE>

      8.  NOTICES.  Whenever  notice is required to be given under this Warrant,
unless otherwise provided herein,  such notice shall be given in accordance with
Section 9(f) of the Securities Purchase Agreement. The Company shall provide the
Holder with prompt written notice of all actions taken pursuant to this Warrant,
including  in  reasonable  detail a  description  of such  action and the reason
therefore.  Without  limiting the generality of the foregoing,  the Company will
give written  notice to the Holder (i)  immediately  upon any  adjustment of the
Exercise  Price,  setting  forth  in  reasonable  detail,  and  certifying,  the
calculation of such  adjustment and (ii) at least fifteen days prior to the date
on which the Company  closes its books or takes a record (A) with respect to any
dividend or  distribution  upon the shares of Common Stock,  (B) with respect to
any grants, issuances or sales of any Options,  Convertible Securities or rights
to purchase stock,  warrants,  securities or other property to holders of shares
of  Common  Stock or (C) for  determining  rights to vote  with  respect  to any
Fundamental Transaction,  dissolution or liquidation, provided in each case that
such  information  shall be made known to the public prior to or in  conjunction
with such notice being provided to the Holder.

      9.  AMENDMENT  AND  WAIVER.  Except  as  otherwise  provided  herein,  the
provisions  of this  Warrant  may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it,  only if the  Company  has  obtained  the  written  consent of the  Required
Holders; provided that no such action may increase the exercise price of any SPA
Warrant  or  decrease  the  number of shares or class of stock  obtainable  upon
exercise of any SPA Warrant without the written  consent of the Holder.  No such
amendment  shall be  effective to the extent that it applies to less than all of
the holders of the SPA Warrants then outstanding.

      10.  GOVERNING  LAW.  This Warrant  shall be governed by and construed and
enforced in accordance  with,  and all questions  concerning  the  construction,
validity,  interpretation  and performance of this Warrant shall be governed by,
the internal laws of the State of New York,  without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of New York or
any other  jurisdictions)  that would cause the  application  of the laws of any
jurisdictions other than the State of New York.

      11.  CONSTRUCTION;  HEADINGS.  This Warrant  shall be deemed to be jointly
drafted by the Company and all the Buyers and shall not be construed against any
person as the drafter  hereof.  The headings of this Warrant are for convenience
of reference and shall not form part of, or affect the  interpretation  of, this
Warrant.

      12. DISPUTE  RESOLUTION.  In the case of a dispute as to the determination
of the Exercise Price or the arithmetic  calculation of the Warrant Shares,  the
Company shall submit the disputed  determinations or arithmetic calculations via
facsimile within two Business Days of receipt of the Exercise Notice giving rise
to such  dispute,  as the case may be,  to the  Holder.  If the  Holder  and the
Company  are  unable to agree  upon such  determination  or  calculation  of the
Exercise Price or the Warrant Shares within three Business Days of such disputed
determination or arithmetic  calculation being submitted to the Holder, then the
Company  shall,  within two Business  Days submit via facsimile (a) the disputed
determination of the Exercise Price to an independent, reputable investment bank
selected  by the  Company  and  approved  by the  Holder  or  (b)  the  disputed
arithmetic  calculation  of the  Warrant  Shares to the  Company's  independent,
outside  accountant.  The Company shall cause at its expense the investment bank
or the  accountant,  as the  case  may be,  to  perform  the  determinations  or
calculations  and notify the Company and the Holder of the results no later than
ten  Business  Days from the time it receives  the  disputed  determinations  or
calculations.   Such  investment   bank's  or  accountant's   determination   or
calculation,  as the  case may be,  shall be  binding  upon all  parties  absent
demonstrable error.

                                      -10-
<PAGE>

      13.  REMEDIES,  OTHER  OBLIGATIONS,  BREACHES AND INJUNCTIVE  RELIEF.  The
remedies  provided in this Warrant  shall be  cumulative  and in addition to all
other remedies available under this Warrant and the other Transaction Documents,
at law or in equity  (including  a decree of specific  performance  and/or other
injunctive relief), and nothing herein shall limit the right of the Holder right
to pursue actual damages for any failure by the Company to comply with the terms
of this Warrant. The Company acknowledges that a breach by it of its obligations
hereunder will cause  irreparable  harm to the Holder and that the remedy at law
for any such breach may be inadequate. The Company therefore agrees that, in the
event of any such breach or threatened  breach, the holder of this Warrant shall
be  entitled,  in addition to all other  available  remedies,  to an  injunction
restraining  any breach,  without the  necessity  of showing  economic  loss and
without any bond or other security being required.

      14. TRANSFER.  This Warrant may be offered for sale, sold,  transferred or
assigned without the consent of the Company, except as may otherwise be required
by Section 2(f) of the Securities Purchase Agreement.

      15. CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms
shall have the following meanings:

            (a) "BLOOMBERG" means Bloomberg Financial Markets.

            (b)  "BUSINESS  DAY"  means any day other than  Saturday,  Sunday or
other day on which  commercial  banks in The City of New York are  authorized or
required by law to remain closed.

            (c)  "CLOSING  BID PRICE" and "CLOSING  SALE PRICE"  means,  for any
security  as of any date,  the last  closing  bid price and last  closing  trade
price,  respectively,  for such security on the Principal Market, as reported by
Bloomberg,  or, if the Principal  Market begins to operate on an extended  hours
basis and does not  designate  the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade  price,  respectively,
of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg,
or, if the Principal Market is not the principal  securities exchange or trading
market  for such  security,  the last  closing  bid price or last  trade  price,
respectively,  of such security on the principal  securities exchange or trading
market where such security is listed or traded as reported by  Bloomberg,  or if
the  foregoing  do not apply,  the last  closing bid price or last trade  price,
respectively,  of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade  price,  respectively,  is  reported  for such  security  by
Bloomberg,  the average of the bid prices, or the ask prices,  respectively,  of
any market  makers for such  security as  reported in the "pink  sheets" by Pink
Sheets LLC (formerly the National  Quotation  Bureau,  Inc.). If the Closing Bid
Price or the  Closing  Sale  Price  cannot be  calculated  for a  security  on a
particular  date on any of the  foregoing  bases,  the  Closing Bid Price or the
Closing Sale Price,  as the case may be, of such  security on such date shall be
the fair market value as mutually  determined by the Company and the Holder.  If
the  Company  and the Holder are unable to agree upon the fair  market  value of
such security,  then such dispute shall be resolved  pursuant to Section 12. All
such determinations to be appropriately  adjusted for any stock dividend,  stock
split,  stock  combination  or other similar  transaction  during the applicable
calculation period.

                                      -11-
<PAGE>

            (d) "COMMON  STOCK" means (i) the Company's  shares of Common Stock,
par value  $0.001 per share,  and (ii) any share  capital into which such Common
Stock  shall  have  been  changed  or  any  share  capital   resulting   from  a
reclassification of such Common Stock.

            (e) "CONVERTIBLE  SECURITIES"  means any stock or securities  (other
than  Options)  directly  or  indirectly  convertible  into  or  exercisable  or
exchangeable for shares of Common Stock.

            (f) "ELIGIBLE MARKET" means the Principal Market, the American Stock
Exchange,  The New York Stock Exchange,  Inc., the Nasdaq National Market or The
Nasdaq SmallCap Market.

            (g)  "EXPIRATION  DATE" means the date  thirty-six  months after the
Issuance  Date or, if such date falls on a day other  than a Business  Day or on
which trading does not take place on the  Principal  Market (a  "HOLIDAY"),  the
next date  that is not a  Holiday;  provided,  that the  Expiration  Date may be
accelerated pursuant to the provisions of Section 1(g).

            (h) "FUNDAMENTAL TRANSACTION" means that the Company shall, directly
or indirectly,  in one or more related  transactions,  (i)  consolidate or merge
with or into (whether or not the Company is the surviving  corporation)  another
Person, or (ii) sell,  assign,  transfer,  convey or otherwise dispose of all or
substantially  all of the properties or assets of the Company to another Person,
or (iii) allow another Person to make a purchase,  tender or exchange offer that
is accepted by the holders of more than the 50% of either the outstanding shares
of Common Stock (not  including any shares of Common Stock held by the Person or
Persons making or party to, or associated or affiliated  with the Persons making
or party to, such  purchase,  tender or exchange  offer),  or (iv)  consummate a
stock  purchase  agreement or other  business  combination  (including,  without
limitation,   a   reorganization,   recapitalization,   spin-off  or  scheme  of
arrangement)  with another Person  whereby such other Person  acquires more than
the 50% of the  outstanding  shares of Common Stock (not including any shares of
Common  Stock held by the other Person or other  Persons  making or party to, or
associated or affiliated  with the other Persons  making or party to, such stock
purchase agreement or other business combination), (v) reorganize,  recapitalize
or reclassify its Common Stock (other than a forward or reverse stock split), or
(vi) any  "person" or "group" (as these terms are used for  purposes of Sections
13(d) and 14(d) of the Exchange Act) is or shall become the  "beneficial  owner"
(as defined in Rule 13d-3 under the Exchange Act),  directly or  indirectly,  of
50% of the aggregate ordinary voting power represented by issued and outstanding
Common Stock.

            (i) "OPTIONS" means any rights, warrants or options to subscribe for
or purchase shares of Common Stock or Convertible Securities.

                                      -12-
<PAGE>

            (j) "PARENT  ENTITY" of a Person means an entity  that,  directly or
indirectly,  controls the applicable Person and whose common stock or equivalent
equity security is quoted or listed on an Eligible Market,  or, if there is more
than one such  Person or Parent  Entity,  the Person or Parent  Entity  with the
largest  public  market  capitalization  as of the date of  consummation  of the
Fundamental Transaction.

            (k) "PERSON" means an individual,  a limited  liability  company,  a
partnership,  a  joint  venture,  a  corporation,  a  trust,  an  unincorporated
organization,  any other entity and a  government  or any  department  or agency
thereof.

            (l) "PRINCIPAL MARKET" means the OTC Bulletin Board.

            (m) "REGISTRATION  RIGHTS AGREEMENT" means that certain registration
rights agreement by and among the Company and the Buyers.

            (n)  "REQUIRED  HOLDERS"  means  the  holders  of the  SPA  Warrants
representing  at least a majority of shares of Common Stock  underlying  the SPA
Warrants then outstanding.

            (o)  "SPA  SECURITIES"  means  the  Notes  issued  pursuant  to  the
Securities Purchase Agreement.

            (p)  "SUCCESSOR  ENTITY"  means the Person (or, if so elected by the
Required Holders,  the Parent Entity) formed by, resulting from or surviving any
Fundamental  Transaction  or the  Person  (or,  if so  elected  by the  Required
Holders,  the Parent Entity) with which such Fundamental  Transaction shall have
been entered into.

                            [SIGNATURE PAGE FOLLOWS]

                                      -13-
<PAGE>

      IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common
Stock to be duly executed as of the Issuance Date set out above.

                                                COMPOSITE TECHNOLOGY CORPORATION

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

<PAGE>

                                                                       EXHIBIT A

                                 EXERCISE NOTICE
            TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
                        WARRANT TO PURCHASE COMMON STOCK

                        COMPOSITE TECHNOLOGY CORPORATION

      The   undersigned   holder   hereby   exercises   the  right  to  purchase
_________________  of the shares of Common Stock ("WARRANT SHARES") of Composite
Technology Corporation,  a Nevada corporation (the "COMPANY"),  evidenced by the
attached  Warrant to Purchase Common Stock (the  "WARRANT").  Capitalized  terms
used herein and not  otherwise  defined shall have the  respective  meanings set
forth in the Warrant.

      1. Form of Exercise Price. The Holder intends that payment of the Exercise
Price shall be made as:

           ____________      a "Cash Exercise" with respect to _________________
                       Warrant Shares; and/or

           ____________      a "Cashless Exercise" with respect to _____________
                       Warrant Shares.

      2. Payment of Exercise  Price.  In the event that the holder has elected a
Cash  Exercise  with  respect to some or all of the Warrant  Shares to be issued
pursuant hereto, the holder shall pay the Aggregate Exercise Price in the sum of
$___________________ to the Company in accordance with the terms of the Warrant.

      3.  Delivery of Warrant  Shares.  The Company  shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.

      4. The undersigned holder hereby represents and warrants that after giving
effect to the exercise of the Warrant contemplated by this Exercise Notice, such
holder will not be in violation of the beneficial  ownership limits specified in
Section  1(f) of the  Warrant,  as  increased  or  decreased  pursuant  to terms
contained therein.

Date: _______________ __, ______

-----------------------------------
   Name of Registered Holder

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

<PAGE>

                                 ACKNOWLEDGMENT

      The Company hereby  acknowledges  this Exercise  Notice and hereby directs
[INSERT NAME OF TRANSFER AGENT] to issue the above indicated number of shares of
Common Stock in accordance with the Transfer Agent  Instructions dated March __,
2006 from the Company and acknowledged and agreed to by [INSERT NAME OF TRANSFER
AGENT].

                                                COMPOSITE TECHNOLOGY CORPORATION

                                                By:
                                                   -----------------------------
                                                     Name:
                                                     Title:REGISTRATION RIGHTS AGREEMENT

      REGISTRATION  RIGHTS  AGREEMENT (this  "AGREEMENT"),  dated as of March 2,
2006, by and among Composite Technology Corporation, a Nevada corporation,  with
headquarters  located  at 2026  McGaw  Avenue,  Irvine,  California  92614  (the
"COMPANY"),  and the undersigned buyers (each, a "BUYER", and collectively,  the
"BUYERS").

      WHEREAS:

      A. In connection with the Securities  Purchase  Agreement by and among the
parties hereto dated March 2, 2006 (the "SECURITIES  PURCHASE  AGREEMENT"),  the
Company,  has agreed,  upon the terms and subject to the conditions set forth in
the Securities  Purchase  Agreement,  to issue and sell to each Buyer (i) senior
secured convertible notes of the Company (the "NOTES"),  which will, among other
things,  be convertible  into shares of the Company's  common stock,  $0.001 par
value per share (the "COMMON STOCK") (as converted,  the "CONVERSION SHARES") in
accordance  with the terms of the Notes,  and (ii) two series of  warrants  (the
"WARRANTS"),  which will be exercisable  to purchase  shares of Common Stock (as
exercised collectively, the "WARRANT SHARES").

      B. To induce the Buyers to execute  and deliver  the  Securities  Purchase
Agreement,  the Company has agreed to provide certain  registration rights under
the  Securities  Act  of  1933,  as  amended,  and  the  rules  and  regulations
thereunder, or any similar successor statute (collectively, the "1933 ACT"), and
applicable state securities laws.

      NOW, THEREFORE,  in consideration of the premises and the mutual covenants
contained  herein and other good and  valuable  consideration,  the  receipt and
sufficiency of which are hereby acknowledged, the Company and each of the Buyers
hereby agree as follows:

      1. Definitions.

      Capitalized  terms used herein and not otherwise defined herein shall have
the respective meanings set forth in the Securities Purchase Agreement.  As used
in this Agreement, the following terms shall have the following meanings:

            a. "BUSINESS  DAY" means any day other than Saturday,  Sunday or any
other day on which  commercial  banks in the City of New York are  authorized or
required by law to remain closed.

            b. "CLOSING DATE" shall have the meaning set forth in the Securities
Purchase Agreement.

            c. "EFFECTIVE  DATE" means the date the  Registration  Statement has
been declared effective by the SEC.

            d.  "EFFECTIVENESS  DEADLINE" means the date which is 150 days after
the date hereof,  or if there is a full review of the Registration  Statement by
the SEC, 180 days after the date hereof.

<PAGE>

            e. "FILING DATE" means the date the Registration  Statement has been
filed with the SEC.

            f. "FILING DEADLINE" means 90 days after the date hereof.

            g. "INVESTOR" means a Buyer or any transferee or assignee thereof to
whom a Buyer  assigns its rights under this  Agreement  and who agrees to become
bound by the provisions of this  Agreement in accordance  with Section 9 and any
transferee  or assignee  thereof to whom a  transferee  or assignee  assigns its
rights under this  Agreement and who agrees to become bound by the provisions of
this Agreement in accordance with Section 9.

            h. "PERSON"  means an individual,  a limited  liability  company,  a
partnership,  a  joint  venture,  a  corporation,  a  trust,  an  unincorporated
organization and a government or any department or agency thereof.

            i.  "REGISTER,"   "REGISTERED,"  and   "REGISTRATION"   refer  to  a
registration   effected  by  preparing  and  filing  one  or  more  Registration
Statements  (as defined  below) in compliance  with the 1933 Act and pursuant to
Rule 415 and the declaration or ordering of effectiveness  of such  Registration
Statement(s) by the SEC.

            j.  "REGISTRABLE  SECURITIES" means (i) the Conversion Shares issued
or issuable  upon  conversion  of the Notes,  (ii) the Warrant  Shares issued or
issuable upon exercise of the Warrants, and (iii) any shares of capital stock of
the Company issued or issuable with respect to the Conversion Shares, the Notes,
the  Warrant  Shares  and the  Warrants  as a result of any stock  split,  stock
dividend,  recapitalization,  exchange or similar  event or  otherwise,  without
regard  to any  limitations  on  conversions  of the Notes or  exercises  of the
Warrants.

            k.  "REGISTRATION  STATEMENT"  means  a  registration  statement  or
registration  statements  of the Company  filed under the 1933 Act  covering the
Registrable Securities.

            l.  "REQUIRED  HOLDERS"  means the holders of at least a majority of
the Registrable Securities.

            m. "REQUIRED  REGISTRATION  AMOUNT" for the  Registration  Statement
means the sum of (i) 110% of the number of Conversion Shares issued and issuable
pursuant to the Notes as of the trading day immediately preceding the applicable
date of  determination,  and (ii) 110% the number of Warrant  Shares  issued and
issuable  pursuant to the Warrants as of the trading day  immediately  preceding
the applicable date of  determination,  all subject to adjustment as provided in
Section 2(e),  without regard to any  limitations on conversions of the Notes or
exercise  of the  Warrants;  provided,  however,  that the 110% of the number of
Conversion  Shares shall be reduced (but not below 100%) to the extent necessary
in the event  the SEC will not  declare  the  Registration  Statement  effective
without such reduction.

            n. "RULE  415"  means  Rule 415 under the 1933 Act or any  successor
rule providing for offering securities on a continuous or delayed basis.

            o. "SEC" means the United States Securities and Exchange Commission.

<PAGE>

      2. Registration.

            a. Mandatory  Registration.  The Company shall prepare, and, as soon
as practicable but in no event later than the Filing Deadline, file with the SEC
the Registration Statement on Form S-1 or Form S-3 covering the resale of all of
the  Registrable  Securities.  In  the  event  that  Form  S-1  or  Form  S-3 is
unavailable for such a registration, the Company shall use such other form as is
available  for  such a  registration  on  another  appropriate  form  reasonably
acceptable to the Required  Holders,  subject to the provisions of Section 2(d).
The Registration Statement prepared pursuant hereto shall register for resale at
least the number of Shares of Common  Stock equal to the  Required  Registration
Amount as of date the  Registration  Statement is initially  filed with the SEC.
The  Registration  Statement shall contain (except if otherwise  directed by the
Required Holders) the "Selling Shareholders" and "Plan of Distribution" sections
in  substantially  the form attached  hereto as Exhibit B. The Company shall use
its best efforts to have the Registration  Statement  declared  effective by the
SEC as soon  as  practicable,  but in no  event  later  than  the  Effectiveness
Deadline.  By 9:30 am on the Business Day  following  the  Effective  Date,  the
Company shall file with the SEC in  accordance  with Rule 424 under the 1933 Act
the final  prospectus  to be used in  connection  with  sales  pursuant  to such
Registration Statement.

            b.  Allocation  of  Registrable  Securities.  The initial  number of
Registrable  Securities included in any Registration  Statement and any increase
in the number of Registrable  Securities included therein shall be allocated pro
rata among the Investors  based on the number of Registrable  Securities held by
each  Investor at the time the  Registration  Statement  covering  such  initial
number of Registrable  Securities or increase  thereof is declared  effective by
the SEC. In the event that an Investor sells or otherwise  transfers any of such
Investor's Registrable Securities, each transferee shall be allocated a pro rata
portion of the then remaining number of Registrable  Securities included in such
Registration Statement for such transferor.  Any shares of Common Stock included
in a  Registration  Statement  and which  remain  allocated  to any Person which
ceases to hold any Registrable Securities covered by such Registration Statement
shall be allocated to the remaining  Investors,  pro rata based on the number of
Registrable  Securities  then held by such  Investors  which are covered by such
Registration  Statement.  In no event  shall the Company  include any  currently
existing  securities other than Registrable  Securities,  the Pledged Securities
(as defined in the  Securities  Purchase  Agreement) and the shares set forth on
Schedule 2(b) on any Registration Statement without the prior written consent of
the Required Holders.

            c. Legal Counsel.  Subject to Section 5 hereof, the Required Holders
shall have the right to select  one legal  counsel  to review  and  oversee  any
registration  pursuant  to this  Section 2  ("LEGAL  COUNSEL"),  which  shall be
Schulte Roth & Zabel LLP or such other counsel as  thereafter  designated by the
Required Holders.  The Company and Legal Counsel shall reasonably cooperate with
each other in performing the Company's obligations under this Agreement.

            d.  Ineligibility  for Form S-3.  In the event  that Form S-3 is not
available  for  the  registration  of  the  resale  of  Registrable   Securities
hereunder,  the  Company  shall  (i)  register  the  resale  of the  Registrable
Securities on another  appropriate  form  reasonably  acceptable to the Required
Holders and (ii) undertake to register the Registrable Securities on Form S-3 as
soon as such form is available,  provided  that the Company  shall  maintain the
effectiveness of the Registration  Statement then in effect until such time as a
Registration  Statement on Form S-3 covering the Registrable Securities has been
declared effective by the SEC.

<PAGE>

            e. Sufficient Number of Shares  Registered.  In the event the number
of shares  available  under a Registration  Statement  filed pursuant to Section
2(a) is insufficient to cover all of the Registrable  Securities  required to be
covered by such Registration Statement or an Investor's allocated portion of the
Registrable  Securities  pursuant to Section  2(b),  the Company shall amend the
applicable  Registration Statement, or file a new Registration Statement (on the
short form available therefor, if applicable),  or both, so as to cover at least
the Required Registration Amount as of the trading day immediately preceding the
date of the filing of such  amendment  or new  Registration  Statement,  in each
case, as soon as  practicable,  but in any event not later than thirty (30) days
after the necessity  therefor arises.  The Company shall use its best efforts to
cause such amendment  and/or new  Registration  Statement to become effective as
soon as practicable  following the filing thereof. For purposes of the foregoing
provision,  the number of shares available under a Registration  Statement shall
be deemed  "insufficient  to cover all of the Registrable  Securities" if at any
time the  number of  shares  of Common  Stock  available  for  resale  under the
Registration  Statement is less than the product  determined by multiplying  (i)
the Required  Registration  Amount as of such time by (ii) 0.90. The calculation
set  forth  in the  foregoing  sentence  shall  be made  without  regard  to any
limitations  on the  conversion of the Notes or the exercise of the Warrants and
such calculation shall assume that the Notes are then convertible into shares of
Common Stock at the then  prevailing  Conversion  Rate (as defined in the Notes)
and that the  Warrants  are then  exercisable  for shares of Common Stock at the
then prevailing Exercise Price (as defined in the Warrants).

            f. Effect of Failure to File and Obtain and  Maintain  Effectiveness
of Registration  Statement.  If (i) a Registration Statement covering all of the
Registrable  Securities  required to be covered thereby and required to be filed
by the Company  pursuant to this  Agreement  is (A) not filed with the SEC on or
before the Filing Deadline (a "FILING FAILURE") or (B) not declared effective by
the SEC on or before the Effectiveness Deadline (an "EFFECTIVENESS  FAILURE") or
(ii) on any  day  after  the  Effective  Date  sales  of all of the  Registrable
Securities required to be included on such Registration Statement cannot be made
(other  than  during an  Allowable  Grace  Period (as  defined in Section  3(r))
pursuant to such Registration Statement (including,  without limitation, because
of a failure to keep such  Registration  Statement  effective,  to disclose such
information  as is necessary for sales to be made pursuant to such  Registration
Statement  or to  register  a  sufficient  number of shares of Common  Stock) (a
"MAINTENANCE  FAILURE") then, as partial relief for the damages to any holder by
reason of any such delay in or reduction  of its ability to sell the  underlying
shares  of Common  Stock  (which  remedy  shall  not be  exclusive  of any other
remedies available at law or in equity), the Company shall pay to each holder of
Registrable Securities relating to such Registration Statement an amount in cash
equal to two percent  (2.0%) of the  aggregate  Purchase  Price (as such term is
defined in the Securities  Purchase  Agreement) of such  Investor's  Registrable
Securities  included in such  Registration  Statement  on each of the  following
dates: (i) the day of a Filing Failure and on every thirtieth day after a Filing
Failure  until such Filing  Failure is cured;  (ii) the day of an  Effectiveness
Failure and on every  thirtieth  day after an  Effectiveness  Failure until such
Effectiveness  Failure  is cured;  and (iii) the  initial  day of a  Maintenance
Failure  and on every  thirtieth  day after a  Maintenance  Failure  until  such
Maintenance  Failure is cured.  The payments to which a holder shall be entitled
pursuant to this  Section  2(f) are  referred to herein as  "REGISTRATION  DELAY
PAYMENTS."  Registration  Delay  Payments shall be paid on the day of the Filing
Failure,  Effectiveness Failure and the initial day of a Maintenance Failure, as
applicable,  and  thereafter  on the earlier of (I) the  thirtieth day after the
event or failure giving rise to the Registration Delay Payments has occurred and
(II) the  third  Business  Day after the  event or  failure  giving  rise to the
Registration  Delay  Payments is cured.  In the event the Company  fails to make
Registration Delay Payments in a timely manner, such Registration Delay Payments
shall bear  interest at the rate of two percent  (2.0%) per month  (prorated for
partial months) until paid in full.

<PAGE>

            g.  Piggyback  Registration.  After the date hereof and prior to the
later of the Filing Date and the Filing  Deadline,  if the  Company  proposes to
register  (including for this purpose a registration  statement  effected by the
Company for  shareholders ) any of its stock or other  securities under the 1933
Act (other than a  registration  relating  solely to the sale of  securities  to
participants  in a Company  employee  stock or  similar  plan on Form S-8 and an
exchange  registration on Form S-4), the Company shall,  at such time,  promptly
give each holder of Registrable  Securities written notice of such registration.
Upon the written request of each holder of Registrable  Securities  given within
twenty (20) days after mailing of such notice by the Company, the Company shall,
cause  in such  registration  to be  registered  under  the  1933 Act all of the
Registrable Securities that each such holder has requested to be registered.

      3. Related Obligations.

      At such time as the Company is obligated to file a Registration  Statement
with the SEC pursuant to Section  2(a),  2(d) or 2(e),  the Company will use its
best  efforts  to effect  the  registration  of the  Registrable  Securities  in
accordance  with the  intended  method  of  disposition  thereof  and,  pursuant
thereto, the Company shall have the following obligations:

            a. The Company shall submit to the SEC, within two (2) Business Days
after the Company learns that no review of a particular  Registration  Statement
will be made by the staff of the SEC or that the staff has no  further  comments
on a  particular  Registration  Statement,  as the case may be,  a  request  for
acceleration of effectiveness of such Registration  Statement to a time and date
not later than 48 hours after the submission of such request.  The Company shall
keep each  Registration  Statement  effective  pursuant to Rule 415 at all times
until the earlier of (i) the date as of which the  Investors may sell all of the
Registrable   Securities   covered  by  such   Registration   Statement  without
restriction pursuant to Rule 144(k) (or any successor thereto) promulgated under
the 1933 Act or (ii) the date on which the Investors  shall have sold all of the
Registrable Securities covered by such Registration Statement (the "REGISTRATION
PERIOD").  The Company shall ensure that each Registration  Statement (including
any amendments or supplements thereto and prospectuses  contained therein) shall
not contain any 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 the case of  prospectuses,  in the light of the  circumstances in which they
were made) not misleading.

<PAGE>

            b. The Company shall  prepare and file with the SEC such  amendments
(including   post-effective   amendments)  and  supplements  to  a  Registration
Statement  and  the  prospectus  used  in  connection  with  such   Registration
Statement,  which  prospectus  is to be filed  pursuant to Rule 424  promulgated
under the 1933 Act,  as may be  necessary  to keep such  Registration  Statement
effective at all times during the Registration  Period, and, during such period,
comply with the  provisions of the 1933 Act with respect to the  disposition  of
all Registrable Securities of the Company covered by such Registration Statement
until such time as all of such  Registrable  Securities shall have been disposed
of in  accordance  with the  intended  methods of  disposition  by the seller or
sellers  thereof  as set forth in such  Registration  Statement.  In the case of
amendments and supplements to a Registration  Statement which are required to be
filed  pursuant to this Agreement  (including  pursuant to this Section 3(b)) by
reason of the Company  filing a report on Form 10-Q,  Form 10-QSB,  Form 10-K or
10-KSB or any  analogous  report under the  Securities  Exchange Act of 1934, as
amended (the "1934 ACT"),  the Company  shall have  incorporated  such report by
reference into such Registration  Statement,  if applicable,  or shall file such
amendments  or  supplements,  with the SEC on the same day on which the 1934 Act
report is filed  which  created  the  requirement  for the  Company  to amend or
supplement such Registration Statement.

            c. The Company  shall (A) permit Legal Counsel to review and comment
upon (i) a  Registration  Statement at least five (5) Business Days prior to its
filing with the SEC and (ii) all amendments and supplements to all  Registration
Statements  (except for Annual Reports on Form 10-K or Form 10-KSB,  and Reports
on Form 10-Q or Form  10-QSB and any  similar  or  successor  reports)  within a
reasonable  number of days prior to their  filing with the SEC, and (B) not file
any Registration Statement or amendment or supplement thereto in a form to which
Legal  Counsel  reasonably  objects.  The Company shall not submit a request for
acceleration of the  effectiveness of a Registration  Statement or any amendment
or supplement thereto without the prior approval of Legal Counsel, which consent
shall not be unreasonably  withheld. The Company shall furnish to Legal Counsel,
without charge,  (i) copies of any  correspondence  from the SEC or the staff of
the SEC to the  Company  or its  representatives  relating  to any  Registration
Statement,  (ii) promptly after the same is prepared and filed with the SEC, one
copy of any  Registration  Statement  and any  amendment(s)  thereto,  including
financial  statements  and  schedules,  all  documents  incorporated  therein by
reference,  if  requested  by an  Investor,  and all exhibits and (iii) upon the
effectiveness of any Registration Statement, one copy of the prospectus included
in such Registration  Statement and all amendments and supplements  thereto. The
Company  shall  reasonably  cooperate  with  Legal  Counsel  in  performing  the
Company's obligations pursuant to this Section 3.

            d. The Company  shall  furnish to each  Investor  whose  Registrable
Securities  are included in any  Registration  Statement,  without  charge,  (i)
promptly after the same is prepared and filed with the SEC, at least one copy of
such Registration  Statement and any amendment(s)  thereto,  including financial
statements and schedules,  all documents  incorporated therein by reference,  if
requested by an Investor,  all exhibits and each  preliminary  prospectus,  (ii)
upon the  effectiveness  of any Registration  Statement,  ten (10) copies of the
prospectus  included  in such  Registration  Statement  and all  amendments  and
supplements  thereto  (or such  other  number  of copies  as such  Investor  may
reasonably  request)  and (iii) such other  documents,  including  copies of any
preliminary or final  prospectus,  as such Investor may reasonably  request from
time  to  time  in  order  to  facilitate  the  disposition  of the  Registrable
Securities owned by such Investor.

<PAGE>

            e. The  Company  shall  use its best  efforts  to (i)  register  and
qualify,  unless an exemption from registration and qualification  applies,  the
resale by  Investors of the  Registrable  Securities  covered by a  Registration
Statement  under such  other  securities  or "blue  sky" laws of all  applicable
jurisdictions   in  the  United   States,   (ii)   prepare  and  file  in  those
jurisdictions,   such  amendments  (including  post-effective   amendments)  and
supplements  to such  registrations  and  qualifications  as may be necessary to
maintain the effectiveness  thereof during the Registration  Period,  (iii) take
such other  actions as may be  necessary  to  maintain  such  registrations  and
qualifications in effect at all times during the Registration  Period,  and (iv)
take all  other  actions  reasonably  necessary  or  advisable  to  qualify  the
Registrable Securities for sale in such jurisdictions;  provided,  however, that
the  Company  shall not be required in  connection  therewith  or as a condition
thereto to (x)  qualify to do business  in any  jurisdiction  where it would not
otherwise be required to qualify but for this Section 3(e),  (y) subject  itself
to general taxation in any such  jurisdiction,  or (z) file a general consent to
service of process in any such  jurisdiction.  The Company shall promptly notify
Legal Counsel and each Investor who holds Registrable  Securities of the receipt
by the  Company  of any  notification  with  respect  to the  suspension  of the
registration  or  qualification  of any of the  Registrable  Securities for sale
under the securities or "blue sky" laws of any jurisdiction in the United States
or its  receipt  of  actual  notice  of the  initiation  or  threatening  of any
proceeding for such purpose.

            f. The Company  shall  notify  Legal  Counsel  and each  Investor in
writing of the happening of any event, as promptly as practicable after becoming
aware  of such  event,  as a  result  of  which  the  prospectus  included  in a
Registration  Statement,  as then in effect,  includes an untrue  statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements  therein,  in the light of the circumstances
under which they were made, not misleading (provided that in no event shall such
notice contain any material,  nonpublic  information),  and,  subject to Section
3(r), promptly prepare a supplement or amendment to such Registration  Statement
to correct  such  untrue  statement  or  omission,  and  deliver  copies of such
supplement  or amendment to Legal Counsel and each Investor (as Legal Counsel or
such Investor may reasonably  request).  The Company shall also promptly  notify
Legal  Counsel  and  each  Investor  in  writing  (i) when a  prospectus  or any
prospectus  supplement or  post-effective  amendment has been filed,  and when a
Registration  Statement or any  post-effective  amendment  has become  effective
(notification of such effectiveness shall be delivered to Legal Counsel and each
Investor by  facsimile  on the same day of such  effectiveness  and by overnight
mail),  (ii) of any  request  by the  SEC for  amendments  or  supplements  to a
Registration  Statement or related prospectus or related information,  and (iii)
of the Company's reasonable  determination that a post-effective  amendment to a
Registration Statement would be appropriate.

            g. The Company shall use its best efforts to prevent the issuance of
any stop order or other suspension of effectiveness of a Registration Statement,
or the suspension of the qualification of any of the Registrable  Securities for
sale in any  jurisdiction  and,  if such an order or  suspension  is issued,  to
obtain the  withdrawal  of such order or  suspension  at the  earliest  possible
moment and to notify  Legal  Counsel  and each  Investor  who holds  Registrable
Securities  being sold of the issuance of such order and the resolution  thereof
or its receipt of actual notice of the  initiation  or threat of any  proceeding
for such purpose.

            h. At the  reasonable  request of any  Investor,  the Company  shall
furnish to such Investor,  on the date of the  effectiveness of the Registration
Statement  and  thereafter  from time to time on such dates as an  Investor  may
reasonably request (i) a letter, dated such date, from the Company's independent
certified  public  accountants in form and substance as is customarily  given by
independent  certified  public  accountants to  underwriters  in an underwritten
public offering,  addressed to the Investors,  and (ii) an opinion,  dated as of
such date, of counsel representing the Company for purposes of such Registration
Statement,  in  form,  scope  and  substance  as  is  customarily  given  in  an
underwritten public offering, addressed to the Investors.

<PAGE>

            i. The  Company  shall  make  available  for  inspection  by (i) any
Investor,  (ii) Legal Counsel and (iii) one firm of  accountants or other agents
retained  by the  Investors  (collectively,  the  "INSPECTORS"),  all  pertinent
financial and other records, and pertinent corporate documents and properties of
the  Company  (collectively,  the  "RECORDS"),  as  shall be  reasonably  deemed
necessary by each  Inspector,  and cause the Company's  officers,  directors and
employees to supply all information which any Inspector may reasonably  request;
provided,  however, that each Inspector shall agree to hold in strict confidence
and shall not make any  disclosure  (except to an Investor) or use of any Record
or  other  information  which  the  Company  determines  in  good  faith  to  be
confidential,  and of which determination the Inspectors are so notified, unless
(a)  the  disclosure  of such  Records  is  necessary  to  avoid  or  correct  a
misstatement or omission in any Registration  Statement or is otherwise required
under the 1933 Act,  (b) the  release of such  Records is ordered  pursuant to a
final,  non-appealable  subpoena  or order  from a court or  government  body of
competent  jurisdiction,  or (c) the  information  in such Records has been made
generally  available to the public other than by disclosure in violation of this
or any other  agreement of which the  Inspector  has  knowledge.  Each  Investor
agrees that it shall, upon learning that disclosure of such Records is sought in
or by a court or  governmental  body of competent  jurisdiction or through other
means, give prompt notice to the Company and allow the Company,  at its expense,
to  undertake  appropriate  action  to  prevent  disclosure  of,  or to obtain a
protective order for, the Records deemed confidential. Nothing herein (or in any
other  confidentiality  agreement between the Company and any Investor) shall be
deemed to limit the  Investors'  ability  to sell  Registrable  Securities  in a
manner which is otherwise consistent with applicable laws and regulations.

            j. The Company shall hold in confidence  and not make any disclosure
of  information  concerning  an  Investor  provided  to the  Company  unless (i)
disclosure  of such  information  is  necessary  to comply with federal or state
securities  laws, (ii) the disclosure of such  information is necessary to avoid
or correct a misstatement or omission in any Registration  Statement,  (iii) the
release of such  information  is ordered  pursuant to a subpoena or other final,
non-appealable   order  from  a  court  or   governmental   body  of   competent
jurisdiction,  or (iv) such information has been made generally available to the
public other than by  disclosure  in  violation  of this  Agreement or any other
agreement.  The Company agrees that it shall,  upon learning that  disclosure of
such  information  concerning  an  Investor  is  sought  in  or  by a  court  or
governmental body of competent  jurisdiction or through other means, give prompt
written  notice to such  Investor  and allow such  Investor,  at the  Investor's
expense, to undertake  appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.

            k. The Company shall use its best efforts either to (i) maintain the
authorization  for  quotation of the  Company's  Common  Stock on the  Principal
Market;  (ii) cause all of the Registrable  Securities covered by a Registration
Statement to be listed on each  securities  exchange on which  securities of the
same class or series  issued by the  Company  are then  listed,  if any,  if the
listing of such Registrable Securities is then permitted under the rules of such
exchange,  or (iii) secure  designation  and quotation of all of the Registrable
Securities covered by a Registration Statement on the American Stock Exchange or
(iv) if,  despite the Company's best efforts to satisfy,  the preceding  clauses
(i),  (ii) or (iii) the Company is  unsuccessful  in  satisfying  the  preceding
clauses (i), (ii) or (iii),  to secure the inclusion for quotation on The Nasdaq
SmallCap  Market for such  Registrable  Securities  and,  without  limiting  the
generality of the foregoing, to use its best efforts to arrange for at least two
market makers to register with the National  Association of Securities  Dealers,
Inc. ("NASD") as such with respect to such Registrable  Securities.  The Company
shall pay all fees and expenses in connection  with  satisfying  its  obligation
under this Section 3(k).

<PAGE>

            l.  The  Company  shall   cooperate  with  the  Investors  who  hold
Registrable  Securities being offered and, to the extent applicable,  facilitate
the timely preparation and delivery of certificates (not bearing any restrictive
legend)  representing  the  Registrable  Securities to be offered  pursuant to a
Registration  Statement and enable such certificates to be in such denominations
or amounts,  as the case may be, as the  Investors  may  reasonably  request and
registered in such names as the Investors may request.

            m. If reasonably requested by an Investor,  the Company shall (i) as
soon as  practicable  incorporate in a prospectus  supplement or  post-effective
amendment  such  information as an Investor  reasonably  requests to be included
therein  relating  to the  sale  and  distribution  of  Registrable  Securities,
including,  without  limitation,  information  with  respect  to the  number  of
Registrable  Securities  being  offered or sold,  the purchase  price being paid
therefor and any other terms of the offering of the Registrable Securities to be
sold in such offering;  (ii) as soon as practicable make all required filings of
such prospectus  supplement or post-effective  amendment after being notified of
the matters to be incorporated in such prospectus  supplement or  post-effective
amendment;  and (iii) as soon as  practicable,  supplement or make amendments to
any  Registration  Statement if reasonably  requested by an Investor holding any
Registrable Securities.

            n. The Company  shall use its best efforts to cause the  Registrable
Securities covered by a Registration Statement to be registered with or approved
by such other  governmental  agencies  or  authorities  as may be  necessary  to
consummate the disposition of such Registrable Securities.

            o. [Intentionally omitted].

            p. The Company  shall  otherwise use its best efforts to comply with
all  applicable  rules  and  regulations  of the  SEC  in  connection  with  any
registration hereunder.

            q. Within two (2) Business Days after a Registration Statement which
covers Registrable Securities is ordered effective by the SEC, the Company shall
deliver,  and shall  cause legal  counsel  for the  Company to  deliver,  to the
transfer  agent for such  Registrable  Securities  (with copies to the Investors
whose  Registrable  Securities  are  included  in such  Registration  Statement)
confirmation that such Registration Statement has been declared effective by the
SEC in the form attached hereto as Exhibit A.

<PAGE>

            r.  Notwithstanding  anything to the  contrary  herein,  at any time
after the  Effective  Date,  the Company may delay the  disclosure  of material,
non-public information concerning the Company (A) the disclosure of which at the
time is not, in the good faith  opinion of the Board of Directors of the Company
and its  counsel,  in the best  interest of the  Company  and, in the opinion of
counsel to the Company,  otherwise  required or (B) to the extent the Company is
required to file a post-effective  amendment to the Registration  Statement that
has not yet been  declared  effective by the SEC (a "GRACE  PERIOD");  provided,
that the  Company  shall  promptly  (i) notify the  Investors  in writing of the
existence  of  material,  non-public  information  giving rise to a Grace Period
(provided  that in each notice the Company will not disclose the content of such
material,  non-public  information to the Investors) or the  requirement to file
such post-effective amendment and the date on which the Grace Period will begin,
and (ii) notify the  Investors  in writing of the date on which the Grace Period
ends;  and,  provided  further,  that no  Grace  Period  shall  exceed  five (5)
consecutive  days (or ten (10) consecutive days if the Grace Period is caused by
the filing of a  post-effective  amendment)  and during any three  hundred sixty
five (365) day period such Grace Periods shall not exceed an aggregate of twenty
(20) days and the first day of any Grace Period must be at least two (2) trading
days after the last day of any prior Grace Period  (each,  an  "ALLOWABLE  GRACE
PERIOD").  For purposes of determining  the length of a Grace Period above,  the
Grace  Period  shall  begin on and include  the date the  Investors  receive the
notice  referred  to in clause (i) and shall end on and include the later of the
date the  Investors  receive the notice  referred to in clause (ii) and the date
referred to in such notice.  The  provisions of Section 3(g) hereof shall not be
applicable  during the period of any Allowable Grace Period.  Upon expiration of
the Grace  Period,  the Company  shall  again be bound by the first  sentence of
Section 3(f) with  respect to the  information  giving rise thereto  unless such
material,  non-public  information  is  no  longer  applicable.  Notwithstanding
anything to the contrary,  the Company shall cause its transfer agent to deliver
unlegended  shares of Common Stock to a transferee  of an Investor in accordance
with the terms of the Securities  Purchase Agreement in connection with any sale
of Registrable  Securities  with respect to which an Investor has entered into a
contract for sale,  and delivered a copy of the  prospectus  included as part of
the applicable  Registration Statement (unless an exemption from such prospectus
delivery requirement exists), prior to the Investor's receipt of the notice of a
Grace Period and for which the Investor has not yet settled.

      4. Obligations of the Investors.

            a. At least five (5)  Business  Days prior to the first  anticipated
filing date of a Registration Statement,  the Company shall notify each Investor
in writing of the  information  the Company  requires from each such Investor if
such  Investor  elects  to have any of such  Investor's  Registrable  Securities
included in such Registration  Statement.  It shall be a condition  precedent to
the  obligations  of the Company to complete the  registration  pursuant to this
Agreement with respect to the  Registrable  Securities of a particular  Investor
that such  Investor  shall  furnish to the Company  such  information  regarding
itself,  the  Registrable  Securities  held by it and  the  intended  method  of
disposition  of the  Registrable  Securities  held by it as shall be  reasonably
required to effect the  effectiveness  of the  registration of such  Registrable
Securities and shall execute such documents in connection with such registration
as the Company may reasonably request.

            b. Each Investor,  by such Investor's  acceptance of the Registrable
Securities,  agrees to cooperate with the Company as reasonably requested by the
Company  in  connection  with the  preparation  and  filing of any  Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such  Investor's  election  to  exclude  all  of  such  Investor's   Registrable
Securities from such Registration Statement.

<PAGE>

            c. Each  Investor  agrees that,  upon receipt of any notice from the
Company of the  happening of any event of the kind  described in Section 3(g) or
the  first  sentence  of  3(f),  such  Investor  will  immediately   discontinue
disposition of Registrable Securities pursuant to any Registration  Statement(s)
covering such Registrable Securities until such Investor's receipt of the copies
of the  supplemented or amended  prospectus  contemplated by Section 3(g) or the
first  sentence of 3(f) or receipt of notice that no  supplement or amendment is
required.  Notwithstanding  anything to the contrary,  to the extent  allowed by
federal and state securities laws, the Company shall cause its transfer agent to
deliver  unlegended  shares of Common  Stock to a  transferee  of an Investor in
accordance  with the terms of the  Securities  Purchase  Agreement in connection
with any sale of  Registrable  Securities  with respect to which an Investor has
entered  into a contract  for sale prior to the  Investor's  receipt of a notice
from the Company of the happening of any event of the kind  described in Section
3(g) or the  first  sentence  of 3(f) and for  which  the  Investor  has not yet
settled.

            d. Each  Investor  covenants and agrees that it will comply with the
prospectus  delivery  requirements  of the  1933 Act as  applicable  to it or an
exemption therefrom in connection with sales of Registrable  Securities pursuant
to the Registration Statement.

      5. Expenses of Registration.

      All   reasonable   expenses,   other  than   underwriting   discounts  and
commissions,   incurred   in   connection   with   registrations,   filings   or
qualifications pursuant to Sections 2 and 3, including,  without limitation, all
registration, listing and qualifications fees, printers and accounting fees, and
fees and  disbursements of counsel for the Company shall be paid by the Company.
The Company shall also reimburse the Investors for the fees and disbursements of
Legal Counsel in connection with registration,  filing or qualification pursuant
to Sections 2 and 3 of this Agreement which amount shall be limited to $10,000.

      6. Indemnification.

      In the event any  Registrable  Securities  are included in a  Registration
Statement under this Agreement:
<PAGE>

            a. To the fullest  extent  permitted by law, the Company  will,  and
hereby does, indemnify,  hold harmless and defend each Investor,  the directors,
officers,  members, partners,  employees,  agents,  representatives of, and each
Person,  if any, who controls any Investor within the meaning of the 1933 Act or
the 1934 Act (each,  an  "INDEMNIFIED  PERSON"),  against  any  losses,  claims,
damages,  liabilities,  judgments, fines, penalties,  charges, costs, reasonable
attorneys'  fees,  amounts paid in  settlement  or  expenses,  joint or several,
(collectively,  "CLAIMS") incurred in investigating,  preparing or defending any
action, claim, suit, inquiry, proceeding, investigation or appeal taken from the
foregoing  by or  before  any  court or  governmental,  administrative  or other
regulatory  agency,  body or the SEC, whether pending or threatened,  whether or
not an indemnified party is or may be a party thereto  ("INDEMNIFIED  DAMAGES"),
to which any of them may become  subject  insofar as such  Claims (or actions or
proceedings,  whether commenced or threatened,  in respect thereof) arise out of
or are based upon:  (i) any untrue  statement or alleged  untrue  statement of a
material  fact  in a  Registration  Statement  or any  post-effective  amendment
thereto  or in any  filing  made in  connection  with the  qualification  of the
offering  under the securities or other "blue sky" laws of any  jurisdiction  in
which Registrable Securities are offered ("BLUE SKY FILING"), or the omission or
alleged  omission  to state a material  fact  required  to be stated  therein or
necessary  to make the  statements  therein  not  misleading,  (ii)  any  untrue
statement  or alleged  untrue  statement  of a material  fact  contained  in any
preliminary  prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented,  if
the Company files any amendment  thereof or supplement  thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein,  in the light of the circumstances under which
the statements therein were made, not misleading, (iii) any violation or alleged
violation  by the  Company  of the  1933  Act,  the 1934  Act,  any  other  law,
including,  without  limitation,  any  state  securities  law,  or any  rule  or
regulation  thereunder  relating  to  the  offer  or  sale  of  the  Registrable
Securities  pursuant to a  Registration  Statement or (iv) any violation of this
Agreement  (the  matters  in the  foregoing  clauses  (i)  through  (iv)  being,
collectively,   "VIOLATIONS").  Subject  to  Section  6(c),  the  Company  shall
reimburse the  Indemnified  Persons,  promptly as such expenses are incurred and
are due and payable, for any legal fees or other reasonable expenses incurred by
them  in   connection   with   investigating   or  defending   any  such  Claim.
Notwithstanding  anything to the contrary contained herein, the  indemnification
agreement  contained in this Section 6(a):  (i) shall not apply to a Claim by an
Indemnified  Person  arising  out of or based upon a Violation  which  occurs in
reliance upon and in  conformity  with  information  furnished in writing to the
Company by such Indemnified Person for such Indemnified Person expressly for use
in connection  with the  preparation of the  Registration  Statement or any such
amendment  thereof or supplement  thereto,  if such  prospectus  was timely made
available  by the Company  pursuant to Section  3(d) and (ii) shall not apply to
amounts paid in settlement of any Claim if such  settlement is effected  without
the  prior  written  consent  of  the  Company,   which  consent  shall  not  be
unreasonably  withheld or delayed. Such indemnity shall remain in full force and
effect regardless of any  investigation  made by or on behalf of the Indemnified
Person and shall  survive the  transfer  of the  Registrable  Securities  by the
Investors pursuant to Section 9.

<PAGE>

            b. In  connection  with  any  Registration  Statement  in  which  an
Investor  is  participating,  each such  Investor  agrees to  severally  and not
jointly indemnify,  hold harmless and defend, to the same extent and in the same
manner as is set forth in Section 6(a), the Company, each of its directors, each
of its officers who signs the  Registration  Statement and each Person,  if any,
who  controls  the  Company  within the  meaning of the 1933 Act or the 1934 Act
(each,  an  "INDEMNIFIED  PARTY"),  against any Claim or Indemnified  Damages to
which  any of them may  become  subject,  under  the 1933  Act,  the 1934 Act or
otherwise,  insofar as such  Claim or  Indemnified  Damages  arise out of or are
based upon any  Violation,  in each case to the extent,  and only to the extent,
that such  Violation  occurs in reliance  upon and in  conformity  with  written
information  furnished  to the  Company by such  Investor  expressly  for use in
connection with such Registration Statement;  and, subject to Section 6(c), such
Investor will  reimburse any legal or other expenses  reasonably  incurred by an
Indemnified Party in connection with  investigating or defending any such Claim;
provided,  however,  that the indemnity agreement contained in this Section 6(b)
and the agreement with respect to contribution  contained in Section 7 shall not
apply to amounts paid in settlement of any Claim if such  settlement is effected
without the prior written  consent of such Investor,  which consent shall not be
unreasonably withheld or delayed; provided,  further, however, that the Investor
shall be liable  under  this  Section  6(b) for only  that  amount of a Claim or
Indemnified  Damages as does not exceed the net  proceeds to such  Investor as a
result  of the sale of  Registrable  Securities  pursuant  to such  Registration
Statement.  Such indemnity  shall remain in full force and effect  regardless of
any  investigation  made by or on  behalf  of such  Indemnified  Party and shall
survive the transfer of the Registrable  Securities by the Investors pursuant to
Section 9.  Notwithstanding  anything  to the  contrary  contained  herein,  the
indemnification  agreement  contained  in this  Section 6(b) with respect to any
preliminary  prospectus shall not inure to the benefit of any Indemnified  Party
if  the  untrue  statement  or  omission  of  material  fact  contained  in  the
preliminary  prospectus  was corrected on a timely basis in the  prospectus,  as
then amended or supplemented.

            c. Promptly  after receipt by an  Indemnified  Person or Indemnified
Party  under  this  Section  6 of notice of the  commencement  of any  action or
proceeding  (including any governmental action or proceeding) involving a Claim,
such  Indemnified  Person or  Indemnified  Party  shall,  if a Claim in  respect
thereof is to be made  against  any  indemnifying  party  under this  Section 6,
deliver to the indemnifying party a written notice of the commencement  thereof,
and the  indemnifying  party shall have the right to participate in, and, to the
extent the indemnifying  party so desires,  jointly with any other  indemnifying
party similarly  noticed,  to assume control of the defense thereof with counsel
mutually  satisfactory to the indemnifying  party and the Indemnified  Person or
the  Indemnified  Party,  as  the  case  may  be;  provided,  however,  that  an
Indemnified  Person or Indemnified  Party shall have the right to retain its own
counsel  with the fees  and  expenses  of not  more  than one  counsel  for such
Indemnified  Person or Indemnified  Party to be paid by the indemnifying  party,
if, in the reasonable opinion of counsel retained by the indemnifying party, the
representation  by such counsel of the Indemnified  Person or Indemnified  Party
and the  indemnifying  party would be  inappropriate  due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party  represented by such counsel in such  proceeding.  In the case of an
Indemnified  Person,  legal  counsel  referred to in the  immediately  preceding
sentence  shall be  selected  by the  Investors  holding at least a majority  in
interest of the Registrable Securities included in the Registration Statement to
which the Claim  relates.  The  Indemnified  Party or  Indemnified  Person shall
cooperate fully with the  indemnifying  party in connection with any negotiation
or  defense  of any such  action  or Claim by the  indemnifying  party and shall
furnish to the indemnifying  party all information  reasonably  available to the
Indemnified  Party or Indemnified  Person which relates to such action or Claim.
The indemnifying  party shall keep the Indemnified  Party or Indemnified  Person
reasonably  apprised  at all  times  as to the  status  of  the  defense  or any
settlement  negotiations  with respect thereto.  No indemnifying  party shall be
liable for any settlement of any action,  claim or proceeding  effected  without
its prior written consent, provided,  however, that the indemnifying party shall
not unreasonably withhold, delay or condition its consent. No indemnifying party
shall, without the prior written consent of the Indemnified Party or Indemnified
Person,  consent to entry of any judgment or enter into any  settlement or other
compromise which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified  Party or Indemnified  Person of a
release  from all  liability  in respect to such Claim or  litigation,  and such
settlement  shall  not  include  any  admission  as to  fault on the part of the
Indemnified  Party.  Following  indemnification  as provided for hereunder,  the
indemnifying party shall be subrogated to all rights of the Indemnified Party or
Indemnified  Person with  respect to all third  parties,  firms or  corporations
relating to the matter for which  indemnification  has been made. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified  Person or Indemnified  Party under this Section 6,
except to the extent that the indemnifying party is prejudiced in its ability to
defend such action.

<PAGE>

            d. The  indemnification  required by this Section 6 shall be made by
periodic  payments of the amount thereof during the course of the  investigation
or defense, as and when bills are received or Indemnified Damages are incurred.

            e. The indemnity agreements contained herein shall be in addition to
(i) any cause of action or similar right of the Indemnified Party or Indemnified
Person against the  indemnifying  party or others,  and (ii) any liabilities the
indemnifying party may be subject to pursuant to the law.

      7. Contribution.

      To the extent any  indemnification  by an indemnifying party is prohibited
or  limited  by  law,  the  indemnifying   party  agrees  to  make  the  maximum
contribution  with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no Person  involved in the sale of  Registrable  Securities  which Person is
guilty of fraudulent  misrepresentation  (within the meaning of Section 11(f) of
the 1933 Act) in  connection  with such sale shall be entitled  to  contribution
from any Person  involved  in such sale of  Registrable  Securities  who was not
guilty of fraudulent  misrepresentation;  and (ii) contribution by any seller of
Registrable  Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities pursuant to
such Registration Statement.

      8. Reports Under the 1934 Act.

      With a view to making  available to the Investors the benefits of Rule 144
promulgated  under the 1933 Act or any other  similar rule or  regulation of the
SEC that may at any time permit the Investors to sell  securities of the Company
to the public without registration ("RULE 144"), the Company agrees to:

            a. make and keep public  information  available,  as those terms are
understood and defined in Rule 144;

            b. file with the SEC all reports and other documents required of the
Company  under  the 1933 Act and the  1934  Act so long as the  Company  remains
subject to such  requirements and the filing of such reports and other documents
is required for the applicable provisions of Rule 144; and

            c.  furnish  to  each   Investor  so  long  as  such  Investor  owns
Registrable  Securities,  promptly upon request,  (i) a written statement by the
Company,  if true, that it has complied with the reporting  requirements of Rule
144, the 1933 Act and the 1934 Act, (ii) a copy of the most recent annual report
of the Company and such other reports and documents so filed by the Company, and
(iii)  such  other  information  as may be  reasonably  requested  to permit the
Investors to sell such securities pursuant to Rule 144 without registration.

<PAGE>

      9. Assignment of Registration Rights.

      The rights under this Agreement shall be  automatically  assignable by the
Investors to any transferee of all or any portion of such Investor's Registrable
Securities  if:  (i) the  Investor  agrees in  writing  with the  transferee  or
assignee to assign such rights, and a copy of such agreement is furnished to the
Company  within a reasonable  time after such  assignment;  (ii) the Company is,
within a  reasonable  time after such  transfer or  assignment,  furnished  with
written notice of (a) the name and address of such  transferee or assignee,  and
(b) the  securities  with  respect to which such  registration  rights are being
transferred or assigned; (iii) immediately following such transfer or assignment
the further  disposition  of such  securities  by the  transferee or assignee is
restricted  under the 1933 Act or applicable  state  securities laws; (iv) at or
before the time the Company  receives the written notice  contemplated by clause
(ii) of this  sentence  the  transferee  or assignee  agrees in writing with the
Company  to be bound by all of the  provisions  contained  herein;  and (v) such
transfer shall have been made in accordance with the applicable  requirements of
the Securities Purchase Agreement.

      10. Amendment of Registration Rights.

      Provisions of this Agreement may be amended and the observance thereof may
be waived (either generally or in a particular instance and either retroactively
or prospectively), only with the written consent of the Company and the Required
Holders.  Any amendment or waiver  effected in  accordance  with this Section 10
shall be binding upon each Investor and the Company.  No such amendment shall be
effective  to the extent  that it applies to less than all of the holders of the
Registrable Securities.  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 this
Agreement unless the same consideration also is offered to all of the parties to
this Agreement.

      11. Miscellaneous.

            a. A Person  is  deemed  to be a holder  of  Registrable  Securities
whenever  such  Person  owns or is  deemed  to own of  record  such  Registrable
Securities.  If  the  Company  receives  conflicting  instructions,  notices  or
elections  from  two or  more  Persons  with  respect  to the  same  Registrable
Securities,  the  Company  shall act upon the basis of  instructions,  notice or
election received from the such record owner of such Registrable Securities.

            b. Any notices,  consents,  waivers or other communications required
or  permitted to be given under the terms of this  Agreement  must be in writing
and will be deemed to have been  delivered:  (i) upon  receipt,  when  delivered
personally;  (ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending  party);  or (iii) one  Business  Day after  deposit  with a  nationally
recognized  overnight  delivery service,  in each case properly addressed to the
party to  receive  the  same.  The  addresses  and  facsimile  numbers  for such
communications shall be:

<PAGE>

         If to the Company:

                  Composite Technology Corporation
                  2026 McGaw Avenue
                  Irvine, California 92614
                  Telephone:        (949) 428-5000
                  Facsimile:        (949) 428-8515
                  Attention:        Benton H. Wilcoxon

         Copy to:
                  Richardson & Patel, LP
                  10900 Wilshire Blvd., Suite 520
                  Los Angeles, California 90024
                  Telephone:        (310) 208-1182
                  Facsimile:        (310) 208-1154
                  Attention:        Kevin Leung, Esq.

         If to Legal Counsel:

                  Schulte Roth & Zabel LLP
                  919 Third Avenue
                  New York, New York  10022
                  Telephone:  (212) 756-2000
                  Facsimile:  (212) 593-5955
                  Attention:  Eleazer N. Klein, Esq.

If to a Buyer, to its address and facsimile  number set forth on the Schedule of
Buyers attached hereto, with copies to such Buyer's representatives as set forth
on the Schedule of Buyers,  or to such other  address  and/or  facsimile  number
and/or  to the  attention  of such  other  Person  as the  recipient  party  has
specified by written notice given to each other party five (5) days prior to the
effectiveness of such change.  Written  confirmation of receipt (A) given by the
recipient  of  such  notice,  consent,   waiver  or  other  communication,   (B)
mechanically  or  electronically  generated  by the sender's  facsimile  machine
containing the time, date,  recipient facsimile number and an image of the first
page of such  transmission  or (C)  provided by a courier or  overnight  courier
service shall be rebuttable  evidence of personal service,  receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.

            c.  Failure of any party to exercise  any right or remedy under this
Agreement or otherwise,  or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.

<PAGE>

            d. All questions concerning the construction,  validity, enforcement
and  interpretation  of this Agreement shall be governed by the internal laws of
the State of New York, without giving effect to any choice of law or conflict of
law  provision  or  rule  (whether  of the  State  of  New  York  or  any  other
jurisdictions) that would cause the application of the laws of any jurisdictions
other than the State 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,  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 brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper.  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 to such party at the address for such 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.
If any  provision of this  Agreement  shall be invalid or  unenforceable  in any
jurisdiction,  such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or the
validity or  enforceability  of any  provision  of this  Agreement  in any other
jurisdiction.  EACH PARTY HEREBY  IRREVOCABLY  WAIVES ANY RIGHT IT MAY HAVE, AND
AGREES  NOT TO  REQUEST,  A JURY  TRIAL  FOR  THE  ADJUDICATION  OF ANY  DISPUTE
HEREUNDER  OR IN  CONNECTION  HEREWITH OR ARISING OUT OF THIS  AGREEMENT  OR ANY
TRANSACTION CONTEMPLATED HEREBY.

            e. This Agreement,  the other  Transaction  Documents (as defined in
the Securities  Purchase  Agreement) and the instruments  referenced  herein and
therein constitute the entire agreement among the parties hereto with respect to
the subject  matter  hereof and thereof.  There are no  restrictions,  promises,
warranties or undertakings, other than those set forth or referred to herein and
therein.  This Agreement,  the other  Transaction  Documents and the instruments
referenced herein and therein supersede all prior agreements and  understandings
among the parties hereto with respect to the subject matter hereof and thereof.

            f. Subject to the  requirements  of Section 9, this Agreement  shall
inure to the benefit of and be binding upon the permitted successors and assigns
of each of the parties hereto.

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

            h. This Agreement may be executed in identical counterparts, each of
which shall be deemed an original but all of which shall  constitute one and the
same agreement.  This Agreement,  once executed by a party,  may be delivered to
the other party hereto by  facsimile  transmission  of a copy of this  Agreement
bearing the signature of the party so delivering this Agreement.

            i.  Each  party  shall  do and  perform,  or  cause  to be done  and
performed,  all such further acts and things,  and shall execute and deliver all
such other  agreements,  certificates,  instruments and documents,  as any other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.

<PAGE>

            j. All consents and other determinations  required to be made by the
Investors  pursuant to this Agreement shall be made, unless otherwise  specified
in this Agreement, by the Required Holders.

            k. 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.

            l. This  Agreement is intended for the benefit of the parties hereto
and  their  respective  permitted  successors  and  assigns,  and is not for the
benefit of, nor may any provision hereof be enforced by, any other Person.

            m. The obligations of each Buyer hereunder are several and not joint
with the  obligations of any other Buyer,  and no provision of this Agreement is
intended  to confer any  obligations  on any Buyer  vis-a-vis  any other  Buyer.
Nothing  contained  herein,  and no action taken by any Buyer  pursuant  hereto,
shall be deemed to constitute the Buyers as a  partnership,  an  association,  a
joint  venture  or any other kind of entity,  or create a  presumption  that the
Buyers  are in any way  acting in  concert  or as a group  with  respect to such
obligations or the transactions contemplated herein.

                                   * * * * * *

<PAGE>

      IN  WITNESS  WHEREOF,  each  Buyer  and  the  Company  have  caused  their
respective  signature  page to this  Registration  Rights  Agreement  to be duly
executed as of the date first written above.

                                                COMPANY:

                                                COMPOSITE TECHNOLOGY CORPORATION

                                                By:   _________________________
                                                      Name:
                                                      Title:

                         Signature Page to Registration
                                Rights Agreement

<PAGE>

      IN  WITNESS  WHEREOF,  each  Buyer  and  the  Company  have  caused  their
respective  signature  page to this  Registration  Rights  Agreement  to be duly
executed as of the date first written above.

                                                BUYERS:

                                                HUDSON BAY FUND, LP

                                                By:   __________________________
                                                      Name:
                                                      Title:

                         Signature Page to Registration
                                Rights Agreement

<PAGE>

      IN  WITNESS  WHEREOF,  each  Buyer  and  the  Company  have  caused  their
respective  signature  page to this  Registration  Rights  Agreement  to be duly
executed as of the date first written above.

                                                By:   __________________________
                                                      Name:
                                                      Title:

                         Signature Page to Registration
                                Rights Agreement
<PAGE>

                               SCHEDULE OF BUYERS

<TABLE>
<CAPTION>
                                    BUYER'S ADDRESS          BUYER'S REPRESENTATIVE'S
          BUYER                  AND FACSIMILE NUMBER                 ADDRESS
                                                                AND FACSIMILE NUMBER
------------------------    ------------------------------   ---------------------------
<S>                         <C>                              <C>
Hudson Bay Fund, LP         120 Broadway, 40th Floor         Schulte Roth & Zabel LLP
                            New York, New York 10271         919 Third Avenue
                            Attention: Yoau Roth             New York, New York 10022
                                       May Lee               Attn:  Eleazer Klein,
                            Facsimile:  212-591-1279         Esq.
                            Telephone: 212-571-1244          Facsimile:  (212) 593-5955
                            Residence: United States         Telephone:  (212) 756-2000
Enable Growth Partners LP   One Ferry Building, Suite 255
                            San Francisco, CA 94111
                            Contact: Brendan O'Neil

                            Telephone: 415-677-1578
                            Facsimile:  415-677-1580
                            Residence:  United States
                            Tax ID:

Enable Opportunity          One Ferry Building, Suite 255
Partners LP                 San Francisco, CA 94111
                            Contact: Brendan O'Neil

                            Telephone: 415-677-1578
                            Facsimile:  415-677-1580
                            Residence:  United States
                            Tax ID:
Pierce Diversified          One Ferry Building, Suite 255
Strategy Master Fund LLC    San Francisco, CA 94111
                            Contact: Brendan O'Neil

                            Telephone: 415-677-1578
                            Facsimile:  415-677-1580
                            Residence:  United States
                            Tax ID:
Capital Ventures            c/o Heights Capital
International               Management, Inc.
                            101 California Street, Suite
                            3250
                            San Francisco, CA 94111
                            Contact: Martin Hoe

                            Telephone: 4150-403-6586
                            Facsimile: 415.403.6525
                            Residence:  United States
                            Tax ID: 51-0395477
Lane Capital Markets        120 Broadway, suite 1019
                            New York, New York 10271
                            Contact: Ryan M. Lane

                            Telephone: 2120-6080-3300
                            Facsimile: 212-608-3307
                            Residence:  United States
                            Tax ID: 06-1624312

</TABLE>

<PAGE>

EXHIBIT A

                         FORM OF NOTICE OF EFFECTIVENESS
                            OF REGISTRATION STATEMENT

[Transfer Agent]
[Address]
Attention:

      Re:      Composite Technology Corporation

Ladies and Gentlemen:

      [We  are][I am]  counsel to  Composite  Technology  Corporation,  a Nevada
corporation (the "Company"), and have represented the Company in connection with
that certain Securities Purchase Agreement (the "SECURITIES PURCHASE AGREEMENT")
entered   into  by  and  among  the  Company  and  the  buyers   named   therein
(collectively,  the  "HOLDERS")  pursuant  to which  the  Company  issued to the
Holders  senior secured  convertible  notes (the "NOTES")  convertible  into the
Company's  common  stock,  $0.001  par  value per share  (the  "COMMON  STOCK"),
warrants  exercisable for shares of Common Stock (the  "WARRANTS").  Pursuant to
the  Securities  Purchase  Agreement,  the  Company  also  has  entered  into  a
Registration  Rights  Agreement  with  the  Holders  (the  "REGISTRATION  RIGHTS
Agreement")  pursuant  to which the  Company  agreed,  among  other  things,  to
register  the  Registrable  Securities  (as defined in the  Registration  Rights
Agreement), including the shares of Common Stock issuable upon conversion of the
Notes and the shares of Common Stock  issuable  upon  exercise of the  Warrants,
under the  Securities  Act of 1933,  as amended (the "1933 ACT").  In connection
with the Company's  obligations  under the  Registration  Rights  Agreement,  on
____________  ___, 200_, the Company filed a Registration  Statement on Form S-3
(File No.  333-_____________) (the "REGISTRATION STATEMENT") with the Securities
and Exchange Commission (the "SEC") relating to the Registrable Securities which
names each of the Holders as a selling shareholder thereunder.

      In connection with the foregoing,  [we][I] advise you that a member of the
SEC's staff has advised  [us][me] by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER TIME
OF  EFFECTIVENESS]  on  [ENTER  DATE  OF  EFFECTIVENESS]  and  [we][I]  have  no
knowledge,  after  telephonic  inquiry of a member of the SEC's staff,  that any
stop order suspending its  effectiveness has been issued or that any proceedings
for  that  purpose  are  pending  before,  or  threatened  by,  the  SEC and the
Registrable  Securities  are available for resale under the 1933 Act pursuant to
the Registration Statement.

      This letter shall serve as our standing instruction to you that the shares
of  Common  Stock  are  freely  transferable  by  the  Holders  pursuant  to the
Registration  Statement.  You need not require further letters from us to effect
any future  legend-free  issuance or reissuance of shares of Common Stock to the
Holders as contemplated by the Company's Irrevocable Transfer

<PAGE>

      Agent Instructions dated ________ __, 2006. This letter shall serve as our
standing instruction with regard to this matter.

                                                     Very truly yours,

                                                     [ISSUER'S COUNSEL]

                                                     By:________________________
CC:      [LIST NAMES OF HOLDERS]

<PAGE>

                                                                       EXHIBIT B

                              SELLING SHAREHOLDERS

      The shares of Common Stock being offered by the selling  shareholders  are
issuable  upon  conversion  of the  convertible  notes and upon  exercise of the
warrants. For additional information regarding the issuance of those convertible
notes  and  warrants,   see  "Private  Placement  of  Shares  of  Common  Stock,
Convertible  Notes and Warrants"  above. We are registering the shares of Common
Stock in order to permit the selling shareholders to offer the shares for resale
from  time to time.  Except  for the  ownership  of the  Convertible  Notes  and
Warrants  issued  pursuant to the  Securities  Purchase  Agreement,  the selling
shareholders  have not had any  material  relationship  with us within  the past
three years.

      The table  below  lists the  selling  shareholders  and other  information
regarding the beneficial  ownership of the shares of Common Stock by each of the
selling  shareholders.  The second  column  lists the number of shares of Common
Stock beneficially owned by each selling shareholder,  based on its ownership of
the convertible notes and warrants, as of ________, 200_, assuming conversion of
all  convertible  notes  and  exercise  of the  warrants  held  by  the  selling
shareholders  on that date,  without regard to any limitations on conversions or
exercise.

      The third column  lists the shares of Common  Stock being  offered by this
prospectus by the selling shareholders.

      In accordance with the terms of a registration  rights agreements with the
selling  shareholders,  this prospectus  generally covers the resale of at least
the sum of (i) 110% of the  number  of  shares of  Common  Stock  issuable  upon
conversion of the convertible notes as of the trading day immediately  preceding
the date the  registration  statement is  initially  filed with the SEC and (ii)
110% of the  number of shares of Common  Stock  issuable  upon  exercise  of the
related  warrants  as of the  trading  day  immediately  preceding  the date the
registration  statement is initially filed with the SEC.  Because the conversion
price of the  convertible  notes and the  exercise  price of the warrants may be
adjusted,  the number of shares that will actually be issued may be more or less
than the number of shares being  offered by this  prospectus.  The fourth column
assumes  the  sale of all of the  shares  offered  by the  selling  shareholders
pursuant to this prospectus.

      Under  the terms of the  convertible  notes  and the  warrants,  a selling
shareholder  may not convert the  convertible  notes or exercise the warrants to
the extent such  conversion  or exercise  would cause such selling  shareholder,
together with its affiliates,  to beneficially  own a number of shares of Common
Stock which would  exceed 4.99% of our then  outstanding  shares of Common Stock
following  such   conversion  or  exercise,   excluding  for  purposes  of  such
determination shares of Common Stock issuable upon conversion of the convertible
notes which have not been converted and upon exercise of the warrants which have
not been  exercised.  The number of shares in the second column does not reflect
this  limitation.  The selling  shareholders may sell all, some or none of their
shares in this offering. See "Plan of Distribution."

<PAGE>

<TABLE>
<CAPTION>
                                                                    MAXIMUM NUMBER OF SHARES
                                          NUMBER OF SHARES OWNED     TO BE SOLD PURSUANT TO      NUMBER OF SHARES
NAME OF SELLING SHAREHOLDER                  PRIOR TO OFFERING           THIS PROSPECTUS        OWNED AFTER OFFERING
---------------------------                  -----------------           ---------------        --------------------
<S>                                                                                                      <C>
Hudson Bay Fund, LP                                                                                      0

         (1)

</TABLE>

<PAGE>

                              PLAN OF DISTRIBUTION

      We are  registering the shares of Common Stock issuable upon conversion of
the convertible  notes and upon exercise of the warrants to permit the resale of
these  shares  of  Common  Stock by the  holders  of the  convertible  notes and
warrants  from  time to time  after  the  date of this  prospectus.  We will not
receive any of the  proceeds  from the sale by the selling  shareholders  of the
shares  of Common  Stock.  We will bear all fees and  expenses  incident  to our
obligation to register the shares of Common Stock.

      The selling shareholders may sell all or a portion of the shares of Common
Stock  beneficially  owned by them and offered hereby from time to time directly
or through one or more underwriters,  broker-dealers or agents. If the shares of
Common  Stock are sold  through  underwriters  or  broker-dealers,  the  selling
shareholders  will be responsible for  underwriting  discounts or commissions or
agent's  commissions.  The  shares  of  Common  Stock may be sold in one or more
transactions  at fixed prices,  at  prevailing  market prices at the time of the
sale, at varying prices determined at the time of sale, or at negotiated prices.
These sales may be effected in transactions,  which may involve crosses or block
transactions,

      o     on any national  securities  exchange or quotation  service on which
            the securities may be listed or quoted at the time of sale;

      o     in the over-the-counter market;

      o     in  transactions  otherwise than on these exchanges or systems or in
            the over-the-counter market;

      o     through the writing of options,  whether  such options are listed on
            an options exchange or otherwise;

      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     short sales;

      o     sales pursuant to Rule 144;

<PAGE>

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

      o     a combination of any such methods of sale; and

      o     any other method permitted pursuant to applicable law.

      If the selling  shareholders effect such transactions by selling shares of
Common  Stock  to  or  through  underwriters,  broker-dealers  or  agents,  such
underwriters,  broker-dealers  or agents may receive  commissions in the form of
discounts,   concessions  or  commissions  from  the  selling   shareholders  or
commissions  from purchasers of the shares of Common Stock for whom they may act
as agent or to whom they may sell as principal (which discounts,  concessions or
commissions as to particular  underwriters,  broker-dealers  or agents may be in
excess of those customary in the types of transactions  involved). In connection
with sales of the shares of Common Stock or otherwise,  the selling shareholders
may enter  into  hedging  transactions  with  broker-dealers,  which may in turn
engage in short sales of the shares of Common  Stock in the course of hedging in
positions they assume.  The selling  shareholders may also sell shares of Common
Stock short and deliver  shares of Common Stock  covered by this  prospectus  to
close out short  positions and to return borrowed shares in connection with such
short sales.  The selling  shareholders may also loan or pledge shares of Common
Stock to broker-dealers that in turn may sell such shares.

      The selling  shareholders may pledge or grant a security  interest in some
or all of the  convertible  notes or warrants or shares of Common Stock owned by
them and, if they default in the performance of their secured  obligations,  the
pledgees or secured  parties may offer and sell the shares of Common  Stock from
time to time pursuant to this  prospectus  or any  amendment to this  prospectus
under Rule  424(b)(3) or other  applicable  provision of the  Securities  Act of
1933, as amended,  amending,  if necessary,  the list of selling shareholders to
include  the  pledgee,  transferee  or other  successors  in interest as selling
shareholders under this prospectus.  The selling  shareholders also may transfer
and donate the shares of Common Stock in other  circumstances  in which case the
transferees,  donees,  pledgees  or other  successors  in  interest  will be the
selling beneficial owners for purposes of this prospectus.

      The  selling  shareholders  and  any  broker-dealer  participating  in the
distribution  of the shares of Common  Stock may be deemed to be  "underwriters"
within the  meaning of the  Securities  Act,  and any  commission  paid,  or any
discounts or concessions  allowed to, any such broker-dealer may be deemed to be
underwriting  commissions or discounts  under the Securities  Act. At the time a
particular  offering  of the  shares  of  Common  Stock  is made,  a  prospectus
supplement,  if required, will be distributed which will set forth the aggregate
amount of shares of Common  Stock being  offered and the terms of the  offering,
including  the name or names of any  broker-dealers  or agents,  any  discounts,
commissions  and  other  terms   constituting   compensation  from  the  selling
shareholders and any discounts,  commissions or concessions allowed or reallowed
or paid to broker-dealers.

      Under the securities  laws of some states,  the shares of Common Stock may
be sold in such states only through  registered or licensed  brokers or dealers.
In  addition,  in some states the shares of Common  Stock may not be sold unless
such  shares  have been  registered  or  qualified  for sale in such state or an
exemption from registration or qualification is available and is complied with.

<PAGE>

      There can be no assurance  that any selling  shareholder  will sell any or
all of the shares of Common Stock registered  pursuant to the shelf registration
statement, of which this prospectus forms a part.

      The  selling  shareholders  and any  other  person  participating  in such
distribution will be subject to applicable provisions of the Securities Exchange
Act of 1934, as amended,  and the rules and regulations  thereunder,  including,
without limitation, Regulation M of the Exchange Act, which may limit the timing
of  purchases  and sales of any of the  shares of  Common  Stock by the  selling
shareholders and any other participating person.  Regulation M may also restrict
the ability of any person  engaged in the  distribution  of the shares of Common
Stock to engage in market-making activities with respect to the shares of Common
Stock. All of the foregoing may affect the marketability of the shares of Common
Stock and the  ability  of any  person  or  entity  to  engage in  market-making
activities with respect to the shares of Common Stock.

      We will pay all expenses of the registration of the shares of Common Stock
pursuant to the registration  rights  agreement,  estimated to be $[ ] in total,
including,  without  limitation,  Securities and Exchange Commission filing fees
and expenses of compliance with state  securities or "blue sky" laws;  provided,
however,  that a selling  shareholder  will pay all  underwriting  discounts and
selling commissions,  if any. We will indemnify the selling shareholders against
liabilities,  including some liabilities under the Securities Act, in accordance
with the registration  rights  agreements,  or the selling  shareholders will be
entitled to  contribution.  We may be  indemnified  by the selling  shareholders
against civil liabilities,  including liabilities under the Securities Act, that
may  arise  from  any  written  information  furnished  to  us  by  the  selling
shareholder  specifically  for use in this  prospectus,  in accordance  with the
related registration rights agreements, or we may be entitled to contribution.

      Once sold under the shelf registration statement, of which this prospectus
forms a part, the shares of Common Stock will be freely tradable in the hands of
persons other than our affiliates.

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