Document:

Unassociated Document

    EXHIBIT
      10.8

    

    2006
      EQUITY INCENTIVE PLAN

    

    

    1. Purpose.
      The
      purpose of this Equity Incentive Plan (the “Plan”)
      is to
      advance the interests of Ethanex
      Energy, Inc. (the
      “Company”)
      and
      its Affiliates (as defined below) by inducing eligible individuals of
      outstanding ability and potential to join and remain with, or to provide
      consulting or advisory services to, the Company or its Affiliates, by
      encouraging and enabling eligible employees, Outside Directors (as defined
      below), consultants, and advisors to acquire proprietary interests in the
      Company, and by providing participating eligible employees, Outside Directors,
      consultants, and advisors with an additional incentive to promote the success
      of
      the Company. These purposes are accomplished by providing for the granting
      of
      Incentive Stock Options, Nonqualified Stock Options, Reload Options, Stock
      Appreciation Rights, and Restricted Stock (all as defined below) to eligible
      employees, Outside Directors, consultants, and advisors.

    

    2. Definitions.
      As used
      in the Plan, the following terms have the meanings indicated:

    

    (a) “Affiliate”
means
      a
“parent corporation” or a “subsidiary corporation” (as set forth in Code
      Sections 424(e) and 424(f), respectively) of the Company.

    

    (b) “Applicable
      Withholding Taxes”
means
      the aggregate minimum amount of federal, state, local, and foreign income,
      payroll, and other taxes that an Employer is required to withhold in connection
      with the grant, vesting, or exercise of any Award.

    

    (c) “Award”
means
      an Incentive Stock Option, a Nonqualified Stock Option, a Reload Option, a
      Stock
      Appreciation Right, or Restricted Stock.

    

    (d) “Beneficiary”
means
      the person or entity designated by the Participant, in a form approved by the
      Company, to exercise the Participant’s rights with respect to an Award after the
      Participant’s death. If the Participant does not validly designate a
      Beneficiary, or if the designated person no longer exists, then the
      Participant’s Beneficiary shall be his or her estate.

    

    (e) “Board”
means
      the Board of Directors of the Company.

    

    (f) “Cause”
shall
      have the same meaning given to such term (or other term of similar meaning)
      in
      Employment Agreement for purposes of termination of employment under such
      agreement, and in the absence of any such agreement or if such agreement does
      not include a definition of “Cause” (or other term of similar meaning), the term
“Cause” shall mean (i) any material breach by the Participant of any agreement
      to which the Participant and the Company or an Affiliate are parties, (ii)
      any
      continuing act or omission to act by the Participant which may have a material
      and adverse effect on the Company’s business or on the Participant’s ability to
      perform services for the Company or an Affiliate, including, without limitation,
      the commission of any crime (other than minor traffic violations), or (iii)
      any
      material misconduct or material neglect of duties by the Participant in
      connection with the business or affairs of the Company or an
      Affiliate.

    

    (g) “Change
      in Control”
means,
      unless such term or an equivalent term is otherwise defined with respect to
      an
      Award by the Participant’s Award agreement, any Employment Agreement or in a
      written contract of service, the occurrence of any of the
      following:

    

    (i) any
      “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange
      Act) becomes the “beneficial owner” (as defined in Rule 13d-3 promulgated
      under the Exchange Act), directly or indirectly, of securities of the Company
      representing more than fifty percent (50%) of the total

     

    
      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

    

    combined
      voting power of the Company’s then-outstanding securities entitled to vote
      generally in the election of Directors; provided, however, that the following
      acquisitions shall not constitute a Change in Control: (1) an acquisition
      by any such person who on the Effective Date is the beneficial owner of more
      than fifty percent (50%) of such voting power, (2) any acquisition directly
      from the Company, including, without limitation, a public offering of
      securities, (3) any acquisition by the Company, (4) any acquisition by
      a trustee or other fiduciary under an employee benefit plan of a Participating
      Company or (5) any acquisition by an entity owned directly or indirectly by
      the stockholders of the Company in substantially the same proportions as their
      ownership of the voting securities of the Company; or

     

    (ii) an
      Ownership Change Event or series of related Ownership Change Events
      (collectively, a “Transaction”)
      in
      which the stockholders of the Company immediately before the Transaction do
      not
      retain immediately after the Transaction direct or indirect beneficial ownership
      of more than fifty percent (50%) of the total combined voting power of the
      outstanding securities entitled to vote generally in the election of Directors
      or, in the case of an Ownership Change Event described in Section 2(x)(iii),
      the
      entity to which the assets of the Company were transferred (the “Transferee”),
      as the
      case may be; or

     

    (iii) a
      liquidation or dissolution of the Company.

     

    provided,
      however, that a Change in Control shall be deemed not to include a transaction
      described in subsections (i) or (ii) of this paragraph (g) in which a majority
      of the members of the board of directors of the continuing, surviving or
      successor entity, or parent thereof, immediately after such transaction is
      comprised of incumbent Directors. For purposes of the preceding sentence,
      indirect beneficial ownership shall include, without limitation, an interest
      resulting from ownership of the voting securities of one or more corporations
      or
      other business entities which own the Company or the Transferee, as the case
      may
      be, either directly or through one or more subsidiary corporations or other
      business entities. The Committee shall have the right to determine whether
      multiple sales or exchanges of the voting securities of the Company or multiple
      Ownership Change Events are related, and its determination shall be final,
      binding and conclusive.

     

    (h) “Code”
means
      the Internal Revenue Code of 1986, as amended from time to time, and any rulings
      or regulations promulgated thereunder.

    

    (i) “Committee”
means
      the Board, the Compensation Committee of the Board, or such other committee
      of
      the Board as the Board appoints to administer the Plan; provided, however,
      that
      should Section 162(m) of the Code and Section 16 of the Securities Exchange
      Act
      of 1934 apply to Awards under the Plan, if any member of the Committee does
      not
      qualify as both an “outside director” for purposes of Code Section 162(m) and a
“non-employee director” for purposes of Rule 16b-3, the remaining members of the
      Committee (but not less than two members) shall be constituted as a subcommittee
      of the Committee to act as the Committee for purposes of the Plan.

    

    (j) “Commission”
means
      the U.S. Securities and Exchange Commission. 

    

    (k) “Company”
means
      Alternative Energy Sources, Inc., a Delaware corporation, and its subsidiaries.
      

    

    (l) “Company
      Stock”
means
      common stock, par value $.001 per share, of the Company. In the event of a
      change in the capital structure of the Company affecting the common stock (as
      provided in Section 14), the shares resulting from such a change in the common
      stock shall be deemed to be Company Stock within the meaning of the
      Plan.

    

    (m) “Date
      of Grant”
means
      the date on which the Committee grants an Award, or such future date as may
      be
      determined by the Committee.

    
      
        
        

      

      
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    (n) “Disability”
means
      a
      disability within the meaning of Code Section 22(e)(3).

    

    (o) “Employer”
means
      the Company and each Affiliate that employs one or more Participants.

    

    (p) “Employment
      Agreement”
means
      any written employment or other similar agreement between the Participant and
      the Company or an Affiliate.

    

    (q) “Exchange
      Act”
means
      the Securities Exchange Act of 1934, as amended.

    

    (r) “Fair
      Market Value”
means
      on any given date the fair market value of Company Stock as of such date, as
      determined by the Committee. If the Company Stock is listed on a national
      securities exchange or traded on the over-the-counter market, Fair Market Value
      means the closing selling price or, if not available, the closing bid price
      or,
      if not available, the high bid price of the Company Stock quoted on such
      exchange, or on the over-the-counter market as reported by the NASDAQ Stock
      Market (“NASDAQ”),
      or if
      the Company Stock is not listed on NASDAQ, then by the National Quotation
      Bureau, Incorporated, on the day immediately preceding the day on which the
      Award is granted or exercised, as the case may be, or, if there is no selling
      or
      bid price on that day, the closing selling price, closing bid price, or high
      bid
      price on the most recent day which precedes that day and for which such prices
      are available.

    

    (s) “Incentive
      Stock Option”
means
      an Option that qualifies for favorable income tax treatment under Code Section
      422.

    

    (t) “Mature
      Shares”
means
      shares of Company Stock for which the shareholder has good title, free and
      clear
      of all liens and encumbrances.

    

    (u) “Nonqualified
      Stock Option”
means
      an Option that is not an Incentive Stock Option.

    

    (v) “Option”
means
      a
      right to purchase Company Stock granted under the Plan, at a price determined
      in
      accordance with the Plan.

    

    (w) “Outside
      Director”
means
      a
      member of the Board who is not an employee of, or a consultant or advisor to,
      the Company or an Affiliate as of the Date of Grant. 

    

    (x) “Ownership
      Change Event”
means
      the occurrence of any of the following with respect to the Company: (i) the
      direct or indirect sale or exchange in a single or series of related
      transactions by the stockholders of the Company of more than fifty percent
      (50%)
      of the voting stock of the Company; (ii) a merger or consolidation in which
      the Company is a party; or (iii) the sale, exchange, or transfer of all or
      substantially all of the assets of the Company (other than a sale, exchange
      or
      transfer to one or more subsidiaries of the Company).

    

    (y) “Participant”
means
      any employee, Outside Director, consultant, or advisor (including independent
      contractors, professional advisors, and service providers) of the Company or
      an
      Affiliate who receives an Award under the Plan.

    

    (z) “Restricted
      Stock”
means
      Company Stock awarded under Section 9 of the Plan.

    

    (aa) “Reload
      Option”
means
      a
      reload option grant made in accordance with Section 7 of the Plan.

    

    (bb) “Rule
      16b-3”
means
      Rule 16b-3 of the Commission promulgated under the Exchange

    
      
        
        

      

      
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    Act.
      A
      reference in the Plan to Rule 16b-3 shall include a reference to any
      corresponding rule (or number redesignation) of any amendments to Rule 16b-3
      enacted after the effective date of the Plan’s adoption.

    

    (cc)   “Securities
      Act”
means
      the Securities Act of 1933, as amended.

    

    (dd) “Stock
      Appreciation Right”
means
      a
      right to receive amounts awarded under Section 

    

    3. Stock.
      Subject
      to Section 14 of the Plan, there shall be reserved for issuance under the Plan
      an aggregate of 2,000,000 shares of Company Stock, which may be authorized
      but
      unissued shares, or shares held in the Company’s treasury, or shares purchased
      from stockholders expressly for use under the Plan. In addition, shares
      allocable to Awards granted under the Plan that expire, are forfeited, are
      cancelled without the delivery of the shares, or otherwise terminate
      unexercised, may again be available for Awards under the Plan. For purposes
      of
      determining the number of shares that are available for Awards under the Plan,
      the number shall also include the number of shares surrendered by a Participant
      actually or by attestation or retained by the Company in payment of Applicable
      Withholding Taxes, and any Mature Shares surrendered by a Participant upon
      exercise of an Option or in payment of Applicable Withholding Taxes. Shares
      issued under the Plan through the settlement, assumption, or substitution of
      outstanding awards or obligations to grant future awards as a condition of
      an
      Employer acquiring another entity shall not reduce the maximum number of shares
      available for delivery under the Plan.

    

    4. Eligibility.
      Subject
      to the terms of the Plan, the Committee shall have the power and complete
      discretion, as provided in Section 13, to select eligible employees, Outside
      Directors, consultants, and advisors to receive an Award under the Plan;
      provided, however, that any Award shall be subject to the following terms and
      conditions:

    

    (a) Only
      those individuals who are employees (including officers) of the Company or
      an
      Affiliate at the Date of Grant shall be eligible to receive an Incentive Stock
      Option under the Plan.

    

    (b) All
      employees (including officers) and Outside Directors of, or consultants and
      advisors to, either the Company or an Affiliate at the Date of Grant shall
      be
      eligible to receive Nonqualified Stock Options, Stock
      Appreciation Rights,
      and
      Restricted Stock; provided, however, that Nonqualified Stock Options, Stock
      Appreciation Rights, and Restricted Stock may not be granted to any such
      consultants and advisors unless (i) bona fide services have been or are to
      be
      rendered by such consultant or advisor and (ii) such services are not in
      connection with the offer or sale of securities in a capital raising
      transaction.

    

    (c) Anything
      herein to the contrary notwithstanding, any recipient of an Award under the
      Plan
      must be includable in the definition of “employee” provided in the general
      instructions to Form S-8 Registration Statement under the Securities
      Act.

    

    (d) The
      grant
      of an Award shall not obligate an Employer to pay any employee, Outside
      Director, consultant, or advisor any particular amount of remuneration, to
      continue the employment of the employee or engagement of the Outside Director,
      consultant, or advisor after the grant, or to make further grants to the
      employee, Outside Director, consultant, or advisor at any time
      thereafter.

    

    5. Stock
      Options.

    

    (a) The
      Committee may make grants of Options to Participants. Except as otherwise
      provided herein, the Committee shall determine the number of shares for which
      Options are granted, the Option exercise price per share, whether the Options
      are Incentive Stock Options or Nonqualified Stock Options, and any other terms
      and conditions to which the Options are subject.

    
      
        
        

      

      
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    (b) The
      exercise price of shares of Company Stock covered by an Option shall be not
      less
      than 100 percent of the Fair Market Value of Company Stock on the Date of Grant.
      Except as provided in Section 14, (i) the exercise price of an Option may not
      be
      decreased after the Date of Grant and (ii) a Participant may not surrender
      an
      Option in consideration for the grant of a new Option with a lower exercise
      price or another Award. 

    

    (c) All
      Options granted hereunder shall be subject to the following terms and
      conditions:

    

    (i) All
      Options shall be evidenced by a written stock option agreement (the
“Stock
      Option Agreement”)
      setting forth all the relevant terms of the Award.

    

    (ii) No
      Option
      shall be exercisable more than 10 years after the Date of Grant.

    

    (iii) The
      aggregate Fair Market Value, determined at the Date of Grant, of shares for
      which Incentive Stock Options become exercisable by a Participant during any
      calendar year shall not exceed $100,000 and any amount in excess of $100,000
      shall be treated as a Non-Qualified Stock Option. The maximum aggregate number
      of shares for which Incentive Stock Options may be issued under the Plan to
      any
      Participant in any calendar year shall be 200,000.

    

    (iv) If
      an
      Incentive Stock Option is granted to an employee who owns, at the Date of Grant,
      more than 10 percent of the total combined voting power of all classes of stock
      of the Company or an Affiliate, then (A) the option price of the shares subject
      to the Incentive Stock Option shall be at least 110% of the Fair Market Value
      of
      the Company Stock at the Date of Grant and (B) such Incentive Stock Option
      shall
      not be exercisable after the expiration of 5 years from the Date of
      Grant.

    

    (v) Subject
      to earlier termination of the Option as otherwise provided herein and unless
      otherwise provided in any Employment Agreement or as provided by the Committee
      in the grant of an Option and set forth in or incorporated into the Stock Option
      Agreement: (A) if
      the
      employment of an employee by, or the services of an Outside Director for, or
      consultant or advisor to, the Company or an Affiliate should be terminated
      for
      Cause or terminated voluntarily by the grantee, then any outstanding Option
      shall terminate immediately, (B) if such employment or services terminates
      for
      any other reason, any such Option exercisable as of the date of termination
      may
      be exercised at any time within three months of termination. For purposes of
      this subsection, (y) the retirement of an individual either pursuant to a
      pension or retirement plan maintained by the Company or an Affiliate or at
      the
      applicable normal retirement date prescribed from time to time by the Company
      shall be deemed to be termination of the individual’s employment other than
      voluntarily or for Cause, and (z) an individual who leaves the employ or
      services of the Company or an Affiliate to become an employee or Outside
      Director of, or a consultant or advisor to, an entity that has assumed the
      Option as a result of a corporate reorganization or the like shall not be
      considered to have terminated employment or services.

    

    (vi) Subject
      to earlier termination of the Option as otherwise provided herein and unless
      otherwise provided in any Employment Agreement or as provided by the Committee
      in the grant of an Option and set forth in or incorporated into the Stock Option
      Agreement, if
      the
      holder of an Option under the Plan ceases employment or services because of
      Disability while employed by, or while serving as an Outside Director for or
      a
      consultant or advisor to, the Company or an Affiliate, then such Option may,
      subject to the provisions of subsection (viii) below, be exercised at any time
      within one year after the termination of employment or services due to the
      Disability.

    

    (vii) Subject
      to earlier termination of the Option as otherwise provided herein and unless
      otherwise provided in any Employment Agreement or as provided by the Committee
      in the grant of an Option and set forth in or incorporated into the Stock Option
      Agreement, if
      the
      holder of an Option under the Plan dies (A) while employed by, or while serving
      as an Outside Director for or a consultant or advisor to, the

    
      
        
        

      

      
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    Company
      or an Affiliate, or (B) within three months after the termination of employment
      or services other than voluntarily by the grantee or for Cause, then such Option
      may, subject to the provisions of subsection (viii) below, be exercised by
      the
      Participant’s Beneficiary at any time within one year after the Participant’s
      death.

    

    (viii) An
      Option
      may not be exercised after termination of employment, termination of
      directorship, termination of consulting or advisory services, Disability or
      death except to the extent that the holder was entitled to exercise the Option
      at the time of such termination or as otherwise provided in a currently
      effective written Employment Agreement, consulting agreement or other related
      agreement executed between the Company and the employee, Outside Director or
      consultant or advisor, and in any event may not be exercised after the
      expiration of the Option in accordance with the terms of the grant.

    

    (ix) The
      employment relationship of an employee of the Company or an Affiliate shall
      be
      treated as continuing intact while the employee is on military or sick leave
      or
      other bona fide leave of absence if such leave does not exceed 90 days or,
      if
      longer, so long as the employee’s right to reemployment is guaranteed either by
      statute or by contract.

    

    (d) The
      holder of any Option granted under the Plan shall have none of the rights of
      a
      stockholder with respect to the shares covered by the Option until such stock
      shall be transferred to the holder upon the exercise of the Option.

    

    6. Grants
      to Outside Directors.
      Awards,
      other than Incentive Stock Options, may be made to Outside Directors. The
      Committee shall have the power and complete discretion to select Outside
      Directors to receive Awards. The Committee shall have the complete discretion,
      under provisions consistent with Section 13, to determine the terms and
      conditions, the nature of the Award and the number of shares to be allocated
      as
      part of each Award for each Outside Director. The grant of an Award shall not
      obligate the Company to make further grants to the Outside Director at any
      time
      thereafter or to retain any person as a director for any period of
      time.

    

    7. Reload
      Options.
      The
      Committee may grant Options with a reload feature. A reload feature shall only
      apply when the exercise price is paid by delivery of Company Stock in accordance
      with Section 10. The Stock Option Agreement for the Option containing the reload
      feature shall provide that the holder of the Option shall receive,
      contemporaneously with the payment of the exercise price in shares of Company
      Stock, a Reload Option to purchase that number of shares of Company Stock equal
      to the sum of (i) the number of shares used to exercise the Option, and (ii)
      with respect to Nonqualified Stock Options, the number of shares used to satisfy
      Applicable Withholding Taxes. The terms of the Plan applicable to the Option
      shall be equally applicable to the Reload Option with the following exceptions:
      the option price per share of Company Stock deliverable upon the exercise of
      the
      Reload Option (i) in the case of a Reload Option that is an Incentive Stock
      Option being granted to a Participant who owns more than 10 percent of the
      total
      combined voting power of all classes of stock of the Company or an Affiliate,
      shall be 110% of the Fair Market Value of a share of Company Stock on the Date
      of Grant of the Reload Option, and (ii) in the case of a Reload Option which
      is
      an Incentive Stock Option being granted to any other Participant, or which
      is a
      Nonqualified Stock Option, shall be the Fair Market Value of a share of Company
      Stock on the Date of Grant of the Reload Option. The term of the Reload Option
      shall be the same as the Option which gave rise to the Reload Option. If the
      exercise price of an Option containing a reload feature is paid in cash and
      not
      in shares of Company Stock, the reload feature shall have no application with
      respect to such exercise.

    

    8. Stock
      Appreciation Rights.
      Concurrently with the award of any Option to purchase one or more shares of
      Company Stock, the Committee may, in its sole discretion, award to the optionee
      with respect to each share of Company Stock covered by an Option a related
      Stock
      Appreciation Right, which permits the optionee to be paid the appreciation
      on
      the related Option in lieu of exercising the Option. The Committee shall
      establish as to each award of Stock Appreciation Rights the terms and conditions
      to which the Stock

    
      
        
        

      

      
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    Appreciation
      Rights are subject; provided, however, that the following terms and conditions
      shall apply to all Stock Appreciation Rights:

    

    (a) A
      Stock
      Appreciation Right granted with respect to an Incentive Stock Option must be
      granted together with the related Option. A Stock Appreciation Right granted
      with respect to a Nonqualified Stock Option may be granted together with the
      grant of the related Option.

    

    (b) A
      Stock
      Appreciation Right shall entitle the Participant, upon exercise of the Stock
      Appreciation Right, to receive in exchange an amount equal to the excess of
      (i)
      the Fair Market Value on the date of exercise of Company Stock covered by the
      surrendered Stock Appreciation Right over (ii) the Fair Market Value of Company
      Stock on the Date of Grant of the Stock Appreciation Right. The Committee may
      limit the amount that the Participant will be entitled to receive upon exercise
      of a Stock Appreciation Right.

    

    (c) A
      Stock
      Appreciation Right may be exercised only if and to the extent the underlying
      Option is exercisable, and a Stock Appreciation Right may not be exercisable
      in
      any event more than 10 years after the Date of Grant.

    

    (d) A
      Stock
      Appreciation Right may only be exercised at a time when the Fair Market Value
      of
      Company Stock covered by the Stock Appreciation Right exceeds the Fair Market
      Value of Company Stock on the Date of Grant of the Stock Appreciation Right.
      The
      Stock Appreciation Right may provide for payment in Company Stock or cash,
      or a
      fixed combination of Company Stock and cash, or the Committee may reserve the
      right to determine the manner of payment at the time the Stock Appreciation
      Right is exercised.

    

    (e) To
      the
      extent a Stock Appreciation Right is exercised, the underlying Option shall
      be
      cancelled, and the shares of Company Stock represented by the Option shall
      no
      longer be available for Awards under the Plan.

    

    9. Restricted
      Stock Awards.

    

    (a) The
      Committee may make grants of Restricted Stock to a Participant. The Committee
      shall establish as to each award of Restricted Stock the terms and conditions
      to
      which the Restricted Stock is subject, including the period of time before
      which
      all restrictions shall lapse and the Participant shall have full ownership
      of
      the Company Stock. The Committee in its discretion may award Restricted Stock
      without cash consideration. All Restricted Stock Awards shall be evidenced
      by a
      Restricted Stock Agreement setting forth all the relevant terms of the
      Award.

    

    (b) Restricted
      Stock may not be sold, assigned, transferred, pledged, hypothecated, or
      otherwise encumbered or disposed of until the restrictions have lapsed or been
      removed. Certificates representing Restricted Stock shall be held by the Company
      until the restrictions lapse, and the Participant shall provide the Company
      with
      appropriate stock powers endorsed in blank.

    

    10. Method
      of Exercise of Options.

    

    (a) Options
      may be exercised by the Participant (or his or her legal guardian or personal
      representative) by giving written notice of the exercise to the Company at
      its
      principal office (attention of the Corporate Secretary) pursuant to procedures
      established by the Company. The notice shall state the number of shares the
      Participant has elected to purchase under the Option. Such notice shall be
      accompanied, or followed within 10 days of delivery thereof, by payment of
      the
      full exercise price of such shares. The exercise price may be paid in cash
      by
      means of a check payable to the order of the Company or, if the terms of an
      Option permit, (i) by delivery or attestation of Mature Shares (valued at their
      Fair Market Value) in satisfaction of all or any part of the exercise price,
      (ii) by delivery of a properly executed exercise notice with irrevocable
      instructions to a

    
      
        
        

      

      
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    broker
      to
      deliver to the Company the amount necessary to pay the exercise price from
      the
      sale or proceeds of a loan from the broker with respect to the sale of Company
      Stock or a broker loan secured by the Company Stock,
      (iii) by such other consideration as may be approved by the Committee from
      time to time to the extent permitted by applicable law, or (iv) by any
      combination of (i) through (iii) hereof.

    

    (b) Unless
      prior to the exercise of the Option the shares issuable upon such exercise
      have
      been registered with the Securities and Exchange Commission pursuant to the
      Securities Act of 1933, the notice of exercise shall be accompanied by a
      representation or agreement of the individual or entity exercising the Option
      to
      the Company to the effect that such shares are being acquired for investment
      purposes and not with a view to the distribution thereof, and such other
      documentation as may be required by the Company, unless in the opinion of
      counsel to the Company such representation, agreement or documentation is not
      necessary to comply with any such act.

    

    (c) The
      Company shall not be obligated to deliver any Company Stock until the shares
      have been listed on each securities exchange or market on which the Company
      Stock may then be listed or until there has been qualification under or
      compliance with such federal or state laws, rules or regulations as the Company
      may deem applicable. The Company shall use reasonable efforts to obtain such
      listing, qualification and compliance.

    

    11. Tax
      Withholding.
      Each
      Participant shall agree as a condition of receiving an Award payable in the
      form
      of Company Stock to pay to the Employer, or make arrangements satisfactory
      to
      the Employer regarding the payment to the Employer of, Applicable Withholding
      Taxes. Under procedures established by the Committee or its delegate, a
      Participant may elect to satisfy Applicable Withholding Taxes by (i) making
      a
      cash payment or authorizing additional withholding from cash compensation,
      (ii)
      delivering Mature Shares (valued at their Fair Market Value), or (iii) if the
      applicable Stock Option Agreement or Restricted Stock Agreement permits, having
      the Company retain that number of shares of Company Stock (valued at their
      Fair
      Market Value) that would satisfy all or a specified portion of the Applicable
      Withholding Taxes.

    

    12. Transferability
      of Awards.
      Awards
      shall not be transferable except by will or by the laws of descent and
      distribution.

    

    13. Administration
      of the Plan.

    

    (a) The
      Committee shall administer the Plan. Subject to the terms and conditions set
      forth in the Plan, the Committee shall have general authority to impose any
      term, limitation, or condition upon an Award that the Committee deems
      appropriate to achieve the objectives of the Award and of the Plan. The
      Committee may adopt rules and regulations for carrying out the Plan with respect
      to Participants and Beneficiaries. The interpretation and construction of any
      provision of the Plan by the Committee shall be final and conclusive as to
      any
      Participant or Beneficiary.

    

    (b) The
      Committee shall have the power to amend the terms and conditions of previously
      granted Awards so long as the terms as amended are consistent with the terms
      of
      the Plan and provided that the consent of the Participant is obtained with
      respect to any amendment that would be detrimental to him or her, except that
      such consent will not be required if such amendment is for the purpose of
      complying with Rule 16b-3 or any requirement of the Code or of other securities
      laws applicable to the Award.

    

    (c) The
      Committee shall have the power and complete discretion (i) to delegate to any
      individual, or to any group of individuals employed by the Company or any
      Affiliate, the authority to grant Awards under the Plan and (ii) to determine
      the terms and limitations of any delegation of authority; provided, however,
      that the Committee may not delegate power and discretion to the extent such
      action would cause noncompliance with, or the imposition of penalties, excise
      taxes, or other sanctions under, applicable corporate

    
      
        
        

      

      
        -8-

        
          

        

      

      
        
        

      

    

    law,
      Rule
      16b-3, Code Section 162(m) or 409A, or any other applicable securities or tax
      law.

    

    (d) The
      Committee shall have the power to include one or more provisions in the terms
      of
      Award grants to provide for the cancellation of an outstanding Award in the
      event the Participant violates any agreement or other obligation dealing with
      non-competition, non-solicitation or protection of the Company’s confidential
      information. 

    

    
      	 	
              14.

            	
              Change
                in Capital Structure; Change of Control.

            

    

    

    (a) Change
      in Capital Structure. In
      the
      event of a stock dividend, stock split, or combination of shares, share
      exchange, share distribution, recapitalization or merger in which the Company
      is
      the surviving corporation, a spin-off or split-off of a subsidiary or Affiliate,
      or other change in the Company’s capital stock (including, but not limited to,
      the creation or issuance to shareholders generally of rights, options, or
      warrants for the purchase of common stock or preferred stock of the Company),
      the aggregate number and kind of shares of stock or securities of the Company
      to
      be subject to the Plan and to Awards then outstanding or to be granted, the
      maximum number of shares or securities which may be delivered under the Plan
      under Sections 3, 5(b), or 8, the per share exercise price of Options, the
      terms
      of Awards, and other relevant provisions shall be proportionately and
      appropriately adjusted by the Committee in its discretion, and the determination
      of the Committee shall be binding on all persons. If the adjustment would
      produce fractional shares with respect to any unexercised Option, the Committee
      may adjust appropriately and in a nondiscriminatory manner the number of shares
      covered by the Option so as to eliminate the fractional shares.

    

    (b) Effect
      of Change in Control on Options and Stock Appreciation Rights.
Subject
      to the terms of any Employment Agreement, the Committee may provide in an Award
      agreement for, or in the event of a Change in Control may take such actions
      as
      it deems appropriate to provide for, any one or more of the
      following:

    

    (i) Accelerated
      Vesting.
      The
      Committee may provide for the acceleration of the exercisability and vesting
      in
      connection with a Change in Control of any or all outstanding Options and Stock
      Appreciation Rights and shares acquired upon the exercise thereof upon such
      conditions, including termination of the Participant’s service prior to, upon,
      or following such Change in Control, and to such extent as the Committee shall
      determine.

     

    (ii) Assumption
      or Substitution.
      In the
      event of a Change in Control, the surviving, continuing, successor, or
      purchasing entity or parent thereof, as the case may be (the “Acquiror”),
      may,
      without the consent of any Participant, either assume or continue the Company’s
      rights and obligations under any or all outstanding Options and Stock
      Appreciation Rights or substitute for any or all outstanding Options and Stock
      Appreciation Rights substantially equivalent options and stock appreciation
      rights (as the case may be) for the Acquiror’s stock. Any Options or Stock
      Appreciation Rights which are neither assumed or continued by the Acquiror
      in
      connection with the Change in Control nor exercised as of the time of
      consummation of the Change in Control shall terminate and cease to be
      outstanding effective as of the time of consummation of the Change in
      Control.

     

    (iii) Cash-Out.
      The
      Committee may, in its sole discretion and without the consent of any
      Participant, determine that, upon the occurrence of a Change in Control, each
      or
      any Option or Stock Appreciation Right outstanding immediately prior to the
      Change in Control shall be canceled in exchange for a payment with respect
      to
      each vested share (and each unvested share, if so determined by the Committee)
      of Company Stock subject to such canceled Option or Stock Appreciation Right
      in
      (A) cash, (B) stock of the Company or of a corporation or other
      business entity a party to the Change in Control, or (C) other property
      which, in any such case, shall be in an amount having a Fair Market Value equal
      to the excess of the Fair Market Value of the consideration to be paid per
      share
      of Company Stock in the Change in Control over the exercise

     

    
      
        
          
          

        

        
          -9-

          
            

          

        

        
          
          

        

      

    

    

    price
      per
      share under such Option or Stock Appreciation Right (the “Spread”).
      In the
      event such determination is made by the Committee, the Spread (reduced by
      applicable withholding taxes, if any) shall be paid to Participants in respect
      of the vested portion (and unvested portion, if so determined by the Committee)
      of their canceled Options and Stock Appreciation Rights as soon as practicable
      following the date of the Change in Control.

     

    (iv) Effect
      of Change in Control on Restricted Stock Awards.
      The
      Committee may provide for the acceleration of the vesting of the shares subject
      to the Restricted Stock Award upon such conditions, including termination of
      the
      Participant’s services to the Company prior to, upon, or following such Change
      in Control, and to such extent as the Committee shall determine.

    

    15. Effective
      Date.
      The
      effective date of the Plan is ___ ___, 2006. The Plan shall be submitted to
      the
      shareholders of the Company for approval. Until (i) the Plan has been approved
      by the Company’s shareholders, and (ii) the requirements of any applicable
      federal or state securities laws have been met, no Restricted Stock shall be
      awarded, and no Option shall be granted or exercisable, that is not contingent
      on these events.

    

    16. Termination,
      Modification.
      If not
      sooner terminated by the Board, this Plan shall terminate at the close of
      business on ___ ___, 2016. No Awards shall be made under the Plan after its
      termination. The Board may amend or terminate the Plan as it shall deem
      advisable; provided, however, that no change shall be made that increases the
      total number of shares of Company Stock reserved for issuance pursuant to Awards
      granted under the Plan (except pursuant to Section 14), or reduces the minimum
      exercise price for Options, or exchanges an Option for another Award, unless
      such change is authorized by the shareholders of the Company. Except as
      otherwise specifically provided herein, a termination or amendment of the Plan
      shall not, without the consent of the Participant, adversely affect a
      Participant’s rights under an Award previously granted to him or
      her.

    

    17. American
      Jobs Creation Act of 2004.

     

    (a) It
      is
      intended that the Plan comply in all applicable respects with Code Sections
      409A(a)(2) through (4), as it may be amended from time to time, and any rulings,
      regulations, or other guidelines promulgated under either or both statutes
      (such
      statutes, rulings, regulations and other guidelines to be referred to
      collectively herein as “Section 409A”). This Plan, and any amendments thereto,
      shall therefore be interpreted and implemented at all times so as to (i) ensure
      compliance with Section 409A and (ii) avoid any penalty or early taxation of
      any
      payment or benefit under the Plan.

    

    (b) Anything
      herein to the contrary notwithstanding, the Board shall approve and implement
      such amendments as it deems necessary or desirable to ensure compliance with
      Section 409A and to avoid any penalty or early taxation of any payment or
      benefit under this Plan; provided, however, that no change shall be made that
      increases the total number of shares of Company Stock reserved for issuance
      pursuant to Awards granted under the Plan (except pursuant to Section 14),
      or
      reduces the minimum exercise price for Options, or exchanges an Option for
      another Award, unless such change is authorized by the shareholders of the
      Company. No such amendment shall require the consent of any
      Participant.

    

    18. Interpretation
      and Venue.
      Except
      to the extent preempted by applicable federal law, the terms of this Plan shall
      be governed by the laws of the State of New York without regard to its conflict
      of laws rules.

     

    
      
        
        

      

      -10-CONVERSION AGREEMENT

      CONVERSION AGREEMENT (the "Agreement"),  dated as of September 5, 2006, by
and  among  Composite  Technology  Corporation,   a  Nevada  corporation,   with
headquarters  located  at 2026  McGaw  Avenue,  Irvine,  California  92614  (the
"Company"), and [Investor] (the "Buyer").  Capitalized terms used herein and not
otherwise  defined  herein shall have the  respective  meanings set forth in the
Purchase Agreement (as defined below).

                                    WHEREAS:

      A. On or about March 3, 2006, the Company sold to the Buyer and to certain
other buyers party to the Purchase  Agreement  (the "Other  Buyers" and together
with the Buyer, the "Buyers")  certain senior secured  convertible  notes of the
Company,  which notes (the "Notes") are  convertible  into the Company's  common
stock,  par value $0.001 per share (the "Common  Stock"),  at $1.55 per share in
accordance with the terms of the Notes,  and certain warrants to purchase Common
Stock  designated as "Series A Warrants"  and "Series B Warrants"  pursuant to a
Securities  Purchase  Agreement dated as of March 2, 2006 by the Company and the
Buyers ("Purchase Agreement").

      B. The Notes  provide  that the  conversion  price may be  decreased  upon
issuances of Common Stock and other  securities  of the Company for a price less
than $1.55 per share.

      C.  Contemporaneously  with the  execution  and  delivery of the  Purchase
Agreement,   the  parties  executed  a  Registration   Rights  Agreement,   (the
"Registration  Rights Agreement") pursuant to which the Company provided certain
registration rights to the Buyers with respect to the securities issued pursuant
to the Purchase Agreement.

      D.  Contemporaneous  with  the  execution  and  delivery  of the  Purchase
Agreement, the parties executed a Security Agreement (the "Security Agreement"),
pursuant to which the Company and each Company  Subsidiary (as defined in below)
agreed  to grant a  security  interest  in the  assets of the  Company  and such
Company  Subsidiary (as defined below), to secure the obligations of the Company
to the Buyers.

      E.  Contemporaneous  with  the  execution  and  delivery  of the  Purchase
Agreement, each of CTC Cable Corporation, a Nevada corporation, CTC Wind Systems
Corporation, a Nevada corporation, Transmission Technology Corporation, a Nevada
corporation,  and CTC Towers & Poles  Corporation,  a Nevada corporation (each a
"Company  Subsidiary"  and  collectively  the  "Company  Subsidiaries")  each  a
wholly-owned  Subsidiary (as defined in the Purchase  Agreement) of the Company,
executed a Guaranty (each a  "Guaranty"),  guaranteeing  the  obligations of the
Company to the Buyers.

      F.  Contemporaneous  with  the  execution  and  delivery  of the  Purchase
Agreement,  the parties  executed a Pledge  Agreement  (the "Pledge  Agreement")
pursuant  to which the  Company  has  agreed to pledge all of the equity of each
Company Subsidiary.

      G.  Contemporaneous  with  the  execution  and  delivery  of the  Purchase
Agreement, Benton Wilcoxon and the Buyers executed a letter agreement ("Wilcoxon
Letter  Agreement")  and Wilcoxon  and the  Collateral  Agent  executed a Pledge
Agreement  with respect to shares of Common Stock owned by Benton  Wilcoxon (the
"CEO Shares Pledge  Agreement,"  and together with the Security  Agreement,  the
Guaranties,  the  Wilcoxon  Letter  Agreement  and  the  Pledge  Agreement,  the
"Security Documents").

<PAGE>

      H. The Buyer intends to, in accordance  with the terms  specified  herein:
(a) waive all accrued interest under the Notes,  (b) waive certain  price-based,
anti-dilution  rights  under  Sections  6 and 7 of the Notes  and waive  certain
price-based,  anti-dilution  rights with  respect to some or all of the Series A
Warrants, (c) waive any and all claims against the Company under the Transaction
Documents (as defined in the Purchase  Agreement) for events or actions prior to
and including September 8, 2006, (d) release the Company's CEO, the Company, the
Company Subsidiaries and/or the applicable collateral under the CEO Share Pledge
Agreement and the Pledge  Agreement and (e) release the Company,  its CEO and/or
the  Company   Subsidiaries  under  the  Security  Agreement,   Wilcoxon  Letter
Agreement, and the Guaranty with respect to the Buyer's Notes.

      I. In exchange for such actions,  the Company intends to issue  additional
shares of Common Stock as set forth in Schedule 1 of this Agreement.

      J. The Buyer  wishes to convert some or all of the Notes held by the Buyer
into shares of Common Stock pursuant to the terms of such Note.

      NOW, THEREFORE, the Company and the Buyer hereby agree as follows:

(1) WAIVER AND TERMINATION.  Upon receipt of the securities set forth in Section
2 below, the Company and the Buyer, as applicable, hereby agree as follows:

                  (a) The Buyer waives all claims to accrued  interest under the
      Note held by the Buyer.  Effective upon conversion  and/or payment in full
      of all  obligations  under all of the Notes held by the Buyers,  the Buyer
      hereby  agrees that Section 6 and 7(a) of the Note held by the Buyer shall
      immediately  terminate.  The Buyer hereby  waives its rights under Section
      2(a) of the  Series A  Warrants  held by the  Buyer in  proportion  to the
      principal amount of Notes being converted under this Agreement compared to
      the aggregate principal amount of Notes held by the Buyer, but solely with
      respect to the transactions  contemplated by this Agreement.  For example,
      if the Buyer  holds  Series A Warrants  to  purchase  100 shares of Common
      Stock and converts 75% of the principal  amount under the Note held by the
      Buyer into Conversion  Shares,  then the Buyer will waive its rights under
      Section 2(a) of the Buyer's  Series A Warrants with respect to warrants to
      purchase 75 shares of Common Stock. Notwithstanding the foregoing, nothing
      in this Agreement  shall in any way be deemed to be an amendment or waiver
      with  respect  to Section  2(a) of the  Series A  Warrants  for any future
      transactions  and nothing in this Agreement  shall in any way be deemed to
      amend or waive any other provision of the Series A Warrants or to amend or
      waive any provisions of the Series B Warrants.

                  (b) Effective  upon  conversion  and/or payment in full of all
      obligations under all Notes, the Company and the Buyer hereby release: (i)
      the Company's CEO from his obligations  under the CEO Pledge Agreement and
      (ii) the Company from its obligations under the Pledge Agreement.

                                     - 2 -
<PAGE>

                  (c) Effective  upon  conversion  and/or payment in full of all
      obligations  under all Notes,  the Buyer shall release:  (i) the Company's
      collateral  under the Security  Agreement,  (ii) the Company  Subsidiaries
      from all obligations  under the Guaranty and (iii) the Company CEO and his
      pledged stock under the Wilcoxon Letter Agreement.

                  (d) Effective  upon  conversion  and/or payment in full of all
      obligations  under all Notes,  the Buyer and the Company,  as  applicable,
      agree  to take all  further  actions  reasonably  necessary  to cause  the
      release of any and all collateral under the Security Agreements, including
      without limitation,  (i) termination of UCC financing  statements and (ii)
      delivery of any stock certificates  representing pledged securities of the
      Company and any of its subsidiaries to the respective pledgor.

                  (e) For the avoidance of doubt, the Company hereby  represents
      and warrants to the Buyer that nothing contained herein shall amend or act
      as a waiver as to any  provisions of the  Registration  Rights  Agreement,
      except that Buyer hereby waives 75% of the Registration Delay Payments (as
      defined  in  the  Registration  Rights  Agreement)  accrued  prior  to and
      including  September  8,  2006,  and that  any  Conversion  Shares  issued
      hereunder shall continue to be subject to the registration  rights granted
      by the Company pursuant to the terms of the Registration  Rights Agreement
      and that the registration  statement previously filed by the Company, once
      such  registration  statement  is  declared  effective  by the  SEC,  will
      register such Conversion Shares.

(2) ISSUANCE OF SHARES.

                  (a) In  consideration of the waiver of the rights set forth in
      Section 1 above and the release of Company-affiliated parties' obligations
      under the Security Agreements in accordance with the provisions  specified
      above,  the  Company  shall  issue at Closing to the Buyer that  number of
      shares of Common Stock ("Waiver  Shares") set forth in Schedule 1 attached
      hereto.

                  (b) The Buyer  understands  that until such time as the resale
      of the Waiver  Shares have been  registered  under the 1933 Act, the stock
      certificates  representing Waiver Shares, except as set forth below, shall
      bear any  legend as  required  by the  "blue  sky" laws of any state and a
      restrictive   legend  in   substantially   the   following   form  (and  a
      stop-transfer   order  may  be  placed  against  transfer  of  such  stock
      certificates):

            THE SECURITIES  REPRESENTED BY THIS  CERTIFICATE  HAVE NOT
            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.

                                     - 3 -
<PAGE>

      The legend set forth above shall be removed and the Company  shall issue a
      certificate without such legend to the holder of the securities upon which
      it is stamped, if, unless otherwise required by state securities laws, (i)
      such  securities  are  registered  for resale under the 1933 Act,  (ii) in
      connection with a sale, assignment or other transfer, such holder provides
      the Company with an opinion of counsel, in a generally acceptable form, to
      the effect that such sale, assignment or transfer of the Securities may be
      made without  registration  under the applicable  requirements of the 1933
      Act, or (iii) such holder provides the Company with  reasonable  assurance
      that the Securities can be sold, assigned or transferred  pursuant to Rule
      144 or Rule 144A.

(3) CONVERSION; REPAYMENT.

                  (a) Procedure. The Buyer shall convert the principal amount of
      Notes held by the Buyer  specified  in  Schedule  1 into  shares of Common
      Stock pursuant to Section 3 of the Note, by delivering the executed notice
      of  conversion  to the Company at the Closing in the form  attached to the
      Note as Exhibit I thereto (the "Conversion Notice"). The Waiver Shares and
      the applicable Conversion Shares shall be issued to the Buyer upon receipt
      of the applicable notice of conversion from the Buyer. Upon receipt of the
      notice of  conversion,  the Company shall deliver the converted  shares of
      Common Stock and the Waiver  Shares to the Buyer at the address  specified
      in the conversion  notice.  Buyer  acknowledges that the Conversion Shares
      will bear a legend set forth in  Section  2(g) of the  Purchase  Agreement
      until such legend may be removed  under the  conditions  set forth in said
      section.

                  (b)  Repayment.  Any  portion  of the Notes that have not been
      converted  into shares of Common  Stock shall be repaid in cash as per the
      terms of the Note.

                  (c)   Closing.   The  date  and  time  of  the  closing   (the
      "Closing")of the transactions specified in Sections 1 through 3 above (the
      "Closing  Date") shall be 1:00 p.m.,  New York City Time,  on September 6,
      2006 (or such later date as is  mutually  agreed to by the Company and the
      Buyer) after  notification of  satisfaction  (or waiver) at the offices of
      Schulte Roth & Zabel LLP, 919 Third Avenue,  New York, New York 10022.  At
      Closing,  (i) the Buyer shall deliver to the Company the Conversion Notice
      electing  to  convert  the  principal  amount  of Notes  held by the Buyer
      specified  in  Schedule  1 attached  hereto,  and (ii) the  Company  shall
      simultaneously  cause to be delivered to the Buyer facsimile copies of the
      stock certificates representing the Conversion Shares and Waiver Shares.

                                     - 4 -
<PAGE>

(4)  REGISTRATION RIGHTS.

                  (a)  Piggyback  Registration.  After the date  hereof,  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,  cause in such registration to be registered under
      the  1933  Act  all  of  the  securities  issued  pursuant  to  Section  2
      ("Registrable Settlement Securities").

                  (b) Demand  Registration.  In the event that the Company  does
      not file a registration  statement registering the Registrable  Securities
      under  Section 2 within 180 days of this  Agreement,  the  Company and the
      Buyer shall promptly  execute and deliver a registration  rights agreement
      with respect to the Registrable Settlement Securities in substantially the
      same form as the Registration  Rights  Agreement,  which such registration
      rights  agreement  shall  require  the  Company  to  file  with  the SEC a
      registration  statement on Form S-1 or Form S-3 covering the resale of all
      of the Registrable  Settlement  Securities (or such other appropriate form
      if Form S-1 or Form S-3 is  unavailable  for such a  registration)  on the
      terms specified in the Registration Rights Agreement.

(5) REPRESENTATIONS, WARRANTIES AND COVENANTS.

                  (a) Buyer Bring Down. The Buyer hereby represents and warrants
      to the  Company  with  respect to itself only as set forth in Section 2 of
      the Purchase Agreement as to this Agreement as if such representations and
      warranties were made as of the date hereof and set forth in their entirety
      in this Agreement,  except with respect to the representation set forth in
      Section  2(k)  of  the  Purchase  Agreement,  the  Buyer  is  making  such
      representation  hereby  from the time the  Buyer was  approached  with the
      prospect of this Agreement and the transactions  contemplated hereby until
      the  Conversion  Agreement  8-K Filing (as defined  below) and not for any
      other time periods.  Such  representations  and warranties in the Purchase
      Agreement to the transactions thereunder and the securities issued thereby
      are hereby  deemed for purposes of this  Agreement to be references to the
      transactions  hereunder  and the  issuance  of the  Conversion  Shares and
      Registrable Settlement Securities hereby.

                  (b) Company Representations and Warranties.

                        i) Organization and  Qualification.  The Company and its
            "Subsidiaries"  (which  for  purposes  of this  Agreement  means any
            entity in which the Company,  directly or  indirectly,  owns capital
            stock or holds an equity or  similar  interest)  are  entities  duly
            organized and validly  existing in good  standing  under the laws of
            the  jurisdiction  in which they are formed,  and have the requisite
            power and  authority to own their  properties  and to carry on their
            business  as now  being  conducted.  Each  of the  Company  and  its
            Subsidiaries  is duly  qualified as a foreign  entity to do business
            and is in good standing in every jurisdiction in which its ownership
            of property or the nature of the business conducted by it makes such
            qualification necessary, except to the extent that the failure to be
            so  qualified  or be in good  standing  would  not  have a  Material
            Adverse Effect. As used in this Agreement, "Material Adverse Effect"
            means  any  material  adverse  effect on the  business,  properties,
            assets, operations,  results of operations,  condition (financial or
            otherwise) or prospects of the Company and its  Subsidiaries,  taken
            as a whole, or on the transactions contemplated hereby and the other
            Transaction  Documents or by the  agreements  and  instruments to be
            entered  into  in  connection  herewith  or  therewith,  or  on  the
            authority or ability of the Company to perform its obligations under
            the  Transaction  Documents (as defined  below).  The Company has no
            Subsidiaries except as set forth on Schedule 3(a).

                                     - 5 -
<PAGE>

                        ii) Authorization;  Enforcement;  Validity.  The Company
            has the requisite  power and authority to enter into and perform its
            obligations  under this Agreement and to issue the Conversion Shares
            and Registrable  Settlement  Securities in accordance with the terms
            hereof.  The  execution and delivery of the Agreement by the Company
            and the consummation by the Company of the transactions contemplated
            hereby,   including,   without  limitation,   the  issuance  of  the
            Conversion Shares and Registrable Settlement  Securities,  have been
            duly  authorized by the Company's  Board of Directors and no further
            filing,  consent,  or authorization is required by the Company,  its
            Board of Directors or its stockholders, except for the filing of the
            Conversion  Agreement 8-K Filing and the  registration  statement(s)
            contemplated  by Section 4 hereunder.  This  Agreement has been duly
            executed  and  delivered by the Company,  and shall  constitute  the
            legal,  valid and binding  obligations  of the Company,  enforceable
            against  the  Company in  accordance  with their  respective  terms,
            except as such  enforceability  may be limited by general principles
            of  equity or  applicable  bankruptcy,  insolvency,  reorganization,
            moratorium,  liquidation  or similar laws  relating to, or affecting
            generally,  the  enforcement  of  applicable  creditors'  rights and
            remedies.

                        iii)  Issuance  of  Securities.   The  issuance  of  the
            Conversion  Shares and  Registrable  Settlement  Securities are duly
            authorized  and are free  from all  taxes,  liens and  charges  with
            respect to the issue hereof.  Subject to the accuracy of the Buyer's
            representations  and warranties in Section 2 of this Agreement,  the
            offer and  issuance  by the  Company  of the  Conversion  Shares and
            Registrable  Settlement  Securities in conformity  with the terms of
            this Agreement  constitute  transactions is exempt from registration
            under the 1933 Act.

                        iv)  No   Conflicts.   The   execution,   delivery   and
            performance of the Agreement by the Company and the  consummation by
            the  Company of the  transactions  contemplated  hereby and  thereby
            (including,  without  limitation,  the  issuance  of the  Conversion
            Shares and Registrable Settlement Securities) will not (i) result in
            a violation of the Articles of  Incorporation  of the Company or any
            of  its  Subsidiaries  or  Bylaws  of  the  Company  or  any  of its
            Subsidiaries  or (ii) conflict  with, or constitute a default (or an
            event  which  with  notice or lapse of time or both  would  become a
            default) under, or result in termination, amendment, acceleration or
            cancellation of, any agreement, indenture or instrument to which the
            Company or any of its  Subsidiaries is a party, or (iii) result in a
            violation of any law, rule,  regulation,  order,  judgment or decree
            (including federal and state securities laws and regulations and the
            rules  and  regulations  of  the  NASD's  OTC  Bulletin  Board  (the
            "Principal  Market")  applicable  to  the  Company  or  any  of  its
            Subsidiaries or by which any property or asset of the Company or any
            of its  Subsidiaries  is bound or  affected,  except  in the case of
            clauses  (ii)  and  (iii)  for any  such  conflicts,  violations  or
            defaults  which are  reasonably  likely to have a  Material  Adverse
            Effect.

                                     - 6 -
<PAGE>

                        v)  Consents.  The Company is not required to obtain any
            consent,   authorization   or  order  of,  or  make  any  filing  or
            registration with, any court,  governmental agency or any regulatory
            or  self-regulatory  agency or any  other  Person in order for it to
            execute,  deliver  or  perform  any  of  its  obligations  under  or
            contemplated  by the Agreement,  in each case in accordance with the
            terms  hereof,   except  for  post  closing  securities  filings  or
            notifications to be made under federal or state securities laws. All
            consents,  authorizations,  orders,  filings and registrations which
            the Company is required to obtain pursuant to the preceding sentence
            have been  obtained or  effected  on or prior to the  Closing  Date,
            except  for the  filing  with  the  SEC of one or more  Registration
            Statements in accordance with the  requirements of the  Registration
            Rights  Agreement.  The Company and its  Subsidiaries are unaware of
            any facts or  circumstances  which might  prevent  the Company  from
            obtaining  or  effecting  any of the  registration,  application  or
            filings  pursuant to the preceding  sentence.  The Company is not in
            violation of the applicable  listing  requirements  of the Principal
            Market and has no knowledge of any facts which would reasonably lead
            to delisting or suspension of the Common Stock.  The issuance by the
            Company  of  the  Conversion   Shares  and  Registrable   Settlement
            Securities  shall not have the effect of delisting or suspending the
            Common Stock from the Principal  Market.  SEC  Documents;  Financial
            Statements.

                        vi) SEC Documents;  Financial Statements. During the two
            (2)  years  prior to the date  hereof,  the  Company  has  filed all
            reports,  schedules,  forms, statements and other documents required
            to  be  filed  by  it  with  the  SEC  pursuant  to  the   reporting
            requirements  of the 1934 Act (all of the  foregoing  filed prior to
            the date hereof and all  exhibits  included  therein  and  financial
            statements,  notes and schedules thereto and documents  incorporated
            by  reference  therein  being  hereinafter  referred  to as the "SEC
            Documents").  The  Company  has  delivered  to the  Buyers  or their
            respective  representatives true, correct and complete copies of the
            SEC  Documents  not  available  on the  EDGAR  system.  As of  their
            respective filing dates, the SEC Documents  complied in all material
            respects  with the  requirements  of the 1934 Act and the  rules and
            regulations of the SEC promulgated  thereunder applicable to the SEC
            Documents,  and none of the SEC  Documents,  at the time  they  were
            filed with the SEC,  contained  any untrue  statement  of a material
            fact or  omitted  to state a  material  fact  required  to be stated
            therein or necessary in order to make the statements therein, in the
            light  of  the  circumstances   under  which  they  were  made,  not
            misleading.  As of their  respective  filing  dates,  the  financial
            statements of the Company included in the SEC Documents  complied as
            to  form  in  all  material  respects  with  applicable   accounting
            requirements and the published rules and regulations of the SEC with
            respect  thereto.  Such financial  statements  have been prepared in
            accordance   with   generally   accepted   accounting    principles,
            consistently applied, during the periods involved (except (i) as may
            be otherwise  indicated in such  financial  statements  or the notes
            thereto, or (ii) in the case of unaudited interim statements, to the
            extent they may exclude  footnotes  or may be  condensed  or summary
            statements)  and  fairly  present  in  all  material   respects  the
            financial  position of the  Company as of the dates  thereof and the
            results of its  operations and cash flows for the periods then ended
            (subject,  in the case of unaudited  statements,  to normal year-end
            audit adjustments). No other information provided by or on behalf of
            the  Company  to the  Buyers  in  connection  with the  transactions
            contemplated  hereby  which is not  included  in the SEC  Documents,
            contains any untrue  statement of a material  fact or omits to state
            any material fact necessary in order to make the statements therein,
            in the light of the circumstance  under which they are or were made,
            not misleading.

                                     - 7 -
<PAGE>

                  (c) Disclosure of Transactions and Other Material Information.
      On or before 2:00 p.m.,  New York Time, on September 6, 2006,  the Company
      shall  file a  Current  Report  on Form 8-K  describing  the  terms of the
      transactions  contemplated  by this  Agreement in the form required by the
      1934 Act and attaching this Agreement (including,  without limitation, all
      schedules and exhibits to this Agreement), (including all attachments, the
      "Conversion  Agreement  8-K  Filing").  From and after  the  filing of the
      Conversion  Agreement  8-K Filing with the SEC,  the Buyer shall not be in
      possession  of any  material,  nonpublic  information  received  from  the
      Company or any of its  Subsidiaries,  or any of its  respective  officers,
      directors,  employees or agents,  that is not disclosed in the  Conversion
      Agreement  8-K Filing.  The Company shall not, and shall cause each of its
      Subsidiaries  and its and each of their  respective  officers,  directors,
      employees  and  agents,  not to,  provide  the  Buyer  with any  material,
      nonpublic  information  regarding  the Company or any of its  Subsidiaries
      from and after the filing of the Conversion  Agreement 8-K Filing with the
      SEC without the express prior written  consent of the Buyer.  In the event
      of a  breach  of  the  foregoing  covenant  by the  Company  or any of its
      Subsidiaries,  or  any of its or  their  respective  officers,  directors,
      employees and agents,  in addition to any other remedy provided  herein, a
      Buyer shall have the right to make a public  disclosure,  in the form of a
      press  release,  public  advertisement  or  otherwise,  of such  material,
      nonpublic  information  without  the prior  approval by the  Company,  its
      Subsidiaries,  or  any of its or  their  respective  officers,  directors,
      employees or agents. No Buyer shall have any liability to the Company, its
      Subsidiaries,  or  any of its or  their  respective  officers,  directors,
      employees, stockholders or agents, for any such disclosure. Subject to the
      foregoing, neither the Company, its Subsidiaries nor the Buyer shall issue
      any press  releases or any other  public  statements  with  respect to the
      transactions  contemplated  hereby;  provided,  however,  that the Company
      shall be entitled,  without the prior  approval of the Buyer,  to make any
      press release or other public disclosure with respect to such transactions
      (i) in substantial conformity with the Conversion Agreement 8-K Filing and
      contemporaneously  therewith and (ii) as is required by applicable law and
      regulations  (provided  that in the case of clause (i) the Buyer  shall be
      consulted  by the  Company in  connection  with any such press  release or
      other public disclosure prior to its release).

                                     - 8 -
<PAGE>

(6) CONDITIONS TO COMPANY'S OBLIGATIONS HEREUNDER.

            The obligations of the Company to the Buyer hereunder are subject to
the  satisfaction  of each of the  following  conditions,  provided  that  these
conditions  are for the Company's  sole benefit and may be waived by the Company
at any time in its sole  discretion  by providing  the Buyer with prior  written
notice thereof:

                  (a) The Buyer shall have executed this Agreement and delivered
      the same to the Company.

                  (b)  The  Buyer  shall  have  delivered  to  the  Company  the
      Conversion Notice.

                  (c) The  representations  and warranties of the Buyer shall be
      true  and   correct   in  all   material   respects   (except   for  those
      representations  and  warranties  that are  qualified  by  materiality  or
      Material Adverse Effect,  which shall be true and correct in all respects)
      as of the date when made and as of the Closing Date as though made at that
      time  (except  for  representations  and  warranties  that  speak  as of a
      specific date).

(7) CONDITIONS TO BUYER'S OBLIGATIONS HEREUNDER.

            The   obligations  of  the  Buyer   hereunder  are  subject  to  the
satisfaction of each of the following conditions, provided that these conditions
are for the Buyer's  sole  benefit and may be waived by the Buyer at any time in
its sole discretion by providing the Company with prior written notice thereof:

                  (a)  The  Company  shall  have  executed  this  Agreement  and
      delivered the same to the Buyer.

                  (b)  The  Company  shall  have,   contemporaneously  with  the
      Closing, delivered (or shall have its transfer agent deliver) to the Buyer
      a facsimile copy of the Waiver Shares and  Conversion  Shares that will be
      delivered to the Buyer within 48 hours after Closing.

                  (c) The  representations  and  warranties of the Company under
      this Agreement shall be true and correct in all material  respects (except
      for those representations and warranties that are qualified by materiality
      or  Material  Adverse  Effect,  which  shall  be true and  correct  in all
      respects)  as of the date when made and as of the  Closing  Date as though
      made at that time (except for representations and warranties that speak as
      of a specific  date) and the Company shall have  performed,  satisfied and
      complied in all  material  respects  with the  covenants,  agreements  and
      conditions  required  by this  Agreement  to be  performed,  satisfied  or
      complied  with by the  Company  at or  prior  to the  Closing  Date and no
      Default or Event of Default  shall have  occurred and be continuing on the
      date  hereof  either  immediately  before or after  giving  effect to this
      Agreement in accordance with its terms.

                                     - 9 -
<PAGE>

                  (d) The Common Stock (I) shall be designated  for quotation or
      listed on the Principal Market (as defined in the Purchase  Agreement) and
      (II) shall not have been suspended,  as of the Closing Date, by the SEC or
      the  Principal  Market  from  trading  on the  Principal  Market nor shall
      suspension by the SEC or the Principal Market have been threatened,  as of
      the Closing Date, either (A) in writing by the SEC or the Principal Market
      or (B) by falling below the minimum  listing  maintenance  requirements of
      the Principal Market.

(8) TERMINATION.

            In the event that the Closing  does not occur by  September 7, 2006,
due to the Company's or the Buyer's  failure to satisfy the conditions set forth
in Sections 6 and 7 hereof (and the  nonbreaching  party's failure to waive such
unsatisfied  conditions(s)),  the  nonbreaching  party  shall have the option to
terminate this  Agreement  with respect to such breaching  party at the close of
business on such date without  liability  of any party to any other party.  Upon
such termination,  the terms hereof shall be null and void and the parties shall
continue to comply with all terms and conditions of the  Transaction  Documents,
as in effect prior to the execution of this Agreement.

(9)  MISCELLANEOUS.

                  (a) Governing Law. 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.

                  (b)  Counterparts.  This  Agreement  may be executed in two or
      more identical counterparts,  all of which shall be considered one and the
      same  agreement and shall become  effective  when  counterparts  have been
      signed by each party and  delivered  to the other party;  provided  that a
      facsimile signature shall be considered due execution and shall be binding
      upon the  signatory  thereto  with the same  force  and  effect  as if the
      signature were an original, not a facsimile signature.

                  (c)  Headings.   The  headings  of  this   Agreement  are  for
      convenience  of  reference  and shall  not form  part of,  or  affect  the
      interpretation of, this Agreement.

                  (d) Severability.  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.

                  (e)  Entire  Agreement;   Amendments.   This  Agreement  shall
      supersede all other prior oral or written  agreements among the Buyer, the
      Company,  their affiliates and persons acting on their behalf with respect
      to the matters discussed herein and therein,  and this Agreement,  and the
      instruments  referenced  herein  contain the entire  understanding  of the
      parties  with  respect  to the  matters  covered  herein and  therein.  No
      provision of this  Agreement may be amended other than by an instrument in
      writing  signed by the Company and the Buyer,  and any  amendment  to this
      Agreement  made in  conformity  with the  provisions  of this Section 5(e)
      shall be binding on the Buyer and the Company.  No provision hereof may be
      waived other than by an instrument in writing  signed by the party against
      whom enforcement is sought.

                                     - 10 -
<PAGE>

                  (f)  Notices.   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 an overnight courier service,  in each
      case  properly  addressed to the party to receive the same.  The addresses
      and facsimile numbers for such communications shall be:

               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

      If to the Buyer,  to its  address  and  facsimile  number set forth on the
      Schedule of Buyers attached to the Purchase Agreement,  with copies to the
      Buyer's representatives as set forth in the Purchase Agreement, 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 an overnight  courier
      service  shall be  rebuttable  evidence  of personal  service,  receipt by
      facsimile or receipt from an overnight  courier service in accordance with
      clause (i), (ii) or (iii) above, respectively.

                  (g)  Successors and Assigns.  This Agreement  shall be binding
      upon  and  inure  to the  benefit  of the  parties  and  their  respective
      successors  and  assigns,  including  any  purchasers  of the Notes or the
      Warrants.

                  (h) No Third Party  Beneficiaries.  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.

                  (i) Further  Assurances.  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,
      including without  limitation,  delivery of any stock  certificates of any
      pledged securities to the pledgor.

                                     - 11 -
<PAGE>

                  (j)  No  Strict  Construction.   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.

                  (k)  Independent  Nature of Buyer's  Obligations  and  Rights.
      Nothing contained herein, and no action taken by the Buyer pursuant hereto
      or thereto, shall be deemed to constitute the Buyer and any Other Buyer as
      a  partnership,  an  association,  a joint  venture  or any other  kind of
      entity,  or create a  presumption  that the Buyer is in any way  acting in
      concert  or  as a  group  with  any  Other  Buyer  with  respect  to  such
      obligations.  The Buyer confirms that it has independently participated in
      the negotiation of the transaction  contemplated hereby with the advice of
      its own counsel and advisors. The Buyer shall be entitled to independently
      protect and enforce its rights, including,  without limitation, the rights
      arising out of this Agreement, and it shall not be necessary for any Other
      Buyer to be  joined  as an  additional  party in any  proceeding  for such
      purpose.

                            [Signature Page Follows]

                                     - 12 -
<PAGE>

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

                                             COMPANY:

                                             COMPOSITE TECHNOLOGY CORPORATION

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

<PAGE>

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

                                             BUYER:

                                            [INVESTOR]

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

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