Document:

AMENDMENT TO SECURITIES PURCHASE AGREEMENT

      THIS AMENDMENT, dated as of October 3, 2005 (this "Amendment") is entered
into by and among the undersigned parties to amend the Securities Purchase
Agreement (the "Securities Purchase Agreement"), dated as of September 23, 2005
by and among Composite Technology Corporation and the Buyers party thereto.
Capitalized terms used in this Amendment without definition shall have the
respective meanings given to them in the Securities Purchase Agreement.

      WHEREAS, the closing of the transactions contemplated in the Securities
Purchase Agreement is conditioned upon the Bankruptcy Court having entered an
order approving the Securities Purchase Agreement and the transactions
contemplated thereby in accordance with Sections 6(iv) and 7(xii) of the
Securities Purchase Agreement;

      WHEREAS, the Bankruptcy Court commenced a hearing on September 28, 2005 to
consider entry of an order granting approval of the Securities Purchase
Agreement and the transactions contemplated thereby and such hearing was
continued until October 11, 2005;

      WHEREAS, Section 8 of the Securities Purchase Agreement provides that in
the event the Closing has not occurred on or before September 30, 2005 (the
"Closing Deadline"), the parties have the option to terminate the Securities
Purchase Agreement;

      WHEREAS, Section 3(b) of the Form of Note attached to the Securities
Purchase Agreement as Exhibit A thereto (the "Form of Note") to be issued
pursuant to Section 1(a) of the Securities Purchase Agreement defines
"Conversion Price" as $1.60 (the "Conversion Price");

      WHEREAS, each of the undersigned wishes to amend the definition of
Conversion Price as contained in the Form of Note to an amount to be mutually
agreed upon on or before October 7, 2005, as well as other amendments to the
Form of Note;

      WHEREAS, each of the undersigned wishes to amend the Securities Purchase
Agreement to extend the Closing Deadline subject to an agreement on the
Conversion Price by all parties set forth herein; and

      WHEREAS, the Bankruptcy Court indicated in the hearing on September 28,
2005 that certain other provisions in the Securities Purchase Agreement must be
amended in order for the Bankruptcy Court to grant an order approving the
Securities Purchase Agreement and the transactions contemplated thereby and each
of the undersigned wishes to make such amendments.

      NOW THEREFORE in consideration of valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, each of the undersigned hereby
agrees as follows:

<PAGE>

      1. Extension of Closing Deadline. The Closing Deadline shall be extended
until 5pm Pacific Daylight Time on October 13, 2005; provided, however, that in
the event the parties cannot agree on a revised definition of Conversion Price,
as contained in the Form of Note, on or before 4pm Pacific Daylight Time on
October 7, 2005, the Securities Purchase Agreement shall immediately terminate
without further action by any party. In no event shall the Closing occur until
each of the undersigned agrees upon a revised definition of Conversion Price, as
contained in the Form of Note.

      2. Use of Proceeds. Section 4(d) of the Securities Purchase Agreement
shall be amended and restated in its entirety and replaced in its entirety with
the following:

      "The Company shall use the proceeds from the sale of the Securities for
working capital purposes, including payment of allowed administrative, priority
and general unsecured claims."

      3. Amended and Restated Form of Note. The Form of Note shall be amended
and restated in its entirety and replaced by Exhibit I attached hereto.

      4. Scope of Amendment. All other terms and provisions of the Securities
Purchase Agreement not expressly modified by this Amendment shall remain in full
force and effect and are hereby expressly ratified and confirmed; provided, that
representations and warranties contained in the Securities Purchase Agreement
..that relate to the "date hereof" shall continue to relate to September 23,
2005.

      5. Section Headings; Construction. The headings of sections in this
Amendment are provided for convenience only and will not affect its construction
or interpretation. All words used in this Amendment will be construed to be of
such gender or number as the circumstances require. Unless otherwise expressly
provided, the word "including" does not limit the preceding words or terms.

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

      7. Governing Law; Jurisdiction; Jury Trial. All questions concerning the
construction, validity, enforcement and interpretation of this Amendment 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 Amendment and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. EACH PARTY 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 WITH OR ARISING OUT OF
THIS AMENDMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

                            [Signature pages follow]

<PAGE>

      IN WITNESS WHEREOF, the parties have caused this Amendment to Securities
Purchase Agreement to be duly executed as of the date first written above.

                                        COMPOSITE TECHNOLOGY CORPORATION

                                        By: /s/ Benton H Wilcoxon
                                           -------------------------------------
                                                Benton H Wilcoxon
                                                Chief Executive Officer

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

                                        By:
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                                        Name:
                                        Title:

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

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

                                        By:
                                           -------------------------------------
                                        Name:
                                        Title:[FORM OF SENIOR CONVERTIBLE NOTE]

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE 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. ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS
OF THIS NOTE, INCLUDING SECTIONS 3(C)(III) AND 19(A) HEREOF. THE PRINCIPAL
AMOUNT REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE SECURITIES ISSUABLE UPON
CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF
PURSUANT TO SECTION 3(C)(III) OF THIS NOTE.

                        COMPOSITE TECHNOLOGY CORPORATION

                             SENIOR CONVERTIBLE NOTE

Issuance Date:  September __, 2005    Original Principal Amount: U.S. $_________

      FOR VALUE RECEIVED, Composite Technology Corporation, a Nevada corporation
(the "COMPANY"), hereby promises to pay to the order of [OTHER BUYERS] or
registered assigns ("HOLDER") the amount set out above as the Original Principal
Amount (as reduced pursuant to the terms hereof pursuant to redemption,
conversion or otherwise, the "PRINCIPAL") when due, whether upon the Maturity
Date (as defined below), acceleration, redemption or otherwise (in each case in
accordance with the terms hereof) and to pay interest ("INTEREST") on any
outstanding Principal at a rate of six percent (6.0%) per annum ( the "INTEREST
Rate"), from the date set out above as the Issuance Date (the "ISSUANCE DATE")
until the same becomes due and payable, whether upon an Interest Date (as
defined below), the Maturity Date, acceleration, conversion, redemption or
otherwise (in each case in accordance with the terms hereof). This Senior
Convertible Note (including all Senior Convertible Notes issued in exchange,
transfer or replacement hereof, this "NOTE") is one of an issue of Senior
Convertible Notes (collectively, the "NOTES" and such other Senior Convertible
Notes, the "OTHER NOTES") issued pursuant to the Securities Purchase Agreement
(as defined below). Certain capitalized terms are defined in Section 29.

<PAGE>

      (1) MATURITY. On the Maturity Date, the Holder shall surrender this Note
to the Company and the Company shall pay to the Holder an amount in cash
representing all outstanding Principal and accrued and unpaid Interest. The
"MATURITY DATE" shall be December __,(1) 2006, as may be extended at the option
of the Holder (i) in the event that, and for so long as, an Event of Default (as
defined in Section 4(a)) shall have occurred and be continuing or any event
shall have occurred and be continuing which with the passage of time and the
failure to cure would result in an Event of Default and (ii) through the date
that is ten (10) Business Days after the consummation of a Change of Control in
the event that a Change of Control is publicly announced or a Change of Control
Notice (as defined in Section 5) is delivered prior to the Maturity Date.

      (2) INTEREST; INTEREST RATE. Interest on this Note shall commence accruing
on the Issuance Date and shall be computed on the basis of a 365-day year and
actual days elapsed and shall be payable in arrears on the last day of each
Calendar Quarter during the period beginning on the Issuance Date and ending on,
and including, the Maturity Date (each, an "INTEREST DATE") with the first
Interest Date being December 31, 2005. Interest shall be payable on each
Interest Date, to the record holder of this Note on the applicable Interest
Date, in shares of Common Stock ("INTEREST SHARES"), or, at the option of the
Company, in cash ("CASH INTEREST") or a combination thereof, provided that the
Interest which accrued during any period may be payable as Cash Interest if, and
only if, the Company delivers written notice (each, an "INTEREST ELECTION
NOTICE") of such election to each holder of the Notes on or prior to the
twentieth (20th) Trading Day prior to the Interest Date (each, an "INTEREST
NOTICE DUE DATE"). Each Interest Election Notice must specify the amount of
Interest that shall be paid as Cash Interest, if any, and the amount of Interest
that shall be paid in Interest Shares. Interest to be paid on an Interest Date
in Interest Shares shall be paid in a number of fully paid and non-assessable
(rounded to the nearest whole share in accordance with Section 3(a)) shares of
Common Stock equal to the quotient of (a) the amount of Interest payable on such
Interest Date less any Cash Interest paid and (b) the Interest Conversion Price
in effect on the applicable Interest Date. If any Interest Shares are to be paid
on an Interest Date, then the Company shall (X) provided that the Company's
transfer agent (the "TRANSFER AGENT") is participating in, and the Company is
set up to transfer shares using, the Depository Trust Company ("DTC") Fast
Automated Securities Transfer Program, credit such aggregate number of Interest
Shares to which the Holder shall be entitled to the Holder's or its designee's
balance account with DTC through its Deposit Withdrawal Agent Commission system,
or (Y) if the foregoing shall not apply, issue and deliver on the applicable
Interest Date, to the address set forth in the register maintained by the
Company for such purpose pursuant to the Securities Purchase Agreement or to
such address as specified by the Holder in writing to the Company at least three
(3) Trading Days prior to the applicable Interest Date, a certificate,
registered in the name of the Holder or its designee, for the number of Interest
Shares to which the Holder shall be entitled. Notwithstanding the foregoing, the
Company shall not be entitled to pay Interest in Interest Shares and shall be
required to pay such Interest in cash as Cash Interest on the applicable
Interest Date if, unless consented to in writing by the Holder, during the
period commencing on the applicable Interest Notice Due Date through the
applicable Interest Date the Equity Conditions have not been satisfied. From and
after the occurrence of an Event of Default, the Interest Rate shall be
increased to fifteen percent (15%). In the event that such Event of Default is
subsequently cured, the adjustment referred to in the preceding sentence shall
cease to be effective as of the date of such cure; provided that the Interest as
calculated at such increased rate during the continuance of such Event of
Default shall continue to apply to the extent relating to the days after the
occurrence of such Event of Default through and including the date of cure of
such Event of Default.

---------------------
1     Insert date that is 1 day following the fifteen month anniversary of the
      Issuance Date. 2

                                       2
<PAGE>

      (3) CONVERSION OF NOTES. This Note shall be convertible into shares of
Common Stock of the Company, on the terms and conditions set forth in this
Section 3.

            (a) Conversion Right. Subject to the provisions of Section 3(d), at
any time or times on or after the Issuance Date, the Holder shall be entitled to
convert any portion of the outstanding and unpaid Conversion Amount (as defined
below) into fully paid and nonassessable shares of Common Stock in accordance
with Section 3(c), at the Conversion Rate (as defined below). The Company shall
not issue any fraction of a share of Common Stock upon any conversion. If the
issuance would result in the issuance of a fraction of a share of Common Stock,
the Company shall round such fraction of a share of Common Stock up to the
nearest whole share. The Company shall pay any and all taxes that may be payable
with respect to the issuance and delivery of Common Stock upon conversion of any
Conversion Amount.

            (b) Conversion Rate. The number of shares of Common Stock issuable
upon conversion of any Conversion Amount pursuant to Section 3(a) shall be
determined by dividing (x) such Conversion Amount by (y) the Conversion Price
(the "CONVERSION RATE").

                  (i) "CONVERSION AMOUNT" means the portion of the Principal to
be converted, redeemed or otherwise with respect to which this determination is
being made.

                  (ii) "CONVERSION PRICE" means, as of any Conversion Date (as
defined below) or other date of determination, $1.60, subject to adjustment as
provided herein.

            (c) Mechanics of Conversion.

                  (i) Optional Conversion. To convert any Conversion Amount into
shares of Common Stock on any date (a "CONVERSION DATE"), the Holder shall (A)
transmit by facsimile (or otherwise deliver), for receipt on or prior to 11:59
p.m., New York Time, on such date, a copy of an executed notice of conversion in
the form attached hereto as Exhibit I (the "CONVERSION NOTICE") to the Company
and (B) if required by Section 3(c)(iii), surrender this Note to a common
carrier for delivery to the Company as soon as practicable on or following such
date (or an indemnification undertaking with respect to this Note in the case of
its loss, theft or destruction). On or before the second (2nd) Business Day
following the date of receipt of a Conversion Notice, the Company shall transmit
by facsimile a confirmation of receipt of such Conversion Notice to the Holder
and the Transfer Agent. On or before the third (3rd) Business Day following the
date of receipt of a Conversion Notice (the "SHARE DELIVERY DATE"), the Company
shall (X) provided the Transfer Agent is participating in, and the Company is
set up to transfer shares using, the DTC Fast Automated Securities Transfer
Program, credit such aggregate number of shares of Common Stock to which the
Holder shall be entitled 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 deliver to the address as specified in the
Conversion Notice, a certificate, registered in the name of the Holder or its
designee, for the number of shares of Common Stock to which the Holder shall be
entitled. Any accrued and unpaid Interest as of the applicable Conversion Date
on any Conversion Amount converted hereunder shall be paid to the Holder on the
next succeeding Interest Date following such Conversion Date. If this Note is
physically surrendered for conversion as required by Section 3(c)(iii) and the
outstanding Principal of this Note is greater than the Principal portion of the
Conversion Amount being converted, then the Company shall as soon as practicable
and in no event later than five (5) Business Days after receipt of this Note and
at its own expense, issue and deliver to the holder a new Note (in accordance
with Section 19(d)) representing the outstanding Principal not converted. The
Person or Persons entitled to receive the shares of Common Stock issuable upon a
conversion of this Note shall be treated for all purposes as the record holder
or holders of such shares of Common Stock on the Conversion Date.

                                       3
<PAGE>

                  (ii) Company's Failure to Timely Convert. If within three (3)
Trading Days after the Company's receipt of the facsimile copy of a Conversion
Notice the Company shall fail (a "CONVERSION FAILURE") to issue and deliver a
certificate to the Holder or credit the Holder's balance account with DTC for
the number of shares of Common Stock to which the Holder is entitled upon such
holder's conversion of any Conversion Amount, and if on or after such Trading
Day the Holder purchases (in an open market transaction or otherwise) Common
Stock to deliver in satisfaction of a sale by the Holder of Common Stock
issuable upon such conversion 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 Common Stock) shall terminate, or (ii) promptly
honor its obligation to deliver to the Holder a certificate or certificates
representing such 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
of the Common Stock at the time of the sale (excluding brokerage commissions, if
any) giving rise to the Buy-In purchase obligation.

                  (iii) Book-Entry. Notwithstanding anything to the contrary set
forth herein, upon conversion of any portion of this Note in accordance with the
terms hereof, the Holder shall not be required to physically surrender this Note
to the Company unless (A) the full Conversion Amount represented by this Note is
being converted or (B) the Holder has provided the Company with prior written
notice (which notice may be included in a Conversion Notice) requesting physical
surrender and reissue of this Note. The Holder and the Company shall maintain
records showing the Principal converted and the dates of such conversions or
shall use such other method, reasonably satisfactory to the Holder and the
Company, so as not to require physical surrender of this Note upon conversion.

                  (iv) Pro Rata Conversion; Disputes. In the event that the
Company receives a Conversion Notice from more than one holder of Notes for the
same Conversion Date and the Company can convert some, but not all, of such
portions of the Notes submitted for conversion, the Company, subject to Section
3(d), shall convert from each holder of Notes electing to have Notes converted
on such date a pro rata amount of such holder's portion of its Notes submitted
for conversion based on the principal amount of Notes submitted for conversion
on such date by such holder relative to the aggregate principal amount of all
Notes submitted for conversion on such date. In the event of a dispute as to the
number of shares of Common Stock issuable to the Holder in connection with a
conversion of this Note, the Company shall issue to the Holder the number of
shares of Common Stock not in dispute and resolve such dispute in accordance
with Section 24.

                                       4
<PAGE>

            (d) Limitations on Conversions. The Company shall not effect any
conversion of this Note, and the Holder of this Note shall not have the right to
convert any portion of this Note pursuant to Section 3(a), to the extent that
after giving effect to such conversion, the Holder (together with the Holder's
affiliates) would beneficially own in excess of 4.99% (the "MAXIMUM PERCENTAGE")
of the number of shares of Common Stock outstanding immediately after giving
effect to such conversion. For purposes of the foregoing sentence, the number of
shares of Common Stock beneficially owned by the Holder and its affiliates shall
include the number of shares of Common Stock issuable upon conversion of this
Note with respect to which the determination of such sentence is being made, but
shall exclude the number of shares of Common Stock which would be issuable upon
(A) conversion of the remaining, nonconverted portion of this Note beneficially
owned by the Holder or any of its affiliates and (B) exercise or conversion of
the unexercised or nonconverted portion of any other securities of the Company
(including, without limitation, any Other Notes or warrants) subject to a
limitation on conversion or exercise analogous to the limitation contained
herein beneficially owned by the Holder or any of its affiliates. Except as set
forth in the preceding sentence, for purposes of this Section 3(d)(i),
beneficial ownership shall be calculated in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended. For purposes of this Section
3(d)(i), in determining the number of outstanding shares of Common Stock, the
Holder may rely on the number of outstanding shares of Common Stock as reflected
in (x) the Company's most recent Form 10-KSB, Form 10-K, Form 10-QSB, Form 10-Q
or Form 8-K, as the case may be (y) a more recent public announcement by the
Company or (z) any other notice by the Company or the 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 (2) 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 this Note, by the Holder or
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
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 Notes.

            (e) Mandatory Conversion. If at any time from and after the Issuance
Date, (i) the Weighted Average Price of the Common Stock exceeds 175% of the
Conversion Price on the Issuance Date (subject to appropriate adjustments for
stock splits, stock dividends, stock combinations and other similar transactions
after the Subscription Date) for any ten (10) consecutive Trading Days following
the Issuance Date (the "MANDATORY CONVERSION MEASURING Period") and (ii) the
Equity Conditions shall have been satisfied (or waived in writing by the Holder)
from and including the Mandatory Conversion Notice Date (as defined below)
through and including the Mandatory Conversion Date (as defined below) , the
Company shall have the right to require the Holder to convert up to all of the
Conversion Amount then remaining under this Note into fully paid, validly issued
and nonassessable shares of Common Stock in accordance with Section 3(c) hereof
at the Conversion Rate as of the Mandatory Conversion Date (as defined below) (a
"MANDATORY CONVERSION"). The Company may exercise its right to require
conversion under this Section 3(e) by delivering within not more than five (5)
Trading Days following the end of such Mandatory Conversion Measuring Period a
written notice thereof by facsimile and overnight courier to all, but not less
than all, of the holders of Notes and the Transfer Agent (the "MANDATORY
CONVERSION NOTICE" and the date all of the holders received such notice by
facsimile is referred to as the "MANDATORY CONVERSION NOTICE DATE"). The
Mandatory Conversion Notice shall be irrevocable. The Mandatory Conversion
Notice shall state (x) the Trading Day selected for the Mandatory Conversion,
which Trading Day shall be at least three (3) Trading Days but not more than
sixty (60) Trading Days following the Mandatory Conversion Notice Date (the
"MANDATORY CONVERSION Date"), (y) the aggregate Conversion Amount of this Note
and all of the Notes subject to mandatory conversion from the Holder and all of
the holders of the Notes pursuant to this Section 3(e) (and analogous provisions
under the Other Notes), and (z) the number of shares of Common Stock to be
issued to such Holder on the Mandatory Conversion Date.

                                       5
<PAGE>

                  (ii) Pro Rata Conversion Requirement. If the Company elects to
cause a conversion of any Conversion Amount of this Note pursuant to Section
3(e), then it must simultaneously take the same action in the same proportion
with respect to the Other Notes. All Conversion Amounts converted by the Holder
after the Mandatory Conversion Notice Date shall reduce the Conversion Amount of
this Note required to be converted on the Mandatory Conversion Date. If the
Company has elected a Mandatory Conversion, the mechanics of conversion set
forth in Section 3(c) shall apply, to the extent applicable, as if the Company
and the Transfer Agent had received from the Holder on the Mandatory Conversion
Date a Conversion Notice with respect to the Conversion Amount being converted
pursuant to the Mandatory Conversion.

      (4) RIGHTS UPON EVENT OF DEFAULT.

            (a) Event of Default. Notwithstanding the provisions of Section 362
of the Bankruptcy Code and without notice, application or motion to, hearing
before, or order of the Bankruptcy Court or any notice to the Company, the
occurrence of any one or more of the following events (regardless of the reason
therefor) shall constitute an "EVENT OF DEFAULT" hereunder:

                  (i) the failure of any shares of Common Stock issued or
issuable upon conversion or issued as Interest Shares to be freely transferable
and eligible for sale without restriction either (A) without the need for
registration under any applicable federal or state securities laws or (B)
pursuant to an effective registration statement after such time that the Company
is obligated pursuant to the Transaction Documents to file and obtain
effectiveness of such registration statement, which failure continues for a
period of ten (10) consecutive Trading Days or for an aggregate of thirty (30)
days in any 365-day period;

                                       6
<PAGE>

                  (ii) the suspension from trading or failure of the Common
Stock to be listed or quoted on the Principal Market or on an Eligible Market
for a period of five (5) consecutive Trading Days or for more than an aggregate
of ten (10) Trading Days in any 365-day period;

                  (iii) the Company's (A) failure to cure a Conversion Failure
by delivery of the required number of shares of Common Stock within ten (10)
Business Days after the applicable Conversion Date or (B) notice, written or
oral, to any holder of the Notes, including by way of public announcement or
through any of its agents, at any time, of its intention not to comply with a
request for conversion of any Notes into shares of Common Stock that is tendered
in accordance with the provisions of the Notes;

                  (iv) at any time following the tenth (10th) consecutive
Business Day that the Holder's Authorized Share Allocation is less than the
number of shares of Common Stock that the Holder would be entitled to receive
upon a conversion of the full Conversion Amount of this Note (without regard to
any limitations on conversion set forth in Section 3(d) or otherwise);

                  (v) the Company's failure to pay to the Holder any amount of
Principal, Interest or other amounts when and as due under this Note or any
other Transaction Document (as defined in the Securities Purchase Agreement) or
any other agreement, document, certificate or other instrument delivered in
connection with the transactions contemplated hereby and thereby to which the
Holder is a party, except, (A) in the case of a failure to pay Interest when and
as due, in which case only if such failure continues for a period of at least
three (3) Business Days and (B) in the case of a failure to pay Registration
Delay Payments or a Buy-In Price when and as due, in which case only after the
Company receives notice from the Holder or, with respect to Registration Delay
Payments, any other holder of Notes of such failure and the failure continues
for a period of at least five (5) Business Days;

                  (vi) any default (after the expiration of any applicable cure
period relating thereto) under, redemption of or acceleration prior to maturity
of any Indebtedness (as defined in Section 3(s) of the Securities Purchase
Agreement) of the Company or any of its Subsidiaries (as defined in Section 3(a)
of the Securities Purchase Agreement) in an aggregate principal amount exceeding
$200,000, other than with respect to any Other Notes and other than with respect
to existing payment defaults under a registration rights agreement to which the
Company is a party for which claims have already been asserted against the
Company in its Chapter 11 Case;

                  (vii) the Company or any of its Subsidiaries, pursuant to or
within the meaning of the Bankruptcy Code or any similar Federal, foreign or
state law for the relief of debtors (collectively, "BANKRUPTCY LAW"), (A)
commences a voluntary case, (B) consents to the entry of an order for relief
against it in an involuntary case, (C) consents to the appointment of a
receiver, trustee, assignee, liquidator or similar official (a "CUSTODIAN"), (D)
makes a general assignment for the benefit of its creditors or (E) admits in
writing that it is generally unable to pay its debts as they become due;
provided, however, that the foregoing shall not apply to the Company's Chapter
11 Case;

                                       7
<PAGE>

                  (viii) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that (A) is for relief against the Company or
any of its Subsidiaries in an involuntary case, (B) appoints a Custodian of the
Company or any of its Subsidiaries or (C) orders the liquidation of the Company
or any of its Subsidiaries; provided, however, that the foregoing shall not
apply to the Company's Chapter 11 Case;

                  (ix) a final judgment or judgments for the payment of money
aggregating in excess of $250,000 are rendered against the Company or any of its
Subsidiaries and which judgments are not, within sixty (60) days after the entry
thereof, bonded, discharged or stayed pending appeal, or are not discharged
within sixty (60) days after the expiration of such stay; provided, however,
that any judgment which is covered by insurance or an indemnity from a credit
worthy party shall not be included in calculating the $250,000 amount set forth
above so long as the Company provides the Holder a written statement from such
insurer or indemnity provider (which written statement shall be reasonably
satisfactory to the Holder) to the effect that such judgment is covered by
insurance or an indemnity and the Company will receive the proceeds of such
insurance or indemnity within thirty (30) days of the issuance of such judgment;
provided that no payments made on account of allowed claims pursuant to the
terms of the reorganization plan and confirmation order entered by the
Bankruptcy Court relating to the Company's Chapter 11 Case shall constitute an
Event of Default;

                  (x) the Company breaches any representation, warranty,
covenant or other term or condition of any Transaction Document, except, in the
case of a breach of a covenant which is curable, only if such breach continues
for a period of at least ten (10) consecutive Business Days following the
earlier of (A) the day on which the Company becomes, or should have become,
aware of such breach and (B) the day on which the Company receives written
notice of such breach from the Holder or any holder of Other Notes;

                  (xi) any breach or failure in any respect to comply with
Section 15 of this Note except, in the case of a breach which is curable and
other than with respect to Section 15(e), only if such breach continues for a
period of at least ten (10) Business Days;

                  (xii) the occurrence of any of the following in Company's
Chapter 11 Case:

                        (1) after the entry of the order approving the issuance
            of the Notes and Warrants pursuant to the terms of the Transaction
            Documents (the "APPROVAL ORDER"), the bringing of a motion or taking
            of any other action by the Company to obtain additional financing
            under Section 364(c) or (d) of the Bankruptcy Code not otherwise
            permitted pursuant to the Transaction Documents;

                        (2) the prosecution of any plan of reorganization or any
            direct or indirect amendment to such plan by the Company that does
            not provide for the issuance of the Common Stock to be delivered
            upon conversion of the Notes and exercise of the Warrants;

                        (3) the entry of an order staying, reversing or vacating
            the Transaction Documents or the Approval Order, without the written
            consent of the Required Holders;

                                       8
<PAGE>

                        (4) the entry of an order amending, supplementing,
            modifying the Transaction Documents or the Approval Order, without
            the written consent of the Required Holders or the filing of a
            motion for reconsideration by the Company with respect to the
            Approval Order;

                        (5) the statutory committee of unsecured creditors or
            any other party or entity shall prevail on a motion, pleading,
            complaint or action against any holder of Notes or otherwise prevail
            on an objection to any such holder's claims or prevail on any
            similar pleading which seeks to affect any such holder's claims;

                        (6) the appointment of an interim or permanent trustee
            in the Company's Chapter 11 Case or the appointment of a receiver or
            an examiner with expanded powers beyond those set forth under
            Sections 1106(a)(3) and (4) of the Bankruptcy Code to operate or
            manage the financial affairs, the business, or reorganization of the
            Company;

                        (7) the dismissal of the Company's Chapter 11 Case, or
            the conversion of such case from one under Chapter 11 to one under
            Chapter 7 of the Bankruptcy Code, or the Company shall file a motion
            or other pleading seeking such conversion or dismissal of its
            Chapter 11 Case under Section 1112 of the Bankruptcy Code or
            otherwise;

                        (8) the entry of an order in the Company's Chapter 11
            Case avoiding or requiring repayment of any portion of the payments
            made on account of the Principal and Interest owing under the Notes;

                        (9) the failure of the Company to perform any of its
            obligations under the Approval Order;

                        (10) the entry of an order in the Company's Chapter 11
            Case granting any other superpriority administrative claim equal or
            superior to that granted to the holders of Notes, without the
            written consent of the Required Holders; or

                        (11) the Bankruptcy Court order confirming the Company's
            plan of reorganization shall not have become a final order on or
            before November 30, 2005; provided such date shall be extended to
            the extent the delay is due to extensions granted or caused by the
            Bankruptcy Court (other than extensions requested by the Company);
            provided, further, that the parties may agree to extend the November
            30, 2005 deadline, or

                  (xiii) any Event of Default (as defined in the Other Notes)
occurs with respect to any Other Notes.

            (b) Redemption Right. Promptly after the occurrence of an Event of
Default with respect to this Note or any Other Note, the Company shall deliver
written notice thereof via facsimile and overnight courier (an "EVENT OF DEFAULT
NOTICE") to the Holder. At any time after the earlier of the Holder's receipt of
an Event of Default Notice and the Holder becoming aware of an Event of Default,
the Holder may require the Company to redeem all or any portion of this Note by
delivering written notice thereof (the "EVENT OF DEFAULT REDEMPTION NOTICE") to
the Company, which Event of Default Redemption Notice shall indicate the portion
of this Note the Holder is electing to redeem. Each portion of this Note subject
to redemption by the Company pursuant to this Section 4(b) shall be redeemed by
the Company at a price equal to the sum of (i) the amount of the accrued and
unpaid Interest on the Conversion Amount to be redeemed and (ii) the greater of
(x) the product of (1) the Conversion Amount to be redeemed and (2) the
Redemption Premium and (y) the product of (1) the Conversion Rate with respect
to such Conversion Amount in effect at such time as the Holder delivers an Event
of Default Redemption Notice and (2) the Closing Sale Price of the Common Stock
on the date immediately preceding such Event of Default (the "EVENT OF DEFAULT
REDEMPTION PRICE"); provided, however, that the Holder shall only be entitled to
receive an Event of Default Redemption Price equal to clause (y) above to the
extent that because of the Event of Default the Holder is unable to convert this
Note into Common Stock (including as a result of the Company's failure to honor
Conversion Notices delivered pursuant to Section 3(c)) or to immediately trade
shares of Common Stock pursuant to conversion of this Note. Redemptions required
by this Section 4(b) shall be made in accordance with the provisions of Section
12.

                                       9
<PAGE>

      (5) RIGHTS UPON FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL.

            (a) Assumption. 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 Note and the other Transaction
Documents in accordance with the provisions of this Section 5(a) pursuant to
written agreements in form and substance satisfactory to the Required Holders
and approved by the Required Holders prior to such Fundamental Transaction (such
satisfaction and approval not to be unreasonably withheld), including agreements
to deliver to each holder of Notes in exchange for such Notes a security of the
Successor Entity evidenced by a written instrument substantially similar in form
and substance to the Notes, including, without limitation, having a principal
amount and interest rate equal to the principal amounts and the interest rates
of the Notes held by such holder and having similar ranking to the Notes, and
satisfactory to the Required Holders and (ii) 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. 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 Note 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 Note
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
conversion or redemption of this Note at any time after the consummation of the
Fundamental Transaction, in lieu of the shares of the Company's Common Stock (or
other securities, cash, assets or other property) purchasable upon the
conversion or redemption of the Notes 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 this Note been converted immediately prior to such Fundamental
Transaction, as adjusted in accordance with the provisions of this Note. The
provisions of this Section shall apply similarly and equally to successive
Fundamental Transactions and shall be applied without regard to any limitations
on the conversion or redemption of this Note.

                                       10
<PAGE>

            (b) Redemption Right. No sooner than fifteen (15) Business Days nor
later than ten (10) Business Days prior to the consummation of a Change of
Control, but not prior to the public announcement of such Change of Control, the
Company shall deliver written notice thereof via facsimile and overnight courier
to the Holder (a "CHANGE OF CONTROL NOTICE"). At any time during the period
beginning after the Holder's receipt of a Change of Control Notice and ending on
the date of the consummation of such Change of Control (or, in the event a
Change of Control Notice is not delivered at least ten (10) days prior to a
Change of Control, at any time on or after the date which is ten (10) days prior
to a Change of Control and ending ten (10) days after the consummation of such
Change of Control), the Holder may require the Company to redeem all or any
portion of this Note by delivering written notice thereof ("CHANGE OF CONTROL
REDEMPTION NOTICE"); to the Company, which Change of Control Redemption Notice
shall indicate the Conversion Amount the Holder is electing to redeem. The
portion of this Note subject to redemption pursuant to this Section 5 shall be
redeemed by the Company at a price equal to the sum of (i) the amount of the
accrued and unpaid Interest on the Conversion Amount being redeemed and (ii)
125% of the Conversion Amount being redeemed (the "CHANGE OF CONTROL REDEMPTION
PRICE"). Redemptions required by this Section 5 shall be made in accordance with
the provisions of Section 12 and shall have priority to payments to shareholders
in connection with a Change of Control.

      (6) RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS.

            (a) Purchase Rights. 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
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 conversion of this
Note (without taking into account any limitations or restrictions on the
convertibility of this Note) 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 Common Stock are to
be determined for the grant, issue or sale of such Purchase Rights.

            (b) Other Corporate Events. 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 a
conversion of this Note, (i) in addition to the shares of Common Stock
receivable upon such conversion, such securities or other assets to which the
Holder would have been entitled with respect to such shares of Common Stock had
such shares of Common Stock been held by the Holder upon the consummation of
such Corporate Event (without taking into account any limitations or
restrictions on the convertibility of this Note) or (ii) in lieu of the shares
of Common Stock otherwise receivable upon such conversion, such securities or
other assets received by the holders of shares of Common Stock in connection
with the consummation of such Corporate Event in such amounts as the Holder
would have been entitled to receive had this Note initially been issued with
conversion rights for the form of such consideration (as opposed to shares of
Common Stock) at a conversion rate for such consideration commensurate with the
Conversion Rate. Provision made pursuant to the preceding sentence shall be in a
form and substance satisfactory to the Required Holders. The provisions of this
Section shall apply similarly and equally to successive Corporate Events and
shall be applied without regard to any limitations on the conversion or
redemption of this Note.

                                       11
<PAGE>

      (7) RIGHTS UPON ISSUANCE OF OTHER SECURITIES.

            (a) Adjustment of Conversion Price upon Issuance of Common Stock. If
and whenever on or after the Subscription Date, the Company issues or sells, or
in accordance with this Section 7(a) is deemed to have issued or sold, any
shares of Common Stock (including the issuance or sale of shares of Common Stock
owned or held by or for the account of the Company, but excluding shares of
Common Stock deemed to have been issued or sold by the Company in connection
with any Excluded Securities) for a consideration per share (the "NEW ISSUANCE
PRICE") less than a price (the "APPLICABLE PRICE") equal to the Conversion Price
in effect immediately prior to such issue or sale (the foregoing a "DILUTIVE
ISSUANCE"), then immediately after such Dilutive Issuance, the Conversion Price
then in effect shall be reduced to an amount equal to the New Issuance Price;
provided, however, that in connection with any Dilutive Issuance after the
twelve (12) month anniversary of the Issuance Date, if the Company uses all of
the proceeds from such Dilutive Issuance to redeem the entire remaining
outstanding aggregate Principal amount (plus accrued and unpaid Interest
thereon) of the Notes, then the Holder of this Note shall not receive an
adjustment to the Conversion Price as provided in this Section. For purposes of
determining the adjusted Conversion Price under this Section 7(a), the following
shall be applicable:

                  (i) Issuance of Options. If the Company in any manner grants
or sells any Options (other than any Excluded Securities) and the lowest price
per share for which one share of Common Stock is issuable upon the exercise of
any such Option or upon conversion or exchange or exercise of any Convertible
Securities issuable upon exercise of such Option is less than the Applicable
Price, then such share of Common Stock shall be deemed to be outstanding and to
have been issued and sold by the Company at the time of the granting or sale of
such Option for such price per share. For purposes of this Section 7(a)(i), the
"lowest price per share for which one share of Common Stock is issuable upon the
exercise of any such Option or upon conversion or exchange or exercise of any
Convertible Securities issuable upon exercise of such Option" shall be equal to
the sum of the lowest amounts of consideration (if any) received or receivable
by the Company with respect to any one share of Common Stock upon granting or
sale of the Option, upon exercise of the Option and upon conversion or exchange
or exercise of any Convertible Security issuable upon exercise of such Option.
No further adjustment of the Conversion Price shall be made upon the actual
issuance of such share of Common Stock or of such Convertible Securities upon
the exercise of such Options or upon the actual issuance of such Common Stock
upon conversion or exchange or exercise of such Convertible Securities.

                  (ii) Issuance of Convertible Securities. If the Company in any
manner issues or sells any Convertible Securities (other than Excluded
Securities) and the lowest price per share for which one share of Common Stock
is issuable upon such conversion or exchange or exercise thereof is less than
the Applicable Price, then such share of Common Stock shall be deemed to be
outstanding and to have been issued and sold by the Company at the time of the
issuance of sale of such Convertible Securities for such price per share. For
the purposes of this Section 7(a)(ii), the "price per share for which one share
of Common Stock is issuable upon such conversion or exchange or exercise" shall
be equal to the sum of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to any one share of Common Stock upon the
issuance or sale of the Convertible Security and upon the conversion or exchange
or exercise of such Convertible Security. No further adjustment of the
Conversion Price shall be made upon the actual issuance of such share of Common
Stock upon conversion or exchange or exercise of such Convertible Securities,
and if any such issue or sale of such Convertible Securities is made upon
exercise of any Options for which adjustment of the Conversion Price had been or
are to be made pursuant to other provisions of this Section 7(a), no further
adjustment of the Conversion Price shall be made by reason of such issue or
sale.

                                       12
<PAGE>

                  (iii) Change in Option Price or Rate of Conversion. If the
purchase price provided for in any Options (other than Excluded Securities), the
additional consideration, if any, payable upon the issue, conversion, exchange
or exercise of any Convertible Securities, or the rate at which any Convertible
Securities (other than Excluded Securities) are convertible into or exchangeable
or exercisable for Common Stock is changed, the Conversion Price in effect at
the time of such change shall be adjusted to the Conversion Price which would
have been in effect at such time had such Options or Convertible Securities
provided for such changed purchase price, additional consideration or changed
conversion rate, as the case may be, at the time initially granted, issued or
sold. For purposes of this Section 7(a)(iii), if the terms of any Option or
Convertible Security that was outstanding as of the Closing Date are changed in
the manner described in the immediately preceding sentence, then such Option or
Convertible Security and the Common Stock deemed issuable upon exercise,
conversion or exchange thereof shall be deemed to have been issued as of the
date of such change. No adjustment shall be made if such adjustment would result
in an increase of the Conversion Price then in effect.

                  (iv) Calculation of Consideration Received. In case any Option
is issued in connection with the issue or sale of other securities of the
Company, together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
will be deemed to have been issued for a consideration of $.01. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed
to be the net amount received by the Company therefor. If any Common Stock,
Options or Convertible Securities are issued or sold for a consideration other
than cash, the amount of the consideration other than cash received by the
Company will be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of consideration
received by the Company will be the Closing Sale Price of such securities on the
date of receipt. If any Common Stock, Options or Convertible Securities are
issued to the owners of the non-surviving entity in connection with any merger
in which the Company is the surviving entity, the amount of consideration
therefor will be deemed to be the fair value of such portion of the net assets
and business of the non-surviving entity as is attributable to such Common
Stock, Options or Convertible Securities, as the case may be. The fair value of
any consideration other than cash or securities will be determined jointly by
the Company and the Required Holders. If such parties are unable to reach
agreement within ten (10) days after the occurrence of an event requiring
valuation (the "VALUATION EVENT"), the fair value of such consideration will be
determined within five (5) Business Days after the tenth day following the
Valuation Event by an independent, reputable appraiser jointly selected by the
Company and the Required Holders. The determination of such appraiser shall be
deemed binding upon all parties absent manifest error and the fees and expenses
of such appraiser shall be borne by the Company.

                                       13
<PAGE>

                  (v) Record Date. If the Company takes a record of the holders
of Common Stock for the purpose of entitling them (A) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible Securities
or (B) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date will be deemed to be the date of the issue or
sale of the Common Stock deemed to have been issued or sold upon the declaration
of such dividend or the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may be.

            (b) Adjustment of Conversion Price 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 Conversion Price in effect immediately prior to such
subdivision will be proportionately reduced. 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 Conversion Price in effect immediately prior to
such combination will be proportionately increased.

            (c) Other Events. If any event occurs of the type contemplated by
the provisions of this Section 7 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
Conversion Price so as to protect the rights of the Holder under this Note;
provided that no such adjustment will increase the Conversion Price as otherwise
determined pursuant to this Section 7.

      (8) COMPANY'S RIGHT OF OPTIONAL REDEMPTION.

            (a) Optional Redemption. At any time from and after the Issuance
Date and prior to the Maturity Date, so long as the Equity Conditions shall have
been satisfied or waived in writing by the Holder from and including the
Optional Redemption Notice Date (as defined below) through and including the
Optional Redemption Date (as defined below), the Company shall have the right to
redeem all or any portion of the Conversion Amount then remaining under this
Note as designated in the Optional Redemption Notice, as of the Optional
Redemption Date (an "OPTIONAL REDEMPTION"). The portion of this Note subject to
redemption pursuant to this Section 8 shall be redeemed by the Company in cash
at a price equal to 110% of the Conversion Amount being redeemed plus any
accrued and unpaid Interest thereon (the "OPTIONAL REDEMPTION PRICE" and,
collectively, with the Event of Default Redemption Price and the Change of
Control Redemption Price, the "REDEMPTION PRICES" and, each, a "REDEMPTION
PRICE") on the Optional Redemption Date (as defined below). The Company may
exercise its right to require redemption under this Section 8(a) by delivering a
written notice thereof by facsimile and overnight courier to all, but not less
than all, of the holders of Notes and the Transfer Agent (the "OPTIONAL
REDEMPTION NOTICE" and the date all of the holders received such notice is
referred to as the "OPTIONAL REDEMPTION NOTICE DATE"). The Company may deliver
up to two (2) Optional Redemption Notices hereunder and each such Optional
Redemption Notice shall be irrevocable. The Optional Redemption Notice shall
state (i) the date on which the Optional Redemption shall occur (the "OPTIONAL
REDEMPTION DATE") which date shall be not less than thirty (30) days nor more
than sixty (60) days after the Optional Redemption Notice Date, and (ii) the
aggregate Conversion Amount of the Notes which the Company has elected to be
subject to Optional Redemption from all of the holders of the Notes pursuant to
this Section 8 (and analogous provisions under the Other Notes) on the Optional
Redemption Date. In order to elect an Optional Redemption, the Company shall be
required to deposit, on the Optional Redemption Notice Date, an amount equal to
the aggregate Optional Redemption Price to be paid on the Optional Redemption
Date (the "ESCROW FUNDS") into (A) a client trust account with the Company's
counsel with irrevocable written instructions to such counsel to remit payment
of the Escrow Funds in accordance with the terms of this Section 8 to the Holder
on the applicable Optional Redemption Date or (B) an escrow account satisfactory
to the Holder with an escrow agent satisfactory to the Holder; provided that no
part of the Escrow Funds shall come from any monies obtained by the Company from
any arrangement with a third party insurer pursuant to which such third party
insurer agrees to pay all or any portion of the aggregate Optional Redemption
Price due on the Optional Redemption Date in exchange for shares of Common Stock
of the Company. All Conversion Amounts converted by the Holder after the
Optional Redemption Notice Date (the "CONVERTED REDEMPTION AMOUNT") shall reduce
the Conversion Amount of this Note required to be redeemed on the Optional
Redemption Date. On the Optional Redemption Date, the Escrow Funds shall be paid
to the Holder; provided that the portion of the Escrow Funds equal to the
Converted Redemption Amount, if any, shall be released to the Company.
Redemptions made pursuant to this Section 8 shall be made in accordance with
Section 12.

                                       14
<PAGE>

            (b) Pro Rata Redemption Requirement. If the Company elects to cause
a Optional Redemption pursuant to Section 8(a), then it must simultaneously take
the same action with respect to the Other Notes. If the Company elects to cause
an Optional Redemption pursuant to Section 8(a) (or similar provisions under the
Other Notes) with respect to less than all of the Conversion Amounts of the
Notes then outstanding, then the Company shall require redemption of a
Conversion Amount from each of the holders of the Notes equal to the product of
(i) the aggregate Conversion Amount of Notes which the Company has elected to
cause to be redeemed pursuant to Section 8(a), multiplied by (ii) the fraction,
the numerator of which is the sum of the aggregate Original Principal Amount of
the Notes purchased by such holder and the denominator of which is the sum of
the aggregate Original Principal Amount of the Notes purchased by all holders
(such fraction with respect to each holder is referred to as its "REDEMPTION
ALLOCATION PERCENTAGE", and such amount with respect to each holder is referred
to as its "PRO RATA REDEMPTION AMOUNT"). In the event that the initial holder of
any Notes shall sell or otherwise transfer any of such holder's Notes, the
transferee shall be allocated a pro rata portion of such holder's Redemption
Allocation Percentage and Pro Rata Redemption Amount.

                                       15
<PAGE>

      (9) SUPERPRIORITY CLAIM. The Company's obligations to the Holder under
this Note (and the holders of the Other Notes) shall constitute allowed
superpriority administrative expense claims pursuant to section 364(c)(1) of the
Bankruptcy Code (the "SUPERPRIORITY CLAIMS"), having priority over all other
costs and expenses of administration of any kind, including those specified in,
or ordered pursuant to, sections 105, 326, 328, 330, 331, 363, 364, 503, 506,
507, 546, 726, 1113 or 1114 or any other provision of the Bankruptcy Code or
otherwise (whether incurred in the Company's Chapter 11 Case or any successor
case under any chapter of the Bankruptcy Code), and shall at all times be senior
to the rights of the Company or any domestic or foreign subsidiary or affiliate
of the Company, any successor trustee or estate representative, or any other
creditor or party in interest in the Chapter 11 Case or any successor case. No
cost or expense of administration under any provision of the Bankruptcy Code,
including, but not limited to, sections 105, 326, 328, 330, 331, 363, 364, 503,
506, 507, 546, 726, 1113 or 1114 or any other provision of the Bankruptcy Code
or otherwise (whether incurred in the Company's Chapter 11 Case or any successor
case under any chapter of the Bankruptcy Code), shall be senior to, equal to, or
pari passu with, the allowed Superpriority Claims granted the holders of the
Notes hereunder. The allowed superpriority claim granted the Holder and the
holder of the Other Notes hereunder shall continue in the Company's Chapter 11
Case and in any successor case under any chapter of the Bankruptcy Code, and
shall maintain their priority until all of the aggregate outstanding Principal
and unpaid and accrued Interest owing under the Notes has been indefeasibly paid
in full and the Notes have been cancelled.

      (10) 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 Note, and will at all times in good faith carry out all of the
provisions of this Note and take all action as may be required to protect the
rights of the Holder of this Note.

      (11) RESERVATION OF AUTHORIZED SHARES.

            (a) Reservation. The Company initially shall reserve out of its
authorized and unissued Common Stock a number of shares of Common Stock for each
of the Notes equal to 130% of the Conversion Rate with respect to the Conversion
Amount of each such Note as of the Issuance Date. So long as any of the Notes
are outstanding, the Company shall take all action necessary to reserve and keep
available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Notes, 130% of the number of shares
of Common Stock as shall from time to time be necessary to effect the conversion
of all of the Notes then outstanding; provided that at no time shall the number
of shares of Common Stock so reserved be less than the number of shares required
to be reserved of the previous sentence (without regard to any limitations on
conversions) (the "REQUIRED RESERVE AMOUNT"). The initial number of shares of
Common Stock reserved for conversions of the Notes and each increase in the
number of shares so reserved shall be allocated pro rata among the holders of
the Notes based on the principal amount of the Notes held by each holder at the
Closing (as defined in the Securities Purchase Agreement) or increase in the
number of reserved shares, as the case may be (the "AUTHORIZED SHARE
ALLOCATION"). In the event that a holder shall sell or otherwise transfer any of
such holder's Notes, each transferee shall be allocated a pro rata portion of
such holder's Authorized Share Allocation. Any shares of Common Stock reserved
and allocated to any Person which ceases to hold any Notes shall be allocated to
the remaining holders of Notes, pro rata based on the principal amount of the
Notes then held by such holders.

                                       16
<PAGE>

            (b) Insufficient Authorized Shares. If at any time while any of the
Notes 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 conversion of the Notes at least a number of shares of
Common Stock equal to the Required Reserve Amount (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 Notes 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 60 days after the occurrence of such Authorized Share
Failure, the Company shall obtain stockholder approval for an increase in the
number of authorized shares of Common Stock. In connection with obtaining such
approval, the Company 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.

      (12) HOLDER'S REDEMPTIONS.

            (a) Mechanics. The Company shall deliver the applicable Event of
Default Redemption Price to the Holder within five (5) Business Days after the
Company's receipt of the Holder's Event of Default Redemption Notice. If the
Holder has submitted a Change of Control Redemption Notice in accordance with
Section 5(b), the Company shall deliver the applicable Change of Control
Redemption Price to the Holder concurrently with the consummation of such Change
of Control if such notice is received prior to the consummation of such Change
of Control and within five (5) Business Days after the Company's receipt of such
notice otherwise. The Company shall deliver the Optional Redemption Price to the
Holder on the Optional Redemption Date. In the event of a redemption of less
than all of the Conversion Amount of this Note, the Company shall promptly cause
to be issued and delivered to the Holder a new Note (in accordance with Section
19(d)) representing the outstanding Principal which has not been redeemed. In
the event that the Company does not pay the Redemption Price to the Holder
within the time period required, at any time thereafter and until the Company
pays such unpaid Redemption Price in full, the Holder shall have the option, in
lieu of redemption, to require the Company to promptly return to the Holder all
or any portion of this Note representing the Conversion Amount that was
submitted for redemption and for which the applicable Redemption Price has not
been paid. Upon the Company's receipt of such notice, (x) the Redemption Notice
shall be null and void with respect to such Conversion Amount and (y) the
Company shall immediately return this Note, or issue a new Note (in accordance
with Section 19(d)) to the Holder representing such Conversion Amount.

            (b) Redemption by Other Holders. Upon the Company's receipt of
notice from any of the holders of the Other Notes for redemption or repayment as
a result of an event or occurrence substantially similar to the events or
occurrences described in Section 4(b) or Section 5(b) (each, an "OTHER
REDEMPTION NOTICE"), the Company shall, as soon as practicable, forward to the
Holder by facsimile a copy of such notice. If the Company receives a Redemption
Notice and one or more Other Redemption Notices, during the period beginning on
and including the date which is three Business Days prior to the Company's
receipt of the Holder's Redemption Notice and ending on and including the date
which is three Business Days after the Company's receipt of the Holder's
Redemption Notice and the Company is unable to redeem all principal, interest
and other amounts designated in such Redemption Notice and such Other Redemption
Notices received during such seven Business Day period, then the Company shall
redeem a pro rata amount from each holder of the Notes (including the Holder)
based on the principal amount of the Notes submitted for redemption pursuant to
such Redemption Notice and such Other Redemption Notices received by the Company
during such seven Business Day period.

                                       17
<PAGE>

      (13) RESTRICTION ON REDEMPTION AND CASH DIVIDENDS. Until all of the Notes
have been converted, redeemed or otherwise satisfied in accordance with their
terms, the Company shall not, directly or indirectly, redeem, repurchase or
declare or pay any cash dividend or distribution on its capital stock without
the prior express written consent of the Required Holders.

      (14) VOTING RIGHTS. The Holder shall have no voting rights as the holder
of this Note, except as required by law, including but not limited to the
General Corporation Law of Nevada, and as expressly provided in this Note.

      (15) COVENANTS.

            (a) Rank. All payments due under this Note (a) shall rank pari passu
with all Other Notes and (b) shall constitute Superpriority Claims senior to all
other Indebtedness of the Company and its Subsidiaries.

            (b) Incurrence of Indebtedness. So long as this Note is outstanding,
the Company shall not, and the Company shall not permit any of its Subsidiaries
to, directly or indirectly, incur or guarantee, assume or suffer to exist any
Indebtedness, other than (i) the Indebtedness evidenced by this Note and the
Other Notes and (ii) Permitted Indebtedness.

            (c) Existence of Liens. So long as this Note is outstanding, the
Company shall not, and the Company shall not permit any of its Subsidiaries to,
directly or indirectly, allow or suffer to exist any mortgage, lien, pledge,
charge, security interest or other encumbrance upon or in any property or assets
(including accounts and contract rights) owned by the Company or any of its
Subsidiaries (collectively, "LIENS") other than Permitted Liens.

            (d) Restricted Payments. The Company shall not, and the Company
shall not permit any of its Subsidiaries to, directly or indirectly, redeem,
defease, repurchase, repay or make any payments in respect of, by the payment of
cash or cash equivalents (in whole or in part, whether by way of open market
purchases, tender offers, private transactions or otherwise), all or any portion
of any Permitted Indebtedness, whether by way of payment in respect of principal
of (or premium, if any) or interest on, such Indebtedness if at the time such
payment is due or is otherwise made or, after giving effect to such payment, an
event constituting, or that with the passage of time and without being cured
would constitute, an Event of Default has occurred and is continuing.

            (e) Net Cash Balance Test.

                                       18
<PAGE>

                  (i) So long as this Note is outstanding, either (i) the
Company shall maintain, at all times, a Net Cash Balance exceeding $2,000,000
(the "NET CASH BALANCE TEST") or (ii) on any date that the Net Cash Balance Test
is not satisfied (the "NET CASH BALANCE FAILURE DATE"), the Closing Bid Price
for each Trading Day of the five (5) consecutive Trading Day period ending on
and including each Net Cash Balance Failure Date) shall be equal to at least
110% of the applicable Conversion Price (the "MARKET PRICE TEST"). If on any
date the Company fails to meet either the Net Cash Balance Test or the Market
Price Test (each such date, a "FAILURE DATE"), then the Company shall, within
forty-five (45) days of the applicable Failure Date, enter into and consummate a
financing, provided such financing is otherwise permitted under the Transaction
Documents, and, following consummation of such financing, the Company shall have
a Net Cash Balance equal to or exceeding $3,500,000.

                  (ii) The Company shall announce its operating results (the
"OPERATING RESULTS") for each Fiscal Quarter no later than the forty-fifth
(45th) day after the end of each Fiscal Quarter or, with respect to the last
Fiscal Quarter in any fiscal year, the ninetieth (90th) day after such quarter
(the "ANNOUNCEMENT DATE") and, in the event the Company shall have (A) satisfied
the Net Cash Balance Test or the Market Price Test at all times during such
Fiscal Quarter, such announcement shall include a statement to the effect that
the Company satisfied the Net Cash Balance Test or the Market Price Test at all
times throughout such Fiscal Quarter or (B) failed to satisfy the Net Cash
Balance Test or the Market Price Test on any date during such Fiscal Quarter,
such announcement shall (1) include a statement to the effect that the Company
has failed to satisfy the Net Cash Balance Test or the Market Price Test at all
times throughout such Fiscal Quarter, (2) state each Failure Date that has
occurred during such Fiscal Quarter, (3) state the amount of the Net Cash
Balance on each such Failure Date and (4) state whether the Company has complied
with its obligation to obtain financing following such Failure Date pursuant to
the terms of the Notes. On the Announcement Date, the Company shall also provide
to the holders of Notes a certification, executed on behalf of the Company by
the Chief Financial Officer of the Company, certifying that the Company (x)
satisfied the Net Cash Balance Test or the Market Price Test at all times
throughout such Fiscal Quarter or (y) failed to satisfy the Net Cash Balance
Test or the Market Price Test at all times throughout such Fiscal Quarter and
setting out the other information required to be announced by clause (B) of the
foregoing sentence.

                                       19
<PAGE>

      (16) PARTICIPATION. The Holder, as the holder of this Note, shall be
entitled to such dividends paid and distributions made to the holders of Common
Stock to the same extent as if the Holder had converted this Note into Common
Stock (without regard to any limitations on conversion herein or elsewhere) and
had held such shares of Common Stock on the record date for such dividends and
distributions. Payments under the preceding sentence shall be made concurrently
with the dividend or distribution to the holders of Common Stock

      (17) VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES. The affirmative vote at
a meeting duly called for such purpose or the written consent without a meeting
of the Required Holders shall be required for any change or amendment to this
Note or the Other Notes.

      (18) TRANSFER. This Note may be offered, sold, assigned or transferred by
the Holder without the consent of the Company, subject only to the provisions of
Section 2(f) of the Securities Purchase Agreement.

      (19) REISSUANCE OF THIS NOTE.

            (a) Transfer. If this Note is to be transferred, the Holder shall
surrender this Note to the Company, whereupon the Company will forthwith issue
and deliver upon the order of the Holder a new Note (in accordance with Section
19(d)), registered as the Holder may request, representing the outstanding
Principal being transferred by the Holder and, if less then the entire
outstanding Principal is being transferred, a new Note (in accordance with
Section 19(d)) to the Holder representing the outstanding Principal not being
transferred. The Holder and any assignee, by acceptance of this Note,
acknowledge and agree that, by reason of the provisions of Section 3(c)(iii) and
this Section 19(a), following conversion or redemption of any portion of this
Note, the outstanding Principal represented by this Note may be less than the
Principal stated on the face of this Note.

            (b) Lost, Stolen or Mutilated Note. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Note, 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 Note,
the Company shall execute and deliver to the Holder a new Note (in accordance
with Section 19(d)) representing the outstanding Principal.

            (c) Note Exchangeable for Different Denominations. This Note is
exchangeable, upon the surrender hereof by the Holder at the principal office of
the Company, for a new Note or Notes (in accordance with Section 19(d) and in
principal amounts of at least $100,000) representing in the aggregate the
outstanding Principal of this Note, and each such new Note will represent such
portion of such outstanding Principal as is designated by the Holder at the time
of such surrender.

            (d) Issuance of New Notes. Whenever the Company is required to issue
a new Note pursuant to the terms of this Note, such new Note (i) shall be of
like tenor with this Note, (ii) shall represent, as indicated on the face of
such new Note, the Principal remaining outstanding (or in the case of a new Note
being issued pursuant to Section 19(a) or Section 19(c), the Principal
designated by the Holder which, when added to the principal represented by the
other new Notes issued in connection with such issuance, does not exceed the
Principal remaining outstanding under this Note immediately prior to such
issuance of new Notes), (iii) shall have an issuance date, as indicated on the
face of such new Note, which is the same as the Issuance Date of this Note, (iv)
shall have the same rights and conditions as this Note, and (v) shall represent
accrued Interest on the Principal and Interest of this Note, from the Issuance
Date.

                                       20
<PAGE>

      (20) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND
INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative and in
addition to all other remedies available under this Note 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
Holder's right to pursue actual and consequential damages for any failure by the
Company to comply with the terms of this Note. Amounts set forth or provided for
herein with respect to payments, conversion and the like (and the computation
thereof) shall be the amounts to be received by the Holder and shall not, except
as expressly provided herein, be subject to any other obligation of the Company
(or the performance thereof). 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
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.

      (21) PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note
is placed in the hands of an attorney for collection or enforcement or is
collected or enforced through any legal proceeding or the Holder otherwise takes
action to collect amounts due under this Note or to enforce the provisions of
this Note or (b) there occurs any bankruptcy, reorganization, receivership of
the Company or other proceedings affecting Company creditors' rights and
involving a claim under this Note (other than the Company's Chapter 11 Case),
then the Company shall pay the costs incurred by the Holder for such collection,
enforcement or action or in connection with such bankruptcy, reorganization,
receivership or other proceeding, including, but not limited to, attorneys' fees
and disbursements.

      (22) CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly
drafted by the Company and all the Purchasers (as defined in the Securities
Purchase Agreement) and shall not be construed against any person as the drafter
hereof. The headings of this Note are for convenience of reference and shall not
form part of, or affect the interpretation of, this Note.

      (23) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of
the Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege.

      (24) DISPUTE RESOLUTION. In the case of a dispute as to the determination
of the Closing Bid Price, the Closing Sale Price or the Weighted Average Price
or the arithmetic calculation of the Conversion Rate or the Redemption Price,
the Company shall submit the disputed determinations or arithmetic calculations
via facsimile within two (2) Business Days of receipt of the Conversion Notice
or Redemption Notice or other event 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 within one (1) Business Day of such disputed
determination or arithmetic calculation being submitted to the Holder, then the
Company shall, within two (2) Business Days submit via facsimile (a) the
disputed determination of the Closing Bid Price, the Closing Sale Price or the
Weighted Average Price to an independent, reputable investment bank selected by
the Company and approved by the Holder or (b) the disputed arithmetic
calculation of the Conversion Rate or the Redemption Price to the Company's
independent, outside accountant. The Company, at the Company's expense, shall
cause 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 five (5) Business Days from the time such investment bank
or accountant 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.

                                       21
<PAGE>

      (25) NOTICES; PAYMENTS.

            (a) Notices. Whenever notice is required to be given under this
Note, 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 Note, 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) as soon as practicable upon any
adjustment of the Conversion Price, setting forth in reasonable detail, and
certifying, the calculation of such adjustment and (ii) at least twenty 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 Common Stock, (B) with
respect to any pro rata subscription offer to holders 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.

            (b) Payments. Whenever any payment of cash is to be made by the
Company to any Person pursuant to this Note, such payment shall be made in
lawful money of the United States of America by a check drawn on the account of
the Company and sent via overnight courier service to such Person at such
address as previously provided to the Company in writing (which address, in the
case of each of the Purchasers, shall initially be as set forth on the Schedule
of Buyers attached to the Securities Purchase Agreement); provided that the
Holder may elect to receive a payment of cash via wire transfer of immediately
available funds by providing the Company with prior written notice setting out
such request and the Holder's wire transfer instructions. Whenever any amount
expressed to be due by the terms of this Note is due on any day which is not a
Business Day, the same shall instead be due on the next succeeding day which is
a Business Day and, in the case of any Interest Date which is not the date on
which this Note is paid in full, the extension of the due date thereof shall not
be taken into account for purposes of determining the amount of Interest due on
such date.

                                       22
<PAGE>

      (26) CANCELLATION. After all Principal, accrued Interest and other amounts
at any time owed on this Note has been paid in full, this Note shall
automatically be deemed canceled, shall be surrendered to the Company for
cancellation and shall not be reissued.

      (27) WAIVER OF NOTICE. To the extent permitted by law, the Company hereby
waives demand, notice, protest and all other demands and notices in connection
with the delivery, acceptance, performance, default or enforcement of this Note
and the Securities Purchase Agreement.

      (28) GOVERNING LAW. This Note shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Note 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.

      (29) CERTAIN DEFINITIONS. For purposes of this Note, the following terms
shall have the following meanings:

            (a) "6% CONVERTIBLE DEBENTURES" means the 6% secured convertible
debentures due August 17, 2007 issued by the Company.

            (b) "APPROVED STOCK PLAN" means any stock benefit plan which has
been approved by the Board of Directors of the Company, pursuant to which the
Company's securities may be issued to any employee, officer, consultant or
director for services provided to the Company.

            (c) "BANKRUPTCY CODE" means title 11 of the United States Code, 11
U.S.C. ss.ss. 101-1330, as amended.

            (d) "BANKRUPTCY COURT" means the United States Bankruptcy Court for
the Central District of California, Santa Ana Division.

            (e) "BLOOMBERG" means Bloomberg Financial Markets.

            (f) "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.

            (g) "CALENDAR QUARTER" means each of: the period beginning on and
including January 1 and ending on and including March 31; the period beginning
on and including April 1 and ending on and including June 30; the period
beginning on and including July 1 and ending on and including September 30; and
the period beginning on and including October 1 and ending on and including
December 31.

            (h) "CHANGE OF CONTROL" means any Fundamental Transaction other than
(A) any reorganization, recapitalization or reclassification of the Common Stock
in which holders of the Company's voting power immediately prior to such
reorganization, recapitalization or reclassification continue after such
reorganization, recapitalization or reclassification to hold publicly traded
securities and, directly or indirectly, the voting power of the surviving entity
or entities necessary to elect a majority of the members of the board of
directors (or their equivalent if other than a corporation) of such entity or
entities, or (B) pursuant to a migratory merger effected solely for the purpose
of changing the jurisdiction of incorporation of the Company.

                                       23
<PAGE>

            (i) "CHAPTER 11 CASE" means the Company's case under chapter 11 of
the Bankruptcy Code, captioned In re Composite Technology Corporation, Case No.
SA 05-13107, pending in the United States Bankruptcy Court for the Central
District of California, Santa Ana Division.

            (j) "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 24. All
such determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable
calculation period.

            (k) "CLOSING DATE" shall have the meaning set forth in the
Securities Purchase Agreement, which date is the date the Company initially
issued Notes pursuant to the terms of the Securities Purchase Agreement.

      (l) "COMMON STOCK" means the shares of common stock, par value $0.001 per
share, of the Company.

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

                                       24
<PAGE>

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

            (o) "EQUITY CONDITIONS" means: (i) on each day during the period
beginning three (3) months prior to the applicable date of determination and
ending on and including the applicable date of determination (the "EQUITY
CONDITIONS MEASURING PERIOD"), all shares of Common Stock issuable upon
conversion of the Notes or issuable as payment of Principal or Interest
hereunder shall be freely transferable and eligible for sale without restriction
and without the need for registration under any applicable federal or state
securities laws including, but not limited to, section 1145 of the Bankruptcy
Code; provided, that in the event that any such shares are not freely
transferable and eligible for sale without restriction pursuant to section 1145
of the Bankruptcy Code, the Company, within five (5) Business Days of the
determination upon the effective date of the plan of reorganization with respect
to the Company's Chapter 11 Case that any such shares are not freely
transferable, shall enter into the Registration Rights Agreement (as defined in
the Securities Purchase Agreement) for the registration of any such shares, and
a Registration Statement (as defined in the Registration Rights Agreement) shall
have been filed in accordance with the Registration Rights Agreement and shall
have become effective and available for the resale of any such shares of Common
Stock in accordance with the terms of such agreement; (ii) on each day during
the Equity Conditions Measuring Period, the Common Stock is designated for
quotation on the Principal Market or an Eligible Market and shall not have been
suspended from trading on such exchange or market (other than suspensions of not
more than two (2) days and occurring prior to the applicable date of
determination due to business announcements by the Company) nor shall delisting
or suspension by such exchange or market been threatened or pending either (A)
in writing by such exchange or market or (B) by falling below the minimum
listing maintenance requirements of such exchange or market; (iii) during the
Equity Conditions Measuring Period ending on and including the date immediately
preceding the applicable date of determination, the Company shall have delivered
Conversion Shares upon conversion of the Notes and shares of Common Stock upon
exercise of the Warrants to the holders on a timely basis as set forth in
Section 2(c)(ii) hereof (and analogous provisions under the Other Notes) and
Section 2(a) of the Warrants; (iv) any applicable shares of Common Stock to be
issued in connection with the event requiring determination may be issued in
full without violating Section 3(d) hereof and the rules or regulations of the
Principal Market or any applicable Eligible Market; (v) during the Equity
Conditions Measuring Period, the Company shall not have failed to timely make
any payments within five (5) Business Days of when such payment is due pursuant
to any Transaction Document; (vi) during the Equity Conditions Measuring Period,
there shall not have occurred either (A) the public announcement of a pending,
proposed or intended Fundamental Transaction which has not been abandoned,
terminated or consummated or (B) an Event of Default or an event that with the
passage of time or giving of notice would constitute an Event of Default; (vii)
the Company shall have no knowledge of any fact that would cause (x) any
Registration Statement required pursuant to the Registration Rights Agreement
not to be effective and available for the resale of all remaining registrable
securities not otherwise freely transferable pursuant to section 1145 of the
Bankruptcy Code in accordance with the terms of the Registration Rights
Agreement or (y) any shares of Common Stock issuable upon conversion of the
Notes and shares of Common Stock issuable upon exercise of the Warrants or
issuable as payment of Principal or Interest hereunder not to be eligible for
sale without restriction pursuant to Rule 144(k), any applicable state
securities laws or section 1145 of the Bankruptcy Code; and (viii) the Company
otherwise shall have been in material compliance with and shall not have
materially breached any provision, covenant, representation or warranty of any
Transaction Document.

                                       25
<PAGE>

            (p) "EXCLUDED SECURITIES" means any Common Stock, Option or
Convertible Securities issued or issuable: (i) in connection with any Approved
Stock Plan; (ii) upon conversion of the Notes or the exercise of the Warrants;
(iii) in connection with the payment of any Interest Shares on the Notes; (iv)
pursuant to a bona fide firm commitment underwritten public offering with a
nationally recognized underwriter which generates gross proceeds to the Company
in excess of an amount equal to 300% of the aggregate principal amount
outstanding under the Notes (other than an "at-the-market offering" as defined
in Rule 415(a)(4) under the 1933 Act and "equity lines"); (v) in such amounts
and to such recipients set forth in Schedule 29(p); provided that such Schedule
29(p) is not amended, modified or changed on or after the Subscription Date; and
(vi) upon exercise of or conversion of any Options or Convertible Securities
which are outstanding on the day immediately preceding the Subscription Date
(the "EXISTING OPTIONS AND CONVERTIBLE SECURITIES"), provided that the terms of
such Existing Options and Convertible Securities are not amended, modified or
changed on or after the Subscription Date; provided, further, that any issuance
of shares of Common Stock, upon conversion or exercise of, or as payment of
principal or interest on, any such Existing Options and Convertible Securities
calculated using a variable conversion or exercise price, as applicable, that is
below the Conversion Price in effect at the time of such issuance, shall be
deemed a Dilutive Issuance with respect to such particular issuance, shall be
subject to the provisions of Section 7(a) and shall not be considered an
issuance of Excluded Securities.

            (q) "FISCAL QUARTER" means each of the fiscal quarters adopted by
the Company for financial reporting purposes that correspond to the Company's
fiscal year that ends on December 31, or such other fiscal quarter adopted by
the Company for financial reporting purposes in accordance with GAAP.

            (r) "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 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 either the outstanding shares of Common Stock or 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) or (v) reorganize, recapitalize or reclassify its
Common Stock (other than a reverse of forward stock split).

            (s) "GAAP" means United States generally accepted accounting
principles, consistently applied.

                                       26
<PAGE>

            (t) "INTEREST CONVERSION PRICE" means, with respect to any Interest
Date, that price which shall be computed as 93% of the arithmetic average of the
Weighted Average Price of the Common Shares on each of the twenty (20)
consecutive Trading Days ending on the Trading Day immediately preceding the
applicable Interest Date (each, an "INTEREST MEASURING PERIOD"). All such
determinations to be appropriately adjusted for any share split, share dividend,
share combination or other similar transaction during such period.

            (u) "NET CASH BALANCE" means, at any date, an amount equal to the
aggregate amount of cash (not including restricted cash) shown or reflected on
the Company's balance sheet as at such date.

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

            (w) "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.

            (x) "PERMITTED INDEBTEDNESS" means (i) Indebtedness incurred by the
Company that is made expressly subordinate in right of payment to the
Indebtedness evidenced by this Note, as reflected in a written agreement
acceptable to the Holder and approved by the Holder in writing, and which
Indebtedness does not provide at any time for (1) the payment, prepayment,
repayment, repurchase or defeasance, directly or indirectly, of any principal or
premium, if any, thereon until ninety-one (91) days after the Maturity Date or
later and (2) total interest and fees at a rate in excess of six percent (6.0%)
per annum (ii) Indebtedness evidenced by the 6% Convertible Debentures, (iii)
Indebtedness secured by Permitted Liens, (iv) Indebtedness to trade creditors
incurred in the ordinary course of business, and (v) extensions, refinancings
and renewals of any items of Permitted Indebtedness, provided that the principal
amount is not increased or the terms modified to impose more burdensome terms
upon the Company or its Subsidiary, as the case may be.

            (y) "PERMITTED LIENS" means (i) any Lien for taxes not yet due or
delinquent or being contested in good faith by appropriate proceedings for which
adequate reserves have been established in accordance with GAAP, (ii) any
statutory Lien arising in the ordinary course of business by operation of law
with respect to a liability that is not yet due or delinquent, (iii) any Lien
created by operation of law, such as materialmen's liens, mechanics' liens and
other similar liens, arising in the ordinary course of business with respect to
a liability that is not yet due or delinquent or that are being contested in
good faith by appropriate proceedings, (iv) Liens (A) upon or in any equipment
acquired or held by the Company or any of its Subsidiaries to secure the
purchase price of such equipment or indebtedness incurred solely for the purpose
of financing the acquisition or lease of such equipment, or (B) existing on such
equipment at the time of its acquisition, provided that the Lien is confined
solely to the property so acquired and improvements thereon, and the proceeds of
such equipment, (v) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (i) and (iv) above, provided that any extension, renewal or replacement
Lien shall be limited to the property encumbered by the existing Lien and the
principal amount of the Indebtedness being extended, renewed or refinanced does
not increase, (vi) leases or subleases and licenses and sublicenses granted to
others in the ordinary course of the Company's business, not interfering in any
material respect with the business of the Company and its Subsidiaries taken as
a whole, (vii) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payments of custom duties in connection with the
importation of goods and (viii) Liens arising from judgments, decrees or
attachments in circumstances not constituting an Event of Default under Section
4(a)(ix).

                                       27
<PAGE>

            (z) "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.

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

            (bb) "REDEMPTION PREMIUM" means (i) in the case of the Events of
Default described in Section 4(a)(i) - (vi), (x) - (xi), (xii) and (xiii), 125%
or (ii) in the case of the Events of Default described in Section 4(a)(vii) -
(viii) and (xii), 100%.

            (cc) "REQUIRED HOLDERS" means the holders of Notes representing at
least a majority of the aggregate principal amount of the Notes then
outstanding.

            (dd) "SEC" means the United States Securities and Exchange
Commission.

            (ee) "SECURITIES PURCHASE AGREEMENT" means that certain securities
purchase agreement dated the Subscription Date by and among the Company and the
initial holders of the Notes pursuant to which the Company issued the Notes.

            (ff) "SUBSCRIPTION DATE" means September 23, 2005.

            (gg) "SUCCESSOR ENTITY" means the Person, which may be the Company,
formed by, resulting from or surviving any Fundamental Transaction or the Person
with which such Fundamental Transaction shall have been made, provided that if
such Person is not a publicly traded entity whose common stock or equivalent
equity security is quoted or listed for trading on an Eligible Market, Successor
Entity shall mean such Person's Parent Entity.

            (hh) "TRADING DAY" means any day on which the Common Stock are
traded on the Principal Market, or, if the Principal Market is not the principal
trading market for the Common Stock, then on the principal securities exchange
or securities market on which the Common Stock are then traded; provided that
"Trading Day" shall not include any day on which the Common Stock are scheduled
to trade on such exchange or market for less than 4.5 hours or any day that the
Common Stock are suspended from trading during the final hour of trading on such
exchange or market (or if such exchange or market does not designate in advance
the closing time of trading on such exchange or market, then during the hour
ending at 4:00:00 p.m., New York Time).

                                       28
<PAGE>

            (ii) "TRANSACTION DOCUMENTS" has the meaning ascribed to such term
in the Securities Purchase Agreement.

            (jj) "WARRANTS" has the meaning ascribed to such term in the
Securities Purchase Agreement, and shall include all warrants issued in exchange
therefor or replacement thereof.

            (kk) "WEIGHTED AVERAGE PRICE" means, for any security as of any
date, the dollar volume-weighted average price for such security on the
Principal Market during the period beginning at 9:30:01 a.m., New York Time (or
such other time as the Principal Market publicly announces is the official open
of trading), and ending at 4:00:00 p.m., New York Time (or such other time as
the Principal Market publicly announces is the official close of trading) as
reported by Bloomberg through its "Volume at Price" functions, or, if the
foregoing does not apply, the dollar volume-weighted average price of such
security in the over-the-counter market on the electronic bulletin board for
such security during the period beginning at 9:30:01 a.m., New York Time (or
such other time as such market publicly announces is the official open of
trading), and ending at 4:00:00 p.m., New York Time (or such other time as such
market publicly announces is the official close of trading) as reported by
Bloomberg, or, if no dollar volume-weighted average price is reported for such
security by Bloomberg for such hours, the average of the highest closing bid
price and the lowest closing ask price of any of the market makers for such
security as reported in the "pink sheets" by Pink Sheets LLC (formerly the
National Quotation Bureau, Inc.). If the Weighted Average Price cannot be
calculated for a security on a particular date on any of the foregoing bases,
the Weighted Average Price 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 24. All such
determinations to be appropriately adjusted for any stock dividend, stock split,
stock combination or other similar transaction during the applicable calculation
period.

                            [Signature Page Follows]

                                       29
<PAGE>

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

                                        COMPOSITE TECHNOLOGY CORPORATION

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

<PAGE>

                                    EXHIBIT I

                        COMPOSITE TECHNOLOGY CORPORATION
                                CONVERSION NOTICE

Reference is made to the Senior Convertible Note (the "NOTE") issued to the
undersigned by Composite Technology Corporation (the "COMPANY"). In accordance
with and pursuant to the Note, the undersigned hereby elects to convert the
Conversion Amount (as defined in the Note) of the Note indicated below into
shares of Common Stock (as defined in the Note), as of the date

specified below.

         Date of Conversion:
                            ----------------------------------------------------

         Aggregate Conversion Amount to be converted:
                                                     ---------------------------

Please confirm the following information:

         Conversion Price:
                          ------------------------------------------------------

         Number of shares of Common Stock to be issued:
                                                       -------------------------

Please issue the Common Stock into which the Note is being converted in the
following name and to the following address:

         Issue to:
                  --------------------------------------------------------------

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

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

         Facsimile Number:
                          ------------------------------------------------------

         Authorization:
                       ---------------------------------------------------------

                  By:
                     -----------------------------------------------------------

                        Title:
                              --------------------------------------------------

Dated:
      --------------------------------------------------------------------------

         Account Number:
                        --------------------------------------------------------
           (if electronic book entry transfer)

         Transaction Code Number:
                                 -----------------------------------------------
           (if electronic book entry transfer)

<PAGE>

                                 ACKNOWLEDGMENT

                  The Company hereby acknowledges this Conversion 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 September __, 2005 from the Company and acknowledged and
agreed to by [INSERT NAME OF TRANSFER AGENT].

                                        COMPOSITE TECHNOLOGY CORPORATION

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

(1) Insert date that is 1 day following the fifteen month anniversary of the
Issuance Date.

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