Document:

DETTO TECHNOLOGIES, INC. (the "Company")
                  STOCK OPTION AGREEMENT FOR PURCHASE OF STOCK

         We are pleased to inform you that the Company has granted to you, as
the individual named below (the "Optionee"), this Stock Option. This Stock
Option Agreement is a contract between you and the Company. It grants to you
certain defined rights, at certain times and under certain conditions, to
purchase shares of the Company's common stock, and in exchange you accept
certain obligations and responsibilities, as described below and in the
Company's 2004 Stock Option Plan (the "Plan") and the attached Terms and
Conditions.

         FOR VALUABLE CONSIDERATION, the Company does hereby grant to the
Optionee, as of the Date of Option Grant specified below, the right and option
to purchase the number of shares of common stock of the Company specified below
(the "Option Shares") for the Exercise Price Per Share specified below, and the
right to purchase the Option Shares under this Stock Option Agreement shall
accrue and vest according to the Vesting Schedule specified below:

<TABLE>
<CAPTION>
<S>                                                         <C>
              ------------------------------------------ -------------------------------------------
              Name of Optionee:                          Larry Mana'o
              ------------------------------------------ -------------------------------------------
              Type of Option:                             Employee Incentive Stock Option
              ------------------------------------------ -------------------------------------------
              Number of Option Shares:                     150,000
              ------------------------------------------ -------------------------------------------
              Exercise Price Per Share:                     1.56
              ------------------------------------------ -------------------------------------------
              Date of Option Grant:                      8-26-04
              ------------------------------------------ -------------------------------------------
              Term of Option:                            Ten Years from Date of Option Grant
              ------------------------------------------ -------------------------------------------
              Vesting Schedule:                          Twenty-five  percent  (25%) of the  Option
                                                         Shares  shall  vest nine  months  from the
                                                         Grant  Date and  1/27th  of the  remainder
                                                         shall  vest on the  1st day of each  month
                                                         thereafter.
              ------------------------------------------ -------------------------------------------
</TABLE>

                  EXECUTED as of the Date of Option Grant.

                            Detto Technologies, Inc.

                                            By
                                              ----------------------------------
                                            Its
                                               ---------------------------------

                  By signing below and entering into this Stock Option
                  Agreement, Optionee agrees to the terms hereof and all
                  obligations and responsibilities as described in the Plan and
                  the attached Terms and Conditions.

             OPTIONEE
                                                                  , as Optionee
             -----------------------------------------------------

                  By signing below, Optionee's spouse hereby acknowledges that,
                  pursuant to the Plan the Company will have certain repurchase
                  rights with respect to any Shares issued to Optionee upon
                  exercise of this Stock Option and as a condition to such
                  exercise, the undersigned will execute such documentation as
                  may be reasonably required by the Company evidencing the
                  undersigned's acceptance of and agreement to such repurchase
                  rights.

             SPOUSE
                                                                     , as Spouse
             --------------------------------------------DETTO TECHNOLOGIES, INC. (the "Company")
                  STOCK OPTION AGREEMENT FOR PURCHASE OF STOCK

         We are pleased to inform you that the Company has granted to you, as
the individual named below (the "Optionee"), this Stock Option. This Stock
Option Agreement is a contract between you and the Company. It grants to you
certain defined rights, at certain times and under certain conditions, to
purchase shares of the Company's common stock, and in exchange you accept
certain obligations and responsibilities, as described below and in the
Company's 2004 Stock Option Plan (the "Plan") and the attached Terms and
Conditions.

         FOR VALUABLE CONSIDERATION, the Company does hereby grant to the
Optionee, as of the Date of Option Grant specified below, the right and option
to purchase the number of shares of common stock of the Company specified below
(the "Option Shares") for the Exercise Price Per Share specified below, and the
right to purchase the Option Shares under this Stock Option Agreement shall
accrue and vest according to the Vesting Schedule specified below:

<TABLE>
<CAPTION>
              ------------------------------------------ -------------------------------------------
<S>                                                         <C>
              Name of Optionee:                          William Glynn
              ------------------------------------------ -------------------------------------------
              Type of Option:                             Employee Incentive Stock Option
              ------------------------------------------ -------------------------------------------
              Number of Option Shares:                     125,000
              ------------------------------------------ -------------------------------------------
              Exercise Price Per Share:                     1.56
              ------------------------------------------ -------------------------------------------
              Date of Option Grant:                      8-26-04
              ------------------------------------------ -------------------------------------------
              Term of Option:                            Ten Years from Date of Option Grant
              ------------------------------------------ -------------------------------------------
              Vesting Schedule:                          Twenty-five  percent  (25%) of the  Option
                                                         Shares  shall  vest nine  months  from the
                                                         Grant  Date and  1/27th  of the  remainder
                                                         shall  vest on the  1st day of each  month
                                                         thereafter.
              ------------------------------------------ -------------------------------------------
</TABLE>

                  EXECUTED as of the Date of Option Grant.

                                            Detto Technologies, Inc.

                                            By
                                              ----------------------------------
                                            Its
                                               ---------------------------------

                  By signing below and entering into this Stock Option
                  Agreement, Optionee agrees to the terms hereof and all
                  obligations and responsibilities as described in the Plan and
                  the attached Terms and Conditions.

                         OPTIONEE
                                                                , as Optionee
                         ---------------------------------------

                  By signing below, Optionee's spouse hereby acknowledges that,
                  pursuant to the Plan the Company will have certain repurchase
                  rights with respect to any Shares issued to Optionee upon
                  exercise of this Stock Option and as a condition to such
                  exercise, the undersigned will execute such documentation as
                  may be reasonably required by the Company evidencing the
                  undersigned's acceptance of and agreement to such repurchase
                  rights.

                         SPOUSE
                                                                , as Spouse
                         ---------------------------------------SECURITIES PURCHASE AGREEMENT

      SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of September 23,
2005, by and among Composite Technology Corporation, a Nevada corporation,  with
headquarters  located  at 2026  McGaw  Avenue,  Irvine,  California  92614  (the
"Company"),  and the investors  listed on the Schedule of Buyers attached hereto
(individually, a "Buyer" and collectively, the "Buyers").

      WHEREAS:

      A. The Company and each Buyer is executing and  delivering  this Agreement
in reliance upon the exemptions from securities registration afforded by Section
364(f) of Title 11 of the  United  States  Code,  11 U.S.C.  ss.ss.101-1330  (as
amended, the "Bankruptcy Code"),  Section 4(2) of the Securities Act of 1933, as
amended (the "1933 Act"),  and/or Rule 506 of Regulation D  ("Regulation  D") as
promulgated by the United States Securities and Exchange  Commission (the "SEC")
under the 1933 Act.

      B. The Company has authorized a new series of senior  convertible notes of
the Company,  which notes shall be convertible  into the Company's common stock,
par value $0.001 per share (the "Common Stock"), in accordance with the terms of
the Notes.

      C. Each Buyer wishes to purchase, and the Company wishes to sell, upon the
terms and conditions  stated in this  Agreement,  (i) that  aggregate  principal
amount of senior convertible notes, in substantially the form attached hereto as
Exhibit A (the  "Notes"),  set forth opposite such Buyer's name in column (3) on
the  Schedule  of  Buyers  (which  aggregate  amount  for all  Buyers  shall  be
$6,000,000)  (as  converted,   collectively,   the  "Conversion  Shares"),  (ii)
warrants,   in  substantially  the  form  attached  hereto  as  Exhibit  B  (the
"Warrants"),  to acquire up to that number of additional  shares of Common Stock
set forth opposite such Buyer's name in column (4) of the Schedule of Buyers (as
exercised, collectively, the "Warrant Shares").

      D. The Notes bear interest that, at the option of the Company,  subject to
certain  conditions,  may be paid in  shares  of  Common  Stock  (the  "Interest
Shares").

      E. Pursuant to Section 1145 of the Bankruptcy  Code,  upon the issuance of
the Conversion Shares and Warrant Shares, in connection with the consummation of
the  Company's  Chapter  11 Plan of  Reorganization  (as  amended,  modified  or
supplemented  in accordance  with its terms,  the Bankruptcy Code or the Federal
Rules of Bankruptcy Procedure and local rules, the "Plan"),  such shares will be
freely transferable.

      F. The Notes, the Conversion Shares, the Interest Shares, the Warrants and
the Warrant Shares collectively are referred to herein as the "Securities".
<PAGE>

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

      1. PURCHASE AND SALE OF NOTES AND WARRANTS.

            (a) Purchase of Notes and Warrants.

                  (i) Subject to the  satisfaction (or waiver) of the conditions
set forth in Sections 6 and 7 below,  the  Company  shall issue and sell to each
Buyer,  and each Buyer severally,  but not jointly,  agrees to purchase from the
Company on the Closing Date (as defined below),  (x) a principal amount of Notes
as is set forth  opposite  such  Buyer's  name in column (3) on the  Schedule of
Buyers and (y) Warrants to acquire up to that number of Warrant Shares as is set
forth  opposite such Buyer's name in column (4) on the Schedule of Buyers,  (the
"Closing").

                  (ii)  Closing.  The date and time of the Closing (the "Closing
Date")  shall be 10:00  a.m.,  New York City Time,  on the date  hereof (or such
later  date as is  mutually  agreed  to by the  Company  and each  Buyer)  after
notification  of  satisfaction  (or waiver) of the conditions to the Closing set
forth in Sections 6 and 7 below at the offices of Schulte  Roth & Zabel LLP, 919
Third Avenue, New York, New York 10022.

                  (iii)  Purchase  Price.  The aggregate  purchase price for the
Notes  and the  Warrants  to be  purchased  by each  Buyer at the  Closing  (the
"Purchase  Price")  shall be the amount set forth  opposite such Buyer's name in
column (5) of the Schedule of Buyers.  Each Buyer shall pay $1.00 for each $1.00
of principal  amount of Notes and related Warrants to be purchased by such Buyer
at the Closing.

            (b) Form of Payment.  On the Closing Date,  (i) each Buyer shall pay
its  Purchase  Price to the Company for the Notes and the  Warrants to be issued
and sold to such Buyer at the Closing, by wire transfer of immediately available
funds for the amount of the  Purchase  Price in  accordance  with the  Company's
written wire  instructions  and (ii) the Company shall deliver to each Buyer (A)
the Notes (in the  principal  amounts as such Buyer  shall  request)  which such
Buyer is then  purchasing  and (B) the  Warrants  (in the  amounts as such Buyer
shall request) such Buyer is purchasing, in each case duly executed on behalf of
the Company and registered in the name of such Buyer or its designee.

      2. BUYER'S REPRESENTATIONS AND WARRANTIES.

            Each Buyer represents and warrants with respect to only itself that:

            (a) No Public Sale or Distribution.  Such Buyer is (i) acquiring the
Notes and the Warrants and (ii) upon the issuance of Interest Shares pursuant to
the terms of the Notes, the conversion of the Notes and exercise of the Warrants
(other than pursuant to a Cashless  Exercise (as defined in the Warrants))  will
acquire the Interest  Shares  issuable  pursuant to the terms of the Notes,  the
Conversion  Shares  issuable upon conversion of the Notes and the Warrant Shares
issuable upon exercise of the Warrants,  for its own account and not with a view
towards,  or for resale in  connection  with,  the public  sale or  distribution
thereof,  except  pursuant to sales  registered or exempted  under the 1933 Act;
provided,  however,  that by making the representations  herein, such Buyer does
not agree to hold any of the  Securities  for any minimum or other specific term
and reserves the right to dispose of the  Securities  at any time in  accordance
with, or pursuant to, or as permitted by, Section 1145 of the Bankruptcy Code or
a  registration  statement  or an  exemption  under the 1933 Act.  Such Buyer is
acquiring the Securities hereunder in the ordinary course of its business.  Such
Buyer does not  presently  have any  agreement  or  understanding,  directly  or
indirectly, with any Person to distribute any of the Securities.

                                       2
<PAGE>

            (b)  Accredited  Investor  Status.  Such  Buyer  is  an  "accredited
investor" as that term is defined in Rule 501(a) of  Regulation D. Such Buyer is
not  required  to be  registered  as a  broker-dealer  under  Section  15 of the
Exchange Act.  Such Buyer is not  purchasing  the  Securities as a result of any
advertisement,  article,  notice or other communication regarding the Securities
published  in any  newspaper,  magazine  or  similar  media  or  broadcast  over
television  or radio or presented  at any seminar or to such Buyer's  knowledge,
any general solicitation or advertisement.

            (c)  Reliance  on  Exemptions.   Such  Buyer  understands  that  the
Securities  are being offered and sold to it in reliance on specific  exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
such Buyer's  compliance  with,  the  representations,  warranties,  agreements,
acknowledgments  and  understandings  of such Buyer set forth herein in order to
determine the  availability of such exemptions and the eligibility of such Buyer
to acquire the Securities.

            (d)  Information.  Such Buyer and its  advisors,  if any,  have been
furnished with all materials  relating to the business,  finances and operations
of the Company and  materials  relating to the offer and sale of the  Securities
which have been  requested by such Buyer.  Such Buyer and its advisors,  if any,
have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence  investigations conducted by such Buyer or
its advisors,  if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's  representations and warranties contained
herein.  Such Buyer understands that its investment in the Securities involves a
high degree of risk. Such Buyer has sought such accounting, legal and tax advice
as it has  considered  necessary to make an informed  investment  decision  with
respect to its acquisition of the Securities.

            (e) No Governmental  Review.  Such Buyer  understands that no United
States federal or state agency or any other  government or  governmental  agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness  or  suitability  of the  investment  in the  Securities  nor have such
authorities  passed  upon  or  endorsed  the  merits  of  the  offering  of  the
Securities.

            (f)  Transfer  or Resale.  Such  Buyer  understands  that  except as
provided in the Registration  Rights Agreement (as defined below), to the extent
any of the Conversion Shares and the Warrant Shares are not freely  transferable
pursuant to Section 1145 of the Bankruptcy  Code:  (i) the  Securities  have not
been and are not being  registered  under  the 1933 Act or any state  securities
laws, and may not be offered for sale, sold,  assigned or transferred unless (A)
upon their issuance in connection with the consummation of the Plan, pursuant to
Section 1145 of the Bankruptcy  Code,  the Conversion  Shares and Warrant Shares
will become freely transferable,  (B) subsequently  registered  thereunder,  (C)
such Buyer  shall have  delivered  to the  Company an opinion of  counsel,  in a
generally  acceptable  form,  to the  effect  that such  Securities  to be sold,

                                       3
<PAGE>

assigned or  transferred  may be sold,  assigned or  transferred  pursuant to an
exemption  from such  registration,  or (C) such Buyer provides the Company with
reasonable  assurance that such Securities can be sold,  assigned or transferred
pursuant to Rule 144 or Rule 144A promulgated under the 1933 Act, as amended (or
a successor  rule  thereto)  (collectively,  "Rule  144");  (ii) any sale of the
Securities  made in reliance on Rule 144 may be made only in accordance with the
terms of Rule 144 and further, if Rule 144 is not applicable,  any resale of the
Securities under circumstances in which the seller (or the Person (as defined in
Section 3(s)) through whom the sale is made) may be deemed to be an  underwriter
(as that term is defined in the 1933 Act) may require compliance with some other
exemption under the 1933 Act or the rules and regulations of the SEC thereunder;
and (iii)  neither the Company nor any other Person is under any  obligation  to
register the Securities  under the 1933 Act or any state  securities  laws or to
comply with the terms and conditions of any exemption thereunder.

            (g) Legends.  Such Buyer  understands that the certificates or other
instruments  representing the Notes and the Warrants and, until such time as the
resale of the Interest  Shares,  Conversion  Shares and the Warrant  Shares have
been registered  under the 1933 Act as contemplated by the  Registration  Rights
Agreement, the stock certificates  representing the Interest Shares,  Conversion
Shares and the Warrant Shares,  except as set forth below, shall bear any legend
as  required  by the "blue  sky" laws of any state and a  restrictive  legend in
substantially  the  following  form  (and a  stop-transfer  order  may be placed
against transfer of such stock certificates):

            [NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
            CERTIFICATE  NOR THE  SECURITIES  INTO WHICH  THESE  SECURITIES  ARE
            [CONVERTIBLE] [EXERCISABLE] HAVE BEEN][THE SECURITIES REPRESENTED BY
            THIS  CERTIFICATE HAVE NOT BEEN] REGISTERED UNDER THE SECURITIES ACT
            OF 1933,  AS AMENDED,  OR  APPLICABLE  STATE  SECURITIES  LAWS.  THE
            SECURITIES  MAY  NOT BE  OFFERED  FOR  SALE,  SOLD,  TRANSFERRED  OR
            ASSIGNED (I) UNLESS  ISSUED  PURSUANT TO SECTION 1145 OF TITLE 11 OF
            THE UNITED STATES CODE, U.S.C.  ss.ss.101-1330,  AS AMENDED, (II) 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 (III)  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.

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

                                       4
<PAGE>

the Company with reasonable  assurance that the Securities can be sold, assigned
or transferred pursuant to Rule 144 or Rule 144A. Notwithstanding the foregoing,
if any  Securities are issued  pursuant to Section 1145 of the Bankruptcy  Code,
such  Securities  shall  not bear  the  foregoing  legend,  and if such a legend
appears on any such  Securities,  such legend  shall  promptly be removed by the
Company.

            (h)  Validity;  Enforcement.  This  Agreement  and the  Registration
Rights Agreement have been duly and validly  authorized,  executed and delivered
on  behalf of such  Buyer and shall  constitute  the  legal,  valid and  binding
obligations  of such Buyer  enforceable  against such Buyer in  accordance  with
their respective terms,  except as such enforceability may be limited by general
principles of equity or to applicable  bankruptcy,  insolvency,  reorganization,
moratorium,  liquidation  and other  similar  laws  relating  to,  or  affecting
generally, the enforcement of applicable creditors' rights and remedies.

            (i) No Conflicts.  The execution,  delivery and  performance by such
Buyer of this Agreement and the Registration Rights Agreement, if applicable, to
which  such  Buyer  is a  party  and  the  consummation  by  such  Buyer  of the
transactions  contemplated hereby and thereby will not (i) result in a violation
of the  organizational  documents  of such  Buyer  or  (ii)  conflict  with,  or
constitute  a default  (or an event  which with  notice or lapse of time or both
would  become a default)  under,  or give to others  any rights of  termination,
amendment,   acceleration  or  cancellation  of,  any  agreement,  indenture  or
instrument to which such Buyer is a party, or (iii) result in a violation of any
law, rule,  regulation,  order,  judgment or decree (including federal and state
securities  laws)  applicable to such Buyer,  except in the case of clauses (ii)
and (iii) above, for such conflicts,  defaults, rights or violations which would
not, individually or in the aggregate, reasonably be expected to have a material
adverse  effect  on the  ability  of  such  Buyer  to  perform  its  obligations
hereunder.

            (j)  Residency.  Such  Buyer  is a  resident  of  that  jurisdiction
specified below its address on the Schedule of Buyers.

      t 12 (k) Prohibited  Transactions.  During the last thirty (30) days prior
to the date  hereof,  neither  such Buyer nor any  Affiliate  of such Buyer has,
directly or indirectly,  effected or agreed to effect any short sale, whether or
not against the box,  established any "put  equivalent  position" (as defined in
Rule 16a-1(h) under the Exchange Act) with respect to the Common Stock,  granted
any other right  (including,  without  limitation,  any put or call option) with
respect  to the Common  Stock or with  respect to any  security  that  includes,
relates to or derived any significant part of its value from the Common Stock or
otherwise  sought to hedge its position in the Securities (but not including any
actions to secure  available  shares to borrow in order to effect short sales or
similar transactions in the future) (each, a "Prohibited Transaction"). Prior to
the earliest to occur of (i) the  termination of this Agreement or (ii) the date
of the 8-K Filing as  described  in Section 7, such Buyer  shall not,  and shall
cause its  Affiliates not to,  engage,  directly or indirectly,  in a Prohibited
Transaction.  Such Buyer acknowledges that the  representations,  warranties and
covenants  contained  in this Section 2(k) are being made for the benefit of the
Buyers as well as the Company.

                                       5
<PAGE>

      3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

      t 12 The Company represents and warrants to each of the Buyers that:

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

            (b) Authorization; Enforcement; Validity. Subject only to Bankruptcy
Court (as defined  below)  approval,  the Company  has the  requisite  power and
authority to enter into and perform its obligations  under this  Agreement,  the
Notes, the Registration Rights Agreement,  if applicable,  Irrevocable  Transfer
Agent  Instructions (as defined in Section 5(b)), the Warrants,  and each of the
other  agreements  entered  into by the parties  hereto in  connection  with the
transactions  contemplated  by this Agreement  (collectively,  the  "Transaction
Documents")  and to issue the Securities in accordance with the terms hereof and
thereof. The execution and delivery of the Transaction  Documents by the Company
and the consummation by the Company of the transactions  contemplated hereby and
thereby,  including,  without  limitation,  the  issuance  of the  Notes and the
Warrants, the reservation for issuance and the issuance of the Conversion Shares
issuable  upon  conversion  of the Notes,  the  reservation  and issuance of the
Warrant Shares issuable upon exercise of the Warrants, have been duly authorized
by  the  Company's  Board  of  Directors  and no  further  filing,  consent,  or
authorization  is  required  by the  Company,  its  Board  of  Directors  or its
stockholders,  except  for  post-closing  Securities  filings  or  notifications
required to be made under federal or state  securities  laws. This Agreement and
the other  Transaction  Documents of even date  herewith have been duly executed
and  delivered  by the Company,  and,  upon  Bankruptcy  Court  approval,  shall
constitute the legal, valid and binding obligations of the Company,  enforceable
against the Company in accordance with their  respective  terms,  except as such
enforceability  may be  limited by general  principles  of equity or  applicable
bankruptcy, insolvency, reorganization,  moratorium, liquidation or similar laws
relating to, or affecting  generally,  the enforcement of applicable  creditors'
rights and remedies.

            (c)  Issuance  of  Securities.  The  issuance  of the  Notes and the
Warrants are duly authorized and are free from all taxes, liens and charges with
respect to the issue  thereof.  As of the Closing,  a number of shares of Common

                                       6
<PAGE>

Stock shall have been duly  authorized  and reserved  for issuance  which equals
130% of the maximum  number of shares Common Stock issuable upon the issuance of
Interest  Shares  pursuant to the terms of the Notes (without taking into effect
any limitations on the issuance of Interest Shares set forth in the Notes), upon
conversion  of the  Notes  (assuming  for  purposes  hereof,  that the Notes are
convertible at the initial  Conversion Price and without taking into account any
limitations  on the  conversion  of the Notes set forth in the  Notes)  and upon
exercise of the Warrants  (without taking into account of any limitations on the
exercise of the Warrants set forth in the Warrants). Upon issuance or conversion
in accordance with the Notes or exercise in accordance with the Warrants, as the
case may be, and payment of the consideration  set forth in this Agreement,  the
Notes and the  Warrants,  the Interest  Shares,  the  Conversion  Shares and the
Warrant  Shares,   respectively,   will  be  validly  issued,   fully  paid  and
nonassessable and free from all preemptive or similar rights,  taxes,  liens and
charges with respect to the issue  thereof,  with the holders being  entitled to
all rights accorded to a holder of Common Stock.  Subject to the accuracy of the
Buyer's representations and warranties in Section 2 of this Agreement, the offer
and issuance by the Company of the  Securities in  conformity  with the terms of
this Agreement  constitute  transactions is exempt from  registration  under the
1933 Act.

            (d) No Conflicts.  The  execution,  delivery and  performance of the
Transaction  Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation, the
issuance  of the  Notes and the  Warrants,  and  reservation  for  issuance  and
issuance of the Interest Shares,  Conversion Shares and the Warrant Shares) will
not (i) result in a violation  of the Articles of  Incorporation  (as defined in
Section 3(r)) of the Company or any of its Subsidiaries or Bylaws (as defined in
Section 3(r)) of the Company or any of its  Subsidiaries  or (ii) conflict with,
or  constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or result in termination, amendment, acceleration
or cancellation of, any agreement,  indenture or instrument to which the Company
or any of its  Subsidiaries  is a party,  or (iii)  result in a violation of any
law, rule,  regulation,  order,  judgment or decree (including federal and state
securities  laws  and  regulations  and the  rules  and  regulations  of the OTC
Bulletin Board (the "Principal Market")) applicable to the Company or any of its
Subsidiaries  or by which any  property  or asset of the  Company  or any of its
Subsidiaries is bound or affected,  except in the case of clauses (ii) and (iii)
for any such  conflicts,  violations or defaults which are reasonably  likely to
have a Material Adverse Effect.

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

                                       7
<PAGE>

            (f)  Acknowledgment  Regarding  Buyer's Purchase of Securities.  The
Company acknowledges and agrees that each Buyer is acting solely in the capacity
of arm's length  purchaser  with respect to the  Transaction  Documents  and the
transactions contemplated hereby and thereby and that no Buyer is (i) an officer
or director of the Company,  (ii) an  "affiliate"  of the Company (as defined in
Rule 144) or (iii) to the knowledge of the Company, a "beneficial owner" of more
than 10% of the shares of Common Stock (as defined for purposes of Rule 13d-3 of
the Securities  Exchange Act of 1934, as amended (the "1934 Act")).  The Company
further acknowledges that no Buyer is acting as a financial advisor or fiduciary
of the Company  (or in any similar  capacity)  with  respect to the  Transaction
Documents and the transactions  contemplated hereby and thereby,  and any advice
given by a Buyer or any of its  representatives or agents in connection with the
Transaction  Documents and the transactions  contemplated  hereby and thereby is
merely  incidental  to such  Buyer's  purchase  of the  Securities.  The Company
further  represents to each Buyer that the Company's  decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives.

      t 12 (g) No General  Solicitation;  Placement  Agent's  Fees.  Neither the
Company,  nor any of its  affiliates,  nor any  Person  acting  on its or  their
behalf, has engaged in any form of general  solicitation or general  advertising
(within the meaning of Regulation D) in connection with the offer or sale of the
Securities.  The Company shall be  responsible  for the payment of any placement
agent's fees,  financial advisory fees, or brokers'  commissions (other than for
persons engaged by any Buyer or its investment  advisor)  relating to or arising
out of the transactions  contemplated  hereby,  including,  without  limitation,
placement  agent fees  payable to Lane  Capital  Markets,  LLC (the  "Agent") in
connection with the sale of the Securities. The Company shall pay, and hold each
Buyer harmless  against,  any  liability,  loss or expense  (including,  without
limitation,  attorney's fees and  out-of-pocket  expenses) arising in connection
with any such  claim.  Other than the Agent,  the  Company  has not  engaged any
placement agent or other agent in connection with the sale of the Securities.

            (h) No Integrated  Offering.  None of the Company, its Subsidiaries,
any of their affiliates,  and any Person acting on their behalf has, directly or
indirectly,  made any offers or sales of any security or solicited any offers to
buy any security,  under circumstances that would require registration of any of
the Securities under the 1933 Act or cause this offering of the Securities to be
integrated  with prior  offerings by the Company for purposes of the 1933 Act or
any applicable stockholder approval provisions,  including,  without limitation,
under the rules and regulations of any exchange or automated quotation system on
which any of the securities of the Company are listed or designated. None of the
Company,  its  Subsidiaries,  their  affiliates  and any Person  acting on their
behalf will take any action or steps referred to in the preceding  sentence that
would require  registration of any of the Securities under the 1933 Act or cause
the offering of the Securities to be integrated with other offerings.

            (i) Dilutive Effect.  The Company  understands and acknowledges that
the number of Conversion  Shares  issuable upon  conversion of the Notes and the
Warrant  Shares  issuable upon exercise of the Warrants will increase in certain
circumstances.  The Company  further  acknowledges  that its obligation to issue
Conversion Shares upon conversion of the Notes in accordance with this Agreement
and the Notes and its  obligation  to issue the Warrant  Shares upon exercise of
the Warrants in accordance  with this Agreement and the Warrants,  in each case,
is  absolute  and  unconditional  regardless  of the  dilutive  effect that such
issuance  may  have on the  ownership  interests  of other  stockholders  of the
Company.

                                       8
<PAGE>

            (j)  Application  of Takeover  Protections;  Rights  Agreement.  The
Company and its board of directors have taken all necessary  action,  if any, in
order  to  render   inapplicable   any  control  share   acquisition,   business
combination,  poison pill (including any distribution  under a rights agreement)
or other similar anti-takeover  provision under the Articles of Incorporation or
the  laws  of the  jurisdiction  of  its  formation  which  is or  could  become
applicable  to any Buyer as a result of the  transactions  contemplated  by this
Agreement,   including,  without  limitation,  the  Company's  issuance  of  the
Securities  and any Buyer's  ownership  of the  Securities.  The Company has not
adopted  a  stockholder   rights  plan  or  similar   arrangement   relating  to
accumulations of beneficial  ownership of Common Stock or a change in control of
the Company.

            (k) SEC  Documents;  Financial  Statements.  Except as  disclosed in
Schedule  3(k),  during the two (2) years prior to the date hereof,  the Company
has filed all reports, schedules, forms, statements and other documents required
to be filed by it with the SEC  pursuant to the  reporting  requirements  of the
1934 Act (all of the  foregoing  filed prior to the date hereof and all exhibits
included  therein and  financial  statements,  notes and  schedules  thereto and
documents  incorporated  by  reference  therein,  along  with  the  registration
statement on Form S-1, as amended (SEC File No.  333-122280) filed on August 18,
2005, being  hereinafter  referred to as the "SEC  Documents").  The Company has
delivered to the Buyers or their respective  representatives  true,  correct and
complete  copies of the SEC Documents  not available on the EDGAR system.  As of
their  respective  filing  dates,  the SEC  Documents  complied in all  material
respects with the  requirements of the 1934 Act and the rules and regulations of
the SEC promulgated thereunder applicable to the SEC Documents,  and none of the
SEC  Documents,  at the time they were filed with the SEC,  contained any untrue
statement of a material  fact or omitted to state a material fact required to be
stated  therein or necessary  in order to make the  statements  therein,  in the
light of the  circumstances  under which they were made, not  misleading.  As of
their respective filing dates, the financial  statements of the Company included
in the  SEC  Documents  complied  as to  form  in  all  material  respects  with
applicable  accounting  requirements  and the published rules and regulations of
the SEC with respect  thereto.  Such financial  statements have been prepared in
accordance with generally accepted accounting principles,  consistently applied,
during the periods  involved  (except (i) as may be otherwise  indicated in such
financial  statements  or the notes  thereto,  or (ii) in the case of  unaudited
interim statements, to the extent they may exclude footnotes or may be condensed
or summary statements) and fairly present in all material respects the financial
position  of  the  Company  as of the  dates  thereof  and  the  results  of its
operations  and cash flows for the periods then ended  (subject,  in the case of
unaudited   statements,   to  normal  year-end  audit  adjustments).   No  other
information  provided by or on behalf of the Company to the Buyers in connection
with the  transactions  contemplated  hereby  which is not  included  in the SEC
Documents,  including,  without limitation,  information  referred to in Section
2(d) of this  Agreement  or in any  disclosure  schedules,  contains  any untrue
statement of a material  fact or omits to state any material  fact  necessary in
order to make the statements  therein,  in the light of the  circumstance  under
which they are or were made, not misleading.

                                       9
<PAGE>

      t 12 (l) Absence of Certain Changes. Except as disclosed in Schedule 3(l),
since  September  30,  2004,  there has been no event  which  has had,  or could
reasonably be expected to result,  in a Material  Adverse  Effect on the Company
and its  Subsidiaries  taken as a whole.  Except as disclosed in Schedule  3(l),
since  September  30,  2004,  the  Company  has not  (i)  declared  or paid  any
dividends, (ii) sold any assets,  individually or in the aggregate, in excess of
$100,000  outside  of the  ordinary  course of  business  or (iii)  had  capital
expenditures,  individually  or in the  aggregate,  in excess of  $100,000.  The
Company has not taken any steps to seek  protection  pursuant to any  bankruptcy
law nor does the  Company  have any  knowledge  or  reason to  believe  that its
creditors intend to initiate  involuntary  bankruptcy  proceedings or any actual
knowledge of any fact which would reasonably lead a creditor to do so.

            (m)   No   Undisclosed   Events,   Liabilities,    Developments   or
Circumstances.  No material event,  liability,  development or circumstance  has
occurred or exists, or is contemplated to occur with respect to the Company, its
Subsidiaries or their respective business, properties,  prospects, operations or
financial condition, that would be required to be disclosed by the Company under
applicable  securities  laws on a registration  statement on Form S-1 filed with
the SEC  relating to an issuance and sale by the Company of its Common Stock and
which has not been publicly announced.

            (n) Conduct of Business; Regulatory Permits. Neither the Company nor
its Subsidiaries is in violation of any term of or in default under its Articles
of  Incorporation  or Bylaws or their  organizational  charter  or  articles  of
incorporation  or  bylaws,  respectively.  Neither  the  Company  nor any of its
Subsidiaries  is in violation of any  judgment,  decree or order or any statute,
ordinance,  rule or regulation that are currently necessary or applicable to the
operation  of the Company or its  Subsidiaries  as  currently  conducted  and as
described  in the  registration  statement on Form S-1, as amended (SEC File No.
333-122280)  filed on August 18,  2005 (the  "August  Registration  Statement"),
except  for  possible  violations  which  would  not,  individually  or  in  the
aggregate,  have a Material Adverse Effect.  Since September 30, 2003, except as
set  forth in  Schedule  (n),  (i) the  Common  Stock  has been  designated  for
quotation on the Principal Market, (ii) trading in the Common Stock has not been
suspended by the SEC or the Principal  Market and (iii) the Company has received
no  communication,  written  or  oral,  from  the  SEC or the  Principal  Market
regarding  the  suspension  or delisting of the Common Stock from the  Principal
Market.   The  Company   and  its   Subsidiaries   possess   all   certificates,
authorizations  and permits  issued by the  appropriate  regulatory  authorities
necessary to conduct their  respective  businesses,  except where the failure to
possess  such   certificates,   authorizations   or  permits   would  not  have,
individually or in the aggregate,  a Material  Adverse  Effect,  and neither the
Company nor any such Subsidiary has received any notice of proceedings  relating
to the revocation or  modification  of any such  certificate,  authorization  or
permit.

            (o) Foreign Corrupt Practices.  Neither the Company,  nor any of its
Subsidiaries,  nor, to the best  knowledge of the Company and its  Subsidiaries,
any director,  officer,  agent, employee or other Person acting on behalf of the
Company or any of its Subsidiaries  has, in the course of its actions for, or on
behalf  of,  the  Company  (i)  used  any  corporate   funds  for  any  unlawful
contribution,  gift,  entertainment  or  other  unlawful  expenses  relating  to
political  activity;  (ii) made any direct or indirect  unlawful  payment to any
foreign or domestic  government official or employee from corporate funds; (iii)
violated  or is in  violation  of any  provision  of the  U.S.  Foreign  Corrupt
Practices  Act of 1977,  as amended;  or (iv) made any unlawful  bribe,  rebate,
payoff, influence payment,  kickback or other unlawful payment to any foreign or
domestic government official or employee.

                                       10
<PAGE>

            (p)  Sarbanes-Oxley  Act. The Company is in compliance  with any and
all applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective
as of the  date  hereof,  and any  and  all  applicable  rules  and  regulations
promulgated  by the SEC  thereunder  that are  effective  as of the date hereof,
except  where  such  noncompliance  would  not  have,  individually  or  in  the
aggregate, a Material Adverse Effect.

            (q)  Transactions  With  Affiliates.  Except as set forth in the SEC
Documents  filed at least ten days  prior to the date  hereof and other than the
grant of  stock  options  disclosed  on  Schedule  3(q),  none of the  officers,
directors or  employees  of the Company is presently a party to any  transaction
with the  Company or any of its  Subsidiaries  (other than for  ordinary  course
services as employees, officers or directors), including any contract, agreement
or  other  arrangement  providing  for  the  furnishing  of  services  to or by,
providing  for rental of real or  personal  property  to or from,  or  otherwise
requiring payments to or from any such officer,  director or employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any such officer,  director,  or employee has a substantial interest or is
an officer, director, trustee or partner.

            (r) Equity  Capitalization.  As of the date hereof,  the  authorized
capital stock of the Company consists of(i) 200,000,000  shares of Common Stock,
of  which  as of the  date  hereof,  118,504,653  are  issued  and  outstanding,
12,946,912  shares are  reserved for issuance  pursuant to the  Company's  stock
option and  purchase  plans and  20,633,308  shares are  reserved  for  issuance
pursuant to securities  (other than the Notes and the Warrants)  exercisable  or
exchangeable for, or convertible into, shares of Common Stock and (ii) 5,000,000
shares of preferred  stock,  par value $0.001 per share, of which as of the date
hereof,  none is issued and  outstanding.  All of such  outstanding  shares have
been,  or upon  issuance  and payment of the  consideration  therefor,  will be,
validly  issued and are fully paid and  nonassessable.  Except as  disclosed  in
Schedule 3(r): (i) none of the Company's  share capital is subject to preemptive
rights or any other  similar  rights or any liens or  encumbrances  suffered  or
permitted  by the  Company;  (ii) there are no  outstanding  options,  warrants,
scrip, rights to subscribe to, calls or commitments of any character  whatsoever
relating  to, or  securities  or rights  convertible  into,  or  exercisable  or
exchangeable  for, any share capital of the Company or any of its  Subsidiaries,
or contracts,  commitments,  understandings or arrangements by which the Company
or any of its  Subsidiaries  is or may become  bound to issue  additional  share
capital of the Company or any of its Subsidiaries or options,  warrants,  scrip,
rights  to  subscribe  to,  calls or  commitments  of any  character  whatsoever
relating  to, or  securities  or rights  convertible  into,  or  exercisable  or
exchangeable  for, any share capital of the Company or any of its  Subsidiaries;
(iii) there are no outstanding debt securities, notes, credit agreements, credit
facilities or other agreements, documents or instruments evidencing Indebtedness
of the Company or any of its  Subsidiaries or by which the Company or any of its
Subsidiaries  is or may become  bound;  (iv) there are no  financing  statements
securing obligations in any material amounts, either singly or in the aggregate,
filed in connection with the Company or any of its  Subsidiaries;  (v) there are
no agreements or arrangements under which the Company or any of its Subsidiaries
is obligated to register the sale of any of their  securities under the 1933 Act
(except the Registration  Rights  Agreement,  if applicable);  (vi) there are no
outstanding  securities or instruments of the Company or any of its Subsidiaries
which contain any redemption or similar provisions,  and there are no contracts,
commitments,  understandings  or arrangements by which the Company or any of its
Subsidiaries  is or may become  bound to redeem a security of the Company or any
of its  Subsidiaries;  (vii) there are no securities or  instruments  containing
anti-dilution  or similar  provisions  that will be triggered by the issuance of
the Securities;  (viii) the Company does not have any stock appreciation  rights
or "phantom  stock" plans or agreements  or any similar plan or  agreement;  and
(ix)  the  Company  and its  Subsidiaries  have no  liabilities  or  obligations
required to be  disclosed in the SEC  Documents  but not so disclosed in the SEC
Documents,  other than those incurred in the ordinary course of the Company's or
its  Subsidiaries'  respective  businesses  and  which,  individually  or in the

                                       11
<PAGE>

aggregate,  do not or would not have a Material Adverse Effect.  The Company has
furnished  to the Buyer  true,  correct  and  complete  copies of the  Company's
Articles of  Incorporation,  as amended and as in effect on the date hereof (the
"Articles of  Incorporation"),  and the Company's  Bylaws,  as amended and as in
effect  on the date  hereof  (the  "Bylaws"),  and the  terms of all  securities
convertible into, or exercisable or exchangeable for, shares of Common Stock and
the material rights of the holders thereof in respect thereto.

            (s)  Indebtedness  and  Other  Contracts.  Except  as  disclosed  in
Schedule  3(s),  neither  the Company  nor any of its  Subsidiaries  (i) has any
outstanding  Indebtedness  (as defined below),  (ii) is a party to any contract,
agreement or instrument,  the violation of which, or default under which, by the
other  party(ies) to such  contract,  agreement or instrument  would result in a
Material  Adverse  Effect,  (iii) is in  violation  of any term of or in default
under any contract, agreement or instrument relating to any Indebtedness, except
where such  violations  and defaults  would not result,  individually  or in the
aggregate,  in a Material  Adverse  Effect,  or (iv) is a party to any contract,
agreement or instrument relating to any Indebtedness,  the performance of which,
in the judgment of the Company's officers, has or is expected to have a Material
Adverse  Effect.  Schedule 3(s) provides a detailed  description of the material
terms of any such outstanding Indebtedness.  For purposes of this Agreement: (x)
"Indebtedness" of any Person means, without duplication (A) all indebtedness for
borrowed  money,  (B) all  obligations  issued,  undertaken  or  assumed  as the
deferred  purchase  price of  property or  services  (other than trade  payables
entered into in the  ordinary  course of  business),  (C) all  reimbursement  or
payment  obligations  with respect to letters of credit,  surety bonds and other
similar instruments,  (D) all obligations evidenced by notes, bonds,  debentures
or  similar  instruments,   including   obligations  so  evidenced  incurred  in
connection  with the  acquisition  of property,  assets or  businesses,  (E) all
indebtedness  created  or  arising  under any  conditional  sale or other  title
retention  agreement,  or incurred as financing,  in either case with respect to
any property or assets  acquired  with the proceeds of such  indebtedness  (even
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property),  (F) all
monetary  obligations  under  any  leasing  or  similar  arrangement  which,  in
connection with generally accepted accounting  principles,  consistently applied
for the periods  covered  thereby,  is  classified as a capital  lease,  (G) all
indebtedness  referred to in clauses  (A)  through (F) above  secured by (or for
which the holder of such  Indebtedness  has an  existing  right,  contingent  or
otherwise,  to be secured  by) any  mortgage,  lien,  pledge,  charge,  security
interest  or other  encumbrance  upon or in any  property  or assets  (including
accounts and contract rights) owned by any Person,  even though the Person which
owns such assets or property has not assumed or become liable for the payment of
such indebtedness, and (H) all Contingent Obligations in respect of indebtedness
or  obligations  of others of the kinds  referred  to in clauses (A) through (G)
above;  (y)  "Contingent  Obligation"  means,  as to any  Person,  any direct or
indirect liability,  contingent or otherwise, of that Person with respect to any
indebtedness,  lease,  dividend  or other  obligation  of another  Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect  thereof,  is to provide  assurance to the obligee of such liability that
such  liability  will be paid or  discharged,  or that any  agreements  relating
thereto will be complied  with,  or that the holders of such  liability  will be
protected  (in whole or in part)  against  loss with  respect  thereto;  and (z)
"Person" means an individual,  a limited  liability  company,  a partnership,  a
joint venture,  a corporation,  a trust, an  unincorporated  organization  and a
government or any department or agency thereof.

                                       12
<PAGE>

            (t)  Absence  of  Litigation.  There is no  material  action,  suit,
proceeding,  inquiry or  investigation  before or by the Principal  Market,  any
court,  public board,  government agency,  self-regulatory  organization or body
pending or, to the knowledge of the Company, threatened against or affecting the
Company,  the Common Stock or any of the  Company's  Subsidiaries  or any of the
Company's or its  Subsidiaries'  officers or  directors,  except as set forth in
Schedule 3(t).

            (u) Insurance.  The Company and each of its Subsidiaries are insured
by insurers of recognized financial responsibility against such losses and risks
and in such  amounts as  management  of the  Company  believes to be prudent and
customary  in the  businesses  in which the  Company  and its  Subsidiaries  are
engaged.  Neither  the  Company  nor any such  Subsidiary  has been  refused any
insurance  coverage  sought or applied  for and neither the Company nor any such
Subsidiary  has any  reason  to  believe  that it will not be able to renew  its
existing  insurance  coverage  as and when such  coverage  expires  or to obtain
similar  coverage  from  similar  insurers as may be  necessary  to continue its
business at a cost that would not have a Material Adverse Effect.

            (v)  Employee  Relations.  (i)  Neither  the  Company nor any of its
Subsidiaries  is a party to any collective  bargaining  agreement or employs any
member of a union. The Company and its Subsidiaries believe that their relations
with their employees are good. No executive officer of the Company or any of its
Subsidiaries  (as  defined  in Rule  501(f)  of the 1933 Act) has  notified  the
Company or any such Subsidiary that such officer intends to leave the Company or
any such  Subsidiary or otherwise  terminate such officer's  employment with the
Company or any such  Subsidiary.  No executive  officer of the Company or any of
its Subsidiaries, to the knowledge of the Company or any such Subsidiary, is, or
is now  expected to be, in  violation  of any  material  term of any  employment
contract,  confidentiality,  disclosure or  proprietary  information  agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant,  and the continued  employment of each such executive officer does not
subject the Company or any such  Subsidiaries  to any liability  with respect to
any of the foregoing matters.

                  (ii) The Company and its  Subsidiaries  are in compliance with
all applicable federal, state, local and foreign laws and regulations respecting
labor, employment and employment practices and benefits, terms and conditions of
employment and wages and hours,  except where failure to be in compliance  would
not, either  individually or in the aggregate,  reasonably be expected to result
in a Material Adverse Effect.

                                       13
<PAGE>

            (w) Title. Except as set forth on Schedule 3(w), the Company and its
Subsidiaries  have good and marketable  title in fee simple to all real property
and good and  marketable  title to all personal  property owned by them which is
material to the business of the Company and its Subsidiaries,  in each case free
and  clear  of  all  liens,  encumbrances  and  defects  except  such  as do not
materially  affect the value of such property and do not interfere  with the use
made and  proposed  to be made of such  property  by the  Company and any of its
Subsidiaries.  Any real property and facilities  held under lease by the Company
and any of its  Subsidiaries  are  held  by them  under  valid,  subsisting  and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such  property and buildings by the
Company and its Subsidiaries.

            (x) Intellectual  Property  Rights.  Except as set forth on Schedule
3(x),  the  Company  and its  Subsidiaries  own or  possess  adequate  rights or
licenses  to use all  trademarks,  trade  names,  service  marks,  service  mark
registrations,  service names, patents, patent rights,  copyrights,  inventions,
licenses,  approvals,  governmental  authorizations,  trade  secrets  and  other
intellectual  property  rights  ("Intellectual  Property  Rights")  described or
referred to in the August Registration  Statement as owned or possessed by it or
that are necessary to conduct  their  respective  businesses  as now  conducted,
except where the failure to currently own or possess such Intellectual  Property
Rights  could not  reasonably  be  expected to have a Material  Adverse  Effect.
Except  as set  forth  in  Schedule  3(x),  none of the  Company's  Intellectual
Property  Rights  have  expired  or  terminated,  or are  expected  to expire or
terminate,  within three years from the date of this Agreement. The Company does
not have any knowledge of any infringement by the Company or its Subsidiaries of
Intellectual  Property Rights of others that individually,  or in the aggregate,
could  reasonably  be expected to have a Material  Adverse  Effect.  There is no
material claim,  action or proceeding being made or brought, or to the knowledge
of the  Company,  being  threatened,  against  the  Company or its  Subsidiaries
regarding its Intellectual  Property Rights. The Company is unaware of any facts
or  circumstances  which could reasonably be expected to give rise to any of the
foregoing  infringements or claims, actions or proceedings.  The Company and its
Subsidiaries  have taken  reasonable  security  measures to protect the secrecy,
confidentiality and value of all of their intellectual properties.

            (y) Environmental  Laws. The Company and its Subsidiaries (i) are in
compliance with any and all Environmental  Laws (as hereinafter  defined),  (ii)
have received all permits,  licenses or other  approvals  required of them under
applicable  Environmental Laws to conduct their respective  businesses and (iii)
are in compliance  with all terms and conditions of any such permit,  license or
approval  where,  in each of the  foregoing  clauses  (i),  (ii) and (iii),  the
failure to so comply could be reasonably  expected to have,  individually  or in
the aggregate,  a Material Adverse Effect. The term  "Environmental  Laws" means
all federal, state, local or foreign laws relating to pollution or protection of
human health or the environment  (including,  without  limitation,  ambient air,
surface  water,  groundwater,  land surface or  subsurface  strata),  including,
without  limitation,  laws  relating  to  emissions,   discharges,  releases  or
threatened  releases  of  chemicals,  pollutants,   contaminants,  or  toxic  or
hazardous substances or wastes  (collectively,  "Hazardous  Materials") into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all  authorizations,  codes,  decrees,  demands  or  demand  letters,
injunctions,  judgments,  licenses,  notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.

                                       14
<PAGE>

            (z)  Subsidiary  Rights.  Except as set forth in Schedule  3(z), the
Company  or one of its  Subsidiaries  has the  unrestricted  right to vote,  and
(subject to  limitations  imposed by  applicable  law) to receive  dividends and
distributions  on, all capital  securities of its  Subsidiaries  as owned by the
Company or such Subsidiary.

            (aa) Tax Status.  The Company and each of its  Subsidiaries  (i) has
made or filed all  foreign,  federal and state income and all other tax returns,
reports and  declarations  required by any  jurisdiction to which it is subject,
(ii) has paid all taxes and other governmental  assessments and charges that are
material in amount,  shown or determined to be due on such returns,  reports and
declarations, except those being contested in good faith and (iii) has set aside
on its books  provision  reasonably  adequate  for the  payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of the Company know of no
basis for any such claim.

            (bb) Internal Accounting Controls. The Company maintains a system of
internal  control over financial  reporting (as such term is defined in the 1934
Act)  regarding  the  reliability  of financial  reporting  and  preparation  of
financial statements for external purposes in accordance with generally accepted
accounting  principles and includes  policies and procedures that (i) pertain to
maintenance of records that in reasonable  detail  accurately and fairly reflect
the  transactions  and  dispositions  of the Company,  (ii)  provide  reasonable
assurance that  transactions are recorded as necessary to permit  preparation of
financial   statements  in  conformity   with  generally   accepted   accounting
principles,  and that  receipts and  expenditures  of the Company are being made
only in  accordance  with  authorizations  of  management  and  directors of the
Company,  and (iii) provide reasonable  assurance regarding prevention or timely
detection of  unauthorized  acquisition,  use, or  disposition  of the Company's
assets that could have a material adverse effect on the financial statements.

            (cc)  Ranking of Notes.  Except as set forth on  Schedule  (cc),  no
Indebtedness  of the  Company is senior to or ranks pari passu with the Notes in
right of payment,  whether  with  respect of payment of  redemptions,  interest,
damages or upon liquidation or dissolution or otherwise.

            (dd) Form S-1  Eligibility.  The Company is eligible to register the
Conversion Shares and the Warrant Shares for resale by the Buyers using Form S-1
promulgated under the 1933 Act.

            (ee)  Manipulation  of  Price.  The  Company  has  not,  and  to its
knowledge  no one acting on its behalf has, (i) taken,  directly or  indirectly,
any action  designed to cause or to result or that could  reasonably be expected
to cause or result,  in the  stabilization  or  manipulation of the price of any
security  of  the  Company  to  facilitate  the  sale  or  resale  of any of the
Securities or (ii) other than the Agent, sold, bid for,  purchased,  or paid any
compensation for soliciting purchases of, any of the Securities.

            (ff) Acknowledgement Regarding Buyers' Trading Activity. Anything in
this Agreement or elsewhere  herein to the contrary  notwithstanding,  except as
expressly  provided in Section 2(k), it is understood  and  acknowledged  by the
Company (i) that none of the Buyers have been asked to agree,  nor has any Buyer
agreed, to desist from purchasing or selling,  long and/or short,  securities of
the  Company,  or  "derivative"  securities  based on  securities  issued by the
Company or to hold the Securities for any specified  term;  (ii) that any Buyer,
and counter  parties in  "derivative"  transactions to which any such Buyer is a
party,  directly or  indirectly,  presently  may have a "short"  position in the
Common  Stock,  and  (iii)  that  each  Buyer  shall  not be  deemed to have any
affiliation  with  or  control  over  any  arm's  length  counter-party  in  any
"derivative" transaction. The Company further understands and acknowledges that,
except as expressly  provided in Section 2(k),  one or more Buyers may engage in
hedging  activities at various times during the period that the  Securities  are
outstanding,  including, without limitation,  during the periods that the number
of Interest Shares are being  determined and the value of the Conversion  Shares
and the  Warrant  Shares  deliverable  with  respect  to  Securities  are  being
determined.

                                       15
<PAGE>

            (gg)  Disclosure.  Except  with  respect to the  material  terms and
conditions of the transactions contemplated by this Agreement, the Notes and the
Warrants,  which shall be  publicly  disclosed  by the  Company  pursuant to its
reporting  obligations  under the 1934 Act and  pursuant to Section 4(i) hereof,
the Company  confirms  that neither it nor any other Person acting on its behalf
has provided  any of the Buyers or their agents or counsel with any  information
that constitutes material,  nonpublic  information.  The Company understands and
confirms that each of the Buyers will rely on the foregoing  representations  in
effecting  transactions in securities of the Company.  The  representations  and
warranties  of the  Company  contained  in this  Section 3, as  modified  by the
Schedules to this Agreement,  furnished by or on behalf of the Company as of the
date hereof,  do not contain any untrue  statement of a material fact or omit to
state any material fact necessary in order to make the statements  made therein,
in the light of the  circumstances  under which they were made, not  misleading.
Each press release issued by the Company during the twelve (12) months preceding
the date of this  Agreement  did not at the time of release  contain  any untrue
statement  of a material  fact or omit to state a material  fact  required to be
stated  therein or necessary  in order to make the  statements  therein,  in the
light of the circumstances  under which they are made, not misleading.  No event
or circumstance  has occurred or information  exists with respect to the Company
or any of its  Subsidiaries  or its or their  business,  properties,  prospects,
operations  or  financial  conditions,  which,  under  applicable  law,  rule or
regulation,  requires public disclosure or announcement by the Company but which
has not been so publicly announced or disclosed.

      4. COVENANTS.

            (a) Best  Efforts.  Each party shall use its best efforts  timely to
satisfy each of the  conditions  to be satisfied by it as provided in Sections 6
and 7 of this Agreement.

            (b) Form D and Blue Sky.  The  Company  agrees to file a Form D with
respect to the Securities as required  under  Regulation D and to provide a copy
thereof to each Buyer  promptly  after such  filing.  The Company  shall,  on or
before the  Closing  Date,  take such  action as the  Company  shall  reasonably
determine is  necessary  in order to obtain an  exemption  for or to qualify the
Securities  for sale to the Buyers at the  Closing  pursuant  to this  Agreement
under  applicable  securities  or "Blue  Sky" laws of the  states of the  United
States (or to obtain an exemption  from such  qualification),  and shall provide
evidence  of any such  action so taken to the Buyers on or prior to the  Closing
Date.  The Company shall make all filings and reports  relating to the offer and
sale of the Securities  required under applicable  securities or "Blue Sky" laws
of the states of the United States following the Closing Date.

                                       16
<PAGE>

            (c)  Reporting  Status.  Until the date on which the  Investors  (as
defined in the Registration  Rights  Agreement) shall have sold all the Interest
Shares,  Conversion  Shares and Warrant Shares and none of the Notes or Warrants
is  outstanding  (the  "Reporting  Period"),  the Company shall file all reports
required  to be filed with the SEC  pursuant  to the 1934 Act,  and the  Company
shall not terminate  its status as an issuer  required to file reports under the
1934 Act even if the 1934 Act or the  rules  and  regulations  thereunder  would
otherwise permit such termination.

            (d) Use of Proceeds. The Company will use the proceeds from the sale
of the Securities for working capital  purposes and not for the (i) repayment of
any  outstanding  Indebtedness of the Company or any of its  Subsidiaries  other
than  Permitted  Indebtedness  (as  defined  in the Note)  and the  Indebtedness
approved  by the  Bankruptcy  Court  as set  forth  in  Schedule  3(cc)  or (ii)
redemption or repurchase of any of its or its Subsidiaries equity securities.

            (e)  Financial  Information.  As long as any Notes or  Warrants  are
outstanding,  the Company  agrees to send the following to each Investor  during
the  Reporting  Period (i) unless the  following  are filed with the SEC through
EDGAR and are available to the public  through the EDGAR system,  within one (1)
Business Day after the filing thereof with the SEC, a copy of its Annual Reports
on Form 10-K or 10-KSB, any interim reports or any consolidated  balance sheets,
income statements,  stockholders'  equity statements and/or cash flow statements
for any  period  other  than  annual,  any  Current  Reports on Form 8-K and any
registration statements (other than on Form S-8) or amendments filed pursuant to
the 1933 Act, (ii) on the same day as the release thereof, facsimile or e-mailed
copies of all press releases  issued by the Company or any of its  Subsidiaries,
and (iii) copies of any notices and other information made available or given to
the  stockholders of the Company  generally,  contemporaneously  with the making
available  or  giving  thereof  to the  stockholders;  provided,  that each such
Investor  provides to the Company an email address on the Schedule of Buyers for
the provision of such information.

            (f) Listing. The Company shall promptly secure the listing of all of
the Registrable  Securities (as defined in the  Registration  Rights  Agreement)
upon each national  securities  exchange and automated quotation system, if any,
upon  which the Common  Stock is then  listed  (subject  to  official  notice of
issuance) and shall  maintain such listing of all  Registrable  Securities  from
time to time issuable under the terms of the Transaction Documents.  The Company
shall maintain the Common Stocks'  authorization  for quotation on the Principal
Market.  Neither the Company nor any of its  Subsidiaries  shall take any action
which would be  reasonably  expected to result in the delisting or suspension of
the Common Stock on the  Principal  Market.  The Company  shall pay all fees and
expenses in connection with satisfying its obligations under this Section 4(f).

            (g) Fees.  Subject to Section 8 below,  at the Closing,  the Company
shall pay an expense  allowance  of $20,000 to SRG  Capital LLC (a Buyer) or its
designee(s) (in addition to any other expense amounts paid to any Buyer prior to
the date of this  Agreement),  which amount shall be withheld by such Buyer from
its Purchase Price at the Closing. In addition,  the Company shall reimburse SRG
Capital LLC for the first  $30,000 for  attorneys  fees in  connection  with the
transactions  contemplated by this Agreement  (whether or not such  transactions
are consummated) plus one-half of all of its additional attorneys fees in excess
of $30,000,  $30,000 of which has been previously deposited into an account held
by the SRG Capital LLC's counsel to be applied at Closing or upon termination of
this  Agreement  pursuant to Section 8 hereof.  The Company shall be responsible
for the payment of any  placement  agent's  fees,  financial  advisory  fees, or
broker's  commissions  (other than for Persons engaged by any Buyer) relating to
or arising  out of the  transactions  contemplated  hereby,  including,  without
limitation, any fees or commissions payable to the Agent. The Company shall pay,
and hold each Buyer harmless against, any liability, loss or expense (including,
without  limitation,  reasonable  attorney's  fees and  out-of-pocket  expenses)
arising in connection  with any claim  relating to any such  payment.  Except as
otherwise set forth in the Transaction  Documents,  each party to this Agreement
shall bear its own expenses in connection with the sale of the Securities to the
Buyers.

                                       17
<PAGE>

            (h) Pledge of Securities.  The Company  acknowledges and agrees that
the  Securities  may be pledged by an  Investor in  connection  with a bona fide
margin  agreement or other loan or financing  arrangement that is secured by the
Securities.  The pledge of Securities shall not be deemed to be a transfer, sale
or assignment of the Securities hereunder, and no Investor effecting a pledge of
Securities  shall be required to provide the Company with any notice  thereof or
otherwise  make any  delivery to the Company  pursuant to this  Agreement or any
other Transaction Document, including, without limitation,  Section 2(f) hereof;
provided  that an Investor and its pledgee  shall be required to comply with the
provisions  of  Section  2(f)  hereof  in order to  effect a sale,  transfer  or
assignment of Securities to such pledgee.  The Company  hereby agrees to execute
and deliver such  documentation  as a pledgee of the  Securities  may reasonably
request in  connection  with a pledge of the  Securities  to such  pledgee by an
Investor.

            (i) Disclosure of Transactions and Other Material Information. On or
before 8:30 a.m., New York Time, on the first Business Day following the date of
this Agreement  (provided,  that this Agreement is entered into prior to 3pm New
York time; otherwise, the second Business Day), the Company shall file a Current
Report on Form 8-K describing the terms of the transactions  contemplated by the
Transaction  Documents and the Acquisitions in the form required by the 1934 Act
and attaching the material Transaction Documents (including, without limitation,
this Agreement (and all schedules to this Agreement), the form of the Notes, the
form of  Warrant  and  the  Registration  Rights  Agreement)  and  the  material
transaction  documents  relating to the  Acquisitions as exhibits to such filing
(including all attachments,  the "8-K Filing"). From and after the filing of the
8-K  Filing  with the SEC,  no Buyer  shall be in  possession  of any  material,
nonpublic  information received from the Company or any of its Subsidiaries,  or
any of its  respective  officers,  directors,  employees or agents,  that is not
disclosed in the 8-K Filing.  The Company shall not, and shall cause each of its
Subsidiaries and its and each of their respective officers, directors, employees
and agents, not to, provide any Buyer with any material,  nonpublic  information
regarding  the Company or any of its  Subsidiaries  from and after the filing of
the 8-K Filing with the SEC without the express  prior  written  consent of such
Buyer. In the event of a breach of the foregoing  covenant by the Company or any
of its  Subsidiaries,  or any of its or their  respective  officers,  directors,
employees and agents,  in addition to any other remedy provided herein or in the
Transaction Documents, a Buyer shall have the right to make a public disclosure,
in the form of a press  release,  public  advertisement  or  otherwise,  of such
material,  nonpublic  information without the prior approval by the Company, its
Subsidiaries, or any of its or their respective officers,  directors,  employees
or agents.  No Buyer shall have any liability to the Company,  its Subsidiaries,
or any of its or their respective officers, directors,  employees,  stockholders
or agents,  for any such  disclosure.  Subject  to the  foregoing,  neither  the
Company,  its  Subsidiaries  nor any Buyer shall issue any press releases or any
other public  statements with respect to the transactions  contemplated  hereby;
provided,  however,  that the  Company  shall be  entitled,  without  the  prior
approval of any Buyer, to make any press release or other public disclosure with
respect to such  transactions (i) in substantial  conformity with the 8-K Filing
and  contemporaneously  therewith and (ii) as is required by applicable  law and
regulations  (provided  that in the  case of  clause  (i)  each  Buyer  shall be
consulted  by the  Company in  connection  with any such press  release or other
public disclosure prior to its release).

                                       18
<PAGE>

            (j)  Restriction  on Redemption and Cash  Dividends.  So long as any
Notes are outstanding, the Company shall not, directly or indirectly, redeem, or
declare or pay any cash  dividend or  distribution  on, the Common Stock without
the prior express written consent of the holders of Notes  representing not less
than a majority of the aggregate principal amount of the then outstanding Notes.

            (k) Additional Notes;  Variable Securities;  Dilutive Issuances.  So
long as any Buyer  beneficially owns any Securities,  the Company will not issue
any Notes other than to the Buyers as contemplated  hereby and the Company shall
not issue any other  securities  that would cause a breach or default  under the
Notes. For long as any Notes or Warrants remain  outstanding,  the Company shall
not, in any manner,  issue or sell any rights,  warrants or options to subscribe
for or  purchase  Common  Stock or directly or  indirectly  convertible  into or
exchangeable or exercisable for Common Stock at a price which varies or may vary
with the  market  price of the  Common  Stock,  including  by way of one or more
reset(s) to any fixed price unless the conversion, exchange or exercise price of
any such security cannot be less than the then applicable  Conversion  Price (as
defined in the Notes)  with  respect to the Common  Stock into which any Note is
convertible or the then  applicable  Exercise Price (as defined in the Warrants)
with respect to the Common Stock into which any Warrant is exercisable. For long
as any Notes or  Warrants  remain  outstanding,  the  Company  shall not, in any
manner,  enter into or affect any Dilutive Issuance (as defined in the Notes) if
the effect of such  Dilutive  Issuance is to cause the Company to be required to
issue upon  conversion  of any Note or  exercise  of any  Warrant  any shares of
Common  Stock in excess of that  number  of  shares  of Common  Stock  which the
Company may issue upon  conversion  of the Notes and  exercise  of the  Warrants
without  breaching the Company's  obligations  under the rules or regulations of
the Principal Market.

            (l) Corporate Existence.  So long as any Buyer beneficially owns any
Securities,  the Company shall not be party to any  Fundamental  Transaction (as
defined in the Notes)  unless the Company is in compliance  with the  applicable
provisions  governing  Fundamental  Transactions  set forth in the Notes and the
Warrants.

            (m) Reservation of Shares. So long as any Investor owns any Notes or
Warrants,  the  Company  shall  take all action  necessary  to at all times have
authorized,  and reserved for the purpose of issuance,  after the Closing  Date,
130% of the number of  Interest  Shares  issuable  pursuant  to the terms of the
Notes,  the number of shares of Common Stock issuable upon  conversion of all of
the Notes and the number of shares of Common Stock issuable upon exercise of the
Warrants  (without  taking  into  account  any  limitations  on the  issuance of
Interest Shares,  the conversion of the Notes or exercise of the Warrants as set
forth in the Notes and Warrants, respectively).

                                       19
<PAGE>

            (n)  Conduct  of  Business.  The  business  of the  Company  and its
Subsidiaries  shall not be  conducted  in  violation  of any law,  ordinance  or
regulation of any  governmental  entity,  except where such violations would not
result, either individually or in the aggregate, in a Material Adverse Effect.

            (o)  Except as  contemplated  pursuant  to the  Registration  Rights
Agreement,  the Company shall not file any registration statement for any of its
or its Subsidiaries  securities (including the Interest Shares) until all of the
Conversion Shares and Warrant Shares are freely transferable pursuant to Section
1145 of the  Bankruptcy  Code or the  Registration  Statement (as defined in the
Registration Rights Agreement) shall be effective.

            (p) Bankruptcy Court Filing and Confirmation.  The Company shall use
its best  efforts to cause the United  States  Bankruptcy  Court for the Central
District of California  (the  "Bankruptcy  Court") to enter an order in form and
substance  reasonably  satisfactory to the Buyers confirming the Plan as soon as
practicable.  Without  limiting the generality of the  foregoing,  no later than
five Business Days prior to the delivery of the draft  confirmation order or any
filing relating to this Agreement or the  transactions  contemplated  thereby to
the  Bankruptcy  Court,  the  Company  shall  provide  as  copy  of  such  draft
confirmation  order or other  documents  to the  Investors  for their review and
comment.

            (q)  Shares  Freely  Transferable.   The  Company  shall  cause  the
Conversion  Shares and Warrant Shares upon their issuance in connection with the
consummation of the Plan to be freely  transferable  pursuant to Section 1145 of
the  Bankruptcy  Code;  provided  that to the  extent any  Conversion  Shares or
Warrant  Shares  cannot be freely  transferred  pursuant to Section  1145 of the
Bankruptcy  Code,  the  Company  shall,  within  five  Business  Days  from that
determination, execute and deliver a registration rights agreement to the Buyers
in the form of Exhibit G attached hereto (the "Registration  Rights Agreement"),
and the Company shall promptly comply with the terms contained therein.

      5. REGISTER; TRANSFER AGENT INSTRUCTIONS.

            (a) Register.  The Company shall maintain at its principal executive
offices (or such other  office or agency of the Company as it may  designate  by
notice to each holder of Securities),  a register for the Notes and the Warrants
in which the  Company  shall  record the name and address of the Person in whose
name the Notes and the Warrants have been issued (including the name and address
of each  transferee),  the  principal  amount of Notes held by such Person,  the
number  of  Interest  Shares  issuable  pursuant  to the  terms  of  the  Notes,
Conversion  Shares  issuable  upon  conversion  of the Notes and Warrant  Shares
issuable upon  exercise of the Warrants  held by such Person.  The Company shall
keep the register  open and  available at all times  during  business  hours for
inspection of any Buyer or its legal representatives.

                                       20
<PAGE>

            (b) Transfer Agent Instructions. The Company shall issue irrevocable
instructions to its transfer agent, and any subsequent  transfer agent, to issue
certificates  or  credit  shares  to  the  applicable  balance  accounts  at The
Depository  Trust Company  ("DTC"),  registered in the name of each Buyer or its
respective  nominee(s),  for the Interest Shares,  the Conversion Shares and the
Warrant  Shares issued at the Closing or upon  issuance of the Interest  Shares,
conversion of the Notes or exercise of the Warrants in such amounts as specified
from time to time by each Buyer to the Company upon  conversion  of the Notes or
exercise  of the  Warrants  in the  form  of  Exhibit  C  attached  hereto  (the
"Irrevocable  Transfer  Agent  Instructions").  The  Company  warrants  that  no
instruction other than the Irrevocable  Transfer Agent Instructions  referred to
in this Section 5(b), and stop transfer  instructions  to give effect to Section
2(g) hereof,  will be given by the Company to its transfer  agent,  and that the
Securities  shall  otherwise be freely  transferable on the books and records of
the  Company  as and to the  extent  provided  in this  Agreement  and the other
Transaction Documents.  If a Buyer effects a sale, assignment or transfer of the
Securities  in  accordance  with  Section  2(f),  the Company  shall  permit the
transfer and shall  promptly  instruct  its transfer  agent to issue one or more
certificates or credit shares to the applicable  balance accounts at DTC in such
name and in such  denominations  as specified by such Buyer to effect such sale,
transfer or assignment.  In the event that Interest Shares, Conversion Shares or
Warrant Shares were issued  pursuant to Section 1145 of the  Bankruptcy  Code or
such sale, assignment or transfer involves Interest Shares, Conversion Shares or
Warrant  Shares  sold,   assigned  or  transferred   pursuant  to  an  effective
registration  statement or pursuant to Rule 144, the transfer  agent shall issue
such  Securities  to the  Buyer,  assignee  or  transferee,  as the case may be,
without any restrictive legend. The Company  acknowledges that a breach by it of
its obligations  hereunder will cause irreparable harm to a Buyer.  Accordingly,
the Company  acknowledges that the remedy at law for a breach of its obligations
under this Section 5(b) will be inadequate and agrees,  in the event of a breach
or threatened breach by the Company of the provisions of this Section 5(b), that
a Buyer shall be entitled,  in addition to all other available  remedies,  to an
order and/or injunction  restraining any breach and requiring immediate issuance
and  transfer,  without the  necessity of showing  economic loss and without any
bond or other security being required.

      6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.

            Closing  Date.  The Closing Date shall occur within two (2) Business
Days after the date the Bankruptcy Court approves the transactions  contemplated
by this Agreement. The obligation of the Company hereunder to issue and sell the
Notes and the  related  Warrants  to each Buyer at the Closing is subject to the
satisfaction,  at  or  before  the  Closing  Date,  of  each  of  the  following
conditions,  provided that these  conditions  are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion by providing
each Buyer with prior written notice thereof:

                  (i) Such Buyer  shall have  executed  each of the  Transaction
Documents to which it is a party and delivered the same to the Company.

                  (ii) Such Buyer and each other Buyer shall have  delivered  to
the Company the  Purchase  Price  (less,  in the case of SRG  Capital,  LLC, the
amounts  withheld  pursuant  to  Section  4(g)) for the  Notes  and the  related
Warrants  being  purchased  by such  Buyer at the  Closing by wire  transfer  of
immediately  available funds pursuant to the wire  instructions  provided by the
Company.

                                       21
<PAGE>

                  (iii) The  representations  and warranties of such Buyer shall
be true and correct in all material  respects as of the date when made and as of
the Closing  Date as though made at that time  (except for  representations  and
warranties  that  speak as of a  specific  date),  and  such  Buyer  shall  have
performed,  satisfied and complied in all material  respects with the covenants,
agreements and conditions required by this Agreement to be performed,  satisfied
or complied with by such Buyer at or prior to the Closing Date.

                  (iv)  The  Bankruptcy   Court  shall  have  entered  an  order
approving  this  Agreement  and the other  Transaction  Documents as well as the
transactions  contemplated  hereby and  thereby,  including  the issuance of the
Securities.

      7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.

            Closing Date.  The Closing Date shall occur within  two(2)  Business
Days after the date the Bankruptcy Court approves the transactions  contemplated
by this Agreement.  The obligation of each Buyer hereunder to purchase the Notes
and the related  Warrants at the Closing is subject to the  satisfaction,  at or
before the Closing  Date,  of each of the  following  conditions,  provided that
these  conditions  are for each  Buyer's  sole benefit and may be waived by such
Buyer at any time in its sole  discretion  by  providing  the Company with prior
written notice thereof:

                  (i) The Company  shall have  executed  and  delivered  to such
Buyer (A) each of the  Transaction  Documents,  (B) the Notes (in such principal
amounts  as such  Buyer  shall  request)  being  purchased  by such Buyer at the
Closing  pursuant to this  Agreement,  and (C) the  Warrants (in such amounts as
such Buyer shall request) being purchased by such Buyer at the Closing  pursuant
to this Agreement.

                  (ii) Such  Buyer  shall  have  received  the  opinions  of (A)
Richardson & Patel, LP, the Company's  outside counsel,  dated as of the Closing
Date, in  substantially  the form of Exhibit D-1 attached hereto and (B) Shulman
Hodges & Bastian LLP, the Company's outside bankruptcy counsel,  dated as of the
Closing Date, in substantially  the form of Exhibit D-2 attached hereto, in each
case reasonably acceptable to such Buyer.

                  (iii) The Company shall have delivered to such Buyer a copy of
the Irrevocable  Transfer Agent Instructions,  in the form of Exhibit C attached
hereto,  which  instructions  shall have been delivered to and  acknowledged  in
writing by the Company's transfer agent.

                  (iv)  The  Company  shall  have  delivered  to  such  Buyer  a
certificate  evidencing  the formation and good standing of the Company and each
of its  Subsidiaries in such entity's  jurisdiction  of formation  issued by the
Secretary of State (or  comparable  office) of such  jurisdiction,  as of a date
within 10 days of the Closing Date.

                  (v)  The  Company  shall  have   delivered  to  such  Buyer  a
certificate evidencing the Company's  qualification as a foreign corporation and
good standing  issued by the Secretary of State (or  comparable  office) of each
jurisdiction in which the Company conducts business, as of a date within 10 days
of the Closing Date.

                                       22
<PAGE>

                  (vi)  The  Company  shall  have  delivered  to  such  Buyer  a
certified copy of the Articles of Incorporation as certified by the Secretary of
State of the State of Nevada within ten (10) days of the Closing Date.

                  (vii)  The  Company  shall  have  delivered  to  such  Buyer a
certificate, executed by the Chief Executive Officer of the Company and dated as
of the Closing Date, as to (i) the  resolutions  consistent with Section 3(b) as
adopted by the Company's Board of Directors in a form  reasonably  acceptable to
such Buyer, (ii) the Articles of Incorporation and (iii) the Bylaws,  each as in
effect at the Closing, in the form attached hereto as Exhibit E.

                  (viii) The representations and warranties of the Company shall
be true and  correct  as of the date  when  made and as of the  Closing  Date as
though made at that time (except for  representations  and warranties that speak
as of a specific  date) and the  Company  shall have  performed,  satisfied  and
complied in all respects with the covenants,  agreements and conditions required
by the Transaction Documents to be performed,  satisfied or complied with by the
Company  at or prior to the  Closing  Date.  Such Buyer  shall  have  received a
certificate, executed by the Chief Executive Officer of the Company, dated as of
the Closing Date, to the foregoing effect and as to such other matters as may be
reasonably requested by such Buyer in the form attached hereto as Exhibit F.

                  (ix) The Company  shall have  delivered to such Buyer a letter
from the  Company's  transfer  agent  certifying  the number of shares of Common
Stock outstanding as of a date within five days of the Closing Date.

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

                  (xi)  The  Company  shall  have  obtained  all   governmental,
regulatory or third party consents and approvals, if any, necessary for the sale
of the Securities,  except for post-closing  securities filings or notifications
required to be made under federal or state securities laws.

                  (xii)  The  Company  shall  have  delivered  to  such  Buyer a
certified copy of the order  approving this Agreement and the other  Transaction
Documents as well as the transactions  contemplated hereby and thereby including
the  issuance  of the  Securities,  and no stay of such  order  shall  have been
entered  or, if  entered,  shall  remain in effect.  The order  shall  contain a
finding that such Buyer is  extending  credit to the Company in good faith and a
provision  that such Buyer is  entitled  to all of the  protections  afforded by
Section 364(e) of the Bankruptcy  Code. In addition,  such order shall contain a
finding to the effect that: (i) the  Transaction  Documents have been negotiated
in good faith and at  arm's-length  between the Company and the Investors,  (ii)
the terms of the Notes to be issued  pursuant to the  Transaction  Documents are
fair,  reasonable,  and  reflect  the  Company's  exercise  of sound and prudent

                                       23
<PAGE>

business judgment consistent with its fiduciary duties, and (iii) that any loans
and/or  other  financial  accommodations  made to the  Company by the  Investors
pursuant to the Transaction Documents and such order shall (A) be deemed to have
been  extended by the  Investors in good faith,  as that term is used in section
364(e) of the Bankruptcy Code, and the Investors shall be entitled to all of the
protections afforded thereby and (B) constitute  reasonably equivalent value and
fair  consideration  for the Notes  under  the  Bankruptcy  Code and  applicable
non-bankruptcy law.

                  (xiii) The  Company  shall have  delivered  to such Buyer such
other documents  relating to the transactions  contemplated by this Agreement as
such Buyer or its counsel may reasonably request.

      8. TERMINATION. In the event that the Closing shall not have occurred with
respect to a Buyer on or before five (5) Business  Days from the date hereof due
to the Company's or such Buyer's  failure to satisfy the conditions set forth in
Sections  6 and 7 above  (and the  nonbreaching  party's  failure  to waive such
unsatisfied  condition(s)),  the  nonbreaching  party  shall  have the option to
terminate this  Agreement  with respect to such breaching  party at the close of
business  on such  date  without  liability  of any  party to any  other  party;
provided, however, this if this Agreement is terminated pursuant to this Section
8, the Company shall remain obligated to reimburse the non-breaching  Buyers for
the expenses described in Section 4(g) above.

      9. MISCELLANEOUS.

            (a)  Governing  Law;   Jurisdiction;   Jury  Trial.   All  questions
concerning the construction,  validity,  enforcement and  interpretation of this
Agreement  shall be  governed  by the  internal  laws of the  State of New York,
without  giving effect to any choice of law or conflict of law provision or rule
(whether of the State of New York or any other  jurisdictions)  that would cause
the  application  of the laws of any  jurisdictions  other than the State of New
York. Each party hereby irrevocably submits to the exclusive jurisdiction of the
state and federal courts sitting in The City of New York,  Borough of Manhattan,
for the adjudication of any dispute hereunder or in connection  herewith or with
any transaction  contemplated hereby or discussed herein, and hereby irrevocably
waives,  and agrees not to assert in any suit,  action or proceeding,  any claim
that it is not personally  subject to the  jurisdiction of any such court,  that
such suit, action or proceeding is brought in an inconvenient  forum or that the
venue of such  suit,  action  or  proceeding  is  improper.  Each  party  hereby
irrevocably  waives  personal  service of process and consents to process  being
served in any such suit,  action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient  service of process and notice
thereof.  Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner  permitted by law. 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 AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

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

                                       24
<PAGE>

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

            (d)  Severability.  If any  provision  of this  Agreement  shall  be
invalid   or   unenforceable   in   any   jurisdiction,   such   invalidity   or
unenforceability  shall  not  affect  the  validity  or  enforceability  of  the
remainder  of  this   Agreement  in  that   jurisdiction   or  the  validity  or
enforceability of any provision of this Agreement in any other jurisdiction.

            (e)  Entire  Agreement;  Amendments.  This  Agreement  and the other
Transaction  Documents  supersede  all other  prior oral or  written  agreements
between the Buyers,  the Company,  their  Affiliates and Persons acting on their
behalf  with  respect to the  matters  discussed  herein and  therein,  and this
Agreement, the other Transaction Documents and the instruments referenced herein
contain  the entire  understanding  of the parties  with  respect to the matters
covered  herein and therein  and,  except as  specifically  set forth  herein or
therein,  neither the Company nor any Buyer makes any representation,  warranty,
covenant or  undertaking  with  respect to such  matters.  No  provision of this
Agreement may be amended  other than by an  instrument in writing  signed by the
Company  and the  holders  of at least a  majority  of the  aggregate  number of
Registrable Securities issued and issuable hereunder,  and any amendment to this
Agreement  made in conformity  with the provisions of this Section 9(e) shall be
binding on all Buyers and holders of  Securities,  as  applicable.  No provision
hereof may be waived other than by an instrument in writing  signed by the party
against whom enforcement is sought.  No such amendment shall be effective to the
extent  that it  applies  to less  than  all of the  holders  of the  applicable
Securities then  outstanding.  No consideration  shall be offered or paid to any
Person to amend or consent to a waiver or  modification  of any provision of any
of the Transaction  Documents unless the same  consideration  also is offered to
all of the parties to the Transaction Documents,  holders of Notes or holders of
the Warrants,  as the case may be. The Company has not,  directly or indirectly,
made any agreements  with any Buyers  relating to the terms or conditions of the
transactions  contemplated by the Transaction  Documents  except as set forth in
the Transaction Documents.  Without limiting the foregoing, the Company confirms
that, except as set forth in this Agreement, no Buyer has made any commitment or
promise or has any other  obligation  to provide any financing to the Company or
otherwise.

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

                                       25
<PAGE>

                           If to the Company:

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

                           Copy to:

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

                           If to the Transfer Agent:

                                    Securities Transfer Corporation
                                    2591 Dallas Pkwy Suite 102
                                    Frisco, TX 75034
                                    Telephone: 469-633-0101
                                    Facsimile: 469-633-0088
                                    Attention: Marilyn Fox

If to a Buyer, to its address and facsimile  number set forth on the Schedule of
Buyers, with copies to such Buyer's representatives as set forth on the Schedule
of Buyers,

                           with a copy (for informational purposes only) to:

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

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

                                       26
<PAGE>

            (g) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns,
including  any  purchasers  of the Notes or the Warrants and, in the case of the
Company,  any trustee,  examiner with expanded powers,  responsible  officer, or
other person appointed as an estate  representative for the Company. The Company
shall not assign this Agreement or any rights or obligations  hereunder  without
the prior written consent of the holders of at least a majority of the aggregate
number of Registrable Securities issued and issuable hereunder, including by way
of a  Fundamental  Transaction  (unless  the Company is in  compliance  with the
applicable provisions governing Fundamental  Transactions set forth in the Notes
and the  Warrants).  A Buyer  may  assign  some or all of its  rights  hereunder
without the consent of the Company, in which event such assignee shall be deemed
to be a Buyer hereunder with respect to such assigned rights.

            (h) No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties  hereto and their  respective  permitted  successors  and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.

            (i) Survival.  Unless this Agreement is terminated  under Section 8,
the  representations  and warranties of the Company and the Buyers  contained in
Sections 2 and 3 and the agreements and covenants set forth in Sections 4, 5 and
9 shall survive the Closing.  Each Buyer shall be  responsible  only for its own
representations, warranties, agreements and covenants hereunder.

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

            (k) Indemnification.  In consideration of each Buyer's execution and
delivery of the  Transaction  Documents and acquiring the Securities  thereunder
and in addition to all of the Company's other  obligations under the Transaction
Documents,  the Company shall defend, protect,  indemnify and hold harmless each
Buyer and each other  holder of the  Securities  and all of their  stockholders,
partners,  members,  officers,  directors,  employees  and  direct  or  indirect
investors  and any of the  foregoing  Persons'  agents or other  representatives
(including,   without   limitation,   those  retained  in  connection  with  the
transactions contemplated by this Agreement)  (collectively,  the "Indemnitees")
from and against any and all actions,  causes of action, suits, claims,  losses,
costs,  penalties,  fees,  liabilities  and damages,  and expenses in connection
therewith  (irrespective of whether any such Indemnitee is a party to the action
for  which  indemnification  hereunder  is  sought),  and  including  reasonable
attorneys' fees and disbursements (the "Indemnified  Liabilities"),  incurred by
any  Indemnitee  as a result  of,  or  arising  out of, or  relating  to (a) any
misrepresentation  or  breach  of any  representation  or  warranty  made by the
Company in the  Transaction  Documents or any other  certificate,  instrument or
document  contemplated  hereby  or  thereby,  (b) any  breach  of any  covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate,  instrument or document contemplated hereby or thereby or
(c) any cause of action,  suit or claim brought or made against such  Indemnitee
by a third party  (including for these  purposes a derivative  action brought on
behalf of the Company) and arising out of or resulting  from (i) the  execution,
delivery,  performance or enforcement of the Transaction  Documents or any other
certificate,  instrument or document  contemplated  hereby or thereby,  (ii) any
transaction  financed  or to be  financed  in  whole  or in  part,  directly  or
indirectly,   with  the  proceeds  of  the  issuance  of  the  Securities   (but
indemnification  pursuant  to this  clause  (ii) shall not apply to any  expense
reimbursement  payments to be made to any Buyer,  any Buyer's  counsel or to any
Buyer's other representatives), (iii) any disclosure made by such Buyer pursuant
to Section 4(i) that has been  reasonably  approved by the Company,  or (iv) the
status of such Buyer or holder of the  Securities  as an investor in the Company

                                       27
<PAGE>

pursuant to the transactions  contemplated by the Transaction Documents.  To the
extent that the foregoing  undertaking by the Company may be  unenforceable  for
any reason,  the Company shall make the maximum  contribution to the payment and
satisfaction of each of the Indemnified  Liabilities  which is permissible under
applicable  law.  Except  as  otherwise  set forth  herein,  the  mechanics  and
procedures  with respect to the rights and  obligations  under this Section 9(k)
shall be the same as those set forth in  Section  6 of the  Registration  Rights
Agreement (whether executed or not).

            (l) No Strict Construction. The language used in this Agreement will
be deemed to be the  language  chosen by the  parties  to express  their  mutual
intent, and no rules of strict construction will be applied against any party.

            (m)  Remedies.  Each Buyer and each holder of the  Securities  shall
have all rights and  remedies  set forth in the  Transaction  Documents  and all
rights and  remedies  which such holders have been granted at any time under any
other  agreement or contract and all of the rights which such holders have under
any law.  Any Person  having any rights under any  provision  of this  Agreement
shall be entitled to enforce such rights specifically (without posting a bond or
other security),  to recover damages by reason of any breach of any provision of
this Agreement and to exercise all other rights granted by law. Furthermore, the
Company  recognizes  that in the event  that it fails to  perform,  observe,  or
discharge any or all of its  obligations  under the Transaction  Documents,  any
remedy  at law may prove to be  inadequate  relief to the  Buyers.  The  Company
therefore  agrees  that the  Buyers  shall be  entitled  to seek  temporary  and
permanent  injunctive  relief in any such case without the  necessity of proving
actual damages and without posting a bond or other security.

            (n)  Payment  Set Aside.  To the  extent  that the  Company  makes a
payment or  payments  to the Buyers  hereunder  or  pursuant to any of the other
Transaction  Documents or the Buyers enforce or exercise their rights  hereunder
or thereunder,  and such payment or payments or the proceeds of such enforcement
or exercise or any part  thereof are  subsequently  invalidated,  declared to be
fraudulent  or  preferential,  set aside,  recovered  from,  disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other Person under any law (including,  without limitation,  any
bankruptcy law, foreign,  state or federal law, common law or equitable cause of
action),  then to the  extent of any such  restoration  the  obligation  or part
thereof  originally  intended to be satisfied  shall be revived and continued in
full force and effect as if such  payment had not been made or such  enforcement
or setoff had not occurred.

                                       28
<PAGE>

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

                            [Signature Page Follows]

                                       29
<PAGE>

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

                                                COMPANY:

                                                COMPOSITE TECHNOLOGY CORPORATION

                                                By:____________________________
                                                   Name:
                                                   Title:

<PAGE>

                        [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  [____________________]
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.

                                       2
<PAGE>

      10.  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.

      11. 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
____________
(1)   Insert date that is 1 day following the fifteen month  anniversary  of the
      Issuance Date.

                                       3
<PAGE>

(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.

      12.  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.

                                       4
<PAGE>

                  (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.

                  (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.

                                       5
<PAGE>

                  (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.

            (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

                                       6
<PAGE>

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.

      2. 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.

                                       7
<PAGE>

      13. 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;  (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;

                                       8
<PAGE>

                  (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;

                  (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;

                                       9
<PAGE>

                  (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,  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;

                          (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;

                                       10
<PAGE>

                          (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.

      14. 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

                                       11
<PAGE>

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.

            (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.

                                       12
<PAGE>

      15. 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.

      16. 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:

                                       13
<PAGE>

                  (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.

                  (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.

                                       14
<PAGE>

                  (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.

                  (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.

                                       15
<PAGE>

            (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.

      17. 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.

                                       16
<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.

      18.  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

                                       17
<PAGE>

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.  NOTWITHSTANDING  THE  FOREGOING AND
SOLELY UPON AND IN CONNECTION  WITH THE OCCURRENCE OF  SUBSTANTIAL  CONSUMMATION
(AS  THAT  TERM IS  DEFINED  IN  SECTION  1101 OF THE  BANKRUPTCY  CODE)  OF THE
COMPANY'S  CHAPTER 11  REORGANIZATION  PLAN,  THE ALLOWED  SUPERPRIORITY  CLAIMS
GRANTED THE HOLDERS OF THE NOTES  HEREUNDER  SHALL BE SUBORDINATED TO PAYMENT BY
THE COMPANY OF THE FOLLOWING  CARVE OUT EXPENSES IN THE  FOLLOWING  PRIORITY AND
NOT TO  EXCEED  A  TOTAL  OF TWO  MILLION  THIRTY-EIGHT  THOUSAND  FIVE  HUNDRED
SEVENTY-TWO DOLLARS AND TWO CENTS ($2,038,572.02): (A) STATUTORY FEES PAYABLE TO
THE UNITED STATES TRUSTEE  PURSUANT TO 28 U.S.C.  SECTION 1930; (B) FEES PAYABLE
TO THE CLERK OF THE COURT;  AND (C) THE (I) UNPAID  FEES AND  EXPENSES  ACTUALLY
INCURRED  ON OR AFTER THE  PETITION  DATE AND  APPROVED  BY A FINAL ORDER OF THE
BANKRUPTCY  COURT BY  PROFESSIONALS  RETAINED  UNDER  SECTION 327 OR 1103 OF THE
BANKRUPTCY  CODE  BY  THE  COMPANY  OR  THE  STATUTORY  COMMITTEE  OF  UNSECURED
CREDITORS' AND (II) ALLOWED CLASS 2-A UNSECURED CLAIMS; PROVIDED,  HOWEVER, THAT
THE AMOUNT PAYABLE TO ANY PERSON OR ENTITY PURSUANT TO SUBCLAUSE  (C)(I) OR (II)
SHALL IN NO EVENT EXCEED THE AMOUNT LISTED ON SCHEDULE  3(CC) TO THE  SECURITIES
PURCHASE AGREEMENT WITH RESPECT TO SUCH PERSON OR ENTITY.

      19.  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.

      20. 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

                                       18
<PAGE>

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.

            (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.

      21. 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.

                                       19
<PAGE>

      22.  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.

      23. 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.

      24. COVENANTS.

            (a) Rank. All payments due under this Note (a) shall rank pari passu
with all Other Notes and (b) shall be constitute  Superpriority Claims senior to
all other Indebtedness of the Company and its Subsidiaries.  Notwithstanding the
foregoing and solely upon and in connection  with the  occurrence of substantial
consummation (as that term is defined in Section 1101 of the Bankruptcy Code) of
the Company's Chapter 11 reorganization  plan, the allowed  Superpriority Claims
granted the holders of the Notes  hereunder  shall be subordinated to payment by
the Company of the following  Carve Out Expenses in the  following  priority and
not to  exceed  a  total  of two  million  thirty-eight  thousand  five  hundred
seventy-two dollars and two cents ($2,038,572.02): (a) statutory fees payable to
the United States Trustee  pursuant to 28 U.S.C.  Section 1930; (b) fees payable
to the Clerk of the Court;  and (c) the (i) unpaid  fees and  expenses  actually
incurred  on or after the  Petition  Date and  approved  by a final order of the
Bankruptcy  Court by  professionals  retained  under  Section 327 or 1103 of the
Bankruptcy  Code  by  the  Company  or  the  statutory  committee  of  unsecured
creditors' and (ii) allowed class 2-A unsecured claims; provided,  however, that
the amount payable to any person or entity pursuant to subclause  (c)(i) or (ii)
shall in no event exceed the amount listed on Schedule  3(cc) to the  Securities
Purchase Agreement with respect to such person or entity.

                                       20
<PAGE>

            (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.

      25.  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

      26. 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.

      27. 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.

      28. 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.

                                       21
<PAGE>

            (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.

      29.  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.

                                       22
<PAGE>

      30. 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.

      31.  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.

      32. 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.

      33. 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

                                       23
<PAGE>

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.

      34. 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.

      35. 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.

                                       24
<PAGE>

      36. 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.

      37. 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.

      38. 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.

                                       25
<PAGE>

            (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.

            (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.

                                       26
<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.

                                       27
<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) "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).

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

            (s) "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.

                                       28
<PAGE>

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

            (u) "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.

            (v) "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.

            (w)  "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).

                                       29
<PAGE>

            (x) "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.

            (y) "Principal Market" means the OTC Bulletin Board.

            (z)  "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%.

            (aa) "Required  Holders" means the holders of Notes  representing at
least  a  majority  of  the  aggregate   principal  amount  of  the  Notes  then
outstanding.

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

            (cc) "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.

            (dd) "Subscription Date" means September 23, 2005.

            (ee) "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.

            (ff)  "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).

            (gg)  "Transaction  Documents" has the meaning ascribed to such term
in the Securities Purchase Agreement.

            (hh)  "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.

            (ii)  "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

                                       30
<PAGE>

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]

                                       31
<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:

                                    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:_____________________________________________________________________________

                                       32
<PAGE>

   Title:_______________________________________________________________________

Dated:__________________________________________________________________________

   Account Number:______________________________________________________________
   (if electronic book entry transfer)

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

                                 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:

                                       33
<PAGE>

                                [FORM OF WARRANT]

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES  REPRESENTED BY THIS CERTIFICATE
NOR THE  SECURITIES  INTO WHICH  THESE  SECURITIES  ARE  EXERCISEABLE  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) UNLESS ISSUED PURSUANT TO SECTION 1145 OF TITLE 11 OF THE UNITED
STATES CODE, U.S.C. ss.ss.  101-1330,  AS AMENDED, (II) 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 (III) UNLESS SOLD PURSUANT
TO RULE 144 OR RULE 144A  UNDER SAID ACT.  NOTWITHSTANDING  THE  FOREGOING,  THE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

                        COMPOSITE TECHNOLOGY CORPORATION

                        WARRANT TO PURCHASE COMMON STOCK

Warrant No.: _______
Number of Shares of Common Stock:_____________
Date of Issuance: September ___, 2005 ("Issuance Date")

      Composite  Technology  Corporation,  a Nevada corporation (the "Company"),
hereby  certifies  that,  for good and valuable  consideration,  the receipt and
sufficiency of which are hereby  acknowledged,  [BUYERS],  the registered holder
hereof or its  permitted  assigns (the  "Holder"),  is entitled,  subject to the
terms set forth below,  to purchase from the Company,  at the Exercise Price (as
defined below) then in effect, upon surrender of this Warrant to Purchase Common
Stock  (including  any  Warrants to Purchase  Common  Stock  issued in exchange,
transfer or replacement hereof, the "Warrant"), at any time or times on or after
the date hereof, but not after 11:59 p.m., New York Time, on the Expiration Date
(as defined below),  ______________  (_____________)(2) fully paid nonassessable
shares of Common  Stock (as defined  below) (the  "Warrant  Shares").  Except as
otherwise  defined  herein,  capitalized  terms in this  Warrant  shall have the
meanings  set forth in  Section  15.  This  Warrant  is one of the  Warrants  to
purchase Common Stock (the "SPA Warrants")  issued pursuant to Section 1 of that
certain  Securities  Purchase  Agreement,  dated as of  September  __, 2005 (the
"Subscription  Date"), by and among the Company and the investors (the "Buyers")
referred to therein (the "Securities Purchase Agreement").

_____________
(2)   There will be two tranches of Warrants,  each of which will be issued both
      exercisable for the same number of Warrant  Shares.  One such Warrant will
      have an exercise price equal to 125% of the  Conversion  Price (as defined
      in the Notes) and the other with an  exercise  price  equal to 115% of the
      Conversion  Price.  For each tranche of Warrants,  insert number of shares
      equal to (x) 15% of the  principal  amount of Notes  issued to the  Holder
      pursuant  to  the  Securities   Purchase  Agreement  divided  by  (y)  the
      Conversion Price. All other terms will be the same.

                                       34
<PAGE>

      39. EXERCISE OF WARRANT.

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

                                       35
<PAGE>

                  (ii) Exercise Price.  For purposes of this Warrant,  "Exercise
Price" means $[ ],(3) subject to adjustment as provided herein.

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

                  (iv) Cashless  Exercise.  Notwithstanding  anything  contained
herein to the contrary,  if at any time after 120 days after the effective  date
of the Plan, any Warrant Shares cannot be issued pursuant to Section 1145 of the
Bankruptcy  Code  (as  defined  in  the  Securities  Purchase  Agreement)  and a
registration  statement  covering the Warrant  Shares that are the subject of an
Exercise  Notice (the  "Unavailable  Warrant  Shares") is not  available for the
resale of such  Unavailable  Warrant Shares at the time of exercise,  the Holder
may, in its sole  discretion,  exercise this Warrant in whole or in part and, in
lieu of making the cash payment otherwise contemplated to be made to the Company
upon such exercise in payment of the Aggregate  Exercise Price, elect instead to
receive upon such exercise the "Net Number" of shares of Common Stock determined
according to the following formula (a "Cashless Exercise"):

__________________
(3)   One tranche of Warrants  will have an Exercise  Price equal to 115% of the
      Conversion  Price.  The other will have an Exercise Price equal to 125% of
      the Conversion Price.

                                       36
<PAGE>

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

                           For purposes of the foregoing formula:

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

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

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

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

                  (vi)  Limitations  on  Exercises;  Beneficial  Ownership.  The
Company shall not effect the exercise of this Warrant,  and the Holder shall not
have the right to exercise this Warrant,  to the extent that after giving effect
to such exercise,  such Person  (together with such Person's  affiliates)  would
beneficially  own in excess of 4.99% of the shares of Common  Stock  outstanding
immediately after giving effect to such exercise.  For purposes of the foregoing
sentence,  the aggregate number of shares of Common Stock  beneficially owned by
such  Person and its  affiliates  shall  include  the number of shares of Common
Stock  issuable  upon  exercise  of this  Warrant  with  respect  to  which  the
determination of such sentence is being made, but shall exclude shares of Common
Stock which would be issuable  upon (i) exercise of the  remaining,  unexercised
portion of this Warrant beneficially owned by such Person and its affiliates and
(ii) exercise or conversion of the  unexercised  or  unconverted  portion of any
other  securities  of the  Company  beneficially  owned by such  Person  and its
affiliates (including,  without limitation, any convertible notes or convertible
preferred  stock or warrants)  subject to a limitation on conversion or exercise
analogous  to the  limitation  contained  herein.  Except  as set  forth  in the
preceding sentence,  for purposes of this paragraph,  beneficial ownership shall
be calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended.  For purposes of this Warrant,  in  determining  the number of
outstanding  shares  of  Common  Stock,  the  Holder  may rely on the  number of
outstanding shares of Common Stock as reflected in (1) the Company's most recent
Form 10-KSB, Form 10-QSB, Current Report on Form 8-K or other public filing with
the  Securities and Exchange  Commission,  as the case may be, (2) a more recent
public announcement by the Company or (3) any other notice by the Company or the
Transfer  Agent setting forth the number of shares of Common Stock  outstanding.
For any reason at any time, upon the written or oral request of the Holder,  the
Company  shall  within two Business  Days  confirm  orally and in writing to the
Holder the number of shares of Common Stock then  outstanding.  In any case, the

                                       37
<PAGE>

number of  outstanding  shares of Common Stock shall be determined  after giving
effect to the conversion or exercise of securities of the Company, including the
SPA Securities and the SPA Warrants,  by the Holder and its affiliates since the
date as of which such number of outstanding shares of Common Stock was reported.
By written  notice to the  Company,  the Holder may  increase  or  decrease  the
Maximum  Percentage to any other  percentage not in excess of 9.99% specified in
such notice; provided that (i) any such increase will not be effective until the
sixty-first  (61st) day after such notice is delivered to the Company,  and (ii)
any such increase or decrease will apply only to the Holder and not to any other
holder of SPA Warrants.

      40.  ADJUSTMENT  OF  EXERCISE  PRICE AND  NUMBER OF  WARRANT  SHARES.  THE
EXERCISE  PRICE AND THE NUMBER OF WARRANT  SHARES SHALL BE ADJUSTED FROM TIME TO
TIME AS FOLLOWS:

            (i)  Adjustment  upon  Issuance  of shares of Common  Stock.  If and
whenever on or after the  Subscription  Date the Company issues or sells,  or in
accordance  with this Section 2 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  by the  Company  in  connection  with any  Excluded
Securities (as defined in the SPA Securities) for a consideration per share (the
"New Issuance  Price") less than a price (the  "Applicable  Price") equal to the
Exercise  Price in  effect  immediately  prior to such  issue or sale or  deemed
issuance or sale (the foregoing a "Dilutive Issuance"), then (1) if the Dilutive
Issuance  occurred from the initial Issuance Date until the 15 month anniversary
of the initial  Issuance Date,  immediately  after such Dilutive  Issuance,  the
Exercise  Price then in effect  shall be reduced to an amount equal to [115]%(4)
of the New Issuance Price or (2) if the Dilutive  Issuance occurred after the 15
month anniversary of the initial Issuance Date,  immediately after such Dilutive
Issuance,  the Exercise  Price shall be adjusted to an amount equal to [115%](5)
of the product of (A) the  Exercise  Price in effect  immediately  prior to such
Dilutive Issuance and (B) the quotient determined by dividing (1) the sum of (I)
the product  derived by  multiplying  the Exercise  Price in effect  immediately
prior  to  such  Dilutive  Issuance  and  the  number  of  Common  Stock  Deemed
Outstanding   immediately   prior  to  such  Dilutive  Issuance  plus  (II)  the
consideration,  if any, received by the Company upon such Dilutive Issuance,  by
(2) the  product  derived  by  multiplying  (I) the  Exercise  Price  in  effect
immediately  prior to such Dilutive  Issuance by (II) the number of Common Stock
Deemed Outstanding immediately after such Dilutive Issuance;  provided, that the
Exercise  Price shall never be  increased  pursuant to the terms of this Section
2(a). Upon each such adjustment of the Exercise Price  hereunder,  the number of
Warrant  Shares  shall be  adjusted  to the  number of  shares  of Common  Stock
determined by multiplying the Exercise Price in effect immediately prior to such
adjustment  by the number of Warrant  Shares  acquirable  upon  exercise of this
Warrant immediately prior to such adjustment and dividing the product thereof by
the Exercise Price resulting from such  adjustment.  For purposes of determining
the adjusted  Exercise  Price under this Section 2(a),  the  following  shall be
applicable:
______________
(4)   115% if the Exercise Price of the Warrant is 115% of Conversion  Price and
      125% if the Exercise Price of the Warrant is 125% of the Conversion Price.

(5)   115% if the Exercise Price of the Warrant is 115% of Conversion  Price and
      125% if the Exercise Price of the Warrant is 125% of the Conversion Price.

                                       38
<PAGE>

                  (i) Issuance of Options.  If the Company in any manner  grants
                  any Options  (other than  Exluded  Securities)  and the lowest
                  price per share for which one share of shares of Common  Stock
                  is  issuable  upon the  exercise  of any such  Option  or upon
                  conversion, exercise or exchange of any Convertible Securities
                  issuable  upon  exercise  of any such  Option is less than the
                  Applicable  Price,  then such shares 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
                  2(a)(i),  the  "lowest  price per share for which one share of
                  Common Stock is issuable upon exercise of such Options or upon
                  conversion,   exercise  or   exchange   of  such   Convertible
                  Securities" 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
                  granting  or sale of the Option,  upon  exercise of the Option
                  and upon  conversion,  exercise or exchange of any Convertible
                  Security  issuable  upon  exercise of such Option.  No further
                  adjustment of the Exercise  Price or number of Warrant  Shares
                  shall be made  upon the  actual  issuance  of such  shares  of
                  Common  Stock  or of  such  Convertible  Securities  upon  the
                  exercise of such  Options or upon the actual  issuance of such
                  shares of Common Stock upon  conversion,  exercise or exchange
                  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 the  conversion,
                  exercise  or  exchange  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  or  sale  of  such   Convertible
                  Securities for such price per share.  For the purposes of this
                  Section  2(a)(ii),  the "lowest  price per share for which one
                  share  of  Common  Stock  is  issuable  upon  the  conversion,
                  exercise or exchange"  shall be equal to the sum of the lowest
                  amounts of  consideration  (if any)  received or receivable by
                  the Company with respect to one share of Common Stock upon the
                  issuance  or  sale  of  the  Convertible   Security  and  upon
                  conversion, exercise or exchange of such Convertible Security.
                  No further adjustment of the Exercise Price shall be made upon
                  the  actual  issuance  of such  shares  of Common  Stock  upon
                  conversion,   exercise  or   exchange   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 this Warrant has been or is to be made pursuant
                  to  other   provisions   of  this  Section  2(a),  no  further
                  adjustment  of the  Exercise  Price shall be made by reason of
                  such issue or sale.

                                       39
<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,  exercise or exchange of
                  any  Convertible   Securities,   or  the  rate  at  which  any
                  Convertible  Securities  (other than Excluded  Securities) are
                  convertible  into or exercisable or exchangeable for shares of
                  Common Stock  increases or decreases at any time, the Exercise
                  Price in effect at the time of such increase or decrease shall
                  be  adjusted to the  Exercise  Price and the number of Warrant
                  Shares  which  would have been in effect at such time had such
                  Options or Convertible  Securities provided for such increased
                  or  decreased  purchase  price,  additional  consideration  or
                  increased or decreased conversion rate, as the case may be, at
                  the time  initially  granted,  issued or sold. For purposes of
                  this  Section  2(a)(iii),  if  the  terms  of  any  Option  or
                  Convertible  Security that was  outstanding  as of the date of
                  issuance of this  Warrant are  increased  or  decreased in the
                  manner described in the immediately  preceding sentence,  then
                  such Option or  Convertible  Security and the shares of Common
                  Stock deemed  issuable upon  exercise,  conversion or exchange
                  thereof  shall be deemed to have been issued as of the date of
                  such  increase or  decrease.  No  adjustment  pursuant to this
                  Section 2(a) shall be made if such adjustment  would result in
                  an increase of the Exercise Price then in effect or a decrease
                  in the number of Warrant Shares.

                  (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 $0.01.  If
                  any shares of 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 shares
                  of Common Stock, Options or Convertible  Securities are issued
                  or sold for a  consideration  other than  cash,  the amount of
                  such  consideration  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  security on the date of receipt.  If any shares
                  of 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

                                       40
<PAGE>

                  business of the  non-surviving  entity as is  attributable  to
                  such   shares  of  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 final
                  and binding  upon all parties  absent  manifest  error and the
                  fees  and  expenses  of such  appraiser  shall be borne by the
                  Company.

                  (v) Record Date.  If the Company takes a record of the holders
                  of shares of Common  Stock for the purpose of  entitling  them
                  (A) to receive a  dividend  or other  distribution  payable in
                  shares of Common Stock,  Options or in Convertible  Securities
                  or (B) to subscribe  for or purchase  shares of Common  Stock,
                  Options or Convertible Securities,  then such record date will
                  be deemed to be the date of the issue or sale of the shares of
                  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.

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

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

                                       41
<PAGE>

      41. RIGHTS UPON DISTRIBUTION OF ASSETS.  OTHER THAN EVENTS CONTEMPLATED IN
SECTION  2(B),  IF THE  COMPANY  SHALL  DECLARE  OR MAKE ANY  DIVIDEND  OR OTHER
DISTRIBUTION  OF ITS  ASSETS (OR  RIGHTS TO  ACQUIRE  ITS  ASSETS) TO HOLDERS OF
SHARES OF COMMON  STOCK,  BY WAY OF RETURN OF CAPITAL OR  OTHERWISE  (INCLUDING,
WITHOUT  LIMITATION,  ANY  DISTRIBUTION  OF CASH,  STOCK  OR  OTHER  SECURITIES,
PROPERTY OR OPTIONS BY WAY OF A DIVIDEND, SPIN OFF, RECLASSIFICATION,  CORPORATE
REARRANGEMENT,   SCHEME  OF  ARRANGEMENT  OR  OTHER  SIMILAR   TRANSACTION)   (A
"DISTRIBUTION"),  AT ANY TIME AFTER THE ISSUANCE OF THIS WARRANT,  THEN, IN EACH
SUCH CASE:

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

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

      42. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.

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

                                       42
<PAGE>

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

                                       43
<PAGE>

other property whatsoever  (including warrants or other purchase or subscription
rights)  which the Holder would have been entitled to receive upon the happening
of such Fundamental Transaction had the Warrant been exercised immediately prior
to such  Fundamental  Transaction.  Provision  made  pursuant  to the  preceding
sentence  shall  be in a  form  and  substance  reasonably  satisfactory  to the
Required  Holders.  The  provisions  of this Section  shall apply  similarly and
equally to successive Fundamental Transactions and Corporate Events and shall be
applied without regard to any limitations on the exercise of this Warrant.

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

                                       44
<PAGE>

      43.  NONCIRCUMVENTION.  THE COMPANY  HEREBY  COVENANTS AND AGREES THAT THE
COMPANY  WILL NOT, BY  AMENDMENT  OF ITS  ARTICLES OF  INCORPORATION,  BYLAWS OR
THROUGH ANY REORGANIZATION, TRANSFER OF ASSETS, CONSOLIDATION, MERGER, SCHEME OF
ARRANGEMENT,  DISSOLUTION,  ISSUE OR SALE OF SECURITIES,  OR ANY OTHER VOLUNTARY
ACTION, AVOID OR SEEK TO AVOID THE OBSERVANCE OR PERFORMANCE OF ANY OF THE TERMS
OF  THIS  WARRANT,  AND  WILL  AT ALL  TIMES  IN GOOD  FAITH  CARRY  OUT ALL THE
PROVISIONS OF THIS WARRANT AND TAKE ALL ACTION AS MAY BE REQUIRED TO PROTECT THE
RIGHTS OF THE HOLDER.  WITHOUT  LIMITING THE  GENERALITY OF THE  FOREGOING,  THE
COMPANY  (I) SHALL NOT  INCREASE  THE PAR  VALUE OF ANY  SHARES OF COMMON  STOCK
RECEIVABLE  UPON THE EXERCISE OF THIS WARRANT  ABOVE THE EXERCISE  PRICE THEN IN
EFFECT,  (II) SHALL TAKE ALL SUCH ACTIONS AS MAY BE NECESSARY OR  APPROPRIATE IN
ORDER  THAT  THE  COMPANY   MAY  VALIDLY  AND  LEGALLY   ISSUE  FULLY  PAID  AND
NONASSESSABLE  SHARES OF COMMON  STOCK UPON THE  EXERCISE OF THIS  WARRANT,  AND
(III) SHALL, SO LONG AS ANY OF THE SPA WARRANTS ARE OUTSTANDING, TAKE ALL ACTION
NECESSARY  TO RESERVE AND KEEP  AVAILABLE  OUT OF ITS  AUTHORIZED  AND  UNISSUED
SHARES OF COMMON STOCK,  SOLELY FOR THE PURPOSE OF EFFECTING THE EXERCISE OF THE
SPA WARRANTS, 130% OF THE NUMBER OF SHARES OF COMMON STOCK AS SHALL FROM TIME TO
TIME BE NECESSARY TO EFFECT THE  EXERCISE OF THE SPA WARRANTS  THEN  OUTSTANDING
(WITHOUT REGARD TO ANY LIMITATIONS ON EXERCISE).

      44.  WARRANT  HOLDER  NOT  DEEMED  A  STOCKHOLDER.   EXCEPT  AS  OTHERWISE
SPECIFICALLY  PROVIDED HEREIN, THE HOLDER, SOLELY IN SUCH PERSON'S CAPACITY AS A
HOLDER OF THIS WARRANT, SHALL NOT BE ENTITLED TO VOTE OR RECEIVE DIVIDENDS OR BE
DEEMED THE HOLDER OF SHARE  CAPITAL OF THE  COMPANY FOR ANY  PURPOSE,  NOR SHALL
ANYTHING  CONTAINED  IN THIS  WARRANT BE  CONSTRUED  TO CONFER  UPON THE HOLDER,
SOLELY IN SUCH  PERSON'S  CAPACITY  AS THE  HOLDER OF THIS  WARRANT,  ANY OF THE
RIGHTS OF A  SHAREHOLDER  OF THE COMPANY OR ANY RIGHT TO VOTE,  GIVE OR WITHHOLD
CONSENT TO ANY CORPORATE  ACTION  (WHETHER ANY  REORGANIZATION,  ISSUE OF STOCK,
RECLASSIFICATION  OF STOCK,  CONSOLIDATION,  MERGER,  CONVEYANCE OR  OTHERWISE),
RECEIVE  NOTICE OF  MEETINGS,  RECEIVE  DIVIDENDS  OR  SUBSCRIPTION  RIGHTS,  OR
OTHERWISE,  PRIOR TO THE ISSUANCE TO THE HOLDER OF THE WARRANT SHARES WHICH SUCH
PERSON IS THEN  ENTITLED TO RECEIVE  UPON THE DUE EXERCISE OF THIS  WARRANT.  IN
ADDITION,  NOTHING  CONTAINED IN THIS WARRANT SHALL BE CONSTRUED AS IMPOSING ANY
LIABILITIES  ON THE HOLDER TO PURCHASE  ANY  SECURITIES  (UPON  EXERCISE OF THIS
WARRANT  OR  OTHERWISE)  OR  AS A  SHAREHOLDER  OF  THE  COMPANY,  WHETHER  SUCH
LIABILITIES  ARE  ASSERTED  BY THE  COMPANY  OR BY  CREDITORS  OF  THE  COMPANY.
NOTWITHSTANDING THIS SECTION 6, THE COMPANY SHALL PROVIDE THE HOLDER WITH COPIES
OF THE SAME  NOTICES  AND OTHER  INFORMATION  GIVEN TO THE  SHAREHOLDERS  OF THE
COMPANY   GENERALLY,   CONTEMPORANEOUSLY   WITH  THE   GIVING   THEREOF  TO  THE
SHAREHOLDERS.

                                       45
<PAGE>

      45. REISSUANCE OF WARRANTS.

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

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

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

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

                                       46
<PAGE>

      46.  NOTICES.  WHENEVER NOTICE IS REQUIRED TO BE GIVEN UNDER THIS WARRANT,
UNLESS OTHERWISE PROVIDED HEREIN,  SUCH NOTICE SHALL BE GIVEN IN ACCORDANCE WITH
SECTION 9(F) OF THE SECURITIES PURCHASE AGREEMENT. THE COMPANY SHALL PROVIDE THE
HOLDER WITH PROMPT WRITTEN NOTICE OF ALL ACTIONS TAKEN PURSUANT TO THIS WARRANT,
INCLUDING  IN  REASONABLE  DETAIL A  DESCRIPTION  OF SUCH  ACTION AND THE REASON
THEREFORE.  WITHOUT  LIMITING THE GENERALITY OF THE FOREGOING,  THE COMPANY WILL
GIVE WRITTEN  NOTICE TO THE HOLDER (I)  IMMEDIATELY  UPON ANY  ADJUSTMENT OF THE
EXERCISE  PRICE,  SETTING  FORTH  IN  REASONABLE  DETAIL,  AND  CERTIFYING,  THE
CALCULATION OF SUCH  ADJUSTMENT AND (II) AT LEAST FIFTEEN DAYS PRIOR TO THE DATE
ON WHICH THE COMPANY  CLOSES ITS BOOKS OR TAKES A RECORD (A) WITH RESPECT TO ANY
DIVIDEND OR  DISTRIBUTION  UPON THE SHARES OF COMMON STOCK,  (B) WITH RESPECT TO
ANY GRANTS, ISSUANCES OR SALES OF ANY OPTIONS,  CONVERTIBLE SECURITIES OR RIGHTS
TO PURCHASE STOCK,  WARRANTS,  SECURITIES OR OTHER PROPERTY TO HOLDERS OF SHARES
OF  COMMON  STOCK OR (C) FOR  DETERMINING  RIGHTS TO VOTE  WITH  RESPECT  TO ANY
FUNDAMENTAL TRANSACTION,  DISSOLUTION OR LIQUIDATION, PROVIDED IN EACH CASE THAT
SUCH  INFORMATION  SHALL BE MADE KNOWN TO THE PUBLIC PRIOR TO OR IN  CONJUNCTION
WITH SUCH NOTICE BEING PROVIDED TO THE HOLDER.

                                       47
<PAGE>

      47.  AMENDMENT  AND  WAIVER.  EXCEPT AS  OTHERWISE  PROVIDED  HEREIN,  THE
PROVISIONS  OF THIS  WARRANT  MAY BE AMENDED AND THE COMPANY MAY TAKE ANY ACTION
HEREIN PROHIBITED, OR OMIT TO PERFORM ANY ACT HEREIN REQUIRED TO BE PERFORMED BY
IT,  ONLY IF THE  COMPANY  HAS  OBTAINED  THE  WRITTEN  CONSENT OF THE  REQUIRED
HOLDERS; PROVIDED THAT NO SUCH ACTION MAY INCREASE THE EXERCISE PRICE OF ANY SPA
WARRANT  OR  DECREASE  THE  NUMBER OF SHARES OR CLASS OF STOCK  OBTAINABLE  UPON
EXERCISE OF ANY SPA WARRANT WITHOUT THE WRITTEN  CONSENT OF THE HOLDER.  NO SUCH
AMENDMENT  SHALL BE  EFFECTIVE TO THE EXTENT THAT IT APPLIES TO LESS THAN ALL OF
THE HOLDERS OF THE SPA WARRANTS THEN OUTSTANDING.

      48.  GOVERNING  LAW.  THIS WARRANT  SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE  WITH,  AND ALL QUESTIONS  CONCERNING  THE  CONSTRUCTION,
VALIDITY,  INTERPRETATION  AND PERFORMANCE OF THIS WARRANT SHALL BE GOVERNED BY,
THE INTERNAL LAWS OF THE STATE OF NEW YORK,  WITHOUT GIVING EFFECT TO ANY CHOICE
OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR
ANY OTHER  JURISDICTIONS)  THAT WOULD CAUSE THE  APPLICATION  OF THE LAWS OF ANY
JURISDICTIONS OTHER THAN THE STATE OF NEW YORK.

      49.  CONSTRUCTION;  HEADINGS.  THIS WARRANT  SHALL BE DEEMED TO BE JOINTLY
DRAFTED BY THE COMPANY AND ALL THE BUYERS AND SHALL NOT BE CONSTRUED AGAINST ANY
PERSON AS THE DRAFTER  HEREOF.  THE HEADINGS OF THIS WARRANT ARE FOR CONVENIENCE
OF REFERENCE AND SHALL NOT FORM PART OF, OR AFFECT THE  INTERPRETATION  OF, THIS
WARRANT.

      50. DISPUTE  RESOLUTION.  IN THE CASE OF A DISPUTE AS TO THE DETERMINATION
OF THE EXERCISE PRICE OR THE ARITHMETIC  CALCULATION OF THE WARRANT SHARES,  THE
COMPANY SHALL SUBMIT THE DISPUTED  DETERMINATIONS OR ARITHMETIC CALCULATIONS VIA
FACSIMILE WITHIN TWO BUSINESS DAYS OF RECEIPT OF THE EXERCISE NOTICE GIVING RISE
TO SUCH  DISPUTE,  AS THE CASE MAY BE,  TO THE  HOLDER.  IF THE  HOLDER  AND THE
COMPANY  ARE  UNABLE TO AGREE  UPON SUCH  DETERMINATION  OR  CALCULATION  OF THE
EXERCISE PRICE OR THE WARRANT SHARES WITHIN THREE BUSINESS DAYS OF SUCH DISPUTED
DETERMINATION OR ARITHMETIC  CALCULATION BEING SUBMITTED TO THE HOLDER, THEN THE
COMPANY  SHALL,  WITHIN TWO BUSINESS  DAYS SUBMIT VIA FACSIMILE (A) THE DISPUTED
DETERMINATION OF THE EXERCISE PRICE TO AN INDEPENDENT, REPUTABLE INVESTMENT BANK
SELECTED  BY THE  COMPANY  AND  APPROVED  BY THE  HOLDER  OR  (B)  THE  DISPUTED
ARITHMETIC  CALCULATION  OF THE  WARRANT  SHARES TO THE  COMPANY'S  INDEPENDENT,
OUTSIDE  ACCOUNTANT.  THE COMPANY SHALL CAUSE AT ITS EXPENSE THE INVESTMENT BANK
OR THE  ACCOUNTANT,  AS THE  CASE  MAY BE,  TO  PERFORM  THE  DETERMINATIONS  OR
CALCULATIONS  AND NOTIFY THE COMPANY AND THE HOLDER OF THE RESULTS NO LATER THAN
TEN  BUSINESS  DAYS FROM THE TIME IT RECEIVES  THE  DISPUTED  DETERMINATIONS  OR
CALCULATIONS.   SUCH  INVESTMENT   BANK'S  OR  ACCOUNTANT'S   DETERMINATION   OR
CALCULATION,  AS THE  CASE MAY BE,  SHALL BE  BINDING  UPON ALL  PARTIES  ABSENT
DEMONSTRABLE ERROR.

                                       48
<PAGE>

      51.  REMEDIES,  OTHER  OBLIGATIONS,  BREACHES AND INJUNCTIVE  RELIEF.  THE
REMEDIES  PROVIDED IN THIS WARRANT  SHALL BE  CUMULATIVE  AND IN ADDITION TO ALL
OTHER REMEDIES AVAILABLE UNDER THIS WARRANT AND THE OTHER TRANSACTION DOCUMENTS,
AT LAW OR IN EQUITY  (INCLUDING  A DECREE OF SPECIFIC  PERFORMANCE  AND/OR OTHER
INJUNCTIVE RELIEF), AND NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE HOLDER RIGHT
TO PURSUE ACTUAL DAMAGES FOR ANY FAILURE BY THE COMPANY TO COMPLY WITH THE TERMS
OF THIS WARRANT. THE COMPANY ACKNOWLEDGES THAT A BREACH BY IT OF ITS OBLIGATIONS
HEREUNDER WILL CAUSE  IRREPARABLE  HARM TO THE HOLDER AND THAT THE REMEDY AT LAW
FOR ANY SUCH BREACH MAY BE INADEQUATE. THE COMPANY THEREFORE AGREES THAT, IN THE
EVENT OF ANY SUCH BREACH OR THREATENED  BREACH, THE HOLDER OF THIS WARRANT SHALL
BE  ENTITLED,  IN ADDITION TO ALL OTHER  AVAILABLE  REMEDIES,  TO AN  INJUNCTION
RESTRAINING  ANY BREACH,  WITHOUT THE  NECESSITY  OF SHOWING  ECONOMIC  LOSS AND
WITHOUT ANY BOND OR OTHER SECURITY BEING REQUIRED.

      52. TRANSFER.  THIS WARRANT MAY BE OFFERED FOR SALE, SOLD,  TRANSFERRED OR
ASSIGNED WITHOUT THE CONSENT OF THE COMPANY, EXCEPT AS MAY OTHERWISE BE REQUIRED
BY SECTION 2(F) OF THE SECURITIES PURCHASE AGREEMENT.

      53. CERTAIN DEFINITIONS. FOR PURPOSES OF THIS WARRANT, THE FOLLOWING TERMS
SHALL HAVE THE FOLLOWING MEANINGS:

                  (i) "Bloomberg" means Bloomberg Financial Markets.

                  (ii) "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.

                  (iii) "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

                                       49
<PAGE>

Sheets LLC (formerly the National  Quotation  Bureau,  Inc.). If the Closing Bid
Price or the  Closing  Sale  Price  cannot be  calculated  for a  security  on a
particular  date on any of the  foregoing  bases,  the  Closing Bid Price or the
Closing Sale Price,  as the case may be, of such  security on such date shall be
the fair market value as mutually  determined by the Company and the Holder.  If
the  Company  and the Holder are unable to agree upon the fair  market  value of
such security,  then such dispute shall be resolved  pursuant to Section 12. All
such determinations to be appropriately  adjusted for any stock dividend,  stock
split,  stock  combination  or other similar  transaction  during the applicable
calculation period.

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

                  (v) "Common  Stock  Deemed  Outstanding"  means,  at any given
time,  the number of shares of Common Stock  actually  outstanding at such time,
plus the number of shares of Common Stock deemed to be  outstanding  pursuant to
Sections  2(a)(i)  and  2(a)(ii)  hereof  regardless  of whether  the Options or
Convertible  Securities are actually exercisable at such time, but excluding any
shares of Common  Stock  owned or held by or for the  account of the  Company or
issuable upon conversion and exercise, as applicable,  of the SPA Securities and
the Warrants.

                  (vi)  "Convertible  Securities"  means any stock or securities
(other than Options)  directly or indirectly  convertible into or exercisable or
exchangeable for shares of Common Stock.

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

                  (viii)  "Expiration  Date"  means the date  thirty-six  months
after the  Issuance  Date or, if such date  falls on a day other than a Business
Day or on  which  trading  does  not  take  place  on the  Principal  Market  (a
"Holiday"), the next date that is not a Holiday.

                  (ix) "Fundamental  Transaction"  means that the Company shall,
directly or indirectly, in one or more related transactions,  (i) consolidate or
merge with or into  (whether  or not the Company is the  surviving  corporation)
another Person, or (ii) sell, assign,  transfer,  convey or otherwise dispose of
all or  substantially  all of the properties or assets of the Company to another
Person,  or (iii) allow  another  Person to make a purchase,  tender or exchange
offer  that is  accepted  by the  holders  of more  than the 50% of  either  the
outstanding  shares of Common  Stock (not  including  any shares of Common Stock
held by the Person or Persons  making or party to, or  associated  or affiliated
with the Persons making or party to, such purchase,  tender or exchange  offer),
or (iv)  consummate a stock  purchase  agreement or other  business  combination
(including, without limitation, a reorganization,  recapitalization, spin-off or
scheme of  arrangement)  with another Person whereby such other Person  acquires
more than the 50% of the  outstanding  shares of Common Stock (not including any
shares of Common Stock held by the other Person or other Persons making or party
to, or associated or affiliated  with the other Persons making or party to, such
stock purchase  agreement or other  business  combination),  or (v)  reorganize,
recapitalize  or  reclassify  its Common  Stock (other than a forward or reverse
stock split).

                                       50
<PAGE>

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

                  (xi)  "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.

                  (xii)  "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.

                  (xiii) "Principal Market" means the OTC Bulletin Board.

                  (xiv)  "Registration  Rights  Agreement"  means  that  certain
registration rights agreement by and among the Company and the Buyers.

                  (xv) "Required  Holders" means the holders of the SPA Warrants
representing  at least a majority of shares of Common Stock  underlying  the SPA
Warrants then outstanding.

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

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

                            [Signature Page Follows]

                                       51
<PAGE>

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

                                                     COMPOSITE TECHNOLOGY
                                                     CORPORATION

                                                     By:________________________
                                                        Name:
                                                        Title:

                                       52
<PAGE>

                                                                       EXHIBIT A

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

                        COMPOSITE TECHNOLOGY CORPORATION

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

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

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

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

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

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

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

Date: _______________ __, ______

   Name of Registered Holder

By:_____________________________
   Name:
   Title:

<PAGE>

                                 ACKNOWLEDGMENT

      The Company hereby  acknowledges  this Exercise  Notice and hereby directs
[Insert Name of Transfer Agent] to issue the above indicated number of shares of
Common Stock in accordance with the Transfer Agent  Instructions dated September
__,  2005 from the  Company and  acknowledged  and agreed to by [Insert  Name of
Transfer Agent].

                        COMPOSITE TECHNOLOGY CORPORATION

                                            By:_________________________________
                                               Name:
                                               Title:

                                        2
<PAGE>

                     [FORM OF REGISTRATION RIGHTS AGREEMENT]

      REGISTRATION  RIGHTS AGREEMENT (this  "Agreement"),  dated as of [________
___], 2005, by and among Composite Technology Corporation, a Nevada corporation,
with headquarters  located at 2026 McGaw Avenue,  Irvine,  California 92614 (the
"Company"),  and the undersigned buyers (each, a "Buyer", and collectively,  the
"Buyers").

      WHEREAS:

      A. In connection with the Securities  Purchase  Agreement by and among the
parties hereto dated September __, 2005 (the "Securities  Purchase  Agreement"),
the  Company,  upon the terms and  subject  to the  conditions  set forth in the
Securities  Purchase  Agreement,  issued  and  sold to  each  Buyer  (i)  senior
convertible notes of the Company (the "Notes"),  which,  among other things, are
convertible  into the Company's  common  stock,  $0.001 par value per share (the
"Common Stock") (as converted,  the "Conversion  Shares") in accordance with the
terms of the Notes, and (ii) warrants (the "Warrants"), which are exercisable to
purchase  shares  of Common  Stock  (as  exercised  collectively,  the  "Warrant
Shares").

      B. To induce the Buyers to execute  and deliver  the  Securities  Purchase
Agreement,  the Company agreed that, to the extent that upon consummation of the
Company's  Chapter 11 Plan of  Reorganization,  any Warrant Shares or Conversion
Shares are not freely  transferable  pursuant to Section 1145 of the  Bankruptcy
Code, to provide certain  registration  rights under the Securities Act of 1933,
as amended, and the rules and regulations  thereunder,  or any similar successor
statute (collectively, the "1933 Act"), and applicable state securities laws.

      C. The Notes bear interest, which at the option of the Company, subject to
certain  conditions,  may be paid in  shares  of  Common  Stock  (the  "Interest
Shares").

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

      54. DEFINITIONS.

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

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

      (b) "Effective  Date" means the date the  Registration  Statement has been
declared effective by the SEC.

      (c)  "Effectiveness  Deadline"  means the date  which is 90 days after the
date hereof,  or if there is a full review of the Registration  Statement by the
SEC, 120 days after the date hereof.

                                       3
<PAGE>

      (d) "Filing Deadline" means 45 days after the date hereof.

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

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

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

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

      (i)   "Registration   Statement"   means  a   registration   statement  or
registration  statements  of the Company  filed under the 1933 Act  covering the
Registrable Securities.

      (j)  "Required  Holders"  means the  holders of at least a majority of the
Registrable Securities.

      (k) "Required Registration Amount" means the sum of (i) 130% of the number
of Conversion Shares issued and issuable pursuant to the Notes as of the trading
day immediately preceding the applicable date of determination, and (ii) 130% of
the number of Warrant Shares issued and issuable  pursuant to the Warrants as of
the trading day immediately preceding the applicable date of determination,  all
subject to  adjustment  as  provided  in  Section  2(e),  without  regard to any
limitations on conversions of the Notes or exercises of the Warrants;  provided,
however,  that the 130% of the number of Conversion Shares shall be reduced (but
not below  100%) to the extent  necessary  in the event the SEC will not declare
the Registration Statement effective without such reduction.

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

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

                                       4
<PAGE>

      55. REGISTRATION.

            (a) Mandatory  Registration.  (1) The Company shall prepare, and, as
soon as practicable  but in no event later than the Filing  Deadline,  file with
the SEC the  Registration  Statement on Form S-1 or Form S-3 covering the resale
of all of the Registrable Securities.  In the event that Form S-1 or Form S-3 is
unavailable for such a registration, the Company shall use such other form as is
available  for  such a  registration  on  another  appropriate  form  reasonably
acceptable to the Required  Holders,  subject to the provisions of Section 2(d).
The Registration Statement prepared pursuant hereto shall register for resale at
least the number of Shares of Common  Stock equal to the  Required  Registration
Amount as of date the  Registration  Statement is initially  filed with the SEC.
The  Registration  Statement shall contain (except if otherwise  directed by the
Required Holders) the "Selling Shareholders" and "Plan of Distribution" sections
in  substantially  the form attached  hereto as Exhibit B. The Company shall use
its best efforts to have the Registration  Statement  declared  effective by the
SEC as soon  as  practicable,  but in no  event  later  than  the  Effectiveness
Deadline. Notwithstanding anything to the contrary contained herein, the Company
shall not be required to register Interest Shares on the Registration  Statement
and any reference to Filing Deadline,  Effectiveness  Deadline and related terms
shall not be applicable to Interest Shares. Further, notwithstanding anything to
the contrary  contained  herein,  to the extent the Conversion Shares are freely
transferable  pursuant to Section  1145 of the  Bankruptcy  Code but any Warrant
Shares  are not,  the  Company  shall  not be  required  to file a  Registration
Statement  pursuant to the terms hereof  solely for such  Warrant  Shares and in
such  circumstances (the "Warrant 1145 Event") any reference to Filing Deadline,
Effectiveness Deadline and related terms shall not apply to the Warrant Shares.

                  (2) If a Warrant  1145 Event  shall have  occurred,  if at any
time thereafter, the Company proposes to register any of its stock or securities
or any stock or securities for any of its  stockholders  under the 1933 Act, the
Company  shall,  at such time,  promptly give each Buyer written  notice of such
registration. Upon the written request of each Buyer, the Company shall cause in
such  registration to be registered under the 1933 Act all of the Warrant Shares
that each such Buyer has requested to be registered.  The rights and obligations
of the Company and the Buyers as are  otherwise  set forth herein shall apply to
such piggy-back registration rights.

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

                                       5
<PAGE>

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

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

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

            (f) Effect of Failure to File and Obtain and Maintain  Effectiveness
of Registration  Statement.  If (i) a Registration Statement covering all of the
Registrable  Securities  required to be covered thereby and required to be filed
by the Company  pursuant to this  Agreement  is (A) not filed with the SEC on or
before the respective  Filing Deadline (a "Filing  Failure") or (B) not declared
effective  by the SEC on or before the  respective  Effectiveness  Deadline  (an
"Effectiveness  Failure") or (ii) on any day after the Effective  Date an during
the Registration  Period sales of all of the Registrable  Securities required to
be included on such Registration  Statement cannot be made (other than during an
Allowable   Grace  Period  (as  defined  in  Section  3(r))   pursuant  to  such
Registration Statement (including,  without limitation,  because of a failure to
keep such Registration  Statement effective,  to disclose such information as is
necessary  for sales to be made  pursuant to such  Registration  Statement or to
register  a  sufficient  number  of Shares  of  Common  Stock)  (a  "Maintenance
Failure") then, as partial relief for the damages to any holder by reason of any
such  delay in or  reduction  of its  ability to sell the  underlying  Shares of
Common  Stock  (which  remedy  shall  not be  exclusive  of any  other  remedies
available  at law or in  equity),  the  Company  shall  pay to  each  holder  of
Registrable Securities relating to such Registration Statement an amount in cash
equal to one and one-half  percent  (1.5%) of the aggregate  Purchase  Price (as
such term is defined in the Securities  Purchase  Agreement) of such  Investor's
Registrable  Securities  included in such Registration  Statement on each of the
following dates: (i) the day of a Filing Failure and on every thirtieth day (pro
rated for periods  totaling less than thirty days) after a Filing  Failure until
such Filing Failure is cured; and (ii) the initial day of a Maintenance  Failure
and on every  thirtieth  day (pro rated for  periods  totaling  less than thirty
days) after a Maintenance  Failure until such  Maintenance  Failure is cured. If
there shall have occurred an Effectiveness  Failure, then, as partial relief for
the  damages to any holder by reason of any such  delay in or  reduction  of its
ability to sell the underlying Shares of Common Stock (which remedy shall not be

                                       6
<PAGE>

exclusive  of any other  remedies  available  at law or in equity),  the Company
shall pay to each holder of Registrable Securities relating to such Registration
Statement  an  amount  in cash  equal to one  percent  (1.0%)  of the  aggregate
Purchase  Amount of such  Investor's  Registrable  Securities  included  in such
Registration  Statement  on  the  day  of an  Effectiveness  Failure  and on the
thirtieth  day (pro rated for periods  totaling less than thirty days) after the
Effectiveness  Failure, and if such Effectiveness  Failure continues beyond such
thirtieth day, one and  one-quarter  percent  (1.25%) of the aggregate  Purchase
Amount of such Investors'  Registrable  Securities relating to such Registration
Statement  on the  sixtieth  day (pro  rated for the  number  of days  after the
thirtieth day and up to and  including the sixtieth day after the  Effectiveness
Failure) and if such  Effectiveness  Failure  continues beyond such sixtieth day
after  the  Effectiveness  Failure,  one  and  one-half  percent  (1.5%)  of the
aggregate Purchase Amount of such Investors'  Registrable Securities relating to
such  Registration  Statement  on the  ninetieth  day (pro  rated  from  periods
totaling  less than thirty days after the sixtieth  day after the  Effectiveness
Failure) after the Effectiveness Deadline and for every thirtieth day thereafter
until such Effectiveness  Failure is cured. The payments to which a holder shall
be  entitled   pursuant  to  this   Section  2(g)  are  referred  to  herein  as
"Registration Delay Payments."  Registration Delay Payments shall be paid on the
day of the  Filing  Failure,  Effectiveness  Failure  and the  initial  day of a
Maintenance  Failure,  as  applicable,  and thereafter on the earlier of (I) the
thirtieth day after the event or failure giving rise to the  Registration  Delay
Payments has occurred and (II) the third Business Day after the event or failure
giving  rise to the  Registration  Delay  Payments  is  cured.  In the event the
Company  fails to make  Registration  Delay  Payments in a timely  manner,  such
Registration  Delay Payments shall bear interest at the rate of one and one-half
percent (1.5%) per month (prorated for partial months) until paid in full.

      56. RELATED OBLIGATIONS.

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

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

                                       7
<PAGE>

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

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

                                       8
<PAGE>

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

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

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

                                       9
<PAGE>

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

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

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

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

                                       10
<PAGE>

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

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

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

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

                                       11
<PAGE>

            (o) [intentionally omitted].

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

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

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

      57. OBLIGATIONS OF THE INVESTORS.

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

                                       12
<PAGE>

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

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

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

      58. EXPENSES OF REGISTRATION.

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

      59. INDEMNIFICATION.

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

                                       13
<PAGE>

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

                                       14
<PAGE>

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

            (c) Promptly after receipt by an  Indemnified  Person or Indemnified
Party  under  this  Section  6 of notice of the  commencement  of any  action or
proceeding  (including any governmental action or proceeding) involving a Claim,
such  Indemnified  Person or  Indemnified  Party  shall,  if a Claim in  respect
thereof is to be made  against  any  indemnifying  party  under this  Section 6,
deliver to the indemnifying party a written notice of the commencement  thereof,
and the  indemnifying  party shall have the right to participate in, and, to the
extent the indemnifying  party so desires,  jointly with any other  indemnifying
party similarly  noticed,  to assume control of the defense thereof with counsel
mutually  satisfactory to the indemnifying  party and the Indemnified  Person or
the  Indemnified  Party,  as  the  case  may  be;  provided,  however,  that  an
Indemnified  Person or Indemnified  Party shall have the right to retain its own
counsel  with the fees  and  expenses  of not  more  than one  counsel  for such
Indemnified  Person or Indemnified  Party to be paid by the indemnifying  party,
if, in the reasonable opinion of counsel retained by the indemnifying party, the
representation  by such counsel of the Indemnified  Person or Indemnified  Party
and the  indemnifying  party would be  inappropriate  due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party  represented by such counsel in such  proceeding.  In the case of an
Indemnified  Person,  legal  counsel  referred to in the  immediately  preceding
sentence  shall be  selected  by the  Investors  holding at least a majority  in
interest of the Registrable Securities included in the Registration Statement to
which the Claim  relates.  The  Indemnified  Party or  Indemnified  Person shall
cooperate fully with the  indemnifying  party in connection with any negotiation
or  defense  of any such  action  or Claim by the  indemnifying  party and shall
furnish to the indemnifying  party all information  reasonably  available to the
Indemnified  Party or Indemnified  Person which relates to such action or Claim.
The indemnifying  party shall keep the Indemnified  Party or Indemnified  Person

                                       15
<PAGE>

reasonably  apprised  at all  times  as to the  status  of  the  defense  or any
settlement  negotiations  with respect thereto.  No indemnifying  party shall be
liable for any settlement of any action,  claim or proceeding  effected  without
its prior written consent, provided,  however, that the indemnifying party shall
not unreasonably withhold, delay or condition its consent. No indemnifying party
shall, without the prior written consent of the Indemnified Party or Indemnified
Person,  consent to entry of any judgment or enter into any  settlement or other
compromise which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified  Party or Indemnified  Person of a
release  from all  liability in respect to such Claim or  litigation.  Following
indemnification  as provided  for  hereunder,  the  indemnifying  party shall be
subrogated to all rights of the  Indemnified  Party or  Indemnified  Person with
respect to all third parties,  firms or corporations  relating to the matter for
which  indemnification  has been made. The failure to deliver  written notice to
the indemnifying  party within a reasonable time of the commencement of any such
action  shall  not  relieve  such  indemnifying  party of any  liability  to the
Indemnified  Person or  Indemnified  Party  under this  Section 6, except to the
extent that the  indemnifying  party is prejudiced in its ability to defend such
action.

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

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

      60. CONTRIBUTION.

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

                                       16
<PAGE>

      61. REPORTS UNDER THE 1934 ACT.

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

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

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

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

      62. ASSIGNMENT OF REGISTRATION RIGHTS.

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

      63. AMENDMENT OF REGISTRATION RIGHTS.

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

                                       17
<PAGE>

      64. MISCELLANEOUS.

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

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

         If to the Company:

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

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

         If to Legal Counsel:

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

                                       18
<PAGE>

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

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

            (d) All questions concerning the construction, validity, enforcement
and  interpretation  of this Agreement shall be governed by the internal laws of
the State of New York, without giving effect to any choice of law or conflict of
law  provision  or  rule  (whether  of the  State  of  New  York  or  any  other
jurisdictions) that would cause the application of the laws of any jurisdictions
other than the State of New York. Each party hereby  irrevocably  submits to the
exclusive  jurisdiction  of the state and federal  courts sitting in The City of
New York, Borough of Manhattan, for the adjudication of any dispute hereunder or
in connection herewith or with any transaction  contemplated hereby or discussed
herein,  and hereby  irrevocably  waives,  and agrees not to assert in any suit,
action  or  proceeding,  any  claim  that it is not  personally  subject  to the
jurisdiction of any such court,  that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper.  Each party hereby  irrevocably waives personal service of process and
consents  to process  being  served in any such suit,  action or  proceeding  by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof.  Nothing contained herein shall be deemed
to limit in any way any right to serve  process in any manner  permitted by law.
If any  provision of this  Agreement  shall be invalid or  unenforceable  in any
jurisdiction,  such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or the
validity or  enforceability  of any  provision  of this  Agreement  in any other
jurisdiction.  EACH PARTY HEREBY  IRREVOCABLY  WAIVES ANY RIGHT IT MAY HAVE, AND
AGREES  NOT TO  REQUEST,  A JURY  TRIAL  FOR  THE  ADJUDICATION  OF ANY  DISPUTE
HEREUNDER  OR IN  CONNECTION  HEREWITH OR ARISING OUT OF THIS  AGREEMENT  OR ANY
TRANSACTION CONTEMPLATED HEREBY.

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

                                       19
<PAGE>

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

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

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

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

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

            (k) The  language  used in this  Agreement  will be deemed to be the
language  chosen by the parties to express  their mutual  intent and no rules of
strict construction will be applied against any party.

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

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

                                   * * * * * *

                                       20
<PAGE>

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

                                                COMPANY:

                                                COMPOSITE TECHNOLOGY CORPORATION

                                                By: ____________________________
                                                    Name:
                                                    Title:

                                       1
<PAGE>

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

                                                BUYERS:

                                                By: ____________________________
                                                    Name:
                                                    Title:

                                       2
<PAGE>

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

                                                [OTHER BUYERS]

                                                By: ____________________________
                                                    Name:
                                                    Title:

                                       3
<PAGE>

                               SCHEDULE OF BUYERS

                                 Buyer's Address Buyer's
                                 Representative's              Address and
          Buyer                  and Facsimile Number          Facsimile Number
          -----                  --------------------          ----------------

[Other Buyers]

                                       4
<PAGE>

                                                                       EXHIBIT A

                         FORM OF NOTICE OF EFFECTIVENESS
                            OF REGISTRATION STATEMENT

[Transfer Agent]
[Address]
Attention:

      Re: Composite Technology Corporation

Ladies and Gentlemen:

      [We  are][I am]  counsel to  Composite  Technology  Corporation,  a Nevada
corporation (the "Company"), and have represented the Company in connection with
that certain Securities Purchase Agreement (the "Securities Purchase Agreement")
entered   into  by  and  among  the  Company  and  the  buyers   named   therein
(collectively,  the  "Holders")  pursuant  to which  the  Company  issued to the
Holders  senior secured  convertible  notes (the "Notes")  convertible  into the
Company's  common  stock,  $0.001  par  value per share  (the  "Common  Stock"),
warrants  exercisable for shares of Common Stock (the  "Warrants").  Pursuant to
the  Securities  Purchase  Agreement,  the  Company  also  has  entered  into  a
Registration  Rights  Agreement  with  the  Holders  (the  "Registration  Rights
Agreement")  pursuant  to which the  Company  agreed,  among  other  things,  to
register  the  Registrable  Securities  (as defined in the  Registration  Rights
Agreement), including the shares of Common Stock issuable upon conversion of the
Notes [and the shares of Common Stock  issuable upon exercise of the  Warrants],
under the  Securities  Act of 1933,  as amended (the "1933 Act").  In connection
with the Company's  obligations  under the  Registration  Rights  Agreement,  on
____________  ___, 200_, the Company filed a Registration  Statement on Form S-1
or Form S-3 (File No. 333-_____________) (the "Registration Statement") with the
Securities  and  Exchange  Commission  (the "SEC")  relating to the  Registrable
Securities which names each of the Holders as a selling shareholder thereunder.

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

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

                                       1
<PAGE>

      Agent Instructions dated ________ __, 2005. This letter shall serve as our
standing instruction with regard to this matter.

                                                Very truly yours,

                                                [ISSUER'S COUNSEL]

                                                By:_____________________________
CC:      [LIST NAMES OF HOLDERS]

                                       2
<PAGE>

                                                                       EXHIBIT B

                              SELLING SHAREHOLDERS

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

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

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

      In accordance  with the terms of registration  rights  agreements with the
selling  shareholders,  this prospectus  generally covers the resale of at least
[the sum of (i)] 130% of the  number of shares  of Common  Stock  issuable  upon
conversion of the convertible notes as of the trading day immediately  preceding
the date the  registration  statement is initially  filed with the SEC [and (ii)
130% of the  number of shares of Common  Stock  issuable  upon  exercise  of the
related  warrants]  as of the trading  day  immediately  preceding  the date the
registration  statement is initially filed with the SEC.  Because the conversion
price of the  convertible  notes and the  exercise  price of the warrants may be
adjusted,  the number of shares that will actually be issued may be more or less
than the number of shares being  offered by this  prospectus.  The fourth column
assumes  the  sale of all of the  shares  offered  by the  selling  shareholders
pursuant to this prospectus.

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

                                       1
<PAGE>
<TABLE>
<CAPTION>

                                                                    Maximum Number of Shares
                                          Number of Shares Owned     to be Sold Pursuant to      Number of Shares
Name of Selling Shareholder                  Prior to Offering           this Prospectus        Owned After Offering
---------------------------                  -----------------           ---------------        --------------------
<S>                                      <C>                       <C>                          <C>
                                                                                                         0

</TABLE>

         (1)

                                       1
<PAGE>

                              PLAN OF DISTRIBUTION

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

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

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

      o     in the over-the-counter market;

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

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

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

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

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

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

      o     privately negotiated transactions;

      o     short sales;

      o     sales pursuant to Rule 144;

<PAGE>

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

      o     a combination of any such methods of sale; and

      o     any other method permitted pursuant to applicable law.

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

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

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

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

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

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

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

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

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