Document:

SECURITIES PURCHASE AGREEMENT

      SECURITIES  PURCHASE  AGREEMENT  (the  "AGREEMENT"),  dated as of March 2,
2006, by and among Composite Technology Corporation, a Nevada corporation,  with
headquarters  located  at 2026  McGaw  Avenue,  Irvine,  California  92614  (the
"COMPANY"),  and the 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 exemption from securities  registration afforded by 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  secured  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 secured  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 $3,500,000) (as converted, collectively, the "CONVERSION SHARES"), (ii)
warrants in substantially the form attached hereto as EXHIBIT B-1 (the "SERIES A
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 and
(iii)  warrants in  substantially  the form attached  hereto as EXHIBIT B-2 (the
"SERIES B  WARRANTS"),  to acquire  up to that  number of  additional  shares of
Common Stock set forth  opposite such Buyer's name in column (5) of the Schedule
of  Buyers  (collectively  with  the  Series A  Warrants,  the  "WARRANTS")  (as
exercised, collectively, the "WARRANT SHARES").

      D.  Contemporaneously  with the execution and delivery of this  Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
substantially in the form attached hereto as EXHIBIT C (the "REGISTRATION RIGHTS
AGREEMENT")  pursuant to which the Company  will  provide  certain  registration
rights  with  respect  to  the   Registrable   Securities  (as  defined  in  the
Registration Rights Agreement) under the 1933 Act and the rules and regulations,
promulgated thereunder and applicable state securities laws.

      E. The Notes, the Conversion  Shares,  the Warrants and the Warrant Shares
collectively are referred to herein as the "SECURITIES".

      F. Contemporaneous with the execution and delivery of this Agreement,  the
parties  hereto are executing and delivering a Security  Agreement,  in the form
attached  hereto as EXHIBIT D, the "SECURITY  AGREEMENT")  pursuant to which the
Company and each  Company  Subsidiary  (as defined  below) has agreed to grant a
security  interest in the assets of the Company and such Company  Subsidiary (as
defined below), to secure the obligations of the Company to the Buyers.

<PAGE>

      G. Contemporaneous with the execution and delivery of this Agreement, each
of CTC Cable Corporation, a Nevada corporation,  CTC Wind Systems Corporation, a
Nevada corporation,  Transmission Technology Corporation,  a Nevada corporation,
and CTC  Towers & Poles  Corporation,  a  Nevada  corporation  (each a  "COMPANY
SUBSIDIARY" and  collectively  the "COMPANY  SUBSIDIARIES")  each a wholly-owned
Subsidiary  (as defined  herein) of the Company,  is executing and  delivering a
Guaranty  Agreement,  in  the  form  attached  hereto  as  EXHIBIT  E,  (each  a
"GUARANTY"), guaranteeing the obligations of the Company to the Buyers.

      H. Contemporaneous with the execution and delivery of this Agreement,  the
parties  hereto are executing  and  delivering a Pledge  Agreement,  in the form
attached  hereto as EXHIBIT F, (the  "PLEDGE  AGREEMENT")  pursuant to which the
Company has agreed to pledge all of the equity of each Company Subsidiary.

      I.  Contemporaneous  with the  execution  and delivery of this  Agreement,
Benton  Wilcoxon and the Collateral  Agent are executing and delivering a Pledge
Agreement  with respect to shares of common stock of the Company owned by Benton
Wilcoxon,  in the form  attached  hereto as EXHIBIT G, (the "CEO  SHARES  PLEDGE
AGREEMENT," and together with the Security  Agreement,  the Guaranties,  the and
the Pledge Agreement, the "SECURITY DOCUMENTS").

      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,  (y) Series A  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,  and (z) Series B Warrants  to acquire up to that number of
Warrant  Shares as is set forth  opposite such Buyer's name in column (5) 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 (6) 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.

                                      -2-
<PAGE>

            (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,  (A) by wire  transfer  of  immediately
available  funds for the amount of the  Purchase  Price in  accordance  with the
Company's  written wire instructions or (B) by cancellation and exchange of that
certain  note (the "LOAN NOTE")  issued to Lane Capital  Markets LLC on February
27, 2006 in the  principal  amount of $200,000  (exchangeable  at the  principal
amount of such note) and (ii) the  Company  shall  deliver to each Buyer (1) the
Notes (in the principal amounts as such Buyer shall request) which such Buyer is
then  purchasing  and (2) 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 conversion of the Notes and exercise of
the  Warrants  (other than  pursuant to a Cashless  Exercise  (as defined in the
Warrants))  will acquire 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 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.

            (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.

                                      -3-
<PAGE>

            (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:  (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)
subsequently  registered thereunder,  (B) 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,  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  Conversion  Shares and the Warrant  Shares  have been  registered
under the 1933 Act as contemplated by the  Registration  Rights  Agreement,  the
stock certificates representing 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) 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.

                                 -4-
<PAGE>

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

            (h) Validity;  Enforcement.  This Agreement, the Registration Rights
Agreement  and the  Security  Documents to which such Buyer is a party 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,  the  Registration  Rights  Agreement and the Security
Documents 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.

                                      -5-
<PAGE>

            (k) Prohibited Transactions.  During the last ten (10) days prior to
the date  hereof,  neither  such  Buyer  nor any  Person  acting on behalf of or
pursuant  to any  understanding  with 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  4(i),  such Buyer shall not, and shall
cause any Person acting on behalf of or pursuant to any understanding  with such
Buyer 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.

                                      -6-
<PAGE>

      3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

            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.  The  Company  has  the
requisite  power and authority to enter into and perform its  obligations  under
this Agreement,  the Notes,  the  Registration  Rights  Agreement,  the Security
Documents,  the 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 for issuance and issuance of the Warrant Shares upon
exercise  of the  Warrants,  and the  granting  of a  security  interest  in the
Collateral (as defined in the Security  Documents)  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 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
Stock shall have been duly  authorized  and reserved  for issuance  which equals
130% of the maximum  number of shares Common Stock  issuable 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 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.

                                      -7-
<PAGE>

            (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 Conversion  Shares and the Warrant Shares) and the granting of a
security  interest in the  Collateral  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 NASD's OTC Bulletin
Board  (the  "PRINCIPAL  MARKET"))  applicable  to  the  Company  or  any of its
Subsidiaries  or by which any  property  or asset of the  Company  or any of its
Subsidiaries is bound or affected,  except in the case of clauses (ii) and (iii)
for any such  conflicts,  violations or defaults which are reasonably  likely to
have a Material Adverse Effect.

            (e)  Consents.  The Company is not  required to obtain any  consent,
authorization  or order of, or make any filing or registration  with, any court,
governmental  agency or any  regulatory or  self-regulatory  agency or any other
Person in order for it to  execute,  deliver or perform  any of its  obligations
under or contemplated by the 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,  except  for (i) the filing of  appropriate  UCC
financing  statements with the appropriate states and other authorities pursuant
to the  Security  Documents  and  (ii)  the  filing  with the SEC of one or more
Registration  Statements in accordance with the requirements of the Registration
Rights  Agreement.  The Company and its Subsidiaries are unaware of any facts or
circumstances which might prevent the Company from obtaining or effecting any of
the registration, application or filings pursuant to the preceding sentence. The
Company  is not in  violation  of the  applicable  listing  requirements  of the
Principal  Market and has no knowledge of any facts which would  reasonably lead
to delisting or suspension  of the Common Stock.  The issuance by the Company of
the  Securities  shall not have the effect of delisting or suspending the Common
Stock from the Principal Market.

                                      -8-
<PAGE>

            (f)  Acknowledgment  Regarding  Buyer's Purchase of Securities.  The
Company acknowledges and agrees that each Buyer is acting solely in the capacity
of an 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.

            (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.

                                      -9-
<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 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.

                                      -10-
<PAGE>

            (l)  Absence of Certain  Changes.  Except as  disclosed  in Schedule
3(l),  since September 30, 2005, 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,  2005,  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. The
Company and its Subsidiaries,  individually and on a consolidated basis, are not
as of the date hereof, and after giving effect to the transactions  contemplated
hereby to occur at the Closing,  will not be Insolvent (as defined  below).  For
purposes of this Section 3(l), "INSOLVENT" means, with respect to any Person (as
defined in Section  3(s)),  (i) the present fair saleable value of such Person's
assets is less than the amount required to pay such Person's total  Indebtedness
(as  defined in Section  3(s)),  (ii) such Person is unable to pay its debts and
liabilities,   subordinated,   contingent  or  otherwise,   as  such  debts  and
liabilities  become absolute and matured,  (iii) such Person intends to incur or
believes  that it will incur  debts  that would be beyond its  ability to pay as
such debts mature or (iv) such Person has unreasonably  small capital with which
to conduct the business in which it is engaged as such business is now conducted
and is proposed to be conducted.

            (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 on the Company's Form 10-K for the  year-ended  September 30, 2005 and
neither the Company nor any of its  Subsidiaries  will  conduct its  business in
violation  of the  foregoing  except for  possible  violations  which would not,
individually  or in the  aggregate,  have a  Material  Adverse  Effect.  Without
limiting the generality of the foregoing, the Company is not in violation of any
of the rules,  regulations or  requirements  of the Principal  Market and has no
knowledge of any facts or circumstances which would reasonably lead to delisting
or  suspension of the Common Stock by the  Principal  Market in the  foreseeable
future.  Since September 30, 2005,  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.

                                      -11-
<PAGE>

            (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.

            (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,  135,329,914  are  issued  and  outstanding,
12,946,912  shares are  reserved for issuance  pursuant to the  Company's  stock
option and  purchase  plans and  13,828,758  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);  (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
aggregate,  do not or would not have a Material Adverse Effect.  The Company has
furnished  to the Buyers  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.

                                      -12-
<PAGE>

            (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.

                                      -13-
<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.

                                      -14-
<PAGE>

                  (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.

            (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 on the Company's Form 10-K for the year-ended  September 30, 2005 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.

                                      -15-
<PAGE>

            (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.

            (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.

                                      -16-
<PAGE>

            (dd)  Off  Balance  Sheet  Arrangements.  There  is no  transaction,
arrangement,  or other relationship between the Company and an unconsolidated or
other off balance  sheet  entity that is required to be disclosed by the Company
in its 1934 Act  filings  and is not so  disclosed  or that  otherwise  would be
reasonably likely to have a Material Adverse Effect.

            (ee) 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.

            (ff)  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.

            (gg) 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 value of
the  Conversion  Shares  and the  Warrant  Shares  deliverable  with  respect to
Securities are being determined.

            (hh)  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.

                                      -17-
<PAGE>

      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.

            (c)  Reporting  Status.  Until the date on which the  Investors  (as
defined in the Registration Rights Agreement) shall have sold all the 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) 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
(unless otherwise included in a Current Report on Form 8-K), 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.  As used herein,  "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.

                                      -18-
<PAGE>

            (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  reimburse  Hudson  Bay  Fund,  LP (a Buyer)  or its  designee(s)  for all
reasonable legal fees and expenses  incurred in connection with the transactions
contemplated  by the  Transaction  Documents,  which amount shall be withheld by
such  Buyer  from  its  Purchase  Price at the  Closing.  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.

            (h) Pledge of Securities.  The Company  acknowledges and agrees that
the  Securities  may be pledged by an Investor  (as defined in the  Registration
Rights  Agreement) 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.

                                      -19-
<PAGE>

            (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,  the Registration  Rights Agreement and the form of each of the
Security  Documents)  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).

            (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 Notes,  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.

                                      -20-
<PAGE>

            (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,
110% of 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 conversion of the
Notes or  exercise  of the  Warrants  as set forth in the  Notes  and  Warrants,
respectively).

            (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) Registration of Pledged CEO Shares. The Company hereby covenants
and agrees to register for resale,  pursuant to the  Registration  Statement (as
defined in the Registration  Rights Agreement) the Pledged Shares (as defined in
the CEO Shares Pledge  Agreement),  and upon  foreclosure  of the Pledged Shares
pursuant to the CEO Shares Pledge Agreement,  to file a prospectus supplement to
name the  part(y)(ies)  specified by the Collateral  Agent (as defined below) as
owner(s) of the Pledged Shares as selling shareholders thereunder.

            (p) Additional Issuances of Securities.

                  (i)  For  purposes  of  this  Section   4(p),   the  following
definitions shall apply.

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

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

                        (3)  "COMMON  STOCK  EQUIVALENTS"  means,  collectively,
      Options and Convertible Securities.

                                      -21-
<PAGE>

                  (ii) From the date hereof until no Notes are  outstanding,  if
the Company shall have  consummated a transaction  to sell,  grant any option to
purchase,  or  otherwise  dispose of any of its or its  Subsidiaries'  equity or
equity equivalent securities,  including without limitation, any debt, preferred
stock or other  instrument  or security that is, at any time during its life and
under any  circumstances,  convertible  into or  exchangeable or exercisable for
shares of Common Stock or Common Stock  Equivalents  (any such sale,  grant,  or
disposition  being referred to as a "SUBSEQUENT  PLACEMENT"),  the Company shall
promptly  deliver to each Buyer a written  notice (the  "OFFER  NOTICE") of such
Subsequent  Placement  which Offer  Notice  shall (w)  identify and describe the
Subsequent  Placement,  (x)  describe  the price and other  terms upon which the
securities  issued in the Subsequent  Placement were issued,  sold or exchanged,
and the number or amount of the such securities issued,  sold or exchanged,  (y)
identify  the persons or entities  to which or with which such  securities  were
issued,  sold or exchanged  and (z) offer to issue and sell to or exchange  with
each such Buyer an amount of such securities (the "OFFERED SECURITIES") equal to
no less than the Purchase  Price paid by such Buyer  hereunder on the same terms
and  conditions as the  investors in the  Subsequent  Placement.  Each Buyer may
purchase the Offered  Securities for cash or by exchanging any applicable amount
of its existing Notes. To accept an offer  hereunder,  such Buyer must deliver a
written  notice to the Company prior to the end of the third (3rd)  Business Day
after the later of (i) the  consummation  of the  Subsequent  Placement and (ii)
such Buyer's receipt of the Offer Notice (the "OFFER  PERIOD"),  stating whether
such  Buyer  elects  to  purchase  the  Offered   Securities   (the  "NOTICE  OF
ACCEPTANCE"); provided, that if the Company has delivered an Optional Redemption
Notice to a Buyer and such  Buyer  delivers  a Notice of  Acceptance  during the
Offer Period,  such Notice of Acceptance shall supersede any Optional Redemption
Notice and any such Optional Redemption Notice shall be null and void.

                  (iii) The  restrictions  contained in subsection  (ii) of this
Section  4(p) shall not apply in  connection  with the  issuance of any Excluded
Securities (as defined in the Notes).

            (q)  Appointment  of  Collateral  Agent.  Hudson  Bay Fund,  LP (the
"COLLATERAL  AGENT") is hereby  appointed as the collateral agent for the Buyers
hereunder,  and each  Buyer  hereby  authorizes  the  Collateral  Agent (and its
officers,  directors,  employees and agents) to take any and all such actions on
behalf of the Buyers with respect to the  Collateral (as defined in the Security
Documents) and the  Obligations in accordance  with the terms of this Agreement.
The  Collateral  Agent  shall  not have,  by  reason  hereof or any of the other
Transaction Documents, a fiduciary relationship in respect of any Buyer. Neither
the Collateral  Agent nor any of its officers,  directors,  employees and agents
shall  have any  liability  to any Buyer for any  action  taken or omitted to be
taken  in  connection  hereof  except  to the  extent  caused  by its own  gross
negligence  or willful  misconduct,  and each Buyer  agrees to defend,  protect,
indemnify  and hold  harmless  the  Collateral  Agent  and all of its  officers,
directors,  employees  and agents  (collectively,  the  "INDEMNITEES")  from and
against any  losses,  damages,  liabilities,  obligations,  penalties,  actions,
judgments,  suits,  fees,  costs and expenses  (including,  without  limitation,
reasonable  attorneys'  fees,  costs and expenses)  incurred by such Indemnitee,
whether direct,  indirect or  consequential,  arising from or in connection with
the  performance by such  Indemnitee of the duties and obligations of Collateral
Agent pursuant hereto.

            (r) Within 10 days  following the Closing Date, the Company and each
Company  Subsidiary  shall  execute the Guaranty and the Security  Agreement and
deliver the same to each Buyer.  Together with the execution and delivery of the
Security  Documents,  such Buyer shall have received the opinion of Richardson &
Patel,  LP, the Company's  outside  counsel,  in form and  substance  reasonably
satisfactory  to the  Collateral  Agent  and its  counsel  with  respect  to the
execution,  delivery and enforceability of Security Documents,  the creation and
perfection security interests granted thereunder to the Collateral Agent for the
benefit of the Buyer and other  related  opinions  reasonably  requested  by the
Collateral Agent.

                                      -22-
<PAGE>

            (s) Within 10 days  following the Closing  Date, in accordance  with
the terms of the Security Documents, the Company shall deliver to the Collateral
Agent certificates representing the Subsidiaries' shares of capital stock, along
with duly executed blank stock powers

            (t) Within 10 days  following the Closing Date,  the Company and the
Company  Subsidiaries  shall  deliver  to  such  Buyer,   appropriate  financing
statements on Form UCC-1 in form for filing under the Uniform Commercial Code or
other  applicable  local  law of each  jurisdiction  in which  the  filing  of a
financing statement or giving of notice may be required, or reasonably requested
by the  Collateral  Agent,  to perfect  the  security  interests  intended to be
created by the Security Document.

            (u) Within 10 days  following  the Closing  Date,  the Company shall
deliver or caused to be delivered to each Buyer  certified  copies of UCC search
results,  listing all effective  financing  statements  which name as debtor the
Company or any of its  Subsidiaries  filed in the prior five years to perfect an
interest  in  any  assets  thereof,  together  with  copies  of  such  financing
statements,  none of which, except as otherwise agreed in writing by the Buyers,
shall cover any of the Collateral (as defined in the Security Documents) and the
results of searches for any tax lien and judgment lien filed against such Person
or its property,  which results, except as otherwise agreed to in writing by the
Buyers shall not show any such Liens (as defined in the Security Documents).

            (v) Within 10 days  following  the  Closing  Date,  unless such time
period is extended by the Collateral  Agent,, the Company shall file or cause to
be filed (i) UCC termination  statements for all UCC financing  statements filed
by the Crucian  transition  Incorporate dba CTI Capital Management as Collateral
Agent and  covering  any  portion  of the  assets of the  Company  or any of its
Subsidiaries  and (ii) an amendment to the UCC financing  statement filed by IFC
Credit Corporation  ("IFC") filed with the State of Nevada under document number
2004017288-7,  amending  the  description  of  collateral  to  include  only the
equipment  leased to the Company  pursuant to master  lease  801036  between the
Company and IFC.

      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 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.

                                      -23-
<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 Conversion Shares and the Warrant Shares issued
at the Closing or upon  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 H
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 such  sale,  assignment  or
transfer  involves  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.

            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 Hudson Bay Fund,  LP, the
amounts  withheld  pursuant  to  Section  4(g)) for the  Notes  and the  related
Warrants  being  purchased by such Buyer at the Closing (i) by wire  transfer of
immediately  available funds pursuant to the wire  instructions  provided by the
Company or (ii) by  cancellation  and exchange of the Lane Notes pursuant to the
terms hereof.

                                      -24-
<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.

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

            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 opinion of Richardson
& Patel,  LP, the Company's  outside  counsel,  dated as of the Closing Date, in
substantially the form of EXHIBIT I attached hereto.

                  (iii) The Company shall have delivered to such Buyer a copy of
the Irrevocable  Transfer Agent Instructions,  in the form of EXHIBIT H 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.

                  (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.

                                      -25-
<PAGE>

                  (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 J.

                  (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 K.

                  (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) Benton  Wilcoxon  shall have  executed and  delivered to
such Buyer the letter agreement in the form attached hereto as EXHIBIT L.

                  (xiii) The Company shall have  delivered to such Buyer the CFO
Shares Pledge  Agreement,  duly executed by Benton  Wilcoxon,  together with the
original stock certificates  representing all of the common stock of the Company
pledged  pursuant  thereto and  accompanied by undated stock powers  executed in
blank and other proper instruments of transfer.

                  (xiv) 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.

                                      -26-
<PAGE>

      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.

            (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.

                                      -27-
<PAGE>

            (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:

                  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.

                                      -28-
<PAGE>

                  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.

            (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.  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  and under the  Notes,
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.

                                      -29-
<PAGE>

            (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
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.

            (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.

                                      -30-
<PAGE>

            (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.

            (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]

                                      -31-
<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:

                          Signature Page to Securities
                               Purchase Agreement

<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.

                                    BUYERS:

                                    HUDSON BAY FUND, LP

                                    By: __________________________________
                                        Name: ______________
                                        Title:______________

                          Signature Page to Securities
                               Purchase Agreement

<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.

                                    By: ___________________________________
                                        Name:
                                        Title:

                          Signature Page to Securities
                               Purchase Agreement

<PAGE>

                               SCHEDULE OF BUYERS

<TABLE>
<CAPTION>
            (1)                              (2)                        (3)               (4)              (5)
                                                                     AGGREGATE
                                                                     PRINCIPAL                          NUMBER OF
                                         ADDRESS AND                 AMOUNT OF    NUMBER OF SERIES A     SERIES B
           BUYER                      FACSIMILE NUMBER                 NOTES        WARRANT SHARES    WARRANT SHARES
<S>                         <C>                                    <C>            <C>                 <C>
Hudson Bay Fund, LP         120 Broadway, 40th Floor               $1,500,000.00       321,429            857,143
                            New York, New York 10271
                            Attention: Yoav Roth
                                              May Lee
                            Facsimile:  212-571-1279
                            Telephone: 212-571-1244
                            Residence:  United States
                            E-mail:    yroth@srgcap.com
                                       may@srgcap.com

Enable Growth Partners LP   One Ferry Building, Suite 255          $  730,000.00       156,429            417,143
                            San Francisco, CA 94111
                            Contact: Brendan O'Neil

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

Enable Opportunity Partners One Ferry Building, Suite 255          $  120,000.00       25,714             68,571
LP                          San Francisco, CA 94111
                            Contact: Brendan O'Neil

                            Telephone: 415-677-1578
                            Facsimile:  415-677-1580
                            Residence:  United States
                            Tax ID:
Pierce Diversified Strategy One Ferry Building, Suite 255          $  150,000.00       32,143             85,714
Master Fund LLC             San Francisco, CA 94111
                            Contact: Brendan O'Neil

                            Telephone: 415-677-1578
                            Facsimile:  415-677-1580
                            Residence:  United States
                            Tax ID:
Capital Ventures            c/o Heights Capital Management, Inc.   $  800,000.00       171,429            457,143
International               101 California Street, Suite 3250
                            San Francisco, CA 94111
                            Contact: Martin Hoe

                            Telephone: 4150-403-6586
                            Facsimile: 415.403.6525
                            Residence:  United States
                            Tax ID: 51-0395477
Lane Capital Markets        120 Broadway, suite 1019               $  200,000.00       42,857             114,286
                            New York, New York 10271
                            Contact: Ryan M. Lane

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

<CAPTION>
            (1)                     (6)                       (7)
                                                LEGAL REPRESENTATIVE'S ADDRESS
                                                     AND FACSIMILE NUMBER

           BUYER              PURCHASE PRICE
<S>                         <C>                 <C>
Hudson Bay Fund, LP             $1.55           Schulte Roth & Zabel LLP
                                                919 Third Avenue
                                                New York, New York  10022
                                                Attention:  Eleazer Klein, Esq.
                                                Facsimile: (212) 593-5955
                                                Telephone:  (212) 756-2376

Enable Growth Partners LP       $1.55

Enable Opportunity Partners     $1.55
LP

Pierce Diversified Strategy     $1.55
Master Fund LLC

Capital Ventures                $1.55
International

Lane Capital Markets            $1.55
</TABLE>

                          Signature Page to Securities
                               Purchase Agreement

<PAGE>

                                    EXHIBITS

Exhibit A         Form of Notes
Exhibit B-1       Form of  Series A Warrants
Exhibit B-2       Form of Series B Warrants
Exhibit C         Form of Registration Rights Agreement
Exhibit D         Security Agreement
Exhibit E         Guaranty
Exhibit F         Pledge Agreement
Exhibit G         CEO Shares Pledge Agreement
Exhibit H         Irrevocable Transfer Agent Instructions
Exhibit I         Form of Outside Company Counsel Opinion
Exhibit J         Form of Secretary's Certificate
Exhibit K         Form of Officer's Certificate
Exhibit L         Benton Wilcoxon Letter Agreement

                                    SCHEDULES

Schedule 3(a)              Subsidiaries
Schedule 3(k)              SEC Documents; Financial Statements
Schedule 3(l)              Absence of Certain Changes
Schedule 3(q)              Transactions with Affiliates
Schedule (n)               Conduct of Business
Schedule 3(r)              Capitalization
Schedule 3(s)              Indebtedness and Other Contracts
Schedule 3(t)              Litigation
Schedule 3(w)              Title
Schedule 3(x)              Intellectual Property
Schedule 3(z)              Subsidiary Rights
Schedule 3(cc)             Ranking of NotesEXHIBIT B-1
                                [FORM OF WARRANT]

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

                        COMPOSITE TECHNOLOGY CORPORATION

                        WARRANT TO PURCHASE COMMON STOCK

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

      Composite  Technology  Corporation,  a Nevada corporation (the "COMPANY"),
hereby  certifies  that,  for good and valuable  consideration,  the receipt and
sufficiency  of which are  hereby  acknowledged,  [HUDSON  BAY FUND,  LP] [OTHER
BUYERS],  the registered  holder hereof or its permitted assigns (the "HOLDER"),
is entitled, subject to the terms set forth below, to purchase from the Company,
at the Exercise Price (as defined below) then in effect,  upon surrender of this
Warrant to Purchase  Common Stock  (including  any  Warrants to Purchase  Common
Stock issued in exchange, transfer or replacement hereof, the "WARRANT"), at any
time or times on or after the date  hereof,  but not after 11:59 p.m.,  New York
time,  on  the  Expiration  Date  (as  defined  below),   [750,000]  fully  paid
nonassessable  shares of Common Stock (as defined below) (the "WARRANT SHARES").
Except as otherwise defined herein, capitalized terms in this Warrant shall have
the  meanings  set forth in Section 15. This  Warrant is one of the  Warrants to
purchase Common Stock (the "SPA WARRANTS")  issued pursuant to Section 1 of that
certain  Securities  Purchase  Agreement,  dated  as  of  March  __,  2006  (the
"SUBSCRIPTION  DATE"), by and among the Company and the investors (the "BUYERS")
referred to therein (the "SECURITIES PURCHASE AGREEMENT").

<PAGE>

      1. EXERCISE OF WARRANT.

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

                                      -2-
<PAGE>

            (b) Exercise Price.  For purposes of this Warrant,  "EXERCISE PRICE"
means $1.55, subject to adjustment as provided herein.

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

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

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

                                        B

                     For purposes of the foregoing formula:

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

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

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

                                      -3-
<PAGE>

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

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

                                      -4-
<PAGE>

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

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

            (a)  Adjustment  upon  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 immediately after
such Dilutive Issuance, the Exercise Price then in effect shall be reduced to an
amount  equal to the New  Issuance  Price.  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:

                  (i) Issuance of Options.  If the Company in any manner  grants
                  any Options  (other than Excluded  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 the exercise of any such Options
                  or upon  conversion,  exercise or exchange of any  Convertible
                  Securities issuable upon exercise of any 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 the  granting  or sale of the
                  Option,  upon the exercise of the Option and upon  conversion,
                  exercise or exchange of any Convertible Security issuable upon
                  the exercise of any 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.

                                      -5-
<PAGE>

                  (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 thereof" 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.

                  (iii)  Change in Option  Price or Rate of  Conversion.  If the
                  purchase  price  provided for in any Options,  the  additional
                  consideration,  if any,  payable  upon the issue,  conversion,
                  exercise or exchange of any Convertible Securities (other than
                  Excluded  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.

                                      -6-
<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 $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  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.

                                      -7-
<PAGE>

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

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

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

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

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

                                      -8-
<PAGE>

      4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.

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

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

                                      -9-
<PAGE>

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

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

                                      -10-
<PAGE>

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

      7. REISSUANCE OF WARRANTS.

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

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

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

                                      -11-
<PAGE>

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

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

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

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

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

                                      -12-
<PAGE>

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

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

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

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

            (a) "BLOOMBERG" means Bloomberg Financial Markets.

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

                                      -13-
<PAGE>

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

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

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

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

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

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

                                      -14-
<PAGE>

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

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

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

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

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

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

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

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

                            [SIGNATURE PAGE FOLLOWS]

                                      -15-
<PAGE>

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

                                                COMPOSITE TECHNOLOGY CORPORATION

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

<PAGE>

                                                                       EXHIBIT A

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

                        COMPOSITE TECHNOLOGY CORPORATION

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

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

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

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

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

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

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

Date: _______________ __, ______

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

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

<PAGE>

                                 ACKNOWLEDGMENT

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

                                                COMPOSITE TECHNOLOGY CORPORATION

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

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