Document:

[FORM OF SENIOR SECURED CONVERTIBLE NOTE]

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES  REPRESENTED BY THIS CERTIFICATE
NOR THE  SECURITIES  INTO  WHICH  THESE  SECURITIES  ARE  CONVERTIBLE  HAVE BEEN
REGISTERED  UNDER THE  SECURITIES ACT OF 1933, AS AMENDED,  OR APPLICABLE  STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE,  SOLD,  TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE  REGISTRATION  STATEMENT  FOR
THE SECURITIES  UNDER THE SECURITIES ACT OF 1933, AS AMENDED,  OR (B) AN OPINION
OF COUNSEL,  IN A GENERALLY  ACCEPTABLE FORM, THAT  REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD  PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING  ARRANGEMENT  SECURED
BY THE SECURITIES. ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS
OF THIS NOTE,  INCLUDING  SECTIONS  3(C)(III)  AND 19(A)  HEREOF.  THE PRINCIPAL
AMOUNT REPRESENTED BY THIS NOTE AND,  ACCORDINGLY,  THE SECURITIES ISSUABLE UPON
CONVERSION  HEREOF  MAY BE LESS THAN THE  AMOUNTS  SET FORTH ON THE FACE  HEREOF
PURSUANT TO SECTION 3(C)(III) OF THIS NOTE.

                        COMPOSITE TECHNOLOGY CORPORATION

                         SENIOR SECURED CONVERTIBLE NOTE

Issuance Date:  March [___], 2006       Original Principal Amount: U.S. $_______

      FOR VALUE RECEIVED, Composite Technology Corporation, a Nevada corporation
(the  "COMPANY"),  hereby  promises to pay to the order of [HUDSON BAY FUND, LP]
[OTHER BUYERS] or registered  assigns ("HOLDER") the amount set out above as the
Original  Principal  Amount (as reduced pursuant to the terms hereof pursuant to
redemption, conversion or otherwise, the "PRINCIPAL") when due, whether upon the
Maturity Date (as defined below), acceleration, redemption or otherwise (in each
case in accordance  with the terms hereof) and to pay interest  ("INTEREST")  on
any outstanding  Principal at a rate of fourteen percent (14.0%) per annum ( the
"INTEREST  RATE"),  from the  date  set out  above  as the  Issuance  Date  (the
"ISSUANCE  DATE")  until  the same  becomes  due and  payable,  whether  upon an
Interest Date (as defined below), the Maturity Date,  acceleration,  conversion,
redemption or otherwise (in each case in accordance with the terms hereof). This
Senior Secured  Convertible Note (including all Senior Secured Convertible Notes
issued in exchange,  transfer or replacement  hereof,  this "NOTE") is one of an
issue of Senior Secured  Convertible Notes  (collectively,  the "NOTES" and such
other Senior Secured  Convertible  Notes,  the "OTHER NOTES") issued pursuant to
the Securities Purchase Agreement (as defined below).  Certain capitalized terms
are defined in Section 29.

<PAGE>

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

      (2) INTEREST; INTEREST RATE. Interest on this Note shall commence accruing
on the  Issuance  Date and shall be computed on the basis of a 365-day  year and
actual  days  elapsed  and shall be  payable  in arrears on the last day of each
month  during  the  period  beginning  on the  Issuance  Date and ending on, and
including,  the Maturity Date (each, an "INTEREST DATE") with the first Interest
Date being March 31, 2006.  Interest  shall be payable on each  Interest Date in
cash.  From and after the  occurrence of an Event of Default,  the Interest Rate
shall be increased to eighteen  percent  (18%).  In the event that such Event of
Default is  subsequently  cured,  the  adjustment  referred to in the  preceding
sentence shall cease to be effective as of the date of such cure;  provided that
the Interest as calculated at such increased rate during the continuance of such
Event of Default  shall  continue  to apply to the extent  relating  to the days
after the occurrence of such Event of Default  through and including the date of
cure of such Event of Default.

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

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

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

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

                  (ii)  "CONVERSION  PRICE" means, as of any Conversion Date (as
defined below) or other date of determination,  $1.55,  subject to adjustment as
provided herein.

                                      -2-
<PAGE>

            (c) Mechanics of Conversion.

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

                  (ii) Company's Failure to Timely Convert.  If within three (3)
Trading Days after the Company's  receipt of the facsimile  copy of a Conversion
Notice the Company  shall fail (a  "CONVERSION  FAILURE") to issue and deliver a
certificate  to the Holder or credit the Holder's  balance  account with DTC for
the number of shares of Common  Stock to which the Holder is entitled  upon such
holder's  conversion of any Conversion  Amount,  and if on or after such Trading
Day the Holder  purchases (in an open market  transaction  or otherwise)  Common
Stock to  deliver  in  satisfaction  of a sale by the  Holder  of  Common  Stock
issuable upon such  conversion  that the Holder  anticipated  receiving from the
Company (a  "BUY-IN"),  then the Company  shall,  within three (3) Business Days
after the Holder's request and in the Holder's  discretion,  either (i) pay cash
to the Holder in an amount equal to the Holder's total purchase price (including
brokerage commissions,  if any) for the shares of Common Stock so purchased (the
"BUY-IN  PRICE"),  at which  point the  Company's  obligation  to  deliver  such
certificate (and to issue such Common Stock) shall  terminate,  or (ii) promptly
honor its  obligation  to deliver to the Holder a  certificate  or  certificates
representing  such Common Stock and pay cash to the Holder in an amount equal to
the excess (if any) of the  Buy-In  Price over the  product of (A) the number of
shares of Common Stock purchased in the Buy-In,  times (B) the actual sale price
of the Common Stock at the time of the sale (excluding brokerage commissions, if
any) giving rise to the Buy-In purchase obligation.

                                      -3-
<PAGE>

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

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

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

                                      -4-
<PAGE>

      (4) RIGHTS UPON EVENT OF DEFAULT.

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

                  (i)  the  failure  of the  applicable  Registration  Statement
required  to be  filed  pursuant  to the  Registration  Rights  Agreement  to be
declared  effective  by the SEC on or prior to the date that is sixty  (60) days
after the  applicable  Effectiveness  Deadline  (as defined in the  Registration
Rights Agreement),  or, while the applicable  Registration Statement is required
to be  maintained  effective  pursuant to the terms of the  Registration  Rights
Agreement, the effectiveness of the applicable Registration Statement lapses for
any reason (including,  without limitation,  the issuance of a stop order) or is
unavailable  to any  holder  of the  Notes  for  sale  of all of  such  holder's
Registrable  Securities  (as defined in the  Registration  Rights  Agreement) in
accordance with the terms of the Registration  Rights Agreement,  and such lapse
or  unavailability  continues for a period of ten (10)  consecutive  days or for
more than an  aggregate  of thirty (30) days in any 365-day  period  (other than
days during an  Allowable  Grace Period (as defined in the  Registration  Rights
Agreement));

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

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

                                      -5-
<PAGE>

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

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

                  (vi) any default (after the expiration of any applicable  cure
period relating thereto) under,  redemption of or acceleration prior to maturity
of any  Indebtedness  (as  defined in Section  3(s) of the  Securities  Purchase
Agreement) of the Company or any of its Subsidiaries (as defined in Section 3(a)
of the Securities Purchase Agreement) in an aggregate principal amount exceeding
$225,000 and such default  continues  uncured for more than five (5) days, other
than with respect to any Other Notes;

                  (vii)  after the  Issuance  Date,  the  Company  or any of its
Subsidiaries,  pursuant to or within the meaning of the  Bankruptcy  Code or any
similar Federal,  foreign or state law for the relief of debtors  (collectively,
"BANKRUPTCY  LAW"), (A) commences a voluntary case, (B) consents to the entry of
an order for relief  against it in an  involuntary  case,  (C)  consents  to the
appointment of a receiver, trustee, assignee,  liquidator or similar official (a
"CUSTODIAN"), (D) makes a general assignment for the benefit of its creditors or
(E)  admits  in  writing  that it is  generally  unable to pay its debts as they
become due;

                  (viii) a court of  competent  jurisdiction  enters an order or
decree under any  Bankruptcy  Law that (A) is for relief  against the Company or
any of its Subsidiaries in an involuntary  case, (B) appoints a Custodian of the
Company or any of its  Subsidiaries or (C) orders the liquidation of the Company
or any of its Subsidiaries;

                  (ix) a final  judgment or  judgments  for the payment of money
aggregating in excess of $250,000 are rendered against the Company or any of its
Subsidiaries and which judgments are not, within sixty (60) days after the entry
thereof,  bonded,  discharged or stayed  pending  appeal,  or are not discharged
within sixty (60) days after the  expiration  of such stay;  provided,  however,
that any judgment  which is covered by  insurance or an indemnity  from a credit
worthy party shall not be included in calculating  the $250,000 amount set forth
above so long as the Company  provides the Holder a written  statement from such
insurer or indemnity  provider  (which  written  statement  shall be  reasonably
satisfactory  to the  Holder) to the  effect  that such  judgment  is covered by
insurance  or an  indemnity  and the Company  will  receive the proceeds of such
insurance or indemnity within thirty (30) days of the issuance of such judgment;

                                      -6-
<PAGE>

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

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

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

            (b) Redemption  Right.  Promptly after the occurrence of an Event of
Default with respect to this Note or any Other Note,  the Company  shall deliver
written notice thereof via facsimile and overnight courier (an "EVENT OF DEFAULT
NOTICE") to the Holder. At any time after the earlier of the Holder's receipt of
an Event of Default Notice and the Holder becoming aware of an Event of Default,
the Holder may  require the Company to redeem all or any portion of this Note by
delivering written notice thereof (the "EVENT OF DEFAULT REDEMPTION  NOTICE") to
the Company, which Event of Default Redemption Notice shall indicate the portion
of this Note the Holder is electing to redeem. Each portion of this Note subject
to redemption by the Company  pursuant to this Section 4(b) shall be redeemed by
the  Company at a price  equal to the sum of (i) the amount of the  accrued  and
unpaid Interest on the Conversion  Amount to be redeemed and (ii) the greater of
(x)  the  product  of (1)  the  Conversion  Amount  to be  redeemed  and (2) the
Redemption  Premium and (y) the product of (1) the Conversion  Rate with respect
to such Conversion Amount in effect at such time as the Holder delivers an Event
of Default  Redemption Notice and (2) the Closing Sale Price of the Common Stock
on the date  immediately  preceding such Event of Default (the "EVENT OF DEFAULT
REDEMPTION PRICE"); provided, however, that the Holder shall only be entitled to
receive an Event of Default  Redemption  Price  equal to clause (y) above to the
extent that because of the Event of Default the Holder is unable to convert this
Note into Common Stock (including as a result of the Company's  failure to honor
Conversion  Notices delivered  pursuant to Section 3(c)) or to immediately trade
shares of Common Stock pursuant to conversion of this Note.  Notwithstanding the
foregoing,  the foregoing  clause (y) shall not be applicable in connection with
any Payment Default.  Redemptions required by this Section 4(b) shall be made in
accordance with the provisions of Section 12.

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

                                      -7-
<PAGE>

            (a)  Assumption.  The Company  shall not enter into or be party to a
Fundamental  Transaction  unless (i) the Successor Entity assumes in writing all
of the  obligations  of the  Company  under this Note and the other  Transaction
Documents in  accordance  with the  provisions  of this Section 5(a) pursuant to
written  agreements in form and substance  satisfactory to the Required  Holders
and approved by the Required Holders prior to such Fundamental Transaction (such
satisfaction and approval not to be unreasonably withheld), including agreements
to deliver to each holder of Notes in exchange  for such Notes a security of the
Successor Entity evidenced by a written instrument substantially similar in form
and substance to the Notes,  including,  without limitation,  having a principal
amount and interest rate equal to the principal  amounts and the interest  rates
of the Notes held by such holder and having  similar  ranking to the Notes,  and
satisfactory to the Required  Holders and (ii) the Successor  Entity  (including
its Parent Entity) is a publicly traded corporation whose common stock is quoted
on or listed for  trading on an  Eligible  Market.  Upon the  occurrence  of any
Fundamental  Transaction,   the  Successor  Entity  shall  succeed  to,  and  be
substituted  for  (so  that  from  and  after  the  date  of  such   Fundamental
Transaction,  the provisions of this Note referring to the "Company" shall refer
instead to the Successor Entity),  and may exercise every right and power of the
Company and shall assume all of the  obligations  of the Company under this Note
with the same effect as if such  Successor  Entity had been named as the Company
herein. Upon consummation of the Fundamental  Transaction,  the Successor Entity
shall  deliver  to the  Holder  confirmation  that  there  shall be issued  upon
conversion or redemption of this Note at any time after the  consummation of the
Fundamental Transaction, in lieu of the shares of the Company's Common Stock (or
other  securities,   cash,  assets  or  other  property)  purchasable  upon  the
conversion  or redemption  of the Notes prior to such  Fundamental  Transaction,
such  shares of  publicly  traded  common  stock (or  their  equivalent)  of the
Successor  Entity,  as adjusted in accordance  with the provisions of this Note.
The  provisions of this Section shall apply  similarly and equally to successive
Fundamental  Transactions and shall be applied without regard to any limitations
on the conversion or redemption of this Note.

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

                                      -8-
<PAGE>

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

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

            (b) Other Corporate  Events.  In addition to and not in substitution
for any other rights  hereunder,  prior to the  consummation  of any Fundamental
Transaction  pursuant to which holders of shares of Common Stock are entitled to
receive  securities or other assets with respect to or in exchange for shares of
Common Stock (a "CORPORATE EVENT"), the Company shall make appropriate provision
to insure  that the Holder  will  thereafter  have the right to  receive  upon a
conversion  of  this  Note,  (i) in  addition  to the  shares  of  Common  Stock
receivable  upon such  conversion,  such securities or other assets to which the
Holder would have been  entitled with respect to such shares of Common Stock had
such  shares of Common  Stock been held by the Holder upon the  consummation  of
such  Corporate   Event  (without   taking  into  account  any   limitations  or
restrictions on the  convertibility  of this Note) or (ii) in lieu of the shares
of Common Stock otherwise  receivable upon such  conversion,  such securities or
other  assets  received by the holders of shares of Common  Stock in  connection
with the  consummation  of such  Corporate  Event in such  amounts as the Holder
would have been  entitled  to receive had this Note  initially  been issued with
conversion  rights for the form of such  consideration  (as opposed to shares of
Common Stock) at a conversion rate for such consideration  commensurate with the
Conversion Rate. Provision made pursuant to the preceding sentence shall be in a
form and substance  satisfactory to the Required Holders. The provisions of this
Section shall apply  similarly and equally to  successive  Corporate  Events and
shall  be  applied  without  regard  to any  limitations  on the  conversion  or
redemption of this Note.

      (7) RIGHTS UPON ISSUANCE OF OTHER SECURITIES.

            (a) Adjustment of Conversion Price upon Issuance of Common Stock. If
and whenever on or after the Subscription  Date, the Company issues or sells, or
in  accordance  with this  Section  7(a) is deemed to have  issued or sold,  any
shares of Common Stock (including the issuance or sale of shares of Common Stock
owned or held by or for the  account of the  Company,  but  excluding  shares of
Common  Stock  deemed to have been issued or sold by the  Company in  connection
with any Excluded  Securities) for a consideration  per share (the "NEW ISSUANCE
PRICE") less than a price (the "APPLICABLE PRICE") equal to the Conversion Price
in effect  immediately  prior to such issue or sale (the  foregoing  a "DILUTIVE
ISSUANCE"),  then immediately after such Dilutive Issuance, the Conversion Price
then in effect shall be reduced to an amount  equal to the New  Issuance  Price.
For purposes of  determining  the adjusted  Conversion  Price under this Section
7(a), the following shall be applicable;

                                      -9-
<PAGE>

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

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

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

                                      -10-
<PAGE>

                  (iv) Calculation of Consideration Received. In case any Option
is  issued  in  connection  with the  issue or sale of other  securities  of the
Company,  together  comprising one  integrated  transaction in which no specific
consideration is allocated to such Options by the parties  thereto,  the Options
will be deemed to have been issued for a  consideration  of $.01.  If any Common
Stock,  Options or  Convertible  Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed
to be the net amount  received by the  Company  therefor.  If any Common  Stock,
Options or Convertible  Securities are issued or sold for a consideration  other
than cash,  the amount of the  consideration  other  than cash  received  by the
Company  will  be the  fair  value  of such  consideration,  except  where  such
consideration consists of securities,  in which case the amount of consideration
received by the Company will be the Closing Sale Price of such securities on the
date of receipt.  If any Common Stock,  Options or  Convertible  Securities  are
issued to the owners of the  non-surviving  entity in connection with any merger
in which the  Company  is the  surviving  entity,  the  amount of  consideration
therefor  will be deemed to be the fair value of such  portion of the net assets
and  business  of the  non-surviving  entity as is  attributable  to such Common
Stock, Options or Convertible Securities,  as the case may be. The fair value of
any  consideration  other than cash or securities will be determined  jointly by
the Company and the Required  Holders.  For avoidance of doubt,  with respect to
the Company's  obligations to Media  Relations  Strategy,  Inc.  pursuant to the
Public and Media Relations  Strategy and Services  Consulting  Agreement entered
into on January 2, 2006, the fair value of the consideration to the Company,  if
the Company pays its obligations  under such agreement with Common Stock,  shall
be deemed to be the Weighted  Average  Price of such Common Stock on the date of
payment.  If such  parties  are unable to reach  agreement  within ten (10) days
after the occurrence of an event requiring  valuation (the  "VALUATION  EVENT"),
the fair value of such consideration will be determined within five (5) Business
Days  after the tenth  day  following  the  Valuation  Event by an  independent,
reputable  appraiser  jointly selected by the Company and the Required  Holders.
The  determination  of such  appraiser  shall be deemed binding upon all parties
absent manifest error and the fees and expenses of such appraiser shall be borne
by the Company.

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

            (b) Adjustment of Conversion  Price upon  Subdivision or Combination
of Common Stock.  If the Company at any time on or after the  Subscription  Date
subdivides (by any stock split, stock dividend,  recapitalization  or otherwise)
one or more  classes of its  outstanding  shares of Common  Stock into a greater
number of  shares,  the  Conversion  Price in effect  immediately  prior to such
subdivision will be  proportionately  reduced.  If the Company at any time on or
after the  Subscription  Date combines (by  combination,  reverse stock split or
otherwise) one or more classes of its outstanding  shares of Common Stock into a
smaller number of shares,  the Conversion Price in effect  immediately  prior to
such combination will be proportionately increased.

                                      -11-
<PAGE>

            (c) Other Events.  If any event occurs of the type  contemplated  by
the  provisions  of  this  Section  7 but  not  expressly  provided  for by such
provisions  (including,  without limitation,  the granting of stock appreciation
rights,  phantom  stock rights or other rights with equity  features),  then the
Company's  Board  of  Directors  will  make  an  appropriate  adjustment  in the
Conversion  Price so as to protect  the  rights of the  Holder  under this Note;
provided that no such adjustment will increase the Conversion Price as otherwise
determined pursuant to this Section 7.

      (8) COMPANY'S RIGHT OF OPTIONAL REDEMPTION.

            (a)  Optional  Redemption.  At any time from and after the  Issuance
Date and prior to the Maturity  Date, the Company shall have the right to redeem
all or any portion of the Conversion  Amount then  remaining  under this Note as
designated in the Optional Redemption Notice, as of the Optional Redemption Date
(an  "OPTIONAL  REDEMPTION").  The  portion of this Note  subject to  redemption
pursuant  to this  Section 8 shall be redeemed by the Company in cash at a price
equal to (i) so long as the  Equity  Conditions  shall  have been  satisfied  or
waived in writing by the  Holder  from and  including  the  Optional  Redemption
Notice Date (as defined below) and through and including the Optional Redemption
Date (as defined below),  100% of the Conversion  Amount being redeemed plus any
accrued and unpaid Interest  thereon or (ii)  otherwise,  110% of the Conversion
Amount  being  redeemed  plus any  accrued  and  unpaid  Interest  thereon  (the
"OPTIONAL  REDEMPTION  PRICE"  and,  collectively,  with the  Event  of  Default
Redemption  Price and the Change of Control  Redemption  Price,  the "REDEMPTION
PRICES" and,  each, a "REDEMPTION  PRICE") on the Optional  Redemption  Date (as
defined below).  The Company may exercise its right to require  redemption under
this  Section  8(a) by  delivering a written  notice  thereof by  facsimile  and
overnight courier to all, but not less than all, of the holders of Notes and the
Transfer Agent (the "OPTIONAL REDEMPTION NOTICE" and the date all of the holders
received such notice is referred to as the "OPTIONAL  REDEMPTION  NOTICE DATE").
The Company may deliver up to two (2) Optional  Redemption Notices hereunder and
each  such  Optional  Redemption  Notice  shall  be  irrevocable.  The  Optional
Redemption  Notice  shall  state (A) the date on which the  Optional  Redemption
shall occur (the "OPTIONAL  REDEMPTION  DATE") which date shall be five (5) days
after the Optional  Redemption  Notice Date,  and (B) the  aggregate  Conversion
Amount of the Notes  which the  Company  has  elected to be subject to  Optional
Redemption  from all of the holders of the Notes pursuant to this Section 8 (and
analogous  provisions under the Other Notes) on the Optional Redemption Date. In
order to elect an Optional Redemption, the Company shall be required to deposit,
on or prior to the  Optional  Redemption  Notice  Date,  an amount  equal to the
aggregate Optional  Redemption Price to be paid on the Optional  Redemption Date
(the "ESCROW FUNDS") into (1) a client trust account with the Company's  counsel
with  irrevocable  written  instructions to such counsel to remit payment of the
Escrow Funds in accordance with the terms of this Section 8 to the Holder on the
applicable Optional Redemption Date or (2) an escrow account satisfactory to the
Holder with an escrow agent satisfactory to the Holder; provided that no part of
the Escrow  Funds shall come from any monies  obtained  by the Company  from any
arrangement  with a third  party  insurer  pursuant  to which such  third  party
insurer  agrees to pay all or any portion of the aggregate  Optional  Redemption
Price due on the Optional Redemption Date in exchange for shares of Common Stock
of the  Company.  All  Conversion  Amounts  converted  by the  Holder  after the
Optional Redemption Notice Date (the "CONVERTED REDEMPTION AMOUNT") shall reduce
the  Conversion  Amount of this Note  required to be  redeemed  on the  Optional
Redemption Date. On the Optional Redemption Date, the Escrow Funds shall be paid
to the  Holder;  provided  that the  portion  of the Escrow  Funds  equal to the
Converted  Redemption  Amount,  if  any,  shall  be  released  to  the  Company.
Redemptions  made  pursuant to this Section 8 shall be made in  accordance  with
Section 12.

                                      -12-
<PAGE>

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

      (9) SECURITY.  This Note and the Other Notes are secured to the extent and
in the manner set forth in the Security  Documents (as defined in the Securities
Purchase Agreement).

      (10)  NONCIRCUMVENTION.  The Company hereby  covenants and agrees that the
Company  will not, by  amendment  of its  Articles of  Incorporation,  Bylaws or
through any reorganization, transfer of assets, consolidation, merger, scheme of
arrangement,  dissolution,  issue or sale of securities,  or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of  this  Note,  and  will  at all  times  in good  faith  carry  out all of the
provisions  of this Note and take all action as may be  required  to protect the
rights of the Holder of this Note.

      (11) RESERVATION OF AUTHORIZED SHARES.

            (a)  Reservation.  The Company  initially  shall  reserve out of its
authorized and unissued Common Stock a number of shares of Common Stock for each
of the Notes equal to 110% of the Conversion Rate with respect to the Conversion
Amount of each such Note as of the  Issuance  Date.  So long as any of the Notes
are outstanding, the Company shall take all action necessary to reserve and keep
available  out of its  authorized  and  unissued  Common  Stock,  solely for the
purpose of effecting the  conversion of the Notes,  110% of the number of shares
of Common Stock as shall from time to time be necessary to effect the conversion
of all of the Notes then outstanding;  provided that at no time shall the number
of shares of Common Stock so reserved be less than the number of shares required
to be reserved of the previous  sentence  (without  regard to any limitations on
conversions) (the "REQUIRED  RESERVE  AMOUNT").  The initial number of shares of
Common Stock  reserved  for  conversions  of the Notes and each  increase in the
number of shares so reserved  shall be  allocated  pro rata among the holders of
the Notes based on the principal  amount of the Notes held by each holder at the
Closing (as defined in the  Securities  Purchase  Agreement)  or increase in the
number  of  reserved  shares,   as  the  case  may  be  (the  "AUTHORIZED  SHARE
ALLOCATION"). In the event that a holder shall sell or otherwise transfer any of
such holder's Notes,  each  transferee  shall be allocated a pro rata portion of
such holder's  Authorized Share Allocation.  Any shares of Common Stock reserved
and allocated to any Person which ceases to hold any Notes shall be allocated to
the remaining  holders of Notes,  pro rata based on the principal  amount of the
Notes then held by such holders.

                                      -13-
<PAGE>

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

      (12) HOLDER'S REDEMPTIONS.

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

                                      -14-
<PAGE>

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

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

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

      (15) COVENANTS.

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

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

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

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

                                      -15-
<PAGE>

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

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

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

      (19) REISSUANCE OF THIS NOTE.

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

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

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

                                      -16-
<PAGE>

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

      (20)  REMEDIES,   CHARACTERIZATIONS,   OTHER  OBLIGATIONS,   BREACHES  AND
INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative and in
addition  to all  other  remedies  available  under  this  Note  and  the  other
Transaction  Documents  at law or in  equity  (including  a decree  of  specific
performance and/or other injunctive relief),  and nothing herein shall limit the
Holder's right to pursue actual and consequential damages for any failure by the
Company to comply with the terms of this Note. Amounts set forth or provided for
herein with respect to payments,  conversion  and the like (and the  computation
thereof) shall be the amounts to be received by the Holder and shall not, except
as expressly  provided herein, be subject to any other obligation of the Company
(or the performance  thereof).  The Company  acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Holder and that the
remedy at law for any such  breach  may be  inadequate.  The  Company  therefore
agrees that,  in the event of any such breach or threatened  breach,  the Holder
shall be entitled, in addition to all other available remedies, to an injunction
restraining  any breach,  without the  necessity  of showing  economic  loss and
without any bond or other security being required.

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

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

                                      -17-
<PAGE>

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

      (24) DISPUTE RESOLUTION.  In the case of a dispute as to the determination
of the Closing Bid Price,  the Closing Sale Price or the Weighted  Average Price
or the arithmetic  calculation of the Conversion  Rate or the Redemption  Price,
the Company shall submit the disputed  determinations or arithmetic calculations
via facsimile  within two (2) Business Days of receipt of the Conversion  Notice
or Redemption Notice or other event giving rise to such dispute, as the case may
be, to the  Holder.  If the Holder and the Company are unable to agree upon such
determination  or  calculation  within  one (1)  Business  Day of such  disputed
determination or arithmetic  calculation being submitted to the Holder, then the
Company  shall,  within  two (2)  Business  Days  submit via  facsimile  (a) the
disputed  determination  of the Closing Bid Price, the Closing Sale Price or the
Weighted Average Price to an independent,  reputable investment bank selected by
the  Company  and  approved  by  the  Holder  or  (b)  the  disputed  arithmetic
calculation  of the  Conversion  Rate or the  Redemption  Price to the Company's
independent,  outside accountant.  The Company, at the Company's expense,  shall
cause the investment bank or the accountant,  as the case may be, to perform the
determinations  or  calculations  and notify the  Company  and the Holder of the
results no later than five (5) Business Days from the time such  investment bank
or  accountant  receives  the  disputed  determinations  or  calculations.  Such
investment bank's or accountant's determination or calculation,  as the case may
be, shall be binding upon all parties absent demonstrable error.

      (25) NOTICES; PAYMENTS.

            (a)  Notices.  Whenever  notice is  required  to be given under this
Note, unless otherwise provided herein, such notice shall be given in accordance
with  Section  9(f) of the  Securities  Purchase  Agreement.  The Company  shall
provide the Holder with prompt  written  notice of all actions taken pursuant to
this Note,  including in reasonable  detail a description of such action and the
reason therefore.  Without limiting the generality of the foregoing, the Company
will give  written  notice to the  Holder  (i) as soon as  practicable  upon any
adjustment of the  Conversion  Price,  setting forth in reasonable  detail,  and
certifying,  the  calculation  of such  adjustment and (ii) at least twenty days
prior to the date on which the  Company  closes  its books or takes a record (A)
with respect to any dividend or  distribution  upon the Common  Stock,  (B) with
respect to any pro rata subscription offer to holders of Common Stock or (C) for
determining  rights  to  vote  with  respect  to  any  Fundamental  Transaction,
dissolution or liquidation, provided in each case that such information shall be
made known to the  public  prior to or in  conjunction  with such  notice  being
provided to the Holder.

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

                                      -18-
<PAGE>

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

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

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

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

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

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

            (c) "BLOOMBERG" means Bloomberg Financial Markets.

            (d)  "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.

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

                                      -19-
<PAGE>

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

            (g)  "CLOSING  BID PRICE" and "CLOSING  SALE PRICE"  means,  for any
security  as of any date,  the last  closing  bid price and last  closing  trade
price,  respectively,  for such security on the Principal Market, as reported by
Bloomberg,  or, if the Principal  Market begins to operate on an extended  hours
basis and does not  designate  the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade  price,  respectively,
of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg,
or, if the Principal Market is not the principal  securities exchange or trading
market  for such  security,  the last  closing  bid price or last  trade  price,
respectively,  of such security on the principal  securities exchange or trading
market where such security is listed or traded as reported by  Bloomberg,  or if
the  foregoing  do not apply,  the last  closing bid price or last trade  price,
respectively,  of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade  price,  respectively,  is  reported  for such  security  by
Bloomberg,  the average of the bid prices, or the ask prices,  respectively,  of
any market  makers for such  security as  reported in the "pink  sheets" by Pink
Sheets LLC (formerly the National  Quotation  Bureau,  Inc.). If the Closing Bid
Price or the  Closing  Sale  Price  cannot be  calculated  for a  security  on a
particular  date on any of the  foregoing  bases,  the  Closing Bid Price or the
Closing Sale Price,  as the case may be, of such  security on such date shall be
the fair market value as mutually  determined by the Company and the Holder.  If
the  Company  and the Holder are unable to agree upon the fair  market  value of
such security,  then such dispute shall be resolved  pursuant to Section 24. All
such determinations to be appropriately  adjusted for any stock dividend,  stock
split,  stock  combination  or other similar  transaction  during the applicable
calculation period.

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

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

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

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

                                      -20-
<PAGE>

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

            (m)  "EXCLUDED   SECURITIES"  means  any  Common  Stock,  Option  or
Convertible  Securities issued or issuable:  (i) in connection with any Approved
Stock Plan;  (ii) upon  conversion of the Notes or the exercise of the Warrants;
(iii) in connection with the warrant issued to Ryan M. Lane as compensation  for
the  issuances of the Notes and  Warrants  pursuant to the  Securities  Purchase
Agreement;  (iv)  pursuant to a bona fide firm  commitment  underwritten  public
offering with a nationally recognized underwriter which generates gross proceeds
to the Company in excess of an amount equal to 300% of the  aggregate  principal
amount  outstanding under the Notes (other than an  "at-the-market  offering" as
defined  in Rule  415(a)(4)  under  the 1933  Act and  "equity  lines");  (v) in
connection   with  joint  venture,   acquisition,   merger  or  other  strategic
transactions with EU Energy plc, a United Kingdom corporation,  its shareholders
or its subsidiaries or other related entities in an amount not to exceed, in the
aggregate for such  transactions,  40,000,000  shares of Common Stock;  and (vi)
upon exercise of or conversion of any Options or  Convertible  Securities  which
are  outstanding on the day  immediately  preceding the  Subscription  Date (the
"EXISTING OPTIONS AND CONVERTIBLE SECURITIES"),  provided that the terms of such
Existing Options and Convertible Securities are not amended, modified or changed
on or after the  Subscription  Date;  provided,  further,  that any  issuance of
shares of Common  Stock,  upon  conversion  or  exercise  of, or as  payment  of
principal or interest on, any such Existing  Options and Convertible  Securities
calculated using a variable conversion or exercise price, as applicable, that is
below the  Conversion  Price in effect  at the time of such  issuance,  shall be
deemed a Dilutive  Issuance with respect to such particular  issuance,  shall be
subject  to the  provisions  of  Section  7(a) and  shall not be  considered  an
issuance of Excluded Securities.

                                      -21-
<PAGE>

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

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

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

            (q) "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.

                                      -22-
<PAGE>

            (r) "PERMITTED  INDEBTEDNESS" means (i) Indebtedness incurred by the
Company  that  is  made  expressly  subordinate  in  right  of  payment  to  the
Indebtedness  evidenced  by this  Note,  as  reflected  in a  written  agreement
acceptable  to the  Holder and  approved  by the  Holder in  writing,  and which
Indebtedness  does not  provide  at any time  for (1) the  payment,  prepayment,
repayment, repurchase or defeasance, directly or indirectly, of any principal or
premium,  if any,  thereon until ninety-one (91) days after the Maturity Date or
later and (2) total  interest  and fees at a rate in excess of fourteen  percent
(14.0%) per annum (ii) Indebtedness evidenced by the 6% Convertible  Debentures,
(iii)  Indebtedness  secured by  Permitted  Liens,  (iv)  Indebtedness  to trade
creditors  incurred in the  ordinary  course of  business,  and (v)  extensions,
refinancings and renewals of any items of Permitted Indebtedness,  provided that
the  principal  amount is not  increased  or the terms  modified  to impose more
burdensome terms upon the Company or its Subsidiary, as the case may be.

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

            (t) "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.

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

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

                                      -23-
<PAGE>

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

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

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

            (z) "SUBSCRIPTION DATE" means February [___], 2006.

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

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

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

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

                                      -24-
<PAGE>

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

                            [Signature Page Follows]

                                      -25-
<PAGE>

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

                                                COMPOSITE TECHNOLOGY CORPORATION

                                                By:_____________________________
                                                      Name:
                                                      Title:

<PAGE>

                                    EXHIBIT I

                        COMPOSITE TECHNOLOGY CORPORATION
                                CONVERSION NOTICE

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

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

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

Please confirm the following information:

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

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>

                                 ACKNOWLEDGMENT

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

                                                COMPOSITE TECHNOLOGY CORPORATION

                                                By:_____________________________
                                                      Name:
                                                      Title:EX 10.1

    EXHIBIT
      10.1

    

    

    SUBSCRIPTION
      AGREEMENT

    

    

    This
      Subscription Agreement (this "Agreement") by and between METALLINE MINING
      COMPANY, a Nevada corporation (the "Corporation"), and
      ________________________________ (the "Subscriber ") is effective as of the
      date
      of the Corporation's acceptance of this Agreement as set forth
      below.

    

    RECITALS:

    

    Whereas,
      the Corporation desires to sell to the Subscriber, and the Subscriber desires
      to
      purchase from the Corporation, shares of the Corporation's common stock in
      accordance with the terms and conditions set forth herein:

    

    Now,
      therefore, in consideration of the mutual covenants and agreements contained
      herein, together with other good and valuable consideration, the receipt and
      sufficiency of which are hereby acknowledged, the parties agree as
      follows:

    

    1. Subscription
      for Securities.
      The
      Subscriber hereby subscribes for ________ shares of common stock, par value
      $.01
      per share, of the Corporation. For each share purchased pursuant to this
      Agreement, the purchaser will also receive a warrant to purchase one share
      of
      the Company's common stock at an exercise price of $1.25 per share (the
      "Warrants" and, together with the shares, the "Securities"), at a price of
      $0.80
      per share for an aggregate purchase price of _____________________________
      Dollars ($____________).

    

    2. Acceptance
      of Subscription.
      This
      Agreement is not effective until the Corporation has received full payment
      of
      the aggregate purchase price and accepted this Agreement. This Agreement may
      be
      rejected in whole or in part at the sole discretion of the Corporation.

    

    3. Representations
      and Warranties of the Subscriber.
      The
      Subscriber understands that the offering and sale of the Securities is intended
      to be exempt from registration under the Securities Act of 1933, as amended
      (the
      "Securities Act"), by virtue of Sections 4(2) and 4(6) of the Act and Regulation
      D promulgated under the Act, as well as other exemptions that may be available.
      The Subscriber understands that the Corporation will rely on the Subscriber's
      representations and warranties herein to secure said exemptions. Accordingly,
      the Subscriber represents and warrants to the Corporation as
      follows:

    

    (a) The
      Subscriber is an "Accredited Investor" as defined under Rule 501(a) of the
      Securities Act by virtue of the fact that the Subscriber (check applicable
      boxes):

    

    (i) [
      ] is
      a
      director or executive officer of the Corporation;

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    (ii) [
      ] is
      a
      natural person who has an individual net worth, or joint net worth with his
      or
      her spouse, at the time of the purchase exceeding $1,000,000. As used in this
      subparagraph, "net worth" means total tangible assets as currently valued less
      total liabilities;

    

    (iii) [
      ] is
      a
      natural person who had individual income in excess of $200,000 in each of the
      two most recent years or joint income with his or her spouse in excess of
      $300,000 in each of those years and has a reasonable expectation of reaching
      the
      same income level in the current year;

    

    (iv)
       [
      ] is
      an
      entity in which all of the equity owners are Accredited Investors;

    

    (v) [
      ] is
      a
      trust (1) not formed for the specific purpose of acquiring the Securities,
      (2)
      having total assets in excess of $5,000,000, and (3) whose purchase of the
      Securities is directed by a sophisticated person (as described in
      Rule 506(b)(2)(ii) under the Act);

    

    (vi) [
      ] is
      a
      bank, savings and loan association or other institution as defined in Section
      3(a)(5)(A) of the Securities Act, whether acting in its individual capacity
      or
      as a fiduciary;

    

    (vii) [
      ] is
      a
      broker or dealer registered pursuant to the Securities Exchange Act of 1934,
      as
      amended;

    

    (viii) [
      ] is
      an
      insurance company, as defined in the Securities Act; 

    

    (ix) [
      ] is
      an
      investment company registered under the Investment Company Act of 1940, as
      amended, or as a business development company as defined by that
      Act;

    

    (x) [
      ] is
      a
      Small Business Investment Company licensed by the United States Small Business
      Administration;

    

    (xi) [
      ] is
      a plan
      established and maintained by a state, its political subdivisions, or an agency
      or instrumentality of a state or its political subdivisions for the benefit
      of
      its employees, which has total assets in excess of $5 million;

    

    (xii) [
      ] is
      an
      employee benefit plan within the meaning of the Employee Retirement Income
      Security Act of 1974, as amended ("ERISA"), if the investment decision is to
      be
      made by a plan fiduciary, as defined in Section 3(21) of ERISA, which is either
      a bank, savings and loan association, an insurance company, or a registered
      investment advisor, or if the employee benefit plan has total assets in excess
      of $5 million; 

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    (xiii) [
      ] is
      a
      self-directed employee benefit plan with (1) a net worth in excess of $5
      million, and (2) whose investment decisions are made by, and solely for the
      benefit of, persons that are accredited investors;

    

    (xiv) [
      ] is
      a
      private business development company, as defined in the Investment Advisors
      Act
      of 1940, as amended; or

    

    (xv) [
      ] is
      a
      tax-exempt organization (under Section 501(c)(3) of the Internal Revenue Code
      of
      1986, as amended), corporation, Massachusetts or similar business trust, or
      partnership (1) not formed for the specific purpose of acquiring the Securities
      and (ii) having total assets in excess of $5,000,000.

     

    (b) The
      Corporation has made available to the Subscriber all documents that the
      Subscriber has requested, and the Subscriber has requested all documents and
      other information that the Subscriber has deemed necessary to consider, relating
      to this investment in the Corporation and the Corporation has provided answers
      to all questions concerning the offering and an investment in the
      Corporation.

    

    (c) The
      Securities are being purchased for investment purposes only, for the
      Subscriber's own account, and not with a view to distribution or resale thereof
      in any manner within the meaning of the Securities Act. The Subscriber will
      not
      take or cause to be taken any action that will cause the Subscriber or the
      Corporation to be deemed an “underwriter” of the Securities as that term is
      defined in Section 2(11) of the Securities Act.

    

    (d) The
      Subscriber understands that an investment in the Securities is highly
      speculative and subject to substantial risks. The Subscriber has such knowledge
      and experience in financial and business matters that the Subscriber is capable
      of evaluating the merits and risks of an investment in the
      Securities.

    

    (e) The
      Subscriber is capable of bearing the risk of the loss of the entire investment
      in the Securities. The Subscriber has an adequate net worth and means of
      providing for current needs and contingencies notwithstanding the loss of an
      investment in the Securities.

    

    (f) The
      Subscriber understands that the Securities are not and will not be registered
      under the Securities Act or any state securities laws and are being offered
      in
      reliance upon exemptions from registration thereunder. Accordingly, the
      Subscriber understands that the Securities may not be sold, distributed,
      assigned, offered, pledged or otherwise transferred unless they are subsequently
      registered under the Securities Act and under applicable state or foreign
      securities laws, or an exemption from such registration is available. The
      Subscriber understands that the Corporation is under no obligation to register
      the Securities or to assist the Subscriber in complying with any exemption
      from
      such registration. The Subscriber further understands that the Corporation
      is
      not registered as an investment corporation under the Investment Corporation
      Act
      of 1940, as amended ("Investment Corporation Act"), in reliance upon an
      exemption from such registration.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (g) The
      Subscriber consents to the placement of a legend on any certificates
      representing the Securities, which legend shall be in form substantially as
      follows:

    

    THE
      SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
      SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY APPLICABLE STATE
      SECURITIES LAWS, AND NO INTEREST THEREIN MAY BE SOLD, DISTRIBUTED, ASSIGNED,
      OFFERED, PLEDGED OR OTHERWISE TRANSFERRED UNLESS (a) THERE IS AN EFFECTIVE
      REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS
      COVERING ANY SUCH TRANSACTION INVOLVING SAID SECURITIES OR (b) THE ISSUER
      RECEIVES A SATISFACTORY OPINION OF LEGAL COUNSEL FOR THE HOLDER OF THESE
      SECURITIES (CONCURRED IN BY LEGAL COUNSEL FOR THE ISSUER) STATING THAT SUCH
      TRANSACTION IS EXEMPT FROM REGISTRATION.

    

    (h) The
      Subscriber understands that no federal or state agency has passed upon the
      Securities or made any finding or determination as to the merits or fairness
      of
      this transaction.

    

    (i) The
      Subscriber is a resident of the state indicated in Section 4 hereof and, if
      an
      individual, has reached the age of majority according to the laws of that state.
      If the Subscriber is a corporation, partnership, or other entity, the Subscriber
      and the individual representative of the Subscriber who is executing this
      Agreement each hereby represent and warrant that the purchase of the Securities
      pursuant to this Agreement has been duly authorized by all necessary corporate,
      partnership, or other action; that such individual is duly authorized to bind
      the Subscriber to this Agreement; and that the Subscriber was not organized
      for
      the purpose of investing in the Corporation.

    

    (j) No
      representations or warranties have been made to Subscriber by the Corporation,
      or any officer, employee, agent or affiliate of any of them.

    

    (k) These
      representations and warranties are true and accurate as of the date of this
      Agreement and shall be true and accurate as of the date of delivery of the
      subscription price, and shall survive such delivery. If in any respect, such
      representations and warranties shall not be true and accurate prior to the
      issuance of Securities to the Subscriber, the Subscriber shall give immediate
      written notice of such fact to the Corporation specifying which representations
      and warranties are not true and accurate and in what respects they are not
      accurate.

    

    4. Indemnity.
      The
      Subscriber agrees to indemnify and hold harmless the Corporation and its
      affiliates from and against any and all loss, liability, claim, damage, cost
      or
      expense incurred (including, without limitation, any and all expenses whatsoever
      reasonably incurred in investigating, preparing for or defending against any
      litigation commenced or threatened or any claim whatsoever) arising out of
      or
      based upon any false representation or warranty or breach or failure by the
      Subscriber herein or in any other document furnished by the Subscriber to the
      Corporation or any of its affiliates in connection with this
      transaction.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    5. Notices.
      Any
      notices or other communications required or permitted hereby shall be sufficient
      if sent by registered or certified mail, postage prepaid, return receipt
      requested, to the following addresses:

    

    Corporation:

    Metalline
      Mining Company

    1330
      E.
      Margaret Ave.

    Coeur
      d'Alene, Idaho 83815

    ATTN:
      Merlin Bingham

    Subscriber:

    ________________________

    ________________________

    ________________________

    

    6. Successors
      and Assigns.
      This
      Agreement shall be binding upon and shall inure to the benefit of the parties
      hereto and to their respective representatives, successors and permitted
      assigns. The Subscriber shall not transfer or assign this Agreement without
      the
      prior written consent of the Corporation, and any attempted assignment without
      such consent will be void. 

    

    7. Applicable
      Law.
      This
      Agreement shall be governed by and construed in accordance with the laws of
      the
      State of Idaho without regard to conflict of law principles and in accordance
      with the laws of the United States.

    

    8. Attorneys'
      Fees and Costs.
      In any
      action at law or equity to enforce or interpret any of the provisions or rights
      under this Agreement, the prevailing party shall be entitled to costs, expenses
      and reasonable attorneys' fees incurred therein, including, without limitation,
      such costs, expenses and fees on any appeal.

    

    9. Entire
      Agreement.
      This
      Agreement constitutes the entire agreement among the parties hereto with respect
      to the subject matter hereof and may be amended only by a writing executed
      by
      all parties hereto.

    

    10. Counterparts.
      This
      Agreement may be executed in any number of counterparts, each of which shall
      be
      an original, but all of which together shall constitute one instrument (any
      one
      or more of which may be by facsimile).

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    IN
      WITNESS WHEREOF, the undersigned has executed this Agreement as of the ___day
      of
      _________, 2005.

    

    SUBSCRIBER:    

    

    

    By:
      ______________________________

     

    ______________________________

    

    __________________________________ 

    Social
      Security or Federal I.D. Number

    

    Address:  
      __________________________

    __________________________

    __________________________

    __________________________

    

    Payment
      Enclosed $ _________________

    

    

    

    Accepted
      as to _______________ Shares

    

    METALLINE
      MINING COMPANY

    

    

    By:
      _______________________________

    Merlin
      D.
      Bingham

    President

    

    Date:
      ______________________________

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