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SECURITIES PURCHASE AGREEMENT
 
SECURITIES PURCHASE AGREEMENT (“Agreement”) dated as of June 8, 2010 between
Clean Power Technologies, Inc. a Nevada corporation (the “Company”), and The
Quercus Trust (“Purchaser”).  Capitalized terms used herein and not otherwise
defined shall have the meanings set forth in the Note.
 
W I T N E S S E T H
 
WHEREAS, the Company desires to sell and issue to the Purchaser, and the
Purchaser desires to purchase from the Company a 10% Senior Secured Convertible
Promissory Note in the principal amount of One Million United States Dollars
($1,000,000) in substantially the form of Exhibit A attached hereto (the
“Note”); and
 
WHEREAS, in consideration of  the purchase of the Note the Company desires to
re-price the outstanding warrants currently held by Purchaser to purchase shares
of the Company’s common stock par value $0.001 (the “Common Shares”) and the
debt currently held by Purchaser on the terms and conditions set forth herein.
 
NOW, THEREFORE, in consideration of the foregoing premises and the covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
 
ARTICLE I
 
Purchase and Sale of Securities
 
Section 1.1 Issuance of Securities.  Upon the following terms and conditions,
the Company shall issue and sell to the Purchaser, and the Purchaser shall
purchase from the Company, the Note.
 
Section 1.2 Purchase Price; Advances.  The purchase price for the Note shall be
One Million United States Dollars ($1,000,000) to be paid as follows: Purchaser
shall tender to Company for cancellation notes for an aggregate principal amount
of $500,000 representing bridge financing provided by Purchaser to Company on
May 21, 2010 ($200,000) and June 2, 2010 ($300,000), and shall deliver to
Purchaser $125,000 on the 15th day of July, August, September and October, 2010;
provided, however, that in the event of Qualified Offering (as defined below),
Purchaser shall not have the obligation or be entitled to make further
investments. A Qualified Offering shall mean the next offering of equity
securities (including securities exercisable for or convertible into equity
securities but not including the conversion of the Note or that certain note
issued to Purchaser on July 10, 2008), which unless such minimum amount is
waived by Purchaser, shall result in cumulative gross proceeds to the Company
from the sale of the equity securities by the Company after the date hereof of
at least GBP 3,000,000.
 
Section 1.3 Reduction of Exercise Price of Outstanding Warrants and Amendment of
Note.  The exercise price of all outstanding warrants and convertible notes held
by Purchaser as of the date hereof shall be reduced to $0.15 per share, subject
to further adjustment in accordance
 
 
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 with the terms of the warrants, and the expiration date of each warrant shall
be extended to May 21, 2017.  In addition, the Senior Secured Convertible
Promissory Note in the amount of $2,000,000 issued to The Quercus Trust on July
10, 2008, shall be amended to read substantially as set forth on Exhibit B
attached hereto (the “Amended and Restated 2008 Note”).
 
Section 1.4 The Closing.  Subject to the fulfillment or waiver of the conditions
set forth in Article V hereof, the purchase and sale of the Note and the
re-pricing of the warrants and notes currently held by Purchaser shall take
place on or about the date hereof or such other date as the Purchaser and the
Company may agree upon (the “Closing Date).  On the Closing Date, the Company
shall deliver to the Purchaser the Note purchased hereunder, registered in the
name of Purchaser or its nominee.  On or prior to the Closing Date the Purchaser
shall deliver the initial investment amount by wire transfer of immediately
available funds:
 
Wire transfers shall be made as follows:
 
Gersten Savage LLP
600 Lexington Avenue
New York, NY 10022
Signature Bank
565 Fifth Avenue
New York, NY 10017
ABA # 026013576
Account # 1501343273
 
In addition, each party shall deliver all documents, instruments and writings
required to be delivered by such party pursuant to this Agreement at or prior to
the Closing.
 
ARTICLE II

 
Representations and Warranties
 
Section 1.1 Representations and Warranties of the Company.  The Company hereby
makes the following representations and warranties to the Purchaser as of the
date hereof:
 
(a) Organization and Qualification; Material Adverse Effect.  The Company is a
corporation duly incorporated and existing in good standing under the laws of
the State of Nevada and has the requisite corporate power to own its properties
and to carry on its business as now being conducted.  The Company does not have
any subsidiaries other than the subsidiaries listed on Schedule 2.1(a) attached
hereto (“Subsidiaries”).  Except where specifically indicated to the contrary,
all references in this Agreement to subsidiaries shall be deemed to refer to all
direct and indirect subsidiaries of the Company.  Each Subsidiary has been duly
incorporated and is in good standing under the laws of its jurisdiction of
incorporation.  The Company and each Subsidiary is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary other than those in which the failure so to qualify
would not have a Material Adverse Effect.  “Material Adverse Effect” means any
adverse effect on the business, operations, properties, prospects or financial
condition of the Company and its subsidiaries, and
 
 
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which is (either alone or together with all other adverse effects) material to
the Company and its Subsidiaries, if any, taken as a whole, and any material
adverse effect on the transactions contemplated under the Note or this Agreement
(the “Transaction Documents”).
 
(b) Authorization; Enforcement.  (i)  The Company has all requisite corporate
power and authority to enter into and perform its obligations under the
Transaction Documents and to issue the Note in accordance with the terms hereof,
(ii) the execution and delivery of the Transaction Documents by the Company and
the consummation by it of the transactions contemplated hereby and thereby,
including the issuance of the Note and the re-pricing of the securities
currently held by Purchaser, have been duly authorized by all necessary
corporate action, and no further consent or authorization of the Company or its
Board of Directors (or any committee or subcommittee thereof) or stockholders is
required, (iii) the Transaction Documents have been duly executed and delivered
by the Company, (iv) the Transaction Documents constitute valid and binding
obligations of the Company enforceable against the Company, except (A) as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of creditors’ rights and remedies or by
other equitable principles of general application, and (B) to the extent the
indemnification provisions contained in this Agreement may be limited by
applicable federal or state securities laws and (v) the Note and the Common
Shares issuable upon conversion of the Note, have been duly authorized and, upon
issuance thereof and payment therefor in accordance with the terms of this
Agreement, will be validly issued, fully paid and non-assessable, free and clear
of any and all liens, claims and encumbrances.
 
(c) Capitalization.  As of the date hereof, the authorized capital stock of the
Company consists of 350,000,000 shares of Common Stock, of which as of the date
hereof, 79,440,942 shares are issued and outstanding, 200,000,000 shares of
preferred stock consisting of 100,000,000 shares of Class A Preferred Stock and
100,000,000 shares of Class B Preferred Stock, of which as of the date hereof,
no shares of preferred stock are issued and outstanding and 2,500,000 shares are
issuable and reserved for issuance pursuant to the Company’s stock option plans
and certain outstanding contracts, or securities exercisable or exchangeable
for, or convertible into, Common Shares.  All of such outstanding shares have
been, or upon issuance will be, validly issued, fully paid and
nonassessable.  As of the date hereof, except as disclosed in Schedule 2.1(c),
(i) no shares of the Company’s capital stock are subject to preemptive rights or
any other similar rights or any liens or encumbrances suffered or permitted by
the Company, (ii) there are no outstanding debt securities, and (iii) there are
no outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its Subsidiaries.
 
(d) Issuance and Ownership of Securities.  Upon issuance in accordance with this
Agreement and the terms of the Notes and any Common Shares issued upon
conversion of the Note will be validly issued, fully paid and nonassessable and
free from all taxes, liens and

 
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 charges with respect to the issue thereof.  The Company owns all outstanding
shares of the Subsidiaries, free and clear of any liens and other encumbrances
 
(e) No Conflicts.  Except as disclosed in Schedule 2.1(e), the execution,
delivery and performance of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
and issuance of the Note, and the Common Shares underlying the Note will not (i)
result in a violation of its Certificate of Incorporation, any certificate of
designations, preferences and rights of any outstanding series of preferred
stock of the Company or its By-laws; (ii) conflict with, or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its Subsidiaries is a party, or (iii) to the Company’s knowledge result
in a violation of any law, rule, regulation, order, judgment or decree
(including United States federal and state securities laws and regulations and
the rules and regulations of the OTC Bulletin Board (“Principal Market”) or
other principal securities exchange or trading market on which the Common Shares
are traded or listed) applicable to the Company or any of its Subsidiaries or by
which any property or asset of the Company or any of its Subsidiaries is bound
or affected, except in the case of clause (ii), such conflicts that would not
have a Material Adverse Effect.
 
(f) SEC Documents.  Since the filing of its Annual Report on Form 10-K  for the
fiscal year ended August 31, 2009, the Company has filed all reports, schedules,
forms, statements and other documents required to be filed by it with the SEC
pursuant to the reporting requirements of the Securities Exchange Act of 1934,
as amended (the “1934 Act”) (all of the foregoing filed prior to the date hereof
and all exhibits included therein and financial statements and schedules thereto
and documents incorporated by reference therein being hereinafter referred to as
the “SEC Documents”).  To the Company’s knowledge, as of their respective dates,
the SEC Documents complied in all material respects with the requirements of the
1934 Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents. Since the date of the respective filings, the
Company has not incurred any liabilities except in the ordinary course of
business or as reflected in the SEC Documents.
 
(g) Absence of Litigation.  There is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the Company
or any of its Subsidiaries, threatened against or affecting the Company, the
Common Shares or any of the Company’s Subsidiaries or any of the Company’s or
the Company’s Subsidiaries’ officers or directors in their capacities as such,
except as set forth in SEC Documents which were filed at least 10 days before
the date hereof.
 
(h) No Integrated Offering.  Neither the Company, nor any of its affiliates, nor
any person acting on its or their behalf has, directly or indirectly, made any
offers or sales of any security or solicited any offers to buy any security,
under circumstances that would cause this offering of the Securities to the
Purchaser to be integrated with prior offerings by the Company for purposes of
the Securities Act of 1933, as amended (“1933 Act” or “Securities Act”) or any
applicable stockholder approval provisions, including, without limitation, under
the rules and regulations of the Principal Market or other Approved Market, nor
will the Company or any of
 
 
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its Subsidiaries take any action or steps that would cause the offering of the
Securities to be integrated with other offerings.
 
(i) Employee Relations.  Neither the Company nor any of its Subsidiaries is
involved in any labor dispute nor, to the knowledge of the Company or any of its
Subsidiaries, is any such dispute threatened, the effect of which would be
reasonably likely to result in a Material Adverse Effect.  Neither the Company
nor any of its Subsidiaries is a party to a collective bargaining agreement.
 
(j) Intellectual Property Rights.  The Company and its Subsidiaries own or
possess adequate rights or licenses to use all trademarks, trade names, service
marks, service mark registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, governmental authorizations, trade
secrets and rights necessary to conduct their respective businesses as now
conducted.  The Company and its Subsidiaries do not have any knowledge of any
infringement by the Company or its Subsidiaries of trademark, trade name rights,
patents, patent rights, copyrights, inventions, licenses, service names, service
marks, service mark registrations, trade secret or other similar rights of
others, or of any such development of similar or identical trade secrets or
technical information by others and there is no claim, action or proceeding
being made or brought against, or to the Company’s knowledge, being threatened
against, the Company or its Subsidiaries regarding trademarks, trade name
rights, patents, patent rights, inventions, copyrights, licenses, service names,
service marks, service mark registrations, trade secrets or other
infringement.  The Company has no knowledge of any pending or threatened
infringement of its intellectual property rights.
 
(k) Compliance with Law.  The business of the Company and its Subsidiaries has
been and is presently being conducted so as to comply with all applicable
material federal, state and local governmental laws, rules, regulations and
ordinances.
 
(l) Environmental Laws.  The Company and its Subsidiaries (i) are to the
Company’s knowledge in compliance with any and all applicable foreign, federal,
state and local laws and regulations relating to the protection of human health
and safety, the environment or hazardous or toxic substances or wastes,
pollutants or contaminants (“Environmental Laws”), (ii) have received all
permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are in
compliance with all terms and conditions of any such permit, license or approval
where such noncompliance or failure to receive permits, licenses or approvals
referred to in clauses (i), (ii) or (iii) above could have, individually or in
the aggregate, a Material Adverse Effect.
 
(m) Disclosure.  No representation or warranty by the Company in this Agreement,
nor in any certificate, schedule, document, exhibit or other instrument
delivered or to be delivered pursuant to this Agreement or otherwise in
connection with the transactions contemplated by the Transaction Documents,
contains or will contain any untrue statement of material fact or omits or will
omit to state a material fact necessary to make the statements contained herein
or therein not misleading or necessary to in order fully and fairly to provide
the information required to be provided in any such certificate, schedule,
document, exhibit or other instrument.  To the knowledge of the Company and its
Subsidiary at the time of the execution of this Agreement, there is no
information concerning the Company and its Subsidiaries or their
 
 
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respective businesses which has not heretofore been disclosed to the Purchaser
(or disclosed in the Company’s filings made with the SEC under the 1934 Act)
that would have a Material Adverse Effect.
 
(n) Title.  The Company and its Subsidiaries have good and marketable title in
fee simple to all real property and good and marketable title to all personal
property owned by them which is material to the business of the Company and its
Subsidiaries, in each case free and clear of all liens, encumbrances and defects
or such as do not materially and adversely affect the value of such property and
do not interfere with the use made and proposed to be made of such property by
the Company or any of its Subsidiaries.  Any real property and facilities held
under lease by the Company or any of its Subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such
property and buildings by the Company and its Subsidiaries.
 
(o) Insurance.  The Company and each of its Subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and in such
amounts as management of the Company believes to be prudent and customary in the
businesses in which the Company and its Subsidiaries are engaged.
 
(p) Permits.  The Company and each of the Company’s Subsidiaries owns, holds,
possesses, or lawfully uses in its business all material approvals,
authorizations, certifications, franchises, licenses, permits, and similar
authorities (“Permits”) that are necessary for the conduct of their business as
currently conducted or the ownership and use of their assets or properties, in
compliance with all Laws.  All of such material Permits are listed on Schedule
2.1(p), and true, complete and correct copies of each Permit listed on Schedule
2.1(p) have been provided to the Purchaser.  Neither the Company nor any of the
Company’s Subsidiaries is in default under, or has received any notice of any
claim of default in respect of, any such Permits.  To the Company’s knowledge,
after due inquiry, all such Permits are renewable by their respective terms in
the ordinary course of business without the need to comply with any special
qualification procedures or to pay any amounts other than routine filing fees.
 
(q) Foreign Corrupt Practices Act.  To the Company’s knowledge, neither the
Company, nor any director, officer, agent, employee or other person acting on
behalf of the Company or any Subsidiary has, in the course of acting for, or on
behalf of, the Company, directly or indirectly used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; directly or indirectly made any direct or indirect
unlawful payment to any foreign or domestic government official or employee from
corporate funds; violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended, or any similar treaties of
the United States; or directly or indirectly made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government or party official or employee.
 
(r) Tax Status.  The Company and each of its Subsidiaries has made or filed all
United States federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject and all such
returns, reports and declarations are true, correct and accurate in all material
respects.  The Company has paid all taxes and other
 
 
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governmental assessments and charges, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith,
for which adequate reserves have been established, in accordance with generally
accepted accounting principles (“GAAP”).
 
(s) Issuance of Common Shares.  The Common Shares are duly authorized and
reserved for issuance and, upon conversion of the Note in accordance with the
terms thereof, such Common Shares will be validly issued, fully paid and
non-assessable, free and clear of any and all liens, claims and encumbrances,
and entitled to be traded on the Principal Market or the New York Stock
Exchange, or the American Stock Exchange (collectively with the Principal
Market, the “Approved Markets”), and the holders of such Common Shares shall be
entitled to all rights and preferences accorded to a holder of Common
Shares.  As of the date of this Agreement, the outstanding Common Shares are
currently listed on the Principal Market.
 
(t) Financial Statements.  Except as set forth in Schedule 2.1(t), the financial
statements of the Company included in the Forms 10-K and the Forms 10-Q of the
Company have been prepared from the books and records of the Company, in
accordance with GAAP, and fairly present in all material respects the financial
condition of the Company, as at their respective dates, and the results of its
operations and cash flows for the periods covered thereby.
 
(u) Internal Accounting and Disclosure Controls.  The Company maintains a system
of internal accounting controls and procedures that are sufficient to provide
reasonable assurance (i) transactions are executed in accordance with
management’s general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
GAAP and to maintain asset accountability, (iii) access to assets is permitted
only in accordance with management’s general or specific authorization, and (iv)
the recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. The Company has established disclosure controls and procedures (as
defined in 1934 Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed
such disclosure controls and procedures to ensure that material information
relating to the Company is made known to the certifying officers by others
within those entities, particularly during the period in which the Company’s
Form 10-K or 10-Q, as the case may be, is being prepared. The Company’s
certifying officers have evaluated the effectiveness of the Company’s controls
and procedures in accordance with the 1934 Act for the Company’s most recently
ended fiscal quarter or fiscal year-end (such date, the “Evaluation Date“). The
Company presented in its most recently filed Form 10-K or Form 10-Q the
conclusions of the certifying officers about the effectiveness of the disclosure
controls and procedures based on their evaluations as of the Evaluation Date.
Since the Evaluation Date, there have been no significant changes in the
Company’s internal controls over financial reporting (as defined in 34 Act Rules
13a-15(f) and 15(d)-15(f)).
 
(v) Off-Balance Sheet Arrangements.  There is no transaction, arrangement, or
other relationship between the Company and an unconsolidated or other off
balance sheet entity that is required to be disclosed by the Company in its 1934
Act filings and is not so disclosed or that otherwise would be reasonably likely
to have a material adverse effect.
 
 
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(w) No Stabilization.  The Company has not taken, directly or indirectly, any
action designed to or that could reasonably be expected to cause or result in
any stabilization or manipulation of the price of the Common Shares.
 
(x) Investment Company Status.  The Company is not and, after giving effect to
the offering and the application of the proceeds as described in the Transaction
Documents, will not be, an “investment company” or an entity “controlled” by an
“investment company” as such terms are defined in the Investment Company Act of
1940, as amended, and the rules and regulations thereunder.
 
(y) Subsidiary Rights.  The Company has the unrestricted right to vote, and
(subject to limitations imposed by applicable law) to receive dividends and
distributions on, all capital securities of its subsidiaries as owned by the
Company or such subsidiary.
 
(z) Sarbanes-Oxley Act.  There has been no failure of the Company or any of its
directors or officers, in their capacities as such, to comply with any
applicable provisions of the Sarbanes Oxley Act of 2002 and the rules and
regulations thereunder (the “Sarbanes Oxley Act”).
 
(aa) Application of Takeover Protections.  The Company has taken all necessary
action, if any, in order to render inapplicable any control share acquisition,
business combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the Company’s
Certificate of Incorporation (or similar charter documents) or the laws of its
state of incorporation that is or could become applicable to the Purchaser as a
result of the Purchaser and the Company fulfilling their obligations or
exercising their rights under the Transaction Documents.
 
(bb) General Solicitation.  The Company has not undertaken any advertisement,
article, notice or other communication regarding the sale of the Securities and
has not published such sale in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar or any other
general solicitation or general advertisement.
 
(cc) Brokers or Finders.  Except for vFinance Investments, Inc. (the “Placement
Agent”), the Company has not dealt with any broker or finder in connection with
the transactions contemplated by this Agreement, and, except for certain fees
and expenses which may be payable by the Company to the Placement Agent, the
Company has not incurred, and shall not incur, directly or indirectly, any
liability for any brokerage or finders’ fees or agents commissions or any
similar charges in connection with this Agreement or any transaction
contemplated hereby.
 
(dd) Non-Public Information.  The Company covenants and agrees that neither it
nor any other person acting on its behalf will provide the Purchaser or his
agents or counsel with any information that the Company believes constitutes
material non-public information, unless prior thereto such Purchaser shall have
executed a written agreement regarding the confidentiality and use of such
information. The Company understands and confirms that each
 
 
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Purchaser shall be relying on the foregoing representations in effecting
transactions in securities of the Company.
 
(ee) No Additional Agreements.  The Company does not have any agreement or
understanding with any Purchaser with respect to the transactions contemplated
by this Agreement, other than as specified in this Agreement and the Note.
 
(ff) Public Utility Holding Company Act and Investment Company Act Status. The
Company is not a “holding company” or a “public utility company” as such terms
are defined in the Public Utility Holding Company Act of 1935, as amended. The
Company is not, and as a result of and immediately upon the Closing will not be,
an “investment company” or a company “controlled” by an “investment company,”
within the meaning of the Investment Company Act of 1940, as amended.
 
(gg) No Voting Blocks.  The Company represents and warrants that to its
knowledge there are no voting arrangements in place respecting the capital stock
of the Company.
 
Section 2.2 Representations and Warranties of the Purchaser.  The Purchaser
hereby makes the following representations and warranties to the Company as of
the date hereof and the Closing Date:
 
(a) Accredited Investor Status; Sophisticated Purchaser.  The Purchaser is an
“accredited investor” as that term is defined in Rule 501(a) of Regulation D
under the 1933 Act.  The Purchaser has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of the purchase of the Note and the Common Shares.  The Purchaser is not
registered as a broker or dealer under Section 15(a) of the 1934 Act, affiliated
with any broker or dealer registered under Section 15(a) of the 1934 Act, or a
member of the Financial Industry Regulatory Authority.
 
(b) Information.  The Purchaser and its advisors, if any, have been furnished
with all materials relating to the business, finances and operations of the
Company which have been requested and materials relating to the offer and sale
of the Note and the Common Shares which have been requested by the
Purchaser.  The Purchaser and its advisors, if any, have been afforded the
opportunity to ask questions of the Company.  In determining whether to enter
into this Agreement and purchase the Note, the Purchaser has relied solely on
the written information supplied by Company employees in response to the written
due diligence information request provided by Purchaser to the Company, and the
Purchaser has not received nor relied upon any oral representation or warranty
relating to the Company, this Agreement, the Note, or any of the transactions or
relationships contemplated thereby.  The Purchaser understands that its purchase
of the Note and Common Shares involves a high degree of risk.  The Purchaser has
sought such accounting, legal and tax advice as it has considered necessary to
make an informed investment decision with respect to its acquisition of the Note
and Common Shares.
 
(c) No Governmental Review.  The Purchaser understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Note and the Common
Shares or the fairness
 
 
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or suitability of the investment in the Note and the Common Shares nor have such
authorities passed upon or endorsed the merits thereof.
 
(d) Legends.  The Company shall issue the Note to the Purchaser without any
legend except as described in Article VI below.  The Purchaser covenants that,
in connection with any transfer of Common Shares by the Purchaser pursuant to
the registration statement contemplated herein, it will comply with the
applicable prospectus delivery requirements of the 1933 Act, provided that
copies of a current prospectus relating to such effective registration statement
are or have been supplied to the Purchaser.
 
(e) Authorization; Enforcement.  This Agreement has been duly and validly
authorized, executed and delivered on behalf of the Purchaser and is a valid and
binding agreement of the Purchaser enforceable against the Purchaser in
accordance with their terms, subject as to enforceability to general principles
of equity and to applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the
enforcement of applicable creditors’ rights and remedies.  The Purchaser has the
requisite corporate power and authority to enter into and perform its
obligations under this Agreement and each other agreement entered into by the
parties hereto in connection with the transactions contemplated by this
Agreement.
 
(f) No Conflicts.  The execution, delivery and performance of this Agreement by
the Purchaser and the consummation by the Purchaser of the transactions
contemplated hereby and thereby will not (i) result in a violation of the
certificate of incorporation, by-laws or other documents of organization of the
Purchaser, (ii) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give others
any rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Purchaser is bound, or (iii)
result in a violation of any law, rule, regulation or decree applicable to the
Purchaser.
 
(g) Investment Representation.  The Purchaser is purchasing the Note for its own
account for investment and not with a view to distribution or sale  in violation
of the 1933 Act or any state securities laws or rules and regulations
promulgated thereunder.  The Purchaser has been advised and understands that the
Note nor the Common Shares issuable upon conversion thereof have been registered
under the 1933 Act or under the “blue sky” laws of any jurisdiction and may be
resold only if registered pursuant to the provisions of the 1933 Act or if an
exemption from registration is available, except under circumstances where
neither such registration nor such an exemption is required by law.  The
Purchaser has been advised and understands that the Company, in issuing the
Note, is relying upon, among other things, the representations and warranties of
the Purchaser contained in this Section 2.2 in concluding that such issuance is
a “private offering” and is exempt from the registration provisions of the 1933
Act.
 
(h) Rule 144.  The Purchaser understands that there is no public trading market
for the Note, that none is expected to develop, and that the Note must be held
indefinitely unless and until such Note, or if applicable, the Common Shares
received upon conversion or exercise thereof are registered under the 1933 Act
or an exemption from registration is available.
 
 
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The Purchaser has been advised or is aware of the provisions of Rule 144
promulgated under the 1933 Act.
 
(i) Brokers.  Except for any obligation to vFinance (which the Company agrees to
satisfy in the event that any obligation exists), the Purchaser has taken no
action which would give rise to any claim by any person for brokerage
commissions, finder’s fees or similar payments by the Company or the Purchaser
relating to this Agreement or the transactions contemplated hereby.
 
(j) Reliance by the Company.  The Purchaser understands that the Note is being
offered and sold in reliance on a transactional exemption from the registration
requirements of Federal and state securities laws and that the Company is
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of the Purchaser set forth herein
in order to determine the applicability of such exemptions and the suitability
of the Purchaser to acquire the Note and the Common Shares issuable upon
conversion thereof.
 
(k) No Voting Blocks.  The Purchaser represents and warrants that to its
knowledge there are no voting arrangements in place respecting the capital stock
of the Company, and agrees that any such agreements have been cancelled and are
void.
 
ARTICLE III
 
Covenants
 
Section 3.1                      Registration and Listing; Effective
Registration.  The Company hereby agrees that it shall register all Common
Shares underlying all warrants currently held by Purchaser either upon the terms
of existing registration rights agreements applicable to such Common Shares, or,
at the election of Purchaser, upon the same terms as are granted to investors in
connection with any Qualified Offering.  In the event any other shares of Common
Stock are issued pursuant to the Notes, such shares shall be subject to a
registration rights agreement substantially upon the terms set forth in the
registration rights agreement entered into by and between the Company and
Quercus in connection with the July 2008 Note, which shall be entered into
concurrently with the issuance of such shares.  Until such time as six months
following the date the Note is no longer outstanding, the Company will cause the
Common Shares to continue at all times to be registered under Sections 12(b) or
(g) of the 1934 Act, will comply in all material respects with its reporting and
filing obligations under the 1934 Act, and will not take any action or file any
document (whether or not permitted by the 1934 Act or the rules thereunder) to
terminate or suspend such reporting and filing obligations.  Until such time as
the Note is no longer outstanding, the Company shall use its best efforts to
continue the listing or trading of the Common Shares on the Principal Market or
one of the other Approved Markets and shall comply in all material respects with
the Company’s reporting, filing and other obligations under the bylaws or rules
of the Approved Market on which the Common Shares are listed.  The Company shall
use its best efforts to cause the Common Shares to be listed on the Principal
Market or one of the other Approved Markets no later than the date of issuance
of the Common Shares under the 1934 Act, and shall use its best efforts to
continue such listing(s) on one of the Approved Markets, for so long as the Note
is outstanding.
 
 
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Section 3.2                      Board Appointment.   Quercus shall have the
right to appoint a fifth director to the board of directors of the Company, 10
days following compliance by the Company with Rule 14f-1 of the Exchange Act of
1934 (the “Filing Requirement”).  The Company covenants and agrees that it shall
comply with the Filing Requirement as soon as practicable but in no event more
than 30 days following the date hereof.
 
Section 3.3 Certificates on Conversion.  Upon any conversion by the Purchaser
(or then holder of the Note) of the Note pursuant to the terms thereof, the
Company shall issue and deliver to the Purchaser (or holder) within three (3)
Trading Days of the conversion date certificates for the Securities into which
the Note is convertible and, if applicable, a new Note or Note for the aggregate
principal amount which the Purchaser (or holder) has not yet elected to convert
but which are evidenced in part by the Note submitted to the Company in
connection with such conversion (with the denominations of such new Note(s)
designated by the Purchaser or holder).
 
Section 3.4 Replacement Note.  The Note held by the Purchaser (or then holder)
may be exchanged by the Purchaser (or such holder) at any time and from time to
time for Note(s) with different denominations representing an equal aggregate
principal amount of Note(s), as requested by the Purchaser (or such holder) upon
surrendering the same.  No service charge will be made for such registration or
transfer or exchange.
 
Section 3.5 Securities Compliance. The Company shall notify the SEC and the
Principal Market, in accordance with their requirements, of the transactions
contemplated by this Agreement and the Note, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Note hereunder and the
Common Shares issuable upon conversion thereof.
 
Section 3.6 Reservation of Shares; Stock Issuable Upon Conversion.  Subject to
Section 2.1(c) of this Agreement, the Company shall at all times reserve and
keep available out of its authorized but unissued Common Shares, solely for the
purpose of effecting the conversion of the Note, such number of its Common
Shares as shall from time to time be sufficient to effect the conversion of the
Note issued to the Purchaser, the payment of any interest that may be due on the
Note and the payment for any damages that may become due to the Purchaser due to
the Company’s failure to register the Common Shares.
 
Section 3.7 Form D; Blue Sky Laws.  The Company agrees to file a Form D with
respect to the Note and Common Shares issuable upon conversion thereof, in
accordance with Regulation D and to provide a copy thereof to the Purchaser
promptly after such filing.  The Company shall, on or before the Closing Date,
take such action as the Company shall have reasonably determined is necessary to
qualify the Note and the Common Shares issuable upon conversion thereof for sale
to the Purchaser under applicable securities or “blue sky” laws of the states of
the United States (or to obtain an exemption from such qualification), and shall
provide evidence of any such action so taken to the Purchaser on or prior to the
Closing Date; provided, however, that the Company shall not be required in
connection therewith to register or qualify as a foreign corporation in any
jurisdiction where it is not now so qualified or to take any action that would
subject it to service of process in suits or taxation, in each case, in any
jurisdiction where it is not now so subject.
 
 
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Section 3.8 Prohibition on Short Sales.  From and including the date of this
Agreement and for so long as the Purchaser holds the Note, the Purchaser agrees
that it will neither sell the Company’s stock short nor direct, instruct or
otherwise influence any of its affiliates, principals or advisors to sell the
Company’s stock short.  Further, the Purchaser agrees not to pledge,
hypothecate, loan or enter into other hedging transactions with broker-dealers
or other financial institutions, which may in turn engage in short sales of the
Company’s Common Shares,  provided however, that the Purchaser shall have the
right to pledge the Company’s Common Shares pursuant to a bona fide margin
account or lending arrangement entered into in compliance with law, including
applicable securities laws, in such a manner that will not result, or be
equivalent to, a short sale of the Company’s Common Shares.
 
Section 3.9 Material Changes.  On or before the Closing Date, the Company shall
forthwith notify the Purchaser of any material change affecting any of its
representations, warranties, undertakings and indemnity at any time prior to
payment being made to the Company on the Closing Date.
 
Section 3.10 Prohibition on Certain Actions.  The Company shall not (i) file any
additional registration statements unless and until the registration statement
contemplated herein has become effective; and (ii) between the date hereof and
the Closing Date (both dates inclusive), take any action or decision which (had
the Note already been issued) would result in an adjustment of the Conversion
Price.
 
Section 3.11 Senior Status of Note.  The obligations of the Company under the
Note shall rank senior to all other debt of the Company, whether now or
hereinafter existing, other than the Senior Secured Convertible Promissory Note
dated July 10, 2008, issued to The Quercus Trust, as amended and restated in the
form of Exhibit B attached hereto.  Beginning on the date of this Agreement and
for so long as any Note remain outstanding, neither the Company nor any
subsidiary of the Company shall, without the prior written consent the
Purchaser, incur or otherwise become liable with respect to any indebtedness
that would rank senior or pari passu to the Note in order of payment, other than
(i) trade payables incurred in the ordinary course of business, and (ii) debt
incurred pursuant to the Offering described herein.
 
Section 3.12 Use of Proceeds.  The Company shall use the net proceeds from the
sale of the Securities hereunder for general corporate purposed including
working capital and other growth initiatives consistent with the current
business of the Company.
 
Section 3.13 Right of First Offer.   For a period of two years following the
Closing, Purchaser shall have the right to purchase its pro rata share of any
offering of new securities by the Company on the same terms and conditions of
any such offering and, subject to customary exceptions. The pro rata share will
be based on the ratio of (x) the number of shares of Common Stock held by such
holder to (y) the Company’s outstanding securities, in each case on a
fully-diluted basis.
 
Section 3.14 Press Release.  As soon as practicable upon the execution of this
Agreement, the Company shall issue a press release disclosing the transaction
contemplated herein.  The Company shall also file a Form 8-K with the Securities
and Exchange Commission (the “SEC”) within the time prescribed under current SEC
rules and regulations.
 
 
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Section 3.15 Legal Expenses.  The Company shall promptly upon demand pay (or the
Purchaser may credit against advances due hereunder) $20,000 to pay for legal
and other expenses incurred by Purchaser in connection with the execution and
delivery of this Agreement.
 
ARTICLE IV
 
Conditions to Closings
 
Section 4.1 Conditions Precedent to the Obligation of the Company to Sell.  The
obligation hereunder of the Company to issue and/or sell the Securities to the
Purchaser at the applicable Closing is subject to the satisfaction, at or before
the applicable Closing, of each of the applicable conditions set forth
below.  These conditions are for the Company’s sole benefit and may be waived by
the Company at any time in its sole discretion.
 
(a) Accuracy of the Purchaser’s Representations and Warranties.  The
representations and warranties of the Purchaser will be true and correct in all
material respects as of the date when made and as of the Closing Date, as though
made at that time.
 
(b) Performance by the Purchaser.  The Purchaser shall have performed all
agreements and satisfied all conditions required to be performed or satisfied by
the Purchaser at or prior to the Closing, including full payment of the Purchase
Price to the Company as provided herein.
 
(c) No Injunction.  No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement or
the Note.
 
Section 4.2 Conditions Precedent to the Obligation of the Purchaser to
Purchase.  The obligation hereunder of the Purchaser to acquire and pay for the
Securities at the applicable Closing is subject to the satisfaction, at or
before the applicable Closing, of each of the applicable conditions set forth
below.  These conditions are for the Purchaser’s benefit and may be waived by
the Purchaser at any time.
 
(a) Accuracy of the Company’s Representations and Warranties.  The
representations and warranties of the Company shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties as of an earlier
date, which shall be true and correct in all material respects as of such date).
 
(b) No Injunction.  No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement or
the Note.  The Principal Market shall not have objected or indicated that it may
object to the consummation of any of the transactions contemplated by this
Agreement.
 
 
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(c) Notes.  The Company shall have executed and delivered to the Purchaser the
Note and the Amended and Restated 2008 Note.
 
(d) Officer’s Certificates.  The Company shall have delivered to the Purchaser a
certificate in form and substance satisfactory to the Purchaser and the
Purchaser’s counsel, executed by an officer of the Company, certifying as to
satisfaction of closing conditions, incumbency of signing officers, and the
true, correct and complete nature of the Certificate of Incorporation, By-Laws,
good standing and authorizing resolutions of the Company.
 
(e) No Material Adverse Change.  There shall not have occurred any event prior
to the Closing which, singly or taken together with any other event, could
reasonably be expected to have a Material Adverse Effect.
 
(f) Transfer Agent Instructions.  The Company shall issue irrevocable
instructions to its transfer agent requesting the transfer agent to issue one or
more share certificates to the Purchaser representing the Common Shares as soon
as practicable after receiving notice of the conversion of the Note.
 
(g) Filing of UCC Statements.  The Company shall have filed all UCC financing
statements required in connection with this Agreement.
 
(h) Security Agreements.  The Company shall have executed and delivered to the
Purchaser the Security Agreement in substantially the form as Exhibit C attached
hereto, and Clean Power Technologies, Limited, the Company’s wholly-owned
subsidiary formed under the law of the United Kingdom, shall deliver to
Purchaser the Composite Guarantee and Debenture substantially in the form of
Exhibit D attached hereto.
 
ARTICLE V
 
Legend and Stock
 
Upon payment therefor as provided in this Agreement, the Company will issue the
Note in the name of the Purchaser or its designees and in such denominations to
be specified by such Purchaser prior to (or from time to time subsequent to)
Closing.  The Securities and any certificate representing Common Shares issued
upon conversion thereof, prior to such Common Shares being registered under the
1933 Act for resale or available for resale under Rule 144 under the 1933 Act,
shall be stamped or otherwise imprinted with a legend in substantially the
following form:
 
THESE SECURITIES HAVE NOT BEEN REGISTERED FOR OFFER OR SALE UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS.  THEY MAY NOT BE SOLD OR
OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN APPLICABLE EXEMPTION FROM
SUCH REGISTRATION REQUIREMENTS.
 
 
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The Company agrees to reissue the Note and Common Shares issuable upon
conversion or exercise of the foregoing, without the legend set forth above, at
such time as (i) the holder thereof is permitted to dispose of such Note and the
Common Shares issuable upon conversion or exercise of the foregoing pursuant to
Rule 144 under the 1933 Act, or (ii) such securities are sold to a purchaser or
purchasers who (in the opinion of counsel to the seller or such purchaser(s), in
form and substance reasonably satisfactory to the Company and its counsel) are
able to dispose of such shares publicly without registration under the 1933 Act,
or (iii) such securities have been registered under the 1933 Act.  If a
Purchaser shall make a sale or transfer of Common Shares either (x) pursuant to
Rule 144 or (y) pursuant to a registration statement under the 1933 Act and in
each case shall have delivered to the Company or the Company’s transfer agent
the certificate representing the Common Shares containing a restrictive legend
which are the subject of such sale or transfer (the date of such sale or
transfer and Share delivery being the “Share Delivery Date“) and (1) the Company
shall fail to deliver or cause to be delivered (any such delivery shall include
crediting the Purchaser’s balance account with DTC) to such Purchaser a
certificate representing such Common Shares that is free from all restrictive or
other legends by the third Trading Day following the Share Delivery Date and (2)
following such third Trading Day after the Share Delivery Date and prior to the
time such Common Shares are received free from restrictive legends, the
Purchaser, or any third party on behalf of such Purchaser, purchases (in an open
market transaction or otherwise) Common Shares to deliver in satisfaction of a
sale by the Purchaser of such Common Shares (a “Buy-In“), then the Company shall
pay in cash to the Purchaser (for costs incurred either directly by such
Purchaser or on behalf of a third party) the amount by which the total purchase
price paid for the Common Shares as a result of the Buy-In (including brokerage
commissions, if any) exceed the proceeds received by such Purchaser as a result
of the sale to which such Buy-In relates. The Purchaser shall provide the
Company written notice indicating the amounts payable to the Purchaser in
respect of the Buy-In. The Company may not make any notation on its records or
give instructions to any transfer agent of the Company that enlarge the
restrictions on transfer set forth in this Section.
 
Prior to the Registration Statement (as defined herein) being declared
effective, any Common Shares issued pursuant to conversion of the Note shall
bear a legend in the same form as the legend indicated above; provided that such
legend shall be removed from such shares and the Company shall issue new
certificates without such legend if (i) the holder has sold or disposed of such
shares pursuant to Rule 144 under the 1933 Act, or the holder is permitted to
dispose of such shares pursuant to Rule 144 under the 1933 Act, (ii) such shares
are registered for resale under the 1933 Act, or (iii) such shares are sold to a
purchaser or purchasers who (in the opinion of counsel to the seller or such
purchaser(s), in form and substance reasonably satisfactory to the Company and
its counsel) are able to dispose of such shares publicly without registration
under the 1933 Act.  Upon such Registration Statement becoming effective, the
Company agrees to promptly issue new certificates representing such shares
without such legend.  Any Common Shares issued after the Registration Statement
has become effective shall be free and clear of any legends, transfer
restrictions and stop orders.  Notwithstanding the removal of such legend, the
Purchaser agrees to sell the Common Shares represented by the new certificates
in accordance with the applicable prospectus delivery requirements (if copies of
a current prospectus are provided to such Purchaser by the Company) or in
accordance with an exemption from the registration requirements of the 1933 Act.
 
 
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Nothing herein shall limit the right of any holder to pledge these securities
pursuant to a bona fide margin account or lending arrangement entered into in
compliance with law, including applicable securities laws.
 
ARTICLE VI

 
Termination
 
Section 6.1 Termination by Mutual Consent.  This Agreement may be terminated at
any time prior to the Closing by the mutual written consent of the Company and
the Purchaser.
 
Section 6.2 Other Termination.  This Agreement may be terminated by action of
the Board of Directors of the Company or by the Purchaser at any time if the
Closing shall not have been consummated on the Closing Date; provided, however,
that the party (or parties) prepared to close shall retain its (or their) right
to sue for any breach by the other party (or parties).
 
ARTICLE VII

 
Indemnification
 
In consideration of the Purchaser’s execution and delivery of the this Agreement
and acquiring the Note hereunder and in addition to all of the Company’s other
obligations under the Transaction Documents, the Company shall defend, protect,
indemnify and hold harmless the Purchaser and all of its partners, officers,
directors, employees, members and direct or indirect investors and any of the
foregoing person’s agents or other representatives (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the “Purchaser Indemnitees”) from and against any
and all actions, causes of action, suits, claims, losses, costs, penalties,
fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Purchaser Indemnitee is a party to the action
for which indemnification hereunder is sought), and including reasonable
attorneys’ fees and disbursements (the “Purchaser Indemnified Liabilities”),
incurred by any Purchaser Indemnitee as a result of, or arising out of, or
relating to (a) any misrepresentation or breach of any representation or
warranty made by the Company in the Transaction Documents or any other
certificate or document contemplated hereby or thereby, (b) any breach of any
covenant, agreement or obligation of the Company contained in the Transaction
Documents or any other certificate or document contemplated hereby or
thereby.  Notwithstanding the foregoing, Purchaser Indemnified Liabilities shall
not include any liability of any Purchaser Indemnitee arising out of such
Purchaser Indemnitee’s gross negligence or willful misconduct.  To the extent
that the foregoing undertaking by the Company may be unenforceable for any
reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Purchaser Indemnified Liabilities which is
permissible under applicable law.
 
 
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ARTICLE VIII
 
Governing Law; Miscellaneous
 
Section 8.1 Governing Law.  This Agreement shall be governed by and construed in
accordance with the laws of the State of California applicable to contracts to
be wholly performed within such state and without regard to conflicts of laws
provisions.  Any legal action or proceeding arising out of or relating to this
Agreement and/or the Transaction Documents may be instituted in the courts of
the State of California sitting in Los Angeles County, and the parties hereto
irrevocably submit to the jurisdiction of each such court in any action or
proceeding.  Subscriber hereby irrevocably waives and agrees not to assert, by
way of motion, as a defense, or otherwise, in every suit, action or other
proceeding arising out of or based on this Agreement and/or the Transaction
Documents and brought in any such court, any claim that Subscriber is not
subject personally to the jurisdiction of the above named courts, that
Subscriber’s property is exempt or immune from attachment or execution, that the
suit, action or proceeding is brought in an inconvenient forum or that the venue
of the suit, action or proceeding is improper.
 
Section 8.2 Counterparts.  This Agreement may be executed by facsimile and in
any number of counterparts, and each such counterpart hereof shall be deemed to
be an original instrument, but all such counterparts together shall constitute
one agreement.  Execution and delivery of this Agreement by facsimile
transmission (including delivery of documents in Adobe PDF format) shall
constitute execution and delivery of this Agreement for all purposes, with the
same force and effect as execution and delivery of an original manually signed
copy hereof.
 
Section 8.3 Headings.  The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
 
Section 8.4 Severability.  If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement in
that jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
 
Section 8.5 Costs and Expenses.  All reasonable out-of-pocket costs and expenses
incurred by vFinance and the Purchaser with respect to this Agreement and the
transactions contemplated by this Agreement shall be paid by the Company at the
Closing.  The Company shall also be responsible for the payment of vFinance’s
and the Purchaser’s reasonable post Closing expenses incurred in connection with
the transactions contemplated by this Agreement.  Such post Closing expenses
shall be paid promptly after vFinance issues a request in writing but in no
event later than five (5) business days following such request. Nevertheless, in
the event that any dispute between the parties should result in litigation or
arbitration, the prevailing party in such dispute shall be entitled to recover
from the non-prevailing party in such dispute all reasonable fees, costs and
expenses of enforcing any right of the prevailing party, including without
limitation, reasonable attorney’s fees and expenses, all of which shall be
deemed to have accrued upon the commencement of such action and shall be paid
whether or not such action is prosecuted to judgment.
 
 
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Section 8.6 Entire Agreement; Amendments; Waivers.
 
(a) Entire Agreement.  This Agreement supersedes all other prior oral or written
agreements between the Purchaser, the Company, their affiliates and persons
acting on their behalf with respect to the matters discussed herein, and this
Agreement and the instruments referenced herein (including the other Transaction
Documents) contain the entire understanding of the parties with respect to the
matters covered herein and therein and, except as specifically set forth herein
or therein, neither the Company nor any Purchaser makes any representation,
warranty, covenant or undertaking with respect to such matters.  No provision of
this Agreement may be amended other than by an instrument in writing signed by
the Company and the Purchaser, and no provision hereof may be waived other than
by an instrument in writing signed by the party against whom enforcement is
sought.
 
(b) Waivers.  The Purchaser may at any time elect, by notice to the Company, to
waive (whether permanently or temporarily, and subject to such conditions, if
any, as the Purchaser may specify in such notice) any of Purchaser’s rights
under any of the Transaction Documents to acquire Common Shares from the
Company, in which event such waiver shall be binding against the Purchaser in
accordance with its terms; provided, however, that the voluntary waiver
contemplated by this sentence may not reduce the Purchaser’s obligations to the
Company under the Transaction Documents.
 
Section 8.7 Notices.  Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing, must be delivered by (i) courier, mail or hand delivery or (ii)
facsimile, and will be deemed to have been delivered upon receipt. The addresses
and facsimile numbers for such communications shall be:
 
If to the Company:
 
Clean Power Technologies, Inc.
436-35th Avenue, N.W.
Calgary, Alberta
Canada T2K OC1
Attention: Abdul Mitha
Facsimile: (403) 277-3117
 
With a copy to:
 
Gersten Savage, LLP
600 Lexington Avenue, 9th Floor
New York, New York 10022
Telephone:  (212) 752-9700
Facsimile:  (212)  980-5192
Attention: Peter J. Gennuso, Esq.
 
If to the Purchaser, to the addresses listed on Schedule I hereto:
 
 
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With a copy to:
 
Law Offices of Joseph P. Bartlett, PC
1900 Avenue of the Stars, 20th Floor
Los Angeles, CA 90067
Telephone: (310) 201-7553
Facsimile: (310) 388-1055
Attention: Joseph Bartlett
 
Each party shall provide five (5) days prior written notice to the other party
of any change in address, telephone number or facsimile number.  Written
confirmation of receipt (A) given by the recipient of such notice, consent,
waiver or other communication, (B) mechanically or electronically generated by
the sender’s facsimile machine containing the time, date, recipient facsimile
number and an image of the first page of such transmission or (C) provided by a
nationally recognized overnight delivery service, shall be rebuttable evidence
of personal service, receipt by facsimile or receipt from a nationally
recognized overnight delivery service in accordance with clause (i), (ii) or
(iii) above, respectively.
 
Section 8.8 Successors and Assigns.  Except as otherwise provided herein, this
Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and assigns, including any Permitted Assignee (as
defined below).  The Purchaser may assign some or all of its rights hereunder to
any assignee of the Note and the Common Shares issuable upon conversion thereof
(in each case, a “Permitted Assignee”); provided, however, that any such
assignment shall not release the Purchaser from its obligations hereunder unless
such obligations are assumed by such assignee and the Company has consented to
such assignment and assumption.
 
Section 8.9 No Third Party Beneficiaries.  This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
 
Section 8.10 Survival.  The representations, warranties, rights to
indemnification and agreements of the Company and the Purchaser contained in the
Agreement shall survive the delivery of the Note.
 
Section 8.11 Further Assurances.  Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
 
Section 8.12 No Strict Construction.  The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
 
Section 8.13 Days.  Unless the context refers to “business days” or “Trading
Days”, all references herein to “days” shall mean calendar days.
 
 
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Section 8.14 Placement Agent.  Other than the engagement of vFinance by the
Company, the Purchaser and the Company each acknowledges and warrants that it
has not engaged any placement agent in connection with the sale of the
Securities, and the Company and Purchaser shall indemnify and hold the other
harmless against any liability, loss, or expense (including without limitation,
reasonable attorneys’ fees and out-of-pocket expenses) arising from any breach
of said warranty.
 
IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed as of the date and year first above written.
 
COMPANY:
 
CLEAN POWER TECHNOLOGIES, INC.
 
 
By: /s/
Name:
Title:
PURCHASER:
 
THE QUERCUS TRUST
 
 
By: /s/
Name: David Gelbaum
Title:   Trustee

 
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EXHIBIT A
Form of Note

 
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EXHIBIT B
Form of Amended and Restated Note

 
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EXHIBIT C
Security Agreement

 
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EXHIBIT D
Composite Guarantee and Debenture

 
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SCHEDULE I
 
Purchaser
Jurisdiction of Organization
 
Principal Amount
of Note
 
Purchase Price
The Quercus Trust
1835 Newport Blvd.
A109 - PMB 467
Costa Mesa CA 92627
California
$1,000,000
$1,000,000 to be paid in accordance with Section 1.2

 
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