EXHIBIT 10.2
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                      WAIVER AND LOAN PREPAYMENT AGREEMENT

THIS WAIVER AND LOAN PREPAYMENT AGREEMENT ("AGREEMENT") is made and entered into
this 28th day of February 2006, by and among BLUEGRASS GROWTH FUND LP, BLUEGRASS
GROWTH FUND LTD., CRESTVIEW CAPITAL MASTER LLC, IROQUOIS MASTER FUND LTD.,
OMICRON MASTER TRUST, SMITHFIELD FIDUCIARY LLC and CCA (US) FUND L.P.
(individually a "PURCHASER" and collectively, the "DEBENTURE PURCHASERS") and
WESTERN POWER & EQUIPMENT CORP., a Delaware corporation (the "COMPANY" or
"WESTERN").

                                   WITNESSETH:

WHEREAS, on June 9, 2005, Western and the Debenture Purchasers consummated the
transactions contemplated by a Securities Purchase Agreement, dated as of June
8, 2005 (the "PURCHASE AGREEMENT") and the related Transaction Documents,
including a Security Agreement dated of even date therewith (the "SECURITY
AGREEMENT"); and

WHEREAS, pursuant to the Purchase Agreement, Western sold to the Debenture
Purchasers and the Debenture Purchasers purchased and acquired from Western an
aggregate of $30,000,000 of Series A Debentures, $2,000,000 of Series B
Debentures and Warrants to purchase an aggregate of 8,500,218 shares of Western
common stock; and

WHEREAS, Western intends to sell its two operating facilities located at Spokane
and Clarkston, WA (the "SUBJECT ASSETS") for an aggregate amount of
approximately $2,870,000 (the "PURCHASE PRICE"); and

WHEREAS, the sale of such Subject Assets (the "ASSET SALE") would, absent a
written consent thereto on the part of a majority in interest of the Debenture
Purchasers, result in the violation of Section 4 (l) of the Security Agreement;
and

WHEREAS, Western has requested that the Debenture Purchasers consent to the
Asset Sale and waive the violation in Section 4 (l) of the Security Agreement
that would occur solely by reason of the Asset Sale (the "CONTRACTUAL
ACCOMMODATION"), and

WHEREAS, the Debenture Purchasers are willing, upon the terms and subject to the
conditions set forth in this Agreement, to provide Western with the Contractual
Accommodation;

NOW THEREFORE, in consideration of the mutual covenants and agreements herein
contained, the parties hereto intending to be bound hereby, it is agreed as
follows:

1. Definitions. Unless otherwise defined herein, all capitalized terms when used
in this Agreement shall have the same meaning as is defined in the Purchase
Agreement.

2. Contractual Accommodations. Subject at all times to the satisfaction of all
of the conditions set forth in Section 3 below, the Debenture Purchasers do
hereby agree to waive all defaults or breaches of Western's various covenants
and agreements contained in the Purchase Agreement and in any other Transaction
Documents (including, without limitation, the provisions of Section 4 (l) of the
Security Agreement) that would occur or cause to exist solely by reason of the
Asset Sale by Western.

3. Conditions to Contractual Accommodations. This Agreement and the Contractual
Accommodation of the Debenture Purchasers are subject to satisfaction by Western
of all, and not less than all, of the following conditions:

     3.1 Prepayment of Series A Debentures.

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          (a) Not less than 100% of all "Net Proceeds" (as hereinafter defined)
shall be applied to as a prepayment of the Series A Debentures to reduce a
portion of the then outstanding principal amount of the Series A Debentures at
the time of each such prepayment.

          (b) Each and every such prepayment(s) shall be made by wire transfer
of immediately available funds in the allocable percentage amounts to each
Debenture Purchaser to the accounts set forth on EXHIBIT A annexed hereto and
made a part hereof (the "DISBURSEMENT Instructions"). In such regard, Western
shall wire funds representing 100% of the Net Proceeds directly to the Debenture
Purchasers in accordance with the Disbursement Instructions.

          (c) All such prepayment(s) shall be applied in the order of last
maturing indebtedness under the Series A Debentures.

          (d) Each such prepayment of Series A Debentures shall be paid to each
of the Debenture Purchasers in pro-rata amounts based upon the amount by which
the outstanding the principal amount of Series A Debenture held by each
Debenture Purchaser immediately prior to such prepayment bears to the aggregate
outstanding principal amount of all Series A Debentures owned by all Debenture
Purchasers, all as set forth in the Disbursement Instructions.

          (e) As used in this Agreement, the term "Net Proceeds" means the gross
cash proceeds received by Western in connection with the Asset Sale, less any
amount paid to Case/CNH on to release its liens on the assets being sold by
Western.

          (f) By their execution of this Agreement, the Debenture Purchasers do
hereby consent to (i) the Asset Sale by the Company and (ii) such prepayments
shall not be less than $1,200,000 of the principal amount of Series A
Debentures.

     3.2 Contractual Accommodation Consideration. In consideration for the
Debenture Purchasers to agreeing to the Contractual Accommodations set forth in
Section 2 above (the "CONTRACTUAL ACCOMMODATION CONSIDERATION"), Western hereby
agrees to lower the Conversion Price of all Series A Debentures to $1.75.

     3.3 Registration Statement. Subsequent to consummating the Asset Sale,
Western shall as soon as practicable thereafter file a Form 8-K disclosing the
Asset Sale and this Amendment, and shall file a post effective amendment to the
effective registration statement (the "POS AM") on Form S-1 under the Securities
Act of 1933, as amended (the "SECURITIES ACT") with the Securities and Exchange
Commission ("SEC"), which POS AM shall contain substantially the same
information as the Form 8-K related thereto. Western shall file the POS AM no
later than March 15, 2006, which POS AM shall, if necessary, register any
additional shares of its common stock issuable by Western upon conversion of the
Series A Debentures as a result of the reduction in the Conversion Price.

     3.4 Completion of Sale of Subject Shares and Payments. The Asset Sale and
the prepayments of the Series A Debentures to the Debenture Purchasers, as
contemplated hereby, shall have been completed by the close of business (Eastern
Standard Time) on March 2, 2006, unless such date shall be extended at the sole
discretion of the Debenture Purchasers (such date, as the same may be extended,
hereinafter the "OUTSIDE CLOSING DATE").

     3.5 No Other Waivers. Except as expressly provided in this Agreement, no
other Defaults or Events of Default under the Purchase Agreement or other
Transaction Documents are being waived or relinquished by any of the Debenture
Purchasers hereunder. Except as expressly provided herein, each of the Debenture
Purchasers do hereby reserve all other rights and remedies under the Purchase
Agreement and Transaction Documents. Western does hereby represent and warrant
to the Debenture Purchasers that, as at the date of this Agreement, no Default
or Event of Default under the Purchase Agreement and Transaction Documents
exists.

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4. Miscellaneous.

     4.1 Financial Accommodation Limitation. The Financial Accommodations
granted by the Debenture Purchasers under this Agreement shall apply only to the
Asset Sale, and on the terms and conditions contemplated by this Agreement. This
Agreement shall not, in any manner, constitute the waiver or consent by any of
the Debenture Purchasers to the sale of any securities by Western; all of which
other sales shall at all times remained governed by the provisions of the
Purchase Agreement and other Transaction Documents. Notwithstanding anything in
this Agreement to the contrary, all references to a number of shares of Common
Stock set forth in this Agreement shall be subject to adjustment for reverse and
forward stock splits, stock dividends, stock combinations and other similar
transactions of the Common Stock that occur after the date of this Agreement

     4.2 Binding Effect. Except as the same may be amended and modified by this
Agreement, all of the terms and conditions of the Purchase Agreement and each of
the Transaction Documents shall remain in full force and effect and are deemed
by this reference to be incorporated in this Agreement, as though more fully set
forth herein at length.

     4.3 Entire Agreement. The this Agreement, the Purchase Agreement and other
Transaction Documents, together with the exhibits and schedules thereto, contain
the entire understanding of the parties with respect to the subject matter
hereof and supersede all prior agreements and understandings, oral or written,
with respect to such matters, which the parties acknowledge have been merged
into such documents, exhibits and schedules.

     4.4 Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
Western and each Debenture Purchaser or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right.

     4.5 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. 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.

     4.6 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns.
Western may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Debenture Purchaser. Any Debenture
Purchaser may assign any or all of its rights under this Agreement to any Person
to whom such Debenture Purchaser assigns or transfers any Securities, provided
such transferee agrees in writing to be bound, with respect to the transferred
Securities, by the provisions hereof that apply to the "Debenture Purchasers".

     4.7 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.11.

     4.8 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
borough of Manhattan for the adjudication of any dispute hereunder or in
connection

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herewith or with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of any of the Transaction Documents),
and hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is improper or inconvenient
venue for such proceeding. Each party hereby irrevocably waives personal service
of process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. The parties hereby waive all rights to a trial
by jury. If either party shall commence an action or proceeding to enforce any
provisions of the Transaction Documents, then the prevailing party in such
action or proceeding shall be reimbursed by the other party for its attorneys'
fees and other costs and expenses incurred with the investigation, preparation
and prosecution of such action or proceeding.

     4.9 Survival. The representations and warranties contained herein shall
survive consummation of the transactions contemplated hereby for the applicable
statue of limitations.

     4.10 Execution. This Agreement may be executed in two or more counterparts,
all of which when taken together shall be considered one and the same agreement
and shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.

     4.11 Severability. If any provision of this Agreement is held to be invalid
or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.

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     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized signatories as of the date first
indicated above.

WESTERN POWER & EQUIPMENT CORP.


By: ___________________________
    Name:
    Title:


Name of Debenture Purchaser: OMICRON MASTER TRUST
SIGNATURE OF AUTHORIZED SIGNATORY OF PURCHASER: ______________________________


Name of Debenture Purchaser: SMITHFIELD FIDUCIARY LLC
SIGNATURE OF AUTHORIZED SIGNATORY OF PURCHASER: ______________________________


Name of Debenture Purchaser: CRESTVIEW CAPITAL MASTER, LLC
SIGNATURE OF AUTHORIZED SIGNATORY OF PURCHASER: ______________________________


Name of Debenture Purchaser: IROQUIS MASTER FUND LTD.
SIGNATURE OF AUTHORIZED SIGNATORY OF PURCHASER: ______________________________


Name of Debenture Purchaser: CCA (US) FUND I
          BY: CRESTVIEW CAPITAL ADVISORS, LLC, GENERAL PARTNER
SIGNATURE OF AUTHORIZED SIGNATORY OF PURCHASER: ______________________________


Name of Debenture Purchaser: BLUEGRASS GROWTH FUND LP
SIGNATURE OF AUTHORIZED SIGNATORY OF PURCHASER: ______________________________


Name of Debenture Purchaser: BLUEGRASS GROWTH FUND LTD
SIGNATURE OF AUTHORIZED SIGNATORY OF PURCHASER: ______________________________





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