ex101.htm


    
      

      

    


    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.

     

                              STOCK
PURCHASE AGREEMENT (this “Agreement”), dated as
of February 10, 2009, by and between Clean Power Technologies, Inc., a Nevada
corporation (the “Company”), and The
Quercus Trust, a California Trust (the “Purchaser” and
together with the Company, the “Parties”).

     

    W I T N E S S E T
H:

     

    Whereas,
the Company and the Purchaser entered into that certain Securities
Purchase Agreement on July 10, 2008 providing for the purchase and sale of the
Company’s 8% Senior Secured Convertible Promissory Note in the principal fare
amount of $2,000,000 (“Debenture”) Class A Warrants and Class B Warrants (the
“July 2008 Offering”)

    


    Whereas,
the Company desires to sell and issue to the Purchaser, and the Purchaser wishes
to purchase from the Company, shares of the Company’s common stock, par value
$0.001 per share (the “Common Stock”) and
Warrants to purchase shares of the Company’s common stock ( the “Warrants” and
together with the Common Stock, the “Securities”), on the
terms and conditions set forth herein;

     

    Whereas, the
Parties have agreed that the sale and purchase of the Securities shall take
place in two tranches as follows: (i) an initial purchase of such shares of the
Company’s Common Stock in the aggregate amount of $1,000,000 at a price of $0.45
per share (the “Initial Purchase”); and (ii) an additional secondary purchase,
subject to certain conditions, of such shares of the Company’s Common Stock in
the aggregate amount of  $2,000,000 at a purchase price of $0.45 per
share (the “Secondary Purchase”);

     

    Whereas,
the Parties have agreed to proceed with the Initial Purchase by the execution
and delivery of this Agreement.  Shares of Common Stock to be sold to
the Purchaser pursuant to the Secondary Purchase shall be governed by such
agreements to be entered into by the Parties upon the accomplishment of (a) the
classification of the Company’s board of directors; and (b) the date of
demonstration to the reasonable satisfaction of the Purchaser that the Company
has achieved such technological milestones set forth in Exhibit A hereof ((a)
and (b) are referred to herein as the “Secondary Purchase
Milestones”).  The Company and the Purchaser shall close the Secondary
Purchase within fifteen (15) days of attaining the Secondary Purchase
Milestones

     

    Whereas,
pursuant to the terms hereof, the Purchaser will have registration rights with
respect to the Common Stock issued herein and such Common Stock issuable upon
the exercise of the Warrants pursuant to the terms of that certain Registration
Rights Agreement to be entered into between the Company and the Purchaser
substantially in the form of Exhibit B hereto
(“Registration Rights
Agreement” and, together with the Agreement and the Warrants (the “Transaction
Documents”)

     

    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:

     


    
      
         


      

      
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    Article
I.

     

    Purchase and Sale of Shares
and Warrants

     

    Section
1.1 Issuance of Common
Stock.  Upon the following terms and conditions, the Company
shall issue and sell to the Purchaser, and the Purchaser shall purchase from the
Company, 2,222,222 shares of the Company’s Common Stock (the
“Shares”).

     

    Section
1.2 Purchase Price.  The purchase
price for the Shares to be acquired by the Purchaser shall be $1,000,000 (the
“Purchase
Price”).

     

    Section
1.3 The
Closing.  Subject to the fulfillment or waiver of the
conditions set forth in Article V hereof, the initial purchase and sale of the
Shares 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”); provided that the
Closing Date shall be no later than February 10, 2009. Within five (5) business
days of the Closing Date, the Company shall deliver to the Purchaser one or more
certificates representing the Shares registered in the name of each Purchaser or
its nominee.  On or prior to the Closing Date, the Purchaser shall
deliver the Purchase Price (the “Escrowed Funds”) by
certified check or by wire transfer of immediately available funds:

     

               Wire
transfers to the Escrow Agent shall be made as follows:

    ABA#                             026013576

    Account#                      1500886257

    
      	
               
      

            	
              Re:

            	
              Clean
      Power Technologies, Inc.

            


    

    Attention:                      ____________

    


    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.  The Securities will be fully owned and paid for by the
Purchaser as of the Closing Date.  The account with Gersten Savage LLP
shall be referred to herein as the “Escrow
Account”.

     

    Section
1.4   Warrants.  In
addition to the Shares, at the Closing, the Company will execute and deliver to
each Purchaser Warrants to purchase shares of Common stock, substantially in the
forms attached hereto as Exhibit
D.  The Warrant shall entitle the holder thereof to purchase
such shares of Common Stock equal to one hundred twenty five percent (125%) of
the Shares issued to the Purchaser at an exercise price of $0.60 per share for
the initial 60% of such Warrants (the “$0.60 Warrants”) and at an exercise price
of $0.85 per share for the remaining 40% of such Warrants (the “$0.85
Warrants”).  On the Closing Date, the Company shall issue to the
Purchaser $0.60 Warrants to purchase 1,666,667 shares of Common Stock and $0.85
warrants to purchase 1,111,111 shares of common stock. The Warrants shall have a
one (1) year term from the date of issuance.  The shares of Common
Stock that are issuable pursuant to the Warrants are hereafter referred to as
the “Warrant
Shares”.

     

    Section
1.5 Intentionally
Deleted.

     


    
      
         


      

      
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    Representations and
Warranties

     

    Section
1.6 Representations and
Warranties of the Company.  The Company hereby makes the
following representations and warranties to the Purchaser as of the date hereof
and the Closing Date:

     

    (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 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 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 Shares and Warrants 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 Shares and
Warrants, 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 and the Registration Rights Agreement may be limited by
applicable federal or state securities laws and (v) the Shares, the Warrants and
the Warrant Shares issuable upon the exercise of the Warrants, 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 December 19, 2008, the authorized capital stock of the Company consists of
350,000,000 shares of Common Stock, of which as of the date hereof, 66,042,791
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, shares of Common Stock.  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,

     


    
      
         


      

      
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     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.

     

    (d) Issuance and Ownership of
Securities.  Upon issuance in accordance with this Agreement,
the Shares, the Warrants and the Warrant Shares will be validly issued, fully
paid and nonassessable and free from all taxes, liens and 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 Shares and Warrant, and Warrant Shares underlying
the Warrant (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 Stock
is 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 31,2008, 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
Shares or any officers or directors of the Company or any of its Subsidiaries 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,
aside for the July 2008 Offering, 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 take any
action or steps that would cause the offering of the Securities to be integrated
with other offerings.

     


    
      
         


      

      
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    (i)  Employee
Relations.  Neither the Company nor any of its Subsidiaries is
not involved in any labor dispute nor, to the knowledge of the Company, is any
such dispute threatened, the effect of which would be reasonably likely to
result in a Material Adverse Effect.

     

    (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.  Neither the Company nor any of its Subsidiaries have any
knowledge of any infringement by the Company or any of 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 any of 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 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) has received all permits, licenses or other approvals required of them
under applicable Environmental Laws to conduct their respective businesses and
(iii) is 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 at the time of the execution of this Agreement,
there is no information concerning the Company or any of its Subsidiaries or its
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 it
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 and
its Subsidiaries.  Any real property and facilities held under
lease by the Company or any of its Subsidiaries are held by it 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.

     


    
      
         


      

      
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    (o) Insurance.  The
Company is 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 is
engaged.

     

    (p)  Permits.  The
Company and its Subsidiaries own, hold, possess, or lawfully use 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 or any of its
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 its Subsidiaries have 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 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 Shares and/or Warrant
Shares.  The Warrant Shares are duly authorized and reserved
for issuance and, upon exercise of the Warrants in accordance with the terms
thereof, the Warrant 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 or the Alternative Investment Market
(AIM) of the London Stock Exchange (collectively with the Principal Market, the
“Approved Markets”), and the holders of such
Warrant Shares shall be entitled to all rights and preferences accorded to a
holder of Common Stock.  As of the date of this Agreement, the
outstanding shares of Common Stock 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 duly filed with the Securities and Exchange Commission 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.

     


    
      
         


      

      
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    (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.

     

    (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 shares of
Common Stock.

     

    (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.

     


    
      
         


      

      
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    (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 payable 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 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, the Registration Rights Agreement and the
Warrants.

     

    (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.

     

    Section
1.7 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 Shares, the Warrant and the Warrant 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 Shares, the
Warrant and the Warrant 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 Securities, 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
Securities, or any of the transactions or relationships contemplated
thereby.  The Purchaser understands that its purchase of the
Securities, and if applicable, the Warrant 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 Shares, the Warrants and if applicable, the
Warrant Shares.

     


    
      
         


      

      
        8

        
          

        

      

      
         


      

    

     

    (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 Shares, the Warrant,
and Warrant Shares or the fairness or suitability of the investment in the
Shares, the Warrant and Warrant Shares nor have such authorities passed upon or
endorsed the merits thereof.

     

    (d) Legends. The Company shall
issue the certificates for the Shares, and if applicable, the Warrant Shares, to
the Purchaser without any legend except as described in Article VI
below.  The Purchaser covenants that, in connection with any transfer
of the Warrant Shares by the Purchaser pursuant to the registration statement
contemplated by the Registration Rights Agreement, 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.  Each of this Agreement and the Registration
Rights Agreement have 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
the Registration Rights 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 and the Registration
Rights 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 Securities 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 neither the Shares, the Warrant, nor Warrant Shares
issuable upon exercise 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 Shares and the Warrant, 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 Shares or
Warrant, that none is expected to develop, and that the Shares and Warrant must
be held indefinitely unless and until such Shares and the Warrant, or if
applicable, the Warrant Shares received upon exercise thereof are
registered under the 1933 Act or an exemption from registration is
available.  The Purchaser has been advised or is aware of the
provisions of Rule 144 promulgated under the 1933 Act.

     


    
      
         


      

      
        9

        
          

        

      

      
         


      

    

     

    (i) Brokers.  Except
with respect to any fees owed to vFinance, 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 Shares and the
Warrant are 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 Shares and the Warrant, and the
Warrant Shares issuable upon exercise thereof.

     

    Article
II.

     

    Covenants

     

    Section
2.1 Registration and Listing;
Effective Registration.  Until such time as six months
following the date on which all of the Warrants have either have been exercised
or have expired, the Company will cause the Shares to continue at all times to
be registered under Sections 12(b) or (g) of the 1934 Act or listed on AIM,
will comply in all material respects with its reporting and filing obligations
under the 1934 Act or under the bylaws or rules of AIM, 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 Warrants are no longer
outstanding, the Company shall use its best efforts to continue the listing or
trading of the Shares and the Warrant Shares, if applicable, 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 Stock is
listed.  The Company shall use its best efforts to cause the Warrant
Shares to be listed on the Principal Market or one of the other Approved Markets
no later than the date of issuance of the Warrant, and shall use its best
efforts to continue such listing(s) on one of the Approved Markets, for so long
as the Warrants are outstanding.

     

    Section
2.2 Constitution of Board of
Directors.  Upon the execution of this Agreement, the Company
shall immediately seek the resignation of one of its current board members and
thereafter cause its board of directors to be reconstituted at five (5) members
which shall include one (1) designee of the Purchaser (“Quercus
Member”).  Upon the Secondary Purchase, the Company shall immediately
seek the resignation of one of its current board members, other than the Quercus
Member, and appoint a second designee of the Purchaser to the Company’s board of
directors.  The Company shall use reasonable efforts to assist the
Quercus Member in maintaining his or her board position through the company’s
2010 Annual General Meeting.

     

    Section
2.3 Replacement of
Shares.  The Shares 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 Shares with different denominations representing an equal aggregate
principal amount of Shares, 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.

     

     

    
      
         


      

      
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    Section
2.4 Securities
Compliance. The Company shall notify the SEC and the Principal Market, in
accordance with their requirements, of the transactions contemplated by this
Agreement, the Shares, the Warrants, and the Registration Rights Agreement, 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 Shares and Warrant hereunder and the Warrant Shares issuable
upon exercise thereof.

     

    Section
2.5 Reservation of Shares; Stock
Issuable Upon Exercise.  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 shares of Common Stock, solely for the purpose of
effecting the exercise of the Warrant, such number of its shares of Common Stock
as shall from time to time be sufficient to effect the exercise of the Warrants
issued to the Purchaser and the payment for any damages that may become due to
the Purchaser due to the Company’s failure to register the
Securities.

     

    Section
2.6 Form D; Blue Sky
Laws.  The Company agrees to file a Form D with respect to
Shares and the Warrants 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 Shares, the Warrants and
Warrant Shares 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.

     

    Section
2.7 Prohibition on Short
Sales.  From and including the date of this Agreement and for
so long as the Purchaser holds any outstanding Shares, 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 Stock; provided, however, that the Purchaser shall have the
right to pledge the Company’s 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 Stock.

     

    Section
2.8 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
2.9 Prohibition on Certain
Actions.   The Company shall not file any additional
registration statements unless and until the registration statement contemplated
by the Registration Rights Agreement has become effective.

     

    Section
2.10 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.


    
      
         


      

      
        11

        
          

        

      

      
         


      

    


    
      Section
2.11 Right of First
Refusal.  For any debt, equity or equity linked private
financing consummated within twelve (12) months after the Closing Date, the
Purchaser shall have a pro-rata right to purchase all or part of the private
financing on same terms and conditions hitherto offered to the Company which
right shall be exercisable within five (5) trading days from receipt by the
Purchaser of
notification of such financing. Upon notification of
such financing, the Purchaser will be precluded from converting the securities
issued to it under the July 2008 Offering until the Purchaser has either agreed
to match the terms of the said financing within the time referred to in this
Section or five (5) trading days after the rejection by the Purchaser, whichever
shall occur later. The Purchaser shall have five (5) trading days to respond to
a signed and accepted term sheet by the Company.  This right of first
refusal granted to the Purchaser hereunder shall not apply to issuances of stock
for situations involving strategic partnerships, acquisition candidates and
public offerings.

     

    Section
2.12 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.

     

    Article
III.

     

    Conditions to
Closings

     

    Section
3.1 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’
Representations and Warranties.  The representations and
warranties of each 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 the Transaction Documents.

     

    Section
3.2 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’ 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 the Transaction Documents.  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.

     


    
      
         


      

      
        12

        
          

        

      

      
         


      

    


    (c) Legal Opinions.  At
the Closing, the Purchaser shall have received an opinion of U.S. counsel to the
Company substantially in the form attached hereto as Exhibit
C-1.

     

    (d) Registration Rights
Agreement.  The Company and the Purchaser shall have executed
and delivered the Registration Rights Agreement in the form and substance of
Exhibit B
attached hereto.

     

    (e) Officer's
Certificates.  The Company shall have delivered to the
Purchaser a certificate in form and substance satisfactory to the Purchaser and
the Purchaser’ 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.

     

    (f) Warrants.  The
Company shall have executed and delivered the Warrants to the Purchaser in
substantially the form attached hereto as Exhibit
D.

     

    (g) 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.

     

    (h) Presentation of Use of
Proceeds.  The Company shall have presented a summary of the
use of financing proceeds satisfactory to the Purchaser.

     

    (i) 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 Shares as soon as practicable
after receiving notice of the exercise of the Warrants.

     

    Article
IV.


     

    Legend and
Stock

     

    Upon
payment therefor as provided in this Agreement, the Company will issue the
Shares in the name each 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 the Warrant
Shares issued upon exercise thereof, prior to such Warrant 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.

     

    The
Company agrees to reissue the Shares and Warrant Shares issuable upon exercise
of the foregoing, without the legend set forth above, at such time as (i) the
holder thereof is permitted to dispose of such Shares and Warrant Shares
issuable upon exercise of the foregoing pursuant to Rule 144 under the 1933 Act,
or (ii) such securities are sold to a purchaser or Purchaser 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.   

     


    
      
         


      

      
        13

        
          

        

      

      
         


      

    


    If a
Purchaser shall make a sale or transfer of Shares or Warrant 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 Shares or Warrant
Shares containing a restrictive legend which are the subject of such sale or
transfer (the date of such sale or transfer and Share or Warrant Share, as the
case may be, 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 Shares or Warrant 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 Shares or Warrant 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)
shares of Shares to deliver in satisfaction of a sale by the Purchaser of such
Shares or Warrant 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 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 in the Registration Rights Agreement)
being declared effective, any Warrant Shares issued pursuant to the exercise of
the Warrant 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 Purchaser 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
Warrant 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
agree to sell the Warrant 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.

     

    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
V.

     

    Termination

     

    Section
5.1 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
5.2 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).

     

    
      
         


      

      
        14

        
          

        

      

      
         


      

    


    Article
VI.


     

    Indemnification

     

    Section
7. In consideration of the Purchaser’ execution and delivery of the this
Agreement and the Registration Rights Agreement and acquiring the Shares
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.  Except as otherwise set forth herein, the mechanics and
procedures with respect to the rights and obligations under this Article VII
shall be the same as those set forth in Section 6 (other than Section 6(b)) of the Registration
Rights Agreement, including, without limitation, those procedures with respect
to the settlement of claims and Company’s right to assume the defense of
claims.

     

    Article
VII.

     

    Governing Law;
Miscellaneous

     

    Section
7.1 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
7.2 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.

     

    
      
        
           


        

        
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    Section
7.3 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
7.4 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
7.5 Costs and
Expenses.  All reasonable out-of-pocket costs and expenses
incurred by the Company with respect to this Agreement and the transactions
contemplated by this Agreement shall be paid by the Purchaser at the
Closing.  The Purchaser shall also be responsible for the payment of
vFinance’s and the Company’s reasonable post Closing expenses incurred in
connection with the transactions contemplated by this Agreement.  Such
post Closing expenses shall be paid promptly after the Company 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.

     

    Section
7.6 Entire Agreement;
Amendments; Waivers.

     

    (a) 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) 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’ rights under any of the Transaction Documents to acquire the
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’
obligations to the Company under the Transaction Documents.

     

    Section
7.7 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:

     

     

    
      
         


      

      
        16

        
          

        

      

      
         


      

    


    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)  813-9768

    Attention:
Peter J. Gennuso, Esq.

     

    If to the
Purchaser:

     

           
 The Quercus
Trust

     1835
Newport Blvd.

     A109-PMB
467

     Costa
Mesa, CA  92627

     Telephone:

     Facsimile:

    Attention:
David Gelbaum

    


     

    With a
copy to:

     

    The Law
Offices of Joseph P. Bartlett, P.C.

    1900
Avenue of the Stars, 19th
Floor

    Los
Angeles, CA 90067

    Telephone:
(310) 201-7553

    Facsimile:
(310) 388-1055

    Attention:
Joseph Bartlett, Esq.

     

    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
7.8 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 Shares or Warrant Shares (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.

     

    
      
         


      

      
        17

        
          

        

      

      
         


      

    

     

    Section
7.9 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
7.10 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 Shares.

     

    Section
7.11 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
7.12 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
7.13 Days.  Unless
the context refers to “business days” or “Trading Days”, all references herein
to “days” shall mean calendar days.

     

    Section
7.14 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 Stock Purchase Agreement to be duly executed as
of the date and year first above written.

    


    
      	
              COMPANY:

            	
              PURCHASER(S):

            


    

     

    
      	
              CLEAN
      POWER TECHNOLOGIES, INC.

               

              By:
      /s/Abdul Mitha

              Name:  Abdul
      Mitha

              Title:  Chief
      Executive Officer

               

            	
              THE
      QUERCUS TRUST

               

              By:
      /s/ David Gelbaum

              Name:  David
      Gelbaum

              Title:  Trustee

               

            


    

    



    
      
         


      

      
        18

        
          

        

      

      
         


      

    


    EXHIBIT
A

     

    Milestones

     

    
 

    


    


     


    
      
         


      

      
        19

        
          

        

      

      
         


      

    


    EXHIBIT
B

     

    


    Form of
Registration Rights Agreement

     

    


     


    
      
         


      

      
        20

        
          

        

      

      
         


      

    


    EXHIBIT
C

     

    Form of Legal
Opinion

     

     

     

     


    
      
         


      

      
        21

        
          

        

      

      
         


      

    


    EXHIBIT
D

     

    Warrants

     

    
 

     

    
      
         


      

      
        22