Document:

EXHIBIT 4.1
                                                                     -----------

                             SUBSCRIPTION AGREEMENT

Western Power & Equipment Corp.
6407 B NE 117th Avenue
Vancouver, WA 98662

Ladies and Gentlemen:

         The undersigned (the "Investor") is writing to advise you of the
following terms and conditions under which the undersigned hereby offers to
subscribe (the "Offer") for the securities of this private placement (the
"Offering") offered by Western Power & Equipment Corp., a Delaware corporation
(the "Company"). The exclusive placement agent for the Offering is Westrock
Advisors Inc. (the "Placement Agent"). The Company is issuing shares of common
stock of the Company, par value $0.001 per share (the "Common Stock") at a
purchase price of $1.87 per share.

         The Company may issue a minimum (the "Minimum Offering") of Nine
Hundred Fifty Thousand (950,000) shares of Common Stock and a maximum (the
"Maximum Offering") of One Million Fifty Thousand (1,050,000) shares of Common
Stock (such shares of Common Stock as contemplated to be offered hereunder, the
"Shares") in this offering (the "Offering"). The undersigned understands that
the Shares are being issued pursuant to the exemption from registration
requirements of the Securities Act of 1933, as amended (the "Securities Act" or
the "Act"), provided by Section 4(2) of the Act. As such, the Shares are
"restricted securities."

         The Shares are being offered on a "best efforts, all or none" basis by
the Company through the Placement Agent with respect to the Minimum Offering,
during a period (the "Offering Period"); commencing on February 10, 2006 (the
"Commencement Date") and continuing until February 28, 2006 (the "Termination
Date"), when the Offering will expire or earlier if prior thereto all the Shares
constituting the Maximum Offering shall have been sold (any such date, the
"Final Closing").

         All proceeds received from subscribers for the Shares offered hereby
will be deposited by the Placement Agent in a special non-interest bearing
escrow account (the "Escrow Account") with Wells Fargo Bank (the "Bank") and
will be released to the Company against delivery by the Company to the Placement
Agent of certificates representing the Shares (each such date, a "Closing
Date").

1.       Subscription.
         ------------

         Subject to the terms and conditions hereinafter set forth in this
subscription agreement (the "Subscription Agreement"), the undersigned hereby
offers to purchase Shares as set forth in the Investor Signature Page attached
hereto.

         If the Offer is accepted, the Shares shall be paid for by the delivery
of such amount by wire transfer or check payable to the order of "Wells Fargo
Bank, as Escrow Agent for Western Power & Equipment Corp.", which is being
delivered contemporaneously herewith.

         Once a minimum of Nine Hundred Fifty Thousand (950,000) Shares have
been subscribed for and a minimum of $1,776,500.00 in cleared subscription funds
are on deposit in the Escrow Account (the "Minimum Escrow Date") and such
subscriptions are accepted by the Company, a closing will be held as soon as
practicable thereafter. Additional closings will be held, at the discretion of
the Company and the Placement Agent, at reasonable intervals during the Offering
Period, but in no event later than the Final Closing.
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2.       Conditions to Offer.
         -------------------

         The Offering is made subject to the following conditions: (i) that the
Company shall have the right to accept or reject this Offer, in whole or in
part, for any reason whatsoever; and (ii) that the undersigned agrees to comply
with the terms of this Subscription Agreement.

         Acceptance of this Offer shall be deemed given by the countersigning of
this Subscription Agreement on behalf of the Company.

3.       Representations and Warranties of the Undersigned.
         -------------------------------------------------

         The undersigned, in order to induce the Company to accept this Offer,
hereby warrants and represents as follows:

                  (A) The undersigned represents that he, she or it (i) has
         adequate means of providing for his current financial needs and
         possible personal contingencies, and has no need for liquidity of
         investment in the Shares; (ii) can afford to (a) hold unregistered
         securities for an indefinite period of time as required and (b) sustain
         a complete loss of the entire amount of the subscription; and (iii) has
         not made an overall commitment to investments which are not readily
         marketable which is disproportionate so as to cause such overall
         commitment to become excessive.

                  (B) The undersigned represents that he, she or it is an
         Accredited Investor as that term is defined in Regulation D promulgated
         under the Securities Act of 1933, as amended. In general, an
         "Accredited Investor" is deemed to be an institution with assets in
         excess of $5,000,000 or individuals with net worth in excess of
         $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with
         their spouse.

                  (C) The Company has not made any other representations or
         warranties to the undersigned with respect to the Company except as
         contained herein.

                  (D) The undersigned has not authorized any person or
         institution to act as his Purchaser Representative (as that term is
         defined in Regulation D of the General Rules and Regulations under the
         Act) in connection with this transaction. The undersigned has such
         knowledge and experience in financial, investment and business matters
         that he, she or it is capable of evaluating the merits and risks of the
         prospective investment in the Shares. The undersigned has consulted
         with such independent legal counsel or other advisers as he, she or it
         has deemed appropriate to assist the undersigned in evaluating the
         proposed investment in the Shares.

                  (E) The undersigned has reviewed, or been given the
         opportunity to review, the Company's SEC Reports (as defined below).
         The undersigned has also been afforded the opportunity to ask questions
         of, and receive answers from, the officers and/or directors of the
         Company concerning the terms and conditions of the Offering and to
         obtain any additional information, to the extent that the Company
         possesses such information or can acquire it without unreasonable
         effort or expense, necessary to verify the accuracy of the information
         furnished; and has availed himself of such opportunity to the extent
         he, she or it considers appropriate in order to permit the undersigned
         to evaluate the merits and risks of an investment in the Shares.

                  (F) The undersigned acknowledges that none of the Shares has
         been registered under the Act in reliance on an exemption for
         transactions by an issuer not involving a public offering based on the
         undersigned's representations set forth herein, and further understands
         that the undersigned is purchasing the Shares without being furnished
         any prospectus or offering memorandum setting forth all of the
         information that would be required to be furnished under the Act.

                  (G) The undersigned further acknowledges that this Offering
         has not been passed upon or the merits thereof endorsed or approved by
         any state or federal authorities.

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                  (H) The Shares being subscribed for are being acquired solely
         for the account of the undersigned for personal investment and not with
         a view to, or for resale in connection with, any distribution in any
         jurisdiction where such sale or distribution would be precluded. By
         such representation, the undersigned means that no other person has a
         beneficial interest in the Shares subscribed for hereunder, and that no
         other person has furnished or will furnish directly or indirectly, any
         part of or guarantee the payment of any part of the consideration to be
         paid to the Company in connection therewith. The undersigned does not
         intend to dispose of all or any part of the except in compliance with
         the provisions of the Act and applicable state securities laws and
         understands that the Shares are being offered pursuant to a specific
         exemption under the provisions of the Act, which exemption(s) depends,
         among other things, upon compliance with the provisions of the Act. By
         making the foregoing representation, the undersigned is not agreeing to
         hold the securities for any particular period of time.

                  (I) Unless the Shares are subject to an effective registration
         statement, the undersigned further represents and agrees that the
         undersigned will not sell, transfer, pledge or otherwise dispose of or
         encumber the Shares unless prior to any such sale, transfer, pledge,
         disposition or encumbrance, the undersigned will, if requested, furnish
         the Company and its transfer agent with an opinion of counsel
         satisfactory to the Company in form and substance that registration
         under the Act or applicable state securities laws is not required.

                  (J) The undersigned hereby agrees that the following or
         similar legend shall be on the face of the certificates evidencing the
         Shares:

                  "These securities have not been registered under the
                  Securities Act of 1933, as amended (the "Act") or under the
                  securities laws of any state. They may not be sold, offered
                  for sale, pledged or hypothecated in the absence of a
                  registration statement in effect with respect to the
                  securities under such act or an opinion of counsel reasonably
                  satisfactory to the company that such registration is not
                  required pursuant to a valid exemption therefrom under the
                  Act."

                  In addition, the undersigned agrees that the Company may place
         "stop transfer" orders with its transfer agents with respect to each
         certificate evidencing the Shares in order to implement the
         restrictions set forth in this Subscription Agreement.

                  Certificates evidencing the Shares shall not contain any
         legend (including the legend set forth above), (i) after the
         declaration of effectiveness of a registration statement and thereafter
         while such registration statement (including the Registration
         Statement, as defined in Section 5(B)(1) below) covering the resale of
         such security remains in effect under the Securities Act, or (ii)
         following any sale of such Shares pursuant to Rule 144, or (iii) if
         such Shares are eligible for sale under Rule 144(k), or (iv) if such
         legend is not required under applicable requirements of the Securities
         Act (including judicial interpretations and pronouncements issued by
         the Staff of the Commission). The Company shall cause its counsel to
         issue a legal opinion to the Company's transfer agent promptly after
         the Effective Date if required by the Company's transfer agent to
         effect the removal of the legend hereunder. The Company agrees that
         following the Effective Date or at such time as such legend is no
         longer required under this Section (3)(J), it will, no later than five
         Trading Days following the delivery by an Investor to the Company or
         the Company's transfer agent (provided, in such case, that notice of
         the same have been furnished to the Company) of a certificate
         representing Shares issued with a restrictive legend (such date, the
         "Legend Removal Date"), exercise its best efforts to deliver or cause
         to be delivered to such Investor a certificate representing such
         Securities that is free from all restrictive and other legends. 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

                  (K) The undersigned hereby acknowledges that the Placement
         Agent, its affiliates and/or its beneficial owners may subscribe for
         Shares.

                  (L) The undersigned has completed or caused to be completed
         the Investor Suitability Questionnaire attached to this Subscription
         Agreement as Appendix I and the Selling Security Holder Questionnaire,
         attached to this Subscription Agreement as Appendix II (collectively,
         the "Questionnaires"), for use in preparation of the Registration
         Statement, and the answers to such Questionnaires are true and

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<PAGE>

         correct as of the date of this Subscription Agreement and will be true
         and correct as of the effective date of the Registration Statement;
         provided that the undersigned shall be entitled to update such
         information by providing written notice thereof to the Company before
         the effective date of such Registration Statement.

         The undersigned certifies that each of the foregoing representations
and warranties set forth in subsection (A) through (L) inclusive of this Section
3 are true as of the date hereof and shall survive such date.

4.       Representations and Warranties of the Company.
         ---------------------------------------------

            The Company hereby makes the following representations and
warranties to the Investors:

                  (A) Subsidiaries. Other than as disclosed in the SEC Reports,
         the Company has no direct or indirect subsidiaries.

                  (B) Organization and Qualification. The Company is an entity
         duly incorporated or otherwise organized, validly existing and in good
         standing under the laws of the jurisdiction of the State of Delaware,
         with the requisite power and authority to own and use its properties
         and assets and to carry on its business as currently conducted. The
         Company is not in violation of any of the provisions of its certificate
         of incorporation, bylaws or other organizational or charter documents.

                  (C) Authorization; Enforcement. The Company has the requisite
         corporate power and authority to enter into and to consummate the
         Offering. The execution and delivery of this Subscription Agreement by
         the Company and the consummation by it of the transactions contemplated
         hereby have been duly authorized by all necessary action on the part of
         the Company and no further consent or action is required by the
         Company, other than the Required Approvals. This Subscription
         Agreement, when executed and delivered by both parties hereto in
         accordance with the terms hereof, will constitute the valid and binding
         obligation of the Company enforceable against the Company in accordance
         with its terms, subject to applicable bankruptcy, insolvency,
         fraudulent conveyance, reorganization, moratorium and similar laws
         affecting creditors' rights and remedies generally and general
         principles of equity. The Company is not in violation of any of the
         provisions of its certificate of incorporation, by-laws or other
         organizational or charter documents.

                  (D) No Conflicts. The execution, delivery and performance of
         this Subscription Agreement by the Company and the consummation by the
         Company of the Offering do not and will not: (i) conflict with or
         violate any provision of the Company's certificate of incorporation,
         bylaws or other organizational or charter documents, or (ii) subject to
         obtaining the Required Approvals (as defined below), conflict with, or
         constitute a default (or an event that 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 (with or without
         notice, lapse of time or both) of, any agreement, credit facility, debt
         or other instrument (evidencing a Company debt or otherwise) or other
         understanding to which the Company is a party or by which any property
         or asset of the Company is bound or affected, or (iii) result in a
         violation of any law, rule, regulation, order, judgment, injunction,
         decree or other restriction of any court or governmental authority as
         currently in effect to which the Company is subject (including federal
         and state securities laws and regulations), or by which any property or
         asset of the Company is bound or affected; except in the case of each
         of clauses (ii) and (iii), such as could not, individually or in the
         aggregate (a) adversely affect the legality, validity or enforceability
         of the Offering, (b) have or result in or be reasonably likely to have
         or result in a material adverse effect on the results of operations,
         assets, prospects, business or condition (financial or otherwise) of
         the Company , taken as a whole, or (c) adversely impair the Company's
         ability to perform fully on a timely basis its obligations under this
         Subscription Agreement (any of (a), (b) or (c), a "Material Adverse
         Effect").

                  (E) Filings, Consents and Approvals. The Company is not
         required to obtain any consent, waiver, authorization or order of, give
         any notice to, or make any filing or registration with, any court or
         other federal, state, local or other governmental authority or other
         person in connection with the execution, delivery and performance by
         the Company of this Subscription Agreement, other than (i) the filing
         with the Commission of the Registration Statement, (ii) the filing with
         the Commission of a Form D pursuant to Commission Regulation D, and
         (iii) applicable Blue Sky filings (collectively, the "Required
         Approvals").

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<PAGE>

                  (F) Issuance of the Securities. The Shares are duly authorized
         and, when issued and paid for in accordance with this Subscription
         Agreement, will be duly and validly issued, fully paid and
         non-assessable, free and clear of all liens, and not subject to any
         preemptive rights. The Company has reserved from its duly authorized
         capital stock a number of shares of Common Stock required for issuance
         of the Shares.

                  (G) Capitalization. The number of shares and type of all
         authorized, issued and outstanding capital stock of the Company is as
         set forth in the Company's SEC Reports. No person has any right of
         first refusal, preemptive right, right of participation, or any similar
         right to participate in the Offering. Except as set forth in the SEC
         Reports, and for options and shares of capital stock issued or issuable
         under the Company's option plans, there are no outstanding options,
         warrants, script rights to subscribe to, calls or commitments of any
         character whatsoever relating to, or securities, rights or obligations
         convertible into or exchangeable for, or giving any person any right to
         subscribe for or acquire, any shares of Common Stock, or contracts,
         commitments, understandings or arrangements by which the Company is or
         may become bound to issue additional shares of Common Stock, or
         securities or rights convertible or exchangeable into shares of Common
         Stock. The issuance and sale of the Shares will not obligate the
         Company to issue shares of Common Stock or other securities to any
         person (other than the Investors and the Placement Agent) and will not
         result in a right of any holder of Company securities to adjust the
         exercise, conversion, exchange or reset price under such securities.

                  (H) SEC Reports; Financial Statements. The Company has filed
         all reports required to be filed by it under the Securities Act and the
         Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for
         the two (2) years preceding the date hereof (or such shorter period as
         the Company was required by law to file such material) (the foregoing
         materials being collectively referred to herein as the "SEC Reports")
         in accordance with the time requirements of the Securities Act and the
         Exchange Act. As of their respective dates, the SEC Reports complied in
         all material respects with the requirements of the Securities Act and
         the Exchange Act and the rules and regulations of the Commission
         promulgated thereunder, and none of the SEC Reports, when filed,
         contained any untrue statement of a material fact or omitted to state a
         material fact required to be stated therein or necessary in order to
         make the statements therein, in light of the circumstances under which
         they were made, not misleading. The Company has advised Investor(s)
         that a correct and complete copy of each of the SEC Reports (together
         with all exhibits and schedules thereto and as amended to date) is
         available at http://www.sec.com, a website maintained by the Commission
         where Investor(s) may view the SEC Reports. The financial statements of
         the Company included in the SEC Reports comply in all material respects
         with applicable accounting requirements and the rules and regulations
         of the Commission with respect thereto as in effect at the time of
         filing. Such financial statements have been prepared in accordance with
         generally accepted accounting principles applied on a consistent basis
         during the periods involved ("GAAP"), except as may be otherwise
         specified in such financial statements or the notes thereto, and fairly
         present in all material respects the financial position of the Company
         and its consolidated subsidiaries as of and for the dates thereof and
         the results of operations and cash flows for the periods then ended,
         subject, in the case of unaudited statements, to normal, immaterial,
         year-end audit adjustments.

                  (I) Material Changes. Since the date of the latest audited
         financial statements included within the SEC Reports, except as
         specifically disclosed in the SEC Reports: (i) there has been no event,
         occurrence or development that has had a Material Adverse Effect, (ii)
         the Company has not incurred any liabilities (contingent or otherwise)
         other than (A) trade payables and accrued expenses incurred in the
         ordinary course of business consistent with past practice and (B)
         liabilities not required to be reflected in the Company's financial
         statements pursuant to GAAP or required to be disclosed in filings made
         with the Commission, (iii) the Company has not altered its method of
         accounting or the identity of its auditors, (iv) the Company has not
         declared or made any dividend or distribution of cash or other property
         to its stockholders except in the ordinary course of business
         consistent with prior practice, or purchased, redeemed or made any
         agreements to purchase or redeem any shares of its capital stock except
         consistent with prior practice or pursuant to existing Company stock
         option or similar plans, and (v) the Company has not issued any equity
         securities to any officer, director or Affiliate, except pursuant to
         existing Company stock option or similar plans.

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<PAGE>

                  (J) Litigation. Except as set forth in the SEC Reports, there
         is no action, suit, inquiry, notice of violation, proceeding or
         investigation pending or, to the knowledge of the Company, threatened
         against or affecting the Company or any of its properties before or by
         any court, arbitrator, governmental or administrative agency or
         regulatory authority (federal, state, county, local or foreign)
         (collectively, an "Action") which: (i) adversely affects or challenges
         the legality, validity or enforceability of this Subscription Agreement
         or the Shares or (ii) would, if there were an unfavorable decision,
         individually or in the aggregate, have or reasonably be expected to
         result in a Material Adverse Effect. The Company is not and has not
         been the subject of any Action involving a claim of violation of or
         liability under federal or state securities laws. The Company does not
         have pending before the Commission any request for confidential
         treatment of information. There has not been, and to the knowledge of
         the Company, there is not pending or contemplated, any investigation by
         the Commission involving the Company. The Commission has not issued any
         stop order or other order suspending the effectiveness of any
         registration statement filed by the Company or any Subsidiary under the
         Exchange Act or the Securities Act.

                  (K) Compliance. Except as described in the SEC Reports, the
         Company: (i) is not in default under or in violation of (and no event
         has occurred that has not been waived that, with notice or lapse of
         time or both, would result in a default by the Company or any
         Subsidiary under), nor has the Company received notice of a claim that
         it is in default under or that it is in violation of, any material
         indenture, loan or credit agreement or any other material agreement or
         instrument to which it is a party or by which it or any of its
         properties is bound (whether or not such default or violation has been
         waived), which default or violation would have or result in a Material
         Adverse Effect, (ii) is not in violation of any order of any court,
         arbitrator or governmental body, or (iii) is not and has not been in
         violation of any statute, rule or regulation of any governmental
         authority, except in each case as would not, individually or in the
         aggregate, have or result in a Material Adverse Effect.

                  (L) Regulatory Permits. The Company possesses all
         certificates, authorizations and permits issued by the appropriate
         federal, state, local or foreign regulatory authorities necessary to
         conduct its business as described in the SEC Reports, except where the
         failure to possess such permits would not, individually or in the
         aggregate, have or reasonably be expected to result in a Material
         Adverse Effect ("Material Permits"), and the Company has not received
         any notice of proceedings relating to the revocation or modification of
         any Material Permit.

                  (M) Listing and Maintenance Requirements. The Company's Common
         Stock currently trades on the OTC BB. The Company is, and has no reason
         to believe that it will not in the foreseeable future continue to be,
         in compliance with the periodic SEC reporting requirements necessary to
         maintain trading on the OTC BB.

                  (N) Internal Accounting Controls. The Company maintains a
         system of internal accounting controls sufficient to provide reasonable
         assurance that (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 generally accepted accounting principles 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. As disclosed in the SEC Reports, the
         Company has established disclosure controls and procedures (as defined
         in Exchange Act Rules Rule 13a-15(e) or Rule 15d-15(e)) for the Company
         and designed such disclosures controls and procedures to ensure that
         material information relating to the Company is made known to the
         certifying officers by others within those entities.

                  (O) Disclosure. The disclosure provided to the Investor
         regarding the Company, its business and the transactions contemplated
         hereby, furnished by or on behalf of the Company, including all of the
         SEC Reports, does not contain any untrue statement of a material fact
         or omit to state any material fact necessary in order to make the
         statements made therein, in light of the circumstances under which they
         were made, not misleading. The Company acknowledges and agrees that the
         Investor makes or has made no representations or warranties with
         respect to the transactions contemplated hereby other than those
         specifically set forth in this Subscription Agreement.

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5.       Covenants of the Company.
         ------------------------

                  (A) Board Approval. The Company has held a meeting of its
         board of directors ("Board") which has authorized the issuance of the
         Shares in this Offering.

                  (B) Registration Rights. The Company grants registration
         rights to the Investor(s) under the following terms and conditions:

                  (1) The Company will prepare and file, at its own expense,
         within five (5) days of the Final Closing, a registration statement
         under the Securities Act (the "Registration Statement") with the
         Commission sufficient to permit the non-underwritten public offering
         and resale of the Shares (subject to adjustment as set forth in Section
         5(C) below) (the "Registrable Securities") through the facilities of
         all appropriate securities exchanges, if any, on which the Company's
         Common Stock is being sold or on the over-the-counter market if the
         Company's Common Stock is traded thereon.

                  (2) The Company will use commercially reasonable-efforts to
         cause such Registration Statement to become effective within forty-five
         (45) days from the filing of the Registration Statement or, if earlier,
         within five (5) days of Commission clearance to request acceleration of
         effectiveness. The number of shares designated in the Registration
         Statement to be registered shall include all of the Registrable
         Securities and shall include appropriate language regarding reliance
         upon Rule 416 to the extent permitted by the Commission. The Company
         will notify the Investors of the effectiveness of the Registration
         Statement within three (3) business days of such event. In the event
         that the number of Shares so registered shall prove to be insufficient
         to register the resale of all of the Registrable Securities, then the
         Company shall be obligated to file, within five (5) days of notice from
         any Investor, a further Registration Statement registering such
         remaining shares and shall use commercially reasonable efforts to
         prosecute such additional Registration Statement to effectiveness
         within forty-five (45) days of the date of filing of such additional
         Registration Statement.

                  (3) The Company will maintain the Registration Statement or
         post-effective amendment filed under the terms of this Subscription
         Agreement effective under the Securities Act until the earlier of (i)
         the date that all of the Registrable Securities have been sold pursuant
         to such Registration Statement, (ii) all Registrable Securities have
         been otherwise transferred to persons who may trade such shares without
         restriction under the Securities Act, and the Company has delivered a
         new certificate or other evidence of ownership for such securities not
         bearing a restrictive legend, or (iii) all Registrable Securities may
         be sold at any time, without volume or manner of sale limitations
         pursuant to Rule 144(k) or any similar provision then in effect under
         the Securities Act in the opinion of counsel to the Company (the
         "Effectiveness Period").

                  (4) If, at any time during which the Registration Statement
         required by Section 5(B)(1) and 5(B)(2) above is not effective, the
         Company shall determine to proceed with the preparation and filing of a
         separate registration statement pursuant to the Securities Act in
         connection with the proposed offer and sale of any of its securities by
         it or any of its security holders (other than with respect to an
         underwritten offering or on a registration statement on Form S-4, S-8,
         or other limited purpose form), the Company will give written notice of
         its determination to all the Investors. Upon receipt of a written
         request from any Investor, within thirty (30) days after receipt of any
         such notice from the Company, the Company will cause all such
         Registrable Securities requested by the Investor to be included in such
         registration statement, all to the extent required to permit the sale
         or other disposition by such Investors, of such shares. The obligation
         of the Company under this Section 5(B)(4) shall be unlimited as to the
         number of registration statements to which it applies, unless the
         Effectiveness Period has ended.

                  (5) All fees, disbursements and out-of-pocket expenses and
         costs incurred by the Company in connection with the preparation and
         filing of the Registration Statement and in complying with applicable
         federal securities and Blue Sky laws (including, without limitation,
         all attorneys' fees of the Company) shall be borne by the Company. The
         Investors shall bear the cost of underwriting and/or brokerage
         discounts, fees and commissions, if any, applicable to the Registrable
         Securities being registered and the fees and expenses of their counsel.
         The Company shall use its reasonable best efforts to qualify any of the
         Securities for sale in such states as any Investor reasonably
         designates and shall furnish indemnification. However, the Company
         shall not be required to qualify in any state which will require an
         escrow or other restriction relating to the Company and/or the sellers,
         or which will require the Company to qualify to do business in such
         state or require the Company to file therein any general consent to
         service of process. The Company at its expense will supply the
         Investors with copies of the applicable

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         Registration Statement and any prospectus included therein and other
         related documents in such quantities as may be reasonably requested by
         the Investors.

                  (6) In the event that (i) the Registration Statement is not
         filed with the Commission within ten (10) days of the Final Closing, or
         (ii) such Registration Statement is not declared effective by the
         Commission within the earlier of forty-five (45) days from the filing
         of the Registration Statement or five (5) days of clearance by the
         Commission to request effectiveness, or (iii) such Registration
         Statement is not maintained as effective by the Company for the
         Effectiveness Period or as allowed by 5(B)(9) below or (iv) the
         additional Registration Statement referred to in Section 5(B)(2) is not
         filed within ten (10) days or declared effective within forty-five (45)
         days as set forth therein (each a "Registration Default"), then the
         Company will pay Investor (pro rated on a daily basis), as partial
         compensation for such failure and not as a penalty one and one half
         (1.5%) of the purchase price of the Registrable Securities purchased
         from the Company and held by the Investor for each month (or portion
         thereof) until such Registration Statement has been filed (in the case
         of clause (i) and clause (iv)), and in the event of late effectiveness
         (in case of clause (ii) above) or lapsed effectiveness (in the case of
         clause (iii) above), one and one half percent (1.5%) of the purchase
         price of the Registrable Securities purchased from the Company and held
         by the Investor each month (or portion thereof) (regardless of whether
         one or more such Registration Defaults are then in existence, but
         without duplication of such partial compensatory payments) until such
         Registration Statement has been declared effective. Such compensatory
         payments shall be made to the Investors in cash no later than the tenth
         (10th) business day following the month in which such Registration
         Default(s) occurred, provided, however, that the payment of such
         amounts shall not relieve the Company from its obligations to register
         the Securities pursuant to this Section.

                  (7) If the Company does not remit the payment to the Investors
         as set forth in Section 5(B)(6) above, the Company will pay the
         Investors interest at the rate of twelve percent (12%) per annum, or
         the highest rate permitted by law, if less, until such sums have been
         paid in full, and reasonable costs of collection, including attorneys'
         fees, in addition to the liquidated damages. The registration of the
         Registrable Securities pursuant to this provision or payment of such
         compensatory amounts shall not affect or limit the Investors' other
         rights or remedies as set forth in this Subscription Agreement or at
         law.

                  (8) In the event a registration statement is not effective at
         any time after one (1) year following the Final Closing date (other
         than an Allowed Delay, as defined in Section 5(B)(9)(ii) below),
         compensatory payments as defined in Section 5(B)(6) above shall cease.
         At such time, the Company shall cause its counsel to issue such legal
         opinions as may be reasonably requested by the Investors in connection
         with any sales of the Shares in accordance with Rule 144 under the
         Securities Act. In addition, the Investors shall be entitled to
         unlimited piggyback registration rights until the Effectiveness Period
         has ended.

                  (9) In the case of each registration effected by the Company
         pursuant to any section herein, the Company will keep each Investor
         advised in writing as to the initiation of each registration and as to
         the completion thereof. At its expense, the Company will:

                  (i) Prepare and file with the Commission such amendments and
                  supplements to such registration statement and the prospectus
                  used in connection with such registration statement as may be
                  necessary to comply with the provisions of the Securities Act
                  with respect to a disposition of all securities covered by
                  such registration statement;

                  (ii) Notify the Investors at any time when a prospectus
                  relating thereto is required to be delivered under the
                  Securities Act, of the happening of any event as a result of
                  which the prospectus included in such registration statement,
                  as then in effect, includes an untrue statement of a material
                  fact or omits to state a material fact required to be stated
                  therein or necessary to make the statements therein not
                  misleading or incomplete in light of the circumstances then
                  existing, and at the request of the shareholders, prepare and
                  furnish to them a reasonable number of copies of a supplement
                  to or an amendment of such prospectus as may be necessary so
                  that, as thereafter delivered to the Investors, such
                  prospectus shall not include an untrue statement of a material
                  fact or omit to state a material fact required to be stated
                  therein or necessary to make the statements therein not
                  misleading or incomplete in light of the circumstances then
                  existing; provided that, for not more than thirty (30)
                  consecutive calendar days (or a total of not more than
                  seventy-five (75) calendar days in any twelve (12) month
                  period), the Company may delay the disclosure of material
                  non-public information concerning the Company the public
                  disclosure of which at the time is not,

                                       8
<PAGE>

                  in the good faith opinion of the Company in the best interests
                  of the Company and which may, based on the written advice of
                  outside counsel, be delayed under applicable law or regulation
                  (an "Allowed Delay"); provided, further, that the Company
                  shall promptly (i) notify each Investor in writing of the
                  existence of (but in no event shall the Company disclose to
                  such Investor any of the facts or circumstances regarding)
                  material non-public information giving rise to an Allowed
                  Delay and (ii) advise each Investors in writing to cease all
                  sales under such registration statement until the termination
                  of the Allowed Delay;

                  (iii) Use its commercially reasonable efforts to prevent the
                  issuance of any stop order or other suspension of
                  effectiveness of a registration statement, and, if such an
                  order is issued, to obtain the withdrawal of such order at the
                  earliest possible moment and to notify Investor (and, in the
                  event of an underwritten offering, the managing underwriter)
                  of the issuance of such order and the resolution thereof;

                  (iv) Cause all Registrable Securities which are registered in
                  accordance with the provisions herein, to be listed or
                  included for quotation on each exchange on which the Company's
                  shares of Common Stock are then listed or included for
                  quotation;

                  (v) Provide a transfer agent and registrar for all such shares
                  and CUSIP number for all such shares of Common Stock in each
                  case not later than the effective date of such registration
                  statement; and

                  (vi) Otherwise use its commercially reasonable best efforts to
                  comply with all applicable rules and regulations of the
                  Commission.

                  (vii) In the event of a transfer of the Registrable Securities
                  utilizing the prospectus included within any of the
                  registration statements covered by this Section 5(B), cause
                  its counsel to issue a legal opinion permitting such transfer
                  and cause its transfer agent to reissue a new certificate
                  representing such Shares without a restrictive legend within
                  ten business days, time being of the essence, in each case
                  without charge to the Investor other than customary transfer
                  fees which may be charged by the transfer agent or
                  broker-dealer.

                  (10) To the extent Investor includes any Shares in a
         registration statement pursuant to the terms hereof, the Company will
         indemnify and hold harmless Investor, its directors and officers, and
         each person, if any, who controls Investor within the meaning of the
         Securities Act, from and against, and will reimburse Investor, its
         directors and officers and each controlling person with respect to, any
         and all loss, damage, liability, cost and expense to which Investor or
         such controlling person may become subject under the Securities Act or
         otherwise, insofar as such losses, damages, liabilities, costs or
         expenses are caused by any untrue statement or alleged untrue statement
         of any material fact contained in such registration statement, any
         prospectus contained therein or any amendment or supplement thereto, or
         arise out of or are based upon the omission or alleged omission to
         state therein a material fact required to be stated therein or
         necessary to make the statements therein, in light of the circumstances
         in which they were made, not misleading; provided, however, that the
         Company will not be liable in any such case to the extent that any such
         loss, damage, liability, cost or expense arises out of or is based upon
         an untrue statement or alleged untrue statement or omission or alleged
         omission so made in conformity with information furnished by Investor
         or any such controlling person in writing specifically for use in the
         preparation thereof.

                  (11) To the extent Investor includes any Shares in a
         registration statement pursuant to the terms hereof, Investor will
         indemnify and hold harmless the Company, its directors and officers and
         any controlling person from and against, and will reimburse the
         Company, its directors and officers and any controlling person with
         respect to, any and all loss, damage, liability, cost or expense to
         which the Company, its directors and officers or such controlling
         person may become subject under the Securities Act or otherwise,
         insofar as such losses, damages, liabilities, costs or expenses are
         caused by any untrue statement or alleged untrue statement of any
         material fact contained in such registration statement, any prospectus
         contained therein or any amendment or supplement thereto, or arise out
         of or are based upon the omission or alleged omission to state therein
         a material fact required to be stated therein or necessary to make the
         statements therein, in light of the circumstances in which they were
         made, not misleading, in each case to the extent, but only to the
         extent, that such untrue statement or alleged untrue statement or
         omission or alleged omission was so made in reliance upon and in
         conformity with written information furnished by or on behalf of the
         Investor specifically for use in the preparation thereof and provided
         further, that the maximum amount that may be recovered from Investor
         shall be limited to the amount of proceeds received by Investor from
         the sale of such shares of Common Stock.

                                       9
<PAGE>

                  (12) To the extent any indemnification by an indemnifying
         party is prohibited or limited by law, the indemnifying party agrees to
         make the maximum contribution with respect to any amounts for which it
         would otherwise be liable hereunder to the extent permitted by law,
         provided that (i) no contribution shall be made under circumstances
         where the indemnifying party would not have been liable for
         indemnification pursuant to the provisions hereof, (ii) no seller of
         securities guilty of fraudulent misrepresentation (within the meaning
         of Section 11(f) of the Securities Act) shall be entitled to
         contribution from any seller of securities who was not guilty of such
         fraudulent misrepresentation, and (iii) the amount of the contribution
         together with any other payments made in respect of such loss, damage,
         liability or expense, by any seller of securities shall be limited to
         the net amount of proceeds received by such seller from the sale of
         such securities.

                  (13) The Investor will cooperate with the Company in
         connection with this Subscription Agreement, including timely supplying
         all information and executing and returning all documents requested by
         the Company which are required to enable the Company to perform its
         obligations to register the Shares (which shall include all information
         regarding the Investor and proposed manner of sale of securities
         required to be disclosed in any registration statement filed in
         accordance with this Section 5).

                  (C) Certain Adjustments. The Shares shall receive customary
         adjustment in connection with forward or reverse stock splits, stock
         dividends, recapitalizations, reclassification, mergers or
         consolidations and the like

6.       State Legends.
         -------------

         FOR RESIDENTS OF ALL STATES: THE SECURITIES OFFERED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY
STATE AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE
REGISTRATION REQUIREMENTS OF SAID ACT AND SUCH LAWS. THE SECURITIES ARE SUBJECT
TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR
RESOLD EXCEPT AS PERMITTED UNDER SAID ACT AND SUCH LAWS PURSUANT TO REGISTRATION
OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO
BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.

         THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

7.       No Waiver.
         ---------

         Notwithstanding any of the representations, warranties, acknowledgments
or agreements made herein by the undersigned, the undersigned does not thereby
or in any manner waive any rights granted to the undersigned under federal or
state securities laws.

8.       Revocation.
         ----------

         The undersigned agrees that he shall not cancel, terminate or revoke
this Subscription Agreement or any agreement of the undersigned made hereunder
other than as set forth herein, and that this Subscription Agreement shall
survive the death or disability of the undersigned.

9.       Termination of Subscription Agreement.
         -------------------------------------

         If the Company elects to cancel this Subscription Agreement, provided
that it returns to the undersigned, without interest and without deduction, all
sums paid by the undersigned, this Offer shall be null and void and of no
further force and effect, and no party shall have any rights against any other
party hereunder.

                                       10
<PAGE>

10.      Miscellaneous.
         -------------

         (A) All notices or other communications given or made hereunder shall
be in writing and shall be mailed by registered or certified mail, return
receipt requested, postage prepaid, or by overnight courier service to the
undersigned at his address set forth on the Investor Signature Page, and to the
Company and the Placement Agent at the addresses set forth herein.

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

         (C) The provisions of this Subscription Agreement shall survive the
execution thereof.

         (D) This Subscription Agreement shall be governed by the laws of the
State of New York as an agreement between residents of New York.

         (E) All other expenses incident to the Investor's purchase of Shares,
whether or not the purchase of such Shares is consummated, will be borne
exclusively by the party making the expenditure or incurring the expense,
including any expenses incurred prior to the date hereof, as well as those
incurred after the date hereof. Other than as specifically set forth herein,
neither the Company nor the Investor shall be liable for any costs or expenses
incurred by the other.

         (F) This Subscription Agreement may be executed in multiple
counterparts, each of which will be deemed an original and all of which together
will constitute one and the same document.

11.      Certification.
         -------------

         The undersigned certifies that he has read this entire Subscription
Agreement and that every statement on his part made and set forth herein is true
and complete.

[THE BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK - SIGNATURE PAGE FOLLOWS]

                                       11
<PAGE>

           INVESTOR SIGNATURE PAGE FOR WESTERN POWER & EQUIPMENT CORP.
                             SUBSCRIPTION AGREEMENT
           PLEASE PRINT OR TYPE, USE INK ONLY. (ALL PARTIES MUST SIGN)

The undersigned investor hereby certifies that he (i) has received and relied
solely upon the Securities and Exchange filings, this Subscription Agreement and
their respective exhibits and schedules, (ii) agrees to all the terms and
conditions of this Subscription Agreement, (iii) meets the suitability standards
set forth herein and (iv) is a resident of the state or foreign jurisdiction
indicated below.
<TABLE><CAPTION>
<S>     <C>
Number of Shares Subscribed for:___________________

Dollar Amount of Shares Subscribed for: $_________________________

-----------------------------------------        If other than individual check one and indicate
Name of Investor (Print)                         capacity of signatory under the signature:
                                                 [_] Trust
-----------------------------------------        [_] Estate
Name of Joint Investor (if any) (Print)          [_] Uniform Gifts to Minors Act, State of __________
                                                 [_] Attorney-in-fact
                                                 [_] Corporation
-----------------------------------------        [_] Other
Signature of Investor
                                                 If Joint Ownership, Check one:
                                                 [_] Joint Tenants with Right of Survivorship
-----------------------------------------        [_] Tenants in Common
Signature of Joint Investor (if any)             [_] Tenants by the Entirety
                                                 [_] Community by Property
-----------------------------------------
Capacity of Signatory (if applicable)            Backup Withholding Statement:
                                                 [_] Please check this box only if the investor is subject to
-----------------------------------------            backup withholding
Social Security or Taxpayer Identification Number
                                                 Foreign Person:
Investor Address:                                [_] Please check this box only if the investor is a
                                                     nonresident alien, foreign corporation, foreign
-----------------------------------------            partnership, foreign trust or foreign estate
Street Address
                                                 Country ________________ Passport # _______________
-----------------------------------------
City        State            Zip Code            ID #____________________ ID Type __________________

Telephone: (   )         Fax: (   )

Email:-----------------------------------

Address for Delivery of Shares (if different from above):

__________________________________________________

__________________________________________________
City        State            Zip Code

Broker:
   [_] Registered Rep._______________________   [_] Other Investor Representative:  _________________

Placement Agent:__________________
                Westrock Advisors LLC
</TABLE>

The investor agrees to the terms of this Subscription Agreement and, as required
by the Regulations pursuant to the Internal Revenue Code, certifies under
penalty of perjury that (1) the Social Security Number or Taxpayer
Identification Number and address provided above is correct, (2) the investor
<PAGE>

is not subject to backup withholding (unless the Backup Withholding Statement
box is checked) either because he has not been notified that he is subject to
backup withholding as a result of a failure to report all interest or dividends
or because the Internal Revenue Service has notified him that he is no longer
subject to backup withholding and (3) the investor (unless, the Foreign Person
box above is checked) is not a nonresident alien, foreign partnership, foreign
trust or foreign estate.

         THE SUBSCRIPTION FOR SHARES OF WESTERN POWER & EQUIPMENT CORP. BY THE
ABOVE NAMED INVESTOR(S) IS ACCEPTED THIS ________ DAY OF ______________________,
2006.

                                       Western Power & Equipment Corp.

                                       By:_____________________________________
                                       Name:  Dean McLain
                                       Title: PresidentEXHIBIT 10.1
                                                                    ------------

                      WAIVER AND LOAN PREPAYMENT AGREEMENT

THIS WAIVER AND LOAN PREPAYMENT AGREEMENT ("AGREEMENT") is made and entered into
this 8th 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; 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 has received offers from unaffiliated third parties (the
"COMMON STOCK PURCHASERS") to purchase up to 1,750,000 shares of Western Common
Stock (the "SUBJECT SHARES") at various prices between $1.80 per share and $1.90
per share; which prices are below the $2.00 per share conversion price of the
Series A Debentures; and

WHEREAS, the sale of such Subject Shares to the Common Stock Purchasers would
result in (a) the violation of Sections 4.13 and 4.14(a) of the Purchase
Agreement and (b) trigger the full-ratchet anti-dilution provisions of the
Series A Debentures and the Warrants; and

WHEREAS, Western has requested that the Debenture Purchasers (a) waive the
violation in Sections 4.13 and 4.14(a) of the Purchase Agreement that would
occur solely by reason of the sale of the Subject Shares, and (b) agree that the
anti-dilution provisions of the Series A Debentures and Warrants will not be
triggered solely by reason of the sale of the Subject Shares (collectively, the
"CONTRACTUAL ACCOMMODATIONS"), 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
Accommodations;

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:

         2.1 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 4.13 and
Section 4.14 of the Purchase Agreement) that would occur or cause to exist
solely by reason of the sale by Western of any or all of the Subject Shares to
the Common Stock Purchasers; and

                                                                               1
<PAGE>

         2.2 that the anti-dilution provisions of Section 5(b) of the Series A
Debentures and Section 3(b) of the Warrants shall not be triggered solely by
reason of the sale by Western of any or all of the Subject Shares to the Common
Stock Purchasers.

3.       Conditions to Contractual Accommodations. This Agreement and the
Contractual Accommodations 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.

             (a) Not less than 90% 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") simultaneous with each
sale of Subject Shares. In such regard, Western shall direct in writing the
Common Stock Purchasers to wire funds representing 90% 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; PROVIDED, that the Company
may apply such prepayment(s), upon prior written notice, to (i) 30% of the
monthly redemption installment due in the month of March 2006, and (ii) 30% of
the monthly redemption installment due for the month of April 2006; provided,
further, the application of prepayment(s) in clauses (i) and (ii) above shall in
no event exceed, in the aggregate, $240,000.

             (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 paid by the purchasers of the Subject Shares, less any
brokerage commissions or finders' fees paid by Western in connection with such
sales; provided, that such fees and commissions shall not exceed 5% of the gross
proceeds paid by the purchasers of the Subject Shares.

             (f) By their execution of this Agreement, the Debenture Purchasers
do hereby consent to (i) the sale by the Company of the Subject Shares, not to
exceed 1,750,000 of Common Stock and (ii) such prepayments up to a maximum
amount not to exceed $3,000,000 principal amount of Series A Debentures.

         3.2 Contractual Accommodation Fee.

             (a) Ten percent (10%) of the Net Proceeds shall be paid to the
Debenture Purchasers as a fee for agreeing to the Contractual Accommodations set
forth in Section 2 above (the "CONTRACTUAL ACCOMMODATION FEE").

             (b) All payments of the Contractual Accommodation Fees shall be
made by wire transfer of immediately available funds to accounts set forth in
the Disbursement Instructions simultaneous with each sale of Subject Shares and
the prepayments required to be made pursuant to Section 3.1 above. In such
regard, Western shall direct in writing the Common Stock Purchasers to wire
funds representing 10% of the Net Proceeds directly to the Debenture Purchasers
in accordance with the Disbursement Instructions.

                                                                               2
<PAGE>

             (c) Each payment of the Contractual Accommodation Fee shall be made
simultaneous with a prepayment of the Series A Debentures contemplated by
Section 3.1 above, and shall be paid to the Debenture Purchasers in pro-rata
amounts based upon the amount by which the outstanding 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. Western acknowledges and agrees that, as a result of
the payment of the prepayment of the Series A Debentures and the payment of the
Contractual Accommodation Fee, Western shall receive no cash proceeds from Sale
of the Subject Shares but shall benefit from the reduction of indebtedness.

         3.3 Registration Statement. Subsequent to consummating the sale of any
of the Subject Shares, Western shall cause the Subject Shares to be registered
under the Securities Act of 1933, as amended (the "SECURITIES ACT"), pursuant to
a Form S-1 registration statement (the "REGISTRATION STATEMENT") to be filed
with the Securities and Exchange Commission ("SEC") on a date which shall be not
later than ten (10) days following the date of execution by Western of
definitive purchase agreements for the purchase of the Subject Shares with the
Common Stock Purchasers (the "COMMON STOCK PURCHASE AGREEMENTS"), a form of
which Common Stock Purchase Agreement shall be approved by any one of the
Debenture Purchasers, which approval shall not be unreasonably withheld or
delayed. Such Registration Statement and any amendments thereto shall be
submitted to and approved by any one of the Debenture Purchasers; which approval
shall not be unreasonably withheld or delayed.

         3.4 Minimum Sale Prices. Western does hereby covenant and agree that it
shall not sell any of the Subject Shares to any Common Stock Purchasers at per
share prices less than $1.80 per share, without the prior written consent of all
Debenture Purchasers.

         3.5 Completion of Sale of Subject Shares and Payments. The consummation
of the sale of the maximum 1,750,000 Subject Shares to be sold by Western to the
Common Stock Purchasers, and the prepayments of the Series A Debentures and
Contractual Accommodation Fees to the Debenture Purchasers, as contemplated
hereby, shall have been completed by the close of business (Eastern Standard
Time) on Friday, February 17, 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").

         3.6 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.

4.       Miscellaneous.

         4.1 Financial Accommodation Limitation. The Financial Accommodations
granted by the Debenture Purchasers under this Agreement shall apply only to the
sale of the maximum 1,750,000 Subject Shares to the Common Stock Purchasers, 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 other 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

                                                                               3
<PAGE>

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 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

                                                                               4
<PAGE>

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.

  [THE BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK - SIGNATURE PAGE FOLLOWS]

                                                                               5
<PAGE>

         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: ________________________________

                                                                               6

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