Document:

ex102.htm

    
      

      

    

    REGISTRATION
RIGHTS AGREEMENT

     

    This
Registration Rights Agreement (“Agreement”) is
entered into as of February 10, 2009, between Clean Power Technologies, Inc., a
Nevada corporation (the “Company”) and The
Quercus Trust (the “Purchaser”).

     

    W I T N E S S E T H:

     

    WHEREAS, pursuant to that
certain Stock Purchase Agreement, dated on or about the date hereof, by and
between the Company and The Quercus Trust (the “Purchase
Agreement”),  the Purchasers have agreed to acquire from the
Company, (i) 2,222,222 shares of the Company’s Common Stock, par value $0.001
(the “Shares”) and (ii) Warrants (the “Warrants”) to
purchase shares of the Company’s Common Stock, par value $0.001 per share (the
“Common
Stock”) for an aggregate purchase price of $1,000,000, subject to
the terms and conditions set forth therein; and

     

    WHEREAS, the Warrants will be
exercisable for shares of Common Stock (the “Warrant Shares”) pursuant to
the terms and conditions set forth therein.

     

    NOW, THEREFORE, in
consideration of the mutual promises, representations, warranties, covenants and
conditions set forth in the Purchase Agreement, the Warrants and this Agreement,
the Company and each Purchaser agree as follows:

     

    1. Certain
Definitions.  Capitalized terms used herein and not otherwise
defined shall have the meaning ascribed thereto in the Purchase Agreement or the
Note.  As used in this Agreement, the following terms shall have the
following respective meanings:

     

    “Closing” and “Closing Date” shall have the
meanings ascribed to such terms in the Purchase Agreement.

     

    “Commission” or “SEC” shall mean the Securities
and Exchange Commission or any other federal agency at the time administering
the Securities Act.

     

    “Purchaser” and “Purchasers” shall refer to the
Purchaser and any permitted transferee or transferees of Registrable Securities
(as defined below), the Shares and/or Warrant which have not been sold to the
public to whom the registration rights conferred by this Agreement have been
transferred in compliance with this Agreement and/or the Purchase
Agreement.

     

    “Permitted Free Writing
Prospectus” means a free writing prospectus authorized for use by the
Company in connection with any offering of Registrable Securities that has been
filed with the SEC in accordance with Rule 433 under the Act.

     

    “Register,” “Registered” and “Registration” shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.

     

    “Registrable Securities” shall
mean:  (i) the Shares or other securities issued or issuable to each
Purchaser or its permitted transferee or designee (a) upon exercise of the
Warrants, or (b) upon any distribution with respect to, any exchange for or any
replacement of, a Shares or Warrant, or (c) upon any exercise or exchange
of any securities issued in connection with any such distribution, exchange or
replacement; (ii) securities issued or issuable in respect of the foregoing upon
any stock split, stock dividend, recapitalization or similar event; and (iii)
any other security issued as a dividend or other distribution with respect to,
in exchange for or in replacement of the securities referred to in the preceding
clauses; provided that all such shares shall cease to be Registrable Securities
at such time as they have been sold under a Registration Statement or pursuant
to Rule 144 under the Securities Act or otherwise or at such time as they are
eligible to be sold without volume limitation pursuant to Rule 144.

     

    
      
        
        

      

      
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    “Registration Expenses” shall
mean all expenses to be incurred in connection with each Purchaser’s
registration rights under this Agreement not included in Selling Expenses,
including, without limitation, all registration and filing fees, printing
expenses, fees and disbursements of counsel for the Company and one counsel for
the Purchasers, blue sky fees and expenses, and the expense of any special
audits incident to or required by any such registration (but excluding the
compensation of regular employees of the Company, which shall be paid in any
event by the Company).

     

    “Registration Statement” shall
have the meaning set forth in Section 2(a) herein.

     

    “Regulation D” shall mean
Regulation D as promulgated pursuant to the Securities Act, and as subsequently
amended.

     

    “Securities Act” or “Act” shall mean the Securities
Act of 1933, as amended.

     

    “Selling Expenses” shall mean
all underwriting discounts and selling commissions applicable to the sale of
Registrable Securities or Demand Registration Securities, as the case may
be.

     

    “Time of Sale Information”
means any preliminary prospectus together with each Permitted Free Writing
Prospectus, if any, used in connection with any offering of Registrable
Securities.

     

    2. Registration
Requirements.  The Company shall use its best efforts to effect
the registration of the Registrable Securities (including, without limitation,
the execution of an undertaking to file post-effective amendments, appropriate
qualification under applicable blue sky or other state securities laws and
appropriate compliance with applicable regulations issued under the Securities
Act) as would permit or facilitate the sale or distribution of all the
Registrable Securities in the manner (including manner of sale) and in all
states reasonably requested by the Purchaser.  Such best efforts by
the Company shall include, without limitation, the following:

     

    (a) As soon
as practicable, but in no event later than six months from the Closing Date (the
“Required Filing Date”) (provided, however, that in the event that the Company
is informed by the Commission that the Registration Statement is deemed to be
part of a serial registration covering the Company’s securities, the Purchaser
agrees to extend the Required Filing Date to such period so that the Company may
comply with the Commission) the Company shall:

     

    (i) prepare
and file a registration statement with the Commission pursuant to Rule 415 under
the Securities Act (“Rule 415”) on Form
S-1 under the Securities Act (or in the event that the Company is ineligible to
use such form, such other form as the Company is eligible to use under the
Securities Act covering resales by the Purchasers as selling stockholders (not
underwriters) of the Registrable Securities (a “Registration
Statement”), which Registration Statement, to the extent allowable under
the Securities Act and the rules promulgated thereunder (including Rule 416),
shall state that such Registration Statement also covers such number of
additional shares of Common Stock as may become issuable upon the exercise of
the Warrants or pursuant to the applicable anti-dilution provisions or
other adjustment provisions of the Warrants.  The number of shares of
Common Stock initially included in such Registration Statement shall be no less
than 120% of the maximum number of shares of Common Stock which may be included
in a Registration Statement without exceeding registration limitations imposed
by the SEC pursuant to Rule 415 (the “Rule 415 Amount”) in
a comment letter addressed to the Company; provided that the
Company shall use its commercially reasonable efforts to contest such
limitation, but in any event not less than approximately 5,000,000 shares
of Common Stock.  Thereafter, the Company shall use its best efforts
to cause such Registration Statement and other filings to be declared effective,
as soon as possible (the “Required Effective
Date”).  The Company shall use its best efforts to ensure that
each subsequent Registration Statement is filed as soon as possible, but in no
event sooner than six (6) months from the effectiveness of a previously filed
Registration Statement. In the event that less than all of the Registrable
Securities are included in a Registration Statement as a result of the
limitations described in this paragraph, then the Company will (i) reduce on a
proportionate basis the number of Registrable Securities of each Purchaser
included in such Registration Statement and (ii) file additional Registration
Statements, each registering the Rule 415 Amount, seriatim, until all
of the Registrable Securities have been registered. The Required Filing Date and
the Required Effective Date of each such additional Registration Statement shall
be within a reasonable time after the first day such Registration Statement may
be filed without objection by the SEC based on Rule 415.  Without
limiting the foregoing, the Company will promptly respond to all SEC comments,
inquiries and requests, and shall request acceleration of effectiveness at the
earliest possible date.

     

    
      
        
        

      

      
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    (ii) If at any
time the staff of the Commission takes the position that the offering of some or
all of the Registrable Securities in a Registration Statement is not eligible to
be made on a delayed or continuous basis under the provisions of Rule 415 under
the Securities Act or requires any Investor to be named as an “underwriter” (an
“SEC Objection”), the Company shall promptly notify the Purchasers of such SEC
Objection and if the Investor shall request, the Company shall use its
commercially reasonable efforts to persuade the staff of the Commission that the
offering contemplated by the Registration Statement is a valid secondary
offering and not an offering “by or on behalf of the issuer” as defined in Rule
415 and that the Investor is not an “underwriter” (a “Rule 415 Response
Effort”).  The Investor shall have the right to participate or have
its counsel participate in any meetings or discussions with the staff of the
Commission regarding the Rule 415 Response Effort and to comment or have its
counsel comment on any written submission made to the staff of the Commission
with respect to the Rule 415 Response Effort, and to have such comments relayed
to the staff of the Commission with the consent of the Company, not to be
unreasonably withheld.  No such Rule 415 Response Effort shall be made
to the staff of the Commission to which the Investor’s counsel reasonably
objects.  In the event that, despite the Company’s commercially
reasonable efforts and compliance with the terms of this Section 2(a)(ii), the
staff of the Commission refuses to alter its position, the Company shall (i)
remove from the Registration Statement such portion of the Registrable
Securities (the “Cut Back Shares”) and/or (ii) agree to such restrictions and
limitations on the registration and resale of the Registrable Securities as the
staff of the Commission may require to assure the Company’s compliance with the
requirements of Rule 415; provided, however, that the Company shall not agree to
name any Investor as an “underwriter” in such Registration Statement without the
prior written consent of such Investor (collectively, the “SEC
Restrictions”).  To eliminate any ambiguity, delay caused by a refusal
by an Investor to be named as an underwriter shall be deemed to be part of a
Rule 415 Response Effort.  Notwithstanding any other provision of this
Agreement to the contrary, no liquidated damages shall accrue pursuant to
Section 2(c) during the period of any Rule 415 Response Effort or (ii) on or as
to any Cut Back Shares until such time as the Company is able, using
commercially reasonable efforts, to cause such additional Registration Statement
or Registration Statements to become effective  with respect to the
Cut Back Shares in accordance with any SEC Restrictions (such date, the
“Restriction Termination Date”).   If the Company fails to cause
any such Registration Statement to be declared effective within 90 days
following the applicable Restriction Termination Date, liquidated damages shall
accrue on the same basis provided above.

     

    (iii) Prepare
and file with the SEC 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 the disposition of all securities covered by such Registration
Statement and notify the Purchasers of the filing and effectiveness of such
Registration Statement and any amendments or supplements.

     

    
      
        
        

      

      
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    (iv) Furnish
to each Purchaser that has Registrable Securities included in a Registration
Statement such numbers of copies of a current prospectus conforming with the
requirements of the Securities Act, copies of such Registration Statement, any
amendment or supplement thereto and any documents incorporated by reference
therein and such other documents as such Purchaser may reasonably require in
order to facilitate the disposition of Registrable Securities owned by such
Purchaser.

     

    (v) Register
and qualify the securities covered by such Registration Statement under the
securities or “Blue Sky” laws of all domestic jurisdictions; provided that the
Company shall not be required in connection therewith or as a condition thereto
to qualify to do business or to file a general consent to service of process in
any such states or jurisdictions.

     

    (vi) Notify
promptly each Purchaser that has Registrable Securities  included in a
Registration Statement of the happening of any event (but not the substance or
details of any such event) of which the Company has knowledge as a result of
which the prospectus (including any supplements thereto or thereof) included in
such Registration Statement, as then in effect, includes an untrue statement of
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing (each an “Event”), and use its
best efforts to promptly update and/or correct such prospectus. Each Purchaser
will hold in confidence and will not make any disclosure of any such Event and
any related information disclosed by the Company.

     

    (vii) Notify
each Purchaser of the issuance by the Commission or any state securities
commission or agency of any stop order suspending the effectiveness of any
Registration Statement or the threat or initiation of any proceedings for that
purpose.  The Company shall use its best efforts to prevent the
issuance of any stop order and, if any stop order is issued, to obtain the
lifting thereof at the earliest possible time.

     

    (viii) List the
Registrable Securities covered by such Registration Statement with all
securities exchange(s) and/or markets on which the Common Stock is then listed
and prepare and file any required filings with any exchange or market where the
Common Shares are traded.

     

    (ix) Take all
steps reasonably necessary to enable Purchasers to avail themselves of the
prospectus delivery mechanism set forth in Rule 153 (or successor thereto) under
the Act.

     

    (x) Take all
steps reasonably necessary to keep public information available as those terms
are understood and defined in Rule 144 under the Securities Act.

     

    
      
        
        

      

      
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    (b) Notwithstanding
the obligations under Section 2(a)(vii) or any provision of this Agreement, if
(i) in the good faith judgment of the Company, following consultation with legal
counsel, it would be detrimental to the Company and its stockholderss for
resales of Registrable Securities to be made pursuant to a Registration
Statement due to the existence of a material development or potential material
development involving the Company that the Company would be obligated to
disclose in the Registration Statement, which disclosure would be premature or
otherwise inadvisable at such time or would have a material adverse effect upon
the Company and its stockholderss, or (ii) in the good faith judgment of the
Company, it would adversely affect or require premature disclosure of the filing
of a Company-initiated registration of any class of its equity securities, then
the Company will have the right to suspend the use of the Registration Statement
for one period of not more than 10 calendar days in any 12 month period, but
only if the Company reasonably concludes, after consultation with outside legal
counsel, that the failure to suspend the use of the Registration Statement as
such would create a material liability or violation under applicable securities
laws or regulations.

     

    (c) Effect of Late
Filing. In the event that (i) any Registration Statement has not been
filed by the Required Filing Date, the Company fails to cause to be declared
effective a Registration Statement within ten (10) days following receipt of a
“no review” letter from the SEC, or the Company fails to respond to any SEC
comment letter within thirty (30) days of receipt other than by reason of the
operation of Section 2(b); or (ii) the Company fails to maintain the
effectiveness of the Registration Statement during the registration period and
the Purchaser cannot otherwise effectuate a resale of the Registrable Securities
under Rule 144, then the Company will make a payment to each Purchaser as
liquidated damages for such delay (each a “Late Registration
Payment”). Each Late Registration Payment will be paid in cash and shall
be equal to 1% of the dollar amount invested by the Purchaser in the Initial
Purchase for every (30) day period, or portion thereof that the Registration
Statement is not filed or the Company fails to respond to SEC
comments.  The Late Registration Payments will be prorated on a daily
basis during the 30-day period and will be paid to the Purchasers within ten
business days following the end of each 30-day period as to which payment is due
hereunder.  The Purchasers may make a claim for additional damages as
a remedy for the Company’s failure to comply with the timelines set forth in
this Section, but acknowledgement of such right in this Agreement shall not
constitute an admission by the Company that any such damages exist or may
exist.  Nothing contained in the preceding sentence shall be read to
limit the ability of the Purchasers to seek specific performance of this
Agreement.

     

    (d) During
the registration period, the Company will make available, upon reasonable
advance notice during normal business hours, for inspection by any Purchaser
whose Registrable Securities are being sold pursuant to a Registration
Statement, all pertinent financial and other records, pertinent corporate
documents and properties of the Company (collectively, the “Records”) as
reasonably necessary to enable each such Purchaser to exercise its due diligence
responsibility in connection with or related to the contemplated offering. The
Company will cause its officers, directors and employees to supply all
information that any Purchaser may reasonably request for purposes of performing
such due diligence.

     

    
      
        
        

      

      
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    (e) Each
Purchaser will hold in confidence, use only in connection with the contemplated
offering and not make any disclosure of all Records and other information that
the Company determines in good faith to be confidential, and of which
determination the Purchasers are so notified, unless (i) the disclosure of such
Records is necessary to avoid or correct a misstatement or omission in any
Registration Statement, (ii) the release of such Records is ordered pursuant to
a subpoena or other order from a court or government body of competent
jurisdiction, (iii) the information in such Records has been made generally
available to the public other than by disclosure in violation of this or any
other agreement (to the knowledge of the relevant Purchaser), (iv) the Records
or other information were developed independently by the Purchaser without
breach of this Agreement, (v) the information was known to the Purchaser before
receipt of such information from the Company, or (vi) the information was
disclosed to the Purchaser by a third party not under an obligation of
confidentiality. However, a Purchaser may make disclosure of such Records and
other information to any attorney, adviser, or other third party retained by it
that needs to know the information as determined in good faith by the Purchaser
(the “Purchaser
Representative”), if the Purchaser advises the Purchaser Representative
of the confidentiality provisions of this Section 2(e), but the Purchaser will
be liable for any act or omission of any of its Purchaser Representatives
relative to such information as if the act or omission was that of the
Purchaser. The Company is not required to disclose any confidential information
in the Records to any Purchaser unless and until such Purchaser has entered into
a confidentiality agreement (in form and substance satisfactory to the Company)
with the Company with respect thereto, substantially to the effect of this
Section 2(e). Unless legally prohibited from so doing, each Purchaser will, upon
learning that disclosure of Records containing confidential information is
sought in or by a court or governmental body of competent jurisdiction or
through other means, give prompt notice to the Company and allow the Company, at
the Company’s expense, to undertake appropriate action to prevent disclosure of,
or to obtain a protective order for, the Records deemed confidential. Nothing
herein will be deemed to limit the Purchaser’s ability to sell Registrable
Securities in a manner that is otherwise consistent with applicable laws and
regulations.

     

    (f) The
Company shall file a Registration Statement with respect to any newly authorized
and/or reserved Registrable Securities consisting of Shares described in clause
(i) of the definition of Registrable Securities within ten (10) business days of
any stockholderss’ meeting authorizing same and shall use its best efforts to
cause such Registration Statement to become effective within ninety (90) days of
the second Closing Date.  If the Purchasers become entitled, pursuant
to an event described in clause (ii) and (iii) of the definition of Registrable
Securities, to receive any securities in respect of Registrable Securities that
were already included in a Registration Statement, subsequent to the date such
Registration Statement is declared effective, and the Company is unable under
the securities laws to add such securities to the then effective Registration
Statement, the Company shall promptly file, in accordance with the procedures
set forth herein, an additional Registration Statement with respect to such
newly Registrable Securities.  The Company shall use its best efforts
to (i) cause any such additional Registration Statement, when filed, to become
effective within 30 days of that date that the need to file the Registration
Statement arose.  All of the registration rights and remedies under
this Agreement shall apply to the registration of such newly reserved shares and
such new Registrable Securities.

     

    3. Expenses of
Registration.  All Registration Expenses in connection with any
registration, qualification or compliance with registration pursuant to this
Agreement, and all Selling Expenses shall be borne by the
Purchaser.

     

    4. No Senior Registration
Rights.  Without the prior written consent of all Purchasers
who hold Registrable Securities under the Purchase Agreement, the Company will
not grant any registration rights which are senior to the registration rights
granted hereby.

     

    5. Registration
Period.  In the case of the registration effected by the
Company pursuant to this Agreement, the Company shall keep such registration
effective and current until the earlier of (a) the date on which all the
Purchasers have completed the sales or distribution described in the
Registration Statement relating thereto or, if earlier until such Registrable
Securities may be sold by the Purchasers under Rule 144 (provided that the
Company’s transfer agent has accepted an instruction from the Company to such
effect) and (b) the second (2nd)
anniversary of the Closing Date.

     

    
      
        
        

      

      
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    6. Indemnification.

     

    (a) Company
Indemnity.  The Company will indemnify each Purchaser, each of
its officers, directors, agents and partners, and each person controlling each
of the foregoing, within the meaning of Section 15 of the Securities Act and the
rules and regulations thereunder with respect to which registration,
qualification or compliance has been effected pursuant to this Agreement, and
each underwriter, if any, and each person who controls, within the meaning of
Section 15 of the Securities Act and the rules and regulations thereunder, any
underwriter, against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any Time of Sale Information,
final prospectus (as amended or supplemented if the Company files any amendment
or supplement thereto with the SEC), Registration Statement filed pursuant to
this Agreement or any post-effective amendment thereof or based on any omission
(or alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances under which they were made, or any violation by the Company of
the Securities Act or any state securities law or in either case, any rule or
regulation thereunder applicable to the Company and relating to action or
inaction required of the Company in connection with any such registration,
qualification or compliance, and will reimburse each Purchaser, each of its
officers, directors, agents and partners, and each person controlling each of
the foregoing, for any reasonable legal fees of a single counsel and any other
expenses reasonably incurred in connection with investigating and defending any
such claim, loss, damage, liability or action, provided that the Company will
not be liable in any such case to a Purchaser to the extent that any such claim,
loss, damage, liability or expense arises out of or is based on (i) any untrue
statement or omission based upon written information furnished to the Company by
such Purchaser or underwriter (if any) therefor and stated to be specifically
for use therein, (ii) any failure by any Purchaser to comply with prospectus
delivery requirements of the Securities Act (other than a failure resulting from
an act or omission on the part of the Company) or any other law or legal
requirement applicable to them or any covenant or agreement contained in the
Purchase Agreement or this Agreement or (iii) an offer or sale of Registrable
Securities or Demand Registrable Securities occurring during a period in which
sales under a Registration Statement are suspended as permitted by this
Agreement; provided that notice
has been properly provided to the Purchaser.  The indemnity agreement
contained in this Section 6(a) shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Company (which consent will not be unreasonably
withheld).

     

    (b) Purchaser
Indemnity.  Each Purchaser will, if Registrable Securities or
Demand Registrable Securities held by it are included in the securities as to
which such registration, qualification or compliance is being effected,
indemnify the Company, each of its directors, officers, agents and partners, and
any other stockholders selling securities pursuant to the Registration Statement
and any of its directors, officers, agents, partners, and any person who
controls such stockholders within the meaning of the Securities Act or Exchange
Act and each underwriter, if any, of the Company’s securities covered by such a
Registration Statement, each person who controls the Company or such underwriter
within the meaning of Section 15 of the Securities Act and the rules and
regulations thereunder, each other Purchaser (if any), and each of their
officers, directors and partners, and each person controlling such other
Purchaser(s) against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on (i) any untrue statement (or alleged
untrue statement) of a material fact contained in any such, Time of Sale
Information, final prospectus (as amended or supplemented if the Company files
any amendment or supplement thereto with the SEC), Registration Statement filed
pursuant to this Agreement or any post-effective amendment thereof or based on
any omission (or alleged omission) to state therein a material fact required to
be stated therein or necessary to make the statement therein not misleading in
light of the circumstances under which they were made or (ii) failure by such
Purchaser to comply with prospectus delivery requirements of the Securities Act
(other than a failure resulting from an act or omission on the part of the
Company or any other law or legal requirement applicable to them or any covenant
or agreement contained in the Purchase Agreement or this Agreement, and will
reimburse the Company and such other Purchaser(s) and their directors, officers
and partners, underwriters or control persons for any reasonable legal fees or
any other expenses reasonably incurred in connection with investigating and
defending any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such Time of Sale
Information, final prospectus (as amended or supplemented if the Company files
any amendment or supplement thereto with the SEC), Registration Statement filed
pursuant to this Agreement or any post-effective amendment thereof  in
reliance upon and in conformity with written information furnished to the
Company by such Purchaser and stated to be specifically for use therein, and
provided that the maximum amount for which such Purchaser shall be liable under
this indemnity shall not exceed the net proceeds received by such Purchaser from
the sale of the Registrable Securities or Demand Registrable Securities, as the
case may be, pursuant to the registration statement in question.  The
indemnity agreement contained in this Section 6(b) shall not apply to amounts
paid in settlement of any such claims, losses, damages or liabilities if such
settlement is effected without the consent of such Purchaser (which consent
shall not be unreasonably withheld).

     

    
      
        
        

      

      
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    (c) Procedure.  Each
party entitled to indemnification under this Section 6 (the “Indemnified Party”)
shall give notice to the party required to provide indemnification (the “Indemnifying Party”)
promptly after such Indemnified Party has actual knowledge of any claim as to
which indemnity may be sought, and shall permit the Indemnifying Party to assume
the defense of any such claim in any litigation resulting therefrom, provided
that counsel for the Indemnifying Party, who shall conduct the defense of such
claim or any litigation resulting therefrom, shall be approved by the
Indemnified Party (whose approval shall not be unreasonably withheld), and the
Indemnified Party may participate in such defense at its own expense, and
provided further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 6 except to the extent that the Indemnifying Party is
materially and adversely affected by such failure to provide
notice.  No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.  Each Indemnified Party shall furnish such non-privileged
information regarding itself or the claim in question as an Indemnifying Party
may reasonably request in writing and as shall be reasonably required in
connection with the defense of such claim and litigation resulting
therefrom.

     

    7. Contribution.  If
the indemnification provided for in Section 6 herein is unavailable to the
Indemnified Parties in respect of any losses, claims, damages or liabilities
referred to herein (other than by reason of the exceptions provided therein),
then each such Indemnifying Party, in lieu of indemnifying such Indemnified
Party, shall contribute to the amount paid or payable by such Indemnified Party
as a result of such losses, claims, damages or liabilities as between the
Company on the one hand and any Purchaser(s) on the other, in such proportion as
is appropriate to reflect the relative fault of the Company and of such
Purchaser(s) in connection with the statements or omissions which resulted in
such losses, claims, damages or liabilities, as well as any other relevant
equitable considerations.  The relative fault of the Company on the
one hand and of any Purchaser(s) on the other shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the Company or by such Purchaser(s).

     

    In no
event shall the obligation of any Indemnifying Party to contribute under this
Section 7 exceed the amount that such Indemnifying Party would have been
obligated to pay by way of indemnification if the indemnification provided for
under Section 6(a) or 6(b) hereof had been available under the
circumstances.

     

    The
Company and the Purchasers agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata allocation
(even if the Purchasers were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding
paragraphs.  The amount paid or payable by an Indemnified Party as a
result of the losses, claims, damages and liabilities referred to in the
immediately preceding paragraphs shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such Indemnified Party in connection with investigating or defending any such
action or claim.  Notwithstanding the provisions of this Section, no
Purchaser shall be required to contribute any amount in excess of the amount by
which in the case of any Purchaser, the net proceeds received by such Purchaser
from the sale of Registrable Securities pursuant to the registration statement
in question.  No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.

     

    8. Survival.  The
indemnity and contribution agreements contained in Sections 6 and 7 shall remain
operative and in full force and effect regardless of (i) any termination of
this Agreement or the Purchase Agreement and (ii) the consummation of the
sale or successive resales of the Registrable Securities.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    9. Information by
Purchasers.  As a condition to the obligations of the Company
to complete any registration pursuant to this Agreement with respect to the
Registrable Securities of each Purchaser, such Purchaser will furnish to the
Company such information regarding itself, the Registrable Securities held by it
and the intended methods of disposition of the Registrable Securities held by it
as is reasonably required by the Company to effect the registration of the
Registrable Securities. At least five business days prior to the first
anticipated filing date of a Registration Statement for any registration under
this Agreement, the Company will notify each Purchaser of the information the
Company requires from that Purchaser whether or not such Purchaser has elected
to have any of its Registrable Securities included in the Registration
Statement. If the Company has not received the requested information from a
Purchaser by the business day prior to the anticipated filing date, then the
Company may file the Registration Statement without including Registrable
Securities of that Purchaser.

     

    10. Further Assurances.
Each Purchaser will cooperate with the Company, as reasonably requested by the
Company, in connection with the preparation and filing of any Registration
Statement hereunder, unless such Purchaser has notified the Company in writing
of such Purchaser’s irrevocable election to exclude all of such Purchaser’s
Registrable Securities from such Registration Statement.

     

    11. Suspension of Sales.
Upon receipt of any notice from the Company under Section 2(a)(v) or 2(b), each
Purchaser will immediately discontinue disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities
until (i) it receives copies of a supplemented or amended prospectus
contemplated by Sections 2(a)(v) or (ii) the Company advises the Purchaser that
a suspension of sales under Section 2(b) has terminated. If so directed by the
Company, each Purchaser will deliver to the Company (at the expense of the
Company) or destroy all copies in the Purchaser’ s possession (other than a
limited number of file copies) of the prospectus covering such Registrable
Securities that is current at the time of receipt of such notice.

     

    12. Replacement
Certificates.  The certificate(s) representing the Registrable
Securities held by the Purchaser may be exchanged by the Purchaser at any time
and from time to time for certificates with different denominations representing
an equal aggregate number of Registrable Securities of the same tenor, as
reasonably requested by such Purchaser upon surrendering the same.  No
service charge will be made for such registration or transfer or
exchange.  Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of certificates
evidencing any Registrable Securities, and, in the case of loss, theft or
destruction, of indemnity reasonably satisfactory to it, or upon surrender and
cancellation of such certificate if mutilated, the Company will make and deliver
a new certificate of like tenor and dated as of such cancellation at no charge
to the Purchaser.

     

    13. Transfer or
Assignment.  Except as otherwise provided herein, this
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns.  The rights granted to the
Purchaser by the Company under this Agreement to cause the Company to register
Registrable Securities may be transferred or assigned (in whole or in part) to a
transferee or assignee of the Shares, Warrant or Registrable Securities, and all
other rights granted to the Purchaser by the Company hereunder may be
transferred or assigned to any transferee or assignee of the Shares, Warrant or
Registrable Securities; provided in each case that (i) the Company is given
written notice by the Purchaser at the time of or within a reasonable time after
such transfer or assignment, stating the name and address of said transferee or
assignee and identifying the securities with respect to which such registration
rights are being transferred or assigned; and provided further that the
transferee or assignee of such rights agrees in writing to be bound by the
registration provisions of this Agreement, (ii) such transfer or assignment is
not made under the Registration Statement or Rule 144, (iii) such transfer is
made according to the applicable requirements of the Purchase Agreement, and
(iv) the transferee has provided to the Company an investor questionnaire (or
equivalent document) evidencing that the transferee is a “qualified
institutional buyer” as defined in Rule 144A under the Securities Act or an
“accredited investor” as defined in Rule 501(a)(1),(2),(3), or (7) of Regulation
D.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    14. Miscellaneous.

     

    (a) Remedies.  The
Company and the Purchasers acknowledge and agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise
breached.  It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent or cure breaches of the provisions of
this Agreement and to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which any of them may be entitled by
law or equity.

     

    (b) Jurisdiction.  The
Company and each Purchaser (i) hereby irrevocably submits to the exclusive
jurisdiction of the United States District Court, the California state courts
and other courts of the United States sitting in Los Angeles County, California
for the purposes of any suit, action or proceeding arising out of or relating to
this Agreement and (ii) hereby waives, and agrees not to assert in any such suit
action or proceeding, any claim that it is not personally subject to the
jurisdiction of such court, that the suit, action or proceeding is brought in an
inconvenient forum or that the venue of the suit, action or proceeding is
improper.  The Company and the Purchaser consent to process being
served in any such suit, action or proceeding by mailing a copy thereof 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 in this paragraph shall affect or limit any
right to serve process in any other manner permitted by law.

     

    (c) Notices.  Any
notice or other communication required or permitted to be given hereunder shall
be in writing by facsimile, mail or personal delivery and shall be effective
upon actual receipt of such notice.  The addresses for such
communications shall be:

     

    to the
Company:

     

    Clean
Power Technologies, Inc.

    436-35th Avenue,
N.W.

    Calgary,
Alberta

    Canada
T2K OC1

    Facsimile:
(403) 277-3117

    Attention:
Abdul Mitha

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    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
Purchasers:

     

                   
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

     

    Any party
hereto may from time to time change its address for notices by giving at least
five days’ written notice of such changed address to the other parties
hereto.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    (d) Waivers.  No
waiver by any party 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 other provision, condition or requirement hereof, nor
shall any delay or omission of any party to exercise any right hereunder in any
manner impair the exercise of any such right accruing to it
thereafter.  The representations and warranties and the agreements and
covenants of the Company and each Purchaser contained herein shall survive the
Closing.

     

    (e) Execution in
Counterpart.  This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement, it
being understood that all parties need not sign the same
counterpart.

     

    (f) Signatures.  Facsimile
signatures shall be valid and binding on each party submitting the
same.

     

    (g) Entire Agreement;
Amendment.  This Agreement, together with the Purchase
Agreement, the Shares, the Warrants, and the agreements and documents
contemplated hereby and thereby, contains the entire understanding and agreement
of the parties, and may not be amended, modified or terminated except by a
written agreement signed by the Company and the Purchaser.

     

    (h) Governing
Law.  This Agreement and the validity and performance of the
terms hereof shall be governed by and construed in accordance with the laws of
the State of California applicable to contracts executed and to be performed
entirely within such state, except to the extent that the law of the State of
Nevada regulates the Company’s issuance of securities.

     

    (i) Jury
Trial.  EACH PARTY HERETO WAIVES THE RIGHT TO A TRIAL BY
JURY.

     

    (j) Titles.  The
titles used in this Agreement are used for convenience only and are not to be
considered in construing or interpreting this Agreement.

     

    (k) 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 rule of strict construction will be applied against any
party.

     

    (l) Attorneys’
Fees.  In the event any dispute arises out of this Agreement,
the prevailing party shall be entitled to receive from the other party all
costs, including attorneys’ fees, incurred in connection with such
dispute.

     

    (m) Severability.  If
any provision of this Agreement shall be held to be illegal, invalid or
unenforceable, such illegality, invalidity or unenforceability shall attach only
to such provision and shall not in any manner affect or render illegal, invalid
or unenforceable any other provision of this Agreement, and this Agreement shall
be carried out as if any such illegal, invalid or unenforceable provision were
not contained herein.

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

    

    IN WITNESS WHEREOF, the
undersigned have caused this Agreement to be executed as of the date first
written above.

    COMPANY:

     

    CLEAN
POWER TECHNOLOGIES, INC.

    

    By: /s/ Abdul
Mitha

    Name:  Abdul
Mitha

    Title:    Chief
Executive Officer

    

    

    PURCHASER:

    

    THE
QUERCUS TRUST

    

    By:
/s/ David
Gelbaum

    Name:  David
Gelbaum

    Title:    Trustee

    

    
      
         

      

      
        13ex103.htm

    
      

      

    

    

      NEITHER
THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE HAVE
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES
LAWS.

       

      COMMON
STOCK PURCHASE WARRANTS

       

      To
Purchase 1,666,667 Shares of Common Stock of

       

      CLEAN
POWER TECHNOLOGIES, INC

       

      
        
          	
                  No.
      February 2009-.60

                	 
      	
                  February
      10, 2009

                

        

      

       

      THIS
COMMON STOCK PURCHASE WARRANT (the “Warrant”) CERTIFIES that, for value
received, The Quercus Trust (the “Holder”), is entitled, upon the terms and
subject to the limitations on exercise and the conditions hereinafter set forth,
at any time on or after the date of this Warrant and on or prior to the first
anniversary of the date of this Warrant (the “Termination Date”) but not
thereafter, to subscribe for and purchase from Clean Power Technologies, Inc., a
Nevada corporation (the “Company”), up to 1,666,667 shares (the “Warrant
Shares”) of the Common Stock, par value $0.001 per share, of the Company (the
“Common Stock”).  The purchase price per share of Common Stock is
$0.60 (the “Exercise Price”).  The Exercise Price and the number of
Warrant Shares for which the Warrant is exercisable shall be subject to
adjustment as provided herein.  Capitalized terms used and not
otherwise defined herein shall have the meanings set forth in that certain Stock
Purchase Agreement (the “Stock Purchase Agreement”), between the Company and the
Purchaser thereto (the date of such Agreement, the “Closing
Date”).  This Warrant is being issued to the Purchaser, as more fully
described in the Stock Purchase Agreement.

       

      1. Title to
Warrant.  Prior to the Termination Date and subject to
compliance with applicable laws, including transfer restrictions imposed by
applicable securities laws, and Section 7 of this Warrant, this Warrant and all
rights hereunder are transferable, in whole or in part, at the office or agency
of the Company by the Holder in person or by duly authorized attorney, upon
surrender of this Warrant together with the Assignment Form annexed hereto
properly endorsed.  The transferee shall sign an investment letter in
form and substance reasonably satisfactory to the Company.

       

      2. Authorization of
Shares.  Except as provided in the Stock Purchase Agreement,
the Company covenants that all Warrant Shares which may be issued from time to
time upon the exercise of the purchase rights represented by this Warrant in
accordance with the terms of this Warrant, including the payment of the exercise
price for such Warrant Shares, will, upon exercise of the purchase rights
represented by this Warrant, be duly authorized, validly issued, fully paid and
nonassessable and free from all taxes, liens and charges in respect of the issue
thereof (other than taxes in respect of any transfer occurring contemporaneously
with such issue).

       

      
        
           

        

        
          1

          
            

          

        

        
           

        

      

      3. Exercise of
Warrant.

       

      (a) Subject
to Section 3(c), exercise of the purchase rights represented by this Warrant may
be made within one (1) year from the its issuance, at any time on or before 5
p.m., New York City time, by delivery to the Company of a duly executed Notice
of Exercise Form annexed hereto (or such other office or agency of the Company
as it may designate by notice in writing to the registered Holder at the address
of such Holder appearing on the books of the Company) and surrender of this
Warrant, together with payment of the aggregate Exercise Price of the shares
thereby purchased by wire transfer or cashier’s check drawn on a United States
bank in immediately available funds.

       

      Certificates
for Warrant Shares purchased hereunder shall be delivered to the Holder within
three (3) Trading Days from the delivery to the Company of the Notice of
Exercise Form, surrender of this Warrant and payment of the aggregate Exercise
Price as set forth above (“Warrant Share Delivery Date”).  This
Warrant shall be deemed to have been exercised on the later of the date the
Notice of Exercise is delivered to the Company and the date the Exercise Price
is received by the Company.  The Warrant Shares shall be deemed to
have been issued, and Holder or any other person so designated to be named
therein shall be deemed to have become a holder of record of such shares for all
purposes, as of the date the Warrant has been exercised by payment to the
Company of the Exercise Price and all taxes required to be paid by the Holder,
if any, pursuant to Section 5 prior to the issuance of such shares, have been
paid.  If the Company shall fail for any reason or for no reason to
issue to the Holder within three (3) Trading Days of receipt of the Notice of
Exercise, a certificate for the Warrant Shares to which the Holder is entitled
and register such Warrant Shares on the Company’s share register or to credit
the Holder’s balance account with DTC for such number of Warrant Shares or other
securities to which the Holder is entitled upon the Holder’s exercise of this
Warrant, and if on or after such Trading Day the Holder purchases (in an open
market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the Holder of the Warrant Shares or other securities
issuable upon such exercise that the Holder anticipated receiving from the
Company (a “Buy-In” ), then the Company shall, within three (3) business days
after the Holder’s request and in the Holder’s discretion, either (i) pay cash
to the Holder in an amount equal to the Holder’s total purchase price (including
brokerage commissions, if any) for the shares of Common Stock so purchased (the
“Buy-In Price” ), at which point the Company’s obligation to deliver such
certificate (and to issue such Warrant Shares) shall terminate, or (ii) promptly
honor its obligation to deliver to the Holder a certificate or certificates
representing such Warrant Shares and pay cash to the Holder in an amount equal
to the excess (if any) of the Buy-In Price over the product of (A) such number
of shares of Common Stock, times (B) the Closing Bid Price on the date of
exercise.  Nothing herein shall limit a Holder’s right to pursue any
other remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief with
respect to the Company’s failure to timely deliver certificates representing
shares of Common Stock upon exercise of the Warrant as required pursuant to the
terms hereof.

       

      (b) If this
Warrant shall have been exercised in part, the Company shall, at the time of
delivery of the certificate or certificates representing Warrant Shares, deliver
to Holder a new Warrant evidencing the rights of Holder to purchase the
unpurchased Warrant Shares called for by this Warrant, which new Warrant shall
in all other respects be identical with this Warrant.

       

      (c) In no
event shall the Holder be entitled to exercise such number of Warrants, which
when added to the sum of the number of shares of Common Stock beneficially owned
(as such term is defined under Section 13(d) and Rule 13d-3 of the 1934 Act), by
the Holder, would exceed 4.99% of the number of shares of Common Stock
outstanding on the Warrant Share Delivery Date, as determined in accordance with
Rule 13d-1(j) of the 1934 Act.

       

      
        
           

        

        
          2

          
            

          

        

        
           

        

      

      4. No Fractional Shares or
Scrip.  No fractional shares or scrip representing fractional
shares shall be issued upon the exercise of this Warrant.  As to any
fraction of a share which Holder would otherwise be entitled to purchase upon
such exercise, the Company shall pay a cash adjustment in respect of such final
fraction in an amount equal to such fraction multiplied by the Exercise
Price.

       

      5. Charges, Taxes and
Expenses.  Issuance of certificates for Warrant Shares shall be
made without charge to the Holder for any issue or transfer tax or other
incidental expense in respect of the issuance of such certificate, all of which
taxes and expenses shall be paid by the Company, and such certificates shall be
issued in the name of the Holder or in such name or names as may be directed by
the Holder; provided, however, that in the event certificates for Warrant Shares
are to be issued in a name other than the name of the Holder, this Warrant when
surrendered for exercise shall be accompanied by the Assignment Form attached
hereto duly executed by the Holder; and the Company may require, as a condition
thereto, the payment of a sum sufficient to reimburse it for any transfer tax
incidental thereto.

       

      6. Closing of
Books.  The Company will not close its stockholder books or
records in any manner which prevents the timely exercise of this Warrant,
pursuant to the terms hereof.

       

      7. Transfer, Division and
Combination.

       

      (a) Subject
to compliance with any applicable securities laws and the conditions set forth
in Sections 1 and 7(e) hereof and to the provisions of the Stock Purchase
Agreement, this Warrant and all rights hereunder are transferable, in whole or
in part, upon surrender of this Warrant at the principal office of the Company,
together with a written assignment of this Warrant substantially in the form
attached hereto duly executed by the Holder or its agent or attorney and funds
sufficient to pay any transfer taxes payable upon the making of such
transfer.  Upon such surrender and, if required, such payment, the
Company shall execute and deliver a new Warrant or Warrants in the name of the
assignee or assignees and in the denomination or denominations specified in such
instrument of assignment, and shall issue to the assignor a new Warrant
evidencing the portion of this Warrant not so assigned, and this Warrant shall
promptly be cancelled.  A Warrant, if properly assigned, may be
exercised by a new holder for the purchase of Warrant Shares without having a
new Warrant issued.  Notwithstanding the foregoing, the Holder will
not voluntarily and knowingly assign or transfer this Warrant or the Warrant
Shares to any direct competitor of the Company without the Company’s prior
written consent.

       

      (b) This
Warrant may be divided or combined with other Warrants upon presentation hereof
at the aforesaid office of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by the Holder or its agent or attorney.  Subject to compliance
with Section 7(a), as to any transfer which may be involved in such division or
combination, the Company shall execute and deliver a new Warrant or Warrants in
exchange for the Warrant or Warrants to be divided or combined in accordance
with such notice.

       

      (c) The
Company shall prepare, issue and deliver at its own expense (other than transfer
taxes) the new Warrant or Warrants under this Section 7.

       

      (d) The
Company agrees to maintain, at its aforesaid office, books for the registration
and the registration of transfer of the Warrants.

       

      (e) The
Company may require, as a condition of allowing such transfer (i) that the
Holder or transferee of this Warrant, as the case may be, furnish to the Company
a written opinion of counsel reasonably acceptable to the Company (which opinion
shall be in form, substance and scope customary for opinions of counsel in
comparable transactions) to the effect that such transfer may be made without
registration under the Securities Act and under applicable state securities or
blue sky laws, (ii) that the holder or transferee execute and deliver to
the Company an investment letter in form and substance acceptable to the Company
and (iii) that the transferee be an “accredited investor” as defined in Rule
501(a) promulgated under the Securities Act or a qualified institutional buyer
as defined in Rule 144A(a) under the Securities Act.

       

      
        
           

        

        
          3

          
            

          

        

        
           

        

      

       

      8. No Rights as Shareholder
until Exercise.  This Warrant does not entitle the Holder to
any voting rights or other rights as a shareholder of the Company prior to the
exercise hereof.  Upon the surrender of this Warrant and the payment
of the aggregate Exercise Price, the Warrant Shares so purchased shall be and be
deemed to be issued to such Holder as the record owner of such shares as of the
close of business on the later of the date of such surrender or
payment.

       

      9. Loss, Theft, Destruction or
Mutilation of Warrant.  The Company covenants that upon receipt
by the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant or any stock certificate relating to
the Warrant Shares, and in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it (which, in the case of the Warrant, shall
not include the posting of any bond), and upon surrender and cancellation of
such Warrant or stock certificate, if mutilated, the Company will make and
deliver a new Warrant or stock certificate of like tenor and dated as of such
cancellation, in lieu of such Warrant or stock certificate.

       

      10. Saturdays, Sundays,
Holidays, etc.  If the last or appointed day for the taking of
any action or the expiration of any right required or granted herein shall be a
Saturday, Sunday or a legal holiday, then such action may be taken or such right
may be exercised on the next succeeding day not a Saturday, Sunday or legal
holiday.

       

      11. Adjustments of Exercise
Price and Number of Warrant Shares.  The number and kind of
securities purchasable upon the exercise of this Warrant and the Exercise Price
shall be subject to adjustment from time to time upon the happening of any of
the following:

       

                  (a) In the
event that of a merger, recapitalization and such other event affecting the
capitalization of the Company;

       

              (b)           In
the event of a stock dividend, split or other similar transaction;
or

       

              (c)           In
the event that the Company issues additional securities (other than (i) shares
of Common Stock which are issued as a result of a conversion of the Debentures
issued pursuant to the July 2008 Offering; (ii) shares of Common Stock which are
issued as a result of the exercise of the Class A Warrants
and/or  Class B Warrants issued pursuant to the July 2008 Offering; or
(iii) shares of Common Stock or options to purchase such shares issued to
employees, consultants, officers or directors in accordance with stock plans or
stock options plans approved by the Company’s board of directors and existing on
the date hereof; and (iv) shares of Common Stock issuable under employment,
consulting agreements or loan agreements that are outstanding as of the date
hereof.)

       

      in which
case, the Exercise Price shall be adjusted (but only if such adjustment results
in a lower exercise price) to an amount equal to the amount received or deemed
to be received by the Company for one share of Common Stock, multiplied by a
fraction, the numerator of which is $0.60 and the denominator of which is the
purchase price per share paid by the Purchaser for the Common Stock related to
such Warrants; provided however, that the Exercise Price for the Warrants shall
not be adjusted to less than $0.45 per share.

       

      
        
           

        

        
          4

          
            

          

        

        
           

        

      

          12. Reorganization,
Reclassification, Merger, Consolidation or Disposition of
Assets.  In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Common Stock of the Company),
or sell, transfer or otherwise dispose of its property, assets or business to
another corporation and, pursuant to the terms of such reorganization,
reclassification, merger, consolidation or disposition of assets, shares of
common stock of the successor or acquiring corporation, or any cash, shares of
stock or other securities or property of any nature whatsoever (including
warrants or other subscription or purchase rights) in addition to or in lieu of
common stock of the successor or acquiring corporation (“Other Property”), are
to be received by or distributed to the holders of Common Stock of the Company,
then, from and after the consummation of such transaction or event, the Holder
shall have the right thereafter to receive, instead of the Warrant Shares, at
the option of the Holder, (a) upon exercise of this Warrant, the number of
shares of Common Stock of the successor or acquiring corporation or of the
Company, if it is the surviving corporation, and Other Property receivable upon
or as a result of such reorganization, reclassification, merger, consolidation
or disposition of assets by a Holder of the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to such event or (b) if the
Company is acquired in an all cash transaction, cash equal to the value of this
Warrant as determined in accordance with the Black-Scholes option pricing
formula.  For purposes of this Section 12, “common stock of the
successor or acquiring corporation” shall include stock of such corporation of
any class which is not preferred as to dividends or assets over any other class
of stock of such corporation and which is not subject to redemption and shall
also include any evidences of indebtedness, shares of stock or other securities
which are convertible into or exchangeable for any such stock, either
immediately or upon the arrival of a specified date or the happening of a
specified event and any warrants or other rights to subscribe for or purchase
any such stock.  The foregoing provisions of this Section 12 shall
similarly apply to successive reorganizations, reclassifications, mergers,
consolidations or disposition of assets.

       

      13. Notice of
Adjustment.  Whenever the number of Warrant Shares or number or
kind of securities or other property purchasable upon the exercise of this
Warrant or the Exercise Price is adjusted, as herein provided, the Company shall
give notice thereof to the Holder, which notice shall state the number of
Warrant Shares (and other securities or property) purchasable upon the exercise
of this Warrant and the Exercise Price of such Warrant Shares (and other
securities or property) after such adjustment, setting forth a brief statement
of the facts requiring such adjustment and setting forth the computation by
which such adjustment was made.

       

      14. Other
Adjustments.  If any event occurs of the type contemplated by
the provisions of Sections 11 or 12 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company’s Board of Directors will make an appropriate adjustment in the Exercise
Price and/or the number of shares of Common Stock and other securities or
property to be issued to the Holder upon exercise of the Warrant so as to
protect the rights of the Holder; provided that no such adjustment pursuant to
Sections 11 or 12 will increase the Exercise Price or decrease the number or
amount of securities or other property issuable or deliverable to the Holder as
otherwise determined pursuant to Sections 11 and/or 12.

       

      15. Notice of Corporate
Action.  If at any time:

       

      (a) the
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive a dividend or other distribution, or

       

      
        
           

        

        
          5

          
            

          

        

        
           

        

      

      (b) there
shall be any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any consolidation or
merger of the Company with, or any sale, transfer or other disposition of all or
substantially all the property, assets or business of the Company to, another
corporation or,

       

      (c) there
shall be a voluntary or involuntary dissolution, liquidation or winding up of
the Company; then, in any one or more of such cases, the Company shall give to
Holder (i) prior written notice of the date on which a record date shall be
selected for such dividend or distribution or for determining rights to vote in
respect of any such reorganization, reclassification, merger, consolidation,
sale, transfer, disposition, liquidation or winding up, and (ii) in the case of
any such reorganization, reclassification, merger, consolidation, sale,
transfer, disposition, dissolution, liquidation or winding up, prior written
notice of the date when the same shall take place.  Such notice in
accordance with the foregoing clause also shall specify (i) the date on which
the holders of Common Stock shall be entitled to any such dividend or
distribution, and the amount and character thereof, and (ii) the date on which
any such reorganization, reclassification, merger, consolidation, sale,
transfer, disposition, dissolution, liquidation or winding up is to take place
and the time, if any such time is to be fixed, as of which the holders of Common
Stock shall be entitled to exchange their Warrant Shares for securities or other
property deliverable upon such disposition, dissolution, liquidation or winding
up.  Each such written notice shall be sufficiently given if addressed
to Holder at the last address of Holder appearing on the books of the Company
and delivered in accordance with Section 16(d).

       

      16. Authorized
Shares.  Except as provided in the Stock Purchase Agreement,
the Company covenants that during the period the Warrant is outstanding, it will
take all reasonable action to ensure that the Company is authorized to issue a
sufficient number of shares to provide for the issuance of the Warrant Shares
upon the exercise of any purchase rights under this Warrant.  The
Company shall also reserve from its authorized and unissued Common Stock a
sufficient number of shares to provide for the issuance of the Warrant Shares
upon the exercise of any purchase rights under this Warrant.  The
Company further covenants that its issuance of this Warrant shall constitute
full authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this
Warrant.  The Company will take all such reasonable action as may be
necessary to assure that such Warrant Shares may be issued as provided herein
without violation of any applicable law or regulation, or of any requirements of
the Trading Market upon which the Common Stock may be listed.

       

      Except
and to the extent as waived or consented to by the Holder, the Company shall not
by any action, including, without limitation, amending its certificate of
incorporation or bylaws or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such actions as may be
necessary or appropriate to protect the rights of Holder as set forth in this
Warrant against impairment.  Without limiting the generality of the
foregoing, the Company will (a) not increase the par value of any Warrant Shares
above the amount payable therefore upon such exercise immediately prior to such
increase in par value, (b) take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable Warrant Shares upon the exercise of this Warrant, and (c) use
commercially reasonable efforts to obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be
necessary to enable the Company to perform its obligations under this
Warrant.

       

      
        
           

        

        
          6

          
            

          

        

        
           

        

      

       

      Before
taking any action which would result in an adjustment in the number of Warrant
Shares for which this Warrant is exercisable or in the Exercise Price, the
Company shall obtain all such authorizations or exemptions thereof, or consents
thereto, as may be necessary from any public regulatory body or bodies having
jurisdiction thereof.

       

      17. Miscellaneous.

       

      (a) Jurisdiction.  All
questions concerning the construction, validity, enforcement and interpretation
of this Warrant shall be determined in accordance with the provisions of the
Stock Purchase Agreement relating to the same.

       

      (b) Restrictions.  The
Holder acknowledges that the Warrant Shares acquired upon the exercise of this
Warrant, if not registered for resale, will have restrictions upon resale
imposed by state and federal securities laws.

       

      (c) Nonwaiver and
Expenses.  No course of dealing or any delay or failure to
exercise any right hereunder on the part of Holder shall operate as a waiver of
such right or otherwise prejudice Holder’s rights, powers or remedies,
notwithstanding all rights hereunder terminate on the Termination
Date.  If the Company willfully and knowingly fails to comply with any
provision of this Warrant, which results in any material damages to the Holder,
the Company shall pay to Holder such amounts as shall be sufficient to cover any
costs and expenses including, but not limited to, reasonable attorneys’ fees,
including those of appellate proceedings, incurred by Holder in collecting any
amounts due pursuant hereto or in otherwise enforcing any of its rights, powers
or remedies hereunder.

       

      (d) Notices.  Any
notice, request or other document required or permitted to be given or delivered
to the Holder by the Company shall be delivered in accordance with the notice
provisions of the Stock Purchase Agreement.

       

      (e) Limitation of
Liability.  No provision hereof, in the absence of any
affirmative action by Holder to exercise this Warrant or purchase Warrant
Shares, and no enumeration herein of the rights or privileges of Holder, shall
give rise to any liability of Holder for the purchase price of any Common Stock
or as a stockholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.

       

      (f) Successors and
Assigns.  Subject to applicable securities laws, this Warrant
and the rights and obligations evidenced hereby shall inure to the benefit of
and be binding upon the successors of the Company and the successors and
permitted assigns of Holder.  The provisions of this Warrant are
intended to be for the benefit of all Holders from time to time of this Warrant
and shall be enforceable by any such Holder or holder of Warrant
Shares.

       

      (g) Amendment.  This
Warrant may be modified or amended or the provisions hereof waived with the
written consent of the Company and the Holder.

       

      (h) Severability.  Wherever
possible, each provision of this Warrant shall be interpreted in such manner as
to be effective and valid under applicable law, but if any provision of this
Warrant shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining provisions of
this Warrant.

       

      
        
           

        

        
          7

          
            

          

        

        
           

        

      

      (i) Headings.  The
headings used in this Warrant are for the convenience of reference only and
shall not, for any purpose, be deemed a part of this Warrant.

       

      (j) Disputes.  In
the case of a dispute as to the determination of the Exercise Price or the
arithmetic calculation of the securities or other property, the Company shall
promptly issue and deliver to the Holder the securities or other property that
are not disputed.

       

      (k) Remedies.  The
Holder, in addition to being entitled to exercise all rights granted by law,
including recovery of damages, will be entitled to specific performance of its
rights under Section 3 of this Warrant.  The Company agrees that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach by it of the provisions of Section 3 of this Warrant and
hereby agrees to waive the defense in any action for specific performance that a
remedy at law would be adequate.

       

      IN
WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
officer thereunto duly authorized.

       

      Dated:
February 10, 2009

       

      CLEAN
POWER TECHNOLOGIES, INC.

       

      By: /s/ Abdul
Mitha

      Name:
Abdul Mitha

      Title:  Chief
Executive Officer

       

      
        
           

        

        
          8

          
            

          

        

        
           

        

      

      NOTICE
OF EXERCISE

       

      To:           Clean
Power Technologies, Inc.

       

      (1)           The
undersigned hereby elects to purchase ________ Warrant Shares of the Company
pursuant to the terms of the attached Warrant (only if exercised in full), and
tenders herewith payment of the exercise price in full, together with all
applicable transfer taxes, if any.

       

      (2)           Payment
shall be made by wire transfer or cashier’s check drawn on a United States bank
in immediately available funds.

       

      (3)           Please
issue a certificate or certificates representing said Warrant Shares in the name
of the undersigned or in such other name as is specified below:

       

      ________________________________________

       

      

       

      The
Warrant Shares shall be delivered to the following:

       

      ________________________________________

       

      ________________________________________

       

      ________________________________________

       

      ________________________________________

       

      ________________________________________

       

      ________________________________________

       

      ________________________________________

       

      (4)           Accredited
Investor.  The undersigned is an “accredited investor” as
defined in Regulation D under the Securities Act of 1933, as
amended.

       

      THE
QUERCUS TRUST

      

      

      

      By:
___________________________

      Name:

      Title:

      

      Dated:
________________________

      
        
           

        

        
          9

          
            

          

        

        
           

        

      

      

        ASSIGNMENT
FORM

         

        

         

        
          	
                  (To
      assign the foregoing warrant, execute this form and supply required
      information.  Do not use this form to exercise the
      warrant.)

                

        

        

        
          	
                  FOR
      VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are
      hereby assigned to

                
	 
      	
                  whose
      address is

                	 
      
	 
      	 
      	 
      

        

        

        
          	
                  Dated:

                	 
      	 
      

        

        

        
          	
                  Holder’s
      Signature

                	 
      	 
      
	
                  Holder’s
      Address:

                	 
      	 
      
	 
      	 
      	 
      
	
                  Signature
      Guaranteed:

                	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      

        

        

        NOTE: The
signature to this Assignment Form must correspond with the name as it appears on
the face of the Warrant, without alteration or enlargement or any change
whatsoever, and must be guaranteed by a bank or trust
company.  Officers of corporations and those acting in a fiduciary or
other representative capacity should file proper evidence of authority to assign
the foregoing.

      
        
           

        

        
          10

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