Document:

ex101.htm

SECURITIES PURCHASE AGREEMENT

 

SECURITIES PURCHASE AGREEMENT (“Agreement”) dated as of June 8, 2010 between Clean Power Technologies, Inc. a Nevada corporation (the “Company”), and The Quercus Trust (“Purchaser”).  Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Note.

 

W I T N E S S E T H

 

WHEREAS, the Company desires to sell and issue to the Purchaser, and the Purchaser desires to purchase from the Company a 10% Senior Secured Convertible Promissory Note in the principal amount of One Million United States Dollars ($1,000,000) in substantially the form of Exhibit A attached hereto (the “Note”); and

 

WHEREAS, in consideration of  the purchase of the Note the Company desires to re-price the outstanding warrants currently held by Purchaser to purchase shares of the Company’s common stock par value $0.001 (the “Common Shares”) and the debt currently held by Purchaser on the terms and conditions set forth herein.

 

NOW, THEREFORE, in consideration of the foregoing premises and the covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

ARTICLE I

 

Purchase and Sale of Securities

 

Section 1.1 Issuance of Securities.  Upon the following terms and conditions, the Company shall issue and sell to the Purchaser, and the Purchaser shall purchase from the Company, the Note.

 

Section 1.2 Purchase Price; Advances.  The purchase price for the Note shall be One Million United States Dollars ($1,000,000) to be paid as follows: Purchaser shall tender to Company for cancellation notes for an aggregate principal amount of $500,000 representing bridge financing provided by Purchaser to Company on May 21, 2010 ($200,000) and June 2, 2010 ($300,000), and shall deliver to Purchaser $125,000 on the 15th day of July, August, September and October, 2010; provided, however, that in the event of Qualified Offering (as defined below), Purchaser shall not have the obligation or be entitled to make further investments. A Qualified Offering shall mean the next offering of equity securities (including securities exercisable for or convertible into equity securities but not including the conversion of the Note or that certain note issued to Purchaser on July 10, 2008), which unless such minimum amount is waived by Purchaser, shall result in cumulative gross proceeds to the Company from the sale of the equity securities by the Company after the date hereof of at least GBP 3,000,000.

 

Section 1.3 Reduction of Exercise Price of Outstanding Warrants and Amendment of Note.  The exercise price of all outstanding warrants and convertible notes held by Purchaser as of the date hereof shall be reduced to $0.15 per share, subject to further adjustment in accordance

 

  

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 with the terms of the warrants, and the expiration date of each warrant shall be extended to May 21, 2017.  In addition, the Senior Secured Convertible Promissory Note in the amount of $2,000,000 issued to The Quercus Trust on July 10, 2008, shall be amended to read substantially as set forth on Exhibit B attached hereto (the “Amended and Restated 2008 Note”).

 

Section 1.4 The Closing.  Subject to the fulfillment or waiver of the conditions set forth in Article V hereof, the purchase and sale of the Note and the re-pricing of the warrants and notes currently held by Purchaser shall take place on or about the date hereof or such other date as the Purchaser and the Company may agree upon (the “Closing Date).  On the Closing Date, the Company shall deliver to the Purchaser the Note purchased hereunder, registered in the name of Purchaser or its nominee.  On or prior to the Closing Date the Purchaser shall deliver the initial investment amount by wire transfer of immediately available funds:

 

Wire transfers shall be made as follows:

 

Gersten Savage LLP

600 Lexington Avenue

New York, NY 10022

Signature Bank

565 Fifth Avenue

New York, NY 10017

ABA # 026013576

Account # 1501343273

 

In addition, each party shall deliver all documents, instruments and writings required to be delivered by such party pursuant to this Agreement at or prior to the Closing.

 

ARTICLE II

 

Representations and Warranties

 

Section 1.1 Representations and Warranties of the Company.  The Company hereby makes the following representations and warranties to the Purchaser as of the date hereof:

 

(a) Organization and Qualification; Material Adverse Effect.  The Company is a corporation duly incorporated and existing in good standing under the laws of the State of Nevada and has the requisite corporate power to own its properties and to carry on its business as now being conducted.  The Company does not have any subsidiaries other than the subsidiaries listed on Schedule 2.1(a) attached hereto (“Subsidiaries”).  Except where specifically indicated to the contrary, all references in this Agreement to subsidiaries shall be deemed to refer to all direct and indirect subsidiaries of the Company.  Each Subsidiary has been duly incorporated and is in good standing under the laws of its jurisdiction of incorporation.  The Company and each Subsidiary is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary other than those in which the failure so to qualify would not have a Material Adverse Effect.  “Material Adverse Effect” means any adverse effect on the business, operations, properties, prospects or financial condition of the Company and its subsidiaries, and

 

  

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which is (either alone or together with all other adverse effects) material to the Company and its Subsidiaries, if any, taken as a whole, and any material adverse effect on the transactions contemplated under the Note or this Agreement (the “Transaction Documents”).

 

(b) Authorization; Enforcement.  (i)  The Company has all requisite corporate power and authority to enter into and perform its obligations under the Transaction Documents and to issue the Note in accordance with the terms hereof, (ii) the execution and delivery of the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby, including the issuance of the Note and the re-pricing of the securities currently held by Purchaser, have been duly authorized by all necessary corporate action, and no further consent or authorization of the Company or its Board of Directors (or any committee or subcommittee thereof) or stockholders is required, (iii) the Transaction Documents have been duly executed and delivered by the Company, (iv) the Transaction Documents constitute valid and binding obligations of the Company enforceable against the Company, except (A) as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of creditors’ rights and remedies or by other equitable principles of general application, and (B) to the extent the indemnification provisions contained in this Agreement may be limited by applicable federal or state securities laws and (v) the Note and the Common Shares issuable upon conversion of the Note, have been duly authorized and, upon issuance thereof and payment therefor in accordance with the terms of this Agreement, will be validly issued, fully paid and non-assessable, free and clear of any and all liens, claims and encumbrances.

 

(c) Capitalization.  As of the date hereof, the authorized capital stock of the Company consists of 350,000,000 shares of Common Stock, of which as of the date hereof, 79,440,942 shares are issued and outstanding, 200,000,000 shares of preferred stock consisting of 100,000,000 shares of Class A Preferred Stock and 100,000,000 shares of Class B Preferred Stock, of which as of the date hereof, no shares of preferred stock are issued and outstanding and 2,500,000 shares are issuable and reserved for issuance pursuant to the Company’s stock option plans and certain outstanding contracts, or securities exercisable or exchangeable for, or convertible into, Common Shares.  All of such outstanding shares have been, or upon issuance will be, validly issued, fully paid and nonassessable.  As of the date hereof, except as disclosed in Schedule 2.1(c), (i) no shares of the Company’s capital stock are subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company, (ii) there are no outstanding debt securities, and (iii) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its Subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its Subsidiaries.

 

(d) Issuance and Ownership of Securities.  Upon issuance in accordance with this Agreement and the terms of the Notes and any Common Shares issued upon conversion of the Note will be validly issued, fully paid and nonassessable and free from all taxes, liens and

  

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 charges with respect to the issue thereof.  The Company owns all outstanding shares of the Subsidiaries, free and clear of any liens and other encumbrances

 

(e) No Conflicts.  Except as disclosed in Schedule 2.1(e), the execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby and issuance of the Note, and the Common Shares underlying the Note will not (i) result in a violation of its Certificate of Incorporation, any certificate of designations, preferences and rights of any outstanding series of preferred stock of the Company or its By-laws; (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party, or (iii) to the Company’s knowledge result in a violation of any law, rule, regulation, order, judgment or decree (including United States federal and state securities laws and regulations and the rules and regulations of the OTC Bulletin Board (“Principal Market”) or other principal securities exchange or trading market on which the Common Shares are traded or listed) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected, except in the case of clause (ii), such conflicts that would not have a Material Adverse Effect.

 

(f) SEC Documents.  Since the filing of its Annual Report on Form 10-K  for the fiscal year ended August 31, 2009, the Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “1934 Act”) (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein being hereinafter referred to as the “SEC Documents”).  To the Company’s knowledge, as of their respective dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents. Since the date of the respective filings, the Company has not incurred any liabilities except in the ordinary course of business or as reflected in the SEC Documents.

 

(g) Absence of Litigation.  There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company or any of its Subsidiaries, threatened against or affecting the Company, the Common Shares or any of the Company’s Subsidiaries or any of the Company’s or the Company’s Subsidiaries’ officers or directors in their capacities as such, except as set forth in SEC Documents which were filed at least 10 days before the date hereof.

 

(h) No Integrated Offering.  Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to the Purchaser to be integrated with prior offerings by the Company for purposes of the Securities Act of 1933, as amended (“1933 Act” or “Securities Act”) or any applicable stockholder approval provisions, including, without limitation, under the rules and regulations of the Principal Market or other Approved Market, nor will the Company or any of

 

  

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its Subsidiaries take any action or steps that would cause the offering of the Securities to be integrated with other offerings.

 

(i) Employee Relations.  Neither the Company nor any of its Subsidiaries is involved in any labor dispute nor, to the knowledge of the Company or any of its Subsidiaries, is any such dispute threatened, the effect of which would be reasonably likely to result in a Material Adverse Effect.  Neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement.

 

(j) Intellectual Property Rights.  The Company and its Subsidiaries own or possess adequate rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and rights necessary to conduct their respective businesses as now conducted.  The Company and its Subsidiaries do not have any knowledge of any infringement by the Company or its Subsidiaries of trademark, trade name rights, patents, patent rights, copyrights, inventions, licenses, service names, service marks, service mark registrations, trade secret or other similar rights of others, or of any such development of similar or identical trade secrets or technical information by others and there is no claim, action or proceeding being made or brought against, or to the Company’s knowledge, being threatened against, the Company or its Subsidiaries regarding trademarks, trade name rights, patents, patent rights, inventions, copyrights, licenses, service names, service marks, service mark registrations, trade secrets or other infringement.  The Company has no knowledge of any pending or threatened infringement of its intellectual property rights.

 

(k) Compliance with Law.  The business of the Company and its Subsidiaries has been and is presently being conducted so as to comply with all applicable material federal, state and local governmental laws, rules, regulations and ordinances.

 

(l) Environmental Laws.  The Company and its Subsidiaries (i) are to the Company’s knowledge in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants (“Environmental Laws”), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval where such noncompliance or failure to receive permits, licenses or approvals referred to in clauses (i), (ii) or (iii) above could have, individually or in the aggregate, a Material Adverse Effect.

 

(m) Disclosure.  No representation or warranty by the Company in this Agreement, nor in any certificate, schedule, document, exhibit or other instrument delivered or to be delivered pursuant to this Agreement or otherwise in connection with the transactions contemplated by the Transaction Documents, contains or will contain any untrue statement of material fact or omits or will omit to state a material fact necessary to make the statements contained herein or therein not misleading or necessary to in order fully and fairly to provide the information required to be provided in any such certificate, schedule, document, exhibit or other instrument.  To the knowledge of the Company and its Subsidiary at the time of the execution of this Agreement, there is no information concerning the Company and its Subsidiaries or their

 

  

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respective businesses which has not heretofore been disclosed to the Purchaser (or disclosed in the Company’s filings made with the SEC under the 1934 Act) that would have a Material Adverse Effect.

 

(n) Title.  The Company and its Subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and its Subsidiaries, in each case free and clear of all liens, encumbrances and defects or such as do not materially and adversely affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company or any of its Subsidiaries.  Any real property and facilities held under lease by the Company or any of its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its Subsidiaries.

 

(o) Insurance.  The Company and each of its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its Subsidiaries are engaged.

 

(p) Permits.  The Company and each of the Company’s Subsidiaries owns, holds, possesses, or lawfully uses in its business all material approvals, authorizations, certifications, franchises, licenses, permits, and similar authorities (“Permits”) that are necessary for the conduct of their business as currently conducted or the ownership and use of their assets or properties, in compliance with all Laws.  All of such material Permits are listed on Schedule 2.1(p), and true, complete and correct copies of each Permit listed on Schedule 2.1(p) have been provided to the Purchaser.  Neither the Company nor any of the Company’s Subsidiaries is in default under, or has received any notice of any claim of default in respect of, any such Permits.  To the Company’s knowledge, after due inquiry, all such Permits are renewable by their respective terms in the ordinary course of business without the need to comply with any special qualification procedures or to pay any amounts other than routine filing fees.

 

(q) Foreign Corrupt Practices Act.  To the Company’s knowledge, neither the Company, nor any director, officer, agent, employee or other person acting on behalf of the Company or any Subsidiary has, in the course of acting for, or on behalf of, the Company, directly or indirectly used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; directly or indirectly made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended, or any similar treaties of the United States; or directly or indirectly made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government or party official or employee.

 

(r) Tax Status.  The Company and each of its Subsidiaries has made or filed all United States federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject and all such returns, reports and declarations are true, correct and accurate in all material respects.  The Company has paid all taxes and other

 

  

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governmental assessments and charges, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith, for which adequate reserves have been established, in accordance with generally accepted accounting principles (“GAAP”).

 

(s) Issuance of Common Shares.  The Common Shares are duly authorized and reserved for issuance and, upon conversion of the Note in accordance with the terms thereof, such Common Shares will be validly issued, fully paid and non-assessable, free and clear of any and all liens, claims and encumbrances, and entitled to be traded on the Principal Market or the New York Stock Exchange, or the American Stock Exchange (collectively with the Principal Market, the “Approved Markets”), and the holders of such Common Shares shall be entitled to all rights and preferences accorded to a holder of Common Shares.  As of the date of this Agreement, the outstanding Common Shares are currently listed on the Principal Market.

 

(t) Financial Statements.  Except as set forth in Schedule 2.1(t), the financial statements of the Company included in the Forms 10-K and the Forms 10-Q of the Company have been prepared from the books and records of the Company, in accordance with GAAP, and fairly present in all material respects the financial condition of the Company, as at their respective dates, and the results of its operations and cash flows for the periods covered thereby.

 

(u) Internal Accounting and Disclosure Controls.  The Company maintains a system of internal accounting controls and procedures that are sufficient to provide reasonable assurance (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company has established disclosure controls and procedures (as defined in 1934 Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure controls and procedures to ensure that material information relating to the Company is made known to the certifying officers by others within those entities, particularly during the period in which the Company’s Form 10-K or 10-Q, as the case may be, is being prepared. The Company’s certifying officers have evaluated the effectiveness of the Company’s controls and procedures in accordance with the 1934 Act for the Company’s most recently ended fiscal quarter or fiscal year-end (such date, the “Evaluation Date“). The Company presented in its most recently filed Form 10-K or Form 10-Q the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation Date, there have been no significant changes in the Company’s internal controls over financial reporting (as defined in 34 Act Rules 13a-15(f) and 15(d)-15(f)).

 

(v) Off-Balance Sheet Arrangements.  There is no transaction, arrangement, or other relationship between the Company and an unconsolidated or other off balance sheet entity that is required to be disclosed by the Company in its 1934 Act filings and is not so disclosed or that otherwise would be reasonably likely to have a material adverse effect.

 

  

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(w) No Stabilization.  The Company has not taken, directly or indirectly, any action designed to or that could reasonably be expected to cause or result in any stabilization or manipulation of the price of the Common Shares.

 

(x) Investment Company Status.  The Company is not and, after giving effect to the offering and the application of the proceeds as described in the Transaction Documents, will not be, an “investment company” or an entity “controlled” by an “investment company” as such terms are defined in the Investment Company Act of 1940, as amended, and the rules and regulations thereunder.

 

(y) Subsidiary Rights.  The Company has the unrestricted right to vote, and (subject to limitations imposed by applicable law) to receive dividends and distributions on, all capital securities of its subsidiaries as owned by the Company or such subsidiary.

 

(z) Sarbanes-Oxley Act.  There has been no failure of the Company or any of its directors or officers, in their capacities as such, to comply with any applicable provisions of the Sarbanes Oxley Act of 2002 and the rules and regulations thereunder (the “Sarbanes Oxley Act”).

 

(aa) Application of Takeover Protections.  The Company has taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s Certificate of Incorporation (or similar charter documents) or the laws of its state of incorporation that is or could become applicable to the Purchaser as a result of the Purchaser and the Company fulfilling their obligations or exercising their rights under the Transaction Documents.

 

(bb) General Solicitation.  The Company has not undertaken any advertisement, article, notice or other communication regarding the sale of the Securities and has not published such sale in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.

 

(cc) Brokers or Finders.  Except for vFinance Investments, Inc. (the “Placement Agent”), the Company has not dealt with any broker or finder in connection with the transactions contemplated by this Agreement, and, except for certain fees and expenses which may be payable by the Company to the Placement Agent, the Company has not incurred, and shall not incur, directly or indirectly, any liability for any brokerage or finders’ fees or agents commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby.

 

(dd) Non-Public Information.  The Company covenants and agrees that neither it nor any other person acting on its behalf will provide the Purchaser or his agents or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto such Purchaser shall have executed a written agreement regarding the confidentiality and use of such information. The Company understands and confirms that each

 

  

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Purchaser shall be relying on the foregoing representations in effecting transactions in securities of the Company.

 

(ee) No Additional Agreements.  The Company does not have any agreement or understanding with any Purchaser with respect to the transactions contemplated by this Agreement, other than as specified in this Agreement and the Note.

 

(ff) Public Utility Holding Company Act and Investment Company Act Status. The Company is not a “holding company” or a “public utility company” as such terms are defined in the Public Utility Holding Company Act of 1935, as amended. The Company is not, and as a result of and immediately upon the Closing will not be, an “investment company” or a company “controlled” by an “investment company,” within the meaning of the Investment Company Act of 1940, as amended.

 

(gg) No Voting Blocks.  The Company represents and warrants that to its knowledge there are no voting arrangements in place respecting the capital stock of the Company.

 

Section 2.2 Representations and Warranties of the Purchaser.  The Purchaser hereby makes the following representations and warranties to the Company as of the date hereof and the Closing Date:

 

(a) Accredited Investor Status; Sophisticated Purchaser.  The Purchaser is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D under the 1933 Act.  The Purchaser has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the purchase of the Note and the Common Shares.  The Purchaser is not registered as a broker or dealer under Section 15(a) of the 1934 Act, affiliated with any broker or dealer registered under Section 15(a) of the 1934 Act, or a member of the Financial Industry Regulatory Authority.

 

(b) Information.  The Purchaser and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Company which have been requested and materials relating to the offer and sale of the Note and the Common Shares which have been requested by the Purchaser.  The Purchaser and its advisors, if any, have been afforded the opportunity to ask questions of the Company.  In determining whether to enter into this Agreement and purchase the Note, the Purchaser has relied solely on the written information supplied by Company employees in response to the written due diligence information request provided by Purchaser to the Company, and the Purchaser has not received nor relied upon any oral representation or warranty relating to the Company, this Agreement, the Note, or any of the transactions or relationships contemplated thereby.  The Purchaser understands that its purchase of the Note and Common Shares involves a high degree of risk.  The Purchaser has sought such accounting, legal and tax advice as it has considered necessary to make an informed investment decision with respect to its acquisition of the Note and Common Shares.

 

(c) No Governmental Review.  The Purchaser understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Note and the Common Shares or the fairness

 

  

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or suitability of the investment in the Note and the Common Shares nor have such authorities passed upon or endorsed the merits thereof.

 

(d) Legends.  The Company shall issue the Note to the Purchaser without any legend except as described in Article VI below.  The Purchaser covenants that, in connection with any transfer of Common Shares by the Purchaser pursuant to the registration statement contemplated herein, it will comply with the applicable prospectus delivery requirements of the 1933 Act, provided that copies of a current prospectus relating to such effective registration statement are or have been supplied to the Purchaser.

 

(e) Authorization; Enforcement.  This Agreement has been duly and validly authorized, executed and delivered on behalf of the Purchaser and is a valid and binding agreement of the Purchaser enforceable against the Purchaser in accordance with their terms, subject as to enforceability to general principles of equity and to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors’ rights and remedies.  The Purchaser has the requisite corporate power and authority to enter into and perform its obligations under this Agreement and each other agreement entered into by the parties hereto in connection with the transactions contemplated by this Agreement.

 

(f) No Conflicts.  The execution, delivery and performance of this Agreement by the Purchaser and the consummation by the Purchaser of the transactions contemplated hereby and thereby will not (i) result in a violation of the certificate of incorporation, by-laws or other documents of organization of the Purchaser, (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Purchaser is bound, or (iii) result in a violation of any law, rule, regulation or decree applicable to the Purchaser.

 

(g) Investment Representation.  The Purchaser is purchasing the Note for its own account for investment and not with a view to distribution or sale  in violation of the 1933 Act or any state securities laws or rules and regulations promulgated thereunder.  The Purchaser has been advised and understands that the Note nor the Common Shares issuable upon conversion thereof have been registered under the 1933 Act or under the “blue sky” laws of any jurisdiction and may be resold only if registered pursuant to the provisions of the 1933 Act or if an exemption from registration is available, except under circumstances where neither such registration nor such an exemption is required by law.  The Purchaser has been advised and understands that the Company, in issuing the Note, is relying upon, among other things, the representations and warranties of the Purchaser contained in this Section 2.2 in concluding that such issuance is a “private offering” and is exempt from the registration provisions of the 1933 Act.

 

(h) Rule 144.  The Purchaser understands that there is no public trading market for the Note, that none is expected to develop, and that the Note must be held indefinitely unless and until such Note, or if applicable, the Common Shares received upon conversion or exercise thereof are registered under the 1933 Act or an exemption from registration is available.

 

  

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The Purchaser has been advised or is aware of the provisions of Rule 144 promulgated under the 1933 Act.

 

(i) Brokers.  Except for any obligation to vFinance (which the Company agrees to satisfy in the event that any obligation exists), the Purchaser has taken no action which would give rise to any claim by any person for brokerage commissions, finder’s fees or similar payments by the Company or the Purchaser relating to this Agreement or the transactions contemplated hereby.

 

(j) Reliance by the Company.  The Purchaser understands that the Note is being offered and sold in reliance on a transactional exemption from the registration requirements of Federal and state securities laws and that the Company is relying upon the truth and accuracy of the representations, warranties, agreements, acknowledgments and understandings of the Purchaser set forth herein in order to determine the applicability of such exemptions and the suitability of the Purchaser to acquire the Note and the Common Shares issuable upon conversion thereof.

 

(k) No Voting Blocks.  The Purchaser represents and warrants that to its knowledge there are no voting arrangements in place respecting the capital stock of the Company, and agrees that any such agreements have been cancelled and are void.

 

ARTICLE III

 

Covenants

  

Section 3.1                      Registration and Listing; Effective Registration.  The Company hereby agrees that it shall register all Common Shares underlying all warrants currently held by Purchaser either upon the terms of existing registration rights agreements applicable to such Common Shares, or, at the election of Purchaser, upon the same terms as are granted to investors in connection with any Qualified Offering.  In the event any other shares of Common Stock are issued pursuant to the Notes, such shares shall be subject to a registration rights agreement substantially upon the terms set forth in the registration rights agreement entered into by and between the Company and Quercus in connection with the July 2008 Note, which shall be entered into concurrently with the issuance of such shares.  Until such time as six months following the date the Note is no longer outstanding, the Company will cause the Common Shares to continue at all times to be registered under Sections 12(b) or (g) of the 1934 Act, will comply in all material respects with its reporting and filing obligations under the 1934 Act, and will not take any action or file any document (whether or not permitted by the 1934 Act or the rules thereunder) to terminate or suspend such reporting and filing obligations.  Until such time as the Note is no longer outstanding, the Company shall use its best efforts to continue the listing or trading of the Common Shares on the Principal Market or one of the other Approved Markets and shall comply in all material respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the Approved Market on which the Common Shares are listed.  The Company shall use its best efforts to cause the Common Shares to be listed on the Principal Market or one of the other Approved Markets no later than the date of issuance of the Common Shares under the 1934 Act, and shall use its best efforts to continue such listing(s) on one of the Approved Markets, for so long as the Note is outstanding.

 

  

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Section 3.2                      Board Appointment.   Quercus shall have the right to appoint a fifth director to the board of directors of the Company, 10 days following compliance by the Company with Rule 14f-1 of the Exchange Act of 1934 (the “Filing Requirement”).  The Company covenants and agrees that it shall comply with the Filing Requirement as soon as practicable but in no event more than 30 days following the date hereof.

 

Section 3.3 Certificates on Conversion.  Upon any conversion by the Purchaser (or then holder of the Note) of the Note pursuant to the terms thereof, the Company shall issue and deliver to the Purchaser (or holder) within three (3) Trading Days of the conversion date certificates for the Securities into which the Note is convertible and, if applicable, a new Note or Note for the aggregate principal amount which the Purchaser (or holder) has not yet elected to convert but which are evidenced in part by the Note submitted to the Company in connection with such conversion (with the denominations of such new Note(s) designated by the Purchaser or holder).

 

Section 3.4 Replacement Note.  The Note held by the Purchaser (or then holder) may be exchanged by the Purchaser (or such holder) at any time and from time to time for Note(s) with different denominations representing an equal aggregate principal amount of Note(s), as requested by the Purchaser (or such holder) upon surrendering the same.  No service charge will be made for such registration or transfer or exchange.

 

Section 3.5 Securities Compliance. The Company shall notify the SEC and the Principal Market, in accordance with their requirements, of the transactions contemplated by this Agreement and the Note, and shall take all other necessary action and proceedings as may be required and permitted by applicable law, rule and regulation, for the legal and valid issuance of the Note hereunder and the Common Shares issuable upon conversion thereof.

 

Section 3.6 Reservation of Shares; Stock Issuable Upon Conversion.  Subject to Section 2.1(c) of this Agreement, the Company shall at all times reserve and keep available out of its authorized but unissued Common Shares, solely for the purpose of effecting the conversion of the Note, such number of its Common Shares as shall from time to time be sufficient to effect the conversion of the Note issued to the Purchaser, the payment of any interest that may be due on the Note and the payment for any damages that may become due to the Purchaser due to the Company’s failure to register the Common Shares.

 

Section 3.7 Form D; Blue Sky Laws.  The Company agrees to file a Form D with respect to the Note and Common Shares issuable upon conversion thereof, in accordance with Regulation D and to provide a copy thereof to the Purchaser promptly after such filing.  The Company shall, on or before the Closing Date, take such action as the Company shall have reasonably determined is necessary to qualify the Note and the Common Shares issuable upon conversion thereof for sale to the Purchaser under applicable securities or “blue sky” laws of the states of the United States (or to obtain an exemption from such qualification), and shall provide evidence of any such action so taken to the Purchaser on or prior to the Closing Date; provided, however, that the Company shall not be required in connection therewith to register or qualify as a foreign corporation in any jurisdiction where it is not now so qualified or to take any action that would subject it to service of process in suits or taxation, in each case, in any jurisdiction where it is not now so subject.

 

  

12

  

Section 3.8 Prohibition on Short Sales.  From and including the date of this Agreement and for so long as the Purchaser holds the Note, the Purchaser agrees that it will neither sell the Company’s stock short nor direct, instruct or otherwise influence any of its affiliates, principals or advisors to sell the Company’s stock short.  Further, the Purchaser agrees not to pledge, hypothecate, loan or enter into other hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the Company’s Common Shares,  provided however, that the Purchaser shall have the right to pledge the Company’s Common Shares pursuant to a bona fide margin account or lending arrangement entered into in compliance with law, including applicable securities laws, in such a manner that will not result, or be equivalent to, a short sale of the Company’s Common Shares.

 

Section 3.9 Material Changes.  On or before the Closing Date, the Company shall forthwith notify the Purchaser of any material change affecting any of its representations, warranties, undertakings and indemnity at any time prior to payment being made to the Company on the Closing Date.

 

Section 3.10 Prohibition on Certain Actions.  The Company shall not (i) file any additional registration statements unless and until the registration statement contemplated herein has become effective; and (ii) between the date hereof and the Closing Date (both dates inclusive), take any action or decision which (had the Note already been issued) would result in an adjustment of the Conversion Price.

 

Section 3.11 Senior Status of Note.  The obligations of the Company under the Note shall rank senior to all other debt of the Company, whether now or hereinafter existing, other than the Senior Secured Convertible Promissory Note dated July 10, 2008, issued to The Quercus Trust, as amended and restated in the form of Exhibit B attached hereto.  Beginning on the date of this Agreement and for so long as any Note remain outstanding, neither the Company nor any subsidiary of the Company shall, without the prior written consent the Purchaser, incur or otherwise become liable with respect to any indebtedness that would rank senior or pari passu to the Note in order of payment, other than (i) trade payables incurred in the ordinary course of business, and (ii) debt incurred pursuant to the Offering described herein.

 

Section 3.12 Use of Proceeds.  The Company shall use the net proceeds from the sale of the Securities hereunder for general corporate purposed including working capital and other growth initiatives consistent with the current business of the Company.

 

Section 3.13 Right of First Offer.   For a period of two years following the Closing, Purchaser shall have the right to purchase its pro rata share of any offering of new securities by the Company on the same terms and conditions of any such offering and, subject to customary exceptions. The pro rata share will be based on the ratio of (x) the number of shares of Common Stock held by such holder to (y) the Company’s outstanding securities, in each case on a fully-diluted basis.

 

Section 3.14 Press Release.  As soon as practicable upon the execution of this Agreement, the Company shall issue a press release disclosing the transaction contemplated herein.  The Company shall also file a Form 8-K with the Securities and Exchange Commission (the “SEC”) within the time prescribed under current SEC rules and regulations.

 

  

13

  

Section 3.15 Legal Expenses.  The Company shall promptly upon demand pay (or the Purchaser may credit against advances due hereunder) $20,000 to pay for legal and other expenses incurred by Purchaser in connection with the execution and delivery of this Agreement.

 

ARTICLE IV

 

Conditions to Closings

 

Section 4.1 Conditions Precedent to the Obligation of the Company to Sell.  The obligation hereunder of the Company to issue and/or sell the Securities to the Purchaser at the applicable Closing is subject to the satisfaction, at or before the applicable Closing, of each of the applicable conditions set forth below.  These conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion.

 

(a) Accuracy of the Purchaser’s Representations and Warranties.  The representations and warranties of the Purchaser will be true and correct in all material respects as of the date when made and as of the Closing Date, as though made at that time.

 

(b) Performance by the Purchaser.  The Purchaser shall have performed all agreements and satisfied all conditions required to be performed or satisfied by the Purchaser at or prior to the Closing, including full payment of the Purchase Price to the Company as provided herein.

 

(c) No Injunction.  No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement or the Note.

 

Section 4.2 Conditions Precedent to the Obligation of the Purchaser to Purchase.  The obligation hereunder of the Purchaser to acquire and pay for the Securities at the applicable Closing is subject to the satisfaction, at or before the applicable Closing, of each of the applicable conditions set forth below.  These conditions are for the Purchaser’s benefit and may be waived by the Purchaser at any time.

 

(a) Accuracy of the Company’s Representations and Warranties.  The representations and warranties of the Company shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties as of an earlier date, which shall be true and correct in all material respects as of such date).

 

(b) No Injunction.  No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement or the Note.  The Principal Market shall not have objected or indicated that it may object to the consummation of any of the transactions contemplated by this Agreement.

 

  

14

  

(c) Notes.  The Company shall have executed and delivered to the Purchaser the Note and the Amended and Restated 2008 Note.

 

(d) Officer’s Certificates.  The Company shall have delivered to the Purchaser a certificate in form and substance satisfactory to the Purchaser and the Purchaser’s counsel, executed by an officer of the Company, certifying as to satisfaction of closing conditions, incumbency of signing officers, and the true, correct and complete nature of the Certificate of Incorporation, By-Laws, good standing and authorizing resolutions of the Company.

 

(e) No Material Adverse Change.  There shall not have occurred any event prior to the Closing which, singly or taken together with any other event, could reasonably be expected to have a Material Adverse Effect.

 

(f) Transfer Agent Instructions.  The Company shall issue irrevocable instructions to its transfer agent requesting the transfer agent to issue one or more share certificates to the Purchaser representing the Common Shares as soon as practicable after receiving notice of the conversion of the Note.

 

(g) Filing of UCC Statements.  The Company shall have filed all UCC financing statements required in connection with this Agreement.

 

(h) Security Agreements.  The Company shall have executed and delivered to the Purchaser the Security Agreement in substantially the form as Exhibit C attached hereto, and Clean Power Technologies, Limited, the Company’s wholly-owned subsidiary formed under the law of the United Kingdom, shall deliver to Purchaser the Composite Guarantee and Debenture substantially in the form of Exhibit D attached hereto.

 

ARTICLE V

 

Legend and Stock

 

Upon payment therefor as provided in this Agreement, the Company will issue the Note in the name of the Purchaser or its designees and in such denominations to be specified by such Purchaser prior to (or from time to time subsequent to) Closing.  The Securities and any certificate representing Common Shares issued upon conversion thereof, prior to such Common Shares being registered under the 1933 Act for resale or available for resale under Rule 144 under the 1933 Act, shall be stamped or otherwise imprinted with a legend in substantially the following form:

 

THESE SECURITIES HAVE NOT BEEN REGISTERED FOR OFFER OR SALE UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS.  THEY MAY NOT BE SOLD OR OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.

 

  

15

  

The Company agrees to reissue the Note and Common Shares issuable upon conversion or exercise of the foregoing, without the legend set forth above, at such time as (i) the holder thereof is permitted to dispose of such Note and the Common Shares issuable upon conversion or exercise of the foregoing pursuant to Rule 144 under the 1933 Act, or (ii) such securities are sold to a purchaser or purchasers who (in the opinion of counsel to the seller or such purchaser(s), in form and substance reasonably satisfactory to the Company and its counsel) are able to dispose of such shares publicly without registration under the 1933 Act, or (iii) such securities have been registered under the 1933 Act.  If a Purchaser shall make a sale or transfer of Common Shares either (x) pursuant to Rule 144 or (y) pursuant to a registration statement under the 1933 Act and in each case shall have delivered to the Company or the Company’s transfer agent the certificate representing the Common Shares containing a restrictive legend which are the subject of such sale or transfer (the date of such sale or transfer and Share delivery being the “Share Delivery Date“) and (1) the Company shall fail to deliver or cause to be delivered (any such delivery shall include crediting the Purchaser’s balance account with DTC) to such Purchaser a certificate representing such Common Shares that is free from all restrictive or other legends by the third Trading Day following the Share Delivery Date and (2) following such third Trading Day after the Share Delivery Date and prior to the time such Common Shares are received free from restrictive legends, the Purchaser, or any third party on behalf of such Purchaser, purchases (in an open market transaction or otherwise) Common Shares to deliver in satisfaction of a sale by the Purchaser of such Common Shares (a “Buy-In“), then the Company shall pay in cash to the Purchaser (for costs incurred either directly by such Purchaser or on behalf of a third party) the amount by which the total purchase price paid for the Common Shares as a result of the Buy-In (including brokerage commissions, if any) exceed the proceeds received by such Purchaser as a result of the sale to which such Buy-In relates. The Purchaser shall provide the Company written notice indicating the amounts payable to the Purchaser in respect of the Buy-In. The Company may not make any notation on its records or give instructions to any transfer agent of the Company that enlarge the restrictions on transfer set forth in this Section.

 

Prior to the Registration Statement (as defined herein) being declared effective, any Common Shares issued pursuant to conversion of the Note shall bear a legend in the same form as the legend indicated above; provided that such legend shall be removed from such shares and the Company shall issue new certificates without such legend if (i) the holder has sold or disposed of such shares pursuant to Rule 144 under the 1933 Act, or the holder is permitted to dispose of such shares pursuant to Rule 144 under the 1933 Act, (ii) such shares are registered for resale under the 1933 Act, or (iii) such shares are sold to a purchaser or purchasers who (in the opinion of counsel to the seller or such purchaser(s), in form and substance reasonably satisfactory to the Company and its counsel) are able to dispose of such shares publicly without registration under the 1933 Act.  Upon such Registration Statement becoming effective, the Company agrees to promptly issue new certificates representing such shares without such legend.  Any Common Shares issued after the Registration Statement has become effective shall be free and clear of any legends, transfer restrictions and stop orders.  Notwithstanding the removal of such legend, the Purchaser agrees to sell the Common Shares represented by the new certificates in accordance with the applicable prospectus delivery requirements (if copies of a current prospectus are provided to such Purchaser by the Company) or in accordance with an exemption from the registration requirements of the 1933 Act.

 

  

16

  

Nothing herein shall limit the right of any holder to pledge these securities pursuant to a bona fide margin account or lending arrangement entered into in compliance with law, including applicable securities laws.

 

ARTICLE VI

 

Termination

 

Section 6.1 Termination by Mutual Consent.  This Agreement may be terminated at any time prior to the Closing by the mutual written consent of the Company and the Purchaser.

 

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

 

ARTICLE VII

 

Indemnification

 

In consideration of the Purchaser’s execution and delivery of the this Agreement and acquiring the Note hereunder and in addition to all of the Company’s other obligations under the Transaction Documents, the Company shall defend, protect, indemnify and hold harmless the Purchaser and all of its partners, officers, directors, employees, members and direct or indirect investors and any of the foregoing person’s agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “Purchaser Indemnitees”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Purchaser Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements (the “Purchaser Indemnified Liabilities”), incurred by any Purchaser Indemnitee as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company in the Transaction Documents or any other certificate or document contemplated hereby or thereby, (b) any breach of any covenant, agreement or obligation of the Company contained in the Transaction Documents or any other certificate or document contemplated hereby or thereby.  Notwithstanding the foregoing, Purchaser Indemnified Liabilities shall not include any liability of any Purchaser Indemnitee arising out of such Purchaser Indemnitee’s gross negligence or willful misconduct.  To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Purchaser Indemnified Liabilities which is permissible under applicable law.

 

  

17

  

ARTICLE VIII

 

Governing Law; Miscellaneous

 

Section 8.1 Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of California applicable to contracts to be wholly performed within such state and without regard to conflicts of laws provisions.  Any legal action or proceeding arising out of or relating to this Agreement and/or the Transaction Documents may be instituted in the courts of the State of California sitting in Los Angeles County, and the parties hereto irrevocably submit to the jurisdiction of each such court in any action or proceeding.  Subscriber hereby irrevocably waives and agrees not to assert, by way of motion, as a defense, or otherwise, in every suit, action or other proceeding arising out of or based on this Agreement and/or the Transaction Documents and brought in any such court, any claim that Subscriber is not subject personally to the jurisdiction of the above named courts, that Subscriber’s property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum or that the venue of the suit, action or proceeding is improper.

 

Section 8.2 Counterparts.  This Agreement may be executed by facsimile and in any number of counterparts, and each such counterpart hereof shall be deemed to be an original instrument, but all such counterparts together shall constitute one agreement.  Execution and delivery of this Agreement by facsimile transmission (including delivery of documents in Adobe PDF format) shall constitute execution and delivery of this Agreement for all purposes, with the same force and effect as execution and delivery of an original manually signed copy hereof.

 

Section 8.3 Headings.  The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement.

 

Section 8.4 Severability.  If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction.

 

Section 8.5 Costs and Expenses.  All reasonable out-of-pocket costs and expenses incurred by vFinance and the Purchaser with respect to this Agreement and the transactions contemplated by this Agreement shall be paid by the Company at the Closing.  The Company shall also be responsible for the payment of vFinance’s and the Purchaser’s reasonable post Closing expenses incurred in connection with the transactions contemplated by this Agreement.  Such post Closing expenses shall be paid promptly after vFinance issues a request in writing but in no event later than five (5) business days following such request. Nevertheless, in the event that any dispute between the parties should result in litigation or arbitration, the prevailing party in such dispute shall be entitled to recover from the non-prevailing party in such dispute all reasonable fees, costs and expenses of enforcing any right of the prevailing party, including without limitation, reasonable attorney’s fees and expenses, all of which shall be deemed to have accrued upon the commencement of such action and shall be paid whether or not such action is prosecuted to judgment.

 

  

18

  

Section 8.6 Entire Agreement; Amendments; Waivers.

 

(a) Entire Agreement.  This Agreement supersedes all other prior oral or written agreements between the Purchaser, the Company, their affiliates and persons acting on their behalf with respect to the matters discussed herein, and this Agreement and the instruments referenced herein (including the other Transaction Documents) contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor any Purchaser makes any representation, warranty, covenant or undertaking with respect to such matters.  No provision of this Agreement may be amended other than by an instrument in writing signed by the Company and the Purchaser, and no provision hereof may be waived other than by an instrument in writing signed by the party against whom enforcement is sought.

 

(b) Waivers.  The Purchaser may at any time elect, by notice to the Company, to waive (whether permanently or temporarily, and subject to such conditions, if any, as the Purchaser may specify in such notice) any of Purchaser’s rights under any of the Transaction Documents to acquire Common Shares from the Company, in which event such waiver shall be binding against the Purchaser in accordance with its terms; provided, however, that the voluntary waiver contemplated by this sentence may not reduce the Purchaser’s obligations to the Company under the Transaction Documents.

 

Section 8.7 Notices.  Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing, must be delivered by (i) courier, mail or hand delivery or (ii) facsimile, and will be deemed to have been delivered upon receipt. The addresses and facsimile numbers for such communications shall be:

 

If to the Company:

 

Clean Power Technologies, Inc.

436-35th Avenue, N.W.

Calgary, Alberta

Canada T2K OC1

Attention: Abdul Mitha

Facsimile: (403) 277-3117

 

With a copy to:

 

Gersten Savage, LLP

600 Lexington Avenue, 9th Floor

New York, New York 10022

Telephone:  (212) 752-9700

Facsimile:  (212)  980-5192

Attention: Peter J. Gennuso, Esq.

 

If to the Purchaser, to the addresses listed on Schedule I hereto:

 

  

19

  

With a copy to:

 

Law Offices of Joseph P. Bartlett, PC

1900 Avenue of the Stars, 20th Floor

Los Angeles, CA 90067

Telephone: (310) 201-7553

Facsimile: (310) 388-1055

Attention: Joseph Bartlett

 

Each party shall provide five (5) days prior written notice to the other party of any change in address, telephone number or facsimile number.  Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender’s facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by a nationally recognized overnight delivery service, shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively.

 

Section 8.8 Successors and Assigns.  Except as otherwise provided herein, this Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, including any Permitted Assignee (as defined below).  The Purchaser may assign some or all of its rights hereunder to any assignee of the Note and the Common Shares issuable upon conversion thereof (in each case, a “Permitted Assignee”); provided, however, that any such assignment shall not release the Purchaser from its obligations hereunder unless such obligations are assumed by such assignee and the Company has consented to such assignment and assumption.

 

Section 8.9 No Third Party Beneficiaries.  This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person.

 

Section 8.10 Survival.  The representations, warranties, rights to indemnification and agreements of the Company and the Purchaser contained in the Agreement shall survive the delivery of the Note.

 

Section 8.11 Further Assurances.  Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

 

Section 8.12 No Strict Construction.  The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.

 

Section 8.13 Days.  Unless the context refers to “business days” or “Trading Days”, all references herein to “days” shall mean calendar days.

 

  

20

  

Section 8.14 Placement Agent.  Other than the engagement of vFinance by the Company, the Purchaser and the Company each acknowledges and warrants that it has not engaged any placement agent in connection with the sale of the Securities, and the Company and Purchaser shall indemnify and hold the other harmless against any liability, loss, or expense (including without limitation, reasonable attorneys’ fees and out-of-pocket expenses) arising from any breach of said warranty.

 

IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed as of the date and year first above written.

 

	
COMPANY:

 

CLEAN POWER TECHNOLOGIES, INC.

 

 

By: /s/

Name:

Title:

	
PURCHASER:

 

THE QUERCUS TRUST

 

 

By: /s/

Name: David Gelbaum

Title:   Trustee

  

21

  

EXHIBIT A

Form of Note

  

22

  

EXHIBIT B

Form of Amended and Restated Note

  

23

  

EXHIBIT C

Security Agreement

  

24

  

EXHIBIT D

Composite Guarantee and Debenture

  

25

  

SCHEDULE I

	
 

Purchaser

	
Jurisdiction of Organization

 

	
Principal Amount

of Note

	
 

Purchase Price

	
The Quercus Trust

1835 Newport Blvd.

A109 - PMB 467

Costa Mesa CA 92627

	
California

	
$1,000,000

	
$1,000,000 to be paid in accordance with Section 1.2

  

26ex102.htm

NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION 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.

 

10% SENIOR SECURED CONVERTIBLE PROMISSORY NOTE

 

 

CLEAN POWER TECHNOLOGIES, INC.

Original Principal Amount: $1,000,000.00

Issuance Date:  June 8, 2010

 

This 10% Senior Secured Convertible Promissory Note (the “Note”) is issued by CLEAN POWER TECHNOLOGIES, INC., a corporation duly organized and existing under the laws of the State of Nevada (the “Company”), in an aggregate principal amount of One Million U.S. Dollars ($1,000,000).

 

FOR VALUE RECEIVED , the Company hereby promises to pay to the order of The Quercus Trust, or its registered assigns or successors-in-interest (“Holder” or “Quercus”) the unpaid portion of the principal sum advanced to Company hereunder, together with all accrued but unpaid interest thereon, if any, on the Maturity Date, to the extent such principal amount and interest has not been converted into the Company’s Common Stock, $0.001 par value per share (the “Common Stock”).  Interest on the unpaid principal balance hereof shall accrue at the rate of 10% per annum from the Issuance Date and shall be payable quarterly in Common Stock.  Interest on this Note shall accrue daily commencing on the Issuance Date and shall be computed on the basis of a 360-day year, 30-day months and actual days elapsed.

 

The Note shall mature (the “Maturity Date”) twenty-four (24) months from the Issuance Date.  Except as otherwise provided herein, any payments of principal and interest on this Note shall be made in lawful money of the United States of America by wire transfer of immediately available funds to such account as the Holder may from time to time designate by written notice in accordance with the provisions of this Note.  This Note may not be prepaid in whole or in part except as otherwise provided herein or in the Transaction Documents.  Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a Business Day (as defined below), the same shall instead be due on the next succeeding day which is a Business Day.

 

Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Securities Purchase Agreement dated on or about the Issuance Date pursuant to which the Note was originally issued (the “Purchase Agreement”).  For purposes hereof the following terms shall have the meanings ascribed to them below:

  

1

  

 

 “Bankruptcy Event” means any of the following events: (a) the Company or any subsidiary commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any subsidiary thereof; (b) there is commenced against the Company or any subsidiary any such case or proceeding that is not dismissed within 30 days after commencement; (c) the Company or any subsidiary is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered; (d) the Company or any subsidiary suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 30 days; (e) the Company or any subsidiary makes a general assignment for the benefit of creditors; (f) the Company or any subsidiary, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

 

“Business Day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the City of New York are authorized or required by law or executive order to remain closed.

 

 “Debt” shall mean indebtedness of any kind.

 

“Principal Amount” shall refer to the sum of (i) the unpaid portion of the advances made under this Note pursuant to the terms of the Purchase Agreement and (ii)  any default payments owing under the Transaction Documents but not previously paid or added to the Principal Amount.

 

“Trading Day” shall mean a day on which there is trading on the OTC Bulletin Board or such other market or exchange on which the Common Stock is then principally traded.

 

“Underlying Shares” means the shares of Common Stock into which the Note is convertible in accordance with the terms hereof and the Purchase Agreement, or which are issued as interest payments or in connection with the redemption of the Note.

 

The following terms and conditions shall apply to this Note:

 

	
1.  

	
PAYMENTS OF PRINCIPAL AND INTEREST.

 

(a)  Interest Payments.  Interest on the unpaid principal balance hereof shall accrue at the rate of 10% per annum from the Issuance Date and shall be payable quarterly in Common Stock (the “Interest Payment Date”).  Interest on this Note shall accrue daily commencing on the Issuance Date and shall be computed on the basis of a 360-day year, 30-day months and actual days elapsed.  The Common Stock shall be valued at the volume weighted average price per share of common stock as quoted on Bloomberg, LP for the ten (10) days prior to the Interest Payment Date.

 

(b)         Payment of Principal.  The Principal Amount of this Note shall be due and payable on the Maturity Date.  

  

2

  

 

(c)         Optional Redemption.  The Company may, at its option, choose to redeem the Note at any time prior to the Maturity Date in which event the Company shall in addition to paying the Principal Amount pay to the Holder a redemption fee in the form of 500,000 shares of Common Stock of the Company (or such proportionate amount in the event this Note is divided into two or more Notes), but in such event all interest due hereon shall be waived.

(d)         Taxes.  Company may withhold and pay over to the relevant authorities any backup withholding from any interest payment to be made to the Holder to the extent that such withholding is required by the Internal Revenue Code or any other applicable federal law, rule, or regulation.

 

Notwithstanding any provision to the contrary contained in this Section 1, the Company’s right to pay the Principal Amount and any interest thereon in shares of its Common Stock is conditioned on the following: (i) the Company’s Common Stock will continue to be at all times registered under Sections 12(b) or (g) of the Securities Exchange Act of 1934; (ii) the Company will comply in all material respects with its reporting and filing obligations under the Securities Exchange Act of 1934, and will not take any action or file any document (whether or not permitted by the Securities Exchange Act of 1934 or the rules thereunder) to terminate or suspend such reporting and filing obligations; (iii) the Company shall not have breached any provision, covenant, representation or warranty of any Transaction Document; and (iv) there have not been any Events of Default that are continuing. 

	
2.  

	
SENIORITY AND SECURITY.  

(a) Seniority.  The obligations of the Company hereunder shall rank senior to all other Debt of the Company, whether now or hereinafter existing, other than the 8% Senior Secured Convertible Promissory Note issued to Quercus on July 10, 2008.

(b) Security.  The obligations of the Company hereunder are secured pursuant to the terms of a security agreement dated as of the date hereof, by and between the Company and the Holder, and by a Composite Guaranty and Debenture by and between the Company’s subsidiary Clean Power Technologies, Limited and Quercus Trust dated as of the date hereof.  Each of such agreements shall inure to the benefit Holder and its successors and assigns.  

 

3.   CONVERSION.  

(a) Conversion Upon Qualified Offering.  This Note shall be converted into equity securities of the Company in the Company’s next Qualified Offering, which term shall mean the next  offering of equity securities (including securities exercisable for or convertible into equity securities but not including the conversion of this Note) which, unless such minimum amount is waived by Holder, shall result in cumulative gross offering proceeds to the Company from the sale of equity securities by the Company after the date hereof of at least GBP3,000,000.  The conversion price for the offering shall be equal to the lowest offering price for the securities in the Qualified Offering, discounted by (a) 0%, if the Qualified Offering occurs within 60 days following May 21, 2010; (b) 10%, if the Qualified Offering occurs more than 60 days but within

  

3

  

120 days following May 21, 2010, (c) 33%, if the Qualified Offering occurs more than 120 days but within 180 days following May 21, 2010, and (d) 50%, if the Qualified Offering occurs more than 180 days following May 21, 2010.  All other terms shall be as favorable as are offered to any other investor in the Qualified Offering, and the Holder shall enter into customary documents on the most favorable terms as are offered to any other investor in the Qualified Offering.

(b) Conversion by Holder.   Holder shall have the right, at Holder’s option, at any time and from time to time beginning twelve (12) months following the Issuance Date, to convert, in part or in whole, the outstanding Principal Amount and accrued but unpaid interest under this Note into shares of Common Stock at a Conversion Price of $0.15 per share by delivering to the Company a fully executed notice of conversion in the form of conversion notice attached hereto as Exhibit A (the “Conversion Notice” ), which may be transmitted by facsimile (with the original mailed on the same date by certified or registered mail, postage prepaid and return receipt requested) on the date of conversion (the “Conversion Date”).  Upon conversion of this Note pursuant to this Section 3(b), the outstanding Principal Amount and accrued interest hereunder shall be converted into such number of fully paid, validly issued and non-assessable shares of Common Stock, free of any liens, claims and encumbrances, as is determined by dividing the amount being converted by the then applicable Conversion Price.

(c)  Stock Certificates or DWAC .  The Company will deliver to the Holder not later than three (3) Trading Days after the Conversion Date, a certificate or certificates which shall be free of restrictive legends and trading restrictions (assuming that the Registration Statement has been declared effective), representing the number of shares of Common Stock being acquired upon the conversion of this Note.  In lieu of delivering physical certificates representing the shares of Common Stock issuable upon conversion of this Note, provided the Company’s transfer agent is participating in the Depository Trust Company (“ DTC ”) Fast Automated Securities Transfer (“ FAST ”) program, upon request of the Holder, the Company shall use commercially reasonable efforts to cause its transfer agent to electronically transmit such shares issuable upon conversion to the Holder (or its designee), by crediting the account of the Holder’s (or such designee’s) prime broker with DTC through its Deposit Withdrawal At Custodian system (provided that the same time periods herein as for stock certificates shall apply).

(d)  Adjustments to Conversion by Holder.   The conversion of the Note by the Holder pursuant to Section 3(b) shall be subject to adjustment as follows:

(i) Stock Dividends, Splits and Combinations.  If the Company or any of its Subsidiaries, at any time while the Note is outstanding (A) shall pay a stock dividend or otherwise make a distribution or distributions on any equity securities (including instruments or securities convertible into or exchangeable for such equity securities but excluding any stockholder rights granted pursuant to a poison pill) in shares of Common Stock, (B) subdivide outstanding Common Stock into a larger number of shares, (C) combine outstanding Common Stock into a smaller number of shares, or (D) issues new securities by reclassification of the shares of Common Stock of the Company, then, and in each such case, the Conversion Price (as defined below) in effect immediately prior to such event or the record date

  

4

  

therefore, whichever is earlier, shall be adjusted so that the Holder shall be entitled to receive the number of shares of Common Stock or other securities of the Company which such Holder would have owned or have been entitled to receive after the occurrence of any of the events described above, had such Note been surrendered for conversion immediately prior to the occurrence of such event or record date therefore, whichever is earlier.  Any adjustment made pursuant to this Section 3(d)(i) shall become effective (x) in the case of any such dividend or distribution, immediately after the close of business on the record date for the determination of holders of shares of Common Stock entitled to receive such dividend or distribution, or (y) in the case of such subdivision, reclassification or combination, at the close of business on the day upon which such corporate action becomes effective.

 

(ii) Distributions.  Subject to the terms of the Security Agreement, if the Company or any of its subsidiaries, at any time while the Note is outstanding, shall distribute to all holders of Common Stock evidence of its indebtedness or assets or cash or rights or warrants to subscribe for or purchase any security of the Company or any of its subsidiaries (excluding those referred to in Section 3(d)(i) above), then concurrently with such distributions to holders of Common Stock, the Company shall distribute to the Holder of the Note the amount of such indebtedness, assets, cash or rights or warrants which the Holder of the Note would have received had the Note been converted into Common Stock at the then applicable the Conversion Price immediately prior to the record date for such distribution.

 

(iii) Rounding of Adjustments.   All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.

 

(iv)         Notice of Adjustments.   Whenever the Conversion Price is adjusted pursuant to this Section 3(d), the Company shall promptly deliver to each holder of the Note, a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment, provided that any failure to so provide such notice shall not affect the automatic adjustment hereunder.

 

(iv) Fundamental Changes.   In case any transaction or event (including, without limitation, any merger, consolidation, combination, recapitalization, sale of assets, tender or exchange offer,  reclassification,  compulsory share exchange or liquidation) shall occur in which all or substantially all outstanding shares of Common Stock are converted into or exchanged or acquired for or constitute the right to receive stock, or other securities, cash, property or assets (each, “Fundamental Change”), the Holder of this Note outstanding immediately prior to the occurrence of such Fundamental Change shall have the right upon any subsequent conversion to receive the kind and amount of stock, other securities, cash, property or assets that such holder would have received if such Note had been converted immediately prior to such Fundamental Change.  

 

(vi)         Notice of Certain Events .  If:

 

A. the Company shall declare a dividend (or any other distribution) on its Common Stock; or

 

  

5

  

B. the Company shall declare a special nonrecurring cash dividend on or a redemption of its Common Stock; or

C. the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights; or

D. the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock of the Company, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share of exchange whereby the Common Stock is converted into other securities, cash or property; or

E.      the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company;

then the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Note, and shall cause to be mailed to the Holder at its last address as it shall appear upon the books of the Company, on or prior to the date notice to the Company’s stockholders generally is given, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange.  

(e)         Reservation and Issuance of Underlying Shares.  Except as provided in the Purchase Agreement, the Company covenants that it will at all times reserve and keep available out of its authorized and unissued Common Stock solely for the purpose of issuance of the Underlying Shares, free from preemptive rights or any other actual contingent purchase rights of persons other than the holders of the Note, not less than such number of Underlying Shares.  The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid, non-assessable and freely tradable.

 

(f)         No Fractions.  Upon a conversion hereunder the Company shall not be required to issue stock certificates representing fractions of shares of Common Stock, but may if otherwise permitted, make a cash payment in respect of any final fraction of a share based on the closing price of a share of Common Stock at such time.  If the Company elects not, or is unable, to make such cash payment, the Holder shall be entitled to receive, in lieu of the final fraction of a share, one whole share of Common Stock.

 

(g)         Charges, Taxes and Expenses.  Issuance of certificates for shares of Common Stock upon the conversion of this Note (including repayment in stock) shall be made without charge to the holder hereof for any issue or transfer tax or other incidental expense in

  

6

  

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 shares of Common Stock are to be issued in a name other than the name of the Holder, this Note when surrendered for conversion shall be accompanied by an assignment form; and provided further , that the Company shall not be required to pay any tax or taxes which may be payable in respect of any such transfer.

 

(h)         Cancellation.  After all of the Principal Amount and all interest on this Note have been paid in full or converted into Common Stock, this Note shall automatically be deemed canceled and the Holder shall promptly surrender the Note to the Company at the Company’s principal executive offices.

 

(i)         Notices Procedures.  Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Conversion Notice, shall be in writing and delivered personally, by confirmed facsimile, or by a nationally recognized overnight courier service to the Company at the facsimile telephone number or address of the principal place of business of the Company as set forth in the Purchase Agreement.  Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, or by a nationally recognized overnight courier service addressed to the Holder at the facsimile telephone number or address of the Holder appearing on the books of the Company, or if no such facsimile telephone number or address appears, at the principal place of business of the Holder.  Any notice or other communication or deliveries hereunder shall be deemed delivered (i) upon receipt, when delivered personally, (ii) when sent by facsimile, upon receipt if received on a Business Day prior to 5:00 p.m. (Eastern Time), or on the first Business Day following such receipt if received on a Business Day after 5:00 p.m. (Eastern Time) or (iii) upon receipt, when deposited with a nationally recognized overnight courier service.

 

	
4.  

	
COVENANTS OF THE COMPANY.

The Company covenants and agrees as follows:  The Company and its Subsidiaries (as defined in the Purchase Agreement) shall not incur any Debt without the prior written consent of the Holder, which consent shall not be unreasonably withheld, other than; (i) trade payables incurred in the ordinary course of business, (ii) Debt incurred pursuant to the Offering as described in the Purchase Agreement; or Debt of up to $1,000,000 incurred by the Company for working capital purposes.

 

	
  

	
5.

	
DEFAULTS AND REMEDIES.

 

(a)         Events of Default .  An “Event of Default” is:  (i) a default in payment of the Principal Amount or any interest hereon, when due, or failure to make any interest payment when such interest payment is due (to the extent such principal and/or amount has not been converted into Common Stock in accordance with the terms hereof); (ii) a default in the timely

  

7

  

issuance of Underlying Shares upon and in accordance with the terms hereof (where for purposes of this Note, the term “timely” shall mean within ten (10) business days following the Conversion Date or other date triggering the issuance of such Underlying Shares); (iii) failure by the Company for thirty (30) days after written notice has been delivered to the Company to comply with any other provision of the Note or the Purchase Agreement, (iv) a breach by the Company, in any material respect, of its representations, warranties or covenants in the Purchase Agreement that remains uncured for thirty (30) business days after notice is delivered to the Company; or (v) a breach by the Company of its covenants in this Note.

 

(b)         Remedies.  If an Event of Default occurs and is continuing with respect to the Note, the Holder may declare all of the then outstanding Principal Amount and accrued but unpaid interest on this Note to be due and payable immediately; provided that if such Event of Default is due to the occurrence of a Bankruptcy Event, then such declaration shall be automatic without any further action.  The Company shall pay interest on such amount in cash at the Default Rate to the Holder if such amount is not paid within two (2) days of Holder’s request.  The remedies under this Note shall be cumulative.  

 

	
  

	
6.

	
GENERAL

 

(a) Payment of Expenses.  The Company agrees to pay all reasonable charges and expenses, including reasonable attorneys’ fees and expenses, which may be incurred by the Holder in successfully enforcing this Note and/or collecting any amount due under this Note.

 

(b)         Savings Clause.  In case any provision of this Note is held by a court of competent jurisdiction to be excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, so that it is enforceable to the maximum extent possible, and the validity and enforceability of the remaining provisions of this Note will not in any way be affected or impaired thereby.  In no event shall the amount of interest paid hereunder exceed the maximum rate of interest on the unpaid principal balance hereof allowable by applicable law.  If any sum is collected in excess of the applicable maximum rate, the excess collected shall be applied to reduce the principal debt.  If the interest actually collected hereunder is still in excess of the applicable maximum rate, the interest rate shall be reduced so as not to exceed the maximum allowable under law.

 

(c)         Amendment.  Neither this Note nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the Company and the Holder.

 

(d)         Assignment, Etc.  The Holder may assign or transfer this Note to any transferee.  The Holder shall notify the Company of any such assignment or transfer promptly.  This Note shall be binding upon the Company and its successors and shall inure to the benefit of the Holder and its successors and assigns.

 

(e)         No Waiver.  No failure on the part of the Holder to exercise, and no delay in exercising any right, remedy or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise by the Holder of any right, remedy or power hereunder preclude any

  

8

  

other or future exercise of any other right, remedy or power.  Each and every right, remedy or power hereby granted to the Holder or allowed it by law or other agreement shall be cumulative and not exclusive of any other, and may be exercised by the Holder from time to time.

 

(f)         Governing Law; Jurisdiction.

 

(i)         Governing Law.   THIS NOTE WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO ANY CONFLICTS OF LAWS PROVISIONS THEREOF THAT WOULD OTHERWISE REQUIRE THE APPLICATION OF THE LAW OF ANY OTHER JURISDICTION.

 

(ii)         Jurisdiction.  The Company irrevocably submits to the jurisdiction of any State or Federal Court sitting in the State of California, County of Los Angeles, over any suit, action, or proceeding arising out of or relating to this Note.  The Company irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action, or proceeding brought in such a court and any claim that suit, action, or proceeding has been brought in an inconvenient forum.

 

The Company agrees that the service of process upon it mailed by certified or registered mail, postage prepaid and return receipt requested (and service so made shall be deemed complete three days after the same has been posted as aforesaid) or by personal service shall be deemed in every respect effective service of process upon it in any such suit or proceeding.  Nothing herein shall affect Holder’s right to serve process in any other manner permitted by law.  The Company agrees that a final non-appealable judgment in any such suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on such judgment or in any other lawful manner.

 

(iii)         NO JURY TRIAL.  THE COMPANY HEREBY KNOWINGLY AND VOLUNTARILY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION BASED ON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS NOTE.

 

(g)          Replacement Notes.  This Note may be exchanged by Holder at any time and from time to time for a Note or Notes with different denominations representing an equal aggregate outstanding Principal Amount, as reasonably requested by Holder, upon surrendering the same.  No service charge will be made for such registration or exchange.  In the event that Holder notifies the Company that this Note has been lost, stolen or destroyed, a replacement Note identical in all respects to the original Note (except for registration number and Principal Amount, if different than that shown on the original Note), shall be issued to the Holder, provided that the Holder executes and delivers to the Company an agreement reasonably satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with the Note.

  

9

  

IN WITNESS WHEREOF, the Company has caused this Note to be duly executed on June 8, 2010.

 

CLEAN POWER TECHNOLOGIES, INC.

 

By:  /s/                      

Name:                 Abdul Mitha

Title:                 Chief Executive Officer

  

10

  

EXHIBIT A

 

 FORM OF CONVERSION NOTICE

 

(To be Executed by the Holder in order to Convert a Note)

 

The undersigned hereby elects to convert the aggregate outstanding Principal Amount and accrued and unpaid interest (as defined in the Note) indicated below of this Note into shares of Common Stock, $0.001 par value per share (the “Common Stock”), of CLEAN POWER TECHNOLOGIES, INC. (the “ Company ”) according to the conditions hereof, as of the date written below.  If shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith.  No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.  

 

	
  

	
Conversion information:

 

	
Date to Effect Conversion:

	  
	
Aggregate Principal Amount of Note Being Converted:

	  
	
Number of shares of Common Stock to be Issued:

	  
	
Applicable Conversion Price:

	  
	
Signature:

	  	  
	
Name:

	  
	
Address:

	  
	
City/St/Zip:

	  

 

  

11

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