NEITHER THIS SECURITY NOR THE SECURITIES INTO
WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION
OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN
ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
CLASS B
COMMON STOCK PURCHASE WARRANTS
To Purchase 2,857,143 Shares of Common Stock
of
CLEAN POWER TECHNOLOGIES, INC.
No. W-B 07-10-08-1
July 10,
2008
THIS CLASS A COMMON STOCK PURCHASE WARRANT (the
“ Warrant ”) CERTIFIES that, for value
received, The Quercus Trust (the “ Holder ”),
is entitled, upon the terms and subject to the limitations on
exercise and the conditions hereinafter set forth, at any time
on or after the date of this Warrant and on or prior to the
fifth anniversary of the date of this Warrant (the “
Termination Date ”) but not thereafter, to
subscribe for and purchase from Clean Power Technologies, Inc.,
a Nevada corporation (the “ Company ”), up to
2,857,143 shares (the “ Warrant Shares ”) of
the Common Stock, par value $0.001 per share, of the Company
(the “ Common Stock ”). The purchase price
per share of Common Stock (the “ Exercise Price
”) under this Warrant shall be US$0.80. The Exercise Price
and the number of Warrant Shares for which the Warrant is
exercisable shall be subject to adjustment as provided herein.
Capitalized terms used and not otherwise defined herein shall
have the meanings set forth in that certain Securities Purchase
Agreement (the “ Securities Purchase Agreement
”), among the Company and the Purchaser parties signatory
thereto (the date of such Agreement, the “ Closing
Date ”). This Class B Warrant is being issued to
certain Purchasers, along with a Class A Warrant, as more fully
described in the Securities Purchase Agreement. The Class
A Warrant and the Class B Warrant are referred to collectively
as the “Class A and B Warrants”.
1.
Title to Warrant . Prior to the
Termination Date and subject to compliance with applicable laws,
including transfer restrictions imposed by applicable securities
laws, and Section 7 of this Warrant, this Warrant and all rights
hereunder are transferable, in whole or in part, at the office
or agency of the Company by the Holder in person or by duly
authorized attorney, upon surrender of this Warrant together
with the Assignment Form annexed hereto properly endorsed. The
transferee shall sign an investment letter in form and substance
reasonably satisfactory to the Company.
2
Authorization of Shares . Except as
provided in the Securities Purchase Agreement, the Company
covenants that all Warrant Shares which may be issued from time
to time upon the exercise of the purchase rights represented by
this Warrant in accordance with the terms of this Warrant,
including the payment of the exercise price for such Warrant
Shares, will, upon exercise of the purchase rights represented
by this Warrant, be duly authorized, validly issued, fully paid
and nonassessable and free from all taxes, liens and charges in
respect of the issue thereof (other than taxes in respect of any
transfer occurring contemporaneously with such issue).
3.
Exercise of Warrant .
(a)
Subject to Section 3(c), exercise of the
purchase rights represented by this Warrant may be made
(i) no sooner than twelve (12) months after the final
Closing Date (“Restricted Period”); provided,
however, that upon termination of the Restricted Period, the
Holder shall be entitled to exercise up to twenty-five percent
(25%) of total Class A and Class B Warrants issued to the Holder
in the six (6) month period following the Restricted Period
(“Initial Exercise Period”); or (ii) at any
time or times after the Initial Exercise Period, the balance of
the Class A Warrants and Class B Warrants on or before 5 p.m.,
New York City time, on the Termination Date by delivery to the
Company of a duly executed Notice of Exercise Form annexed
hereto (or such other office or agency of the Company as it may
designate by notice in writing to the registered Holder at the
address of such Holder appearing on the books of the Company)
and surrender of this Warrant, together with payment of the
aggregate Exercise Price of the shares thereby purchased by wire
transfer or cashier’s check drawn on a United States bank
in immediately available funds. In the event that an effective
Registration Statement covering the Warrant Shares is not
declared effective, the Holder may, at its discretion, effect a
“cashless” exercise of the Warrant by surrendering
the Warrant at the principal office of the Company, accompanied
by a duly executed Notice of Exercise Form and a written notice
stating the Holder’s intent to effect a cashless exercise,
the shares of common stock to be issued upon exchange and the
date on which the Holder’s requests that such exercise is
to occur. Upon a Holder’s cashless exercise, such
Holder shall be entitled to receive a certificate for the number
of Warrant Shares equal to the quotient obtained by dividing
[(A-B) (X)] by (A), where:
(A) = the Closing Price on the Trading Day
preceding the date of such election;
(B) = the Exercise Price of the Warrants, as adjusted;
and
(X) = the number of Warrant Shares issuable upon exercise of
the Warrants in accordance with the terms of this Warrant.
Certificates for Warrant Shares purchased
hereunder shall be delivered to the Holder within three (3)
Trading Days from the delivery to the Company of the Notice of
Exercise Form, surrender of this Warrant and payment of the
aggregate Exercise Price (or by means of a cashless exercise) as
set forth above (“ Warrant Share Delivery Date
”). This Warrant shall be deemed to have been exercised on
the later of the date the Notice of Exercise is delivered to the
Company and the date the Exercise Price is received by the
Company. The Warrant Shares shall be deemed to have been issued,
and Holder or any other person so designated to be named therein
shall be deemed to have become a holder of record of such shares
for all purposes, as of the date the Warrant has been exercised
by payment to the Company of the Exercise Price and all taxes
required to be paid by the Holder, if any, pursuant to Section 5
prior to the issuance of such shares, have been paid. If the
Company shall fail for any reason or for no reason to
issue to the Holder within three (3) Trading Days of receipt of
the Notice of Exercise, a certificate for the Warrant Shares to
which the Holder is entitled and register such Warrant Shares on
the Company’s share register or to credit the
Holder’s balance account with DTC for such number of
Warrant Shares or other securities to which the Holder is
entitled upon the Holder’s exercise of this Warrant, and
if on or after such Trading Day the Holder purchases (in an open
market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by the Holder of the Warrant
Shares or other securities issuable upon such exercise that the
Holder anticipated receiving from the Company (a
“Buy-In” ), then the Company shall, within three (3)
business days after the Holder’s request and in the
Holder’s discretion, either (i) pay cash to the Holder in
an amount equal to the Holder’s total purchase price
(including brokerage commissions, if any) for the shares of
Common Stock so purchased (the “Buy-In Price” ), at
which point the Company’s obligation to deliver such
certificate (and to issue such Warrant Shares) shall terminate,
or (ii) promptly honor its obligation to deliver to the Holder a
certificate or certificates representing such Warrant Shares and
pay cash to the Holder in an amount equal to the excess (if any)
of the Buy-In Price over the product of (A) such number of
shares of Common Stock, times (B) the Closing Bid Price on the
date of exercise. Nothing herein shall limit a
Holder’s right to pursue any other remedies available to
it hereunder, at law or in equity including, without limitation,
a decree of specific performance and/or injunctive relief with
respect to the Company’s failure to timely deliver
certificates representing shares of Common Stock upon exercise
of the Warrant as required pursuant to the terms hereof.
(b)
If this Warrant shall have been exercised in
part, the Company shall, at the time of delivery of the
certificate or certificates representing Warrant Shares, deliver
to Holder a new Warrant evidencing the rights of Holder to
purchase the unpurchased Warrant Shares called for by this
Warrant, which new Warrant shall in all other respects be
identical with this Warrant.
(c)
In no event shall the Holder be entitled to
exercise such number of Warrants, which when added to the sum of
the number of shares of Common Stock beneficially owned (as such
term is defined under Section 13(d) and Rule 13d-3 of the 1934
Act), by the Holder, would exceed 4.99% of the number of shares
of Common Stock outstanding on the Warrant Share Delivery Date,
as determined in accordance with Rule 13d-1(j) of the 1934
Act.
4.
No Fractional Shares or Scrip .
No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which Holder would
otherwise be entitled to purchase upon such exercise, the
Company shall pay a cash adjustment in respect of such final
fraction in an amount equal to such fraction multiplied by the
Exercise Price.
5.
Charges, Taxes and Expenses .
Issuance of certificates for Warrant Shares
shall be made without charge to the Holder for any issue or
transfer tax or other incidental expense in respect of the
issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be
issued in the name of the Holder or in such name or names as may
be directed by the Holder; provided, however, that in the event
certificates for Warrant Shares are to be issued in a name other
than the name of the Holder, this Warrant when surrendered for
exercise shall be accompanied by the Assignment Form attached
hereto duly executed by the Holder; and the Company may require,
as a condition thereto, the payment of a sum sufficient to
reimburse it for any transfer tax incidental thereto.
6.
Closing of Books .
The Company will not close its stockholder books
or records in any manner which prevents the timely exercise of
this Warrant, pursuant to the terms hereof.
7.
Transfer, Division and Combination .
(a)
Subject to compliance with any applicable
securities laws and the conditions set forth in Sections 1 and
7(e) hereof and to the provisions of the Securities Purchase
Agreement, this Warrant and all rights hereunder are
transferable, in whole or in part, upon surrender of this
Warrant at the principal office of the Company, together with a
written assignment of this Warrant substantially in the form
attached hereto duly executed by the Holder or its agent or
attorney and funds sufficient to pay any transfer taxes payable
upon the making of such transfer. Upon such surrender and, if
required, such payment, the Company shall execute and deliver a
new Warrant or Warrants in the name of the assignee or assignees
and in the denomination or denominations specified in such
instrument of assignment, and shall issue to the assignor a new
Warrant evidencing the portion of this Warrant not so assigned,
and this Warrant shall promptly be cancelled. A Warrant, if
properly assigned, may be exercised by a new holder for the
purchase of Warrant Shares without having a new Warrant issued.
Notwithstanding the foregoing, the Holder will not
voluntarily and knowingly assign or transfer this Warrant or the
Warrant Shares to any direct competitor of the Company without
the Company’s prior written consent.
(b)
This Warrant may be divided or combined with
other Warrants upon presentation hereof at the aforesaid office
of the Company, together with a written notice specifying the
names and denominations in which new Warrants are to be issued,
signed by the Holder or its agent or attorney. Subject to
compliance with Section 7(a), as to any transfer which may be
involved in such division or combination, the Company shall
execute and deliver a new Warrant or Warrants in exchange for
the Warrant or Warrants to be divided or combined in accordance
with such notice.
(c)
The Company shall prepare, issue and deliver at
its own expense (other than transfer taxes) the new Warrant or
Warrants under this Section 7.
(d)
The Company agrees to maintain, at its aforesaid
office, books for the registration and the registration of
transfer of the Warrants.
(e)
The Company may require, as a condition of
allowing such transfer (i) that the Holder or transferee of this
Warrant, as the case may be, furnish to the Company a written
opinion of counsel reasonably acceptable to the Company (which
opinion shall be in form, substance and scope customary for
opinions of counsel in comparable transactions) to the effect
that such transfer may b
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