PLEDGE AGREEMENT
PLEDGE AGREEMENT (this “
Agreement ”), dated as of July 10, 2008, is by and
among Clean Power Technologies, Inc., a Nevada corporation (the
“ Company ” or “ Pledgor”
), its wholly-owned subsidiary, Clean Power Technologies,
Limited, an entity formed under the laws of the United Kingdom
(the “CPTL”), and the pledgees signatory hereto and
their respective endorsees, transferees and assigns
(collectively, the “ Pledgees ”).
W I T N E S S E T H :
WHEREAS, pursuant to a Securities Purchase
Agreement, dated the date hereof, between Company and the
Secured Party (the “ Purchase Agreement ”),
the Company has agreed to issue to the Secured Party and the
Secured Party has agreed to purchase from the Company (i) 8%
Senior Secured Promissory Notes, (the “ Notes
”), which are convertible into shares of Company’s
Common Stock, par value $0.001 per share (the “ Common
Stock ”); and (ii) Class A Warrants and Class B
Warrants (collectively, the “ Warrants ”).
Capitalized terms used herein not otherwise defined shall have
the meaning ascribed to them in the Purchase Agreement; and
WHEREAS, pursuant to the Registration Rights
Agreement, dated the date hereof, between the Company and the
Secured Party (the “ Registration Rights Agreement
”), the Company has, among other things, agreed to
register all of the shares of the Company’s Common Stock
that may be issued upon the conversion of the Note and the
exercise of the Warrants; and
WHEREAS, Pledgor is the legal and beneficial
owner, as more fully described on Exhibit A attached
hereto, of One (1) Share of CPTL’s common stock,
representing 100% of the issued and outstanding capital stock of
CPTL, as provided on Exhibit A . Pledgor, as an
equity holder of CPTL, acknowledges that (i) it will receive
direct and indirect benefits from the Pledgees pursuant to the
Purchase Agreement and the other Transaction Documents and (ii)
Pledgor’s execution of this Agreement is a condition
precedent to Pledgees entering into the Purchase Agreement and
fulfilling its covenants thereunder and consummating the
transactions contemplated thereby; and
WHEREAS, in order to induce the Pledgees to
purchase the Note and the Warrants, the Company has agreed to
execute and deliver to the Pledgees that certain Security
Agreement for the benefit of the Pledgees and to grant to it a
security interest in certain property of the Company to secure
the payment, performance and discharge in full of all of the
Company’s obligations under the Notes, the Purchase
Agreement, and any other agreements, instruments or documents
delivered concurrently therewith.
WHEREAS, in order to further secure the
payment and performance of the covenants of Pledgor in favor of
Pledgee under the Purchase Agreement, the Notes, or any other
Transaction Document, or any agreement, instrument or documents
delivered concurrently therewith (collectively, the “
Obligations ”), Pledgor has agreed to pledge to
Pledgee, for the benefit of Pledgees, all of the equity
securities of CPTL, now or hereafter owned by Pledgor; and
NOW, THEREFORE , in consideration of the
premises and of the mutual covenants set forth herein and for
other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1.
Pledge . Pledgor hereby
pledges and grants to Pledgees, for the benefit of Pledgees, a
lien on and security interest in all of Pledgor’s right,
title and interest in and to the following property and
interests in property of Pledgor, whether now owned or hereafter
acquired and wherever located (the “ Pledged
Collateral ”):
(a)
all common stock and equity securities and all
general intangibles relating to the ownership of such common
stock and equity securities of CPTL now or at any time or times
hereafter owned by Pledgor, including, without limitation, all
of such equity securities (and general intangibles related
thereto) or other securities (collectively, the “
Pledged Interests ” );
(b)
all other property now or at any time or times
hereafter received, receivable or otherwise distributed in
respect of or in exchange or substitution for any or all of the
Pledged Interests, and all of Pledgor’s rights thereto,
including, without limitation, all dividends, cash and other
payments and distributions of any kind whatsoever; and
(c)
all proceeds of all of the foregoing.
Pledgor agrees to execute and deliver to Pledgee
(i) duly authorized stock power substantially in the form of
Exhibit B hereto, undated and appropriately endorsed in
blank, with respect to any certificated Pledged Interests and
(ii) such other documents of transfer as Pledgees may from time
to time reasonably request to enable Pledgees to transfer, after
the occurrence and during the continuance of an Event of
Default, the Pledged Collateral into its name or the name of its
nominee (all of the foregoing are hereinafter collectively
referred to as the “ Powers ”
).
2.
Security for the Obligations .
The Pledged Collateral secures the prompt and complete
payment, performance and observance of the Obligations
(including, without limitation, all obligations and liabilities
of Pledgor hereunder).
3.
Perfection of Security Interest.
Pledgor agrees to (a) promptly deliver to the Pledgee all
certificates or other instruments evidencing any of the Pledged
Collateral, if any, together with an assignment in blank, (b)
execute and deliver to Pledgees such financing statements as
Pledgees may reasonably request with respect to the Pledged
Collateral (or, if execution by Pledgor is not required pursuant
to the applicable Uniform Commercial Code, Pledgor hereby
authorizes Pledgees to file all financing statements deemed
necessary by Pledgees to perfect the security interests granted
hereunder), and (c) take such other steps as Pledgees may from
time to reasonably request to perfect Pledgees’ security
interest in the Pledged Collateral or any part thereof under
applicable law.
4.
Pledged Collateral Adjustments .
If, during the term of this Agreement:
(a)
any non-cash dividend or distribution,
reclassification, readjustment or other change is declared or
made in the capital structure of CPTL, or any option, warrant or
similar instrument included within the Pledged Collateral is
exercised, or both, or
(b)
any subscription, warrants, options or other
rights shall be issued in connection with the Pledged
Collateral,
then Pledgor shall (i) promptly deliver all new,
substituted and additional shares, warrants, options, rights or
other equity securities, issued by reason of any of the
foregoing, and all certificates and other instruments evidencing
the same to the Pledgee to be held under the terms of this
Agreement and shall constitute Pledged Collateral hereunder and
(ii) promptly deliver to Pledgees a revised Exhibit A ,
adding such additional Pledged Collateral; provided ,
that nothing contained in this Section 4 is intended or shall be
deemed or construed to permit any non-cash dividend or
distribution, issuance of additional common stock, warrants,
options or other rights or other equity securities,
reclassification, readjustment or other change in the capital
structure of Company which is not expressly permitted by the
Purchase Agreement.
5.
Representations and Warranties .
I.
Pledgor hereby represents and warrants as of the
effective date hereof to Pledgees as follows:
(a)
Pledgor is the sole legal and beneficial owner
of the Pledged Interests owned by Pledgor, free and clear of any
lien or encumbrance, except for the lien created by this
Agreement;
(b)
The Pledged Interests have been duly authorized
and, if such Pledged Interests are shares of stock, validly
issued and are fully paid and non-assessable;
(c)
The Pledged Interests constitute one hundred
percent (100%) of the issued and outstanding shares of common
stock or other equity securities of CPTL and there are no
outstanding options, warrants or other agreements with respect
to the Pledged Interests;
(d)
Pledgor has full power and authority to enter
into this Agreement and has the right to vote, assign, deposit,
pledge and grant a lien on or otherwise transfer all of its
rights in the Pledged Collateral free and clear of any
liens;
(e)
No consent of any other Person is required under
CPTL’s certificate of incorporation, limited liability
company operating agreement, or any other similar constituent
document, to the grant of the liens provided hereby and to the
transfer of the Pledged Collateral to Pledgee or its designee in
connection with the exercise of any remedies hereunder,
including under Section 9 below; and there are no restrictions
contained in CPTL’s certificate of incorporation, limited
liability company operating agreement, or any other similar
constituent document which could reasonably be expected to
impair in any material respect Pledgees’ ability to
exercise any of such or any other remedies.
(f)
No consent, authorization, approval, or other
action by, and no notice to or filing with, any governmental
authority is required for the pledge of the Pledged Collateral
pursuant to this Agreement or for the execution or delivery by
Pledgor of, or performance by Pledgor under, this Agreement;
(g)
The pledge of the Pledged Collateral pursuant to
this Agreement creates a valid and perfected first priority
security interest in the Pledged Collateral, in favor of
Pledgee, securing the prompt and complete payment, performance
and observance of the Obligations;
(h)
Each of the Powers, if any, is duly executed and
gives Pledgees the authority it purports to confer; and
(i)
Pledgor’s legal name is exactly as it
appears on the signature pages hereto, Pledgor’s
jurisdiction of organization is the State of Nevada, and Pledgor
will provide Pledgee with thirty (30) days prior written notice
of any change in Pledgor’s legal name or jurisdiction of
organization.
6 .
Voting Rights . During the
term of this Agreement, and except as otherwise provided in this
Section 6, Pledgor shall have the right to vote the Pledged
Interests on all questions in a manner not inconsistent with the
terms of the Purchase Agreement, any Transaction Document or
this Agreement and Pledgees will deliver all necessary documents
to allow Pledgor to take such action upon Pledgor’s
reasonable request. After the occurrence and during the
continuance of an Event of Default, Pledgees may, at
Pledgees’ option, (a) exercise all voting and other
consensual rights and powers pertaining to the Pledged
Collateral, including the right to take action by consent and
(b) terminate Pledgor’s ability to vote the Pledged
Interests by written notice to Pledgor of such termination.
Pledgor hereby agrees to execute all proxies or other
instruments, documents or agreements deemed reasonably necessary
by Pledgees to evidence the right to vote the Pledged Interests
as provided hereunder, and Pledgor agrees that it shall not be
entitled to rescind, revoke or otherwise modify Pledgee’s
vote executed in accordance with this Section 6. Any and
all proxies executed by Pledgor pursuant to this Section 6 shall
be deemed for all purposes to be a proxy coupled with an
interest and shall be irrevocable until the payment in full, in
cash, of all the Obligations and the fulfillment or termination
of all covenants under the Purchase Agreement.
7.
Dividends and Other Distributions
. (a) (i) Pledgor shall be entitled to receive
and retain any and all dividends and other distributions paid in
respect of the Pledged Collateral to the extent that such
receipt or such distribution is not prohibited by the terms of
the Purchase Agreement or any other Transaction Document;
provided, that any and all
(A)
dividends paid or payable other than in cash
with respect to, and instruments
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