REGISTRATION RIGHTS AGREEMENT

REGISTRATION RIGHTS AGREEMENT

This Registration Rights Agreement (“ Agreement ”) is entered into as of July 10, 2008, between Clean Power Technologies, Inc., a Nevada corporation (the “ Company ”) and each of the parties listed under “Holders” hereto (each, a “ Holder ”).

W I T N E S S E T H :

WHEREAS , pursuant to that certain Securities Purchase Agreement, dated on or about the date hereof, by and between the Company and each Holder (the “ Purchase Agreement ”) of the 8% Senior Secured Convertible Promissory Notes (the “ Bridge Notes ”) issued by the Company, the Company has agreed to issue to the Holders, and the Holders have agreed to acquire from the Company, (i) Bridge Notes in the aggregate principal amount of up to $5,000,000 and (ii) Class A Warrants and Class B Warrants (collectively, the “ Warrants ”) to purchase shares of the Company’s Common Stock, par value $0.001 per share (the “ Common Stock ”), subject to the terms and conditions set forth therein; and

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

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

1.

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

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

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

“ Holder ” and “ Holders ” shall include each holder, the Placement Agent and any permitted transferee or transferees of Registrable Securities (as defined below), the Bridge Notes and/or Warrants which have not been sold to the public to whom the registration rights conferred by this Agreement have been transferred in compliance with this Agreement and/or the Purchase Agreement.

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

“ Placement Agent ” means vFinance Investments.

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

“ Registrable Securities ” shall mean:  (i) the Shares or other securities issued or issuable to each Holder or its permitted transferee or designee (a) upon conversion of the Bridge Notes or exercise of the Warrants, or (b) upon any distribution with respect to, any exchange for or any replacement of, a Bridge Note or Warrant, (c) upon any conversion, exercise or exchange of any securities issued in connection with any such distribution, exchange or replacement, or (d) as payment of any portion of the principal amount or interest in lieu of cash with respect to the Bridge Notes (even if not permitted under the terms of the Bridge Notes or the Purchase Agreement); (ii) securities issued or issuable in respect of the foregoing upon any stock split, stock dividend, recapitalization or similar event; and (iii) any other security issued as a dividend or other distribution with respect to, in exchange for or in replacement of the securities referred to in the preceding clauses; provided that all such shares shall cease to be Registrable Securities at such time as they have been sold under a Registration Statement or pursuant to Rule 144 under the Securities Act or otherwise or at such time as they are eligible to be sold without volume limitation pursuant to Rule 144.  

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

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

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

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

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

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

2.

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

(a)

The Company shall, as expeditiously as possible after the Closing Date:

(i)

But in any event no later than ninety (90) days after the final Closing Date (the “ Required Filing Date ”) or such other date specified in the last sentence of this Section 2(a)(i) for such initial filing, prepare and file a registration statement with the Commission pursuant to Rule 415 under the Securities Act (“ Rule 415 ”) on Form S-1 under the Securities Act (or in the event that the Company is ineligible to use such form, such other form as the Company is eligible to use under the Securities Act covering resales by the Holders as selling stockholders (not underwriters) of the Registrable Securities (a “ Registration Statement ”), which Registration Statement, to the extent allowable under the Securities Act and the rules promulgated thereunder (including Rule 416), shall state that such Registration Statement also covers such indeterminate number of additional shares of Common Stock as may become issuable upon conversion of the Bridge Notes and exercise of the Warrants pursuant to the issuance of Common Stock to pay interest on the Bridge Notes or pursuant to the applicable anti-dilution provisions or other adjustment provisions of the Bridge Notes and the Warrants..  The number of shares of Common Stock initially included in such Registration Statement shall be no less than 120% of the maximum number of shares of Common Stock which may be included in a Registration Statement without exceeding registration limitations imposed by the SEC pursuant to Rule 415 (the “ Rule 415 Amount ”) in a comment letter addressed to the Company; provided that the Company shall use its commercially reasonable efforts to contest such limitation, but in any event not less than approximately 10,000,000 shares of Common Stock.  Thereafter, the Company shall use its best efforts to cause such Registration Statement and other filings to be declared effective, as soon as possible (the “ Required Effective Date ”).  The Company shall use its best efforts to ensure that each subsequent Registration Statement is filed as soon as possible, but in no event sooner than six (6) months from the effectiveness of a previously filed Registration Statement. In the event that less than all of the Registrable Securities are included in a Registration Statement as a result of the limitations described in this paragraph, then the Company will (i) reduce on a proportionate basis the number of Registrable Securities of each Holder included in such Registration Statement and (ii) file additional Registration Statements, each registering the Rule 415 Amount, seriatim , until all of the Registrable Securities have been registered. The Required Filing Date and the Required Effective Date of each such additional Registration Statement shall be within a reasonable time after the first day such Registration Statement may be filed without objection by the SEC based on Rule 415.  Without limiting the foregoing, the Company will promptly respond to all SEC comments, inquiries and requests, and shall request acceleration of effectiveness at the earliest possible date.

(ii)

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

(iii)

Prepare and file with the SEC such amendments and supplements to such Registration Statement and the prospectus used in connection with such Registration Statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement and notify the Holders of the filing and effectiveness of such Registration Statement and any amendments or supplements.

(iv)

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

(v)

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

(vi)

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

(vii)

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

(viii)

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

(ix)

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

(x)

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

(b)

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

(c)

Effect of Late Filing . In the event that (i) any Registration Statement has not been filed by the Required Filing Date, the Company fails to cause to be declared effective a Registration Statement within ten (10) days following receipt of a “no review” letter from the SEC, or the Company fails to respond to any SEC comment letter within thirty (30) days of receipt other than by reason of the operation of Section 2(b); or (ii) the Company fails to maintain the effectiveness of the Registration Statement during the registration period and the Purchaser cannot otherwise effectuate a resale of the Registrable Securities under Rule 144, then the Company will make a payment to each Holder as liquidated damages for such delay (each a “ Late Registration Payment ”). Each Late Registration Payment will be paid in cash and shall be equal to 1.0% of the face amount of the Bridge Notes for every thirty (30) day period, or portion thereof that the Registration Statement is not filed or the Company fails to respond to SEC comments.  The Late Registration Payments will be prorated on a daily basis during the 30-day period and will be paid to the Holders within ten business days following the end of each 30-day period as to which payment is due hereunder.  The Holders may make a claim for additional damages as a remedy for the Company’s failure to comply with the timelines set forth in this Section, but acknowledgement of such right in this Agreement shall not constitute an admission by the Company that any such damages exist or may exist.  Nothing contained in the preceding sentence shall be read to limit t