EXHIBIT 10.3
R&D AGREEMENT
This Agreement is made effective by and between Temple University — Of The
Commonwealth System of Higher Education (hereinafter referred to as “TEMPLE”), a
corporation organized and existing under the laws of the Commonwealth of
Pennsylvania, having a principal place of business at Broad Street and
Montgomery Avenue, Philadelphia, Pennsylvania and Save The World Air, Inc.
(hereinafter referred to as “COMPANY”), a corporation organized and existing
under the laws of the State of Nevada, having a principal place of business at
5125 Lankershim Boulevard, North Hollywood, California 91601.
WHEREAS, the parties have entered into certain license agreements effective
                     pertaining to the effect of electric fields on fuel droplet
size and to the effect of electric fields on crude oil viscosity ( hereinafter
referred to collectively as the “LICENSES”);
WHEREAS, COMPANY wishes to fund research pertaining to LICENSED PRODUCT, as
defined in the LICENSES, and wishes to license intellectual property contained
in the results of said research;
WHEREAS, TEMPLE wishes to receive the aforementioned research funding from
COMPANY and wishes to disclose to COMPANY the results of said research; and
WHEREAS, COMPANY wishes to receive the results of the aforementioned research
without jeopardizing the patentability of inventions contained therein or
TEMPLE’s proprietary rights thereto;
NOW, THEREFORE, in consideration of the premises and of the covenants and
obligations hereinafter set forth, the parties, intending to be legally bound,
agree as follows:
ARTICLE 1 — DEFINITIONS
The definitions of all terms used in the LICENSE are incorporated herein by
reference.
“PROJECT” shall mean the research project pertaining to LICENSED PRODUCT that is
described in Exhibit A, which is attached hereto and is incorporated herein by
reference.
“PROJECT PERIOD” shall mean the period beginning with the above written
effective date and ending twenty-four (24) months thereafter.
1.4 “PROJECT RESULTS” shall mean discoveries, inventions, know-how, testing
data, methods, techniques and other information, patentable or unpatentable,
resulting from COMPANY’S funding of the PROJECT during the PROJECT PERIOD.

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1.5 “PRINCIPAL INVESTIGATOR” shall mean Dr. Rongjia Tao, designated by TEMPLE to
direct the PROJECT and to serve as the contact person for COMPANY on all
technical matters relating to the PROJECT.
1.6 “PROJECT PATENT” shall mean an application filed by TEMPLE for PROJECT
RESULTS, and any patents issuing therefrom.
1.7 “OPTION PERIOD” shall mean the period beginning with the above written
effective date and ending six (6) months after the end of the PROJECT PERIOD.
ARTICLE 2 — SCOPE
2.1 The work to be carried out under the PROJECT pertains to LICENSED PRODUCT
and is described in Exhibit A, which is attached hereto and is incorporated
herein by reference. The PRINCIPAL INVESTIGATOR shall direct the PROJECT and
control the manner of its performance.
2.2 TEMPLE shall make reasonable efforts to complete the PROJECT. However,
TEMPLE makes no warranties as to the completion of the PROJECT or the
achievement of any particular goal.
ARTICLE 3 — FUNDING
3.1 COMPANY shall pay five hundred thousand dollars ($500,000) to TEMPLE to fund
the PROJECT during the PROJECT PERIOD, as outlined in the budget incorporated in
Exhibit A, attached hereto and incorporated herein by reference.
3.2 COMPANY shall provide its funding pursuant to Paragraph 3.1 in eight
(8) non-refundable installments, as follows: (i) one hundred twenty three
thousand five hundred dollars ($123,500) no later that (30) thirty days from the
effective date of this Agreement and (ii) fifty three thousand seven hundred
fifty dollars ($53,750) every three (3) months thereafter until fully paid.
Checks shall be made to “Temple University” (with the name of the PRINCIPAL
INVESTIGATOR shown for reference purposes) and sent to the attention of Business
Manager at the address shown in Paragraph 6.5. If at any time during the Project
Period Dr. Tao should become unavailable to perform the duties of the principal
investigator for the Project. TEMPLE shall give STWA reasonable notice thereof,
which notice shall be given no later than 30 days after TEMPLE learns of
Dr. Tao’s unavailability. If another principal investigator reasonably
acceptable to STWA is not promptly engaged by TEMPLE, STWA shall have the right
to terminate this Agreement, STWA shall have to right to elect to terminate this
Agreement, and upon such termination, STWA shall have no further obligations
pursuant to Article 3 of this Agreement to make payments not then due in
accordance with the provisions such Article 3.

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ARTICLE 4 — OWNERSHIP RIGHTS
4.1 The entire right and title in all PROJECT RESULTS shall belong to Temple.
4.2 At any time during the OPTION PERIOD, TEMPLE may propose in writing to
COMPANY the filing of an application for a PROJECT PATENT. If COMPANY agrees in
writing to such filing within sixty (60) days of COMPANY’S receipt of the
proposal, such PROJECT PATENT shall be subject to the terms of Paragraphs 5.1
and 5.2, and shall be hereinafter referred to as an “OPTION PATENT”. However, if
COMPANY fails to agree in writing to such filing within sixty (60) days of
COMPANY’S receipt of the proposal, such PROJECT PATENT shall not be deemed an
OPTION PATENT and shall not be subject to any rights or obligations of COMPANY
hereunder or under the LICENSE.
4.3 At any time during the OPTION PERIOD, COMPANY may require in writing that
TEMPLE file an application for a PROJECT PATENT in connection with which TEMPLE
has not made a proposal to COMPANY pursuant to Paragraph 4.2, and such PROJECT
PATENT shall be deemed an OPTION PATENT subject to Paragraphs 5.1 and 5.2.
4.4 Except as otherwise provided in Paragraphs 4.2, 4.3 and 4.6, TEMPLE, in
consultation with COMPANY but in TEMPLE’s sole discretion, shall diligently
prepare, file and prosecute applications for all OPTION PATENTS during the
OPTION PERIOD or, for OPTION PATENTS that are subject to the negotiating
provisions of Paragraph 5.2, during the OPTION PERIOD and six (6) months
thereafter.
4.5 COMPANY shall reimburse TEMPLE, within thirty (30) days of receipt of a
detailed invoice therefor, for all costs and expenses incurred by TEMPLE
pursuant to Paragraph 4.4. TEMPLE, in its sole discretion, may elect to have its
patent counsel submit such invoices directly to COMPANY, in which case COMPANY
shall pay TEMPLE’s patent counsel directly.
4.6 In the event that COMPANY notifies TEMPLE in writing that it will stop
paying the costs and expenses with respect to any OPTION PATENT, TEMPLE, at its
option, may assume the obligation of supporting such OPTION PATENT, and
COMPANY’s rights and obligations thereto under this Agreement shall immediately
terminate. Termination of COMPANY’S rights and obligations with respect to an
OPTION PATENT shall in no way affect COMPANY’S rights and obligations to any
other OPTION PATENT.
ARTICLE 5 — LICENSE AND OPTION RIGHTS
5.1 At any time during the OPTION PERIOD, upon written notice thereof to TEMPLE,
COMPANY may elect to add any OPTION PATENT to PATENT RIGHTS (as defined in the
LICENSE) for all purposes of the LICENSE provided, however, that the exercise of
any rights granted under such OPTION PATENT would have infringed, absent the
LICENSE, at least one

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VALID CLAM within the PATENT RIGHTS in effect prior to the receipt of the notice
by TEMPLE. If COMPANY fails to make an election as provided in the preceding
sentence with respect to any OPTION PATENT, all of COMPANYs rights and
obligations thereto shall immediately terminate, and TEMPLE shall be free to
license such OPTION PATENT to others.
5.2 At any time during the OPTION PERIOD, upon written notice thereof to TEMPLE,
COMPANY may elect to begin negotiating for an exclusive worldwide license under
any OPTION PATENT provided, however, that the exercise of any rights granted
under such OPTION PATENT would not have infringed, absent the LICENSE, any VALID
CLAIM within the PATENT RIGHTS (as defined in the LICENSE) in effect prior to
the receipt of the notice by TEMPLE. If after negotiating in good faith for six
(6) months the parties are unable to enter into a mutually acceptable license
agreement for any OPTION PATENT, all of CONPANY’s rights and obligations thereto
shall immediately terminate, and TEMPLE shall be free to license such OPTION
PATENT to others.
     ARTICLE 6 — MISCELLANEOUS
6.1 Except for the LICENSE, this Agreement constitutes the entire understanding
of the parties with respect to the matters herein contained and each
acknowledges and agrees that there are no warranties, representations or
understandings between them other than those expressly set forth herein. Each
party warrants and represents that the terms of this Agreement are not
inconsistent with any other contractual or legal obligations it may have. This
Agreement may be modified only by written consent signed by both parties.
6.2 The nghts and duties of the parties shall be governed by the laws of the
Commonwealth of Pennsylvania. The parties agree that any dispute arising out of
this Agreement may be resolved by recourse to the courts of the Commonwealth of
Pennsylvania or the United States District Court for the Eastern District of
Pennsylvania.
6.3 If any litigation or other legal proceeding relating to this Agreement
occurs, the prevailing party shall be entitled to recover from the other party
(in addition to any other relief awarded or granted) its reasonable costs and
expenses, including attorney’s fees, incurred in the proceedings.
6.4 This Agreement is binding upon the parties hereto. The terms and conditions
of Article 4 and Article 5 shall survive expiration or termination of this
Agreement.
6.5 Any payment, notice, report, or other communication required hereunder shall
be sent to the parties at the addresses below:

             
 
  To TEMPLE:   Office of Technology Transfer    
 
      Temple University (083-45)    
 
      1601 N. Broad Street, Room 406    
 
      Philadelphia, PA 19122-6099    

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  To LICENSEE:   Bruce McKinnon, Chief Executive Officer    
 
      Save the World Air, Inc.    
 
      5125 Lankershim Boulevard    
 
      Los Angeles, California 91601    
 
           
 
      With copies to:    
 
           
 
      Lance Jon Kimmel    
 
      SEC Law Firm    
 
      11693 San Vicente Boulevard, Suite 357    
 
      Los Angeles, CA 90049    

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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives the day and year written below.
Temple University — Of The Commonwealth System of Higher Education:

                     
BY
  -s- Susan J. Karakantas [v27172v2717201.gif]       DATE        
 
                   
 
  Susan J. Karakantas
Interim Treasurer                
 
                    Attest:                
 
                   
By
  -s- Janet Carruth [v27172v2717202.gif]                
 
                   
 
  JANET CARRUTH
ASSISTANT SECRETARY                
 
                    Save the World Air, Inc.:                
 
                   
By
  /s/ Bruce McKinnon       DATE   February 2, 2007    
 
                   
 
  Bruce McKinnon
Chief Executive Officer                
 
                   
Attest:
                   
 
                   
By:
  /s/ Jerry Joves                
 
                   
 
  Secretary                

IN ACKNOWLEDGMENT OF HAVING READ AND UNDERSTOOD THE FOREGOING:

                     
BY
          DATE        
 
                   
 
  Principal Investigator                

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EXHIBIT A
Dr. Rongjia Tao will be the principal investigator for this project and such
involvement by Dr. Tao in this project is a material inducement to STWA to enter
into and perform its obligations under this R&D Agreement. Temple University
will perform research, development, and consulting towards the realization of
the following two commercial products: (1) Device utilizing electric field to
improve the fuel injection in engines for diesel, kerosene, and gasoline;
(2) Device utilizing electric or magnetic field to reduce crude oil viscosity
and improve crude oil flow in pipelines.
Performance period: Two years, starting on the Effective Date
Tasks to be performed:

  1.   Design and manufacture a prototype device for STWA, which utilizes
electric field to improve diesel injection in engines. Test the device and
determine the droplet size distribution in the fuel injection, compare the
results with the test on engine at STWA, and make necessary changes for the
device.     2.   Design and manufacture a prototype device for STWA, which
utilizes electric field to improve gasoline injection in engines. Test the
device and determine the droplet size distribution in the fuel injection,
compare the results with the test on engine at STWA, and make necessary changes
for the device.     3.   Design and manufacture a prototype device for STWA,
which utilizes electric field to improve kerosene injection in engines. Test the
device and determine the droplet size distribution in the fuel injection,
compare the results with the test on engine at STWA, and make necessary changes
for the device.     4.   Design a device for STWA, which utilizes electric field
to reduce crude oil viscosity for crude oil flow in pipelines.     5.   In
cooperation with STWA, manufacture the device and test it in laboratory and on
pipelines with asphalt-base or mixed base crude oil.     6.   Design a device
for STWA, which utilizes magnetic field to reduce crude oil viscosity for crude
oil flow in pipelines.     7.   In cooperation with STWA, manufacture the device
and test is in laboratory and on pipelines with paraffin-base crude oil.

All tasks are to be performed on a reasonable efforts basis.
Deliverables and Due Dates

         
1.
  Prototype device for diesel   1 week after Effective Date
2.
  1st Quarterly Report (about fuel injection for diesel)   3/31/2007
3.
  2nd Quarterly Report (about fuel injection for gasoline)   6/30/2007
4.
  3rd Quarterly Report (about fuel injection for kerosene)   9/30/2007
5.
  4th Quarterly Report (about design of the electric device for pipelines)  
12/31/2007
6.
  5th Quarterly Report (about tests with asphalt- and mixed base crude oil)  
3/31/2008
7.
  6th Quarterly Report (about the magnetic device for pipelines)   6/30/2008
8.
  7th Quarterly Report (about tests with paraffin-base crude oil)   9/30/2008
9.
  Final report (comprehensive report)   12/31/2008
 
       

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Budget:

         
 
       
Year 1
       
Labor Costs:
       
Three summer months (July-September) for Dr. Tao
  $ 47,277  
12 month salary for postdoctoral fellow
  $ 48,000  
12 month salary for one graduate student
  $ 20,400  
3 month salary (part-time) for one technician
  $ 12,000  
Fringe Benefits
  $ 18,532  
 
       
Equipment:
       
Laser Scattering system to measure particle size distribution
  $ 70,000  
 
       
Travel
  $ 6,000  
 
       
Lab supplies, computer service, publication charges, etc.
  $ 17,000  
 
       
Technology Transfer Fee
       
 
       
Total direct costs
  $ 239,209  
Modified Direct Costs (excluding equipment)
  $ 169,209  
Indirect costs (25% of Modified Direct Costs)
  $ 42,302  
Total Costs for Year 1
  $ 281,511  
 
       
Year 2
       
Labor Costs:
       
Three summer months (July-September) for Dr. Tao
  $ 48,695  
12 month salary for postdoctoral fellow
  $ 49,440  
12 month salary for one graduate student
  $ 21,012  
3 month salary (part-time) for one technician
  $ 12,360  
Fringe Benefits
  $ 19,088  
 
       
Travel
  $ 6,180  
 
       
Lab supplies computer service, publication charges, etc.
  $ 18,016  
 
       
Total direct costs
  $ 174,791  
Modified Direct Costs (excluding equipment)
  $ 174,791  
Indirect costs (25% of Modified Direct Costs)
  $ 43,698  
Total Costs for Year 2
  $ 218,489  
 
       
Total Costs for the Project in 2 years
  $ 500,000  
 
       

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