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                                                                    EXHIBIT 10.7

                              EMPLOYMENT AGREEMENT

                  AGREEMENT made as of the xxth day of MONTH-YEAR by and between
SAVE THE WORLD AIR, INC. ("STWA"), a Nevada chartered corporation, and Edward L.
Masry (the "Executive").

BACKGROUND

                  A.       STWA desires to employ the Executive and the
Executive is willing to serve on the terms and conditions herein provided.

                  B.       In order to effect the foregoing, the parties hereto
desire to enter into an employment agreement on the terms and conditions set
forth below.

                  NOW, THEREFORE, in consideration of the premises and the
respective covenants and agreements of the parties contained herein, and
intending to be legally bound hereby, the parties hereto agree as follows:

                  1.       DEFINITIONS AND SPECIAL PROVISIONS. Each capitalized
word and term used herein shall have the meaning ascribed to it in the glossary
appended hereto, unless the context in which such word or term is used otherwise
clearly requires. Such glossary is incorporated herein by reference and made a
part hereof.

                  2.       EMPLOYMENT. STWA hereby agrees to employ the
Executive, and the Executive hereby agrees to serve STWA, on the terms and
conditions set forth herein.

                  3.       TERM OF AGREEMENT. The Executive's employment under
this Agreement shall commence on the date hereof and, except as otherwise
provided herein, shall continue until December 31, 2007; provided, however, that
commencing on December 31, 2007 and each anniversary thereafter, the term of
this Agreement shall automatically be extended for one additional year beyond
the term otherwise established unless, prior to such date, STWA or the Executive
shall have given a Notice of Non-Extension.

                  4.       POSITION AND DUTIES. The Executive shall serve as
Chief Executive Officer of STWA and he shall have such responsibilities, duties
and authority as he may from time to time deem appropriate in his best judgment.
He shall also serve as a Chairman of STWA's Board of Directors and upon any
committees thereof as requested by the Board. Nothing herein shall be construed
as precluding him from devoting a reasonable amount of time to civic,
charitable, trade association and other activities that do not represent
conflicts and are not otherwise in any way detrimental to STWA.

                  5.       COMPENSATION AND RELATED MATTERS.

                  BASE COMPENSATION. During the period of the Executive's
                  employment hereunder, the executive's annual base compensation
                  shall be for a total consideration of $1.00

                           (a)      INCENTIVE COMPENSATION. During the period of
                  the Executive's employment hereunder, he shall be entitled to
                  participate in all incentive plans, stock option plans, and
                  similar arrangements as may be in effect and maintained by
                  STWA for executive officers on a basis and at award levels
                  consistent and commensurate with his position and duties
                  hereunder.

                           (b)      EMPLOYEE BENEFIT PLANS AND OTHER PLANS OR
                  ARRANGEMENTS. The Executive shall be entitled to participate
                  in all Employee Benefit Plans of STWA that either, are in
                  effect at present or that may be adopted in the future. In
                  addition, he shall be entitled to participate in and

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                  enjoy any other plans and arrangements which provide for sick
                  leave, vacation, sabbatical, or personal days, club
                  memberships and dues, education payment or reimbursement,
                  business-related seminars, and similar fringe benefits
                  provided to or for the executive officers of STWA from time to
                  time. Notwithstanding the foregoing, Executive shall be
                  entitled to at least four (4) weeks vacation per calendar year
                  during each year of employment. Such vacation shall be
                  prorated during the year 2003 based on the date of this
                  Agreement.

                           (c)      EXPENSES. During the period of the
                  Executive's employment hereunder, he shall be entitled to
                  receive prompt reimbursement for all reasonable and customary
                  expenses, including transportation expenses, incurred by him
                  in performing services hereunder in accordance with the
                  general policies and procedures established by STWA.

                  6.       TERMINATION BY REASON OF DISABILITY.

                           (a)      IN GENERAL. In the event the Executive
                  becomes unable to perform his duties on a full-time basis by
                  reason of the occurrence of his Disability and, within 30 days
                  after a Notice of Termination is given, he shall not have
                  returned to the full-time performance of such duties, his
                  employment may be terminated by STWA.

                           (b)      BENEFITS. In the event of the termination of
                  the Executive's employment under Subparagraph (a), the term of
                  this Agreement shall continue for one year after the Date of
                  Termination, and STWA shall pay or provide the benefits set
                  forth below:

                                    (1)      The Executive shall be paid an
                                    amount equal to the higher of the aggregate
                                    bonus (es) paid to him with respect to one
                                    of the two years immediately preceding the
                                    year in which the Date of Termination
                                    occurs. Such amount shall be paid to him in
                                    cash on the first anniversary date of the
                                    Date of Termination.

                                    (2)      The Executive and his eligible
                                    dependents shall be entitled to continue to
                                    participate at the same aggregate benefit
                                    levels, for one year and at no out-of-pocket
                                    or tax cost to him, in the Welfare Benefit
                                    Plans in which he was a participant
                                    immediately prior to the Date of
                                    Termination, to the extent permitted under
                                    the terms of such plans and applicable law.
                                    To the extent STWA is unable to provide for
                                    continued participation in a Welfare Benefit
                                    Plan, it shall provide an equivalent benefit
                                    directly at no out-of-pocket or tax cost to
                                    him. For purposes of the preceding two
                                    sentences, STWA shall be deemed to have
                                    provided a benefit at no tax cost to him if
                                    it pays an additional amount to him or on
                                    his behalf, with respect to those benefits
                                    which would otherwise be nontaxable to him,
                                    calculated in a manner consistent with the
                                    provisions of Paragraph 12.

                           (c)      EARLIER CESSATION OF CERTAIN WELFARE
                           BENEFITS. Notwithstanding the provisions of
                           Subparagraph (b)(5), STWA shall not be required to
                           provide, at its cost, the welfare benefits covered
                           therein after the later of (i) the attainment by the
                           Executive and his spouse (if any) of age 65, or (ii)
                           the date specified in the relevant plan document for
                           benefit termination (assuming that he was employed
                           until age 65 or the normal retirement date, if any,
                           specified in such document).

                           (c)      DEATH DURING REMAINING TERM OF AGREEMENT.

                                    (1)      In the event the Executive dies
                                    during the remaining term of this Agreement
                                    following his termination for Disability and
                                    he is survived by a

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                                    spouse, the compensation and benefits
                                    remaining to be paid and provided under
                                    Subparagraph (b) shall be unaffected by his
                                    death and shall be paid and provided to her
                                    or on her behalf; provided, however, that
                                    the extent of her rights to the accrued
                                    benefits described in Subparagraph (b)(4)
                                    shall be determined by reference to the
                                    relevant plan provisions and any elections
                                    made under such plans; and provided further,
                                    that STWA shall not be required to provide
                                    continued benefits with respect to her
                                    deceased husband; and provided further, that
                                    in no event shall STWA be required to
                                    provide, at its cost, the other welfare
                                    benefits described in Subparagraph (b)(5) to
                                    such spouse and her eligible dependents
                                    after the earlier of (i) her death, or (ii)
                                    the later of (A) her attainment of age 65,
                                    or (B) the date specified in the relevant
                                    plan document for benefit termination
                                    (assuming that the Executive was employed
                                    until age 65 or the normal retirement date,
                                    if any, specified in such document).

                                    (2)      In the event the Executive dies
                                    during the remaining term of this Agreement
                                    following his termination for Disability and
                                    he is not survived by a spouse, (i) STWA
                                    shall thereafter make the remaining payments
                                    described in Subparagraphs (b)(1) through
                                    (b)(3) directly to his estate, (ii) the
                                    extent of the rights of any person to the
                                    accrued benefits described in Subparagraph
                                    (b)(4) shall be determined by reference to
                                    the relevant plan provisions and any
                                    elections made under such plans, and (iii)
                                    STWA's obligation to provide continued
                                    benefits under Subparagraph (b)(5) shall
                                    terminate.

                           (d)      COMPENSATION AND BENEFITS UPON EXPIRATION OF
                  REMAINING TERM OF AGREEMENT. Upon the expiration of the
                  remaining term of this Agreement following the Executive's
                  termination for Disability, and provided his Disability then
                  continues, he shall be entitled to receive the compensation
                  and benefits provided under the terms of any long-term
                  disability plan of STWA in effect on the Date of Termination
                  or, if greater, at the expiration of such remaining term. If
                  such plan exists, such compensation and benefits shall
                  continue until the earlier of (i) his death, or (ii) the later
                  of (A) his attainment of age 65, or (B) the date specified in
                  the plan document for benefit termination. To the extent STWA
                  is unable to provide such compensation and benefits under its
                  long-term disability plan, if any, it shall provide equivalent
                  compensation and benefits directly at no out-of-pocket or tax
                  cost to him. For purposes of the preceding sentence, STWA
                  shall be deemed to have provided compensation and benefits at
                  no tax cost to him if it pays an additional amount to him or
                  on his behalf, with respect to the compensation and benefits
                  which would otherwise be nontaxable to him, calculated in a
                  manner consistent with the provisions of Paragraph 12.

                  7.       TERMINATION BY REASON OF DEATH.

                           (a)      COMPENSATION AND BENEFITS TO SURVIVING
                  SPOUSE. In the event the Executive dies while he is employed
                  under this Agreement and is survived by a spouse, STWA shall
                  pay or provide the compensation and benefits set forth below:

                                    (1)      The surviving spouse shall be paid
                                    an amount equal to the greater of (i) the
                                    Executive's highest base compensation
                                    received during one of the two calendar
                                    years immediately preceding the calendar
                                    year in which the Date of Termination
                                    occurs, or (ii) his base compensation in
                                    effect immediately prior to the Date of
                                    Termination (or prior to any reduction which
                                    entitled him to terminate his employment for
                                    Good Reason) for a period of one year,
                                    beginning with such Date

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                                    of Termination. The frequency and manner of
                                    payment of such amounts shall be in
                                    accordance with STWA's executive payroll
                                    practices from time to time in effect.

                                    (2)      The surviving spouse shall be paid
                                    an amount equal to the highest payment made
                                    to Executive under each incentive bonus plan
                                    of STWA with respect to one of the two years
                                    immediately preceding the year in which the
                                    Date of Termination occurs. Such amount
                                    shall be paid in cash to her within 30 days
                                    after the Date of Termination.

                                    (3)      The surviving spouse shall be paid
                                    an amount equal to the sum of the highest
                                    annual contribution made on the Executive's
                                    behalf (other than his own salary reduction
                                    contributions) to each tax-qualified and
                                    non-qualified Defined Contribution Plan of
                                    STWA with respect to the year in which the
                                    Date of Termination occurs or one of the two
                                    years immediately preceding such year. Such
                                    amount shall be paid in cash to her within
                                    30 days after the Date of Termination or
                                    within 30 days after such amount can first
                                    be determined, whichever is later.

                                    (4)      Subject to the following sentence,
                                    the surviving spouse shall be paid benefits
                                    determined by reference to the excess of (i)
                                    the aggregate retirement benefits the
                                    Executive would have accrued under the terms
                                    of each tax-qualified and non-qualified
                                    Defined Benefit Plan as in effect
                                    immediately prior to the Date of
                                    Termination, had he (A) continued to be
                                    employed for a period of one year following
                                    the Date of Termination, and (B) received
                                    (on a pro rated basis, as appropriate) the
                                    greater of (I) the highest compensation
                                    taken into account under each such plan with
                                    respect to one of the two years immediately
                                    preceding the year in which the Date of
                                    Termination occurs, or (II) his annualized
                                    base compensation in effect immediately
                                    prior to the Date of Termination (or prior
                                    to any reduction which entitled him to
                                    terminate his employment for Good Reason),
                                    over (ii) the retirement benefits actually
                                    determined under such plans. The frequency,
                                    manner, and extent of payment of such
                                    benefits shall be consistent with the terms
                                    of the plans to which they relate and any
                                    elections made thereunder.

                                    (5)      The surviving spouse and her
                                    eligible dependents shall be entitled to
                                    continue to participate at the same
                                    aggregate benefit levels, for a period of
                                    one year following the Date of Termination
                                    and at no out-of-pocket or tax cost to her,
                                    in the Welfare Benefit Plans in which the
                                    Executive was a participant immediately
                                    prior to the Date of Termination, to the
                                    extent permitted under the terms of such
                                    plans and applicable law; provided, however,
                                    that STWA shall not be required to provide
                                    continued benefits with respect to her
                                    deceased husband; and provided further, that
                                    STWA shall not thereafter be required to
                                    provide, at its cost, the other welfare
                                    benefits covered by such plans to such
                                    spouse and her eligible dependents after the
                                    earlier of (i) her death, or (ii) the later
                                    of (A) her attainment of age 65, or (B) the
                                    date specified in the relevant plan document
                                    for benefit termination (assuming the
                                    Executive was employed until age 65 or the
                                    normal retirement date, if any, specified in
                                    such document). To the extent STWA is unable
                                    to provide for continued participation in a
                                    Welfare Benefit Plan as required, it shall
                                    provide an equivalent benefit directly at no
                                    out-of-pocket or tax

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                                    cost to her. For purposes of the preceding
                                    two sentences, STWA shall be deemed to have
                                    provided a benefit at no tax cost to her if
                                    it pays an additional amount to her or on
                                    her behalf, with respect to those benefits
                                    which would otherwise be nontaxable to her,
                                    calculated in a manner consistent with the
                                    provisions of Paragraph 12.

                           (b)      COMPENSATION AND BENEFITS TO ESTATE, ETC. In
                  the event the Executive dies while he is employed under this
                  Agreement and is not survived by a spouse, (i) STWA shall make
                  the payments described in Subparagraphs (a)(1) through (a)(3)
                  directly to his estate, (ii) the extent of the rights of any
                  person to the accrued benefits described in Subparagraph
                  (a)(4) shall be determined by reference to the relevant plan
                  provisions and any elections made under such plans, and (iii)
                  STWA's obligation to provide benefits under Subparagraph
                  (a)(5) shall terminate.

                  8.       TERMINATION BY STWA FOR CAUSE.

                           (a)      IN GENERAL. In the event STWA intends to
                  terminate the Executive's employment for Cause, it shall
                  deliver a Notice of Termination to him which specifies a Date
                  of Termination not less than 30 days following the date of
                  such notice, unless a shorter period of notice is required by
                  the principal regulator of STWA or any affiliate of STWA.

                           (b)      COMPENSATION. Within 30 days after the
                  Executive's termination under Subparagraph (a), STWA shall pay
                  him, in one lump sum, his accrued but unpaid base compensation
                  and vacation compensation earned through the Date of
                  Termination.

                  9.       TERMINATION BY THE EXECUTIVE WITHOUT GOOD REASON.

                           (a)      IN GENERAL. In the event the Executive
                  intends to terminate his employment without Good Reason, he
                  shall deliver a Notice of Termination to STWA which specifies
                  a Date of Termination not less than (i) 90 days following the
                  date of such notice, if a Change in Control shall not have
                  occurred, or (ii) 30 days following the date of such notice,
                  if a Change in Control shall have occurred.

                           (b)      COMPENSATION. Within 30 days after the
                  Executive's termination under Subparagraph (a), STWA shall pay
                  him, in one lump sum, his accrued but unpaid base compensation
                  and vacation compensation earned through the Date of
                  Termination.

                  10.      TERMINATION BY STWA WITHOUT DISABILITY OR CAUSE.

                           (a)      IN GENERAL. In the event STWA intends to
                  terminate the Executive's employment for any reason other than
                  Disability or Cause, it shall deliver a Notice of Termination
                  to him which specifies a Date of Termination not less than 90
                  days following the date of such notice.

                           (b)      COMPENSATION AND BENEFITS DURING REMAINING
                  TERM OF AGREEMENT. In the event of the termination of the
                  Executive's employment under Subparagraph (a), STWA shall pay
                  or provide the compensation and benefits described in
                  Paragraph 6(b), except that all such compensation and benefits
                  shall be for the remaining term of this Agreement determined
                  in accordance with Section 3 hereof, unless a change in
                  control has occurred prior to such termination of employment,
                  in which case all such compensation and benefits shall be for
                  a term of three (3) years from the Date of Termination and the
                  term of this Agreement shall continue until all such
                  compensation and benefits are paid to Executive in full.

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                           (c)      ADJUSTMENT TO CERTAIN SUBPARAGRAPH (b)
                  COMPENSATION AND BENEFITS. In the event the Executive suffers
                  a Disability during the remaining term of this Agreement
                  following the Date of Termination, STWA's obligation to pay or
                  fund any disability insurance premiums on his behalf shall be
                  suspended while his Disability continues, provided the
                  cessation of payment or funding does not result in the
                  termination of disability benefits. Any amounts described in
                  Paragraph 6(b) and otherwise payable under Subparagraph (b)
                  shall be reduced (but not below zero) by the dollar amount of
                  disability benefits received by him pursuant to plans or
                  policies funded, directly at its cost, by STWA.

                           (d)      EARLIER CESSATION OF CERTAIN WELFARE
                  BENEFITS. Notwithstanding the provisions of Subparagraph (b),
                  STWA shall not be required to provide, at its cost, the
                  welfare benefits covered by Paragraph 6(b)(5) after the later
                  of (i) the attainment by the Executive and his spouse (if any)
                  of age 65, or (ii) the date specified in the relevant plan
                  document for benefit termination (assuming that he was
                  employed until age 65 or the normal retirement date, if any,
                  specified in such document).

                           (e)      DEATH DURING REMAINING TERM OF AGREEMENT.

                                    (1)      In the event the Executive dies
                                    during the remaining term of this Agreement
                                    following his termination without Disability
                                    or Cause by STWA and he is survived by a
                                    spouse, the compensation and benefits
                                    required to be paid and provided under
                                    Subparagraph (b) shall be unaffected by his
                                    death and shall be paid and provided to her
                                    or on her behalf; provided, however, that
                                    the extent of her rights to the accrued
                                    benefits described in Paragraph 6(b)(4)
                                    shall be determined by reference to the
                                    relevant plan provisions and any elections
                                    made under such plans; and provided further,
                                    that STWA shall not be required to provide
                                    continued benefits with respect to her
                                    deceased husband; and provided further, that
                                    in no event shall STWA be required to
                                    provide, at its cost, the other welfare
                                    benefits described in Paragraph 6(b)(5) to
                                    such spouse and her eligible dependents
                                    after the earlier of (i) her death, or (ii)
                                    the later of (A) her attainment of age 65,
                                    or (B) the date specified in the relevant
                                    plan document for benefit termination
                                    (assuming that the Executive was employed
                                    until age 65 or the normal retirement date,
                                    if any, specified in such document).

                                    (2)      In the event the Executive dies
                                    during the remaining term of this Agreement
                                    following his termination without Disability
                                    or Cause and he is not survived by a spouse,
                                    (i) STWA shall thereafter make the remaining
                                    payments described in Paragraphs 6(b)(1)
                                    through 6(b)(3) directly to his estate, (ii)
                                    the extent of the rights of any person to
                                    the accrued benefits described in Paragraph
                                    6(b)(4) shall be determined by reference to
                                    the relevant plan provisions and any
                                    elections made under such plans, and (iii)
                                    STWA's obligation to provide the continued
                                    benefits described in Paragraph 6(b)(5)
                                    shall terminate.

                  11.      TERMINATION BY THE EXECUTIVE FOR GOOD REASON.

                           (a)      IN GENERAL. In the event the Executive
                  intends to terminate his employment for Good Reason, he shall
                  deliver a Notice of Termination to STWA which specifies a Date
                  of Termination not less than 30 days following the date of
                  such notice.

                           (b)      COMPENSATION AND BENEFITS DURING REMAINING
                  TERM OF AGREEMENT. In the event of the termination of the
                  Executive's employment under Subparagraph (a), STWA shall

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                  pay or provide the compensation and benefits described in
                  Paragraph 6(b), except that all such compensation and benefits
                  shall be for a term of three (3) years from the Date of
                  Termination and the term of this Agreement shall continue
                  until all such compensation and benefits are paid to Executive
                  in full.

                           (c)      ADJUSTMENT TO CERTAIN SUBPARAGRAPH (b)
                  COMPENSATION AND BENEFITS. In the event the Executive suffers
                  a Disability during the remaining term of this Agreement
                  following the Date of Termination, STWA's obligation to pay or
                  fund any disability insurance premiums on his behalf shall be
                  suspended while his Disability continues, provided the
                  cessation of payment or funding does not result in the
                  termination of disability benefits. Any amounts described in
                  Paragraph 6(b) and otherwise payable under Subparagraph (b)
                  shall be reduced (but not below zero) by the dollar amount of
                  disability benefits received by him pursuant to plans or
                  policies funded, directly at its cost, by STWA.

                           (d)      EARLIER CESSATION OF CERTAIN WELFARE
                  BENEFITS. Notwithstanding the provisions of Subparagraph (b),
                  STWA shall not be required to provide, at its cost, the
                  welfare benefits covered by Paragraph 6(b)(5) after the later
                  of (i) the attainment by the Executive and his spouse (if any)
                  of age 65, or (ii) the date specified in the relevant plan
                  document for benefit termination (assuming that he was
                  employed until age 65 or the normal retirement date, if any,
                  specified in such document).

                           (e)      DEATH DURING REMAINING TERM OF AGREEMENT.

                                    (1)      In the event the Executive dies
                                    during the remaining term of this Agreement
                                    following his termination for Good Reason
                                    and he is survived by a spouse, the
                                    compensation and benefits required to be
                                    paid and provided under Subparagraph (b)
                                    shall be unaffected by his death and shall
                                    be paid and provided to her or on her
                                    behalf; provided, however, that the extent
                                    of her rights to the accrued benefits
                                    described in Paragraph 6(b)(4) shall be
                                    determined by reference to the relevant plan
                                    provisions and any elections made under such
                                    plans; and provided further, that STWA shall
                                    not be required to provide continued
                                    benefits with respect to her deceased
                                    husband; and provided further, that in no
                                    event shall STWA be required to provide, at
                                    its cost, the other welfare benefits
                                    described in Paragraph 6(b)(5) to such
                                    spouse and her eligible dependents after the
                                    earlier of (i) her death, or (ii) the later
                                    of (A) her attainment of age 65, or (B) the
                                    date specified in the relevant plan document
                                    for benefit termination (assuming that the
                                    Executive was employed until age 65 or the
                                    normal retirement date, if any, specified in
                                    such document).

                                    (2)      In the event the Executive dies
                                    during the remaining term of this Agreement
                                    following his termination for Good Reason
                                    and he is not survived by a spouse, (i) STWA
                                    shall thereafter make the remaining payments
                                    described in Paragraphs 6(b)(1) through
                                    6(b)(3) directly to his estate, (ii) the
                                    extent of the rights of any person to the
                                    accrued benefits described in Paragraph
                                    6(b)(4) shall be determined by reference to
                                    the relevant plan provisions and any
                                    elections made under such plans, and (iii)
                                    STWA's obligation to provide the continued
                                    benefits described in Paragraph 6(b)(5)
                                    shall terminate.

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                  12.      PROVISIONS RELATING TO EXCISE TAXES.

                           (a)      IN GENERAL. In the event the Executive
                  becomes liable, for any taxable year, for the payment of an
                  Excise Tax (because of a change in control) with respect to
                  the compensation and benefits payable by STWA under this
                  Agreement or otherwise, STWA shall make one or more Gross-Up
                  Payments to the Executive or on his behalf. The amount of any
                  Gross-Up Payment shall be calculated by a certified public
                  accountant or other tax professional designated jointly by the
                  Executive and STWA. The provisions of this paragraph shall
                  apply with respect to the Executive's surviving spouse or
                  estate, where relevant.

                           (b)      METHODOLOGY FOR CALCULATION OF GROSS-UP
                  PAYMENT. For purposes of determining the amount of any
                  Gross-Up Payment, the Executive shall be deemed to pay income
                  taxes at the highest federal, state, and local marginal rates
                  of tax for the calendar year in which the Gross-Up Payment is
                  to be made, net of the maximum reduction in federal income tax
                  which could be obtained from the deduction of state and local
                  income taxes. In the event that the Excise Tax is subsequently
                  determined to be less than the amount taken into account at
                  the time the Gross-Up Payment was made, the Executive shall
                  repay to STWA, at the time that the amount of such reduction
                  in Excise Tax is finally determined, the portion of the
                  Gross-Up Payment attributable to the reduction (plus a portion
                  of the Gross-Up Payment attributable to the Excise Tax and the
                  federal, state, and local income taxes imposed on the portion
                  of the Gross-Up Payment being repaid by the Executive to the
                  extent such repayment results in a reduction in Excise Tax or
                  federal, state, or local income tax), plus interest on the
                  amount of such repayment. Such interest shall be calculated by
                  using the rate in effect under Section 1274(d)(1) of the IRC,
                  on the date the Gross-Up Payment was made, for debt
                  instruments with a term equal to the period of time which has
                  elapsed from the date the Gross-Up Payment was made to the
                  date of repayment. In the event that the Excise Tax is
                  subsequently determined to exceed the amount taken into
                  account at the time the Gross-Up Payment was made (including
                  by reason of any payment the existence or amount of which
                  could not be determined at the time of the Gross-Up Payment),
                  STWA shall make an additional Gross-Up Payment with respect to
                  the excess at the time the amount thereof is finally
                  determined, plus interest calculated in a manner similar to
                  that described in the preceding sentence.

                           (c)      TIME OF PAYMENT. Any Gross-Up Payment
                  provided for herein shall be paid not later than the 30th day
                  following the payment of any compensation or the provision of
                  any benefit which causes such payment to be made; provided,
                  however, that if the amount of such payment cannot be finally
                  determined on or before such day, STWA shall pay on such day
                  an estimate of the minimum amount of such payment and shall
                  pay the remainder of such payment (together with interest
                  calculated in a manner similar to that described in
                  Subparagraph (b)) as soon as the amount thereof can be
                  determined. In the event that the amount of an estimated
                  payment exceeds the amount subsequently determined to have
                  been due, such excess shall constitute a loan by STWA to the
                  Executive, payable on the 30th day after demand by STWA
                  (together with interest calculated in a manner similar to that
                  described in Subparagraph (b)).

                           (d)      OTHER ARRANGEMENTS. Notwithstanding the
                  provisions of this paragraph to the contrary, the actual
                  amounts payable hereunder as Gross-Up Payments shall be
                  coordinated with any similar amounts paid to the Executive
                  under any other contract, plan, or arrangement.

                  13.      FEES AND EXPENSES OF THE EXECUTIVE.

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                  After a Change in Control and except as provided in the
                  following sentence, STWA shall pay, within 30 days following
                  demand by the Executive, all legal, accounting, actuarial, and
                  related fees and expenses incurred by him in connection with
                  the enforcement of this Agreement. An arbitration panel or a
                  court of competent jurisdiction shall be empowered to deny
                  payment to the Executive of such fees and expenses only if it
                  determines that he instituted a proceeding hereunder, or
                  otherwise acted, in bad faith.

                  14.      REDUCTION FOR COMPENSATION AND BENEFITS RECEIVED
                  UNDER STWA SEVERANCE POLICY, ETC. Notwithstanding anything
                  herein to the contrary, in the event the Executive, his
                  surviving spouse, or any other person becomes entitled to
                  continued compensation and benefits hereunder by reason of the
                  Executive's termination of employment and, in addition,
                  compensation or similar benefits are payable under a severance
                  policy, program or arrangement maintained by STWA (other than
                  retirement plans), then the compensation or benefits otherwise
                  payable hereunder shall be reduced by the compensation or
                  benefits provided under such severance policy, program or
                  arrangement.

                  15.      MITIGATION. The Executive shall not be required to
                  mitigate the amount of any compensation or benefits which may
                  become payable hereunder by reason of his termination by
                  seeking other employment or otherwise, nor, except as
                  otherwise provided in the following sentence or elsewhere
                  herein, shall the amount of any such compensation or benefits
                  be reduced by any compensation or benefits received by the
                  Executive as the result of his employment by another employer.
                  Notwithstanding anything in this Agreement to the contrary,
                  STWA's obligation to provide any medical and dental benefits
                  hereunder may be suspended, with the written concurrence of
                  the Executive or, if applicable, his surviving spouse during
                  any period of time that such benefits are being provided by
                  reason of his or her employment.

                  16.      FUNDING OF COMPENSATION AND BENEFITS; ACCELERATION OF
                  CERTAIN PAYMENTS.

                           (a)      GRANTOR TRUST. In the event (i) the
                  Executive's employment is terminated without Cause or he
                  terminates his employment for Good Reason, and (ii) and a
                  Change in Control has occurred as of the Date of Termination
                  or occurs thereafter, the Executive shall have the right to
                  require STWA to establish a grantor trust (taxable to STWA)
                  and fund such trust, on an actuarially sound basis, to provide
                  the compensation and benefits to which he is entitled
                  hereunder, other than those which may be paid pursuant to the
                  provisions of Subparagraph (c). The specific terms of such
                  trust shall be as agreed to by the parties in good faith;
                  provided, however, that the trustee shall be a financial
                  institution independent of STWA; and provided further, that in
                  no event shall STWA be entitled to withdraw funds from the
                  trust for its benefit, or otherwise voluntarily assign or
                  alienate such funds, until such time as all compensation and
                  benefits required hereunder are paid and provided. The
                  determination of the extent of required funding, including any
                  supplemental funding in the event of adverse investment
                  performance of trust assets, shall be made by an actuary or a
                  certified public accountant retained by each party. To the
                  extent such professionals cannot agree on the proper level of
                  funding, they shall select a third such professional whose
                  determination shall be binding upon the parties.
                  Notwithstanding the foregoing, STWA shall remain liable for
                  all compensation and benefits required to be paid or provided
                  hereunder.

                           (b)      ALTERNATE SECURITY. In lieu of the right
                  given to the Executive under Subparagraph (a), he shall have
                  the right under such circumstances to require that STWA
                  provide (i) an irrevocable standby letter of credit issued by
                  a financial institution other than STWA or any Subsidiary of
                  STWA with a senior debt credit rating of "A" or better by
                  Moody's

                                      G-9
<PAGE>

                  Investors Service or Standard & Poor's Corporation, or (ii)
                  other security reasonably acceptable to him, to secure the
                  payment of such compensation and benefits.

                           (c)      ACCELERATED PAYMENT OF PRESENT VALUE OF
                  CERTAIN COMPENSATION. In the event (i) the Executive's
                  employment is terminated without Cause or he terminates his
                  employment for Good Reason, and (ii) a Change in Control has
                  occurred as of the Date of Termination or occurs thereafter,
                  the Executive shall have the continuing right to demand that
                  the present value of the remaining payments described in
                  Paragraphs 6(b)(1) through (3), and payable by reason of the
                  provisions of Paragraph 10 or 11 (as the case may be), be paid
                  to him in one lump sum within 30 days after the date written
                  demand is given. For purposes of calculating the present value
                  of such payments, a discount factor shall be applied to each
                  such payment which is equal to the relevant applicable federal
                  rate in effect on the date written demand is given by him,
                  determined by reference to the period of time between the date
                  of such notice and the scheduled time such payment would
                  otherwise be made. In the event any payment described in
                  Paragraphs 6(b)(1) through (3) is not yet determinable on the
                  date written demand is made, the other payments shall
                  nonetheless be made as provided above; and the undetermined
                  payment shall be made within 30 days after it becomes
                  determinable, calculated as provided in the preceding sentence
                  but by treating the date on which the payment becomes
                  determinable as the date of written notice. Nothing in this
                  subparagraph shall be construed as affecting the Executive's
                  right to one or more Gross-Up Payments in accordance with the
                  provisions of Paragraph 12; and a Gross-Up Payment (if
                  applicable) will be calculated and made with any payment made
                  under this subparagraph, as well as any other Gross-Up
                  Payments that may be required hereunder at a subsequent date.

                  17.      WITHHOLDING TAXES. All compensation and benefits
                  provided for herein shall, to the extent required by law, be
                  subject to federal, state, and local tax withholding.

                  18.      CONFIDENTIAL INFORMATION. The Executive agrees that
                  subsequent to his employment with STWA, he will not, at any
                  time, communicate or disclose to any unauthorized person,
                  without the written consent of the STWA, any proprietary or
                  other confidential information concerning STWA or any
                  Subsidiary of STWA; provided, however, that the obligations
                  under this paragraph shall not apply to the extent that such
                  matters (i) are disclosed in circumstances where the Executive
                  is legally obligated to do so, or (ii) become generally known
                  to and available for use by the public otherwise than by his
                  wrongful act or omission; and provided further, that he may
                  disclose any knowledge of insurance, financial, legal and
                  economic principles, concepts and ideas which are not solely
                  and exclusively derived from the business plans and activities
                  of STWA.

                  19.      COVENANTS NOT TO COMPETE OR TO SOLICIT.

                           (a)      NONCOMPETITION. During the period in which
                  he is employed by STWA and, if the Executive's employment
                  terminates under Paragraphs 6, for a period of 12 months after
                  the Date of Termination (the "Noncompetition Period"), the
                  Executive shall not, without the written consent in writing of
                  the Board of Directors of STWA, become an executive officer,
                  partner, consultant, director, or a four and nine-tenths
                  percent or greater shareholder or equity owner of any entity
                  engaged in the banking, lending, asset management, mutual
                  fund, financial planning or investment security business
                  within the California counties of Camden, Burlington, or any
                  other California county in which STWA has a branch or loan
                  production office. If at the time of the enforcement of this
                  paragraph a court holds that the duration, scope, or area
                  restrictions stated herein are unreasonable under the
                  circumstances then existing and, thus, unenforceable,

                                      G-10
<PAGE>

                  STWA and the Executive agree that the maximum duration, scope,
                  or area reasonable under such circumstances shall be
                  substituted for the stated duration, scope, or area.

                           (b)      NONSOLICITATION. During his employment and
                  the Noncompetition Period, the Executive shall not, whether on
                  his own behalf or on behalf of any other individual or
                  business entity, solicit, endeavor to entice away from STWA, a
                  Subsidiary or any affiliated company, or otherwise interfere
                  with the relationship of STWA, a Subsidiary or any affiliated
                  company with any person who is, or was within the then most
                  recent 12 month period, an employee or associate thereof;
                  provided, however, that this subparagraph shall not apply
                  following the occurrence of a Change in Control.

                           (c)      EXTENSION OF NONCOMPETITION PERIOD. The
                  Non-Competition Period shall be automatically extended by the
                  length of time (if any) in which the Executive is in violation
                  of any of the terms of this Section 19.

                  20.      ARBITRATION. To the extent permitted by applicable
                  law, any controversy or dispute arising out of or relating to
                  this Agreement, or any alleged breach hereof, shall be settled
                  by arbitration in Los Angeles, California in accordance with
                  the commercial rules of the American Arbitration Association
                  then in existence (to the extent such rules are not
                  inconsistent with the provisions of this Agreement), it being
                  understood and agreed that the arbitration panel shall consist
                  of three individuals acceptable to the parties hereto. In the
                  event that the parties cannot agree on three arbitrators
                  within 20 days following receipt by one party of a demand for
                  arbitration from another party, then the Executive and STWA
                  shall each designate one arbitrator and the two arbitrators
                  selected shall select the third arbitrator. The arbitration
                  panel so selected shall convene a hearing no later than 90
                  days following the selection of the panel. The arbitration
                  award shall be final and binding upon the parties, and
                  judgment may be entered thereon in the California Superior
                  Court or in any other court of competent jurisdiction.

                  21.      ADDITIONAL EQUITABLE REMEDY. The Executive
                  acknowledges and agrees that STWA's remedy at law for a breach
                  or a threatened breach of the provisions of Paragraphs 18 and
                  19 would be inadequate; and, in recognition of this fact and
                  notwithstanding the provisions of Paragraph 20, in the event
                  of such a breach or threatened breach by him, it is agreed
                  that STWA shall be entitled to request equitable relief in the
                  form of specific performance, temporary restraining order,
                  temporary or permanent injunction, or any other equitable
                  remedy which may then be available. Nothing in this paragraph
                  shall be construed as prohibiting STWA from pursuing any other
                  remedy available under this Agreement for such a breach or
                  threatened breach.

                  22.      RELATED AGREEMENTS. Except as may otherwise be
                  provided herein, to the extent that any provision of any other
                  agreement between STWA and the Executive shall limit, qualify,
                  duplicate, or be inconsistent with any provision of this
                  Agreement, the provision in this Agreement shall control and
                  such provision of such other agreement shall be deemed to have
                  been superseded, and to be of no force or effect, as if such
                  other agreement had been formally amended to the extent
                  necessary to accomplish such purpose.

                  23.      NO EFFECT ON OTHER RIGHTS. Except as otherwise
                  specifically provided herein, nothing contained in this
                  Agreement shall be construed as adversely affecting any rights
                  the Executive may have under any agreement, plan, policy or
                  arrangement to the extent any such right is not inconsistent
                  with the provisions hereof.

                                      G-11
<PAGE>

               24.      EXCLUSIVE RIGHTS AND REMEDY. Except for any explicit
               rights and remedies the Executive may have under any other
               contract, plan or arrangement with STWA, the compensation and
               benefits payable hereunder and the remedy for enforcement
               thereof shall constitute his exclusive rights and remedy in
               the event of his termination of employment.

               25.      DIRECTOR AND OFFICER LIABILITY INSURANCE;
               INDEMNIFICATION. STWA shall provide the Executive (including
               his heirs, executors, and administrators) with the maximum
               coverage permitted under its directors' and officers'
               liability insurance policy, as soon as STWA obtains such a
               policy, at STWA's expense and shall indemnify him as both a
               director and as an officer (and his heirs, executors, and
               administrators) to the fullest extent permitted under Federal
               and California law against all expenses and liabilities
               reasonably incurred by him in connection with or arising out
               of any action, suit, or proceeding in which he may be involved
               by reason of his having been an officer or director of STWA or
               any Subsidiary or affiliated company (whether or not he
               continues to be such an officer or director at the time of
               incurring such expenses or liabilities). Such expenses and
               liabilities shall include, but not be limited to, judgments,
               court costs, and attorneys' fees, and the costs of reasonable
               settlements.

               26.      NOTICES. Any notice required or permitted under this
               Agreement shall be sufficient if it is in writing and shall be
               deemed given (i) at the time of personal delivery to the
               addressee, or (ii) at the time sent certified mail, with
               return receipt requested, addressed as follows:

                        If to the Executive: Edward L. Masry

                        If to STWA           5125 Lankersham Boulevard
                                             North Hollywood, CA 91601
                                             Attention: Chairman of the Board of
                                                        Directors

               27.      NO WAIVER. The failure by any party to this Agreement
               at any time or times hereafter to require strict performance
               by any other party of any of the provisions, terms, or
               conditions contained in this Agreement shall not waive,
               affect, or diminish any right of the first party at any time
               or times thereafter to demand strict performance therewith and
               with any other provision, term, or condition contained in this
               Agreement. Any actual waiver of a provision, term, or
               condition contained in this Agreement shall not constitute a
               waiver of any other provision, term, or condition herein,
               whether prior or subsequent to such actual waiver and whether
               of the same or a different type. The failure of STWA to
               promptly terminate the Executive's employment for Cause or the
               Executive to promptly terminate his employment for Good Reason
               shall not be construed as a waiver of the right of
               termination, and such right may be exercised at any time
               following the occurrence of the event giving rise to such
               right.

               28.      SURVIVAL. Notwithstanding the nominal termination of
               this Agreement and the Executive's employment hereunder, the
               provisions hereof which specify continuing obligations,
               compensation and benefits, and rights (including the otherwise
               applicable term hereof) shall remain in effect until such time
               as all such obligations are discharged, all such compensation
               and benefits are received, and no party or beneficiary has any
               remaining actual or contingent rights hereunder.

                                      G-12
<PAGE>

                  29.      SEVERABILITY. In the event any provision in this
                  Agreement shall be held illegal or invalid for any reason,
                  such illegal or invalid provision shall not affect the
                  remaining provisions hereof, and this Agreement shall be
                  construed, administered and enforced as though such illegal or
                  invalid provision were not contained herein.

                  30.      BINDING EFFECT AND BENEFIT. The provisions of this
                  Agreement shall be binding upon and shall inure to the benefit
                  of the successors and assigns of STWA and the executors,
                  personal representatives, surviving spouse, heirs, devisees,
                  and legatees of the Executive.

                  31.      ENTIRE AGREEMENT. This Agreement embodies the entire
                  agreement among the parties with respect to the subject matter
                  hereof, and it supersedes all prior discussions and oral
                  understandings of the parties with respect thereto.

                  32.      NO ASSIGNMENT. This Agreement, and the benefits and
                  obligations hereunder, shall not be assignable by any party
                  hereto except by operation of law.

                  33.      NO ATTACHMENT. Except as otherwise provided by law,
                  no right to receive compensation or benefits under this
                  Agreement shall be subject to anticipation, commutation,
                  alienation, sale, assignment, encumbrance, charge, pledge, or
                  hypothecation, or to set off, execution, attachment, levy, or
                  similar process, and any attempt, voluntary or involuntary, to
                  effect any such action shall be null and void.

                  34.      CAPTIONS. The captions of the several paragraphs and
                  subparagraphs of this Agreement have been inserted for
                  convenience of reference only. They constitute no part of this
                  Agreement and are not to be considered in the construction
                  hereof.

                  35.      COUNTERPARTS. This Agreement may be executed in any
                  number of counterparts, each of which shall be deemed one and
                  the same instrument which may be sufficiently evidenced by any
                  one counterpart.

                  36.      NUMBER. Wherever any words are used herein in the
                  singular form, they shall be construed as though they were
                  used in the plural form, as the context requires, and vice
                  versa.

                  37.      APPLICABLE LAW. Except to the extent preempted by
                  federal law, the provisions of this Agreement shall be
                  construed, administered, and enforced in accordance with the
                  domestic internal law of the State of California without
                  reference to its laws regarding conflict of laws.

                  IN WITNESS WHEREOF, the parties have executed this Agreement,
                  or caused it to be executed, as of the date first above
                  written.

                      _____________________________________
                                 Edward L. Masry

                            SAVE THE WORLD AIR, INC.

                                      G-13
<PAGE>

                            By:____________________________________________
                                         Eugene E. Eichler
                                         President

                            Attest:________________________________________
                                         Janice Holder, Corporate Secretary

                                    GLOSSARY

                  "BOARD OF DIRECTORS" means the board of directors of the
                  relevant corporation.

                                      G-14
<PAGE>

                  "CAUSE" means (i) a documented repeated and willful failure by
                  the Executive to perform his duties, but only after written
                  demand and only if termination is effected by action taken by
                  a vote of (A) prior to a Change in Control, at least a
                  majority of the directors of STWA then in office, or (B) after
                  a Change in Control, at least 80% of the non-officer directors
                  of STWA then in office, (ii) his final conviction of a felony,
                  (iii) conduct by him which constitutes moral turpitude which
                  is directly and materially injurious to STWA or any Material
                  Subsidiary, (iv) willful material violation of corporate
                  policy, or (v) the issuance by the regulator of STWA or any
                  Subsidiary or affiliated company of an unappealable order to
                  the effect that he be permanently discharged.

                  For purposes of this definition, no act or failure to act on
                  the part of the Executive shall be considered "willful" unless
                  done or omitted not in good faith and without reasonable
                  belief that the action or omission was in the best interest of
                  STWA or any of its Subsidiaries or affiliated companies.

                  "CHANGE IN CONTROL" means the occurrence of any of the
                  following events:

                           (a)      any Person (except (i) STWA or any
                  Subsidiary or prior affiliate of STWA, or (ii) any Employee
                  Benefit Plan (or any trust forming a part thereof) maintained
                  by STWA or any Subsidiary or prior affiliate of STWA) is or
                  becomes the beneficial owner, directly or indirectly, of
                  STWA's securities representing 19.9% or more of the combined
                  voting power of STWA's then outstanding securities, or 50.1%
                  or more of the combined voting power of a Material
                  Subsidiary's then outstanding securities, other than pursuant
                  to a transaction described in Clause (c);

                           (b)      there occurs a sale, exchange, transfer or
                  other disposition of substantially all of the assets of STWA
                  or a Material Subsidiary to another entity, except to an
                  entity controlled directly or indirectly by STWA;

                           (c)      there occurs a merger, consolidation, share
                  exchange, division or other reorganization of or relating to
                  STWA, unless --

                                    (i)      the shareholders of STWA
                  immediately before such merger, consolidation, share exchange,
                  division or reorganization own, directly or indirectly,
                  immediately thereafter at least two-thirds of the combined
                  voting power of the outstanding voting securities of the
                  Surviving Company in substantially the same proportion as
                  their ownership of the voting securities immediately before
                  such merger, consolidation, share exchange, division or
                  reorganization; and

                                    (ii)     the individuals who, immediately
                  before such merger, consolidation, share exchange, division or
                  reorganization, are members of the Incumbent Board continue to
                  constitute at least two-thirds of the board of directors of
                  the Surviving Company; provided, however, that if the
                  election, or nomination for election by STWA's shareholders,
                  of any new director was approved by a vote of at least
                  two-thirds of the Incumbent Board, such director shall, for
                  the purposes hereof, be considered a member of the Incumbent
                  Board; and provided further, however, that no individual shall
                  be considered a member of the Incumbent Board if such
                  individual initially assumed office as a result of either an
                  actual or threatened Election Contest or Proxy Contest,
                  including by reason of any agreement intended to avoid or
                  settle any Election Contest or Proxy Contest; and

                                    (iii)    no Person (except (A) STWA or any
                  Subsidiary or prior affiliate of STWA, (B) any Employee
                  Benefit Plan (or any trust forming a part thereof) maintained
                  by STWA or any Subsidiary or prior affiliate of STWA, or (C)
                  the Surviving Company or any Subsidiary or prior affiliate of
                  the Surviving Company) has beneficial ownership of 19.9% or
                  more of the combined voting power of the Surviving Company's
                  outstanding voting securities immediately following such
                  merger, consolidation, share exchange, division or
                  reorganization;

                           (d)      a plan of liquidation or dissolution of
                  STWA, other than pursuant to bankruptcy or insolvency laws, is
                  adopted; or

                                      G-15
<PAGE>

                           (e)      during any period of two consecutive years,
                  individuals who, at the beginning of such period, constituted
                  the Board of Directors of STWA cease for any reason to
                  constitute at least a majority of such Board of Directors,
                  unless the election, or the nomination for election by STWA's
                  shareholders, of each new director was approved by a vote of
                  at least two-thirds of the directors then still in office who
                  were directors at the beginning of the period; provided,
                  however, that no individual shall be considered a member of
                  the Board of Directors of STWA at the beginning of such period
                  if such individual initially assumed office as a result of
                  either an actual or threatened Election Contest or Proxy
                  Contest, including by reason of any agreement intended to
                  avoid or settle any Election Contest or Proxy Contest.

                  Notwithstanding the foregoing, a Change in Control shall not
                  be deemed to have occurred if a Person becomes the beneficial
                  owner, directly or indirectly, of securities representing
                  19.9% or more of the combined voting power of STWA's then
                  outstanding securities solely as a result of an acquisition by
                  STWA of its voting securities which, by reducing the number of
                  shares outstanding, increases the proportionate number of
                  shares beneficially owned by such Person; provided, however,
                  that if a Person becomes a beneficial owner of 19.9% or more
                  of the combined voting power of STWA's then outstanding
                  securities by reason of share repurchases by STWA and
                  thereafter becomes the beneficial owner, directly or
                  indirectly, of any additional voting securities of STWA, then
                  a Change in Control shall be deemed to have occurred with
                  respect to such Person under Clause (a).

                  Notwithstanding anything contained herein to the contrary, if
                  the Executive's employment is terminated and he reasonably
                  demonstrates that such termination (i) was at the request of a
                  third party who has indicated an intention of taking steps
                  reasonably calculated to effect a Change in Control and who
                  effects a Change in Control, or (ii) otherwise occurred in
                  connection with, or in anticipation of, a Change in Control
                  which actually occurs, then for all purposes hereof, a Change
                  in Control shall be deemed to have occurred on the day
                  immediately prior to the date of such termination of his
                  employment.

                  "STWA" means Save The World Air, Inc.

                  "DATE OF TERMINATION" means:

                           (a)      if the Executive's employment is terminated
                  for Disability, 30 days after the Notice of Termination is
                  given (provided that he shall not have returned to the
                  performance of his duties on a full-time basis during such
                  30-day period);

                           (b)      if the Executive's employment terminates by
                  reason of his death, the date of his death;

                           (c)      if the Executive's employment is terminated
                  by STWA for Cause, the date of termination specified in the
                  Notice of Termination and determined in accordance with
                  Section 8(a);

                           (d)      if the Executive's employment is terminated
                  by him without Good Reason, the date of termination specified
                  in the Notice of Termination and determined in accordance with
                  Section 9(a);

                           (e)      if the Executive's employment is terminated
                  by STWA for any reason other than for Disability or Cause, the
                  date specified in the Notice of Termination and determined in
                  accordance with Section 10(a); or

                           (f)      if the Executive's employment is terminated
                  by him for Good Reason, the termination date specified in the
                  Notice of Termination and determined in accordance with
                  Section 11(a);

                  provided, however that the Date of Termination shall mean the
                  actual date of termination in the event the parties mutually
                  agree to a date other than that described above.

                  "DEFINED BENEFIT PLAN" has the meaning ascribed to such term
                  in Section 3(35) of ERISA.

                  "DEFINED CONTRIBUTION PLAN" has the meaning ascribed to such
                  term in Section 3(34) of ERISA.

                                      G-16
<PAGE>

                  "DISABILITY" has the meaning ascribed to the term "permanent
                  and total disability" in Section 22(e)(3) of the IRC.

                  "ELECTION CONTEST" means a solicitation with respect to the
                  election or removal of directors that, if STWA was subject to
                  the provisions of the 1934 Act, would be subject to the
                  provisions of Rule 14a-11 of the 1934 Act.

                  "EMPLOYEE BENEFIT PLAN" has the meaning ascribed to such term
                  in Section 3(3) of ERISA.

                  "ERISA" means the Employee Retirement Income Security Act of
                  1974, as amended and as the same may be amended from time to
                  time.

                  "EXCISE TAX" means the tax imposed by Section 4999 of the IRC
                  (or any similar tax that may hereafter be imposed by federal,
                  state or local law).

                  "EXECUTIVE" means NAME OF EXECUTIVE, an individual residing in
                  ADDRESS, California.

                  "GOOD REASON" means:

                           (a)      prior to a Change in Control--

                                    (i) the Executive's demotion to a lesser
                                    position, or any material diminution in his
                                    duties or responsibilities;

                                    (ii) a reduction in the Executive's base
                                    compensation, other than a reduction which
                                    is proportionate to a company-wide reduction
                                    in executive pay;

                                    (iii) a failure to increase the Executive's
                                    base compensation, consistent with his
                                    performance rating, within 24 months since
                                    the last increase, other than similar
                                    treatment on a company-wide basis for
                                    executives or a voluntary deferral by him of
                                    an increase; or

                                    (iv) any purported termination of the
                                    Executive's employment which is not in
                                    accordance with the terms of this Agreement;
                                    and

                           (b)      after a Change in Control--

                                    (i) a change in the Executive's status or
                                    position, or any material diminution in his
                                    duties or responsibilities;

                                    (ii) any increase in the Executive's duties
                                    inconsistent with his position;

                                    (iii) any reduction in the Executive's base
                                    compensation;

                                    (iv) a failure to increase the Executive's
                                    base compensation, consistent with his
                                    performance review, within 12 months of the
                                    last increase; or a failure to consider
                                    Executive for an increase within 12 months
                                    of his last performance review;

                                    (v) a failure to continue in effect any
                                    Employee Benefit Plan in which the Executive
                                    participates, including (whether or not they
                                    constitute Employee Benefit Plans) incentive
                                    bonus, stock option, or other qualified or
                                    nonqualified plans of deferred compensation
                                    (A) other than as a result of the normal
                                    expiration of such a plan, or (B) unless
                                    such plan is merged or consolidated into, or
                                    replaced with, a plan with benefits which
                                    are of equal or greater value;

                                      G-17
<PAGE>

                                    (vi) requiring the Executive to be based
                                    anywhere other than the county where his
                                    principal office was located immediately
                                    prior to the Change in Control;

                                    (vii) refusal to allow the Executive to
                                    attend to matters or engage in activities in
                                    which he was permitted to engage prior to
                                    the Change in Control;

                                    (viii) delivery to the Executive of a Notice
                                    of Nonextension;

                                    (ix) failure to secure the affirmation by a
                                    Successor, within three business days prior
                                    to a Change in Control, of this Agreement
                                    and its or STWA's continuing obligations
                                    hereunder (or where there is not at least
                                    three business days advance notice that a
                                    Person may become a Successor, within one
                                    business day after having notice that such
                                    Person may become or has become a
                                    Successor); or

                                    (x) any purported termination of the
                                    Executive's employment which is not in
                                    accordance with the terms of this Agreement.

Notwithstanding anything herein to the contrary, at the election of the
Executive, beginning with the 181st day following a Change in Control and
continuing through the first anniversary of such Change in Control, he may
terminate his employment for any reason or no reason and such termination will
be treated as having occurred for Good Reason.

                  "GROSS-UP PAYMENT" means an additional payment to be made to
or on behalf of the Executive in an amount such that the net amount retained by
him, after deduction of any Excise Tax on the Total Payments and any federal,
state, and local income tax and Excise Tax on such additional payment, equals
the Total Payments.

                  "INCUMBENT BOARD" means the Board of Directors of STWA as
constituted at any relevant time.

                  "IRC" means the Internal Revenue Code of 1986, as amended and
as the same may be amended from time to time.

                  "MATERIAL SUBSIDIARY" means a Subsidiary whose net worth,
determined under generally accepted accounting principles, at the fiscal year
end immediately prior to any relevant time is at least 25% of the aggregate net
worth of the controlled group of corporations of which STWA is parent.

                  "1934 ACT" means the Securities Exchange Act of 1934, as
amended and as the same may be amended from time to time.

                  "NOTICE OF NON-EXTENSION" means a written notice delivered to
or by the Executive which advises that the Agreement will not be extended as
provided in Paragraph 3.

                  "NOTICE OF TERMINATION" means a written notice that (i)
indicates the specific termination provision in this Agreement relied upon, (ii)
sets forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated, and (iii) gives the required advance notice of termination.

                  "PERSON" has the same meaning as such term has for purposes of
Sections 13(d) and 14(d) of the 1934 Act.

                  "PROXY CONTEST" means the solicitation of proxies or consents
by or on behalf of a Person other than the Board of Directors of STWA.

                  "SUBSIDIARY" means any business entity of which a majority of
its voting power or its equity securities or equity interests is owned, directly
or indirectly by STWA.

                                      G-18
<PAGE>

                  "SUCCESSOR" means any Person that succeeds to, or has the
practical ability to control (either immediately or with the passage of time),
STWA's business directly, by merger or consolidation, or indirectly, by purchase
of STWA's voting securities or all or substantially all of its assets.

                  "SURVIVING COMPANY" means the business entity that is a
resulting company following a merger, consolidation, share exchange, division or
other reorganization of or relating to STWA.

                  "TOTAL PAYMENTS" means the compensation and benefits that
become payable under the Agreement or otherwise (and which may be subject to an
Excise Tax) by reason of the Executive's termination of employment, less the
federal, state and local income tax (but not any Excise Tax) on such
compensation and benefits, in each case determined without regard to any
Gross-Up Payments that may also be made.

                  "WELFARE BENEFIT PLAN" has the meaning ascribed to the term
"employee welfare benefit plan" in Section 3(1) of ERISA. For purposes of
determining the Executive's or his dependents' right to continued welfare
benefits hereunder following his termination of employment, the meaning of such
term shall include any retiree health plan maintained by STWA at any time after
the relevant Date of Termination, notwithstanding the fact that the Executive is
not a participant therein prior to such date.

                                      G-19