Document:

bellavista10kexhibit104.htm

 

 

 

Exhibit 10.4

 

 

Management Agreement

 

     This Agreement is dated as of January 1, 2011, by and between Bella Vista Capital, Inc., a Maryland corporation (the "Company"), and LG Servicing, Inc., a California corporation (the "Manager"), with respect to the following:

     The Company desires to retain the Manager to manage the investments of the Company and to perform certain administrative services for the Company in the manner and on the terms set forth herein;

     In consideration of the following mutual agreements, the parties agree as follows:

 

 

     Section 1.  Definitions.

	
(a)  

	
"affiliate" means, with respect to any person, another person that directly or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with such person.

	
(b)  

	
"Code" means the Internal Revenue Code of 1986, as amended.

	
(c)  

	
"governing instruments" means the articles or certificate of incorporation or other charter, as the case may be, and bylaws of the Company and its subsidiaries.

	
(d)  

	
"mortgage loans" means construction, mixed use, land acquisition and development loans primarily secured by mortgages or deeds of trust on real estate properties.

	
(e)  

	
 “Net Value” of the Company has the same meaning and is determined in the same manner as it is in the Company’s public statements and disclosures.

	
(f)  

	
"unaffiliated directors" shall mean those members of the Board of Directors of the Company, who are not officers, directors or affiliates of the Manager.

	
(g)  

	
Net Realizable Value (“NRV”) will be equal to the estimated net realizable value of the Company’s assets per common share, as established by the Board of Directors and  reported in the Company’s quarterly report on Form 10-Q as filed with the Securities and Exchange Commission.

   Section 2.  General Duties of the Manager.

 

 

	
(a)  

	
Administrative Services Provided by the Manager.  The Manager will be responsible for the day-to-day operations of the Company and shall perform such services and activities relating to the assets and operations of the Company as may be appropriate, including:

	
(1)  

	
in accordance with the directions and subject to the supervision of the Company's Board of Directors, investing or reinvesting any money of the Company;

	
(2)  

	
furnishing reports and statistical and economic research to the Company regarding the Company's real estate investment activities and the performance of its portfolio of mortgage loans;

	
(3)  

	
administering the day-to-day operations of the Company and performing administrative functions necessary in the management of the Company, including the collection of revenues, the payment of the Company's expenses, debts and obligations and the maintenance of appropriate computer services to perform such administrative functions;

 

 

 

  

  

  

 

	
(4)  

	
counseling the Company’s officers and Board of  Directors in connection with policy decisions to be made by the Board of Directors;

	
(5)  

	
overseeing the servicing of the Company's construction related activities pertaining to its mortgage loans and other investments;

	
(6)  

	
providing all actions necessary for compliance by the Company with all federal, state and local regulatory requirements applicable to the Company in respect of its business activities, including maintaining books and records, maintaining current shareholder records, and preparing or causing to be prepared all periodic reports and all financial statements required under applicable regulations and contractual undertakings;

	
(7)  

	
providing all actions necessary to enable the Company to make required federal, state and local tax filings and reports and generally enable the Company to maintain its status as a corporation, including, but not limited to, soliciting stockholders for required information to the extent required by the provisions of the Code;

	
(8)  

	
communicating on behalf and with the direction of the Company (with content approved in advance by the Company’s Board of Directors) with the stockholders of the Company as required to satisfy any reporting requirements and to  maintain effective relations with such stockholders;

	
(9)  

	
performing such other services as may be required from time to time for management and other activities relating to the assets of the Company as the Board of Directors shall reasonably request or the Manager shall deem appropriate under the particular circumstances; and

	
(10)  

	
acting as the Company’s transfer agent and registrar for all Company initiated stock transactions.

	
(b)  

	
Administrative Services Provided by Subcontractors.  The Manager may enter into subcontracts with other parties to provide any such services to the Company, so long as it exercises reasonable care in the selection of such subcontractors.

	
(c)  

	
Compliance with Public Disclosure Rules.  Manager agrees to comply and, in performing its services as Manager, to cause the Company to comply with all disclosure rules applicable to the Company, including the statutes, rules and regulations governing publicly held entities under the Securities Exchange Act of 1934 as now in effect and as it may be amended from time to time.

	
(d)  

	
Cooperation of the Company.  The Company agrees to take all action reasonably required to permit the Manager to carry out its duties and obligations.  The Company further agrees to make available all materials reasonably required to enable the Manager to satisfy its obligations to deliver financial statements and any other information or reports with respect to the Company.

     Section 3.  Additional Activities of Manager.

	
(a)  

	
Except as expressly provided in paragraph 3(b) below, nothing in this agreement shall prevent the Manager or any of its officers, directors, employees or affiliates from engaging in other businesses or from rendering services of any kind to any other person or entity, including the purchase of, or advisory services to others investing in, any type of real estate investment, including investments which meet the principal investment objectives of the Company.  Notwithstanding the foregoing, the Manager shall at all times during the term of this Agreement devote such time and attention, and maintain sufficient personnel and resources, to assure that it can adequately manage the operations and administration of the Company.

 

 

  

  

  

 

	
(b)  

	
Manager agrees that certain proposed transactions, as defined below, will be considered “Company Opportunities,” and any Company Opportunity that comes to the Manager’s attention will first be offered or made available to the Company as provided herein before Manager or any of Manager’s affiliates may enter into any such transaction for its or their own account or may offer such transaction to any third party.  “Company Opportunities” will include any proposed investment or investment disposition transaction brought to the Manager’s attention in its capacity as Manager under this Agreement, including transactions brought to its attention by members of the Company’s Board of Directors, by any other party to a then existing non-Manager sourced Company investment, or by any party contacting the Manager concerning such a proposed transaction in its capacity as Manager of the Company.  Manager shall initially pursue any such Company Opportunity on behalf of the Company, and will provide the Board of Directors promptly in writing with notice of the material proposed terms of any such transaction, to the extent practicable.  The Board of Directors will meet within thirty (30) days following the date such notice is received by the Board to consider whether the Company will elect to pursue the Company Opportunity described in the notice.  If the Board elects to have the Company pursue the Company Opportunity, it will so notify the Manager and direct the Manager’s efforts in seeking to complete the transaction.  The Manager will thereafter diligently and in good faith analyze the proposed transaction on the Company’s behalf, negotiate the terms of the transaction solely in the Company’s interest, communicate with the Board concerning the ongoing status of the transaction, and seek to consummate any such transaction on behalf of the Company.  If the Company either notifies the Manager that it will not seek to pursue the Company Opportunity described in the notice, or fails to notify the Manager of its intention by the end of a thirty day period following the Board’s receipt of such notice, the Manager may pursue such transaction for its own account or offer the transaction to a third party in its discretion.

     Section 4.  Bank Accounts.

 

     At the direction of the Board of Directors, the Manager will establish and maintain one or more bank accounts in the name of the Company or any subsidiary of the Company, and will collect and deposit into any such account or accounts any and all funds received on behalf of the Company, and will disburse funds from any such account or accounts, under such terms and conditions as the Board of Directors may approve.   All such accounts and funds held in such accounts shall be segregated from the Manager’s own accounts and those of any other third party, shall not be commingled with the funds of any third party, and the Manager shall at all times assure that the Company holds clear title to such accounts subject only the claims of the Company’s creditors.   The Manager shall render appropriate accountings of such accounts, collections and payments to the Company’s officers and Board of Directors and, upon request, to the auditors of the Company or any subsidiary of the Company.

     Section 5.  Records

     The Manager shall maintain appropriate books of account and records relating to the Company’s operations and the services performed under this Agreement, and such books of account and records shall be accessible for inspection by representatives of the Company or any subsidiary of the Company at any time during normal business hours.

     Section 6.  Compensation of the Manager.

 

	
(a)  

	
The Manager shall receive a quarterly management fee for investments not sourced by Manager equal to 0.25% of the Net Realizable Value (“NRV”) of the Company attributable to those investments not sourced by Manager, payable as of the end of the quarter and calculated based on the NRV as published in the quarterly report for the preceding calendar quarter.

	
(b)  

	
The Manager shall also receive a quarterly management fee for Manager sourced investments equal to 0.125% of the Net Realizable Value (“NRV”) of the Company attributable to those investments sourced by Manager, payable at the end of the quarter and calculated based on the NRV as published in the quarterly report for the preceding calendar quarter.

	
(c)  

	
Payment.  The Manager shall calculate the precise figures of the Compensation Schedule in order to determine the Manager's Fee within 15 days after the end of each calendar quarter.  This calculation shall be completed promptly and delivered to the Board of Directors along with a summary of all material transactions, a cash flow analysis of income and expenses, and reconciliation of bank accounts as overseen by manager on behalf of the Company for approval and payment of management fee.

 

 

 

  

  

  

     Section 7.  Expenses of the Company.

 

	
(a)  

	
Expenses borne by the Manager.  Without regard to the compensation received by the Manager, the Manager shall bear any and all expenses internal to the operations of the Manager or incurred in connection with the Manager’s performance of the services to be provided under this Agreement, including, but not limited to, the following expenses:

	
(1)  

	
employment expenses of the personnel employed by the Manager, including, but not limited to, salaries, wages, payroll taxes, and the cost of employee benefit plans;

	
(2)  

	
rent, telephone, utilities, office furniture, equipment and machinery (including computers, to the extent utilized) and other office expenses (such as asset/liability software, modeling software and other software and hardware) of the Manager needed in order to perform its duties as set forth herein;

	
(3)  

	
bookkeeping fees and expenses including any costs of computer services;

	
(4)  

	
miscellaneous administrative expenses incurred in supervising and monitoring the Company's investments or any subsidiary's investments or relating to performance by the Manager of its functions;

	
(5)  

	
expenses connected with the acquisition of the Company's assets and mortgage loans;

	
(6)  

	
travel and related expenses of personnel of the Manager when attending meetings or performing other business activities which relate to the Company or any subsidiary of the Company.

	
(b)  

	
Expenses borne by the Company.  The Company or any subsidiary of the Company shall pay all of its expenses except those which are the specific responsibility of the Manager pursuant to this agreement; and, without limiting the generality of the foregoing, it is specifically agreed that the following expenses of the Company or any subsidiary of the Company shall not be paid by the Manager.  Further, it is understood that none of the expenses listed below will include any expenses internal to the operations of the Manager or related in any way to the Manager’s performance of the services detailed in this Management Agreement:

	
(1)  

	
the Company’s cost of borrowed money;

	
(2)  

	
all taxes applicable to the Company or any subsidiary of the Company including interest and penalties;

	
(3)  

	
legal, accounting and auditing fees and expenses relating to the Company and/or any subsidiary;

	
(4)  

	
expenses connected with the ownership and disposition of the Company's or any subsidiary's assets, including, but not limited to, costs of completion, foreclosure, maintenance, repair and improvement of property and premiums for insurance on property owned by the Company or any subsidiary of the Company;

	
(5)  

	
legal, audit, accounting, underwriting, brokerage, listing, rating agency, registration and other fees, printing, engraving and other expenses and taxes incurred in connection with the issuance, distribution, transfer, registration and stock exchange listing of the Company's or any subsidiary's equity securities or debt securities;

	
(6)  

	
the expenses of organizing, modifying or dissolving the Company or any subsidiary of the Company;

	
(7)  

	
all insurance costs incurred in connection with the Company or any subsidiary of the Company;

	
(8)  

	
expenses connected with payments of dividends or interest or distributions in any other form made or caused to be made by the Board of Directors to holders of the securities of the Company or any subsidiary of the Company;

 

 

 

  

  

  

 

	
(9)  

	
expenses connected with the structuring and issuance of mortgage securities by the Company or any subsidiary of the Company, including but not limited to trustee's fees, insurance premiums, and costs of required credit enhancements;

	
(10)  

	
travel and related expenses of the directors of the Company when attending meetings or performing other business activities which relate to the Company;

	
(11)  

	
all expenses of third parties connected with communications to holders of equity securities or debt securities of the Company or any subsidiary of the Company and the other bookkeeping and clerical work necessary in maintaining relations with holders of such securities and in complying with the continuous reporting and other requirements of governmental bodies or agencies, including any costs of computer services in connection with this function, the cost of printing and mailing certificates for such securities and proxy solicitation materials and reports to holders of the Company's or any subsidiary's securities and reports to third parties required under any indenture to which the Company or any subsidiary of the Company is a party;

	
(12)  

	
fees and expenses paid to trustees or directors of the Company or any subsidiary of the Company, the cost of director and officer liability insurance and premiums for fidelity and errors and omissions insurance;

	
(13)  

	
any judgment rendered against the Company or any subsidiary of the Company, or against any trustee or director of the Company or any subsidiary of the Company in his capacity as such for which the Company or any subsidiary of the Company is required to indemnify such trustee or director, or any court or governmental agency; and

	
(14)  

	
other miscellaneous expenses of the Company or any subsidiary of the Company which are not specified expenses of the Manager under this agreement.

     Section 8.  Limits of Manager Responsibility; Indemnification.

 

     The Manager assumes no responsibility under this agreement other than to render the services called for in good faith and shall not be responsible for any action of the Board of Directors in following or declining to follow any advice or recommendations of the Manager.  The Manager, its directors, officers, stockholders and employees will not be liable to the Company, any subsidiary of the Company, its subsidiary's stockholders or the unaffiliated directors for any acts or omissions by the Manager, its directors, officers, stockholders or employees under or in connection with this agreement, except by reason of acts or omissions constituting material breach of this Agreement, bad faith, willful misconduct, negligence or reckless disregard of their duties under this agreement.  The Company and its  subsidiaries shall reimburse, indemnify and hold harmless the Manager, its directors, officers, stockholders and employees of and from any and all expenses, losses, damages, liabilities, demands, charges and claims of any nature whatsoever, including, without limitation, attorneys' fees, in respect of or arising from any acts or omissions of the Manager, its stockholders, directors, officers and employees made in good faith in the performance of the Manager's duties under this agreement and not constituting material breach of this Agreement, bad faith, willful misconduct, negligence or reckless disregard of its duties.

     Section 9.  Term; Termination; Termination Fee.

 

	
(a)  

	
This agreement shall commence on January 1, 2011, and shall continue in force for an initial period of one year, and thereafter it shall be renewed automatically for successive one-year periods unless a termination notice is delivered by either party as specified in (b) below.

	
(b)  

	
This agreement may be terminated with a minimum of 90 days notice by either party by delivering a written termination notice.  Such termination notice will specify a plan, acceptable to the Company, for the orderly transition of the Manager’s duties, activities and responsibilities to such entity as specified by the Company.

 

 

 

  

  

  

 

	
(c)  

	
In addition to any other liability or obligation of either party to the other due upon termination of this agreement, if this agreement is terminated by the Company without cause (as "cause" is defined below), the Company shall pay the Manager a fee for the successful transition, as determined by the Company, to such entity as specified by the Company if the Company determines that such transition was accomplished  successfully in an amount equal to the compensation paid for the quarter immediately preceding the date of termination pursuant to Section 6(b) and (c) above.

     Section 10.  Termination by Company for Cause

     At the option of the Company, this agreement shall be and become terminated upon written notice of termination to the Manager if any of the following events shall occur. Termination for any of these events shall constitute termination for "cause":

	
(a)  

	
if a majority of the unaffiliated directors determines that the Manager has violated or is in breach of this agreement in any material respect and, after notice of such violation, the Manager has failed to cure such violation within 60 days; or

	
(b)  

	
there is entered an order for relief or similar decree or order with respect to the Manager by a court having competent jurisdiction in an involuntary case under the federal bankruptcy laws as now or hereafter constituted or under any applicable federal or state bankruptcy, insolvency or other similar laws; or the Manager:

	
(1)  

	
ceases, or admits in writing its inability, to pay its debts as they become due and payable, or makes a general assignment for the benefit of, or enters into any composition or arrangement with, creditors;

	
(2)  

	
applies for, or consents, by admission of material allegations of a petition or otherwise, to the appointment of a receiver, trustee, assignee, custodian, liquidator or sequestrator, or other similar official, of the Manager or of any substantial part of its properties or assets, or authorizes such an application or consent, or proceedings seeking such appointment are commenced without such authorization, consent or application against the Manager and continue undismissed for 60 days;

	
(3)  

	
authorizes or files a voluntary petition in bankruptcy, or applies for or consents, by admission of material allegations of a petition or otherwise, to the application of any bankruptcy, reorganization, arrangement, readjustment of debt, insolvency, dissolution, liquidation or other similar law of any jurisdiction, or authorizes such application or consent, or proceedings to such end are instituted against the Manager without such authorization, application or consent and are approved as properly instituted and remain undismissed for 60 days or result in adjudication of bankruptcy or insolvency.

 

 

     Section 11.  Action Upon Termination.

     From and after the effective date of termination of this agreement, except as otherwise specified, the Manager shall not be entitled to compensation for further services, but shall be paid all compensation accruing to the date of termination.  Upon such termination, the Manager shall:

	
(a)  

	
after deducting any accrued compensation and reimbursement for its expenses to which it is then entitled, pay over to the Company or any subsidiary of the Company all money collected and held for the account of the Company or any subsidiary of the Company pursuant to this agreement;

	
(b)  

	
deliver to the Board of Directors a full accounting, including a statement showing all payments collected by it and a statement of all money held by it, covering the period following the date of the last accounting furnished to the Board of Directors with respect to the Company or any subsidiary of the Company; and

	
(c)  

	
deliver to the Board of Directors all property and documents of the Company or any subsidiary of the Company then in the custody of the Manager.

 

 

  

  

  

 

     Section 12.  Release of Money or Other Property Upon Written Request.

     Manager agrees that any money or other property of the Company or any subsidiary of the Company held by the Manager under this agreement shall be held solely in the name of the Company or such subsidiary by the Manager as custodian for the Company or such subsidiary, and the Manager's records shall clearly reflect the ownership of such money or other property by the Company or such subsidiary.  Upon the receipt by the Manager of a written request signed by a duly authorized officer of the Company requesting the Manager to release to the Company or any subsidiary of the Company any money or other property then held by the Manager for the account of the Company or any subsidiary of the Company under this Agreement, the Manager shall promptly release such money or other property to the Company or such subsidiary of the Company; provided that such release will not cause the Manager to violate any law or breach any agreement to which the Company is a party. The Manager shall not be liable to the Company, any subsidiaries of the Company, the unaffiliated directors, or the Company's or its subsidiaries' stockholders for any acts performed or omissions to act by the Company or any subsidiary of the Company in connection with the money or other property released to the Company or any subsidiary of the Company and not constituting a material breach of this Agreement, bad faith, willful misconduct, negligence or reckless disregard of its duties. The Company and any subsidiary of the Company shall indemnify the Manager, its directors, officers, stockholders and employees against any and all expenses, losses, damages, liabilities, demands, charges and claims of any nature whatsoever, which arise in connection with the Manager's release of such money or other property to the Company or any subsidiary of the Company unless such expenses, losses, damages, liabilities, demands, charges and claims arise in connection with acts or omissions which constitute material breach of this Agreement, bad faith, willful misconduct, negligence or reckless disregard of its duties.  Indemnification pursuant to this provision shall be in addition to any right of the Manager to indemnification under this agreement.

     Section 13.  Notices

     Unless expressly provided otherwise, all notices, requests, demands and other communications required or permitted under this agreement shall be in writing and shall be deemed to have been duly given, made and received when (1) delivered by hand or (2)  upon actual receipt of registered or certified mail, postage prepaid. The parties may deliver to each other notice by electronically transmitted facsimile or email copies provided that such electronically transmitted notice is followed within twenty-four hours by a hardcopy notice delivered and received as specified in (1) or (2) in this paragraph.  Any notice shall be duly addressed to the parties as follows:

 

(a)  if to the Company – Notice both by written hardcopy and email is required:

	  	
Board of Directors

Attn:  William Offenberg

P.O. Box 3195

Monterey, CA  93942

Email:  weobvc@sbcglobal.net

With Copy to:  Jeff.Black@cbre.com and Pattibwolf@aol.com.

	  

(b)  if to the Manager:

 

	  	
LG Servicing, Inc.

Attn:  Dan Shaw

15700 Winchester Blvd.

Los Gatos, CA  95030

Fax:  (408) 395-9777

Email:  dan@lgservicing.com

With Copy to:  janjayshaw@nwlink.com

	  

 

     Any party may alter the address to which communications or copies are to be sent by giving notice of such change of address.

 

  

  

  

 

     Section 14.  Assignments

     Except as set forth in this section, this agreement shall terminate automatically in the event of its attempted assignment, in whole or in part, by the Manager, other than the pledge of amounts payable by the Company to the Manager to secure the Manager's obligations to its lenders, unless such assignment is consented to in writing by the Company.  Any such consented assignment shall bind the assignee in the same manner as the Manager is bound.  In addition, the assignee shall execute and deliver to the Company a counterpart of this agreement naming such assignee as Manager.  This agreement shall not be assigned by the Company without the prior written consent of the Manager, except in the case of assignment by the Company to a REIT or other organization which is a successor, by merger, consolidation or purchase of assets, to the Company, in which case such successor organization shall be bound by this agreement and by the terms of such assignment in the same manner as the Company is bound.

 

     Section 15.  Entire Agreement

     This agreement contains the entire agreement and understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements, understandings, inducements and conditions, express or implied, oral or written, of any nature whatsoever with respect to the subject matter.  The express terms hereof control and supersede any course of performance or usage of the trade inconsistent with any of the terms.  This agreement may not be modified or amended other than by an agreement in writing.

 

     Section 16.  Controlling Law

     This agreement and all questions relating to its validity, interpretation, performance and enforcement shall be governed by and construed, interpreted and enforced in accordance with the laws of the State of California.

 

     Section 17.  Execution in Counterparts

     This agreement may be executed in any number of counterparts.

 

     Section 18.  Provisions Separable

     The provisions of this agreement are independent of and separable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part.

 

     Section 19.  Confidentiality

     As Manager of the Company, Manager will be in possession and control of confidential and proprietary information relating to the Company and its operations as well as non public personal information relating to its shareholders.  Manager hereby agrees, on its own behalf, and on behalf of its officers, employees, agents and contractors, to use all commercially reasonable measures necessary to prevent unauthorized persons from gaining access to, distributing or otherwise using such confidential or proprietary Company or shareholder information, including, but not limited to (a) adopting appropriate procedures to protect the confidentiality of such information, which procedures are at least as comprehensive and effective as those used to protect Manager’s own confidential or proprietary information, (b) limiting internal access to such information to those employees of the Manager who have a need to know such information, and (c) informing its personnel of this confidentiality obligation and its binding effect on their activities and obtaining appropriate confidentiality agreements with any contractors, agents or other third parties used by Manager in performance of services hereunder.

 

 

 

  

  

  

The parties hereto have executed this agreement as of the date first written above.

 

Bella Vista Capital, Inc.,

a Maryland corporation

	  	
/s/ William E. Offenberg

By:  William E. Offenberg

Its:  Chairman

	  

LG Servicing, Inc.,

a California corporation

	  	
/s/ Gerald H. Shaw

By:  Gerald H. Shaw

Its:  President

 

 

/s/ Daniel J. Shaw

By:  Daniel J. Shaw

Its:  Vice - Presidentstwa_8k-1001.htm

Exhibit 10.1

SECURITIES PURCHASE AGREEMENT

Convertible Promissory Notes and

Stock Purchase Warrants

THIS SECURITIES PURCHASE AGREEMENT (this “Agreement”) is made and entered into as of the 14th day of March 2011, by and between Save the World Air, Inc., a Nevada corporation (the “Issuer”) and those individuals and entities who sign and deliver an executed copy of this Agreement to the Issuer (each, a “Purchaser” and collectively, the “Purchasers”), with reference to the following:

RECITALS

A.           Purchasers desire to purchase from Issuer and Issuer desires to sell to Purchaser certain of Issuer’s Convertible Promissory Notes, in the aggregate face amount of at least $11,000 and up to $1,400,000 in the form of Exhibit A attached hereto (individually, a “Note” and collectively, the “Notes”) and Stock Purchase Warrants, each to purchase up to a certain number of shares of the common stock (the “Common Stock”) of the Issuer equal to 100% of the number of shares initially issuable on conversion of the Notes, in the form of Exhibit B attached hereto (individually, the “Warrants” and collectively with the Notes, the “Securities”).  The face amount of Convertible Promissory Notes each Purchaser has committed to purchase, and the amount of the purchase price thereof to be paid to the Issuer by the Purchaser (a “Commitment”) is listed on the signature page such Purchaser executes and delivers to the Issuer.

B.           Issuer’s sale of the Securities to the Purchasers will be made in reliance upon the provisions of Section 4(2) under the Securities Act of 1933, as amended (the "Securities Act"), Rule 506 of Regulation D promulgated by the Securities and Exchange Commission (the ”SEC”) thereunder, and other applicable rules and regulations of the SEC and/or upon such other exemption from the registration requirements of the Securities Act as may be available with respect to the transactions contemplated hereby.

C.           At any time when any amount of principal or interest of the Notes shall be outstanding, such unpaid amounts shall be convertible into shares of the Issuer’s, at the election of the Purchaser, into Common Stock at a price of $0.25 per share (the “Conversion Price”).

D.           The Warrants shall be issued at the same time each Note is issued to the Purchaser hereunder and shall be exercisable at $0.30 per share (the “Exercise Price”), for such number of shares equal to 100% of result obtained by dividing (i) the face amount of the Notes issued simultaneously with the Warrant by (ii) the Conversion Price (the “Exercisable Amount”).

AGREEMENT

NOW THEREFORE, in consideration of the foregoing recitals, which shall be considered an integral part of this Agreement, the covenants and agreements set forth hereafter, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Purchasers and the Issuer hereby agree as follows

  

 

  

1.           Purchase of the Notes and Warrants.  On the terms and subject to the conditions set forth in this Agreement and in the Notes and Warrants, the Purchasers shall purchase from the Issuer and the Issuer shall sell to the Purchaser the Securities.

 

2.           Purchaser’s Representations, Warranties and Covenants. In order to induce the Issuer to sell and issue the Securities to the Purchaser under one or more exemptions from registration under the Securities Act, the Purchasers, severally and not jointly, represent and warrant to the Issuer, and covenant with the Issuer, that:

 

 

 (a)           (i) Such Purchaser has the requisite power and authority to enter into and perform this Agreement, and each of the other agreements entered into by the parties hereto in connection with the transactions contemplated by this Agreement (collectively, the "Transaction Documents"), and to purchase the Securities in accordance with the terms hereof and thereof.

 

 

(ii) The execution and delivery of the Transaction Documents by the Purchaser and the consummation by it of the transactions contemplated thereby have been duly and validly authorized by the Purchaser's organizational documents and no further consent or authorization is required by the Purchaser.

 

 

(iii) The Transaction Documents have been duly and validly executed and delivered by the Purchaser.

 

 

(iv) The Transaction Documents, and each of them, constitutes the valid and binding obligation of the Purchaser enforceable against the Purchaser in accordance with their respective terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors' rights and remedies.

 

(b) The execution, delivery and performance of the Transaction Documents by the Purchaser and the consummation by the Purchaser of the transactions contemplated thereby will not conflict with or constitute a default under any agreement or instrument to which the Purchaser is a party or by which the Purchaser is bound.

 

(c) The Purchaser is acquiring the Securities for investment for its own account, and not with a view toward distribution thereof, and with no present intention of dividing its interest with others or reselling or otherwise transferring or disposing all or any portion of either the Notes or Warrants. The undersigned has not offered or sold a participation in this purchase of either the Notes or Warrants, and will not offer or sell any interest therein. The Purchaser further acknowledges that the Purchaser does not have in mind any sale of either the Notes or Warrants currently or after the passage of a fixed or determinable period of time or upon the occurrence or non-occurrence of any predetermined events or consequence; and that it has no present or contemplated agreement, undertaking, arrangement, obligation, indebtedness or commitment providing for or which is likely to compel a disposition of either the Notes or Warrants and is not aware of any circumstances presently in existence that are likely in the future to prompt a disposition thereof.

 

(d) The Purchaser acknowledges that the Securities have been offered to it in direct communication between itself and the Issuer and not through any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over the television or radio or presented in any seminar or any other general solicitation or general advertisement.

 

(e) The Purchaser acknowledges that the Issuer has given it access to all information relating to the Issuer’s business that it has requested.  The Purchaser has reviewed all materials relating to the Issuer's business, finance and operations which it has requested and the Purchaser has reviewed all of such materials as the Purchaser, in the Purchaser’s sole and absolute discretion shall have deemed necessary or desirable. The Purchaser has had an opportunity to discuss the business, management and financial affairs of the Issuer with the Issuer's management.   Specifically but not by way of limitation, the Purchaser acknowledges the Issuer’s publicly available filings made periodically with the SEC, which filings are available at www.sec.gov and which filings the Purchaser acknowledges reviewing or having had the opportunity of reviewing.

 

  

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(f) The Purchaser acknowledges that it has, by reason of its business and financial experience, such knowledge, sophistication and experience in financial and business matters and in making investment decisions of this type that it is capable of (i) evaluating the merits and risks of an investment in the Securities and making an informed investment decision in connection therewith; (ii) protecting its own interest; and (iii) bearing the economic risk of such investment for an indefinite period of time for Securities which are not transferable or freely tradable.  The undersigned hereby agrees to indemnify the Issuer thereof and to hold each of such persons and entities, and the officers, directors and employees thereof harmless against all liability, costs or expenses (including reasonable attorneys’ fees) arising by reason of or in connection with any misrepresentation or any breach of warranties of the undersigned contained in this Agreement, or arising as a result of the sale or distribution of the Securities or the Common Stock issuable upon conversion of the Notes or exercise of the Warrants, by the undersigned in violation of the Securities Act, the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or any other applicable law, either federal or state.  This subscription and the representations and warranties contained herein shall be binding upon the heirs, legal representatives, successors and assigns of the Purchaser.

 

(g) The Purchaser is familiar with the definition of an "accredited investor" as that term is defined in Rule 501(a) of Regulation D of the Securities Act and represents and warrants to the Issuer that it is either (i) an accredited investor at such time it was offered the Securities and on each date which it converts any of the Notes or exercises any of the Warrants as so defined or (ii) a “qualified institutional buyer” as defined in Rule 144A under the Securities Act.  Such Purchaser is not required to be registered as a broker-dealer under Section 15 of the Exchange act. If the Purchaser is not a resident of the United States, the Purchaser is not a “U.S. person[s]” as that term is defined in Rule 902 of Regulation S promulgated under the Securities Act of 1933, as amended.

 

(h) During the term of this Agreement and the other Transaction Documents, the Purchaser will comply with the provisions of Section 9 of the Exchange Act, and the rules and regulations promulgated thereunder, with respect to transactions involving the Common Stock. Commencing on the date on which the Purchaser received a term sheet from the Company or any representative or agent of the Company (written or oral) setting forth the material terms of the transactions contemplated hereunder until the date hereof and during the term of this Agreement and the other Transaction Documents, the Purchaser agrees not to sell the Issuer's Common Stock short or engage in any hedging transactions in the Issuer’s Common Stock, either directly or indirectly, through its affiliates, principals, agents or advisors.

 

(i) The Purchaser is aware that the Notes and the Warrants, and the shares of Common Stock issuable upon conversion of the Notes or exercise of the Warrants may only be disposed of in compliance with state and federal securities laws.  In connection with any transfer of the Notes and thee Warrants, and the shares of Common Stock issuable upon conversion of the Notes or exercise of the Warrants other than pursuant to an effective registration statement or Rule 144, to the Company or to an affiliate of the Purchaser, the Company may require the transferor thereof to provide to the Company an opinion of counsel, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act. Further, the Purchaser understands and acknowledges that any certificates evidencing the Notes, the Warrants or the shares of Common Stock issuable upon conversion of the Notes or exercise of the Warrants will bear the legends in substantially the following form:

 

  

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THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED FOR SALE UNDER ANY STATE SECURITIES LAWS (COLLECTIVELY, “SECURITIES LAWS”) AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS REGISTERED OR QUALIFIED FOR SALE UNDER ALL APPLICABLE SECURITIES LAWS OR UNLESS, IN THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER, IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER, ANY SUCH OFFER, SALE OR OTHER TRANSFER IS EXEMPT FROM THE REGISTRATION OR QUALIFICATION REQUIREMENTS OF SUCH SECURITIES LAWS.

 

(j) The Purchaser understands and acknowledges that following the purchase of the Notes, the Warrants and any shares of Common Stock issuable upon conversion of the Notes or exercise of the Warrants, each may only be disposed of pursuant to either (i) an effective registration statement under the Securities Act or (ii) an exemption from the registration requirements of the Securities Act.

 

(k) The Purchaser understands and acknowledges that the Issuer has neither filed a registration statement with the SEC or any state authorities nor agreed to do so, nor contemplates doing so in the future for the transactions contemplated by this Agreement or the other Transaction Documents, and in the absence of such a registration statement or exemption, the undersigned may have to hold the Notes, the Warrants and any shares of Common Stock issuable upon conversion of the Notes or exercise of the Warrants, indefinitely and may be unable to liquidate any of them in case of an emergency.

 

(l) The Purchaser is purchasing the Notes and Warrants, and will acquire any shares of Common Stock issuable upon conversion of the Notes or exercise of the Warrants, for its own account for investment purposes and not with a view towards distribution and agrees to resell or otherwise dispose of any of the Notes or the Warrants, or any shares of Common Stock issuable upon conversion of the Notes or exercise of the Warrants, in accordance with the registration provisions of the Securities Act (or pursuant to an exemption from such registration provisions).

 

(m) The Purchaser is not and will not be required to be registered as a "dealer" under the Exchange Act, either as a result of its execution and performance of its obligations under this Agreement or otherwise.

 

(n)  The Purchaser understands and acknowledges that proceeds raised in connection with this Agreement will be used by Issuer for general working capital purposes, including without limitation, the payment of salaries and professional fees.

 

(o) The Purchaser understands that it is liable for its own tax liabilities and has obtained no tax advice from the Issuer in connection with the purchase of the Securities.

 

(p) The Purchaser will not pay or receive any finder’s fee or commission in respect of the consummation of the transactions contemplated by this Agreement.

 

(q)  Purchaser hereby agrees and acknowledges that it has been informed of the following:  (i) there are factors relating to the subsequent transfer of any of the Securities or shares of Common Stock underlying the Notes and Warrants that could make the resale of such Securities or shares of Common Stock underlying the Notes and Warrants difficult; and (ii) there is no guarantee that the Purchaser will realize any gain from the purchase of the Securities.  The purchase of the Securities involves a high degree of risk and is subject to many uncertainties.  These risks and uncertainties may adversely affect the Company’s business, operating results and financial condition.  In such an event, the trading price for the Common Stock could decline substantially and Purchaser could lose all or part of its investment.

 

  

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3. Issuer’s Representations, Warranties and Covenants. The Issuer represents and warrants to the Purchaser that:

 

(a) The Issuer is a corporation duly organized and validly existing in good standing under the laws of the State of Nevada, and has the requisite corporate power and authorization to own its properties and to carry on its business as now being conducted.

 

(b)           (i) The Issuer has the requisite corporate power and authority to enter into and perform this Agreement, and each of the other agreements entered into by the parties hereto in connection with the transactions contemplated by the Transaction Documents, and to issue the Notes and Warrants in accordance with the terms hereof and thereof.

 

(ii) the execution and delivery of the Transaction Documents by the Issuer and the consummation by it of the transactions contemplated hereby and thereby, including without limitation the reservation for issuance and the issuance of the Notes and Warrants pursuant to this Agreement, have been duly and validly authorized by the Issuer's Board of Directors and no further consent or authorization is required by the Issuer, its Board of Directors, or its shareholders.

 

(iii) The Transaction Documents have been duly and validly executed and delivered by the Issuer.

 

(iv) The Transaction Documents, and each of them, constitutes the valid and binding obligation of the Issuer enforceable against the Issuer in accordance with their respective terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors' rights and remedies.

 

(c) The execution, delivery and performance of the Transaction Documents by thIssuer and the consummation by the Issuer of the transactions contemplated thereby will not conflict with or constitute a default under any agreement or instrument to which the Issuer is a party or under any organizational documents of the Purchaser.

 

4. Closing and Deliverables.

 

(a) Subject to the provisions of Section 4(b) below, provided that the Issuer shall have received on or prior to March 31, 2011, but the company has the option to extend the closing date to May 31, 2011. Copies of this Agreement executed by each respective Purchaser and providing that the total Commitments equal or exceed $20,000, there shall be a closing or closings (each, a “Closing”) at which:

(i) each Purchaser shall deliver to the Issuer (“Save The World Air, Inc.”) immediately available funds, by check or by wire transfer (Bank wiring instructions as set forth in Exhibit C) in an amount equal to the amount of such Purchaser’s Commitment as set forth beside the name of such Purchaser on such Purchaser’s signature page hereto; and

(ii) the Issuer shall deliver to the Purchaser (x) a Note, in the face amount equal to 110% of the Purchaser’s Commitment and (y) a Warrant to purchase the Exercisable Amount of the Issuer’s Common Stock at the Exercise Price.

(b) The Issuer may continue to accept Commitments from Purchasers and issue and sell Securities to Purchasers at Closings on the terms and subject to the conditions set forth in this Agreement until (i) the aggregate amount of the Commitments equals $1,300,000 or (ii) on or before May 31, 2011, whichever shall first occur.

  

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5.           Miscellaneous.

 

(a). Each party shall pay the fees and expenses of its own advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of the Transactions Documents.

 

(b) This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party; provided that a facsimile signature or signature transmitted by e-mail shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original signature.

 

(c) The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. Whenever required by the context of this Agreement, the singular shall include the plural and neutral shall include the masculine and feminine.

 

(d) If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction.

 

(e) This Agreement and the Notes and Warrants represent the final agreement between the Purchasers and the Issuer with respect to the terms and conditions set forth herein, and, the terms of this Agreement and the Notes and Warrants may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the parties.  No provision of this Agreement and the Notes and Warrants may be amended other than by an instrument in writing signed by the Purchaser and the Issuer, and no provision hereof or thereof may be waived other than by an instrument in writing signed by the party against whom enforcement is sought.

(f) Any notices or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one (1) day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be:

If to the Issuer:

Save the World Air, Inc.

735 State Street, Suite 500

Santa Barbara, CA 93101

Telephone: 805-845-3581

Facsimile: 805-845-4377

with a copy to:

If to a Purchaser:

to the address set forth on the Purchaser’s signature page hereto.

  

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Each party shall provide five (5) days prior written notice to the other party of any change in address or facsimile number.

 

(g) This Agreement may not be assigned by Purchaser.

(h) This Agreement is intended for the benefit of the parties hereto and is not for the benefit of, nor may any provision hereof be enforced by, any other person.

(i) The representations and warranties of the Purchaser and the Issuer contained herein shall survive each of the Closings and the termination of this Agreement and the other Transaction Documents.

(j) The Purchaser and the Issuer shall consult with each other in issuing any press releases or otherwise making public statements with respect to the transactions contemplated hereby and no party shall issue any such press release or otherwise make any such public statement without the prior consent of the other party, which consent shall not be unreasonably withheld or delayed, except that no prior consent shall be required if such disclosure is required by law or the rules and regulations of the SEC.

(k). Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the other Transaction Documents and the consummation of the transactions contemplated hereby and thereby.

(l) The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party, as the parties mutually agree that each has had a full and fair opportunity to review this Agreement and the other Transaction Documents and seek the advice of counsel on it and them.

(m) The Purchaser and the Issuer each shall have all rights and remedies set forth in this Agreement and all rights and remedies which such holders have been granted at any time under any other agreement or contract and all of the rights which the Purchaser has by law. Any person having any rights under any provision of this Agreement shall be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages by reason of any default or breach of any provision of this Agreement, including the recovery of reasonable attorneys fees and costs, and to exercise all other rights granted by law.

(n)  This Agreement shall be governed by and construed in accordance with the laws of the State of California applicable to contracts made and to be performed wholly within such state.

 

 

 

 

 

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IN WITNESS WHEREOF the Purchasers and the Issuer have executed this Agreement as of the date first above written.

	
THE ISSUER

	  
	  	  
	
SAVE THE WORLD AIR, INC.

	  
	
735 State Street, Suite 500

	  
	
Santa Barbara, CA 93101

	  
	  	  
	  	  
	
By:__________________________

	  
	
      Cecil Bond Kyte

	  
	
Its:  Chief Executive Officer

	  
	  	  
	  	  
	
THE PURCHASER

	  
	  	  
	  	  
	
_______________________________

	
________________________

	
Name (signature)

	
    Amount of Commitment

	  	
     (U.S. Dollars)

	
_______________________________

	  
	
Print Name

	  
	  	
________________________

	
_______________________________

	
Date

	
Address

	  
	  	  
	
_______________________________

	  
	
Address

	  
	  	  
	
______________________________

	  
	
Phone Number

	  
	  	  
	
_______________________________

	  
	
Fax Number

	  
	  	  
	
_______________________________

	  
	
Social Security Number

	  
	  	  
	
_______________________________

	  
	
E-mail Address

	  

 

 

 

 

 

8

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