Document:

exv10w3

Exhibit
10.3

 

 

LEASE AND ACCESS AGREEMENT

(East Tulsa)

BETWEEN

HOLLY REFINING & MARKETING-TULSA LLC,

AS LESSOR

AND

HEP TULSA LLC,

AS LESSEE

December 1, 2009

 

 

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	 	 	Page No.	 
	ARTICLE I 

DEFINITIONS AND CONSTRUCTION	 	 	 	 
	1.1 Certain Defined Terms
	 	 	1	 
	1.2 References
	 	 	4	 
	1.3 Headings
	 	 	5	 
	ARTICLE II

DEMISE OF PREMISES AND TERM	 	 	 	 
	2.1 Demise of Premises and Term.
	 	 	5	 
	2.2 Access.
	 	 	5	 
	2.3 Rent
	 	 	6	 
	2.4 Place of Payment
	 	 	6	 
	2.5 Net Lease
	 	 	6	 
	ARTICLE III

CONDUCT OF BUSINESS	 	 	 	 
	3.1 Use of Premises
	 	 	6	 
	3.2 Waste
	 	 	6	 
	3.3 Governmental Regulations
	 	 	6	 
	3.4 Air Quality Permits
	 	 	7	 
	3.5 Utilities
	 	 	7	 
	ARTICLE IV 

ALTERATIONS, ADDITIONS AND IMPROVEMENTS	 	 	 	 
	 
	ARTICLE V 

MAINTENANCE OF PREMISES	 	 	 	 
	5.1 Maintenance by Lessee
	 	 	8	 
	5.2 Operation of Premises
	 	 	8	 
	5.3 Surrender of Premises
	 	 	8	 
	5.4 Release of Hazardous Substances
	 	 	8	 
	ARTICLE VI 

TAXES, ASSESSMENTS	 	 	 	 
	6.1 Lessee’s Obligation to Pay
	 	 	9	 
	6.2 Manner of Payment
	 	 	9	 

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	 	 	Page No.	 
	ARTICLE VII	 	 	 	 
	EMINENT DOMAIN; CASUALTY; INSURANCE	 	 	 	 
	7.1 Total Condemnation of Premises 
	 	 	10	 
	7.2 Partial Condemnation 
	 	 	10	 
	7.3 Damages and Right to Additional Property 
	 	 	10	 
	7.4 Insurance 
	 	 	10	 
	ARTICLE VIII	 	 	 	 
	ASSIGNMENT AND SUBLETTING	 	 	 	 
	8.1 Assignment and Subletting
	 	 	11	 
	8.2 Release of Lessor
	 	 	11	 
	8.3 Release of Lessee
	 	 	11	 
	ARTICLE IX	 	 	 	 
	DEFAULTS; REMEDIES; TERMINATION	 	 	 	 
	9.1 Default by Lessee
	 	 	11	 
	9.2 Lessor’s Remedies.
	 	 	11	 
	9.3 Default by Lessor
	 	 	12	 
	ARTICLE X	 	 	 	 
	INDEMNITY	 	 	 	 
	10.1 Indemnification by Lessor
	 	 	12	 
	10.2 Indemnification by Lessee
	 	 	13	 
	10.3 Matters Involving a Third Party
	 	 	13	 
	10.4 Survival
	 	 	14	 
	10.5 Ancillary Agreements
	 	 	14	 
	ARTICLE XI	 	 	 	 
	GENERAL PROVISIONS	 	 	 	 
	11.1 Estoppel Certificates 
	 	 	14	 
	11.2 Severability 
	 	 	14	 
	11.3 Time of Essence 
	 	 	14	 
	11.4 Captions 
	 	 	14	 
	11.5 Entire Agreement; Amendment 
	 	 	14	 
	11.6 Schedules and Exhibits 
	 	 	14	 
	11.7 Notices 
	 	 	14	 
	11.8 Waivers 
	 	 	15	 
	11.9 No Partnership 
	 	 	16	 
	11.10 No Third Party Beneficiaries 
	 	 	16	 
	11.11 Waiver of Landlord’s Lien 
	 	 	16	 
	11.12 Mutual Cooperation; Further Assurances 
	 	 	16	 
	11.13 Recording 
	 	 	16	 
	11.14 Binding Effect 
	 	 	16	 
	11.15 Choice of Law 
	 	 	16	 
	11.16 Warranty of Peaceful Possession 
	 	 	16	 

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	 	 	Page No.	 
	11.17 Force Majeure 
	 	 	17	 
	11.18 Survival 
	 	 	17	 
	11.19 AS IS, WHERE IS 
	 	 	17	 
	11.20 Relocation of Pipelines; Amendment 
	 	 	17	 
	11.21 Option 
	 	 	18	 

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EXHIBITS AND SCHEDULES

	 	 	 	 	 
	Exhibits	 	 	 	 
	Exhibit A

	 	—
	 	Description of Premises
	Exhibit B

	 	—
	 	Memorandum of Lease

	 	 	 	 	 
	Schedules	 	 	 	 
	Schedule 1.1(b)

	 	—
	 	Matters which are not part of the Premises
	Schedule 7.4

	 	—
	 	Insurance Requirements

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LEASE AND ACCESS AGREEMENT

(East Tulsa Refinery)

     THIS LEASE AND ACCESS AGREEMENT (TULSA) (this “Lease”) is made and entered into to be
effective as of the 1st day of December, 2009, between HOLLY REFINING & MARKETING-TULSA LLC, a
limited liability company organized and existing under the laws of Delaware (herein called
“Lessor”), and HEP TULSA LLC, a limited liability company organized and existing under the
laws of Delaware (herein called “Lessee”). Lessor and Lessee are referred to individually
as a “Party” and collectively as the “Parties.”

W I T N E S S E T H:

     WHEREAS, pursuant to the terms of that certain Asset Sale and Purchase Agreement (the
“Purchase Agreement”), dated October 19, 2009, among Lessor and Lessee, as Buyers, and
Sinclair Tulsa Refining Company, as Seller, Lessor is acquiring certain refining and other related
assets, and Lessee is acquiring the Relevant Assets (defined below);

     WHEREAS, the Relevant Assets (defined below) are located on land within the Refinery Site
(defined below), which land Lessor has agreed to lease to Lessee and Lessee desires to lease from
Lessor; and

     WHEREAS, Lessor owns and operates certain facilities and other improvements at the Refinery
Site that are necessary or desirable for Lessee to utilize in Lessee’s operations of the Relevant
Assets but that may also be utilized by Lessor; and

     WHEREAS, Lessor has agreed to provide Lessee with access to such facilities and other
improvements in accordance with this Lease and the Site Services Agreement (defined below).

     NOW, THEREFORE, for and in consideration of the premises, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and of the mutual
agreements hereinafter set forth, Lessor and Lessee covenant and agree as follows:

ARTICLE I

DEFINITIONS AND CONSTRUCTION

     1.1 Certain Defined Terms. Unless the context otherwise requires, the following terms
shall have the respective meanings set forth in this Section 1.1:

     “Additional Improvements” shall have the meaning ascribed to such term in Article
IV.

     “Affiliates” shall have the meaning ascribed to such term in the Site Services
Agreement.

     “Ancillary Agreements” means collectively, the Purchase Agreement, the Site Services
Agreement, the Pipelines Agreement, and any other agreement executed by any of the parties hereto
in connection with the Lessee’s acquisition of the Relevant Assets.

     “Bankruptcy Event” shall have the meaning ascribed to such term in the Site Services
Agreement.

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     “Casualty
Event” shall have the meaning ascribed to such term in Section 7.3.

     “Claims” shall have the meaning ascribed to such term in Section 10.1.

     “Commencement Date” shall have the meaning ascribed to such term in Section
2.1.

     “Connection Facilities” shall have the meaning ascribed to such term in the Site
Services Agreement.

     “Environmental Law” or “Environmental Laws” means all federal, state, and
local laws, statutes, rules, regulations, orders, and ordinances, now or hereafter in effect,
relating to protection of the environment including, without limitation, the federal Comprehensive
Environmental Response, Compensation, and Liability Act, the Superfund Amendments Reauthorization
Act, the Resource Conservation and Recovery Act, the Clean Air Act, the Federal Water Pollution
Control Act, the Toxic Substances Control Act, the Oil Pollution Act, the Safe Drinking Water Act,
the Hazardous Materials Transportation Act, and other environmental conservation and protection
laws, each as amended from time to time.

     “Force Majeure” means acts of God, strikes, lockouts or other industrial disturbances,
acts of the public enemy, wars, blockades, insurrections, riots, storms, floods, washouts, arrests,
the order of any Governmental Authority having jurisdiction while the same is in force and effect,
civil disturbances, explosions, breakage, accident to machinery, storage tanks or lines of pipe,
inability to obtain or unavoidable delay in obtaining material or equipment, and any other causes
whether of the kind herein enumerated or otherwise not reasonably within the control of the Party
claiming suspension and which by the exercise of due diligence such Party is unable to prevent or
overcome.

     “Governmental Authority” means any federal, state, local or foreign government or any
provincial, departmental or other political subdivision thereof, or any entity, body or authority
exercising executive, legislative, judicial, regulatory, administrative or other governmental
functions or any court, department, commission, board, bureau, agency, instrumentality or
administrative body of any of the foregoing.

     “Indemnified Party” means the Party seeking indemnification under Section 10.1
or Section 10.2.

     “Hazardous Substances” means (a) any substance that is designated, defined, or
classified as a hazardous waste, hazardous material, pollutant, contaminant, or toxic or hazardous
substance, or that is otherwise regulated under any Environmental Law, including, without
limitation, any hazardous substance as defined under the Comprehensive Environmental Response,
Compensation, and Liability Act, and (b) petroleum, crude oil, gasoline, natural gas, fuel oil,
motor oil, waste oil, diesel fuel, jet fuel, and other refined petroleum hydrocarbons.

     “Indemnifying Party” means the Party required to provide indemnification under
Section 10.1 or Section 10.2.

     “Laws” means any applicable statute, law, regulation, ordinance, rule, judgment, rule
of law, order, decree, permit, approval, concession, grant, franchise, license, agreement,

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requirement, or other governmental restriction or any similar form of decision of, or any
provision or condition of any permit, license or other operating authorization issued under any of
the foregoing by, or any determination of, any Governmental Authority having or asserting
jurisdiction over the matter or matters in question, whether now or hereafter in effect and in each
case as amended (including, without limitation, all of the terms and provisions of the common law
of such Governmental Authority), as interpreted and enforced at the time in question.

     “Lease” shall have the meaning ascribed to such term in the preface to this Lease.

     “Lessee” shall have the meaning ascribed to such term in the preface to this Lease.

     “Lessee Indemnified Parties” shall have the meaning ascribed to such term in
Section 10.1.

     “Lessee Release” shall have the meaning ascribed to such term in Section
11.13.

     “Lessee’s Parties” shall have the meaning ascribed to such term in Section
2.2(a).

     “Lessor” shall have the meaning ascribed to such term in the preface to this Lease.

     “Lessor Indemnified Parties” shall have the meaning ascribed to such term in
Section 10.2.

     “Lessor’s Parties” shall have the meaning ascribed to such term in Section
2.2(b).

     “Party”
and “Parties” shall have the meanings ascribed to such term in the preface to
this Lease.

     “Permits” means all permits, licenses, franchises, authorities, consents, and
approvals, as necessary under applicable Laws, including Environmental Laws, for operating the
Relevant Assets and/or the Premises.

     “Person” means any individual or entity, including any partnership, corporation,
association, joint stock company, trust, joint venture, limited liability company, unincorporated
organization or Governmental Authority (or any department, agency or political subdivision
thereof).

     “Pipelines Agreement” means the Pipelines, Tankage and Loading Rack Throughput
Agreement dated as of the date hereof by and between Lessor and Lessee.

     “Post-Maturity Rate” shall have the meaning ascribed to such term in Section
9.2.

     “Premises” means those certain tracts or parcels of land on which the Relevant Assets
are situated, such land being located in the City of Tulsa, Tulsa County, Oklahoma, more
particularly described or identified on Exhibit A attached hereto and made a part hereof
for all purposes together with all right, title and interest, if any, of Lessor in and to all
accretion attaching to the land and any rights to submerged lands or interests in riparian rights
or riparian grants owned by Lessor and adjoining the land shown on said Exhibit A, but
excluding (i) the

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Relevant Assets, (ii) the Additional Improvements, and (iii) those matters set forth on
Schedule 1.1(b).

     “Purchase Agreement” has the meaning set forth in the Recitals.

     “Refinery” means Lessor’s refinery located at the Refinery Site.

     “Refinery Site” means that certain tract(s) or parcel(s) of land located in the City
of Tulsa, Tulsa County, Oklahoma, on which the Premises are located.

     “Relevant Assets” shall mean the HEP Tulsa Assets, as such term is defined in the
Purchase Agreement.

     “Rent” shall have the meaning ascribed to such term in Section 2.3.

     “Shared Access Facilities” shall have the meaning ascribed to such term in Section
2.2(a).

     “Site Services Agreement” means that certain Site Services Agreement dated of even
date herewith by and between Lessor and Lessee.

     “SUMF Assets” shall have the meaning ascribed to such term in the Site Services
Agreement.

     “Taxes” shall have the meaning ascribed to such term in Section 6.1.

     “Term” shall have the meaning ascribed to such term in Section 2.1.

     “Third Party” shall mean a Person which is not (a) Lessor or an Affiliate of Lessor,
(b) Lessee or an Affiliate of Lessee or (c) a Person that, after the signing of this Lease becomes
a successor entity of Lessor, Lessee or any of their respective Affiliates. An employee of Lessor
or Lessee shall not be deemed an Affiliate.

     “Third-Party Claim” shall have the meaning ascribed to such term in Section
10.3.

     1.2 References. As used in this Lease, unless a clear contrary intention appears:
(a) the singular includes the plural and vice versa; (b) reference to any Person includes such
Person’s successors and assigns but, in the case of a Party, only if such successors and assigns
are permitted by this Lease, and reference to a Person in a particular capacity excludes such
Person in any other capacity; (c) reference to any gender includes each other gender; (d) reference
to any agreement (including this Lease), document or instrument means such agreement, document, or
instrument as amended or modified and in effect from time to time in accordance with the terms
thereof and, if applicable, the terms of this Lease; (e) reference to any Section means such
Section of this Lease, and references in any Section or definition to any clause means such clause
of such Section or definition; (f) “hereunder”, “hereof”, “hereto” and words of similar import will
be deemed references to this Lease as a whole and not to any particular Section or other provision
hereof or thereof; (g) “including” (and with correlative meaning “include”) means including without
limiting the generality of any description preceding such term; and (h) relative to the

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determination of any period of time, “from” means “from and including,” “to” means “to but
excluding” and ‘through” means “through and including.”

     1.3 Headings. The headings of the Sections of this Lease and of the Schedules and
Exhibits are included for convenience only and shall not be deemed to constitute part of this Lease
or to affect the construction or interpretation hereof or thereof.

ARTICLE II

DEMISE OF PREMISES AND TERM

     2.1 Demise of Premises and Term.

          (a) In consideration of the rents, covenants, and agreements set forth herein and subject to
the terms and conditions hereof, Lessor hereby leases to Lessee and Lessee hereby leases from
Lessor, the Premises for a term commencing on the effective date hereof (the “Commencement
Date”) and ending at midnight on the date which is fifty (50) years after the date hereof, and
after such date the term of this Lease shall be automatically renewed for a maximum of four (4)
successive ten-year periods thereafter (the “Term”); provided, however, Lessee may
terminate this Lease at the end of such initial period or any subsequent ten-year period by
delivering written notice to Lessor, on or before 180 days prior to the end of any such period,
that Lessee has elected to terminate this Lease.

          (b) At Lessee’s option, Lessee may terminate this Lease, by providing written notice to Lessor
on or before 180 days prior to the desired termination date if Lessee ceases to operate the
Relevant Assets and Additional Improvements or ceases its business operations. In the event of
such termination pursuant to this Section 2.1(b), Lessor shall retain one half of the
remaining Rent (as defined below) for the then current 12-month rental period as set forth in
Section 2.3 below as its sole and exclusive remedy for such early termination and shall
refund to Lessee the remaining Rent.

     2.2 Access.

          (a) Lessor hereby grants to Lessee and its Affiliates, agents, employees and contractors
(collectively, “Lessee’s Parties”) free of charge, an irrevocable, non-exclusive right of
access to and use of those portions of the Refinery Site that are reasonably necessary for access
to and/or the operation of the Relevant Assets and Additional Improvements by Lessee as a
stand-alone enterprise, all so long as such access and use by any of Lessee’s Parties does not
unreasonably interfere in any material respect with Lessor’s operations at the Refinery Site and
complies with Lessor’s rules, norms and procedures governing safety and security at the Refinery
Site. The facilities on the Refinery Site that are subject to the access and use rights provided
under this Section, are referred to herein as the “Shared Access Facilities”.
Notwithstanding the foregoing, the provisions of this Section 2.2(a) shall relate only to
access and use of the Shared Access Facilities, and the Site Services Agreement shall cover all
services that are to be provided by Lessor under the terms of the Site Services Agreement.

          (b) Lessor hereby retains for itself and its Affiliates, agents, employees and contractors
(collectively, “Lessor’s Parties”), the right of access to all of the Premises and the
Relevant Assets (i) to determine whether the conditions and covenants contained in this Lease

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are being kept and performed, (ii) to comply with Environmental Laws, and (iii) to inspect,
maintain, repair, improve and operate the SUMF Assets and the Shared Access Facilities and any
assets of Lessor located on the Premises or to install or construct any structures or equipment
necessary for the maintenance, operation or improvement of any such assets or the installation,
construction or maintenance of any Connection Facilities, all so long as such access by Lessor’s
Parties does not unreasonably interfere in any material respect with Lessee’s operations on the
Premises and complies with Lessee’s rules, norms and procedures governing safety and security at
the Premises.

     2.3 Rent. As rental for the Premises during the Term, Lessee agrees to pay to Lessor
for each 12-month period of the Term One Hundred and 00/100 ($100.00) (the “Rent”) on or
before the 1st day of each 12-month period, the first such payment being due within 30 days of the
Commencement Date of the Term.

     2.4 Place of Payment. All Rent shall be payable in lawful money of the United States
of America at Lessor’s address set forth in Section 11.7.

     2.5 Net Lease. Except as herein otherwise expressly provided in this Lease and in the
Ancillary Agreements, this is a net lease and Lessor shall not at any time be required to pay any
utility charges or any costs associated with the maintenance, repair, alteration or improvement of
the Premises or to provide any services or do any act or thing with respect to the Premises or any
part thereof or any appurtenances thereto, and the Rent reserved herein shall be paid without any
claim on the part of Lessee for diminution, setoff or abatement and nothing shall suspend, abate or
reduce any Rent to be paid hereunder, except as expressly provided herein.

ARTICLE III

CONDUCT OF BUSINESS

     3.1 Use of Premises. Lessee shall have the right to use the Premises for the purpose
of owning, operating, maintaining, repairing, replacing, improving, and expanding the Relevant
Assets and the Additional Improvements and for any other lawful purpose associated with the
operation and ownership of the Relevant Assets and the Additional Improvements.

     3.2 Waste. Subject to the obligations of Lessor under the Ancillary Agreements,
Lessee shall not commit, or suffer to be committed, any waste to the Premises, ordinary wear and
tear or casualty excepted.

     3.3 Governmental Regulations. Subject to the obligations of Lessor to Lessee under
this Lease and the Ancillary Agreements including the indemnity provisions contained in the
Ancillary Agreements, Lessee shall, at Lessee’s sole cost and expense, at all times comply with all
applicable requirements (including requirements under Environmental Laws) of all Governmental
Authorities now in force, or which may hereafter be in force, pertaining to the Premises, and shall
faithfully observe all Laws now in force or which may hereafter be in force pertaining to the
Premises or the use, maintenance or operation thereof. Lessee shall give prompt written notice to
Lessor of Lessee’s receipt from time to time of any notice of non-compliance, order or other
directive from any court or other Governmental Authority under Environmental
Laws relating to the Premises. If Lessor reasonably believes at any time that Lessee is not

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complying with all applicable legal requirements (including requirements under Environmental Laws)
with respect to the Relevant Assets and Additional Improvements, it will provide reasonable notice
to Lessee of such condition. If Lessee fails to take appropriate action to cause such assets to
comply with applicable Laws or take other actions required under applicable Laws within 30 days of
Lessor’s reasonable notice, Lessor may, without further notice to Lessee, take such actions for
Lessee’s account. Within 30 days following the date Lessor delivers to Lessee evidence of payment
for those actions by Lessor reasonably necessary to cause the Relevant Assets and Additional
Improvements to achieve compliance with applicable Laws because of Lessee’s failure to do so,
Lessee shall reimburse Lessor all amounts paid by Lessor on Lessee’s behalf.

     3.4
Environmental Permits. Notwithstanding Lessee’s
obligation to maintain and operate the Relevant Assets and Additional Improvements and comply with applicable Laws,
Lessor and Lessee acknowledge that Lessor may maintain in its name any air quality permits required by any
applicable Governmental Authorities. Consequently and also for the ease of administration, Lessor may
maintain in its name the air quality permits and other authorizations applicable to all, or part of, the
Relevant Assets and Additional Improvements and may make any reports, notifications or other submissions
to Governmental Authorities pursuant to such permits or Laws; provided that upon Lessor’s
written request Lessee shall apply for, obtain and maintain in Lessee’s name any such permits
and authorizations, and make any submissions, required by Law for the operation of the Relevant Assets
and Additional Improvements, which submissions, permits and authorizations
shall be independent of Lessor’s submissions, permits and authorizations.
Lessee shall (a) within 30 days after the date hereof submit a notice of intent
apply for a storm water discharge permit for the Relevant Assets and Additional Improvements, and
(b) within 180 days of the date hereof prepare a Spill Prevention
Countermeasures and Controls plan as required by EPA regulations (40 CFR Part 112).
Lessor and Lessee shall cooperate and work in good faith with the applicable Governmental
Authorities to obtain any modification or refinement of the air quality permit(s) necessary to
satisfy the requirements of Environmental Law. Except as provided in this paragraph, nothing in this
Lease shall reduce Lessee’s obligations under Laws with respect to the Relevant Assets and Additional Improvements.

     3.5 Utilities. Lessor shall provide all utilities (electricity, natural gas, water,
steam, etc.) necessary for Lessee’s operation of the Relevant Assets and the Additional
Improvements in accordance with the provisions of the Site Services Agreement.

ARTICLE IV

ALTERATIONS, ADDITIONS AND IMPROVEMENTS

     Subject to the provisions of this Article IV, Lessee may make any alterations,
additions, improvements or other changes to the Premises and the Relevant Assets as may be
necessary or useful in connection with the operation of the Relevant Assets (collectively, the
“Additional Improvements”). If such Additional Improvements require alterations, additions
or improvements to the Premises or any of the Shared Access Facilities, Lessee shall notify Lessor
in writing in advance and the parties shall negotiate in good faith any increase to the fees paid
by Lessee under the Site Services Agreement by Lessee or otherwise provide for reimbursement of any
material increase in cost (if any) to Lessor under the Site Services Agreement that results from
any modifications to the Premises or the Shared Access Facilities necessary to accommodate the
Additional Improvements, or as otherwise mutually agreed by the parties. Any alteration, addition,
improvement or other change to the Premises, Relevant Assets or Additional Improvements (and, if
agreed by Lessee and Lessor, to the Shared Access Facilities) by Lessee shall be made in a good and
workmanlike manner and in accordance with all applicable Laws. The Relevant Assets and all
Additional Improvements shall remain the property of Lessee and shall be removed by Lessee within
one (1) year after termination of this Lease (provided that such can be removed by Lessee without
unreasonable damage or harm to the Premises) or, at Lessee’s option exercisable by notice to
Lessor, surrendered to Lessor upon the termination of
this Lease. Lessee shall not have the right or power to create or permit any lien of any kind
or

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character on the Premises by reason of repair or construction or other work. In the event any
such lien is filed against the Premises, Lessee shall cause such lien to be discharged or bonded
within thirty (30) days of the date of filing thereof.

ARTICLE V

MAINTENANCE OF PREMISES

     5.1 Maintenance by Lessee.
Except as otherwise expressly provided in this Article V and
in Article VII or elsewhere in this Lease and subject to the
obligations of Lessor and Lessee under the Ancillary Agreements,
including any indemnity provisions contained in the Ancillary Agreements,
Lessee shall at its sole cost, risk and expense at all times maintain the Premises, the
Relevant Assets and Additional Improvements (to the extent such Additional Improvements are located
on the Shared Access Facilities) in compliance with all applicable Laws. When used
in this Section 5.1, the term “repairs” shall include all necessary replacements,
renewal, alterations and additions. All repairs made by Lessee shall be made in accordance with
normal and customary practices in the industry, in a good and workmanlike manner, and in
accordance with all applicable Laws. Lessee shall be responsible at its sole cost and expense for
the proper handling, removal and disposal of all materials, debris, waste and Hazardous Substances generated or
resulting from such repair and maintenance activities, all in accordance with applicable Laws.

     5.2 Operation of Premises. Subject to the obligations of Lessor and Lessee in this
Lease and under the Ancillary Agreements, including any indemnity provisions contained in the
Ancillary Agreements, Lessee covenants and agrees to operate the Relevant Assets and Additional
Improvements located on the Premises in accordance with normal and customary practices in the
industry and all applicable Laws and other requirements of applicable Governmental Authorities now
in force, or which may hereafter be in force, pertaining to the Premises or the use or operation
thereof.

     5.3 Surrender of Premises. Lessee shall at the expiration of the Term or at any
earlier termination of this Lease, surrender the Premises to Lessor in as good condition as it
received the same, ordinary wear and tear, and limitations permitted by Article VII
excepted and in accordance with the provisions of Article IV.

     5.4 Release of Hazardous Substances. Lessee shall give prompt notice to Lessor of any
release of any Hazardous Substances on or at the Premises that occur during the Term. Lessor shall immediately take all steps necessary to contain or
remediate (or both) any such release and provide any governmental notifications required by Law.
If Lessor believes at any time that Lessee is failing to contain or remediate in compliance with
all applicable Laws (including Environmental Laws) any release arising from Lessee’s operation of
the Relevant Assets or Additional Improvements or Lessee’s failure to comply with its obligations
pursuant to this Lease, Lessor will provide reasonable notice to Lessee of such failure. If Lessee
fails to take appropriate action to contain or remediate such a release or take other actions
required under applicable Laws or this Lease within 30 days of Lessor’s reasonable notice, Lessor
may, without further notice to Lessee, take such actions for Lessee’s account. Within 30 days
following the date Lessor delivers to Lessee evidence of payment for those actions by Lessor
reasonably necessary to contain or remediate a release or
otherwise achieve compliance with applicable Laws or this Lease because of Lessee’s failure to do so, Lessee shall reimburse Lessor all amounts paid by Lessor on Lessee’s behalf.

8

 

ARTICLE VI

TAXES, ASSESSMENTS

     6.1 Lessee’s Obligation to Pay. Lessee shall pay during the Term, all federal, state
and local real and personal property ad valorem taxes, assessments, and other governmental charges,
general and special, ordinary and extraordinary, including assessments for public improvements or
benefits assessed against the Premises, or improvements situated thereon, including the Relevant
Assets and all Additional Improvements (but excluding any Shared Access Facilities and any SUMF
Assets) for the period after the Commencement Date, that are payable to any lawful authority
assessed against or with respect to the Premises or the use or operation thereof during the Term,
including any federal, state or local income, gross receipts, withholding, franchise, excise,
sales, use, value added, recording, transfer or stamp tax, levy, duty, charge or withholding of any
kind imposed or assessed by any federal, state or local government, agency or authority, together
with any addition to tax, penalty, fine or interest thereon, other than state or U.S. federal
income tax imposed upon the taxable income of Lessor and any franchise taxes imposed upon Lessor
(such taxes and assessments being hereinafter called “Taxes”). In the event that Lessee
fails to pay its share of such Taxes in accordance with the provisions of this Section 6.1
prior to the time the same become delinquent, Lessor may pay the same and Lessee shall reimburse
Lessor all amounts paid by Lessor on Lessee’s behalf within 30 days following the date Lessor
delivers to Lessee evidence of such payment.

     6.2 Manner of Payment. Upon notice by Lessee to Lessor, Lessor and Lessee shall use
commercially reasonable efforts to cause the Premises and the Relevant Assets (including all
Additional Improvements but excluding Shared Access Facilities and any SUMF Assets) to be
separately assessed for purposes of Taxes as soon as reasonably practicable following the
Commencement Date (to the extent allowed by applicable Law). During the Term but subject to the
provisions of Section 6.1, Lessee shall pay all Taxes assessed directly against the
Premises, the Relevant Assets and the Additional Improvements (but excluding the Shared Access
Facilities and any SUMF Assets) directly to the applicable taxing authority prior to delinquency
and shall promptly thereafter provide Lessor with evidence of such payment. Until such time as
Lessor and Lessee can cause the Premises, the Relevant Assets and the Additional Improvements (but
excluding the Shared Access Facilities and any SUMF Assets) to be separately assessed as provided
above, Lessee shall reimburse Lessor, upon request, for any such Taxes paid by Lessor to the
applicable taxing authorities (such reimbursement to be based upon the mutual agreement of the
Lessor and Lessee as to the portion of such Taxes attributable to the Premises, the Relevant Assets
and the Additional Improvements), subject to the terms of Section 6.1. The certificate
issued or given by the appropriate officials authorized or designated by law to issue or give the
same or to receive payment of such Taxes shall be prima facie evidence of the existence, payment,
nonpayment and amount of such Taxes. Lessee may contest the validity or amount of any such Taxes
or the valuation of the Premises and/or the Relevant Assets and the Additional Improvements (to the
extent any of the foregoing may be separately issued), at Lessee’s sole cost and expense, by
appropriate proceedings, diligently conducted in good faith in accordance with applicable Law. If
Lessee contests such items then Lessor shall cooperate with Lessee in any such contesting of the
validity or amount of any such Taxes or the valuation of the Premises and/or the Relevant Assets and the Additional Improvements. Taxes for the first and last
years of the Term shall be prorated between the Parties based on the portions of such years that
are coincident with the applicable tax years and for which each applicable Party is responsible.

9

 

ARTICLE VII

EMINENT DOMAIN; CASUALTY; INSURANCE

     7.1 Total Condemnation of Premises. If the whole of the Premises are acquired or
condemned by eminent domain for any public or quasi-public use or purpose, then this Lease shall
terminate as of the date title vests in any public agency. All rentals and other charges owing
hereunder shall be prorated as of such date.

     7.2 Partial Condemnation. If any part of the Premises is acquired or condemned as set
forth in Section 7.1, and if in Lessee’s reasonable opinion such partial taking or
condemnation renders the Premises unsuitable for the business of Lessee, then this Lease shall
terminate at Lessee’s election as of the date title vests in any public agency, provided Lessee
delivers to Lessor written notice of such election to terminate within 60 days following the date
title vests in such public agency. In the event of such termination, all rentals and other charges
owing hereunder shall be prorated as of such effective date of termination.

     7.3 Damages and Right to Additional Property. Lessor shall be entitled to any award
and all damages payable as a result of any condemnation or taking of the fee title of the Premises,
provided that the net amount which may be awarded or tendered to Lessor in such condemnation
proceedings (less all legal and other expenses incurred by Lessor in connection with such taking)
shall (as long as Lessee is not then in default hereunder) be used to pay for any restoration by
Lessee of the Relevant Assets, the Additional Improvements and/or the remainder of the Premises
hereof to the extent Lessee desires any of the same to be restored. Lessee shall have the right to
claim and recover from the condemning authority, but not from Lessor, such compensation as may be
separately awarded or recoverable by Lessee in Lessee’s own right on account of any and all damage
to the Relevant Assets, the Additional Improvements and/or Lessee’s business by reason of the
condemnation, including loss of value of any unexpired portion of the Term, and for or on account
of any cost or loss to which Lessee might be put in removing Lessee’s personal property, fixtures,
leasehold improvements and equipment, including the Relevant Assets and the Additional
Improvements, from the Premises.

          During any periods of time during which the Relevant Assets and/or Additional Improvements are
destroyed, damaged, or are being restored or reconstructed (each a “Casualty Event”) under the
terms of this Section, Rent hereunder shall be abated in the proportion that Lessee’s use thereof
is impacted by such Casualty Event, on the condition that Lessee takes commercially reasonable
efforts to mitigate the disruption to its business caused by such Casualty Event.

     7.4 Insurance. Except as otherwise agreed by Lessor and Lessee, Lessee shall, at all
times, maintain or cause to be maintained insurance with respect to the Premises, the Relevant
Assets and the Additional Improvements in accordance with the requirements identified on
Schedule 7.4 hereto.

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ARTICLE VIII

ASSIGNMENT AND SUBLETTING

     8.1 Assignment and Subletting. This Agreement may be assigned in connection with, and
subject to the terms and conditions set forth in Section 13(b) of, the Pipelines Agreement, which
such terms and conditions are incorporated herein by reference.

     8.2 Release of Lessor. Any assignment of this Lease by Lessor in accordance with
Section 8.1 shall operate to terminate the liability of Lessor for all obligations under
this Lease accruing after the date of any such assignment.

     8.3 Release of Lessee. Any assignment of this Lease by Lessee in accordance with
Section 8.1 shall operate to terminate the liability of Lessee for all obligations under
this Lease accruing after the date of any such assignment.

ARTICLE IX

DEFAULTS; REMEDIES; TERMINATION

     9.1 Default by Lessee. The occurrence of any one or more of the following events
shall constitute a material default and breach of this Lease by Lessee:

          (a) The failure by Lessee to make when due any payment of Rent or any other payment required
to be made by Lessee hereunder, if such failure continues for a period of 90 days following written
notice from Lessor;

          (b) The failure by Lessee to observe or perform any of the other covenants, conditions or
provisions of this Lease to be observed or performed by Lessee, if such failure continues for a
period of 90 days following written notice from Lessor; provided, however, if a reasonable time to
cure such default would exceed 90 days, Lessee shall not be in default so long as Lessee begins to
cure such default within 90 days of receiving written notice from Lessor and thereafter completes
the curing of such default within reasonable period of time (under the circumstances) following the
receipt of such written notice from Lessor; or

          (c) The occurrence of any Bankruptcy Event.

     9.2 Lessor’s Remedies.

          (a) In the event of any such material default under or material breach of the terms of this
Lease by Lessee, Lessor may, at Lessor’s option, at any time thereafter that such default or breach
remains uncured, without further notice or demand, terminate this Lease and Lessee’s right to
possession of the Premises and forthwith repossess the Premises by any lawful means in which event
Lessee shall immediately surrender possession of the Premises to Lessor; and any such action on the
part of Lessor shall be in addition to any other remedy that may be available to Lessor for arrears
of Rent or breach of contract, or otherwise, including the right of setoff.

          (b) If, by the terms of this Lease, Lessee is required to do or perform any act or to pay any
sum to a third party, and fails or refuses to do so, Lessor, after 30 days written

11

 

notice to Lessee, without waiving any other right or remedy hereunder for such default, may do
or perform such act, at Lessee’s expense, or pay such sum for and on behalf of Lessee, and the
amounts so expended by Lessor shall be repayable on demand, and bear interest from the date
expended by Lessor until paid at a rate equal to the lesser of (i) an interest rate equal to the
“Prime Rate” as published in The Wall Street Journal, Southwest Edition, in its listing of “Money
Rates” plus two percent (2%) or (ii) the maximum non-usurious rate of interest permitted to be
charged Lessee under applicable Law (the “Post-Maturity Rate”). Past due Rent and any
other past due payments required hereunder shall bear interest from maturity until paid at the
Post-Maturity Rate.

     9.3 Default by Lessor. The occurrence of any one or more of the following events
shall constitute a material default and breach of this Lease by Lessor:

          (a) The failure by Lessor to observe or perform any of the other covenants, conditions or
provisions of this Lease to be observed or performed by Lessor, if such failure continues for a
period of 30 days following written notice from Lessee; provided, however, if a reasonable time to
cure such default would exceed 30 days, Lessor shall not be in default so long as Lessor begins to
cure such default within 30 days of receiving written notice from Lessee and thereafter completes
the curing of such default within a reasonable period of time following the receipt of such written
notice from Lessee; or

          (b) The occurrence of a Bankruptcy Event.

     9.4
Lessee’s Remedies. In the event of any such
material default under or material breach of the terms
of this Lease by Lessor, Lessee may, at Lessee’s option, at any time thereafter that such default
or breach remains uncured, after ten days prior written notice to Lessee, perform any act that
Lessor is required to do or perform any act or to pay any sum to a Third Party, at Lessor’s expense
(to the extent the terms of this Lease require such performance at Lessor’s expense) or pay such
sum for and on behalf of Lessor, and the amounts so expended by Lessee shall be repayable on
demand, and bear interest from the date expended by Lessee until paid at the Post-Maturity Rate.
Lessee may, at Lessee’s option, deduct any such amounts so expended by Lessee from the Rent and any
other amounts owed hereunder or under any Ancillary Agreement and any such action on the part of
Lessee shall be in addition to any other remedy that may be available to Lessee for default or
breach of contract, or otherwise, including the right of setoff.

ARTICLE X

INDEMNITY

     10.1 Indemnification by Lessor. Lessor agrees to indemnify, defend, protect, save and
keep harmless Lessee and its Affiliates and their respective officers, directors, shareholders,
unitholders, members, partners, managers, agents, employees, representatives, successors and
assigns (collectively, the “Lessee Indemnified Parties”) from and against any and all
liabilities, obligations, losses, damages, penalties, demands, claims (including claims involving
strict or absolute liability in tort), actions, suits, costs, expenses and disbursements (including
reasonable legal fees and expenses) of any kind and nature whatsoever (collectively, the
“Claims”) which may be imposed on, incurred by or asserted against any of the Lessee
Indemnified Parties, in any way relating to or arising out of (a) any failure to perform any
covenant or agreement made or

12

 

undertaken by Lessor in this Lease, or (b) the exercise of Lessor’s rights and obligations
under Section 2.2(b); provided, however, Lessor shall not have any obligation to indemnify
the Lessee Indemnified Parties for any such Claim under clauses (a) or (b) to the extent resulting
from or arising out of the willful misconduct or negligence (standard negligence or gross
negligence) of any of the Lessee Indemnified Parties. To the extent that the Lessee Indemnified
Parties in fact receive full indemnification payments from Lessor under the indemnification
provisions of this Section 10.1, Lessor shall be subrogated to the Lessee Indemnified
Parties’ rights with respect to the transaction or event requiring or giving rise to such
indemnity. NOTWITHSTANDING ANYTHING CONTAINED IN THIS LEASE TO THE CONTRARY, IN NO EVENT SHALL
LESSOR BE LIABLE FOR INCIDENTAL, INDIRECT, SPECIAL, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES,
LOST PROFITS OR OTHER BUSINESS INTERRUPTION DAMAGES IN TORT, CONTRACT OR OTHERWISE UNDER OR ON
ACCOUNT OF THIS LEASE, EXCEPT THOSE PAYABLE TO THIRD PARTIES FOR WHICH LESSOR WOULD BE LIABLE UNDER
THIS SECTION.

     10.2 Indemnification by Lessee. Lessee agrees to indemnify, defend, protect, save and
keep harmless Lessor and its Affiliates, and their respective officers, directors, shareholders,
unitholders, members, partners, managers, agents, employees, representatives, successors and
assigns (collectively, the “Lessor Indemnified Parties”) from and against any and all
Claims which may be imposed on, incurred by or asserted against the Lessor Indemnified Parties, in
any way and to the extent relating to or arising out of (a) any failure to perform any covenant or
agreement made or undertaken by Lessee in this Lease, but expressly excluding any Claims arising
pursuant to Lessee’s non-compliance with any Environmental Law or the release of any Hazardous
Substance (such Claims to be addressed pursuant to the indemnification obligations of the Pipelines
Agreement), or (b) the exercise of Lessee’s rights under Section 2.2(a); provided, however,
Lessee shall not have any obligation to indemnify the Lessor Indemnified Parties for any such Claim
under clauses (a) or (b) to the extent resulting from or arising out of the willful misconduct or
negligence (standard negligence or gross negligence) of any of the Lessor Indemnified Parties. To
the extent that the Lessor Indemnified Parties in fact receive full indemnification payments from
Lessee under the indemnification provisions of this Section 10.2, Lessee shall be
subrogated to the Lessor Indemnified Parties’ rights with respect to the transaction or event
requiring or giving rise to such indemnity. NOTWITHSTANDING ANYTHING CONTAINED IN THIS LEASE TO
THE CONTRARY, IN NO EVENT SHALL LESSEE BE LIABLE FOR INCIDENTAL, INDIRECT, SPECIAL, PUNITIVE,
EXEMPLARY OR CONSEQUENTIAL DAMAGES, LOST PROFITS OR OTHER BUSINESS INTERRUPTION DAMAGES IN TORT,
CONTRACT OR OTHERWISE UNDER OR ON ACCOUNT OF THIS LEASE, EXCEPT THOSE PAYABLE TO THIRD PARTIES FOR
WHICH LESSEE WOULD BE LIABLE UNDER THIS SECTION.

     10.3 Matters Involving a Third Party. If any Third Party shall notify either Lessor
or Lessee with respect to any action or claim by a Third Party (a “Third-Party Claim”) that
may give rise to a right to claim for indemnification against the other Party under Section
10.1 or Section 10.2, then the Indemnified Party shall promptly notify the Indemnifying
Party thereof in writing; provided, however, that failure to give timely notice shall not affect
the right to indemnification to the extent such failure to give timely notice is not prejudicial to
the Indemnifying Party.

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     10.4 Survival. Notwithstanding anything contained in this Lease to the contrary, the
provisions of this Article X shall survive the expiration or earlier termination of this
Lease.

     10.5 Ancillary Agreements. The Ancillary Agreements contain additional indemnity
provisions. The indemnities contained in this Article X are in addition to and not in lieu
of the indemnity provisions contained in the Ancillary Agreements.

ARTICLE XI

GENERAL PROVISIONS

     11.1 Estoppel Certificates. Lessee and Lessor shall, at any time and from time to
time upon not less than 20 days prior written request from the other party, execute, acknowledge
and deliver to the other a statement in writing (a) certifying that this Lease is unmodified and in
full force and effect (or, if modified, stating the nature of such modification and certifying that
this Lease, as so modified, is in full force and effect) and the date to which Rent and other
charges are paid, and (b) acknowledging that there are not, to the executing party’s knowledge, any
uncured defaults on the part of the other party hereunder (or specifying such defaults, if any are
claimed). Any such statement may be conclusively relied upon by any prospective purchaser of the
Premises or the leasehold evidenced by this Lease or any lender with respect to the Premises or the
leasehold evidenced by this Lease. Nothing in this Section 11.1 shall be construed to
waive the conditions elsewhere contained in this Lease applicable to assignment or subletting of
the Premises by Lessee.

     11.2 Severability. The invalidity or unenforceability of any provision of this Lease,
as determined by a court of competent jurisdiction, shall in no way affect the validity or
enforceability of any other provision hereof.

     11.3 Time of Essence. Time is of the essence in the performance of all obligations
falling due hereunder.

     11.4 Captions. The headings to Articles, Sections and other subdivisions of this
Lease are inserted for convenience of reference only and will not affect the meaning or
interpretation of this Lease.

     11.5 Entire Agreement; Amendment. This Lease, including the exhibits and schedules
attached hereto, constitutes the entire agreement and understanding between the parties hereto with
respect to the lease of the Premises, and supersedes all prior and contemporaneous agreements and
undertakings of the parties, in connection herewith. This Lease may be modified in writing only,
signed by the parties in interest at the time of modification.

     11.6 Schedules and Exhibits. All schedules and exhibits hereto which are referred to
herein are hereby made a part hereof and incorporated herein by such reference.

     11.7 Notices. Any notice or other communication given under this Agreement shall be
in writing and shall be (i) delivered personally, (ii) sent by documented overnight delivery
service, (iii) sent by email transmission, or (iv) sent by first class mail, postage prepaid
(certified or registered mail, return receipt requested). Such notice shall be deemed to have been
duly given (x) if received, on the date of the delivery, with a receipt for delivery, (y) if
refused, on the

14

 

date of the refused delivery, with a receipt for refusal, or (z) with respect to email
transmissions, on the date the recipient confirms receipt. Notices or other communications shall
be directed to the following addresses:

Notices to Lessor:

c/o Holly Corporation

100 Crescent Court, Suite 1600

Dallas, Texas 75201

Attn: President

Email address: president@hollycorp.com

with
a copy, which shall not constitute notice, but is required in order to give proper notice, to:

c/o Holly Corporation

100 Crescent Court, Suite 1600

Dallas, Texas 75201

Attn: General Counsel

Email address: generalcounsel@hollycorp.com

Notices to Lessee:

c/o Holly Energy Partners, L.P.

100 Crescent Court, Suite 1600

Dallas, TX 75201

Attn: David Blair

Email address: SVP-HEP@hollyenergy.com

with
a copy, which shall not constitute notice, but is required in order to give proper notice, to:

c/o Holly Energy Partners, L.P.

100 Crescent Court, Suite 1600

Dallas, Texas 75201

Attn: General Counsel

Email address: generalcounsel@hollycorp.com

          Any Party may at any time change its address for service from time to time by giving notice to
the other Parties in accordance with this Section 11.7.

     11.8 Waivers. No waiver or waivers of any breach or default or any breaches or
defaults by either Party of any term, condition or liability of or performance by the other party
of any duty or obligation hereunder shall be deemed or construed to be a waiver or waivers of
subsequent breaches or defaults of any kind, character or description under any circumstance. The
acceptance of Rent hereunder by Lessor shall not be a waiver of any preceding breach by Lessee of
any provision hereof, other than the failure of Lessee to pay the particular Rent so

15

 

accepted, regardless of Lessor’s knowledge of such preceding breach at the time of acceptance
of such Rent.

     11.9 No Partnership. The relationship between Lessor and Lessee at all times shall
remain solely that of landlord and tenant and shall not be deemed a partnership or joint venture.

     11.10 No Third Party Beneficiaries. Subject to the provisions of Article X
and Section 11.14 hereof, this Lease inures to the sole and exclusive benefit of Lessor and
Lessee, their respective Affiliates, successors, legal representatives, sublessees and assigns, and
confers no benefit on any third party.

     11.11 Waiver of Landlord’s Lien. To the extent permitted by Law, Lessor hereby
expressly waives any and all liens (constitutional, statutory, contractual or otherwise) upon
Lessee’s personal property now or hereafter installed or placed in or on the Premises, which
otherwise might exist to secure payment of the sums herein provided to be paid by Lessee to Lessor.

     11.12 Mutual Cooperation; Further Assurances. Upon request by either Party from time
to time during the Term, each Party hereto agrees to execute and deliver all such other and
additional instruments, notices and other documents and do all such other acts and things as may be
reasonably necessary to carry out the purposes of this Lease and to more fully assure the Parties’
rights and interests provided for hereunder. Lessor and Lessee each agree to reasonably cooperate
with the other on all matters relating to required Permits and regulatory compliance by either
Lessee or Lessor in respect of the Premises so as to ensure continued full operation of the
Premises by Lessee pursuant to the terms of this Lease.

     11.13 Recording. Upon the request of Lessor or Lessee, Lessor and Lessee shall
execute, acknowledge, deliver and record a “short form” memorandum of this Lease in the form of
Exhibit B attached hereto and made a part hereof for all purposes. Promptly upon request
by Lessor at any time following the expiration or earlier termination of this Lease, however such
termination may be brought about, Lessee shall execute and deliver to Lessor an instrument, in
recordable form, evidencing the termination of this Lease and the release by Lessee of all of
Lessee’s right, title and interest in and to the Premises existing under and by virtue of this
Lease (the “Lessee Release”) and Lessee grants Lessor an irrevocable power of attorney
coupled with an interest for the purpose of executing the Lessee Release in the name of the Lessee.
This Section 11.13 shall survive the termination of this Lease.

     11.14 Binding Effect. Except as herein otherwise expressly provided, this Lease shall
be binding upon and inure to the benefit of the Parties and their respective successors, sublessees
and assigns. Nothing in this Section shall be construed to waive the conditions elsewhere
contained in this Lease applicable to assignment or subletting of the Premises by the Parties.

     11.15 Choice of Law. The provisions of this Lease shall be governed by and construed
in accordance with the laws of the State of Oklahoma, excluding any conflicts-of-law rule or
principle that might require the application of laws of another jurisdiction.

     11.16 Warranty of Peaceful Possession. Lessor covenants and warrants that Lessee,
upon paying the Rent reserved hereunder and observing and performing all of the covenants,

16

 

conditions and provisions on Lessee’s part to be observed and performed hereunder, may
peaceably and quietly have, hold, occupy, use and enjoy, and, subject to the terms of this Lease,
shall have the full, exclusive, and unrestricted use and enjoyment of, all the Premises during the
Term for the purposes permitted herein, and Lessor agrees to warrant and forever defend title to
the Premises against the claims of any and all persons whomsoever lawfully claiming or to claim the
same or any part thereof.

     11.17 Force Majeure. In the event of Lessor or Lessee being rendered unable, wholly
or in part, by Force Majeure to carry out its obligations under this Lease, other than to make
payments due hereunder and the obligations under Section 11.16, it is agreed that on such
Party’s giving notice and full particulars of such Force Majeure to the other Party as soon as
practicable after the occurrence of the cause relied on, then the obligations of the Parties, so
far as they are affected by such Force Majeure, shall be suspended during the continuance of any
inability so caused but for no longer period, and such cause shall, as far as possible, be remedied
with all reasonable dispatch. It is understood and agreed that the settlement of strikes or
lockouts shall be entirely within the discretion of the Party having the difficulty, and that the
above requirements that any Force Majeure shall be remedied with all reasonable dispatch shall not
require the settlement of strikes or lockouts by acceding to the demands of the opposing party when
such course is inadvisable in the discretion of the Party having the difficulty. Notwithstanding
anything in this Agreement to the contrary, inability of a Party to make payments when due, be
profitable or to secure funds, arrange bank loans or other financing, obtain credit or have
adequate capacity or production (other than for reasons of Force Majeure) shall not be regarded as
events of Force Majeure.

     11.18 Survival. All obligations of Lessor and Lessee that shall have accrued under
this Lease prior to the expiration or earlier termination hereof shall survive such expiration or
termination to the extent the same remain unsatisfied as of the expiration or earlier termination
of this Lease. Lessor and Lessee further expressly agree that all provisions of this Lease which
contemplate performance after the expiration or earlier termination hereof shall survive such
expiration or earlier termination of this Lease.

     11.19 AS IS, WHERE IS. SUBJECT TO ALL OF THE OBLIGATIONS OF LESSOR UNDER THIS LEASE
INCLUDING THOSE SET FORTH IN ARTICLE V, ARTICLE X AND SECTION 11.16, LESSEE
HEREBY ACCEPTS THE PREMISES “AS IS”, “WHERE IS”, AND “WITH ALL FAULTS”, AND LESSOR MAKES NO
REPRESENTATIONS OR WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, UNDER THIS LEASE AS TO THE PHYSICAL
CONDITION OF THE PREMISES, INCLUDING THE PREMISES’ MERCHANTABILITY, HABITABILITY, CONDITION,
FITNESS, OR SUITABILITY FOR ANY PARTICULAR USE OR PURPOSE.

     11.20 Relocation of Pipelines; Amendment. If Lessor elects to move certain pipelines
within the Refinery Site, and such relocation of the pipelines requires relocation of any of the
Relevant Assets, then this Agreement shall continue in full force and effect; provided, however,
the Parties shall execute an amendment hereto reflecting the new location(s) of the Relevant
Assets.

17

 

     11.21 Option. Following the termination or expiration of the Pipelines Agreement,
including any renewal, extension, or replacement agreement thereof subject to Section 7 of the
Pipelines Agreement, Lessor shall have an option, and Lessee hereby grants such option, to purchase
the Relevant Assets at a cost equal to the fair market value thereof, as reasonably determined by
Lessor and Lessee. In the event that Lessor and Lessee cannot agree as to the fair market value of
the Relevant Assets, each party shall select a qualified appraiser. The two appraisers shall give
their opinion of the fair market value of the Relevant Assets within 20 days after their retention.
In the event the opinions of the two appraisers differ and, after good faith efforts over the
succeeding 20-day period, they cannot mutually agree, the appraisers shall immediately and jointly
appoint a third qualified appraiser. The third appraiser shall immediately (within five days)
choose either the determination of Lessor’s appraiser or Lessee’s appraiser and such choice of this
third appraiser shall be final and binding on Lessor and Lessee. Each party shall pay its own costs
for its appraiser. Following the determination of the fair market value of the Relevant Assets by
the appraisers, the parties shall equally share the costs of any third appraiser. Upon Lessor’s
exercise of the option granted pursuant to this Section, Lessor and Lessee shall cooperate to
convey the Relevant Assets from Lessee to Lessor. The terms and conditions of this Section 11.21
shall survive the termination or expiration of this Agreement or the
Pipelines Agreement.
If Lessor chooses to exercise its option granted pursuant to this Section, the sale
of the Relevant Assets shall be subject to the receipt of any consents or waivers required pursuant to
the Amended and Restated Credit Agreement, dated as of August 27, 2007, among Holly Energy
Partners-Operating, L.P., the bank party thereto, and Union Bank, N.A., as Administrative Agent, as such agreement
may be amended, restated, otherwise modified or refinanced from time to time.

[Remainder of Page Intentionally Left Blank]

18

 

     The parties hereto have executed this Lease to be effective as of the Commencement Date.

	 	 	 	 	 
	 	LESSOR:

HOLLY REFINING & MARKETING-TULSA LLC,

a Delaware limited liability company

 	 
	 	By:  	Holly Refining & Marketing Company, Member
 	 
	 	 	 	 
	 	 	 
	 	By:  	/s/
George J. Damiris 	 
	 	 	Name:  	George J. Damiris	 
	 	 	Title:  	Vice President, Supply and Marketing	 

	 	 	 	 	 
	 	LESSEE:

HEP TULSA LLC,

a Delaware limited liability company

 	 
	 	 	 	 
	 	By:  	/s/ David G. Blair 	 
	 	 	Name:  	David G. Blair	 
	 	 	Title:  	Senior Vice President	 

 

 

	 	 	 	 	 

EXHIBIT A

DESCRIPTION OF PREMISES

A-1

 

EXHIBIT B

MEMORANDUM OF LEASE

     THIS MEMORANDUM OF LEASE is made and entered into to be effective as of December 1, 2009 to
reflect the existence of a Lease and Access Agreement dated of even date herewith, by and between
HOLLY REFINING & MARKETING-TULSA LLC, a limited liability company organized and existing under the
laws of Delaware, having an office address at 100 Crescent Court, Suite 1600, Dallas, Texas 75201
(“Lessor”), and HEP TULSA LLC, a limited liability company organized and existing under the
laws of Delaware, , having an office address at 100 Crescent Court, Suite 1600, Dallas, Texas 75201
(“Lessee”). Such Lease and Access Agreement is herein referred to as the “Ground
Lease”. Lessor and Lessee are collectively referred to as the “Parties” and
individually as a “Party”.

RECITALS

     A. Lessor is the owner of those certain tracts or parcels of land and appurtenant rights on
which the Relevant Assets (as defined below) are situated (“Lessor’s Property”).

     B. Pursuant to the terms of that certain Asset Sale and Purchase Agreement (the “Purchase
Agreement”), dated October 19, 2009, among Lessor and Lessee, as Buyers, and Sinclair Tulsa
Refining Company, as Seller (“Sinclair”), Lessor acquired certain refining and other
related assets and the real property more particularly described on Exhibit A annexed
hereto and made a part hereof (the “Premises”), and Lessee acquired the Relevant Assets (as
such term defined in the Ground Lease) all of which are located on the Premises.

     C. Lessor has leased the Premises to Lessee pursuant to the terms of the Ground Lease.

     D. Lessor has granted to Lessee certain rights of access and use to those portions of Lessor’s
Property that are not part of the Premises (the “Refinery and Terminal Site”).

     E. Lessor and Lessee have entered into the Ground Lease and desire to give public notice of
the existence of certain of their rights and agreements thereunder. Capitalized terms which are
used but not defined herein shall have the meanings given to them in the full text of the Ground
Lease.

     NOW, THEREFORE, the Parties do hereby give public notice as follows:

     1. Term of Ground Lease. The initial Term of the Ground Lease commences on December
1, 2009, and terminates on December 1, 2059, and after such date the Term of the Ground Lease shall
be automatically renewed for a maximum of four (4) successive ten-year periods thereafter unless
the Term of the Ground Lease is sooner terminated pursuant to the provisions thereof.

B-1

 

     2. Relevant Assets. Pursuant to those certain Bills of Sale of even date herewith,
Sinclair has granted, sold, conveyed, assigned, transferred, set over, and vested in Lessee the
Relevant Assets.

     3. Early Termination Rights. Lessee has the right, in Lessee’s sole and absolute
discretion, to terminate the Ground Lease, without penalty or premium, if Lessee ceases to operate
the Relevant and Additional Improvements, each as defined in the Ground Lease, or ceases its
business.

     4. Access Rights of Lessee to the Refinery and Terminal Site. Pursuant to the terms
and provisions of the Ground Lease, Lessee has been granted certain non-exclusive access rights to
use various portions of the Refinery and Terminal Site.

     5. Reservation of Rights of Lessor of Access to the Premises. Pursuant to the terms
of the Ground Lease, Lessor has retained certain rights of access to the Premises for the purposes
set forth in the Ground Lease.

     6. Option Rights. Pursuant to the terms of the Ground Lease, Lessor has an option to
purchase the Relevant Assets under certain terms and conditions.

     7. Ground Lease Governs. This Memorandum of Lease has been executed and recorded as
notice of the Ground Lease in lieu of recording the Ground Lease itself. Lessor and Lessee intend
that this instrument be only a memorandum of the Ground Lease, and reference is hereby made to the
Ground Lease itself for all of the terms, covenants and conditions thereof. Lessor and Lessee
hereby covenant and agree that this Memorandum of Lease is and shall be subject to the terms and
conditions more particularly set forth in the Ground Lease. This Memorandum of Lease is not
intended to modify, limit or otherwise alter the terms, conditions and provisions of the Ground
Lease. In the event of any conflict, ambiguity or inconsistency between the terms and provisions
of this Memorandum of Lease and the terms and provisions of the Ground Lease, the terms and
provisions of the Ground Lease shall govern, control and prevail.

B-2

 

     IN WITNESS WHEREOF, the undersigned have caused this Memorandum of Lease to be executed as of
the date first set forth above.

	 	 	 	 	 	 	 
	ATTEST:

	 	 	 	LESSOR: 
	 
	 	 	 	 	HOLLY REFINING & MARKETING-
	 	 	 	 	TULSA LLC, a Delaware limited liability
	 

	 	 	 	company
	 	 	 	 	 
	 Name:   
	 	 	 	 	 	 
	Title:
	 	 	 	 	 	 
	 	 	 	 	By: Holly Refining & Marketing Company,
	 	 	 	 	Member
	 
	 	 	 	 	 	 
	 

	 	 	 	 	By:	 
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 Name:   	 
	 

	 	 	 	 	 Title: 	 
	 
	 ATTEST: 	 	 	LESSEE:
	 
	 	 	 	 	 	 
	 	 	 	 	HEP TULSA LLC,
	 	 	 	 	a Delaware limited liability company
	 	 	 	 	 
	 Name: 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 Title: 

	 
	 	 
	 	By:	 
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 Name: 	 
	 

	 	 	 	 	 Title: 	 

[Signature Page to Memorandum of Lease]

 

 

	 	 	 	 	 	 	 
	 STATE OF TEXAS 

	 	 
	 	§
	 	 
	 

	 	 	 	§	 	 
	 COUNTY OF DALLAS 

	 	 	 	§	 	 

     This instrument was acknowledged before me on
               
              
           , 2009, by  
             
              
           ,
            
            
                                     of HOLLY REFINING & MARKETING-TULSA LLC, a Delaware limited liability
company, on behalf of said limited liability company.

	 	 	 	 	 
	 	 	 
	 	
 	 
	 	Notary Public, State of Texas 	 
	 	 	 

 

 

	 	 	 	 	 

	 	 	 	 	 	 	 
	 STATE OF TEXAS 

	 	 
	 	§
	 	 
	 

	 	 	 	§	 	 
	 COUNTY OF DALLAS 

	 	 	 	§	 	 

     This instrument was acknowledged before me
on               
              
            , 2009, by 
                
              
         ,
               
              
              
               
   of HEP TULSA LLC, a Delaware limited liability company, on behalf of said
limited liability company.

	 	 	 	 	 
	 	 	 
	 	  	
 	 
	 	 	Notary Public, State of Texas 	 
	 	 	 	 

 

 

	 	 	 	 	 

Exhibit A

Description of Premises

A-1

 

 

 

MEMORANDUM OF LEASE

 

Dated:                     , 2009

 

MEMORANDUM OF LEASE

Between

BETWEEN

HOLLY REFINING & MARKETING-TULSA LLC,

AS LESSOR

AND

HEP TULSA LLC,

AS LESSEE

Record and return to:

Holly Corporation

100 Crescent Court, Suite 1600

Dallas, Texas 75201

Attention: Denise C. McWatters

Telecopy: 214.871.3523

 

 

 

 

SCHEDULE 1.1(b)

MATTERS WHICH ARE NOT PART OF THE PREMISES

	1.	 	Relevant Assets.
	 
	2.	 	Additional Improvements.

Schedule  1.1(b)

 

SCHEDULE 7.4

INSURANCE REQUIREMENTS

     Lessee agrees that during the terms of this Lease it shall maintain property and casualty
insurance (including pollution insurance coverage) on the Premises, the Relevant Assets and the
Additional Improvements in accordance with customary industry practices and with a licensed,
reputable carrier.

Schedule  7.4stwa_8k-ex0401.htm

    Exhibit
4-1                                                                                                           

    

    SAVE
THE WORLD AIR, INC.

    

    SECURITIES
PURCHASE AGREEMENT

    

               This
Securities Purchase Agreement (“Agreement”) is made as of
October __, 2009, by and between Save The World Air, Inc., a company organized
under the laws of the State of Nevada (the “Company”), and the purchasers
who execute the Purchaser Signature Page (as hereinafter defined) hereto (each,
a “Purchaser”).

     
 

    R E C I T A L S

    

    A. The
Company desires to obtain funds from each Purchaser in order to fund the
Company’s general working capital needs.

    

    B. In order
to obtain such funds, the Company is borrowing and in exchange therefore issuing
Units (the “Units”),
each Unit comprised of (i) an unsecured $25,000 principal amount of 7%
Convertible Promissory Note, initially convertible at $.25 per share (as may be
adjusted from time to time, the “Conversion Price”) a form of
which is annexed hereto as Exhibit
1, (each a “Note,”  and
collectively, the “Notes”), and (ii) Common Stock
Purchase Warrants, initially exercisable at the $.30 per share, a form of which
is annexed hereto as Exhibit
2 (the “Warrants”).  The
Company is offering the Units on a “best efforts, $100,000 minimum principal
amount of Notes, $500,000 maximum principal amount of Notes” basis, wherein a
minimum of 3 Units, representing subscriptions for $75,000 of principal amount
of Notes may be sold, with a maximum of 20 Units for $500,000 of Notes may be
sold (with minimum increments of 1/2 Unit).  The Placement Agent (as
hereinafter defined) may exercise its over-allotment option and sell up to an
additional 25% of Notes and Warrants at the sole discretion of the Placement
Agent.  The common stock, par value $.001 per share of the Company
(“Common Stock”) into
which the Notes are convertible are sometimes referred to herein as the
Conversion Shares, and the shares of Common Stock into which the Warrants are
exercisable are sometimes referred to herein as the “Warrant
Shares”.  The Notes, Warrants, Conversion Shares and Warrant
Shares are sometimes referred to herein as the “Securities”.

    

    C. Purchasers
understand that there is a great deal or risk, illiquidity and uncertainty in
the Purchase of the Units herein and that no assurance can be made that the
Company will complete its business plans or, if completed, that it will be
successful in doing so.  Purchasers have received and examined that
certain Amended and Restated Confidential Private Placement Memorandum of the
Company dated as of October 15, 2009, containing such information as, among
other things, a description of this offering and the Company’s annual report and
most recent quarterly reports (as amended, the “Information
Memorandum”).

    

    D. Placement
Agent and the Company have consented to the appointment of Manufacturers and Traders Trust Company
as independent Escrow Agent (the “Escrow Agent”), pursuant to
the terms of the Escrow Agreement (the “Escrow Agreement”) annexed
hereto as Exhibit
3.  All funds will be held in a non-interest bearing money
market or other account with Escrow Agent.  The Purchaser’s
acknowledge and agree that their subscriptions are irrevocable and binding
commitments on the part of the Purchaser and that once their funds have been
tendered to escrow with the appropriate subscription documents and the minimum
offering amount has been raised in accepted funds and subscriptions, the Escrow
Agent may, at the request of the Placement Agent and Company together, disburse
funds from escrow and conduct a Closing without any consent of or notice to
Purchasers.  The Placement Agent or Company may reject any
subscriptions in whole or in part for any reason or for no reason and shall
cause the Escrow Agent to return funds to the Purchaser to the extent of such
non accepted funds, or retains the right to hold the same in escrow until
termination of the offering, at which time, any unused subscription funds shall
be returned to Purchaser.

     

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

    
 

    AGREEMENT

    

    NOW THEREFORE, based on the mutual
premises and consideration of the parties, it is agreed as follows:

    

    1.  PURCHASE
AND SALE OF NOTES.

    

    1.1  Purchase and
Sale.  In reliance upon the representations and warranties of
the Company and each Purchaser contained herein and the Information Memorandum
and subject to the terms and conditions set forth herein, at Closing (as
hereinafter defined), each Purchaser hereby agrees to purchase, and the Company
shall sell and issue to each Purchaser, the Units comprised of Notes and
Warrants as set forth on the signature page annexed to the end of this Agreement
(the “Purchaser Signature
Page”) at a purchase price equal to the principal amount of Notes being
acquired (the “Purchase
Price”) as set forth in Section 1.2
below.  After the initial minimum amount of Units are sold at a
Closing in this offering, the Company may accept additional Purchasers in
Closings held during the Offering Period from time to time without notice to or
consent of any investor, until the maximum offering amount (inclusive of the
overallotment option) is sold hereby.

    

    1.2  Notes and
Warrants.  At Closing, the Company will issue and deliver to
the Purchaser as listed on the Purchaser Signature Page hereto, the (i) Notes
for the principal amount of Notes subscribed for and,
(ii)   Warrants to acquire such number of shares of common stock
of the Company (the “Common
Stock”) as equals the principal amount of Notes acquired and accepted
divided by the initial Conversion Price of $.25 per share (the “Warrant Shares”), and
exercisable at $.30 per share (the “Exercise Price”) at any time
prior to the three year anniversary of the first Closing of this
offering.

    

    2.   CLOSING.

    

    2.1  Date and
Time.

    (a) The
sale of Notes and Warrants will take place only after the Escrow Agent has
advised of at least $75,000 cleared funds represented by subscriptions accepted
by the Company (the “Closing”) subject to the
satisfaction of all the parties hereto of their obligations
herein.  The Purchasers shall each submit an executed copy of this
Agreement to the Placement Agent along with the Purchase Price in advance of
Closing which shall be held in escrow by an escrow agent (the “Escrow Agent”) appointed by
the Company and Placement Agent.  Once $75,000 of subscriptions
acceptable to the Company have been provided during the Offering Period, along
with cleared funds therefore in escrow as advised by the Escrow Agent, the
Closing of the sale of Notes contemplated by this Agreement may take
place.  The Closing shall take place at the offices of counsel to the
Company, or at such other place as the Company and the Placement Agent (as
hereinafter defined) shall agree in writing, on or before October 31, 2009,
unless this Offering is extended by the Company for up to a further period of
thirty (30) days ending November 30, 2009 (the “Termination
Date”).

    

    (b)  Placement
Agent and the Company have consented to the appointment of M&T Bank as
independent Escrow Agent and have all accepted the terms of the non-interest bearing
Escrow Agreement.  Purchasers will not have an
opportunity to approve of a Closing or request refund of any moneys held in
escrow after a Closing has occurred if such Closing is held during the offering
period.  Purchaser’s acknowledge and agree that their
subscriptions are irrevocable and binding commitments on the part of the
Purchaser and that once their funds have been tendered to escrow with the
appropriate subscription documents and the minimum offering amount has been
raised in accepted funds and subscriptions during the Offering Period, the
Escrow Agent may, at the request of the Placement Agent and Company together,
disburse funds from escrow and conduct a Closing without any consent or notice
to Purchasers.  The Placement Agent or Company may reject any
subscriptions in whole or in part for any reason or for no reason and shall
cause the Escrow Agent to return funds (i.e. amounts willfully received net
subscribers banks’ fees) to the Purchaser to the extent of such non accepted
funds, or, retains the right to hold the same in escrow for acceptance or
rejection at a future closing, until termination of the offering, at which time,
any unused subscription funds shall be returned to
Purchaser.  Additionally, in the event that the minimum offering
amount of $100,000 in cleared funds representing accepted subscriptions is not
raised by the Termination Date, the Escrow Agent shall return all funds to the
Purchasers, without deduction.

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    
 

    3.  REPRESENTATIONS
AND WARRANTIES OF THE COMPANY.

    

               As
a material inducement to each Purchaser to enter into this Agreement and to
purchase the Units, the Company represents and warrants that the following
statements are true and correct in all material respects as of the date hereof
and will be true and correct in all material respects at Closing, except as
expressly qualified or modified herein.  For avoidance of doubt, these
warranties and representations are made to Purchasers and, to both Sandgrain
Securities, Inc. and Wellfleet Partners, Inc., as third party beneficiaries
hereto.

    

    3.1  Organization and
Qualification.  The Company is duly incorporated or otherwise
organized, validly existing and in good standing under the laws of the state of
Nevada, with the requisite power and authority to own and use its properties and
assets and to carry on its business as currently conducted.  The
Company is not in any violation of any of the provisions of its certificate of
incorporation, bylaws or other organizational or charter documents (the “Company
Documents”).

    

    3.2  Authorization;
Enforcement.  The Company has the requisite corporate power and
authority to enter into and to consummate the transactions contemplated under
this Agreement, the Notes and along with the Warrants (collectively as may be
amended or supplemented through each Closing, the “Transaction Documents”) herein
and otherwise to carry out its obligations hereunder.  The execution
and delivery of the Transaction Documents by the Company and the consummation by
it of the transactions contemplated thereby have been duly authorized by all
necessary corporate action on the part of the Company and no further action is
required by the Company in connection therewith.  This Agreement and
the other Transaction Documents have been duly executed by the Company and, when
delivered in accordance with the terms hereof or thereof, will constitute the
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by (i)
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement of, creditors’
rights and remedies, or (ii) laws relating to the availability of specific
performance, injunctive relief or other equitable principles of general
application.

    

    3.3 SEC Reports; Financial
Statements.  The Company has filed all reports required to be
filed by it under the Securities Act and the Exchange Act, including pursuant to
Section 13(a) or 15(d) thereof, for the twelve months preceding the date hereof
(or such shorter period as the Company was required by law to file such reports)
(the foregoing materials, as finally amended being collectively referred to
herein as the "SEC
Reports") on a timely basis or has timely filed a valid extension of such
time of filing and has filed any such SEC Reports prior to the expiration of any
such extension.  As of their respective dates, the SEC Reports, as
amended, complied in all material respects with the requirements of the
Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except to the extent that such SEC Reports may have been
subsequently amended or supplemented to correct such misstatement or omission or
to correct information relating to the Company’s internal
controls.  The financial statements of the Company included in the SEC
Reports comply in all material respects with applicable accounting requirements
and the rules and regulations of the Commission with respect thereto as in
effect at the time of filing.  Such financial statements have been
prepared in accordance with GAAP applied on a consistent basis during the
periods involved, except as may be otherwise specified in such financial
statements or the notes thereto, and fairly present in all material respects the
financial position of the as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in the case of
unaudited statements, to normal, immaterial, year-end audit
adjustments.

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    
 

    3.4 Certain Registration
Matters. Assuming the accuracy of each Purchaser’s representations and
warranties, no registration under the Securities Act is required for the offer
and sale of the Securities by the Company to the Purchaser under this
Agreement.

    

    3.5 Capitalization.  Capitalization
of the Company is as set forth in the Information Memorandum and incorporated by
reference therein.  There are no shares of preferred stock or other
securities or convertible securities outstanding other than as
disclosed.  All outstanding shares of the company’s capital stock have
been duly authorized and validly issued, and are fully paid and non-assessable,
and are free of any preemptive rights.  The Company has not entered
into any agreement, or granted any right to any party, that results or would
result in, the Company’s obligation to redeem or repurchase any securities or
issue any dividends.  The shares issuable upon conversion of the Notes
and upon exercise of the Warrants are, duly authorized and reserved for issuance
and, upon issuance upon due conversion of the Notes or due exercise of the
Warrants, will be deemed validly issued and fully paid.

    

    3.6 Securities Law
Compliance.  Without consideration of the actions of the
Placement Agent (as defined in Section 8 herein), and assuming the accuracy of
the representations and warranties of each Purchaser set forth in this Agreement
and the Questionnaire, the offer, issue, sale and delivery of the Notes and
Warrants will constitute an exempted transaction under the Securities Act of
1933, as amended and now in effect (the “Securities Act”), and
registration of the Notes, Warrants, or the issuance of the Conversion Shares
(upon conversion of the Note) or Warrant Shares (upon due exercise thereof),
under the Securities Act is not required.  The Company shall make such
filings as may be necessary to comply with the Federal securities laws and the
“blue sky” laws of any state or other jurisdictions where filings must be made,
which filings will be made in a timely manner.

    

    3.7 Tax
Matters.  The Company has timely prepared and filed all tax
returns required to have been filed by the Company with all appropriate
governmental agencies and timely paid all taxes shown thereon or otherwise owed
by it.  The charges, accruals and reserves on the books of the Company
in respect of taxes for all fiscal periods are adequate in all material
respects, and there are no material unpaid assessments against the Company nor,
to the Company’s Knowledge, any basis for the assessment of any additional
taxes, penalties or interest for any fiscal period or audits by any federal,
state or local taxing authority except for any assessment which is not material
to the Company, taken as a whole.  All taxes and other assessments and
levies that the Company is required to withhold or to collect for payment have
been duly withheld and collected and paid to the proper governmental entity or
third party when due.  For the purposes of this agreement, “Company’s
Knowledge” means the actual knowledge of the executive officers (as defined in
Rule 405 under the Securities Act) of the Company, after due
inquiry.

    

    3.8 Title to
Properties.  The Company has good and marketable title to all
real properties and all other properties and assets owned by it (if any), in
each case free from liens, encumbrances and defects that would materially affect
the value thereof or materially interfere with the use made or currently planned
to be made thereof by them; the Company holds any leased real or personal
property under valid and enforceable leases with no exceptions that would
materially interfere with the use made or currently planned to be made thereof
by them.

     

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    
 

    3.9  Litigation.  There
are no pending actions, suits or proceedings against or affecting the Company,
its subsidiaries or any of its or their properties; and to the Company’s
Knowledge, no such actions, suits or proceedings are threatened or
contemplated.

    

    3.10 No Directed Selling Efforts
or General Solicitation.  Neither the Company, nor any Person
acting on its or their behalf has conducted any general solicitation or general
advertising (as those terms are used in Regulation D) in connection with the
offer or sale of any of the Securities.

    

    3.11 No Integrated
Offering.  Neither the Company nor any of its Affiliates, nor
any Person acting on its or their behalf has, directly or indirectly, made any
offers or sales of any Company security or solicited any offers to buy any
security, under circumstances that would adversely affect reliance by the
Company on Section
4(2) for the exemption from registration for the transactions
contemplated hereby or would require registration of the Securities under the
Securities Act.  For purposes of this Agreement, “Affiliate” means, with respect
to any Person, any other Person which directly or indirectly through one or more
intermediaries controls, is controlled by, or is under common control with, such
Person.

    

    3.12 Questionable
Payments.  Neither the Company nor, to the Company’s Knowledge,
any of their respective directors, executive officers, employees, or other
Persons acting at the direction of the Company or any subsidiary, has on behalf
of the Company or any subsidiary or in connection with their respective
businesses: (i) used any corporate funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity; (ii)
made any direct or indirect unlawful payments to any governmental officials or
employees from corporate funds; (iii) established or maintained any unlawful or
unrecorded fund of corporate monies or other assets; (iv) made any false or
fictitious entries on the books and records of the Company or any subsidiary; or
(v) made any unlawful bribe, rebate, payoff, influence payment, kickback or
other unlawful payment of any nature.

    

    3.13 Transactions with
Affiliates.  None of the officers or directors of the Company
is presently a party to any transaction with the Company or any subsidiary
(other than as holders of stock options and/or warrants, and for services as
employees, officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any officer, director or such employee or, to the Company’s
Knowledge, any entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or
partner.  The Company will be compensating the Placement Agent a fee
as set forth below in Section
7.

    

    3.14 
Disclosures.  The
written materials delivered to the Purchasers in connection with the
transactions contemplated by the Transaction Documents do not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements contained therein, in light of the circumstances under
which they were made, not misleading.

    

    

    4.  REPRESENTATIONS
AND WARRANTIES OF EACH PURCHASER.

    

    Each
Purchaser hereby represents warrants and covenants with the Company as
follows.  For avoidance of doubt, these warranties and representations
are made to Purchasers and, to both Sandgrain Securities, Inc. and Wellfleet
Partners, Inc., as third party beneficiaries hereto:

     

    
 

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

             

     

    4.1 Legal
Power.  Each Purchaser has the requisite individual, corporate,
partnership, limited liability company, trust, or fiduciary power, as
appropriate, and is authorized, if such Purchaser is a corporation, partnership,
limited liability company, or trust, to enter into this Agreement, to purchase
the Units hereunder, and to carry out and perform its obligations under the
terms of the Transaction Documents to which it is a party.

     

    4.2 Due
Execution.  This Agreement and the other Transaction Documents
have been duly authorized, if such Purchaser is a corporation, partnership,
limited liability company, trust or fiduciary, executed and delivered by such
Purchaser, and, upon due execution and delivery by the Company, this Agreement
and such other Transaction Documents will be a valid and binding agreement of
such Purchaser.

     

    4.3 Access to
Information.  Purchaser has thoroughly reviewed
this Agreement including, without limitation, Information Memorandum Section 3
which discloses certain material information about the Company and Section
6.  Each Purchaser represents that such Purchaser has been
given full and complete access to the Company and to all materials relating to
the business, finances and operations of the Company and materials relating to
the offer and sale of the Notes and Warrants and the issuance of Conversion
Shares and/or Warrant Shares upon conversion or exercise thereof, which have
been requested by Purchaser or its advisors.  Each Purchaser
represents that such Purchaser has been afforded the opportunity to ask
questions of, and has inquired with, the officers of the Company regarding its
business prospects and the Notes, all as such Purchaser or such Purchaser’s
qualified representative have found necessary to make an informed investment
decision to purchase the Units.  Neither such inquiries nor any other
due diligence investigation conducted by Purchaser or any of its advisors or
representatives shall modify, amend or affect purchaser’s right to rely on the
Company’s representations and warranties contained herein.  The
Purchaser understands that an investment in the Units involves a significant
degree of risk and illiquidity.  The Purchaser understands further
that the Conversion Shares and Warrant Shares when issued will also be
restricted securities, and may only be re-sold pursuant to an exemption from the
registration requirements of the Securities Act that may or may not be available
at such time, and, that even if the Company is successful and succeeds with its
business plan, no assurance can be made that the securities of the Company will
be liquid or will increase in market price.

     

    4.4 Restricted
Securities.

    

    4.4.1 Each
Purchaser has been advised that none of the Notes,
Warrants,  Conversion Shares or Warrant Shares (collectively, the
“Securities”) have been registered under the Securities Act or any other
applicable securities laws and that Securities are being offered and sold
pursuant to Section 4(2) of the Securities Act and/or Rule 506 of Regulation D
thereunder or such other exemption as may be available from the Securities Act
registration requirements as may be available from time to time, and that the
Company’s reliance upon Section 4(2) and/or Rule 506 of Regulation D is
predicated in part on such Purchaser’s representations as contained
herein.  Each Purchaser acknowledges that the Notes and Warrants, and
upon conversion or exercise thereof, the Conversion Shares and the Warrant
Shares when issued, will be issued as “restricted securities” as defined by Rule
144 promulgated pursuant to the Securities Act.  None of the
Securities may be resold in the absence of an effective registration thereof
under the Securities Act and applicable state securities laws unless, in the
opinion of the Company’s counsel, an applicable exemption from registration is
available.

     

    4.4.2 Each
Purchaser represents that such Purchaser is acquiring the Securities for such
Purchaser’s own account, and not as nominee or agent, for investment purposes
only and not with a view to, or for sale in connection with, a distribution, as
that term is used in Section 2(11) of the Securities Act, in a manner which
would require registration under the Securities Act or any state securities
laws.

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

     

    4.4.3  Each
Purchaser understands and acknowledges that the Notes and Warrants, and if and
when issued, the Conversion Shares, will bear substantially the following
legend:

    

    

    NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS NOTE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.

     

    4.4.4 Each
Purchaser acknowledges that an investment in any of the Securities are not
liquid and are transferable only under limited conditions.  Each
Purchaser acknowledges that such securities must be held indefinitely unless
they are subsequently registered under the Securities Act or an exemption from
such registration is available.  Each Purchaser is aware of the
provisions of Rule 144 promulgated under the Securities Act, which permits
limited resale of restricted securities subject to the satisfaction of certain
conditions and that such Rule is not now available and, in the future, may not
become available for resale of any of the Notes or Conversion
Shares.

     

    4.4.5 Each
Purchaser is an “accredited investor” as defined under Rule 501(a) of Regulation
D of the Securities Act (an “Accredited
Investor”).

     

    4.4.6 The
representations made by each Purchaser on the Purchaser Signature Page and in
the questionnaire immediately preceding the same (the “Questionnaire”) are true and
correct and do not omit any material information.

     

    4.5 Purchaser Sophistication and
Ability to Bear Risk of Loss.  Each Purchaser acknowledges that
it is able to protect its interests in connection with the acquisition of the
Notes and Warrants and other Securities and can bear the economic risk of
investment in such Securities without producing a material adverse change in
such Purchaser’s financial condition.  Each Purchaser, either alone or
with such Purchaser’s representative(s), otherwise has such knowledge and
experience in financial or business matters that such Purchaser is capable of
evaluating the merits and risks of the investment in the Notes.

     

    4.6 Preexisting
Relationship.  Each Purchaser has a preexisting personal or
business relationship with the Company, one or more of its officers, directors,
or controlling persons, or the Placement Agent (as defined herein).

     

    4.7 Purchases by
Groups.  Each Purchaser represents, warrants and covenants that
it is not acquiring the Securities as part of a group within the meaning of
Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended.

     

    
      
         

      

      
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    4.8 Placement Agent
Review.  Each Purchaser acknowledges that neither Sandgrain
Securities, Inc., as Placement Agent nor Wellfleet Partners, Inc., has
independently verified the accuracy, completeness, materiality or otherwise, of
any information, representation or warranty contained in this Purchase Agreement
or any offering documents provided, that such placement agent related entities
and their principals shall have no liability for any representation (express or
implied) contained in, or for any omissions from, the Purchase Agreement or any
offering documents provided or any other written or oral communications
transmitted to the recipient in the course of his or her evaluation of the
investment, and that it is understood that each prospective investor will make
an independent investigation and analysis of a potential investment in the
Company and will be relying upon same in making any such
investment.

               

    5. COVENANTS
OF THE COMPANY.

    

    5.1 Use of
Proceeds.  The Company intends to employ the net proceeds from
the purchase and sale of the Units (after legal, blue-sky, and Placement Agent
fees) for general working capital purposes only.

     

    5.2 Best
Efforts.  The parties shall use their best efforts to satisfy
timely each of the conditions described herein as applicable to
them.

     

    5.3 Form D; Blue Sky
Laws.  The Company agrees to file a Form D with respect to the
Notes and Warrants as required under Regulation D and to provide a copy thereof
to each Purchaser promptly after such filing.  The Company shall, on
or before the Closing, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for sale to the Purchasers at
the applicable closing pursuant to this Agreement under applicable securities or
“blue sky” laws of the states of the United States (or to obtain an exemption
from such qualification), and shall provide evidence of any such action so taken
to each Purchaser on or prior to the Closing Date.

     

    5.4 Financial
Information.  For as long as the Notes are outstanding, the
Company agrees to remain current with the filings of its SEC
Reports.

     

    5.5 Reservation of
Shares.  The Company shall, as a condition to any merger or
business combination (and in addition to other restrictions that may arise),
require the provisions of this Agreement and the Notes and Warrants (including
issuance of shares upon conversion or exercise thereof) to be assumed by the
surviving parent company.

     

    5.6 Covenants Relating to
Promissory Note.  For so long as any principal or interest is
outstanding on the Notes the Company shall not, without consent of holders of a
majority of the outstanding principal amount of Notes that will be outstanding
immediately after the consummation of taking such action:

     

    5.6.1 
effect a merger or consolidation, share exchange, asset purchase or similar
transaction resulting in a Change of Control (as hereinafter defined) with an
entity without causing the assumption of the obligations herein and under the
Notes and Warrants by such surviving entity.  The term “Change of Control” shall mean
any merger or consolidation, business transaction or similar transaction in
which securities possessing more then fifty percent (50%) of the total combined
voting power of the Company’s outstanding securities are transferred to a person
or persons different from the persons holding those securities immediately prior
to such transaction, whether or not the Company or a subsidiary is the surviving
corporation or other transaction wherein the Company becomes a material or
controlling stockholder of any other corporation.  Notwithstanding the
foregoing, the Company may raise capital in the form of debt, convertible debt
or equity financings;

     

     

    
      
         

      

      
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    5.6.2 sell,
transfer or otherwise dispose of more than 50% of the consolidated assets of the
Company (computed either on the basis of book value, as determined in accordance
with generally accepted accounting principles consistently applied, or fair
market value) in any transaction or series of related transactions outside of
the ordinary course of the Company’s business consistent with past
practice;

     

    5.6.3 sell
or transfer in any transaction or series of related transactions, any of the
Company’s assets to any person or entity that is an Affiliate of the Company,
other then a sale or transfer in the ordinary course of business or such assets
as are immaterial to the business purpose of the Company;

     

    5.6.4 declare
or pay any distribution or dividend, in cash or otherwise on any of the Shares
of the Company, or redeem, purchase or otherwise acquire any of its Shares now
or hereafter outstanding;

     

    provided, however, that the
Company may take any of the foregoing actions without the consent of the
Purchasers in connection with, if contemporaneous with the consummation of such
action, the Notes are converted in accordance with their terms, and Section 5.5
above is complied with.

    

    5.7 Conversion of
Notes.

     

    5.7.1 Upon
the conversion of a Note or part thereof, the Company shall, at its own cost and
expense, take all commercially reasonable action, including obtaining and
delivering, an opinion of counsel to assure that the Company's transfer agent
shall issue stock certificates in the name of Purchaser (or its permitted
nominee) or such other persons as designated by Purchaser and in such
denominations to be specified at conversion representing the number of shares of
Common Stock issuable upon such conversion.  The Company warrants that
no instructions other than these instructions have been or will be given to the
transfer agent of the Company's Common Stock and that the certificates
representing such shares shall contain no legend other than the usual Securities
Act restriction from transfer legend.

     

    5.7.2  A
Purchaser will give notice of its decision to exercise its right to convert the
Note, interest, or part thereof by telecopying, or otherwise delivering a
completed Notice of Conversion (a form of which is annexed as “Exhibit A” to the
Note) to the Company via confirmed telecopier transmission or otherwise pursuant
to Section 13(a) of this Agreement.  Such Purchaser will not be
required to surrender the Note until the Note has been fully converted or
satisfied.  Each date on which a Notice of Conversion is telecopied to
the Company in accordance with the provisions hereof by 6 PM Eastern Time
(“ET”) (or if received
by the Company after 6 PM ET or at any time or a non-business day then the next
business day) shall be deemed a “Conversion
Date.”  The Company will itself or cause the Company’s transfer
agent to transmit the Company's Common Stock certificates representing the
Shares issuable upon conversion of the Note to such Purchaser via express
courier for receipt by such Purchaser within ten (10) business days after
receipt by the Company of the Notice of Conversion (such seventh day being the
"Delivery
Date").  In the event the Conversion Shares are electronically
transferable, then delivery of the Shares must be made by
electronic transfer provided request for such electronic transfer has been made
by the Purchaser.   A Note representing the balance of the Note
not so converted will be provided by the Company to such Purchaser if requested
by Purchaser, provided such Purchaser delivers the original Note to the
Company.  In the event that a Purchaser elects not to surrender a Note
for reissuance upon partial payment or conversion of a Note, such Purchaser
hereby indemnifies the Company against any and all loss or damage attributable
to a third-party claim in an amount in excess of the actual amount then due
under the Note.

     

    
      
         

      

      
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    5.7.3 Delivery of
Shares.  In
lieu of delivering physical certificates representing the Unlegended Shares,
upon request of a Purchaser, so long as the certificates therefor do not bear a
legend and the Purchaser is not obligated to return such certificate for the
placement of a legend thereon, the Company will undertake commercially
reasonable efforts cause its transfer agent to electronically transmit the
Unlegended Shares by crediting the account of Purchaser’s prime broker with the
Depository Trust Company through its Deposit Withdrawal Agent Commission system,
if such transfer agent participates in such DWAC system.  Such
delivery must be made on or before the Unlegended Shares Delivery
Date.

     

    5.8. Exchange of Notes for New
Securities Issued in Subsequent Offering. In the event the Company
conducts any subsequent financings (each, a “Follow On Offering”) of any
kind, if any, the Notes may, at the discretion of each holder
thereof,  be exchanged in whole or in part to the extent of
outstanding principal and/or interest in such Note, into the securities offered
in the Follow On Offering, by applying and exchanging the outstanding principal
and interest of such Notes towards the purchase price of the securities offered
in such Follow On Offering the same price offered for such units or securities
to other investors generally.  In lieu of offering cash, such Note
holder shall tender the Note with the duly executed subscription documents
provided to all investors in such Follow On Offering, and a notice indicating
the dollar amount of principal and interest being applied, and the Company
shall, at closing of such Follow On Offering, issue to such holder any
securities acquired by such holder in such offering, and a Note certificate
reflecting the remaining principal and interest owed, if any.  In the
event that the holder of the Notes elects not to so convert, such holder may do
so in whole or in part from time to time, until the Note is either repaid or
fully exchanged for securities issued in Follow On Offerings.

     

    5.9  Preemptive
Rights With Respect to Conversion Shares and Note Shares.  From
the date hereof until the earliest to occur of (i) the closing of any Public
Offering or Follow On Offering of greater than $5,000,000 (together, a “Qualified
Offering”),  or (ii) the date that is 24 months from the first
Closing of this offering, or (iii) the sale of all or substantially all of the
assets of the Company in a transaction wherein the Notes are being repaid, or
(iv) such time as less than 75% of the aggregate amount of Notes offered hereby
are still outstanding, in the event that the Company conducts a private or other
offering  any Common  Stock or securities convertible into
or exercisable or exchangeable for shares of Common Stock, other than any
Exempted Issuances (each, a “Subsequent
Placement”)  the Company shall have first complied with this
Section 5.9.

    

    5.9.1 The
Company shall deliver to each holder of Notes (each, a “Noteholder”), an irrevocable
confidential written notice (the “Offer Notice”) of any proposed
or intended issuance or sale or exchange (the “Offer”) of the securities
being offered (the “Offered
Securities”) in a subsequent placement , which Offer Notice shall (w)
identify and describe the Offered Securities, (x) describe the price and other
terms upon which they are to be issued, sold or exchanged, and the number or
amount of the Offered Securities to be issued, sold or exchanged, (y) identify
the class or group of persons or entities (if known) to which or with which the
Offered Securities are to be offered, issued, sold or exchanged and (z) offer to
issue and sell to or exchange with such Noteholders all of the Offered
Securities, allocated among such Noteholders at identical terms and prices as
provided in the Offer Notice (a) based on such Buyer’s pro rata portion of the
aggregate principal amount of Notes purchased hereunder (the “Basic Amount”), and (b) with
respect to each Noteholders that elects to purchase its Basic Amount, any
additional portion of the Offered Securities attributable to the Basic Amounts
of other Noteholders as such Noteholders shall indicate it will purchase or
acquire should the other Noteholders subscribe for less than their Basic Amounts
(the “Undersubscription
Amount”) or with a statement from the Noteholders that it will waive any
rights to subscribe for any portion of the Undersubscribed Amount, which process
shall not be repeated after the first offer Notice, and shall be deemed waived
to the extent not duly accepted.

     

    
      
         

      

      
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    5.9.2  To accept an Offer,
in whole or in part, such accepting Noteholder(s) must deliver a written notice
to the Company prior to the end of the fifth (5th)
Business Day after such Noteholder’s receipt of the Offer Notice (the “Offer Period”), setting forth
the portion of such Noteholder’s Basic Amount that such Noteholder elects to
purchase and, if such Noteholder shall elect to purchase all of its Basic
Amount, the Undersubscription Amount, if any, that such Noteholder elects to
purchase (in either case, the “Notice of
Acceptance”).  If the Basic Amounts subscribed for by all
Noteholders are less than the total of all of the Basic Amounts, then each
Noteholder who has set forth an Undersubscription Amount in its Notice of
Acceptance shall be entitled to purchase, in addition to the Basic Amounts
subscribed for, the Undersubscription Amount it has subscribed for; provided, however, that if
the Undersubscription Amounts subscribed for exceed the difference between the
total of all the Basic Amounts and the Basic Amounts subscribed for (the “Available Undersubscription
Amount”), each Noteholder who has subscribed for any Undersubscription
Amount shall be entitled to purchase only that portion of the Available
Undersubscription Amount as the Basic Amount of such Noteholder bears to the
total Basic Amounts of all Noteholders that have subscribed for
Undersubscription Amounts, subject to rounding by the Company to the extent its
deems reasonably necessary.  Notwithstanding anything to the contrary
contained herein, if the Company desires to modify or amend the terms and
conditions of the Offer prior to the expiration of the Offer Period, the Company
may deliver to the Noteholders a new Offer Notice (which shall be deemed to have
replaced and restated the prior Offer Notice) and the Offer Period shall expire
on the fifth (5th )
Business Day after such Noteholder’s receipt of such new Offer
Notice.  The Noteholder agents and covenants to keep the offer notice
and any transaction terms disclosed therein, completely confidential and further
understands any disclosure of the same (other than to its professional
representatives) may cause improbable harm to the Company.

     

    5.9.3. The
Company shall have 150 calendar days from the later of: (i) the expiration of
the Offer Period above; or (ii) upon the written consent of the Noteholder, such
longer period for which the Offered Securities are being offered to third
parties as part of the Subsequent Placement, to offer, issue, sell or exchange
all or any part of such Offered Securities as to which a Notice of Acceptance
has not been given by the Noteholders (the “Refused Securities”), to any
offerees (whether disclosed or not) and only upon terms and conditions
(including, without limitation, unit prices and interest rates) that are not
materially more favorable to the acquiring person or persons or materially less
favorable to the Company than those set forth in the Offer Notice and, to
publicly announce as required the execution of definitive agreements relating to
the closing of the Subsequent Placement and all other related required
disclosure that the Company deems appropriate or necessary in its sole
discretion, and (x) the consummation of the transactions contemplated by such
Subsequent Placement or (y) the termination of definitive agreements relating to
the Subsequent Placement.

     

    5.9.4 In
the event the Company shall propose to sell less than all the Refused Securities
(any such sale to be in the manner and on the terms specified above), then each
Noteholder may, at its sole option and in its sole discretion, reduce the number
or amount of the Offered Securities specified in its Notice of Acceptance to an
amount that shall be not less than the number or amount of the Offered
Securities that such Noteholder elected to purchase pursuant above multiplied by
a fraction, (i) the numerator of which shall be the number or amount of Offered
Securities the Company actually proposes to issue, sell or exchange (including
Offered Securities to be issued or sold to Noteholder as set forth above prior
to such reduction) and (ii) the denominator of which shall be the original
amount of the Offered Securities.  In the event that
any  Noteholder so elects to reduce the number or amount of Offered
Securities specified in its Notice of Acceptance, the Company may not issue,
sell or exchange more than the reduced number or amount of the Offered
Securities unless and until such securities have again been offered to the
Noteholder in accordance with this Section 5.9.

    

    5.9.5 Upon the closing of the
issuance, sale or exchange of all or less than all of the Refused Securities,
the Noteholders shall acquire from the Company, and the Company shall issue to
the Noteholders, the number or amount of Offered Securities specified in the
Notices of Acceptance, as reduced under Section 5.9.4 above if the Noteholders
have so elected, upon the terms and conditions specified in the
Offer.  The purchase by the Noteholders of any Offered Securities is
subject in all cases to the preparation, execution and delivery by the Company
and the Noteholders of a purchase agreement relating to such Offered Securities
reasonably satisfactory in form and substance to the Noteholders and their
respective counsel.

     

     

    
      
         

      

      
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    5.9.6  The Noteholder may,
at its/his discretion, apply outstanding portions of the Note or interest
towards the purchase of any Offered Securities as provided in Section 5 above
with respect to Follow On Offerings, or may utilize new funds.  The
Noteholder, at such time, will be required to execute all subscription or other
documents as provided to other investors in such Subsequent Offering in order
exercise its rights under this Section 5.9 and, to the extent the Note is no
longer outstanding (if the Note is used for such purchase) shall not be deemed a
Noteholder subject to the provisions of this Agreement or the Note.

    

    5.9.7 Notwithstanding anything
herein to the contrary, no violation, default or breach of this Section
5.9  shall be deemed an Event of Default under the Note.

    

    5.9.8 The
rights of each Subscriber set forth in this Section 5.9 are in addition to any
other rights the Subscriber has pursuant to any Transaction Document, and any
other agreement referred to or entered into in connection herewith or to which
such Subscriber and Company are parties. The term “Excepted Issuance” as used
herein shall mean (i) the Company’s issuance of Common Stock or Common Stock
Equivalent described in Reports filed not later than five business days before
the Closing Date, and (ii) as a result of the exercise of Warrants or conversion
of Notes which are granted or issued pursuant to this Agreement, or (iii) other
notes or convertible indebtedness or convertible securities existing or
otherwise disclosed at or before the issuance hereof, (iv) any securities issued
in connection with a bonafide acquisition of a business, intellectual property
or business assets, or exercise of Warrants or conversion of Notes which are
granted or issued pursuant to this Agreement, or otherwise issued to the
placement agent or (v) as granted in connection with any existing board approved
stock option, incentive or similar plan or any stock option plan approved by the
Board of Directors of the Company.

     

    5.10 Third Party
Beneficiaries. The Company acknowledges that Sandgrain Securities, Inc.,
and Wellfleet Partners, Inc., are third party beneficiaries to the covenants
made hereby.

     
 

    6.  CONDITIONS.

    

    6.1 Conditions Precedent to the
Obligation of the Company to Close and to Sell the Notes.  The
obligation hereunder of the Company to close and issue and sell the Units to the
Purchasers at a Closing is subject to the satisfaction or waiver, at or before
such Closing of the conditions set forth below.  These conditions are
for the Company’s sole benefit and may be waived by the Company at any time in
its sole discretion.

     

    6.1.1 Accuracy of the Purchasers’
Representations and Warranties.  The representations and
warranties of each Purchaser herein and in the Questionnaire attached hereto
shall be true and correct in all material respects as of the date when made and
as of such Closing as though made at that time, except for representations and
warranties that are expressly made as of a particular date, which shall be true
and correct in all material respects as of such date.

     

    6.1.2 Performance by the
Purchasers.  Each Purchaser shall have performed, satisfied,
and complied in all material respects with all covenants, agreements and
conditions required by this Agreement or the Escrow Agreement to be performed,
satisfied or complied with by the Purchasers at or prior to such
Closing.

     

    6.1.3 No
Injunction.  No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.

     

    
      
         

      

      
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    6.1.4 Delivery of Purchase
Price.  The Purchase Price for the Units shall have been
delivered to the Company (or to an Escrow Agent on its behalf) on or before such
Closing.

     

    6.1.5 Delivery of Transaction
Documents.  The Transaction Documents shall have been duly
executed and delivered by the Purchasers to the Company.

    

    6.2 Conditions Precedent to the
Obligation of the Purchasers to Close and to Purchase the
Notes.  The obligation hereunder of the Purchasers to purchase
the Units and consummate the transactions contemplated by this Agreement is
subject to the satisfaction or waiver, at or before such Closing, of each of the
conditions set forth below.  These conditions are for the Purchasers’
sole benefit and may be waived by the Purchasers at any time in their sole
discretion.

     

    6.2.1 Accuracy of the Company’s
Representations and Warranties.  Each of the representations
and warranties of the Company in this Agreement and the other Transaction
Documents shall be true and correct in all material respects as of such Closing,
except for representations and warranties that speak as of a particular date,
which shall be true and correct in all material respects as of such
date.

     

    6.2.2  Performance by the
Company.  The Company shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to such Closing.

     

    6.2.3 No
Injunction.  No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.

     

    6.2.4 No Proceedings or
Litigation.  No action, suit or proceeding before any
arbitrator or any governmental authority shall have been commenced, and no
investigation by any governmental authority shall have been initiated, against
the Company or any subsidiary, or any of the officers, directors or affiliates
of the Company or any subsidiary seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in connection
with such transactions.

     

    6.2.5 Notes and
Shares.  At the Closing, the Company shall have delivered to
the Purchasers the Notes in such denominations as each Purchaser may
request.

     

    6.2.6. Closing
Date.  In the event that no Closing occurs by the Termination
Date, then the Company and Placement Agent shall cause the Escrow Agent to
return to each Purchaser the Net amount of all of the funds for subscription
amounts of such Purchaser without interest or set off, other than any check or
wire or similar fees.

     

     

    
      
         

      

      
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    7.           PLACEMENT
AGENT/LEGAL FEES.

    

    7.1 
Placement Agent’s
Commission.   The Company acknowledges that it has
retained Sandgrain Securities, Inc. to act as its exclusive placement agent (the
“Placement Agent”). The
Company has agreed to compensate Placement Agent at each Closing, based on
investors introduced by them to the Company, (i) a cash fee equal to 8% of the
gross dollar amount raised herein, (ii) such number of shares of Common Stock as
equals 8% of the number of Conversion Shares initially issuable upon exercise of
the Notes herein (the “Placement Agent Stock”) and,
(iii) warrants, identical to the Warrants in all respects, exercisable for such
number of shares of Common Stock as equals 8% of the shares initially issuable
upon exercise of the Warrants issued hereby.  The Company shall also
reimburse the Placement Agent for all of its actual non-accountable additional
due diligence, selling and closing related expenses, not to exceed 1% of the
gross proceeds of this offering without the Consent of the
Company.  The Company will be required to repay any legal fees of the
Placement Agent, not to exceed $5,000 as well as all costs for its own
counsel.  In addition, the Placement Agent, Affiliates of the Company
or other placement agents or investment bankers may invest in the Notes herein
or in any future offerings and certain persons may be paid a fee in cash, stock
or warrants in connection with the provision of such services.  The
Company represents that there are no other parties entitled to receive fees,
commissions, or similar payments in connection with the offering described in
this Agreement except the Placement Agent. The parties also agree and
acknowledge hereby that such fees shall not be deemed as interest or fees
relating to the Note.

     

    7.2 Legal
Fees.   The Purchasers and the Company shall each bear
their own legal fees in connection with this Agreement.

    

    8.           MISCELLANEOUS.

    

    8.1 Indemnification.  Each
Purchaser agrees to defend, indemnify and hold the Company harmless against any
liability, costs or expenses arising as a result of any dissemination of any of
the Shares by such Purchaser in violation of the Securities Act or applicable
state or jurisdiction’s securities law.

     

    8.2 Governing Law -
Waiver of Stay,
Extension or Usury Laws.  This Agreement shall be governed by
and construed under the laws of the State of New York.  The Company
represents and warrants that it deems the sale of the Units hereby as an
Investment and does not consider the sale of the Units together with the payment
of all fees and expenses in connection herewith to be usurious under the usury
laws of the State of New York (“Applicable
Law”).  If, from any circumstances whatsoever, interest (or any
original issue discount that would be determined to be interest) would otherwise
be payable to any holder of the Notes in excess of the maximum amount
permissible under Applicable Law, the interest payable to such holder shall be
reduced to the maximum amount permissible under Applicable Law, and if from any
circumstances such holder shall ever receive anything deemed interest by the
Applicable Law in excess of the maximum amount permissible under the Applicable
Law, an amount equal to the excessive interest shall be applied to the reduction
of the principal hereof and not to the payment of interest, or if such excessive
amount of interest exceeds the unpaid principal balance of principal hereof,
such excess shall be refunded to the Company as applicable.  All
interest paid or agreed to be paid to the holders of the Notes shall, to the
extent permitted by Applicable Law, be amortized, prorated, allocated and spread
throughout full period (including any renewal or extension) until payment in
full of the principal so that the interest hereon for such full period shall not
exceed the maximum amount permissible under the Applicable Law.

     

    8.3 Successors and
Assigns.  Except as otherwise expressly provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors, and administrators of the parties
hereto.

     

    8.4 Entire
Agreement.  This Agreement and the Exhibits hereto and thereto,
and the other documents delivered pursuant hereto and thereto, constitute the
full and entire understanding and agreement among the parties with regard to the
subjects hereof and no party shall be liable or bound to any other party in any
manner by any representations, warranties, covenants, or agreements except as
specifically set forth herein or therein.  Nothing in this Agreement,
express or implied, is intended to confer upon any party, other than the parties
hereto and their respective successors and assigns, any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided herein.

     

     

    
      
         

      

      
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    8.5 Severability.  In
case any provision of this Agreement shall be invalid, illegal, or
unenforceable, it shall to the extent practicable, be modified so as to make it
valid, legal and enforceable and to retain as nearly as practicable the intent
of the parties, and the validity, legality, and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.

     

    8.6 Amendment and
Waiver.  Except as otherwise provided herein, any term of this
Agreement may be amended, and the observance of any term of this Agreement may
be waived (either generally or in a particular instance, either retroactively or
prospectively, and either for a specified period of time or indefinitely), with
the written consent of the Company and the Purchasers holding a majority of the
outstanding principal amount of Notes, or, to the extent such amendment affects
only one Purchaser, by the Company and such Purchaser.  Any amendment
or waiver effected in accordance with this Section shall be binding upon each
future holder of any security purchased under this Agreement (including
securities into which such securities have been converted) and the
Company.

     

    8.7 Notices.  All
notices and other communications required or permitted hereunder shall be in
writing and shall be effective when delivered personally, or sent by telex or
telecopier (with receipt confirmed), provided that a copy is mailed by
registered mail, return receipt requested, or when received by the addressee, if
sent by Express Mail, Federal Express or other nationally recognized overnight
courier service (receipt requested) in each case to the appropriate address set
forth below:

     

    
      
        	 	
                If
      to the Company:

              	
                Save
      the World Air, Inc.

              
	 	 
      	
                235
      Tennant Avenue

              
	 	 
      	
                Morgan
      Hill, California 95037

              
	 	 
      	
                Attn:  Cecil
      Bond Kyte, CEO

              
	 	 
      	
                Tel:  (408)778-
      0101

              
	 	 
      	
                Fax:
      (805) 845-4377

              
	 	 
      	 
      
	 	
                With
      a copy to:

              	 
      
	 	 
      	
                Hodgson
      Russ, LLP

              
	 	 
      	
                1540
      Broadway, 24 Floor

              
	 	 
      	
                New
      York, New York 10036

              
	 	 
      	
                Attn.
      Ronniel Levy, Esq.

              
	 	 
      	
                (646)
      218-7643

              
	 	 
      	
                (Fax)
      (646) 943-7078

              
	 	 
      	 
      
	 	
                If
      to the Purchaser:

              	
                At
      the address set forth on the Purchaser’s Signature Page

              
	 	 
      	 
      
	 	
                With
      a copy to:

              	
                Sandgrain
      Securities, Inc.

              
	 	
                 

              	
                1050
      Franklin Avenue, Suite 300

              
	 	
                 

              	
                Garden
      City, NY 11530

              
	 	
                 

              	
                Facsimile:
      (516) 741-0390

              
	 	 
      	
                Attention:
      Peter Grassel

              
	 	 
      	 
      
	 	
                With
      a copy to:

              	
                Lazare
      Potter & Giacovas LLP,

              
	 	 
      	
                950
      Third Avenue,

              
	 	 
      	
                New
      York, New York 10022,

              
	 	 
      	
                (212)
      758- 9300

              
	 	 
      	
                (Fax)
      (212) 888-0919

              

      

    

     

    
 

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

    

    8.8 Faxes and
Counterparts.  This Agreement may be executed in one or more
counterparts.  Delivery of an executed counterpart of the Agreement or
any exhibit attached hereto by facsimile transmission shall be equally as
effective as delivery of an executed hard copy of the same.  Any party
delivering an executed counterpart of this Agreement or any exhibit attached
hereto by facsimile transmission shall also deliver an executed hard copy of the
same, but the failure by such party to deliver such executed hard copy shall not
affect the validity, enforceability or binding nature effect of this Agreement
or such exhibit.

     

    8.9 Consent of
Purchasers.  As used in the Agreement, “consent of the
Purchasers” or similar language means the consent of holders of not less than
50% of the total principal and interest outstanding on the Notes owned by
Purchasers on the date consent is requested.

     

    8.10 Titles and
Subtitles.  The titles of the paragraphs and subparagraphs of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.

     

     

     

    
      
         

      

      
        16

        
          

        

      

      
         

      

    

     

    [Counterpart
Signature Page to Securities Purchase Agreement of Save the World Air,
Inc.]

     

     

     

    IN
WITNESS WHEREOF, the parties have executed this Agreement as of the date set
forth on the Purchase Signature Page hereto.

    

    

    PURCHASER

     

    (By
Counterpart Form - See Purchaser Signature

    Pages
following the Questionnaire)

     

     

    COMPANY

     

    SAVE
THE WORLD AIR, INC

     

    (By
Execution of Acceptance Page following

    Certificate
of Signatory)

     

     

     

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

    QUESTIONNAIRE

    

               The
undersigned Purchaser has read the Securities Purchase Agreement of Save the
World Air, Inc., dated as of October __, 2009, and acknowledges that the
completion of this Questionnaire and the execution of the Purchaser Signature
Page that follows shall constitute the undersigned’s execution of such
Agreement.  This Questionnaire is and shall remain part of the
Agreement.  All capitalized terms used herein shall be as defined in
such Agreement

    

               I
hereby subscribe for ____ Units, each Unit constituting a $25,000 7% Convertible
Promissory Note and ______________________ Common Stock Purchase Warrants to
purchase 100,000 share at $.30 per share, for an aggregate principal amount of
$__________________, and
Common Stock Purchase Warrants and tender a purchase price of $_______________
therefore.

    

    

               I
am a resident of the State of __________________.

     

     

    
      
        
Please
print above the exact name(s) in which the Notes are to be
held

    

    

    

    My
address is:     
________________________________________________________

    ________________________________________________________

    ________________________________________________________

     

     

     

    
 

    
      
         

      

      
        18

        
          

        

      

      
         

      

    

                                    

    

                                    

    

    I agree
to keep information relating to the Company strictly confidential and not to
discuss or exploit or distribute any of the information herein except to my
professional advisors or as necessary to comply with law.

    

    I
acknowledge that the offering of the Units is subject to the Federal securities
laws of the United States and state securities laws of those states in which the
Notes are offered, and that, pursuant to the U.S. Federal securities laws and
state securities laws, the Units may be purchased by persons who come within the
definition of an “Accredited
Investor” as that term is defined in Rule 501(a) of Regulation D
promulgated under the Securities Act (“Regulation
D”).

     

    By
initialing one of the categories below, I represent and warrant that I come
within the category so initialed and have truthfully set forth the factual basis
or reason I come within that category.  All information in response to
this paragraph will be kept strictly confidential.  I agree to furnish
any additional information that the Company deems necessary in order to verify
the answers set forth below.

     

    NOTE:  You
must either initial that at least ONE
category.

     

    Individual
Purchaser:

    (A
Purchaser who is an individual may initial either Category I, II, or
III)

     

     

    
      
        	
                Category
      I

              	
                _____

              	 	      
                I
      am a director or executive officer of the
  Company.

              
	 	 	 	 
	
                Category
      II

              	
                _____

              	 	      
                I
      am an individual (not a partnership, corporation, etc.) whose individual
      net worth, or joint net worth with my spouse, presently exceeds
      $1,000,000.

              
	 	 	 	 
	
                 

              	 
      	 	      
                Explanation.  In
      calculation of net worth, you may include equity in personal property and
      real estate, including your principal residence, cash, short term
      investments, stocks and securities.  Equity in personal property
      and real estate should be based on the fair market value of such property
      less debt secured by such property.

              
	 	 	 	 
	
                Category
      III

              	
                _____

              	 	
                I
      am an individual (not a partnership, corporation, etc.) who had an
      individual income in excess of $200,000 in 2007 and 2008, or joint income
      with my spouse in excess of $300,000 in 2007 and 2008, and I have a
      reasonable expectation of reaching the same income level in
      2009.

              

      

    

    

     

    

    
      
         

      

      
        19

        
          

        

      

      
         

      

    

     

    
      
        Entity
Purchasers:

      

       

      (A Purchaser which is a corporation,
limited liability company, partnership, trust, or other entity may initial either Category IV, V, VI,
VII or VIII)

       

    

    
      	
              Category
      IV

            	 ____	
               

            	
              The
      Purchaser is an entity in which all of the equity owners are “Accredited Investors” as
      defined in Rule 501(a) of Regulation D.  If relying upon this category
      alone, each equity owner must complete a separate copy of this
      Agreement.

               

            
	 
      	 	 
      	
              _____________________________________________________

               

              
                _____________________________________________________

                 

                
                  _____________________________________________________

                

              

            
	 
      	 	 
      	
              (describe
      entity)

            
	 	 	 	 
	
              Category
      V

            	 ____	
               

            	
              The
      Purchaser is a trust, with total assets in excess of $5,000,000, not
      formed for the specific purpose of acquiring the Units offered, whose
      purchase is directed by a “Sophisticated Person” as
      described in Rule 506(b)(2)(ii) of Regulation D.

            
	 	 	 	 
	
              Category
      VI

            	 ____	
               

            	      
              The
      Purchaser is an organization described in Section 501(c)(3) of the
      Internal Revenue Code, corporation, Massachusetts or similar business
      trust, or partnership, not formed for the specific purpose of acquiring
      the Units, with total assets in excess of
    $5,000,000.

            
	 
      	 	 
      	
              _____________________________________________________

               

              
                _____________________________________________________

                 

                
                  _____________________________________________________

                

              

            
	 
      	 	 
      	
              (describe
      entity)

            
	 	 	 	 
	
              Category
      VII

            	 ____	
               

            	
              The
      Purchaser is a private business development company as defined in Section
      202(a)(22) of the Investment Advisers Act of 1940.

            
	 
      	 	 
      	
              _____________________________________________________

               

              
                _____________________________________________________

                 

                
                  _____________________________________________________

                

              

            
	 
      	 	 
      	
              (describe
      entity)

            

    

     

    Executed
this _____ day of  _________, 2009 at ____________________,
________________.

     

    
      
         

      

      
        20

        
          

        

      

      
         

      

    

     

    PURCHASER
SIGNATURE PAGE

    (For
Individual Purchasers)

    

               This
Securities Purchase Agreement of Save the World Air, Inc. (including the
Questionnaire) is hereby executed and entered into by the below
Purchaser.

    

    
      	
               

               

              Principal
      Amount of Note $_____________

               

              No.
      of Warrants______________________

               

            	
               
      
              
                ____________________________________

              

              Signature
      (Individual)

               

               

                ____________________________________

              

              Name
      (Print)

               

               

                ____________________________________

              

              Street
      address

               

               

                ____________________________________
City,
      State and Zip Code

            
	 
      	 
      

    

    

    
      	 
      	
               

              
                
      

              Tax
      Identification or Social Security Number

               

              (            )                           

              Telephone
      Number

               

              (            )                          

              Facsimile
      Number

            

    

    

    
      	 
      	
              Address
      to Which Correspondence Should Be Directed (if different from
      above)

               

              ____________________________________

              c/o
      Name

               

              ____________________________________

              Street
      Address

               

            
	 
      	
              ____________________________________

              City,
      State and Zip Code

               

              (______)____________________________

              Telephone
      Number

               

              (______)____________________________

              Facsimile
      Number

            

    

     

     

    
      
         

      

      
        21

        
          

        

      

      
         

      

    

    
 

    

    PURCHASER
SIGNATURE PAGE

    (for
Corporation, Partnership, Trust or Other Entities)

    This Securities Purchase Agreement of
Save the World Air, Inc.  (including the Questionnaire) is hereby
executed and entered into by the below Purchaser:

     

    
      	
               

              Principal
      Amount of Note $_____________

               

              No.
      of Warrants______________________

               

            	
              ____________________________________

              Name
      of Entity

               

              ____________________________________

              Type
      of Entity (i.e., corporation, partnership, etc.)

               

              ____________________________________

              Tax
      Identification or Social Security Number

               

              ____________________________________

              State
      of Formation of Entity

               

              ____________________________________

              Name
      of Signatory Typed or Printed

               

              Its:

              
                ____________________________________

                Title

              

               

            

    

    

    
      	 
      	
              Address
      to Which Correspondence Should Be Directed (if different from
      above)

               

              ____________________________________

              c/o
      Name

               

              ____________________________________

              Street
      Address

               

            
	 
      	
              ____________________________________

              City,
      State and Zip Code

               

              (______)____________________________

              Telephone
      Number

               

              (______)____________________________

              Facsimile
      Number

            

    

    *If
Notes are being subscribed for by an entity, the Certificate of Signatory that
follows must also be completed.

     

     

    
      
         

      

      
        22

        
          

        

      

      
         

      

    

    
 

    CERTIFICATE
OF SIGNATORY

    

                        To
be completed if Units are being subscribed for by an entity.

    

    

               I,__________________________________,
am the ___________________________ of
_______________________________ (the
“Entity”).

    

               I
certify that I am empowered and duly authorized by the Entity to execute and
carry out the terms of the Securities Purchase Agreement and to purchase and
hold the Notes and Shares.  The Securities Purchase Agreement has been
duly and validly executed on behalf of the Entity and constitutes a legal and
binding obligation of the Entity.

    

               IN
WITNESS WHEREOF, I have hereto set my hand this ______ day of _________,
2009.

    

    

    
      	 
      	
              ____________________________________

              Signature

            

    

    

    

    
      
         

      

      
        23

        
          

        

      

      
         

      

    

    

    

    ACCEPTANCE
PAGE TO SECURITIES PURCHASE AGREEMENT OF

    SAVE
THE WORLD AIR, INC

    

    The foregoing subscriptions for
________ Units, for an aggregate of $___________ principal amount of 7%
Convertible Promissory Notes and Warrants at a purchase price of $25,000 per
Unit, in accordance with the foregoing Securities Purchase Agreement, AGREED AND
ACCEPTED; provided,
however, that the Company may accept additional subscriptions from time
to time without consent of Purchasers until the maximum offering amount (plus
the over-allotment option, if any) are accepted and Closed upon, in accordance
with this Agreement:

    

    SAVE
THE WORLD AIR, INC

    

    By: ___________________________________________________________

    Name:

    Title:

    

    

    Date:  _______________
__, 2009

     

    
 

    
      
         

      

      
        24

        
          

        

      

      
         

      

    

    

    

    EXHIBIT
1

    

    Form
of 7% Convertible Promissory Note

    

    [This
Exhibit is Included in the Memorandum as Part of Exhibit
B]

     

     

    
      
         

      

      
        25

        
          

        

      

      
         

      

    

    
 

    EXHIBIT
2

    

    Form
of Common Stock Purchase Warrant

    

    [This
Exhibit is Included in the Memorandum as Part of Exhibit
B]

     

     

    
      
         

      

      
        26

        
          

        

      

      
         

      

    

    
 

    EXHIBIT
3

    

    Form
of Executed Escrow Agreement Between Sandgrain Securities, Inc., Save the World
Air, Inc., and Manufacturers and
Traders Trust Company, as Escrow Agent

    

    [This
Exhibit is Included in the Memorandum as Part of Exhibit
B]

    

    

    
      
         

      

      
        27

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