THIS NOTE PURCHASE
AGREEMENT (this “Agreement”) is made and entered into
as of the 5 th day of December, 2006 by and between Save the
World Air, Inc., a Nevada corporation (the “Issuer”)
and Morale Orchards, LLC, a limited liability company organized
under the laws of the State of Oregon (the
“Purchaser”), with reference to the
following:
A. Purchaser
desires to purchase from Issuer and Issuer desires to sell to
Purchaser certain of Issuer’s Convertible Promissory Notes in
the aggregate face amount of $1,225,000, in the form of
Exhibit A attached hereto (individually, a
“Note” and collectively, the “Notes”) and
Stock Purchase Warrants, each to purchase up to a certain number of
shares of the common stock (the “Common Stock”) of the
Issuer equal to 50% of the number of shares initially issuable on
conversion of the Notes, in the form of Exhibit B
attached hereto (individually, the “Warrants” and
collectively with the Notes, the
“Securities”).
B. Issuer’s
sale of the Securities to the Purchaser will be made in reliance
upon the provisions of Section 4(2) under the Securities Act
of 1933, as amended (the “Securities Act”),
Rule 506 of Regulation D promulgated by the Securities
and Exchange Commission (the “SEC”) thereunder, and
other applicable rules and regulations of the SEC and/or upon such
other exemption from the registration requirements of the
Securities Act as may be available with respect to the transactions
contemplated hereby.
C. At any
time when any amount of principal or interest of the Notes shall be
outstanding, such unpaid amounts shall be convertible into shares
of the Issuer’s Common Stock at a price per share equal to
the closing price of a share of the Issuer’s common stock on
the trading day prior to each Closing, as defined herein (the
“Conversion Price”).
D. The
Warrants shall be issued at the same time each Note is issued to
the Purchaser hereunder and shall exercisable at the same price as
the Conversion Price (the “Exercise Price”), for such
number of shares equal to 50% of result obtained by dividing
(i) the face amount of the Notes issued simultaneously with
the Warrant by (ii) the Conversion Price (the
“Exercisable Amount”).
NOW THEREFORE, in
consideration of the foregoing recitals, which shall be considered
an integral part of this Agreement, the covenants and agreements
set forth
hereafter, and
other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the Purchaser and the Issuer
hereby agree as follows
1.
Purchase of the Notes and Warrants. On the terms and subject
to the conditions set forth in this Agreement, the Purchaser shall
purchase from the Issuer and the Issuer shall sell to the Purchaser
the Securities.
2.
Purchaser’s Representations, Warranties and Covenants.
In order to induce the Issuer to sell and issue the Securities to
the Purchaser under one or more exemptions from registration under
the Securities Act, the Purchaser represents and warrants to the
Issuer, and covenants with the Issuer, that:
(a) The
Purchaser is a limited liability company, duly organized, validly
existing and in good standing in the State of Oregon.
(b)
(i) The Purchaser has the requisite power and authority to
enter into and perform this Agreement, and each of the other
agreements entered into by the parties hereto in connection with
the transactions contemplated by this Agreement (collectively, the
“Transaction Documents”), and to purchase the
Securities in accordance with the terms hereof and
thereof.
(ii) The
execution and delivery of the Transaction Documents by the
Purchaser and the consummation by it of the transactions
contemplated thereby have been duly and validly authorized by the
Purchaser’s organizational documents and no further consent
or authorization is required by the Purchaser, its Managing Members
or by any other person. Leodis Matthews owns 100% of the equity
interest in the Purchaser.
(iii) The
Transaction Documents have been duly and validly executed and
delivered by the Purchaser.
(iv) The
Transaction Documents, and each of them, constitutes the valid and
binding obligation of the Purchaser enforceable against the
Purchaser in accordance with their respective terms, except as such
enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally,
the enforcement of creditors’ rights and remedies.
(c) The
execution, delivery and performance of the Transaction Documents by
the Purchaser and the consummation by the Purchaser of the
transactions contemplated thereby will not conflict with or
constitute a default under any agreement or instrument to which the
Purchaser is a party or under any organizational documents of the
Purchaser.
(d) The
Purchaser is acquiring the Securities for investment for its own
account, and not with a view toward distribution thereof, and with
no present intention of dividing its interest with others or
reselling or otherwise transferring or disposing all or
any portion of
either the Notes or Warrants. The undersigned has not offered or
sold a participation in this purchase of either the Notes or
Warrants, and will not offer or sell any interest therein. The
Purchaser further acknowledges that it does not have in mind any
sale of either the Notes or Warrants currently or after the passage
of a fixed or determinable period of time or upon the occurrence or
non-occurrence of any predetermined events or consequence; and that
it has no present or contemplated agreement, undertaking,
arrangement, obligation, indebtedness or commitment providing for
or which is likely to compel a disposition of either the Notes or
Warrants and is not aware of any circumstances presently in
existence that are likely in the future to prompt a disposition
thereof.
(e) The
Purchaser acknowledges that the Securities have been offered to it
in direct communication between itself and the Issuer or through
registered broker-dealers who are members of the National
Association of Securities Dealers, Inc. and not through any
advertisement of any kind.
(f) The
Purchaser acknowledges that the Issuer has given it access to all
information relating to the Issuer’s business that it has
requested. The Purchaser has reviewed all materials relating to the
Issuer’s business, finance and operations which it has
requested and the Purchaser has reviewed all of such materials as
the Purchaser, in the Purchaser’s sole and absolute
discretion shall have deemed necessary or desirable... The
Purchaser has had an opportunity to discuss the business,
management and financial affairs of the Issuer with the
Issuer’s management. Specifically but not by way of
limitation, the Purchaser acknowledges the Company’s publicly
available filings made periodically with the SEC, which filings are
available at www.sec.gov and which filings the Purchaser
acknowledges reviewing or having had the opportunity of
reviewing.
(g) The
Purchaser acknowledges that it has, by reason of its business and
financial experience, such knowledge, sophistication and experience
in financial and business matters and in making investment
decisions of this type that it is capable of (i) evaluating
the merits and risks of an investment in the Securities and making
an informed investment decision I connection therewith;
(ii) protecting its own interest; and (iii) bearing the
economic risk of such investment for an indefinite period of time
for Securities which are not transferable or freely tradable. Based
on the foregoing, the undersigned hereby agrees to indemnify the
Company thereof and to hold each of such persons and entities, and
the officers, directors and employees thereof harmless against all
liability, costs or expenses (including reasonable attorneys’
fees) arising by reason of or in connection with any
misrepresentation or any breach of such warranties of the
undersigned, or arising as a result of the sale or distribution of
the Securities or the Common Stock issuable upon conversion of the
Notes or exercise of the Warrants, by the undersigned in violation
of the Securities Act, the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), or any other applicable
law, either federal or state. This subscription and the
representations and warranties contained herein shall be binding
upon the heirs, legal representatives, successors and assigns of
the Purchaser
(h) The
Purchaser is familiar with the definition of an “accredited
investor” as that term is defined in Rule 501(a) of
Regulation D of the Securities Act and represents and warrants
to the Issuer that it is an accredited investor as so
defined.
(i) During
the term of this Agreement and the other Transaction Documents, the
Purchaser will comply with the provisions of Section 9 of the
Exchange Act, and the rules and regulations promulgated thereunder,
with respect to transactions involving the Common Stock. During the
term of this Agreement and the other Transaction Documents, the
Purchaser agrees not to sell the Issuer’s Common Stock short
or engage in any hedging transactions in the Company’s Common
Stock, either directly or indirectly, through its affiliates,
principals, agents or advisors.
(j) The
Purchaser is aware of the restrictions of transferability of both
the Notes and the Warrants, and the shares of Common Stock issuable
upon conversion of the Notes or exercise of the Warrants, and
further understands and acknowledges that any certificates
evidencing the Notes, the Warrants or the shares of Common Stock
issuable upon conversion of the Notes or exercise of the Warrants
will bear the legends in substantially the following
form:
THE
SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED FOR SALE
UNDER ANY STATE SECURITIES LAWS (COLLECTIVELY, “SECURITIES
LAWS”) AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED
UNLESS REGISTERED OR QUALIFIED FOR SALE UNDER ALL APPLICABLE
SECURITIES LAWS OR UNLESS, IN THE OPINION OF COUNSEL SATISFACTORY
TO THE ISSUER, IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER,
ANY SUCH OFFER, SALE OR OTHER TRANSFER IS EXEMPT FROM THE
REGISTRATION OR QUALIFICATION REQUIREMENTS OF SUCH SECURITIES
LAWS.
(k) The
Purchaser understands and acknowledges that following the purchase
of the Notes, the Warrants and any shares of Common Stock issuable
upon conversion of the Notes or exercise of the Warrants, each may
only be disposed of pursuant to either (i) an effective
registration statement under the Securities Act or (ii) an
exemption from the registration requirements of the Securities
Act.
(l) The
Purchaser understands and acknowledges that the Issuer has neither
filed such a registration statement with the SEC or any state
authorities nor agreed to do so, nor contemplates doing so in the
future for the transactions contemplated by this Agreement or the
other Transaction Documents, and in the absence of such a
registration statement or exemption, the undersigned may have to
hold the Notes, the Warrants and any shares of Common Stock
issuable upon conversion of the Notes or exercise of the Warrants,
indefinitely and may be unable to liquidate any of them in case of
an emergency.
(m) The
Purchaser is purchasing the Notes and Warrants, and will acquire
any shares of Common Stock issuable upon conversion of the Notes or
exercise of the
Warrants, for
its own account for investment purposes and not with a view towards
distribution and agrees to resell or otherwise dispose of any of
the Notes or the Warrants, or any shares of Common Stock issuable
upon conversion of the Notes or exercise of the Warrants, in
accordance with the registration provisions of the Securities Act
(or pursuant to an exemption from such registration
provisions).
(n) The
Purchaser is not and will not be required to be registered as a
“dealer” under the Exchange Act, either as a result of
its execution and performance of its obligations under this
Agreement or otherwise.
(p) The
Purchaser understands that it is liable for its own tax liabilities
and has obtained no tax advice from the Issuer in connection with
the purchase of the Securities..
(q) The
Purchaser is duly licensed as a mortgage broker under the laws of
the State of California and, accordingly, the imputed interest rate
on the Notes does not and will not violate the provisions of the
Constitution of the State of California relating to usury or any
other law, rule, regulation or provision relating to the maximum
interest which may be charged in connection with any of the
transactions contemplated by this Agreement.
3.
Issuer’s Representations, Warranties and Covenants.
The Issuer represents and warrants to the Purchaser
that:
(a) The
Issuer is a corporation duly organized and validly existing in good
standing under the laws of the State of Nevada, and has the
requisite corporate power and authorization to own its properties
and to carry on its business as now being conducted.
(b)
(i) The Issuer has the requisite corporate power and authority
to enter into and perform this Agreement, and each of the other
agreements entered into by the parties hereto in connection with
the transactions contemplated by the Transaction Documents, and to
issue the Notes and Warrants in accordance with the terms hereof
and thereof.
(ii) the
execution and delivery of the Transaction Documents by the Issuer
and the consummation by it of the transactions contemplated hereby
and thereby, including without limitation the reservation for
issuance and the issuance of the Notes and Warrants pursuant to
this Agreement, have been duly and validly authorized by the
Issuer’s Board of Directors and no further consent or
authorization is required by the Issuer, its Board of Directors, or
its shareholders.
(iii) The
Transaction Documents have been duly and validly executed and
delivered by the Issuer.
(iv) The
Transaction Documents, and each of them, constitutes the valid and
binding obligation of the Issuer enforceable against the Issuer in
accordance
with their
respective terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating
to, or affecting generally, the enforcement of creditors’
rights and remedies.
(c) The
execution, delivery and performance of the Transaction Documents by
the Issuer and the consummation by the Issuer of the transactions
contemplated thereby will not conflict with or constitute a default
under any agreement or instrument to which the Issuer is a party or
under any organizational documents of the Purchaser.
4.
Multiple Closings and Deliverables.
(a) On
each of December 5, 2006 and January 10, 2007 there shall
be a closing (each, a “Closing” and collectively, the
“Closings”) at which:
(i) the
Purchaser shall deliver to the Issuer immediately available funds,
by bank or cashier’s check, or wire transfer, in the amount
of $500,000.00; and
(ii) the
Issuer shall deliver to the Purchaser (x) a Note, in the face
amount of $612,500 and (y) a Warrant to purchase the
Exercisable Amount of the Issuer’s Common Stock at the
Exercise Price.
5.
Registration Rights. If (i) the Purchaser converts any
portion of the Notes or exercises any portion of the Warrants and
for so long as shares of the Issuer’s Common Stock received
thereby are restricted securities (the “Restricted
Securities”) under the Securities Act of 1933, as amended
(the “Securities Act”) and (ii) during such period
the Issuer proposes to file a registration statement under the
Securities Act with respect to an offering for its own account of
any class of its equity securities (other than a registration
statement on Form S-4, or any successor form, a registration
statement on Form S-8, or any successor form, or any other
registration statement relating solely to employee benefit plans or
filed in connection with an exchange offer, a transaction to which
Rule 145, or any successor provision under the Securities Act
applies or an offering of securities solely to the Issuer’s
existing shareholders), then the Issuer shall give written notice
of such proposed filing to the Purchaser no later than 20 business
days before the anticipated filing date, and such notice shall
offer the Purchaser the opportunity to register such number of
shares of Restricted Stock as the Purchaser may request. If the
Purchaser desires to have Restricted Stock included in such
registration statement shall so advise the Issuer in writing within
10 business days after the date on which the Issuer’s notice
is so given, setting forth the number of shares of Restricted Stock
for which registration is requested. If the Issuer’s offering
is to be an underwritten offering, the Issuer shall, subject to the
further provisions of this Agreement, use its reasonable best
efforts to cause the managing underwriter or underwriters to permit
the Purchaser’s Restricted Stock requested to be included in
the registration for such offering to include such Restricted Stock
in such offering on the same terms and conditions as any similar
securities of the Issuer included therein. The right of the
Purchaser to registration pursuant to this Section 5 in
connection with an underwritten offering by the Issuer
shall,
unless the
Issuer otherwise assents, be conditioned upon such
Purchaser’s participation as a seller in such underwritten
offering and its execution of an underwriting agreement with the
managing underwriter or underwriters selected by the Issuer.
Notwithstanding the foregoing, if (i) in the case of an
underwritten offering, and either the managing underwriter or
underwriters or the Issuer’s Board of Directors, believes in
good faith or (ii) in the case of an offering not
underwritten, the Issuer’s Board of Directors, determines in
good faith that the success of the offering would be materially and
adversely affected by inclusion of the Restricted Stock requested
to be included, then the number of shares of Restricted Stock to be
registered and offered for the account of the Purchaser shall be
reduced to the extent necessary to reduce or entirely eliminate the
total amount of securities to be included in such offering to the
amount recommended by either such managing underwriter or
underwriters or by the Issuer’s Board of Directors, as the
case may be (provided that if securities are being registered and
offered for the account of other persons or entities in addition to
the Issuer, such reduction shall not be proportionally greater than
any similar reductions imposed on such other persons or entities).
Any Restricted Stock excluded from an underwriting shall, if
applicable, be withdrawn from registration and shall not, without
the consent of the Issuer, be transferred in a public distribution
prior to the earlier of 120 days (or such other shorter period
of time as the managing underwriter may require) after the
effective date of the registration statement or 120 days after
the date the Purchasers of such Restricted Stock are notified of
such exclusion.
(a) Except
as to the first $10,000 of legal fees and expenses incurred by the
Purchaser in connection with the execution, delivery and the
consummation of the transactions contemplated by this Agreement,
which expenses shall be paid by the Issuer, each party shall pay
the fees and expenses of its own advisers, counsel, accountants and
other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery
and performance of the Transactions Documents.
(b) This
Agreement may be executed in two or more identical counterparts,
all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile
signature shall be considered due execution and shall be binding
upon the signatory thereto with the same force and effect as if the
signature were an original signature.
(c) The
headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this
Agreement. Whenever required by the context of this Agreement, the
singular shall include the plural and neutral shall include the
masculine and feminine.
(d) If
any provision of this Agreement shall be invalid or unenforceable
in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or
enforceability
of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of any provision of this Agreement in
any other jurisdiction.
(e) This
Agreement is the final agreement between the Purchaser and the
Issuer with respect to the terms and conditions set forth herein,
and, the terms of this Agreement may not be contradicted by
evidence of prior, contemporaneous, or subsequent oral agreements
of the parties. No provision of this Agreement may be amended other
than by an instrument in writing signed by the Purchaser and the
Issuer or, and no provision hereof may be waived other than by an
instrument in writing signed by the party against whom enforcement
is sought.
(f) Any
notices or other communications required or permitted to be given
under the terms of this Agreement must be in writing and will be
deemed to ha
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