stwa_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.

     

    
      
         

      

      
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    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.

     

    
      
         

      

      
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    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.

     

    
      
         

      

      
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    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.

     

     

    
      
         

      

      
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    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:

     

    
 

    
      
         

      

      
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    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.

     

    
      
         

      

      
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    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.

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

     

    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.

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    
 

    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.

     

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

    
 

    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.

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

    
 

    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.

     

     

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

    
 

    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.

     

     

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

    
 

    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