swta_8k-ex402.htm


    
      

    


    Exhibit
4-2

    


    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 (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), 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.

    


    


    
      	
              Principal
      Amount: $25,000

            	
              Issue
      Date: November 19, 2009

            


    

    


    


    7% CONVERTIBLE PROMISSORY
NOTE

    


    FOR VALUE
RECEIVED, SAVE THE WORLD AIR,
INC., a Nevada corporation (hereinafter called “Borrower”), hereby promises to
pay to
[                 ],
[                 ],  (the
“Holder”) or its
registered assigns or successors in interest or order, without demand, the sum
of TWENTY FIVE THOUSAND ($25,0900) (“Principal Amount”), with
interest compounded quarterly at the annual rate of seven percent (7%) on
September 28, 2012 (the “Maturity Date”), if not sooner
paid.

    


    This Note
has been entered into pursuant to the terms of a Securities Purchase Agreement
between the Borrower, the Holder and certain other holders (the “Other Holders”) of convertible
promissory notes (the “Other
Notes”) and Common Stock Purchase Warrants, dated of even date herewith
(the “Subscription
Agreement”), and shall be governed by the terms of such Subscription
Agreement.  Unless otherwise separately defined herein, all
capitalized terms used in this Note shall have the same meaning as is set forth
in the Subscription Agreement.  The following terms shall apply to
this Note:

    


    ARTICLE
I

    


    INTEREST

    


    1.1.                    Interest
Rate.   Interest on this Note shall compound quarterly and
shall accrue at the annual rate of seven percent (7%).  Interest will
be payable commencing December 31, 2009 and on the last business day of each
calendar quarter thereafter and on the Maturity Date, accelerated or otherwise,
when the principal and remaining accrued but unpaid interest shall be due and
payable, or sooner as described below.  Interest will be payable in
cash, or at the election of the Borrower, and subject to Section 2.2, with
shares of Common Stock at a per share value equal to the Conversion Price set
forth in Section 2.1.  Interest may be paid at the Company’s election
in cash, registered Common Stock or Common Stock immediately to the extent
resellable pursuant to Rule 144 without transfer or volume
restrictions.


    
      
         


      

      
        
        

        
          

        

      

      
         


      

    


    


    1.2.             Default Interest
Rate.  Following the occurrence and during the continuance of
an Event of Default, which, if susceptible to cure is not cured within the cure
periods (if any) set forth in Article III, otherwise then from the first date of
such occurrence until cured, the annual interest rate on this Note shall
(subject to Section 4.7) be Ten Percent (10%), and be due on
demand.

    


    ARTICLE
II

    


    CONVERSION
RIGHTS

    


    2.1.           Holder’s Conversion
Rights.   Subject to Section 2.2, for so long as this Note
remains outstanding and not fully paid, the Holder shall have the right, but not
the obligation, to convert all or any portion of the then aggregate outstanding
Principal Amount of this Note, together with interest, into shares of Common
Stock, subject to the terms and conditions set forth in this Article III, at the
rate of $0.25 per
share of Common Stock (“Conversion Price”), as the
same may be adjusted pursuant to this Note.  The Holder may exercise
such right by delivery to the Borrower of a written Notice of Conversion
pursuant to Section 2.3.

    


    2.2.           Conversion
Limitation.   Neither Holder nor the Borrower may
convert  (or in the Borrowers case, cause repayment with stock) on any
date that amount of the Note Principal or interest in connection with that
number of shares of Common Stock which would be in excess of the sum of (i) the
number of shares of Common Stock beneficially owned by the Holder and its
affiliates on a Conversion Date, (ii) any Common Stock issuable in connection
with the unconverted portion of the Note, and (iii) the number of shares of
Common Stock issuable upon the conversion of the Note with respect to which the
determination of this provision is being made, which would result in beneficial
ownership by the Holder and its affiliates of more than 4.99% of the outstanding
shares of Common Stock of the Borrower on such Conversion Date.  For
the purposes of the provision to the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13d-3
thereunder.  Subject to the foregoing, the Holder shall not be limited
to aggregate conversions of only 4.99% and aggregate conversion by the Holder
may exceed 4.99%.  The Holder shall have the authority and obligation
to determine whether the restriction contained in this Section 2.2 will limit
any conversion hereunder and to the extent that the Holder determines that the
limitation contained in this Section applies, the determination of which portion
of the Notes are convertible shall be the responsibility and obligation of the
Holder.  The Holder may waive the conversion limitation described in
this Section 2.2, in whole or in part, upon and effective after 61 days prior
written notice to the Borrower to increase such percentage to up to
9.99%.  Once a Holder has waived this limitation, the same shall be
deemed waived for all other future conversions, warrant exercises, or share
issuances by the Holder.

    


    2.3.           Mechanics of Holder’s
Conversion.

    


    (a)           In
the event that the Holder elects to convert any amounts outstanding under this
Note into Common Stock, the Holder shall give notice of such election by
delivering an executed and completed notice of conversion (a “Notice of Conversion”) to the
Borrower, which Notice of Conversion shall provide a breakdown in reasonable
detail of the Principal Amount, accrued interest and amounts being
converted.  The original Note is not required to be surrendered to the
Borrower until all sums due under the Note have been paid.  On each
Conversion Date (as hereinafter defined) and in accordance with its Notice of
Conversion, the Holder shall make the appropriate reduction to the Principal
Amount, accrued interest and fees as entered in its records.  Each
date on which a Notice of Conversion is delivered or telecopied to the Borrower
in accordance with the provisions hereof shall be deemed a “Conversion
Date.”  A form of Notice of Conversion to be employed by the Holder is
annexed hereto as Exhibit
A.


    
      
         


      

      
        2

        
          

        

      

      
         


      

    


    


    


    (b)           Pursuant
to the terms of a Notice of Conversion, the Borrower will issue instructions to
the transfer agent accompanied by an opinion of counsel (if so required by the
Borrower’s transfer agent), to issue the Conversion Shares as provided in the
Subscription Agreement.

    


    2.4.           Adjustments to Conversion
Price.

    


    (a)           The
number of shares of Common Stock to be issued upon each conversion of this Note
pursuant to this
Article II shall be determined by dividing that portion of the Principal
Amount and interest and fees to be converted, if any, by the then applicable
Conversion Price.  Notwithstanding the foregoing, in the event that
any principal or interest is applied towards an investment in a Follow On
Offering, the principal and interest shall entitle the Holder converting the
same to the securities offered in such Follow On Offering at  the same
price offered to other investors therein, but shall be entitled to keep the
Warrants.

    


    (b)           The
Conversion Price and number and kind of shares or other securities to be issued
upon conversion shall be subject to adjustment from time to time as described in
the Subscription Agreement and upon the happening of certain events while this
conversion right remains outstanding, as follows:

    


    A.           Merger, Sale of Assets,
etc.  If (A) the Company effects any merger
or  consolidation of the Company with or into another entity, (B) the
Company effects any sale of all or substantially all of its assets in one or a
series of related transactions,  (C) any tender offer or exchange
offer (whether by the Company or another entity) is completed pursuant to which
holders of Common Stock are permitted to tender or exchange their shares for
other securities, cash or property, (D) the Company consummates a stock purchase
agreement or other business combination (including, without limitation, a
reorganization, recapitalization, spin-off or scheme of arrangement) with one or
more persons or entities whereby such other persons or entities acquire more
than the 50% of the outstanding shares of Common Stock (not including any shares
of Common Stock held by such other persons or entities making or party to, or
associated or affiliated with the other persons or entities making or party to,
such stock purchase agreement or other business combination), (E) any "person" or "group" (as these terms are
used for purposes of Sections 13(d) and 14(d) of the 1934 Act) is or shall
become the "beneficial owner" (as defined in Rule 13d-3 under the 1934 Act),
directly or indirectly, of 50% of the aggregate Common Stock of the Company
(other than through open market purchases), or (F) the Company effects any
reclassification of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is effectively converted into or exchanged for other
securities, cash or property (in any such case, a
"Fundamental  Transaction"), this Note, as to the unpaid principal
portion thereof and accrued interest thereon, shall thereafter be deemed to
evidence the right to convert into such number and kind of shares or other
securities and property as would have been issuable or distributable on account
of such Fundamental Transaction, upon or with respect to the securities subject
to the conversion right immediately prior to such Fundamental
Transaction.  The foregoing provision shall similarly apply to
successive Fundamental Transactions of a similar nature by any such successor or
purchaser.  Without limiting the generality of the foregoing, the
anti-dilution provisions of this Section shall apply to such securities of such
successor or purchaser after any such Fundamental Transaction.

    


    B.           Reclassification,
etc.  If the Borrower at any time shall, by reclassification or
otherwise, change the Common Stock into the same or a different number of
securities of any class or classes, this Note, as to the unpaid principal
portion hereof and accrued interest hereon, shall thereafter be deemed to
evidence the right to convert into an adjusted number of such securities and
kind of securities as would have been issuable as the result of such change with
respect to the Common Stock immediately prior to such reclassification or other
change.

    


    C.           Stock Splits, Combinations
and Dividends.  If the shares of Common Stock are subdivided or
combined into a greater or smaller number of shares of Common Stock, or if a
dividend is paid on the Common Stock in shares of Common Stock, the Conversion
Price shall be proportionately reduced in case of subdivision of shares or stock
dividend or proportionately increased in the case of combination of shares, in
each such case by the ratio which the total number of shares of Common Stock
outstanding immediately after such event bears to the total number of shares of
Common Stock outstanding immediately prior to such event.


    
      
         


      

      
        3

        
          

        

      

      
         


      

    


    


    (c)           Whenever
the Conversion Price is adjusted pursuant to Section 2.4(b) above, the Borrower
shall promptly mail to the Holder a notice setting forth the Conversion Price
after such adjustment and setting forth a statement of the facts requiring such
adjustment.

    


    (d)           Nothing
herein shall be deemed a waiver or consent of the Holders to the taking of any
action by the Company set forth in Section 5 of the Subscription
Agreement.

    


    2.5.           Reservation.   During
the period the conversion right exists, Borrower will make best efforts, to
reserve from its authorized and unissued Common Stock not less than one
hundred and ten percent (120%)
of the number of shares to provide for the issuance of Common Stock upon the
full conversion of this Note.  Borrower
represents that upon issuance, such shares will be duly and validly issued,
fully paid and non-assessable.  Borrower acknowledges that it may be
required to amend its Articles of Incorporation so as to increase its authorized
capital from time to time in order to satisfy this covenant, and agrees to make
best efforts to make such filings, proxy or information statement distributions,
and obtain such board, shareholder or other third party consents as are
necessary from time to time to maintain the adequate number of Common Stock
reserved and available for issuance.

    


    2.6           Issuance of Replacement
Note.  Upon any partial conversion of this Note, a replacement
Note containing the same date and provisions of this Note shall, at the written
request of the Holder, be issued by the Borrower to the Holder for the
outstanding Principal Amount of this Note and accrued interest which shall not
have been converted or paid, provided Holder has surrendered an original Note to
the Borrower.  In the event that the Holder elects not to surrender a
Note for reissuance upon partial payment or conversion, the Holder hereby
indemnifies the Borrower 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, and the Borrower is hereby expressly authorized to offset any such amounts
mutually agreed upon by Borrower and Holder or pursuant to a judgment in
Borrower’s favor against amounts then due under the Note.

    


    ARTICLE
III

    


    EVENTS
OF DEFAULT

    


    The
occurrence of any of the following events of default (“Event of Default”) shall, at
the option of the Holder hereof, make all sums of principal and interest then
remaining unpaid hereon and all other amounts payable hereunder immediately due
and payable, upon demand, without presentment, or grace period, all of which
hereby are expressly waived, except as set forth below:

    


    3.1           Failure to Pay Principal or
Interest.  The Borrower fails to pay any installment of
Principal Amount, interest or other sum due under this Note when due and such
failure continues for a period of eight (8) business days after the due
date.

    


    3.2           Breach of
Covenant.  The Borrower breaches any material covenant or other
term or condition of the Subscription Agreement in any material respect and such
breach, if subject to cure, continues for a period of ten (10) business days
after written notice to the Borrower from the Holder.  Notwithstanding
the foregoing, in the event that the provisions of Section 2.2 wherein the
Borrower does not have sufficient number of shares available for issuance
pursuant to its Articles of Incorporation, as amended, then the default shall be
deemed cured at the time of the initial filing of a preliminary information
statement or proxy statement, provided, that the Company makes best efforts to
obtain effectiveness of the same and complete the filing of any Amendment to the
Articles of Incorporation (or amended and restated Articles of Incorporation)
within 45 days thereafter.


    
      
         


      

      
        4

        
          

        

      

      
         


      

    


    


    3.3           Breach of Representations
and Warranties.  Any material representation or warranty of the
Borrower made herein or in the Subscription Agreement, or in any agreement,
statement or certificate given in writing pursuant hereto or in connection
herewith or therewith shall be false or misleading in any material respect as of
the Closing Date.

    


    3.4           Receiver or
Trustee.  The Borrower shall make an assignment for the benefit
of creditors, or apply for or consent to the appointment of a receiver or
trustee for them or for a substantial part of their property or business; or
such a receiver or trustee shall otherwise be appointed.

    


    3.5           Judgments.  Any
money judgment, writ or similar final process shall be entered or filed against
Borrower States or any subsidiary of Borrower in the United or any of their
property or other assets in the United States for more than $300,000, and shall
remain unvacated, unbonded, unappealed, unsatisfied, or unstayed for a period of
forty-five (45) days.

    


    3.6           Non-Payment.   A
default by the Borrower under any one or more obligations in an aggregate
monetary amount in excess of $300,000 for more than twenty (20) days after the
due date, unless the Borrower is contesting the validity of such obligation in
good faith and has segregated cash funds equal to not less than one-half of the
contested amount.

    


    3.7           Bankruptcy.  Bankruptcy,
insolvency, reorganization, or liquidation proceedings or other proceedings or
relief under any bankruptcy law or any law, or the issuance of any notice in
relation to such event, for the relief of debtors shall be instituted by or
against the Borrower or any Subsidiary of Borrower and if instituted against
them are not dismissed within forty-five (45) days of initiation.

    


    3.8           Delisting.   Delisting
of the Common Stock from any Principal Market for a period of seven consecutive
trading days; or notification from a Principal Market that the Borrower is not
in compliance with the conditions for such continued listing on such Principal
Market.

    


    3.9           Stop
Trade.  An SEC or judicial stop trade order or Principal Market
trading suspension with respect to Borrower’s Common Stock that lasts for five
or more consecutive trading days.

    


    3.10           Failure to Deliver Common
Stock or Replacement Note.  Borrower’s failure to timely
deliver Common Stock to the Holder pursuant to and in the form required by this
Note or the Subscription Agreement, or if required, a replacement Note.

    


    3.11           [Omitted]

    


    3.12           Reservation
Default.   Failure by the Borrower to have reserved for
issuance upon conversion of the Note the amount of Common Stock as set forth in
this Note and the Subscription Agreement.

    


    3.13           Financial Statement
Restatement.   The restatement of any financial statements
filed by the Borrower for any date or period from two years prior to the Issue
Date of this Note and until this Note is no longer outstanding, if the result of
such restatement would, by comparison to the unrestated financial statements,
have constituted a Material Adverse Effect.


    
      
         


      

      
        5

        
          

        

      

      
         


      

    


    


    


    ARTICLE
IV

    


    MISCELLANEOUS

    


    4.1           Failure or Indulgence Not
Waiver.  No failure or delay on the part of Holder hereof in
the exercise of any power, right or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such power,
right or privilege preclude other or further exercise thereof or of any other
right, power or privilege.  All rights and remedies existing hereunder
are cumulative to, and not exclusive of, any rights or remedies otherwise
available.

    


    4.2           Notices.  All
notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) personally served, (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice.  Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur.  The
addresses for such communications shall be: (i) if to the Borrower to: 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 by facsimile and mail to: Hodgson Russ LLP, 1540
Broadway, 24th
Floor, New York, NY 10036, Attn: Ronniel Levy, Esq., Fax: (646) 943-7078, and
(ii) if to the Holder, to the name, address and facsimile number set forth on
the front page of this Note.

    


    4.3           Amendment
Provision.  The term “Note” and all reference
thereto, as used throughout this instrument, shall mean this instrument as
originally executed, or if later amended or supplemented, then as so amended or
supplemented.

    


    4.4           Assignees.  This
Note shall be binding upon the Borrower and its successors and assigns, and
shall inure to the benefit of the Holder and its successors and
assigns.

    


    4.5           Cost of
Collection.  If default is made in the payment of this Note,
Borrower shall pay the Holder hereof reasonable costs of collection, including
reasonable attorneys’ fees.

    


    4.6           Governing
Law.  This Note shall be governed by and construed in
accordance with the laws of the State of New York, including, but not limited to, New
York statutes of limitations.  Any action brought by either
party against the other concerning the transactions contemplated by this
Agreement shall be brought only in the civil or state courts of New York or in
the federal courts located in the State and county of New York.  Both
parties and the individual signing this Agreement on behalf of the Borrower
agree to submit to the jurisdiction of such courts.  The prevailing
party shall be entitled to recover from the other party its reasonable
attorney's fees and costs.  In the event that any provision of this
Note is invalid or unenforceable under any applicable statute or rule of law,
then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any such provision which may prove invalid or unenforceable under
any law shall not affect the validity or unenforceability of any other provision
of this Note. Nothing contained herein shall be deemed or operate to preclude
the Holder from bringing suit or taking other legal action against the Borrower
in any other jurisdiction to collect on the Borrower's obligations to Holder, to
realize on any collateral or any other security for such obligations, or to
enforce a judgment or other decision in favor of the Holder.  This Note shall be deemed an
unconditional obligation of Borrower for the payment of money and, without
limitation to any other remedies of Holder, may be enforced against Borrower by
summary proceeding pursuant to New York Civil Procedure Law and Rules Section
3213 or any similar rule or statute in the jurisdiction where enforcement is
sought.


    
      
         


      

      
        6

        
          

        

      

      
         


      

    


    


    4.7           Maximum
Payments.  Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law.  In the event that
the rate of interest required to be paid or other charges hereunder exceed the
maximum permitted by such law, any payments in excess of such maximum shall be
credited against amounts owed by the Borrower to the Holder and thus refunded to
the Borrower.

    


    4.8.           Construction.   Each
party acknowledges that its legal counsel participated in the preparation of
this Note and, therefore, stipulates that the rule of construction that
ambiguities are to be resolved against the drafting party shall not be applied
in the interpretation of this Note to favor any party against the
other.

    


    4.9      
     Redemption.  This
Note may not be redeemed or called without the consent of the Holder except as
described in this Note.

    


    4.10          Shareholder
Status.  The Holder shall not have rights as a shareholder of
the Borrower with respect to unconverted portions of this
Note.  However, the Holder will have the rights of a shareholder of
the Borrower with respect to the Shares of Common Stock to be received after
delivery by the Holder of a Conversion Notice to the Borrower.

    


    4.11          Non-Business
Days.   Whenever any payment or any action to be made
shall be due on a Saturday, Sunday or a public holiday under the laws of the
State of New York, such payment may be due or action shall be required on the
next succeeding business day and, for such payment, such next succeeding day
shall be included in the calculation of the amount of accrued interest payable
on such date.

    


    IN WITNESS WHEREOF, Borrower
has caused this Note to be signed in its name by an authorized officer as of the
____ day of July, 2009.

    
    

     

    
      	 	      
              SAVE
      THE WORLD AIR, INC.

              


              


              


              


              By:________________________________

                         Name:

                         Title:
      CEO

            


    

     

    
 

    WITNESS:

    


    


    


    ______________________________________

    [Print
Name]

    Chief
Financial Officer


    
      
         


      

      
        7

        
          

        

      

      
         


      

    


    NOTICE OF
CONVERSION

    


    (To be
executed by the Registered Holder in order to convert the Note)

    


    


    The
undersigned hereby elects to convert $_________ of the principal and $_________
of the interest due on the Note issued by Save the World Air, Inc. on November
19, 2009 into Shares of Common Stock of Save the World Air, Inc. (the “Borrower”) according to the
conditions set forth in such Note, as of the date written below.

    


    


    


    Date of
Conversion:____________________________________________________________________

    


    


    Conversion
Price:______________________________________________________________________

    


    


    Number of Shares of Common Stock
Beneficially Owned on the Conversion Date:
Less than 5% of the outstanding Common Stock of Save the World Air,
Inc.

    


    


    Shares To
Be
Delivered:_________________________________________________________________

    


    


    Signature:____________________________________________________________________________

    


    


    Print
Name:__________________________________________________________________________

    


    


    Address:_____________________________________________________________________________

    


       ____________________________________________________________________________

    
    

     

     

     

     

    
 


    
      
         


      

      
        8