**EXHIBIT 10.45**THIS SECURITY HAS NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, ORANY STATE SECURITIES LAW. NEITHER THIS SECURITY NOR ANY PORTION HEREOF OR INTEREST HEREIN MAY BESOLD, ASSIGNED, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF UNLESS THE SAME IS REGISTERED UNDERSAID ACT AND ANY APPLICABLE STATE SECURITIES LAW, OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION ISAVAILABLE AND THE CORPORATION SHALL HAVE RECEIVED, AT THE EXPENSE OF THE HOLDER HEREOF, EVIDENCE OFSUCH EXEMPTION REASONABLY SATISFACTORY TO THE CORPORATION (WHICH MAY INCLUDE, AMONG OTHERTHINGS, AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION).SUBORDINATED CONVERTIBLE PROMISSORY NOTE Los Angeles, California                                         , 2005     FOR VALUE RECEIVED, Save the World Air, Inc., a Nevada corporation (the “Company” or “SWA”),promises to pay to                                                              (the “Holder”), or its assigns, the principal sum of                                        , the outstanding principal amount subscribed to hereof and hereby noted onthe signature page below, together with interest from the date of this Note on the unpaid principalbalance at a rate equal to 9% (nine percent) per annum, computed on the basis of the actual numberof days elapsed and a year of 365 days. All unpaid principal, together with any then unpaid andaccrued interest and other amounts payable hereunder, shall be due and payable on the “MaturityDate” which date shall be the earlier of (i) May 31, 2006, or (ii) within 5 (five) business daysafter the closing of an additional $5,000,000 of net proceeds from one or more offerings of theCompany’s equity or quasi-equity securities, or (iii) when such amounts are declared due andpayable by the Holder (or made automatically due and payable) upon or after the occurrence of anEvent of Default (as defined below).     The following is a statement of the rights of the Holder and the conditions to which this Noteis subject, and to which the Holder, by the acceptance of this Note, agrees:     1. DEFINITIONS. As used in this Note, the following capitalized terms have the followingmeanings:          (a) The “Company” includes the corporation initially executing this Note and any Personwhich shall succeed to or assume the obligations of the Company under this Note.          (b) “Certificate” shall mean the Articles of Incorporation of Company as in effect on thedate hereof.
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          (c) “Equity Securities” of any Person shall mean (a) all common stock, preferred stock,participations, shares, partnership interests or other equity interests in and of such Person(regardless of how designated and whether or not voting or non-voting) and (b) all warrants,options and other rights to acquire any of the foregoing.          (d) “Event of Default” has the meaning given in Section 7 hereof.          (e) “Financial Statements” shall mean, with respect to any accounting period for anyPerson, statements of operations, retained earnings and cash flows of such Person for such period,and balance sheets of such Person as of the end of such period, setting forth in each case incomparative form figures for the corresponding period in the preceding fiscal year if such periodis less than a full fiscal year or, if such period is a full fiscal year, corresponding figuresfrom the preceding fiscal year, all prepared in reasonable detail and in accordance with generallyaccepted accounting principles (except, with respect to quarterly financial statements, forfootnotes and year end adjustments). Unless otherwise indicated, each reference to FinancialStatements of any Person shall be deemed to refer to Financial Statements prepared on aconsolidated basis.          (f) “Holder” shall mean the Person specified in the introductory paragraph of this Noteor any Person who shall at the time be the holder of this Note, pursuant to a transfer, assignmentor other transaction effected on the terms and subject to the conditions set forth in this Note.“Holders” shall mean the Holder, together with all other Persons who hold up to $1,000,000.00maximum principal amount of the Company’s 9% Subordinated Convertible Notes due May 31, 2006.          (g) “Indebtedness” shall mean and include the aggregate amount of, without duplication(a) all obligations for borrowed money, (b) all obligations evidenced by bonds, debentures, notesor other similar instruments, (c) all obligations to pay the deferred purchase price of property orservices (other than accounts payable incurred in the ordinary course of business determined inaccordance with generally accepted accounting principals), (d) all obligations with respect tocapital leases, (e) all guaranty obligations; (f) all obligations created or arising under anyconditional sale or other title retention agreement with respect to property acquired by suchPerson, (g) all reimbursement and other payment obligations, contingent or otherwise, in respect ofletters of credit and/or taxes or other charges not at the time delinquent or thereafter payablewithout penalty or being contested in good faith.          (h) “Investment” of any Person shall mean any loan or advance of funds by such Person toany other Person (other than advances to employees of such Person for moving and travel expense,drawing accounts and similar expenditures in the ordinary course of business), any purchase orother acquisition of any Equity Securities or Indebtedness of any other Person, any capitalcontribution by such Person to or any other investment by such Person in any other Person(including, without limitation, any Indebtedness incurred by such Person of the type described inclauses (a) and (b) of the definition of “Indebtedness” on behalf of any other Person); provided,however, that
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Investments shall not include accounts receivable or other indebtedness owed by customers of suchPerson, which are current assets and arose from sales or non-exclusive licensing in the ordinarycourse of such Person’s business.          (i) “Lien” shall mean, with respect to any property, any security interest, mortgage,pledge, lien, claim, charge or other encumbrance in, of, or on such property or the incometherefrom, including, without limitation, the interest of a vendor or lessor under a conditionalsale agreement, capital lease or other title retention agreement, or any agreement to provide anyof the foregoing, and the filing of any financing statement or similar instrument under the UniformCommercial Code or comparable law of any jurisdiction.          (j) “Material Adverse Effect” shall mean a material adverse effect on (a) the business,assets, operations, or financial or other condition of the Company; (b) the ability of the Companyto pay or perform the Obligations in accordance with the terms of this Note and the otherTransaction Documents and to avoid a default or Event of Default under any Transaction Document; or(c) the rights and remedies, taken as a whole, of Holder under this Note, the other TransactionDocuments or any related document, instrument or agreement.          (k) “Permitted Indebtedness” means:               (i) Indebtedness of Company in favor of the Holder arising under this Note;               (ii) The existing Indebtedness set forth on the Company’s Form 10-QSB for its quarterended June 30, 2005 filed by the Company with the Securities and Exchange Commission (the “SEC”),as the same may have increased or decreased in the ordinary course of the Company’s business afterthe date thereof;               (iii) Up to $1,405,000 of the Company’s 9% Convertible Notes due July 31, 2006(collectively, the “Interim Bridge Notes”), of which $953,720 was already closed on September 23,2005, as disclosed on the Company’s Current Report on Form 8-K dated September 29, 2005;               (iv) Indebtedness of up to $2,000,000 issued by the Company in connection with theCompany’s offering of its securities after the date of this Note;               (v) Indebtedness incurred in connection with the financing of the Company’s inventory orits accounts receivable;               (vi) Indebtedness to trade creditors, including, without limitation, affiliates of andservice providers to the Company, incurred in the ordinary course of business;
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               (vii) Other Indebtedness of Company, not exceeding $1.0 million in the aggregateoutstanding at any time;               (viii) Contingent obligations of Company consisting of guarantees (and other creditsupport) of the obligations of vendors and suppliers of Company in respect of transactions enteredinto in the ordinary course of business;               (ix) Indebtedness with respect to capital lease obligations and Indebtedness secured byPermitted Liens;               (x) Extensions, renewals, refundings, refinancings, modifications, amendments andrestatements of any of the items of Permitted Indebtedness (a) through (f) above, provided that theprincipal amount thereof is not increased or the terms thereof are not modified to impose moreburdensome terms upon Company.               (xi) Taxes or other charges not at the time delinquent or thereafter payable withoutpenalty or being contested in good faith.          (l) “Permitted Investments” shall mean and include: (a) deposits with commercial banksorganized under the laws of the United States or a state thereof to the extent such deposits arefully insured by the Federal Deposit Insurance Corporation; (b) Investments in marketableobligations issued or fully guaranteed by the United States and maturing not more than one (1) yearfrom the date of issuance; (c) Investments in open market commercial paper rated at least “A1” or“P1” or higher by a national credit rating agency and maturing not more than one (1) year from thecreation thereof; (d) Investments pursuant to or arising under currency agreements or interest rateagreements entered into in connection with bona fide hedging arrangements; (e) Investments consisting ofdeposit accounts of the Company in which the Holder has a perfected security interest and depositaccounts of its Subsidiaries maintained in the ordinary course of business; (f) Investmentsexisting on the Closing Date disclosed in the Schedule; (g) Extensions of credit in the nature ofaccounts receivable or notes receivable arising from the same or lease of goods or services in theordinary course of business; (h) Investments consisting of the endorsement of negotiableinstruments for deposit or collection or similar transactions in the ordinary course of business;(i) Investments (including debt obligations) received in connection with the bankruptcy orreorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with,customers or suppliers arising in the ordinary course of business; (j) Investments consisting of(i) compensation of employees, officers and directors of borrower so long as the Board of Directorsof Company determines that such compensation is in the best interests of Company, (ii) traveladvances, employee relocation loans and other employee loans and advances in the ordinary course ofbusiness, (iii) loans to employees, officers or directors relating to the purchase of equitysecurities of Company, (iv) other loans to officers and employees approved by the Board ofDirectors; and (k) other Investments aggregating not in excess of $1,000,000 at any time; (l)Investments in Subsidiaries of the Company or in joint ventures formed in connection with theCompany’s manufacturing, distribution or sales activities.
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          (m) “Permitted Liens” shall mean and include: (i) Liens for taxes or other governmentalcharges not at the time delinquent or thereafter payable without penalty or being contested in goodfaith, provided provision is made to the reasonable satisfaction of Holder for the eventual paymentthereof if subsequently found payable; (ii) Liens of carriers, warehousemen, mechanics,materialmen, vendors, and landlords incurred in the ordinary course of business for sums not overdue or being contested in good faith, providedprovision is made to the reasonable satisfaction of Holder for the eventual payment thereof ifsubsequently found payable; (iii) deposits under workers’ compensation, unemployment insurance andsocial security laws or to secure the performance of bids, tenders, contracts (other than for therepayment of borrowed money) or leases, or to secure statutory obligations of surety or appealbonds or to secure indemnity, performance or other similar bonds in the ordinary course ofbusiness; (iv) Liens securing obligations under a capital lease if such Liens do not extend toproperty other than the property leased under such capital lease; (v) Liens upon any equipmentacquired or held by Company or any of its Subsidiaries to secure the purchase price of suchequipment or indebtedness incurred solely for the purpose of financing the acquisition of suchequipment; (vi) easements, reservations, rights of way, restrictions, minor defects orirregularities in title and other similar charges or affecting the value or use of such property;(vii) Liens in favor of the Holder; (viii) Liens existing on the date hereof in favor of holders ofSenior Indebtedness; (ix) any liens existing as of the date hereof and disclosed in the Schedule;(x) liens on equipment leased by Company pursuant to an operating lease in the ordinary course ofbusiness (including proceeds thereof and accessions thereto) incurred solely for the purpose offinancing the lease of such equipment (including Liens arising from UCC financing statementsregarding such leases); (xi) liens arising from judgements, decrees or attachments to the extentand only so long as such judgment, decree or attachment does not constitute an Event of Defaultunder 7(h); (xii) liens in favor of customs and revenue authorities arising as a matter of law tosecure payment of customs duties in connection with the importation of goods; (xiii) liens arisingsolely by virtue of any statutory or common law provision relating to banker’s liens, rights offsetoff or similar rights and remedies as to deposit accounts or other funds maintained with acreditor depository institution; (xiv) liens on the Company’s inventory or accounts receivable tosecure Indebtedness incurred in connection with the financing of such accounts receivable orinventory; and (xv) liens incurred in connection with the extension, renewal, refunding,refinancing, modification, amendment or restatement of the indebtedness secured by Liens of thetype described in clauses (i) and (xiv) above, provided that any extension, renewal or replacementLien shall be limited to the property encumbered by the existing Lien and the principal amount ofthe indebtedness being extended, renewed or refinanced does not increase.          (n) “Person” shall mean and include an individual, a partnership, a corporation(including a business trust), a joint stock company, a limited liability company, an unincorporatedassociation, a joint venture or other entity or a governmental authority.
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          (o) “Senior Indebtedness” shall mean the principal of, unpaid interest on and otheramounts due in connection with the notes payable and other evidences of indebtedness outstanding atthe time of execution of this Note.          (p) “Subsidiary” shall mean (a) any corporation of which more than 50% of the issued andoutstanding equity securities having ordinary voting power to elect a majority of the Board ofDirectors of such corporation is at the time directly or indirectly owned or controlled by Company,(b) any partnership, joint venture, or other association of which more than 50% of the equityinterest having the power to vote, direct or control the management of such partnership, jointventure or other association is at the time directly or indirectly owned and controlled by Company(c) any other entity included in the financial statements of Company on a consolidated basis.          (q) “Transaction Documents” shall mean this Note and the Warrant (as defined in Section11 hereof).     2. REPRESENTATIONS AND WARRANTIES OF COMPANY. The Company represents and warrants to theHolder as follows:          (a) Due Incorporation and Qualification. Each of the Company and its Subsidiaries (i) isa corporation duly organized, validly existing and in good standing under the laws of itsjurisdiction of incorporation; (ii) has the power and authority to own, lease and operate itsproperties and carry on its business as now conducted and as proposed to be conducted; and (iii) isduly qualified, licensed to do business and in good standing as a foreign corporation in eachjurisdiction where the failure to be so qualified or licensed could reasonably be expected to havea Material Adverse Effect.          (b) Authority. The execution, delivery and performance by Company of each TransactionDocument to be executed by Company and the consummation of the transactions contemplated thereby(i) are within the corporate power of Company and (ii) have been duly authorized by all necessarycorporate actions on the part of Company.          (c) Enforceability. Each Transaction Document executed, or to be executed, by Companyhas been, or will be, duly executed and delivered by Company and constitutes, or will constitute, alegal, valid and binding obligation of Company, enforceable against Company in accordance with itsterms, except as limited by bankruptcy, insolvency or other laws of general application relating toor affecting the enforcement of creditors’ rights generally and general principles of equity.          (d) Non-Contravention. The execution and delivery by Company of the TransactionDocuments executed by Company and the performance and consummation of the transactions contemplatedthereby do not and will not (i) violate the Certificate or Bylaws of the Company or any materialjudgment, order, writ, decree, statute, rule or regulation applicable to Company; (ii) violate anyprovision of, or result in the breach or the acceleration of, or entitle any other Person toaccelerate (whether after the giving of
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notice or lapse of time or both), any material mortgage, indenture, agreement, instrument orcontract to which Company is a party or by which it is bound; or (iii) result in the creation orimposition of any Lien upon any property, asset or revenue of Company or the suspension,revocation, impairment, forfeiture, or nonrenewal of any material permit, license, authorization orapproval applicable to Company, its business or operations, or any of its assets or properties.     (e) Approvals. No consent, approval, order or authorization of, or registration,declaration or filing with, any governmental authority or other Person (including, withoutlimitation, the shareholders of any Person) is required in connection with the execution anddelivery of the Transaction Documents executed by Company and the performance and consummation ofthe transactions contemplated thereby, except for filings and notifications required by federal andstate securities laws in connection with the offer and sale of this Note and the consummation ofthe transactions contemplated hereby and thereby.     (f) No Violation or Default. None of the Company or the Company’s Subsidiaries is inviolation of or in default with respect to (i) its Certificate or Bylaws or equivalent charterdocument or any material judgment, order, writ, decree, statute, rule or regulation applicable tosuch Person; (ii) any material mortgage, indenture, agreement, instrument or contract to which suchPerson is a party or by which it is bound (nor is there any waiver in effect which, if not ineffect, would result in such a violation or default), where, in each case, such violation ordefault, individually, or together with all such violations or defaults, could reasonably beexpected to have a Material Adverse Effect.     (g) Litigation. Except as described in the Company’s Quarterly Report on Form 10-QSB forthe period ended June 30, 2005, no actions (including, without limitation, derivative actions),suits, proceedings or investigations are pending or, to the knowledge of the Company, threatenedagainst the Company or the Company’s Subsidiaries at law or in equity in any court or before anyother governmental authority which if adversely determined (i) would (alone or in the aggregate)have a Material Adverse Effect or (ii) seeks to enjoin, either directly or indirectly, theexecution, delivery or performance by the Company of the Transaction Documents or the transactionscontemplated thereby.     (h) Title. The Company and the Company’s Subsidiaries own and have good and marketabletitle in fee simple absolute to, or a valid leasehold interest in, all their respective realproperties and good title to their other respective assets and properties as reflected in the mostrecent Financial Statements delivered to Purchasers (except those assets and properties disposed ofin the ordinary course of business since the date of such Financial Statements) and all respectiveassets and properties acquired by Company and Company’s Subsidiaries since such date (except those disposed of in the ordinary courseof business). Such assets and properties are subject to no Lien, except for Permitted Liens.
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          (i) Equity Securities. The authorized capital stock of the Company may be found in theCompany’s Quarterly Report on Form 10-QSB for the period ended June 30, 2005 filed by the Companywith the SEC.     3. REPRESENTATIONS AND WARRANTIES OF HOLDER. The Holder represents and warrants to theCompany that such Holder has been advised that neither this Note nor the securities which may beissued upon the conversion hereof have been registered under the Securities Act, or any statesecurities laws and, therefore, cannot be resold unless registered under the Securities Act andapplicable state securities laws or unless an exemption from such registration requirements isavailable. Such Holder is aware that the Company is under no obligation to effect any suchregistration with respect to the Note or to file for or comply with any exemption fromregistration. Such Holder has not been formed solely for the purpose of making this investment andis purchasing the Note to be acquired by such Holder hereunder for its own account for investment,not as a nominee or agent, and not with a view to, or for resale in connection with, thedistribution thereof. Such Holder has such knowledge and experience in financial and businessmatters that such Purchaser is capable of evaluating the merits and risks of such investment, isable to incur a complete loss of such investment and is able to bear the economic risk of suchinvestment for an indefinite period of time. Such Holder is an accredited investor as such term isdefined in Rule 501 of Regulation D under the Securities Act.     4. INTEREST. Accrued interest on the outstanding principal balance on this Note shallbe payable on the Maturity Date.     5. PREPAYMENT. Upon 3 (three) days’ prior written notice to the Holder, the Company mayprepay this Note in whole or in part; provided that any such prepayment will be applied first tothe payment of expenses due under this Note, second to interest accrued on this Note and third, ifthe amount of prepayment exceeds the amount of all such expenses and accrued interest, to thepayment of principal of this Note.     6. CERTAIN COVENANTS. While any amount is outstanding under the Note, without the prior written consent of Holders of 2/3 (two thirds) or more in interest ofthen-outstanding principal amount of the Notes, which consent shall not be unreasonably withheld ordelayed:          (a) Indebtedness. Neither Company nor any of its Subsidiaries shall create, incur,assume or permit to exist any Indebtedness except Senior Indebtedness and Permitted Indebtedness.          (b) Liens. Neither the Company nor any of its Subsidiaries shall create, incur, assumeor permit to exist any Lien on or with respect to any of its assets or property of any character,whether now owned or hereafter acquired, except for Permitted Liens.
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          (c) Asset Dispositions. Neither the Company nor any of its Subsidiaries shall sell,lease, transfer, license or otherwise dispose of any of its assets or property (collectively, a“Transfer”), whether now owned or hereafter acquired, except (i) transfers in the ordinary courseof its business consisting of the sale of inventory and sales of worn-out or obsolete equipment and(ii) transfers not in excess of $1.0 million for fair value and other than to any affiliate of theCompany.          (d) Mergers, Acquisitions, Etc. Neither the Company nor any of its Subsidiaries shallconsolidate with or merge into any other Person or permit any other Person to merge into it, oracquire all or substantially all of the assets or capital stock of any other Person.          (e) Investments. Neither the Company nor any of its Subsidiaries shall make anyInvestment except for Permitted Investments. Without previous notice to Holder, Company will notsell an amount greater than $100,000 in equity securities, with the exception of (i) up to $10million offering contemplated in the Private Placement Memorandum; (ii) compensatory and incentiveawards of Equity Securities to employees of and consultants to the Company consistent with itsprior practices; and (iii) for issuances of Equity Securities in connection with the exercise ofconversion rights of the holders of the Interim Bridge Notes and of warrants or options to purchaseCompany securities granted by the Company prior to the date hereof.          (f) Dividends, Redemptions, Etc. Neither the Company nor any of its Subsidiaries shall(i) pay any dividends or make any distributions on its Equity Securities; (ii) purchase, redeem,retire, decease or otherwise acquire for value any of its Equity Securities; (iii) return anycapital to any holder of its Equity Securities; (iv) make any distribution of assets, EquitySecurities, obligations or securities to any holder of its Equity Securities; or (v) set apart anysum for any such purpose; other than payments of principal and interest on outstanding InterimBridge Notes and repurchases of shares from terminated employees pursuant to the terms ofrestricted stock purchase agreements, and provided, however, that any Subsidiary may pay cashdividends to Company.          (g) Indebtedness Payments. Neither the Company nor any of its Subsidiaries shall (i)prepay, redeem, purchase, decrease or otherwise satisfy in any manner prior to the scheduledrepayment thereof any Indebtedness for borrowed money (other than (A) amounts due under this Noteand (B) Senior Indebtedness) or lease obligations, (ii) amend, modify or otherwise change the termsof any Indebtedness for borrowed money (other than (A) obligations under this Note and (B) SeniorIndebtedness) or lease obligations so as to accelerate the scheduled repayment thereof or (iii)repay any notes to officers, directors or stockholders.          (h) Information Rights; Notices. The Company shall furnish to the Holder the following:               (i) SEC Reports. In no event later than five (5) business days after they are sent, madeavailable or filed, copies of all registration statements and reports filed by
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Company with the Securities and Exchange Commission and all reports, proxy statements and financialstatements sent or made available by Company to its stockholders generally; and               (ii) Notice of Defaults. Promptly upon the occurrence thereof, written notice of theoccurrence of any Event of Default hereunder or any event of default with respect to any SeniorIndebtedness.          (i) Inspection Rights. The Holder and its representatives shall have the right, at anytime during normal business hours, upon reasonable prior notice, and at the expense of the Holder,to visit and inspect the properties of the Company and its corporate, financial and operatingrecords, and make abstracts therefrom, and to discuss the Company’s affairs, finances and accountswith its directors, officers and independent public accountants.          (j) Use of Proceeds. The Company shall use the proceeds it receives from sales of Notesto all of the Holders as set forth in the Company’s Private Placement Memorandum dated October 10,2005; provided, however that (i) not more than $25,000 per month of such proceeds may be used bythe Company to pay R&D payables reflected on the Balance Sheet contained in its Quarterly Report onForm 10-QSB for its period ended June 30, 2005 (the “Form 10-QSB”) and (ii) not more than $10,000per month may be used to pay other payables reflected on the Balance Sheet contained in the Form10-QSB.     7. EVENTS OF DEFAULT. The occurrence of any of the following shall constitute an “Eventof Default” under this Note and the other Transaction Documents:          (a) Failure to Pay. The Company shall fail to pay (i) when due any principal payment onthe due date hereunder or (ii) any interest or other payment required under the terms of this Noteor any other Transaction Document on the date due and such payment shall not have been made withinfive (5) days of Company’s receipt of the Holder’s written notice to Company of such failure topay; or          (b) Breaches of Certain Covenants. The Company or any of its Subsidiaries shall fail toobserve or perform any covenant, obligation, condition or agreement set forth in Section 6(d), 6(f)or 6(j) of this Note; or          (c) Breaches of Other Covenants. The Company or any of its Subsidiaries shall fail toobserve or perform any other covenant, Transaction Documents (other than those specified inSections 7(a) and 7(b)) and (i) such failure shall continue for fifteen (15) days, or (ii) if suchfailure does not result from the payment of money or the failure to pay money and is not curablewithin such fifteen (15) day period, but is reasonably capable of cure within forty-five (45) days,either (A) such failure shall continue for forty-five (45) days or (B) the Company or itsSubsidiary shall not have commenced a cure in a manner reasonably satisfactory to the Holderswithin the initial fifteen (15) day period; or
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          (d) Representations and Warranties. Any representation, warranty, certificate, or otherstatement (financial or otherwise) made or furnished by or on behalf of the Company to the Holderin writing in connection with this Note or any of the other Transaction Documents, or as aninducement to the Holder to enter into this Note and the other Transaction Documents, shall befalse, incorrect, incomplete or misleading in any material respect when made or furnished, exceptany such false, incorrect, incomplete or misleading statement which will not result in a MaterialAdverse Effect on the Company; or          (e) Other Payment Obligations. The Company or any of its Subsidiaries shall (i)(A) failto make any payment when due under the terms of any bond, debenture, note or other evidence ofIndebtedness, including the Senior Indebtedness, to be paid by such Person (excluding this Note andthe other Transaction Documents but including any other evidence of Indebtedness of Company or anyof its Subsidiaries to the Holder) and such failure shall continue beyond any period of graceprovided with respect thereto, or (B) default in the observance or performance of any otheragreement, term or condition contained in any such bond, debenture, note or other evidence ofIndebtedness, and (ii) the effect of such failure or default is to cause, or permit the holder orholders thereof to cause, Indebtedness in an aggregate amount of Two Hundred Fifty Thousand Dollars($250,000) or more to become due prior to its stated date of maturity, unless such accelerationshall have been rescinded or forgone and such failure to pay cured within thirty (30) days from thedate of such acceleration; or          (f) Voluntary Bankruptcy or Insolvency Proceedings. The Company or any of itsSubsidiaries shall (i) apply for or consent to the appointment of a receiver, trustee, liquidatoror custodian of itself or of all or a substantial part of its property, (ii) be unable, or admit inwriting its inability, to pay its debts generally as they mature, (iii) make a general assignmentfor the benefit of its or any of its creditors, (iv) be dissolved or liquidated in full or in part,(v) become insolvent (as such term may be defined or interpreted under any applicable statute),(vi) commence a voluntary case or other proceeding seeking liquidation, reorganization or otherrelief with respect to itself or its debts under any bankruptcy, insolvency or other similar lawnow or hereafter in effect or consent to any such relief or to the appointment of or takingpossession of its property by any official in an involuntary case or other proceeding commencedagainst it, or (vii) take any action for the purpose of effecting any of the foregoing; or          (g) Involuntary Bankruptcy or Insolvency Proceedings. Proceedings for the appointment ofa receiver, trustee, liquidator or custodian of the Company or any of its Subsidiaries or of all ora substantial part of the property thereof, or an involuntary case or other proceedings seekingliquidation, reorganization or other relief with respect to the Company or any of its Subsidiariesor the debts thereof under any bankruptcy, insolvency or other similar law now or hereafter ineffect shall be commenced and an order for relief entered or such proceeding shall not be dismissedor discharged within sixty (60) days of commencement; or
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          (h) Judgments. A final judgment or order for the payment of money in excess of TwoHundred Fifty Thousand Dollars ($250,000) (exclusive of amounts covered by insurance issued by aninsurer not an affiliate of Company) shall be rendered against the Company or any of itsSubsidiaries and the same shall remain undischarged for a period of thirty (30) days during whichexecution shall not be effectively stayed, or any judgment, writ, assessment, warrant ofattachment, or execution or similar process shall be issued or levied against a substantial part ofthe property of the Company or any of its Subsidiaries and such judgment, writ, or similar processshall not be released, stayed, vacated or otherwise dismissed within thirty (30) days after issueor levy; or          (i) Transaction Documents. Any Transaction Document or any material term thereof shallcease to be, or be asserted by the Company not to be, a legal, valid and binding obligation ofCompany enforceable in accordance with its terms or if the Liens of the Holder in any of the assetsof Company or its Subsidiaries shall cease to be or shall not be valid and perfected Liens or theCompany or any Subsidiary shall assert that such Liens are not valid and perfected Liens.     8. RIGHTS OF HOLDER UPON DEFAULT. Upon the occurrence or existence of any Event ofDefault (other than an Event of Default referred to in Sections 7(f) and 7(g)) and at any timethereafter during the continuance of such Event of Default, the Holders may, by written notice tothe Company, declare all outstanding Obligations payable by the Company hereunder to beimmediately due and payable without presentment, demand, protest or any other notice of any kind,all of which are hereby expressly waived, anything contained herein or in the other TransactionDocuments to the contrary notwithstanding. Upon the occurrence or existence of any Event ofDefault described in Sections 7(f) and 7(g), immediately and without notice, all outstandingObligations payable by Company hereunder shall automatically become immediately due and payable,without presentment, demand, protest or any other notice of any kind, all of which are herebyexpressly waived, anything contained herein or in the other Transaction Documents to the contrarynotwithstanding. In addition to the foregoing remedies, upon the occurrence or existence of anyEvent of Default, the Holders may exercise any other right, power or remedy granted to it by theTransaction Documents or otherwise permitted to it by law, either by suit in equity or by action atlaw, or both.     9. SUBORDINATION. The indebtedness evidenced by this Note is hereby expresslysubordinated, to the extent and in the manner hereinafter set forth, in right of payment to theprior payment in full of the Senior Indebtedness.          (a) Insolvency Proceedings. If there shall occur any receivership, insolvency, assignment forthe benefit of creditors, bankruptcy, reorganization, or arrangements with creditors (whether ornot pursuant to bankruptcy or other insolvency laws), sale of all or substantially all of theassets, dissolution, liquidation, or any other marshaling of the assets and liabilities of theCompany, (i) no amount shall be paid by the Company in respect of the principal of, interest on orother amounts due with respect to
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this Note at the time outstanding, unless and until the principal of and interest on the SeniorIndebtedness then outstanding shall be paid in full, and (ii) no claim or proof of claim shall befiled with the Company by or on behalf of Holder of this Note which shall assert any right toreceive any payments in respect of the principal of and interest on this Note except subject to thepayment in full of the principal of and interest on all of the Senior Indebtedness thenoutstanding.          (b) Default on Senior Indebtedness. If there shall occur an event of default which hasbeen declared in writing with respect to any Senior Indebtedness, as defined therein, or in theinstrument under which it is outstanding, permitting the holder to accelerate the maturity thereofand the Holder shall have received written notice thereof from the holder of such SeniorIndebtedness, then, unless and until such event of default shall have been cured or waived or shallhave ceased to exist, or all Senior Indebtedness shall have been paid in full, no payment shall bemade in respect of the principal of or interest on this Note, unless within one hundred eighty(180) days after the happening of such event of default, the maturity of such Senior Indebtednessshall not have been accelerated. Not more than one notice may be given to Holder pursuant to theterms of this Section 9(b) during any 360 day period.          (c) Further Assurances. By acceptance of this Note, the Holder agrees to execute anddeliver customary forms of subordination agreement requested from time to time by holders of SeniorIndebtedness, and as a condition to the Holder’s rights hereunder, the Company may require that theHolder execute such forms of subordination agreement; provided that such forms shall not impose onthe Holder terms less favorable than those provided herein.          (d) Other Indebtedness. No Indebtedness which does not constitute Senior Indebtednessshall be senior in any respect to the indebtedness represented by this Note.          (e) Subrogation. Subject to the payment in full of all Senior Indebtedness, the Holdershall be subrogated to the rights of the holder(s) of such Senior Indebtedness (to the extent ofthe payments or distributions made to the holder(s) of such Senior Indebtedness pursuant to theprovisions of this Section 9) to receive payments and distributions of assets of the Companyapplicable to the Senior Indebtedness. No such payments or distributions applicable to the SeniorIndebtedness shall, as between the Company and its creditors, other than the holders of SeniorIndebtedness and the Holder, be deemed to be a payment by the Company to or on account of thisNote; and for purposes of such subrogation, no payments or distributions to the holders of SeniorIndebtedness to which the Holder would be entitled except for the provisions of this Section 9shall, as between the Company and its creditors, other than the holders of Senior Indebtedness andthe Holder, be deemed to be a payment by the Company to or on account of the Senior Indebtedness.          (f) No Impairment. Subject to the rights, if any, of the holders of Senior Indebtednessunder this Section 9 to receive cash, securities or other properties otherwise payable ordeliverable to the Holder, nothing contained in this Section 9 shall impair, as
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between the Company and the Holder, the obligation of the Company, subject to the terms andconditions hereof, to pay to the Holder the principal hereof and interest hereon as and when thesame become due and payable, or shall prevent the Holder, upon default hereunder, from exercisingall rights, powers and remedies otherwise provided herein or by applicable law.          (g) Reliance of Holders of Senior Indebtedness. The Holder, by its acceptance hereof, shallbe deemed to acknowledge and agree that the foregoing subordination provisions are, and areintended to be, an inducement to and a consideration of each holder of Senior Indebtedness, whethersuch Senior Indebtedness was created or acquired before or after the creation of the indebtednessevidenced by this Note, and each such holder of Senior Indebtedness shall be deemed conclusively tohave relied on such subordination provisions in acquiring and holding, or in continuing to hold,such Senior Indebtedness.     10. CONVERSION.          (a) Conversion by Holder. At any time prior to payment in full of the principal balanceof this Note, the Holder shall have the right, at the Holder’s option, to convert this Note, inaccordance with the provisions of Section 10(c) hereof, in whole or in part, into fully paid andnonassessable shares of Common Stock, provided that the Holder shall provide at least thirty (15)days notice to the Company of Holder’s election to convert this Note into shares of SWA’s CommonStock. The number of shares of SWA’s Common Stock into which this Note may be converted shall bedetermined by dividing the aggregate amount of this Note to be converted by the Conversion Price(as defined below) in effect at the time of such conversion. The initial “Conversion Price” shallbe equal to $0.70 per share. The Conversion Price shall be subject to adjustment from time to timepursuant to Section 12 hereof.          (b) Conversion by the Company. The Company shall have the right, but only with theHolder’s consent, to convert this Note, in accordance with the provisions of Section 10(c) hereof,in whole or in part, into fully paid and nonassessable shares of SWA’s common stock. The number ofshares of common stock into which this Note may be converted shall be determined by dividing theaggregate amount of this Note to be converted by the Conversion Price in effect at the time of suchconversion.          (c) Conversion Procedure.               (i) Conversion Pursuant to Section 10(a). Before the Holder shall be entitled to convertthis Note into shares of SWA’s Common Stock, it shall surrender this Note, duly endorsed, at theoffice of the Company and shall give written notice, postage prepaid, to the Company at itsprincipal corporate office, of the election to convert the same pursuant to Section 10(a), andshall state therein the amount of the unpaid principal amount of this Note, together with accruedbut unpaid interest, to be converted and the name or names in which the certificate or certificatesfor shares of SWA’s Common Stock are to be issued, subject to compliance by the Holder of this Notewith the transfer
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restrictions applicable to this Note. The Company shall, as soon as practicable thereafter (but inany event within ten (10) days thereafter), issue and deliver to the Holder of this Note acertificate or certificates for the number of shares of SWA’s Common Stock to which the Holdershall be entitled upon conversion (bearing such legends as are required by applicable state andfederal securities laws), together with a replacement Note (if any principal amount is notconverted) and any other securities and property to which the Holder is entitled upon suchconversion under the terms of this Note, including a check payable to Holder for any cash amountspayable as described in Section 10(d). The conversion shall be deemed to have been madeimmediately prior to the close of business on the date of the surrender of this Note, and thePerson or Persons entitled to receive the shares of SWA’s Common Stock upon such conversion shallbe treated for all purposes as the record holder or holders of such shares of SWA’s Common Stock asof such date.               (ii) Conversion Pursuant to Section 10(b). If this Note is converted by the Companypursuant to Section 10(b), written notice shall be delivered to the Holder notifying the Holder ofthe conversion to be effected, specifying the Conversion Price, the principal amount of the Note tobe converted, the date on which such conversion is expected to occur and calling upon such Holderto surrender to Company, in the manner and at the place designated, the Note. Upon such conversionof this Note, the Holder shall surrender this Note, duly endorsed, at the principal office ofCompany. At its expense, the Company shall, as soon as practicable thereafter (but in any eventwithin ten (10) days thereafter), issue and deliver to such Holder a certificate or certificatesfor the number of shares to which Holder shall be entitled upon such conversion (bearing suchlegends as are required by applicable state and federal securities laws), together with any othersecurities and property to which the Holder is entitled upon such conversion under the terms ofthis Note, including a check payable to the Holder for any cash amounts payable as described inSection 10(d). Any conversion of this Note pursuant to Section 10(b) shall be deemed to have beenmade immediately prior to the closing of the issuance and sale of shares as described in Section10(b) and on and after such date the Person entitled to receive the shares issuable upon suchconversion shall be treated for all purpose as the record Holder of such shares as of such date.          (d) Fractional Shares; Interest; Effect of Conversion. No fractional shares shall beissued upon conversion of this Note. In lieu of the Company issuing any fractional shares to theHolder upon the conversion of this Note, the Company shall pay to the Holder an amount equal to theproduct obtained by multiplying the Conversion Price by the fraction of a share not issued pursuantto the previous sentence. In addition, the Company shall pay to the Holder any interest accrued onthe amount converted and on the amount to be paid to the Company pursuant to the previous sentence.Upon conversion of this Note in full and the payment of the amounts specified in this Section10(d), the Company shall be forever released and discharged from all its obligations andliabilities under this Note.
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     11. ISSUANCES OF WARRANTS.          (a) The Holder shall receive, for no additional consideration, a stock purchase warrant(the “Warrant”) in a form attached to this Note, entitling the Holder to purchase shares of theCompany’s Common Stock.          (b) The Company shall issue to the Holder a Warrant entitling the Holder to purchase anumber of shares of the Company’s Common Stock equal to 150% of the number of shares of CommonStock into which this Note initially is convertible.          (c) Each Warrant to be issued by the Company pursuant to this Section 11 shall have aninitial exercise price of $1.00 per share, and expiration date of 2 (two) years from the date whenit is issued.          (d) The shares of SWA’s Common Stock issuable upon the exercise of any Warrants issuedpursuant to this Section 11 shall be entitled to “piggy back” registration rights.     12. CONVERSION PRICE ADJUSTMENTS.          (a) Adjustments for Stock Splits and Subdivisions. In the event the Company should at anytime or from time to time after the date of issuance hereof fix a record date for the effectuationof a split or subdivision of the outstanding shares of SWA’s Common Stock or other distributionpayable in additional shares of SWA’s Common Stock or other securities or rights convertible into,or entitling the holder thereof to receive directly or indirectly, additional shares of SWA’sCommon Stock (hereinafter referred to as “SWA’s Common Stock Equivalents”) without payment of anyconsideration by such holder (including the additional shares of SWA’s Common Stock issuable uponconversion or exercise thereof), then, as of such record date (or the date of such dividenddistribution, split or subdivision if no record date is fixed), the Conversion Price of this Noteshall be appropriately decreased so that the number of shares of SWA’s Common Stock issuable uponconversion of this Note shall be increased in proportion to such increase of outstanding shares.          (b) Adjustments for Reverse Stock Splits. If the number of shares of SWA’s Common Stockoutstanding at any time after the date hereof is decreased by a combination of the outstandingshares of SWA’s Common Stock, then, following the record date of such combination, the ConversionPrice for this Note shall be appropriately increased so that the number of shares of SWA’s CommonStock issuable on conversion hereof shall be decreased in proportion to such decrease inoutstanding shares.          (c) Notices of Record Date, etc. In the event of:               (i) Any taking by the Company of a record of the holders of any class of securities ofthe Company for the purpose of determining the holders thereof who are entitled to receive anydividend (other than a cash dividend payable out of earned surplus
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at the same rate as that of the last such cash dividend theretofore paid) or other distribution, orany right to subscribe for, purchase or otherwise acquire any shares of stock of any class or anyother securities or property, or to receive any other right; or               (ii) Any capital reorganization of the Company, any reclassification or recapitalizationof the capital stock of the Company or any transfer of all or substantially all of the assets ofthe Company to any other Person or any consolidation or merger involving the Company; or               (iii) Any voluntary or involuntary dissolution, liquidation or winding-up of the Company,the Company will mail to Holder of this Note at least ten (10) days prior to the earliest datespecified therein, a notice specifying (A) the date on which any such record is to be taken for thepurpose of such dividend, distribution or right, and the amount and character of such dividend,distribution or right; and (B) the date on which any such reorganization, reclassification,transfer, consolidation, merger, dissolution, liquidation or winding-up is expected to becomeeffective and the record date for determining stockholders entitled to vote thereon.          (d) Reservation of Stock Issuable Upon Conversion. The Company shall at all timesreserve and keep available out of its authorized but unissued shares of SWA’s Common Stock solelyfor the purpose of effecting the conversion of this Note such number of its shares of SWA’s CommonStock as shall from time to time be sufficient to effect the conversion of the Note; and if at anytime the number of authorized but unissued shares of SWA’s Common Stock shall not be sufficient toeffect the conversion of the entire outstanding principal amount of this Note, without limitationof such other remedies as shall be available to the holder of this Note, the Company will use itsbest efforts to take such corporate action as may, in the opinion of counsel, be necessary toincrease its authorized but unissued shares of SWA’s Common Stock to such number of shares as shallbe sufficient for such purposes.     13. SUCCESSORS AND ASSIGNS. Neither this Note nor any of the rights, interests orobligations hereunder may be assigned, by operation of law or otherwise, in whole or in part, bythe Company without the prior written consent of the Holder or by the Holder without the priorwritten consent of the Company. Subject to the foregoing and the restrictions on transferdescribed in Section 15 below, the rights and obligations of the Company and the Holder shall bebinding upon and benefit the successors, assigns, heirs, administrators and transferees of theparties.     14. WAIVER AND AMENDMENT. Any provision of this Note may be amended, waived or modifiedupon the written consent of the Company and the Holder.     15. TRANSFER OF THIS NOTE OR SECURITIES ISSUABLE ON CONVERSION HEREOF. With respect to anyoffer, sale or other disposition of this Note or any securities into which this Note may beconverted, the Holder will give written notice to the Company prior thereto, describing briefly themanner thereof, together with a written opinion of the Holder’s counsel, to the effect that suchoffer, sale
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or other distribution may be effected without registration or qualification under any federal orstate law then in effect. Promptly upon receiving such written notice and reasonably satisfactoryopinion, if so requested and subject to Section 13, the Company, as promptly as practicable, shallnotify the Holder that the Holder may sell or otherwise dispose of this Note or such securities,all in accordance with the terms of the notice delivered to the Company. If a determination hasbeen made pursuant to this Section 15 that the opinion of counsel for the Holder is not reasonablysatisfactory to the Company, the Company shall so notify the Holder promptly after suchdetermination has been made. Each Note thus transferred and each certificate representing thesecurities thus transferred shall bear a legend as to the applicable restrictions ontransferability in order to ensure compliance with the Act, unless in the opinion of counsel forthe Company such legend is not required in order to ensure compliance with the Act. The Companymay issue stop transfer instructions to its transfer agent in connection with such restrictions.     16. NOTICES. Any notice, request or other communication required or permitted hereundershall be in writing and shall be deemed to have been duly given if personally delivered or mailedby registered or certified mail, postage prepaid, or by recognized overnight courier, or byfacsimile transmission or personal delivery, addressed (i) if to the Holder, at such Holder’saddress set forth at the end of this Agreement, or at such other address as such Holder shall havefurnished the Company in writing, or (ii) if to the Company, at its address or fax number set forthat the end of this Agreement, or at such other address as the Company shall have furnished to theHolder in writing. Any party hereto may by notice so given change its address for future noticehereunder. Notice shall conclusively be deemed to have been given when received.     17. PAYMENT. Payment shall be made in lawful tender of the United States.     18. DEFAULT RATE; USURY. During any period in which an Event of Default has occurred andis continuing, the Company shall pay interest on the unpaid principal balance hereof at a rate perannum equal to the rate otherwise applicable hereunder plus 9% (nine percent) until such time asthe event of default has been cured in its entirety, and the Note Holders will be entitled toreceive additional Warrants to purchase a number of shares of SWA’s Common Stock equal to 25%(twenty-five percent) of the number of shares of SWA’s Common Stock issuable upon the exercise ofthe original Warrants issued hereunder. In the event any interest is paid on this Note which isdeemed to be in excess of the then legal maximum rate, then that portion of the interest paymentrepresenting an amount in excess of the then legal maximum rate shall be deemed a payment ofprincipal and applied against the principal of this Note.     19. EXPENSES; WAIVERS. If action is instituted to collect this Note, theCompany promises to pay all costs and expenses, including, without limitation, reasonableattorneys’ fees and costs, incurred by one counsel representing all Holders designated inaccordance with Section 21 herein below, in connection with such action. The Company hereby waivesnotice of default, presentment or demand for payment, protest or notice of nonpayment or dishonorand all other notices or demands relative to this instrument. The Company shall pay on demand allreasonable fees and expenses,
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including reasonable attorneys’ fees and expenses, incurred by the Holder with respect to theenforcement or attempted enforcement of any of the obligations of the Company to the Holder underthe Transaction Documents or in preserving any of the Holder’s rights and remedies (including,without limitation, all such fees and expenses incurred in connection with any “workout” orrestructuring affecting the Transaction Documents or the obligations thereunder or any bankruptcyor similar proceeding involving Company or any of its Subsidiaries).     20. REPLACEMENT NOTE. Upon receipt by the Company of evidence reasonably satisfactory toit of the ownership of and the loss, theft, destruction or mutilation of any Note and (a) in thecase of loss, theft or destruction, of indemnity reasonably satisfactory to it; or (b) in the caseof mutilation, upon surrender thereof; the Company, at its expense, will execute and deliver inlieu thereof a new Note executed in the same manner as the Note being replaced, in the sameprincipal amount as the unpaid principal amount of such Note and dated the date to which interestshall have been paid on such Note or, if no interest shall have yet been so paid, dated the date ofsuch Note.     21. ACTION OF HOLDERS. Any action required or permitted to be taken by the Holdersof this Note and the other Notes, and any demand, sent, forbearance or waiver, shall be effectiveonly with the consent or other affirmative action of 2/3 (two thirds) or more in interest ofthen-outstanding principal amount of the Notes. No such demand, consent, waiver or forbearanceshall be of any force or effect without such consent or other action.[remainder of page left blank intentionally]
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     22. GOVERNING LAW. This Note and all actions arising out of or in connection with thisNote shall be governed by and construed in accordance with the laws of the State of New York,without regard to the conflicts of law provisions of the State of New York or of any other state.          IN WITNESS WHEREOF, the Company has caused this Note to be issued as of the date first writtenabove.**SAVE THE WORLD AIR, INC.**   By:       Its:       Fax Number: (818) 487-8003      **HOLDER**     Amount:$       Signature:        Name:        Address:                 Fax Number:     
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