Document:

stwa_8k-ex1002.htm

     

      
        

      

    

    Exhibit
10.2

     

    
 

    
      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: $[__________]

              	
                Issue
      Date: January 15, 2010

              

      

      

      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
[                     ]
($[           ]) (“Principal Amount”), with
interest compounded quarterly at the annual rate of seven percent (7%) on January 15, 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 January 15, 2010 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 to the extent such share issuance is not limited
by 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
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 as provided in the Subscription Agreement.

      

      (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:
(408) 778-8585, 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.

      
        
           

        

        
          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 January , 2010.

      

      

      
        	 
      	
                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
[  ], 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:_____________________________________________________________________________

      ____________________________________________________________________________

       

       

      
        
           

        

        
          8stwa_8k-ex1003.htm

     

      
        

      

    

    Exhhibit 10.3

     

     

    

    NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE 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.

    

    
      	 
      	
              Right
      to Purchase ____________ shares of Common Stock of Save the World Air,
      Inc. (subject to adjustment as provided
herein)

            

    

    

    FORM
OF COMMON STOCK PURCHASE WARRANT

     

    
      	
              Warrant
      September –[001]

            	
              Issue
      Date: January___, 2010

            

    

     

    SAVE THE
WORLD AIR, INC., a corporation organized under the laws of the State of Nevada
(the “Company”), hereby
certifies that, for value received, ____________________________________,
______________________________________________, or its assigns (the “Holder”), is entitled, subject
to the terms set forth below, to purchase from the Company at any time
commencing six months after the Issue Date until 5:00 p.m., E.S.T on January __,
2013 (the “Expiration
Date”), up to ____________ fully paid and nonassessable shares of Common
Stock at a per share purchase price of $0.30.  The afore described
purchase price per share, as adjusted from time to time as herein provided, is
referred to herein as the "Purchase
Price."  The number and character of such shares of Common
Stock and the Purchase Price are subject to adjustment as provided
herein.  The Company may reduce the Purchase Price for some or all of
the Warrants, temporarily or permanently.  Capitalized terms used and
not otherwise defined herein shall have the meanings set forth in that certain
Securities Purchase Agreement (the “Subscription Agreement”),
dated as of November 26, 2009, entered into by the Company and the
Holder.

    

    As used
herein the following terms, unless the context otherwise requires, have the
following respective meanings:

     

    (a)           The
term “Company” shall
include Save the World Air, Inc. and any corporation which shall succeed or
assume the obligations of Save the World Air, Inc. hereunder.

     

    (b)           The
term “Common Stock”
includes (a) the Company's Common Stock, $.001 par value per share, as
authorized on the date of the Subscription Agreement, and (b) any other
securities into which or for which any of the securities described in
(a) may be converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets or otherwise.

     

    (c)           The
term “Other Securities”
refers to any stock (other than Common Stock) and other securities of the
Company or any other person (corporate or otherwise) which the holder of the
Warrant at any time shall be entitled to receive, or shall have received, on the
exercise of the Warrant, in lieu of or in addition to Common Stock, or which at
any time shall be issuable or shall have been issued in exchange for or in
replacement of Common Stock or Other Securities pursuant to Section 4 or
otherwise.

     

    

    
      
        
           

        

        
          
          

          
            

          

        

        
           

        

      

    

    

    

     

    (d)           The
term “Warrant Shares”
shall mean the Common Stock issuable upon exercise of this Warrant.

     

    1.           Exercise of
Warrant.

     

    1.1.           Number of Shares Issuable
upon Exercise.  From and after the Issue Date through and
including the Expiration Date, the Holder hereof shall be entitled to receive,
upon exercise of this Warrant in whole in accordance with the terms of
subsection 1.2 or upon exercise of this Warrant in part in accordance with
subsection 1.3, shares of Common Stock of the Company, subject to
adjustment pursuant to Section 4.

     

    1.2.           Full
Exercise.  This Warrant may be exercised in full by the Holder
hereof by delivery of an original or facsimile copy of the form of subscription
attached as Exhibit A
hereto (the “Subscription
Form”) duly executed by such Holder and delivery within two days
thereafter of payment, in cash, wire transfer or by certified or official bank
check payable to the order of the Company, in the amount obtained by multiplying
the number of shares of Common Stock for which this Warrant is then exercisable
by the Purchase Price then in effect.  The original Warrant is not
required to be surrendered to the Company until it has been fully
exercised.

     

    1.3.           Partial
Exercise.  This Warrant may be exercised in part (but not for a
fractional share) by delivery of a Subscription Form in the manner and at the
place provided in subsection 1.2 except that the amount payable by the
Holder on such partial exercise shall be the amount obtained by multiplying
(a) the number of whole shares of Common Stock designated by the Holder in
the Subscription Form by (b) the Purchase Price then in
effect.  On any such partial exercise provided the Holder has
surrendered the original Warrant, the Company, at its expense, will forthwith
issue and deliver to or upon the order of the Holder hereof a new Warrant of
like tenor, in the name of the Holder hereof or as such Holder (upon payment by
such Holder of any applicable transfer taxes) may request, the whole number of
shares of Common Stock for which such Warrant may still be
exercised.

     

    1.4.           Fair Market Value.
Fair Market Value of a share of Common Stock as of a particular date (the "Determination Date") shall
mean:

     

    (a)           If
the Company's Common Stock is traded on an exchange or is quoted on the NASDAQ
Global Market, Nasdaq Global Select Market, the NASDAQ Capital Market, the New
York Stock Exchange, the American Stock Exchange, LLC, OTC Bulletin Board, or
Pink Sheets LLC, then the average of the closing or last sale prices,
respectively, reported for the ten trading days immediately preceding the
Determination Date;

     

    (b)           If
the Company's Common Stock is not traded on an exchange or on the NASDAQ Global
Market, Nasdaq Global Select Market, the NASDAQ Capital Market, the New York
Stock Exchange, the American Stock Exchange, LLC, OTC Bulletin Board, or Pink
Sheets LLC, but is traded in the over-the-counter market, then the average of
the closing bid and ask prices reported for the ten trading days immediately
preceding the Determination Date;

     

    (c)           Except
as provided in clause (d) below and Section 3.1, if the Company's Common
Stock is not publicly traded, then as the Holder and the Company agree, or in
the absence of such an agreement, by arbitration in accordance with the rules
then standing of the American Arbitration Association, before a single
arbitrator to be chosen from a panel of persons qualified by education and
training to pass on the matter to be decided with such arbitration to be
conducted in New York City, New York; or

     

    (d)           If
the Determination Date is the date of a liquidation, dissolution or winding up,
or any event deemed to be a liquidation, dissolution or winding up pursuant to
the Company's charter, then all amounts to be payable per share to holders of
the Common Stock pursuant to the charter in the event of such liquidation,
dissolution or winding up, plus all other amounts to be payable per share in
respect of the Common Stock in liquidation under the charter, assuming for the
purposes of this clause (d) that all of the shares of Common Stock then
issuable upon exercise of all of the Warrants are outstanding at the
Determination Date.

     

    

    
      
        
           

        

        
          2

          
            

          

        

        
           

        

      

    

    

    

     

    1.5.           Company
Acknowledgment. The Company will, at the time of the exercise of the
Warrant, upon the request of the Holder hereof acknowledge in writing its
continuing obligation to afford to such Holder any rights to which such Holder
shall continue to be entitled after such exercise in accordance with the
provisions of this Warrant. If the Holder shall fail to make any such request,
such failure shall not affect the continuing obligation of the Company to afford
to such Holder any such rights.

     

    1.6.           Trustee for Warrant
Holders. In the event that a bank or trust company shall have been
appointed as trustee for the Holder of the Warrants pursuant to
Subsection 3.2, such bank or trust company shall have all the powers and
duties of a warrant agent (as hereinafter described) and shall accept, in its
own name for the account of the Company or such successor person as may be
entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, on exercise of this Warrant pursuant to this
Section 1.

     

     1.7           Delivery of Stock
Certificates, etc. on Exercise. The Company agrees that the shares of
Common Stock purchased upon exercise of this Warrant shall be deemed to be
issued to the Holder hereof as the record owner of such shares as of the close
of business on the date on which delivery of a Subscription Form shall have
occurred and payment made for such shares as aforesaid. As soon as practicable
after the exercise of this Warrant in full or in part, and in any event within
ten (10) business days thereafter (“Warrant Share Delivery Date”),
the Company at its expense (including the payment by it of any applicable issue
taxes) will cause to be issued in the name of and delivered to the Holder
hereof, or as such Holder (upon payment by such Holder of any applicable
transfer taxes) may direct in compliance with applicable securities laws, a
certificate or certificates for the number of duly and validly issued, fully
paid and non-assessable shares of Common Stock (or Other Securities) to which
such Holder shall be entitled on such exercise, plus, in lieu of any fractional
share to which such Holder would otherwise be entitled, cash equal to such
fraction multiplied by the then Fair Market Value of one full share of Common
Stock, together with any other stock or other securities and property (including
cash, where applicable) to which such Holder is entitled upon such exercise
pursuant to Section 1 or otherwise.  The Company understands that
a delay in the delivery of the Warrant Shares after the Warrant Share Delivery
Date could result in economic loss to the Holder.  The Company shall
not, however, be responsible for any out of pocket or potential lost profits as
a result of a decline in stock price during any delay.  Furthermore,
in addition to any other remedies which may be available to the Holder, in the
event that the Company fails for any reason to effect delivery of the Warrant
Shares by the Warrant Share Delivery Date, the Holder may revoke all or part of
the relevant Warrant exercise by delivery of a notice to such effect to the
Company, whereupon the Company and the Holder shall each be restored to their
respective positions immediately prior to the exercise of the relevant portion
of this Warrant.

     

    2.           Cashless
Exercise.

     

    (a)           This
Warrant may be exercised in whole or in part either in (i) cash, wire
transfer or by certified or official bank check payable to the order of the
Company equal to the applicable aggregate Purchase Price, (ii) by delivery of
Common Stock issuable upon exercise of the Warrants in accordance with
Section (b) below or (iii) by a combination of any of the
foregoing methods, for the number of Common Stock specified in such form (as
such exercise number shall be adjusted to reflect any adjustment in the total
number of shares of Common Stock issuable to the holder per the terms of this
Warrant) and the holder shall thereupon be entitled to receive the number of
duly authorized, validly issued, fully-paid and non-assessable shares of Common
Stock (or Other Securities) determined as provided herein.

     

    

    
      
        
           

        

        
          3

          
            

          

        

        
           

        

      

    

    

    (b)           Subject
to the provisions herein to the contrary, if the Fair Market Value of one share
of Common Stock is greater than the Purchase Price (at the date of calculation
as set forth below), in lieu of exercising this Warrant for cash, the holder may
elect to receive shares equal to the value (as determined below) of this Warrant
(or the portion thereof being cancelled) by surrender of this Warrant at the
principal office of the Company together with the properly endorsed Subscription
Form in which event the Company shall issue to the holder a number of shares of
Common Stock computed using the following formula:

     

    X=Y (A-B)

              A

    

     

    
      
        	
                 
      Where   

              	
                X=

              	the number of shares of Common Stock to be issued to the
  holder

      

       

    

    
      	
               
      

            	
              Y=

            	
              the
      number of shares of Common Stock purchasable under the Warrant or, if only
      a portion of the Warrant is being exercised, the portion of the Warrant
      being exercised (at the date of such
  calculation)

            

    

     

    
      	
               
      

            	
              A=

            	
              the
      average of the closing sale prices of the Common Stock for the ten (10)
      Trading Days immediately prior to (but not including) the Exercise Date,
      or Fair Market Value, whichever is
less

            

    

     

    
      	
               
      

            	
              B=

            	
              Purchase
      Price (as adjusted to the date of such
  calculation)

            

    

     

    For
purposes of Rule 144 promulgated under the 1933 Act, it is intended, understood
and acknowledged that the Warrant Shares issued in a cashless exercise
transaction shall be deemed to have been acquired by the Holder, and the holding
period for the Warrant Shares shall be deemed to have commenced, on the date
this Warrant was originally issued pursuant to the Subscription
Agreement.

     

    3.           Adjustment for
Reorganization, Consolidation, Merger, Subsequent Share Issuances
etc.

     

    3.1.           Fundamental
Transaction.  If, at any time while this Warrant is
outstanding, (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, 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"),
then, upon any subsequent exercise of this Warrant, the Holder shall have the
right to receive, for each Warrant Share that would have been issuable upon such
exercise immediately prior to the occurrence of such Fundamental Transaction, at
the option of the Holder, (a) upon exercise of this Warrant, the number of
shares of Common Stock of the successor or acquiring corporation or of the
Company, if it is the surviving corporation, and any additional consideration
(the "Alternate
Consideration") receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a Holder of
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event or (b) if the Company is acquired in (1) a
transaction where the consideration paid to the holders of the Common Stock
consists solely of cash, (2) a “Rule 13e-3 transaction” as defined in Rule 13e-3
under the 1934 Act, or (3) a transaction involving a person or entity not traded
on a national securities exchange, the Nasdaq Global Select Market, the Nasdaq
Global Market or the Nasdaq Capital Market, cash equal to the Black-Scholes
Value.  For purposes of any such exercise, the determination of the
Purchase Price shall be appropriately adjusted to apply to such Alternate
Consideration based on the amount of Alternate Consideration issuable in respect
of one share of Common Stock in such Fundamental Transaction, and the Company
shall apportion the Purchase Price among the Alternate Consideration in a
reasonable manner reflecting the relative value of any different components of
the Alternate Consideration.  If holders of Common Stock are given any
choice as to the securities, cash or property to be received in a Fundamental
Transaction, then the Holder shall be given the same choice as to the Alternate
Consideration it receives upon any exercise of this Warrant following such
Fundamental Transaction.  To the extent necessary to effectuate the
foregoing provisions, any successor to the Company or surviving entity in such
Fundamental Transaction shall issue to the Holder a new warrant consistent with
the foregoing provisions and evidencing the Holder's right to exercise such
warrant into Alternate Consideration.  The terms of any agreement
pursuant to which a Fundamental Transaction is effected shall include terms
requiring any such successor or surviving entity to comply with the provisions
of this Section 3.1 and insuring that this Warrant (or any such replacement
security) will be similarly adjusted upon any subsequent transaction analogous
to a Fundamental Transaction.  “Black-Scholes Value” shall be
determined in accordance with the Black-Scholes Option Pricing Model obtained
from the “OV” function on Bloomberg L.P. using (i) a price per share of Common
Stock equal to the VWAP of the Common Stock for the Trading Day immediately
preceding the date of  consummation of the applicable Fundamental
Transaction, (ii) a risk-free interest rate corresponding to the U.S. Treasury
rate for a period equal to the remaining term of this Warrant as of the date of
such request and (iii) an expected volatility equal to the 100 day volatility
obtained from the HVT function on Bloomberg L.P. determined as of the Trading
Day immediately following the public announcement of the applicable Fundamental
Transaction.

     

    

    
      
        
           

        

        
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    3.2.           Dissolution.  In
the event of any dissolution of the Company following the transfer of all or
substantially all of its properties or assets, the Company, prior to such
dissolution, shall at its expense deliver or cause to be delivered the stock and
other securities and property (including cash, where applicable) receivable by
the Holder of the Warrants after the effective date of such dissolution pursuant
to this Section 3 to a bank or trust company (a "Trustee") having its
principal office in New York, NY, as trustee for the Holder of the
Warrants.  Such property shall be delivered only upon payment of the
Warrant exercise price.

     

    3.3.           Continuation of
Terms.  Upon any reorganization, consolidation, merger or
transfer (and any dissolution following any transfer) referred to in this
Section 3, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the Other Securities and property receivable
on the exercise of this Warrant after the consummation of such reorganization,
consolidation or merger or the effective date of dissolution following any such
transfer, as the case may be, and shall be binding upon the issuer of any Other
Securities, including, in the case of any such transfer, the person acquiring
all or substantially all of the properties or assets of the Company, whether or
not such person shall have expressly assumed the terms of this Warrant as
provided in Section 4.  In the event this Warrant does not
continue in full force and effect after the consummation of the transaction
described in this Section 3, then only in such event will the Company's
securities and property (including cash, where applicable) receivable by the
Holder of the Warrants be delivered to the Trustee as contemplated by
Section 3.2.

     

    

    
      
        
           

        

        
          5

          
            

          

        

        
           

        

      

    

    

    3.4.           Anti-Dilution.

    

    (a)           Anti
Dilution.  Other than in connection with an Excepted Issuance
(as defined below), if at any time while any part of the Warrants are
outstanding, the Company shall agree to or actually issue or grant the right to
receive any Common Stock or securities convertible, exercisable or exchangeable
for shares of Common Stock (or modify any of the foregoing which may be
outstanding)  (“Common Stock Equivalent”) to
any person or entity at a price per share or conversion price or exercise price
per share which shall be less than the Warrant exercise price in respect of the
Warrant Shares then in effect (“Lower Price Issuance”),
without the consent of the Holder of such Warrant, then the Warrant exercise
price shall automatically and without further action be reduced to an amount
equal to the product of the Warrant exercise price then in effect multiplied by
a fraction of which the numerator shall be the number of shares of Common Stock
outstanding prior to such issuance plus the number of shares of Common Stock
which the aggregate purchase price or exercise price for such Common Stock
(plus, if applicable, the aggregate consideration received from the issuance of
the Common Stock Equivalents) would purchase at the then current Warrant
exercise price and the denominator shall be the number of shares of Common Stock
outstanding or deemed to be outstanding immediately after such
issuance.  For so long as a Warrant is outstanding upon the occurrence
of a Lower Price Issuance, the Warrant exercise price shall be reduced to an
amount equal to the product of the Warrant exercise price then in effect
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding prior to such issuance plus the number of shares of
Common Stock which the aggregate purchase price or exercise price for such
Common Stock (plus, if applicable, the aggregate consideration received from the
issuance of the Common Stock Equivalents) would purchase at the then current
Warrant exercise price and the denominator shall be the number of shares of
Common Stock outstanding or deemed to be outstanding immediately after such
issuance.

    

    (c)           Effective
Price.   For purposes of Section 3.4 in connection with
any issuance of any Common Stock Equivalents, (A) the maximum number of shares
of Common Stock potentially issuable at any time upon conversion, exercise or
exchange of such Common Stock Equivalents (the “Deemed Number”) shall be
deemed to be outstanding or subscribed for and required to be issued upon
issuance of such Common Stock Equivalents, (B) the deemed issue price (“Effective Price”) applicable
to such Common Stock shall equal the minimum dollar value of consideration
payable to the Company to purchase such Common Stock Equivalents and to convert,
exercise or exchange them into Common stock (net of any discounts, fees,
commissions and other expenses), divided by the Deemed number, and (C) no
further adjustment shall be made to the Conversion Price upon the actual
issuance of Common Stock upon conversion exercise or exchange of such Common
Stock Equivalents if issued at or higher than the Effective
Price.  Common Stock issued or issuable by the Company for no
consideration will be deemed to have been issued or to be issuable for $0.0001
per share of Common Stock.

    

    (d)           Excepted
Issuances.   The rights of each Warrant Holder set forth
in this Section 3.4 are in addition to any other rights the Holder has pursuant
to this Agreement, any Transaction Document, and any other agreement referred to
or entered into in connection herewith or to which such Holder and Company are
parties.  For purposes of Section 3.4, “Excepted Issuance” 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, or
any notes or warrants similar in form to those Notes and Warrants sold to
Warrant holder, as being contemplated by the Company (ii) as a result of the
conversion of any the Notes or  exercise of any of the Warrants issued
pursuant to the Subscription Agreement, (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 (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.

    

    
      
        
           

        

        
          6

          
            

          

        

        
           

        

      

    

    

    

    4.           Extraordinary Events
Regarding Common Stock.  In the event that the Company shall
(a) issue additional shares of the Common Stock as a dividend or other
distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Purchase Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Purchase Price then in effect. The
Purchase Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this
Section 4. The number of shares of Common Stock that the Holder of this
Warrant shall thereafter, on the exercise hereof, be entitled to receive shall
be adjusted to a number determined by multiplying the number of shares of Common
Stock that would otherwise (but for the provisions of this Section 4 be issuable
on such exercise by a fraction of which (a) the numerator is the Purchase Price
that would otherwise (but for the provisions of this Section 4 be in effect, and
(b) the denominator is the Purchase Price in effect on the date of such
exercise.

     

    5.           Certificate as to
Adjustments.  In each case of any adjustment or readjustment in
the shares of Common Stock (or Other Securities) issuable on the exercise of the
Warrants, the Company at its expense will promptly cause its Chief Financial
Officer or other appropriate designee to compute such adjustment or readjustment
in accordance with the terms of the Warrant and prepare a certificate setting
forth such adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based, including a statement of (a) the
consideration received or receivable by the Company for any additional shares of
Common Stock (or Other Securities) issued or sold or deemed to have been issued
or sold, (b) the number of shares of Common Stock (or Other Securities)
outstanding or deemed to be outstanding, and (c) the Purchase Price and the
number of shares of Common Stock to be received upon exercise of this Warrant,
in effect immediately prior to such adjustment or readjustment and as adjusted
or readjusted as provided in this Warrant. The Company will forthwith mail a
copy of each such certificate to the Holder of the Warrant and any Warrant Agent
of the Company (appointed pursuant to Section 11 hereof).

     

    6.           Reservation of Stock, etc.
Issuable on Exercise of Warrant; Financial
Statements.   The Company will at all times reserve and
keep available, solely for issuance and delivery on the exercise of the
Warrants, all shares of Common Stock (or Other Securities) from time to time
issuable on the exercise of the Warrant.  This Warrant entitles the
Holder hereof to receive copies of all financial and other information
distributed or required to be distributed to the holders of the Company's Common
Stock.

     

    7.           Assignment; Exchange of
Warrant.  Subject to compliance with applicable securities
laws, this Warrant, and the rights evidenced hereby, may be transferred by any
registered holder hereof (a "Transferor"). On the surrender
for exchange of this Warrant, with the Transferor's endorsement in the form of
Exhibit B
attached hereto (the “Transferor Endorsement Form")
and together with an opinion of counsel reasonably satisfactory to the Company
that the transfer of this Warrant will be in compliance with applicable
securities laws, the Company will issue and deliver to or on the order of the
Transferor thereof a new Warrant or Warrants of like tenor, in the name of the
Transferor and/or the transferee(s) specified in such Transferor Endorsement
Form (each a "Transferee"), calling in the
aggregate on the face or faces thereof for the number of shares of Common Stock
called for on the face or faces of the Warrant so surrendered by the
Transferor.

     

    8.           Replacement of
Warrant.  On receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant and, in
the case of any such loss, theft or destruction of this Warrant, on delivery of
an indemnity agreement or security reasonably satisfactory in form and amount to
the Company or, in the case of any such mutilation, on surrender and
cancellation of this Warrant, the Company at the Holder’s expense, will execute
and deliver, in lieu thereof, a new Warrant of like tenor.

     

    

    
      
        
           

        

        
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    9.           Subscription
Agreement.  The terms of the Subscription Agreement are
incorporated herein by this reference.

     

    10.           Maximum
Exercise.  The Holder shall not be entitled to exercise this
Warrant on an exercise date, 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 an exercise
date, and (ii) the number of shares of Common Stock issuable upon the
exercise of this Warrant with respect to which the determination of this
limitation is being made on an exercise date, which would result in beneficial
ownership by the Holder and its affiliates of more than 4.99% of the outstanding
shares of Common Stock on such date.  For the purposes of the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities 1934 Act , and Rule
13d-3 thereunder.  Subject to the foregoing, the Holder shall not be
limited to aggregate exercises which would result in the issuance of more than
4.99%.  The restriction described in this paragraph may be
waived, in whole or in part, upon sixty-one (61) days prior notice from the
Holder to the Company to increase such percentage to up to 9.99%, but not in
excess of 9.99%.  The Holder may decide whether to convert a
Convertible Note or exercise this Warrant to achieve an actual 4.99% or up to
9.99% ownership position as described above, but not in excess of
9.99%.

     

    11.           Warrant
Agent.  The Company may, by written notice to the Holder of the
Warrant, appoint an agent (a “Warrant Agent”) for the
purpose of issuing Common Stock (or Other Securities) on the exercise of this
Warrant pursuant to Section 1, exchanging this Warrant pursuant to
Section 7, and replacing this Warrant pursuant to Section 8, or any of
the foregoing, and thereafter any such issuance, exchange or replacement, as the
case may be, shall be made at such office by such Warrant Agent.

     

    12.           Transfer on the Company's
Books.  Until this Warrant is transferred on the books of the
Company, the Company may treat the registered holder hereof as the absolute
owner hereof for all purposes, notwithstanding any notice to the
contrary.

     

    13.           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:  if to the Company, to:
Save the World Air, Inc. 235 Tennant Avenue, Morgan Hill, California 95037,
Attn:  Cecil Bond Kyte, CEO,Tel:(408)778-0101Fax:(408) 778-8585, and
(ii) if to the Holder, to the address and facsimile number listed on the first
paragraph of this Warrant, with a copy by facsimile only to: the Placement Agent
as set forth in the Subscription Agreement.

     

    14.           Law Governing This
Warrant.  This Warrant shall be governed by and construed in
accordance with the laws of the State of New York without regard to principles
of conflicts of laws.  Any action brought by either party against the
other concerning the transactions contemplated by this Warrant shall be brought
only in the state courts of New York or in the federal courts located in the
state and county of New York.  The parties to this Warrant hereby
irrevocably waive any objection to jurisdiction and venue of any action
instituted hereunder and shall not assert any defense based on lack of
jurisdiction or venue or based upon forum non
conveniens.  The Company and Holder waive trial by
jury.  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 Warrant or any other agreement delivered in
connection herewith 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 enforceability of
any other provision of any agreement.   Each party hereby
irrevocably waives personal service of process and consents to process being
served in any suit, action or proceeding in connection with this Agreement or
any other Transaction Document by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof.  Nothing contained herein shall be deemed to limit in any way
any right to serve process in any other manner permitted by law.

     

    

    
      
        
           

        

        
          8

          
            

          

        

        
           

        

      

    

    

    IN
WITNESS WHEREOF, the Company has executed this Warrant as of the date first
written above.

     

    
      	 
      	
              SAVE
      THE WORLD AIR, INC.

               

               

               

              By: ____________________________________________

                    
      Name:

                     Title:

               

               

               

               

            

    

    

     

     

     

     

     

     

     

     

     

     

     

    

    
      
        
           

        

        
          9

          
            

          

        

        
           

        

      

    

    

    Exhibit A

    

    FORM OF
SUBSCRIPTION

    (to be
signed only on exercise of Warrant)

    TO:  SAVE
THE WORLD AIR, INC.

    The
undersigned, pursuant to the provisions set forth in the attached Warrant
(No.____), hereby irrevocably elects to purchase (check applicable
box):

    

    ___           ________
shares of the Common Stock covered by such Warrant; or

    ___           the
maximum number of shares of Common Stock covered by such Warrant pursuant to the
cashless exercise procedure set forth in Section 2.

    

    The
undersigned herewith makes payment of the full purchase price for such shares at
the price per share provided for in such Warrant, which is
$___________.  Such payment takes the form of (check applicable box or
boxes):

    

    ___           $__________
in lawful money of the United States; and/or

    ___           the
cancellation of such portion of the attached Warrant as is exercisable for a
total of _______ shares of Common Stock (using a Fair Market Value of $_______
per share for purposes of this calculation); and/or

    

    ___           the
cancellation of such number of shares of Common Stock as is necessary, in
accordance with the formula set forth in Section 2, to exercise this
Warrant with respect to the maximum number of shares of Common Stock purchasable
pursuant to the cashless exercise procedure set forth in
Section 2.

    

    The
undersigned requests that the certificates for such shares be issued in the name
of, and delivered to _____________________________________________________ whose
address is _________________________________________________

    ______________________________________.

    

    The
undersigned represents and warrants that all offers and sales by the undersigned
of the securities issuable upon exercise of the within Warrant shall be made
pursuant to registration of the Common Stock under the Securities Act of 1933,
as amended (the "Securities
Act"), or pursuant to an exemption from registration under the Securities
Act.

    

    
      	
              Dated:___________________

            	
                    
                
      

              (Signature
      must conform to name of holder as specified on the face of the
      Warrant)

               

               

                    
                

                
      

              (Address)

            

    

    

    

    
      
        
           

        

        
          10

          
            

          

        

        
           

        

      

    

    

    

    Exhibit B

    

    

    FORM OF
TRANSFEROR ENDORSEMENT

    (To be
signed only on transfer of Warrant)

    For value
received, the undersigned hereby sells, assigns, and transfers unto the
person(s) named below under the heading "Transferees" the right represented by
the within Warrant to purchase the percentage and number of shares of Common
Stock of SAVE THE WORLD AIR, INC. to which the within Warrant relates specified
under the headings "Percentage Transferred" and "Number Transferred,"
respectively, opposite the name(s) of such person(s) and appoints each such
person Attorney to transfer its respective right on the books of SAVE THE WORLD
AIR, INC. with full power of substitution in the premises.

     

    

    
      	
              Transferees

            	
              Percentage
      Transferred

            	
              Number
      Transferred

            
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      

    

    

    

    
      	
              Dated:  ______________,
      ___________

               

               

              
                
      

              Signed
      in the presence of:

               

               

                    
                
      

              (Name)

               

               

              ACCEPTED
      AND AGREED:

              [TRANSFEREE]

               

               

               

              (Name)

               

            	
                    
                
      

              (Signature
      must conform to name of holder as specified on the face of the
      warrant)

               

               

               

               

                    
                

                
      

              (address)

               

               

                    
                

                
      

              (address)

            

    

    
      	 
      

    

    

    

    
      
        
           

        

        
          11

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