Chief Operating Officer Employment Agreement

Exhibit 10.12 AMENDED AND RESTATED EMPLOYMENT AGREEMENT This Amended and Restated Employment Agreement (this " Agreement" ) is made and entered into as of the 5th day of October, 2005 by and between SAVE THE WORLD AIR, INC., a Nevada corporation (" STWA" ) and Bruce McKinnon (the " Executive" ). RECITALS A. STWA and the Executive are parties to that certain Employment Agreement dated as of the 1 st day of December, 2003 (the " Original Agreement" ), which sets forth the terms and conditions upon which STWA employs the Executive. B. STWA and the Executive have previously entered into an Amendment to Employment Agreement dated as of March 2, 2004 (the " First Amendment" ), pursuant to which STWA appointed the Executive to the position of Chief Operating Officer of STWA and increased the annual base compensation of the Executive from $153,600 to $192,000 for the period commencing March 2, 2004. C. STWA and the Executive desire to further amend the Original Agreement, as previously amended by the First Amendment, in certain respects, including to promote the Executive to the position of President of STWA effective on and as of October 5, 2005 and to increase the annual base compensation payable to the Executive from $192,000 to $240,000 effective on and as of October 5, 2005. D. In order to memorialize the amendments to the Original Agreement described above, STWA and the Executive have agreed to amend and restate the Original Agreement in its entirety. AGREEMENT NOW, THEREFORE, in consideration of the premises and the respective covenants and agreements of the parties contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: 1. DEFINITIONS AND SPECIAL PROVISIONS. Each capitalized word and term used herein shall have the meaning ascribed to it in the glossary appended hereto. Such glossary is incorporated herein by reference and made a part hereof. 2. EMPLOYMENT. STWA hereby agrees to employ the Executive, and the Executive hereby agrees to accept employment with STWA, on the terms and conditions set forth herein.


3. TERM OF AGREEMENT. The Executive' s employment under this Agreement shall commence on the date hereof and, except as otherwise provided herein, shall continue until December 31, 2007; provided, however, that commencing on December 31, 2007 and each anniversary thereafter, the term of this Agreement shall automatically be extended for one additional year beyond the term otherwise established unless, prior to such date, STWA or the Executive shall have given a Notice of Non-Extension. 4. POSITION AND DUTIES. The Executive shall serve as President of STWA and he shall have such responsibilities, duties and authority as may, from time to time, be generally associated with such positions and as may be specifically directed by the Board of Directors of STWA from time to time during the term of this Agreement, including any extensions thereof. In addition, the Executive shall serve in such capacity, with respect to each Subsidiary or affiliated company, as the Board of Directors of each such Subsidiary or affiliated company shall designate from time to time. During the term of this Agreement, he shall devote substantially all of his working time and efforts to the business and affairs of STWA, the Subsidiaries and affiliated companies; provided, however, that nothing herein shall be construed as precluding him from devoting a reasonable amount of time to civic, charitable, trade association and similar activities that do not represent conflicts and are not otherwise in any way detrimental to STWA. 5. COMPENSATION AND RELATED MATTERS.(a) BASE COMPENSATION . During the period of the Executive' s employment hereunder, STWA shall pay to him annual base compensation for the period from December 1, 2003 to December 31, 2004 of $153,600. STWA shall pay to the Executive the annual base compensation of $192,000 for the period commencing March 2, 2004 to October 5, 2005. For the period commencing October 5, 2005 and continuing thereafter during the term of this Agreement, STWA shall pay to the Executive annual base compensation of $240,000. The Board(s) of Directors of STWA shall periodically review the Executive' s employment performance, in accordance with policies generally in effect from time to time, for possible merit or cost-of-living increases in such base compensation. Except for a reduction, should such reduction occur, which is proportionate to a company-wide reduction in executive pay, the annual base compensation paid to the Executive in any period shall not be less than the annual base compensation paid to him in any prior period. The frequency and manner of payment of such base compensation shall be in accordance with STWA' s executive payroll practices from time to time in effect. Nothing herein shall be construed as precluding the Executive from entering into any salary reduction or deferral plan or arrangement during the term of this Agreement; provided, however, that his base compensation shall be determined without regard to any such salary reduction or deferral for purposes of calculating the amount of any compensation and benefits to which he or his surviving spouse may be entitled under Paragraph 6, 7, 10, or 11 hereof following his termination of employment. The amounts set forth in the first sentence of this subparagraph 5(a) shall be pro rated to the extent such period is less than a year.(b) INCENTIVE COMPENSATION. During the period of the Executive' s employment hereunder, he shall be entitled to participate in all incentive plans, stock option plans, and similar arrangements as may be in effect and maintained by STWA for executive officers on a basis and at award levels consistent and commensurate with his position and duties hereunder.

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(c) EMPLOYEE BENEFIT PLANS AND OTHER PLANS OR ARRANGEMENTS. The Executive shall be entitled to participate in all Employee Benefit Plans of STWA that either, are in effect at present or that may be adopted in the future. In addition, he shall be entitled to participate in and enjoy any other plans and arrangements which provide for sick leave, vacation, sabbatical, or personal days, club memberships and dues, education payment or reimbursement, business-related seminars, and similar fringe benefits provided to or for the executive officers of STWA from time to time. Notwithstanding the foregoing, Executive shall be entitled to at least four (4) weeks vacation per calendar year during each year of employment. Such vacation shall be prorated during the year 2003 based on the date of this Agreement.(d) EXPENSES. During the period of the Executive' s employment hereunder, he shall be entitled to receive prompt reimbursement for all reasonable and customary expenses, including transportation expenses, incurred by him in performing services hereunder in accordance with the general policies and procedures established by STWA.(e) AUTOMOBILE. STWA shall provide for a monthly automobile allowance of $900.00. The company may, at its discretion, provide an automobile, mutually acceptable, to the Executive for his exclusive use.(f) MEDICAL INSURANCE. Notwithstanding the provisions of Paragraph 5(c) hereof, the Executive shall not be entitled to participate in any group health insurance plan which may be offered to employees of STWA for any period during the term of this Agreement; provided however , that commencing December 1, 2003, STWA will reimburse KZ Golf for the insurance premiums, including the share of such premiums otherwise required to be paid by the Executive, if any, incurred in connection with maintaining health insurance for the Executive and his spouse through participation in the health insurance plan offered to employees of KZ Golf, which insurance premium was, at June 1, 2006, $607.12 per month. 6. TERMINATION BY REASON OF DISABILITY.(a) IN GENERAL. In the event the Executive becomes unable to perform his duties on a full-time basis by reason of the occurrence of his Disability and, within 30 days after a Notice of Termination is given, he shall not have returned to the full-time performance of such duties, his employment may be terminated by STWA.(b) COMPENSATION AND BENEFITS. In the event of the termination of the Executive' s employment pursuant to Subparagraph 6(a), the term of this Agreement shall continue for one year after the Date of Termination, and STWA shall pay or provide the compensation and benefits set forth below: (1) The Executive shall be paid an amount per annum equal to the greater of (i) his highest annual base compensation (including the car allowance provided for in subparagraph 5(e)) received during one of the two calendar years immediately preceding the calendar year in which the Date of Termination occurs, or (ii) his base compensation (including the car allowance provided for in subparagraph 5(e)) in effect immediately prior to the Date of

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Termination (or prior to any reduction which entitled him to terminate his employment for Good Reason), over a period of one year beginning with such Date of Termination. The frequency and manner of payment of such amounts shall be in accordance with STWA' s executive payroll practices from time to time in effect. (2) The Executive shall be paid an amount equal to the higher of the aggregate bonuses paid to him with respect to one of the two years immediately preceding the year in which the Date of Termination occurs. Such amount shall be paid to him in cash on the first anniversary date of the Date of Termination. (3) The Executive shall be paid an amount equal to the highest annual contribution made on his behalf (other than his own salary reduction contributions) to each tax-qualified and non-qualified Defined Contribution Plan of STWA with respect to the year in which the Date of Termination occurs or one of the two years immediately preceding such year. The amount separately determined for each such plan shall be aggregated and shall be paid to him in cash on the first anniversary date of the Date of Termination. (4) The Executive shall accrue benefits equal to the excess of (i) the aggregate retirement benefits he would have received under the terms of each tax-qualified and non-qualified Defined Benefit Plan of STWA as in effect immediately prior to the Date of Termination had he (A) continued to be employed for one more year, and (B) received (on a pro rated basis, as appropriate) the greater of (I) the highest compensation taken into account under each such plan with respect to one of the two years immediately preceding the year in which the Date of Termination occurs, or (II) his annualized base compensation in effect immediately prior to the Date of Termination (or prior to any reduction which entitled him to terminate his employment for Good Reason), over (ii) the retirement benefits he actually receives under such plans. The frequency, manner and extent of payment of such benefits shall be consistent with the terms of the plans to which they relate and any elections made thereunder. (5) The Executive and his eligible dependents shall be entitled to continue to participate at the same aggregate benefit levels, for one year and at no out-of-pocket or tax cost to him, in the Welfare Benefit Plans in which he was a participant immediately prior to the Date of Termination, to the extent permitted under the terms of such plans and applicable law. To the extent STWA is unable to provide for continued participation in a Welfare Benefit Plan, it shall provide an equivalent benefit directly at no out-of-pocket or tax cost to him. For purposes of the preceding two sentences, STWA shall be deemed to have provided a benefit at no tax cost to him if it pays an additional amount to him or on his behalf, with respect to those benefits which would otherwise be nontaxable to him, calculated in a manner consistent with the provisions of Paragraph 12.(c) ADJUSTMENT TO CERTAIN SUBPARAGRAPH 6(b) COMPENSATION AND BENEFITS. Notwithstanding the provisions of Subparagraph 6(b)(5), STWA' s obligation to pay or fund any disability insurance premiums on behalf of the Executive shall be suspended while his Disability continues, provided the cessation of payment or funding does not result in the termination of disability benefits. Any amounts otherwise due under Subparagraph (b) shall be

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reduced (but not below zero) by the dollar amount of disability benefits received by him pursuant to plans or policies funded, directly at its cost, by STWA.(d) EARLIER CESSATION OF CERTAIN WELFARE BENEFITS. Notwithstanding the provisions of Subparagraph (b)(5), STWA shall not be required to provide, at its cost, the welfare benefits covered therein after the later of (i) the attainment by the Executive and his spouse (if any) of age 65, or (ii) the date specified in the relevant plan document for benefit termination (assuming that he was employed until age 65 or the normal retirement date, if any, specified in such document).(e) DEATH DURING REMAINING TERM OF AGREEMENT. (1) In the event the Executive dies during the remaining term of this Agreement following his termination for Disability and he is survived by a spouse, the compensation and benefits remaining to be paid and provided under Subparagraph 6(b) shall be unaffected by his death and shall be paid and provided to her or on her behalf; provided, however, that the extent of her rights to the accrued benefits described in Subparagraph 6(b)(4) shall be determined by reference to the relevant plan provisions and any elections made under such plans; and provided further, that STWA shall not be required to provide continued benefits with respect to her deceased husband; and provided further, that in no event shall STWA be required to provide, at its cost, the other welfare benefits described in Subparagraph 6(b)(5) to such spouse and her eligible dependents after the earlier of (i) her death, or (ii) the later of (A) her attainment of age 65, or (B) the date specified in the relevant plan document for benefit termination (assuming that the Executive was employed until age 65 or the normal retirement date, if any, specified in such document). (2) In the event the Executive dies during the remaining term of this Agreement following his termination for Disability and he is not survived by a spouse, (i) STWA shall thereafter make the remaining payments described in Subparagraphs 6(b)(1) through 6(b)(3) directly to his estate, (ii) the extent of the rights of any person to the accrued benefits described in Subparagraph 6(b)(4) shall be determined by reference to the relevant plan provisions and any elections made under such plans, and (iii) STWA' s obligation to provide continued benefits under Subparagraph 6(b)(5) shall terminate.(f) COMPENSATION AND BENEFITS UPON EXPIRATION OF REMAINING TERM OF AGREEMENT. Upon the expiration of the remaining term of this Agreement following the Executive' s termination for Disability, and provided his Disability then continues, he shall be entitled to receive the compensation and benefits provided under the terms of any long-term disability plan of STWA in effect on the Date of Termination or, if greater, at the expiration of such remaining term. If such plan exists, such compensation and benefits shall continue until the earlier of (i) his death, or (ii) the later of (A) his attainment of age 65, or (B) the date specified in the plan document for benefit termination. To the extent STWA is unable to provide such compensation and benefits under its long-term disability plan, if any, it shall provide equivalent compensation and benefits directly at no out-of-pocket or tax cost to him. For purposes of the preceding sentence, STWA shall be deemed to have provided compensation and benefits at no tax cost to him if it pays an additional amount to him or on his behalf, with respect to the

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compensation and benefits which would otherwise be nontaxable to him, calculated in a manner consistent with the provisions of Paragraph 12.

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7. TERMINATION BY REASON OF DEATH.(a) COMPENSATION AND BENEFITS TO SURVIVING SPOUSE. In the event the Executive dies while he is employed under this Agreement and is survived by a spouse, STWA shall pay or provide the compensation and benefits set forth below: (1) The surviving spouse shall be paid an amount equal to the greater of (i) the Executive' s highest base compensation received during one of the two calendar years immediately preceding the calendar year in which the Date of Termination occurs, or (ii) his base compensation in effect immediately prior to the Date of Termination (or prior to any reduction which entitled him to terminate his employment for Good Reason) for a period of one year, beginning with such Date of Termination. The frequency and manner of payment of such amounts shall be in accordance with STWA' s executive payroll practices from time to time in effect. (2) The surviving spouse shall be paid an amount equal to the highest payment made to Executive under each incentive bonus plan of STWA with respect to one of the two years immediately preceding the year in which the Date of Termination occurs. Such amount shall be paid in cash to her within 30 days after the Date of Termination. (3) The surviving spouse shall be paid an amount equal to the sum of the highest annual contribution made on the Executive' s behalf (other than his own salary reduction contributions) to each tax-qualified and non-qualified Defined Contribution Plan of STWA with respect to the year in which the Date of Termination occurs or one of the two years immediately preceding such year. Such amount shall be paid in cash to her within 30 days after the Date of Termination or within 30 days after such amount can first be determined, whichever is later. (4) Subject to the following sentence, the surviving spouse shall be paid benefits determined by reference to the excess of (i) the aggregate retirement benefits the Executive would have accrued under the terms of each tax-qualified and non-qualified Defined Benefit Plan as in effect immediately prior to the Date of Termination, had he (A) continued to be employed for a period of one year following the Date of Termination, and (B) received (on a pro rated basis, as appropriate) the greater of (I) the highest compensation taken into account under each such plan with respect to one of the two years immediately preceding the year in which the Date of Termination occurs, or (II) his annualized base compensation in effect immediately prior to the Date of Termination (or prior to any reduction which entitled him to terminate his employment for Good Reason), over (ii) the retirement benefits actually determined under such plans. The frequency, manner, and extent of payment of such benefits shall be consistent with the terms of the plans to which they relate and any elections made thereunder. (5) The surviving spouse and her eligible dependents shall be entitled to continue to participate at the same aggregate benefit levels, for a period of one year following the Date of Termination and at no out-of-pocket or tax cost to her, in the Welfare Benefit Plans in which the Executive was a participant immediately prior to the Date of Termination, to the extent permitted under the terms of such plans and applicable law; provided however, that STWA shall

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not be required to provide continued benefits with respect to her deceased husband; and provided further, that STWA shall not thereafter be required to provide, at its cost, the other welfare benefits covered by such plans to such spouse and her eligible dependents after the earlier of (i) her death, or (ii) the later of (A) her attainment of age 65, or (B) the date specified in the relevant plan document for benefit termination (assuming the Executive was employed until age 65 or the normal retirement date, if any, specified in such document). To the extent STWA is unable to provide for continued participation in a Welfare Benefit Plan as required, it shall provide an equivalent benefit directly at no out-of-pocket or tax cost to her. For purposes of the preceding two sentences, STWA shall be deemed to have provided a benefit at no tax cost to her if it pays an additional amount to her or on her behalf, with respect to those benefits which would otherwise be nontaxable to her, calculated in a manner consistent with the provisions of Paragraph 12.(b) COMPENSATION AND BENEFITS TO ESTATE, ETC. In the event the Executive dies while he is employed under this Agreement and is not survived by a spouse, (i) STWA shall make the payments described in Subparagraphs (a)(1) through (a)(3) directly to his estate, (ii) the extent of the rights of any person to the accrued benefits described in Subparagraph (a)(4) shall be determined by reference to the relevant plan provisions and any elections made under such plans, and (iii) STWA' s obligation to provide benefits under Subparagraph (a)(5) shall terminate. 8. TERMINATION BY STWA FOR CAUSE.(a) IN GENERAL. In the event STWA intends to terminate the Executive' s employment for Cause, it shall deliver a Notice of Termination to him which specifies a Date of Termination not less than 30 days following the dat of such notice, unless a shorter period of notice is required by the principal regulator of STWA or any affiliate of STWA.(b) COMPENSATION. Promptly after the Executive' s termination under Subparagraph 8(a), STWA shall pay him, in one lump sum, h ...