[ex3001.jpg] [ex3001.jpg]

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF
THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN SECURED BY SUCH SECURITIES.

                                                                                                                          Original
Issue Date: February 4, 2010       Original Principal Amount:  $150,000.00  

                                     SAN WEST, INC. CONVERTIBLE NOTE

FOR VALUE RECEIVED, the Company promises to pay to the order of GEMINI MASTER
FUND, LTD. or its registered assigns (the “Holder”) the principal sum of
US$150,000.00 on February 1, 2011 (“Maturity Date”) or such earlier date as this
Note is required or permitted to be repaid as provided hereunder, and to pay
accrued and unpaid interest to the Holder on the aggregate unconverted and then
outstanding principal amount of this Note in accordance with the provisions
hereof.

 

This Note is subject to the following additional provisions:

 Section 1. Definitions. For the purposes hereof, in addition to the terms
defined elsewhere in this Note (a) initially capitalized terms not otherwise
defined herein shall have the meanings set forth in the Purchase Agreement
(including without limitation those incorporated therein by reference) and (b)
the following terms shall have the following meanings:

“Conversion Shares” means, collectively, the shares of Common Stock issued or
issuable upon conversion or redemption of this Note in accordance with the terms
hereof, including without limitation shares of Common Stock issued or issuable
as interest hereunder or as damages under the Transaction Documents.

“Mandatory Default Amount” means the sum of (i) the greater of (A) 150% of the
outstanding principal amount of this Note, plus 100% of accrued and unpaid
interest hereon, or (B) the outstanding principal amount of this Note, plus all
accrued and unpaid interest hereon, divided by the Conversion Price on the date
the Mandatory Default Amount is either (a) demanded (if demand or notice is
required to create an Event of Default) or otherwise due or (b) paid in full,
whichever has a lower price, multiplied by the VWAP on the date the Mandatory
Default Amount is either (x) demanded or otherwise due or (y) paid in full,
whichever has a higher VWAP, and (ii) all other amounts, costs, expenses and
liquidated damages due in respect of this Note.

 

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.

“Original Issue Date” means the date of the issuance of this Note, regardless of
any transfers of any Note and regardless of the number of instruments which may
be issued to evidence this Note.

“Purchase Agreement” means the Securities Purchase Agreement pursuant to which
this Note was issued, dated on or about the date hereof.

 Section 2. Interest; Late Fees.

a) Interest. Interest shall accrue daily on the outstanding principal amount of
this Note at a rate per annum equal to 10%.  On the Maturity Date, the Company
shall pay to the Holder all accrued but unpaid interest hereunder.  Interest
shall be calculated on the basis of a 360-day year and actual days elapsed and
shall accrue daily commencing on the Original Issue Date until payment in full
of the outstanding principal, together with all accrued and unpaid interest,
liquidated damages and other amounts which may become due hereunder, has been
made.  Interest hereunder will be paid to the Person in whose name this Note is
registered on the records of the Company regarding registration and transfers of
this Note (the “Note Register”).

b) Late Fees. All overdue accrued and unpaid amounts to be paid hereunder shall
entail a late fee at an interest rate equal to the lesser of 24% per annum or
the maximum rate permitted by applicable law (“Late Fees”) which shall accrue
daily from the date such amount is due hereunder through and including the date
of actual payment in full.

Section 3. Registration of Transfers and Exchanges.

a) Different Denominations. This Note is exchangeable for an equal aggregate
principal amount of Notes of different authorized denominations, as requested by
the Holder surrendering the same.  No service charge will be payable for such
exchange.

b) Reliance on Note Register. Prior to due presentment for transfer to the
Company of this Note, the Company and any agent of the Company may treat the
Person in whose name this Note is duly registered on the Note Register as the
owner hereof for the purpose of receiving payment as herein provided and for all
other purposes, whether or not this Note is overdue, and neither the Company nor
any such agent shall be affected by notice to the contrary.

 

-2-

 

Section 4. Conversion.

a) Voluntary Conversion. At any time after the Original Issue Date until this
Note is no longer outstanding, this Note shall be convertible, in whole or in
part, into shares of Common Stock at the option of the Holder, at any time and
from time to time (subject to the conversion limitations set forth in Section
4(c) hereof).  The Holder shall effect conversions by delivering to the Company
a Notice of Conversion, the form of which is attached hereto as Annex A (a
“Notice of Conversion”), specifying therein the principal amount of this Note to
be converted and the date on which such conversion shall be effected (such date,
the “Conversion Date”). If no Conversion Date is specified in a Notice of
Conversion, the Conversion Date shall be the date that such Notice of Conversion
is deemed delivered hereunder.  To effect conversions hereunder, the Holder
shall not be required to physically surrender this Note to the Company unless
the entire principal amount of this Note, plus all accrued and unpaid interest
thereon, has been so converted. Conversions hereunder shall have the effect of
lowering the outstanding principal amount of this Note in an amount equal to the
applicable conversion.  The Holder and the Company shall maintain records
showing the principal amount(s) converted and the date of such conversion(s).
 In the event of any dispute or discrepancy, the records of the Holder shall be
controlling and determinative in the absence of manifest error. The Holder, and
any assignee by acceptance of this Note, acknowledge and agree that, by reason
of the provisions of this paragraph, following conversion of a portion of this
Note, the unpaid and unconverted principal amount of this Note may be less than
the amount stated on the face hereof.

b) Conversion Price. The conversion price shall be equal to lesser of (i) $0.04
and (ii) 80% of the lowest Closing Bid Price of the Company’s Common Stock
during the 10 Trading Days immediately preceding the applicable Conversion Date,
subject in each case to adjustment herein (the “Conversion Price”).

c) Conversion Limitation – Holder’s Restriction on Conversion. Notwithstanding
anything to the contrary contained herein, the Company shall not effect any
conversion of this Note, and the Holder shall not have the right to convert any
portion of this Note (or otherwise acquire Conversion Shares with respect to
this Note), to the extent that after giving effect to the issuance of Common
Stock upon such conversion (or other issuance), the Holder Group would
beneficially own in excess of the Maximum Ownership Percentage of the number of
shares of the Common Stock outstanding immediately after giving effect to the
issuance of shares of Common Stock upon such conversion (including for such
purpose the shares of Common Stock issuable upon such conversion or issuance)
(“Beneficial Ownership Limitation”). For purposes of calculating the Beneficial
Ownership Limitation, the number of shares of Common Stock beneficially owned by
the Holder Group shall be determined in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder (including
without limitation Regulation 13D-G), provided, however, that such beneficial
ownership shall exclude any shares of Common Stock issuable upon conversion,
exchange or exercise of (or purchase of Common Stock under) any Convertible
Securities or Options outstanding at the time of determination and beneficially
owned by the Holder Group which contain a limitation on conversion, exchange,
exercise or purchase analogous to the Beneficial Ownership Limitation contained
herein.  To the extent that the Beneficial Ownership Limitation contained herein
applies, the determination of whether and to what extent this Note is
convertible (vis-à-vis other Convertible Securities or Options, including
without limitation other Notes, beneficially owned by the Holder Group) shall be
on the basis of first submission to the Company for conversion, exchange,
exercise or purchase, as the case may be, or as otherwise determined in the sole
discretion of the Holder, and the submission of a Notice of Conversion shall be
deemed to be the Holder’s determination of whether and to what extent this Note
is convertible (vis-à-vis such other Convertible Securities or Options), in each
case subject to the Beneficial Ownership Limitation.  In determining the number
of outstanding shares of Common Stock for purposes of calculating the Beneficial
Ownership Limitation, the Holder may rely on the number of outstanding shares of
Common Stock as reflected in (i) the Company’s most recent Periodic Report
containing such information, (ii) a more recent public announcement by the
Company, or (iii) any other notice or disclosure by the Company or the Company’s
Transfer Agent setting forth the number of shares of Common Stock outstanding,
and the Holder may rely on knowledge it may have concerning any shares of Common
Stock issued which are not reflected in the preceding clauses (i) through (iii)
(e.g., issuances to the Holder upon a prior Note conversion since the date as of
which such number of outstanding shares of Common Stock was reported). Upon the
written or oral request of the Holder, the Company shall within two (2) Business
Days confirm orally and in writing to the Holder the number of shares of Common
Stock then outstanding. Each delivery of a Notice of Conversion by the Holder
will constitute a representation by the Holder that it has evaluated the
limitation set forth in this Section 4(c) and determined, based on this Section
4(c), that the issuance of the full number of Conversion Shares requested in
such Notice of Conversion is permitted under this Section 4(c), and the Company
shall have no obligation to verify or confirm such determination.  No conversion
of this Note in violation of this Section 4(c) but otherwise in accordance with
this Note shall affect the status of the Conversion Shares as validly issued,
fully-paid and nonassessable.  By written notice to the Company, the Holder may
at any time and from time to time increase or decrease the Maximum Ownership
Percentage to any other percentage specified in such notice (or specify that the
Beneficial Ownership Limitation shall no longer be applicable), provided,
however, that (A) any such increase (or inapplicability) shall not be effective
until the sixty-first (61st) day after such notice is delivered to the Company,
(B) any such increase or decrease shall apply only to the Holder and not to any
other holder of Notes, and (C) the Maximum Ownership Percentage shall not be
less than 4.9%.  The provisions of this Section 4(c) shall be construed and
implemented in a manner otherwise than in strict conformity with the terms of
this Section 4(c) to correct this provision (or any portion hereof) which may be
defective or inconsistent with the intended Beneficial Ownership Limitation
contained herein or to make changes or supplements necessary or desirable to
properly give effect to such limitation.  The Beneficial Ownership Limitation
contained in this Section shall apply to a successor Holder of this Note.  If at
any time the Beneficial Ownership Limitation makes this Note unconvertible in
whole or in part, the Company shall not by reason thereof be relieved of its
obligation to issue shares of Common Stock at any time or from time to time
thereafter upon conversion of this Note as and when shares of Common Stock may
be issued in compliance with such limitation.

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d) Mechanics of Conversion.

i. Conversion Shares Issuable Upon Conversion of Principal Amount. The number of
Conversion Shares issuable upon a conversion hereunder shall be determined by
the quotient obtained by dividing (x) the outstanding principal amount of this
Note to be converted plus any accrued but unpaid interest thereon, by (y) the
Conversion Price.

ii. Delivery of Certificate upon Conversion. Not later than three Trading Days
after each Conversion Date (the “Share Delivery Date”), the Company shall
deliver, or cause to be delivered, to the Holder a certificate or certificates
representing the Conversion Shares which, on or after the Legend Removal Date,
shall be free of restrictive legends and trading restrictions (other than those
which may then be required by the Purchase Agreement) representing the number of
Conversion Shares being acquired upon the conversion of this Note. On or after
the date which is six months following the Original Issue Date on which this
Note is issued, the Company shall use its best efforts to deliver any
certificate(s) or shares required to be delivered by the Company under this
Section 4 electronically through the Depository Trust Company or another
established clearing corporation performing similar functions.  

 

iii. Failure to Deliver Certificates. If in the case of any Notice of Conversion
such certificate(s) or shares are not delivered to or as directed by the
applicable Holder by the third Trading Day after the Conversion Date, the Holder
shall be entitled to elect by written notice to the Company at any time on or
before its receipt of such certificate or certificates, to rescind such
Conversion, in which event the Company shall promptly return to the Holder any
original Note delivered to the Company and the Holder shall promptly return to
the Company the Common Stock certificates representing the principal amount of
this Note unsuccessfully tendered for conversion to the Company.

  

iv. Obligation Absolute; Partial Liquidated Damages. The Company’s obligations
to issue and deliver the Conversion Shares upon conversion of this Note in
accordance with the terms hereof are absolute and unconditional, irrespective of
any action or inaction by the Holder to enforce the same, any waiver or consent
with respect to any provision hereof, the recovery of any judgment against any
Person or any action to enforce the same, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by the
Holder or any other Person of any obligation to the Company or any violation or
alleged violation of law by the Holder or any other Person, and irrespective of
any other circumstance which might otherwise limit such obligation of the
Company to the Holder in connection with the issuance of such Conversion Shares.
In the event the Holder of this Note shall elect to convert any or all of the
outstanding principal amount hereof, the Company may not refuse conversion based
on any claim that the Holder or anyone associated or affiliated with the Holder
has been engaged in any violation of law, agreement or for any other reason,
unless an injunction from a court, on notice to the Holder, restraining and or
enjoining conversion of all or part of this Note shall have been sought and
obtained, and the Company posts a surety bond for the benefit of the Holder in
the amount of 150% of the outstanding principal amount of this Note, which is
subject to the injunction, which bond shall remain in effect until the
completion of arbitration/litigation of the underlying dispute and the proceeds
of which shall be payable to the Holder to the extent it obtains judgment.  In
the absence of such injunction, the Company shall issue Conversion Shares or, if
applicable, cash, upon a properly noticed conversion.  If the Company fails for
any reason to deliver to the Holder such certificate(s) or shares pursuant to
Section by the second Trading Day after the Share Delivery Date, the Company
shall pay to the Holder, in cash, as liquidated damages and not as a penalty,
for each $1,000 of principal amount being converted, $10 per Trading Day
(increasing to $20 per Trading Day on the fifth Trading Day after such
liquidated damages begin to accrue) for each Trading Day after such second
Trading Day after the Share Delivery Date until such certificates are delivered.
 Nothing herein shall limit a Holder’s right to pursue actual damages or declare
an Event of Default under this Note for the Company’s failure to deliver
Conversion Shares within the period specified herein and the Holder shall have
the right to pursue all remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief.  The exercise of any such rights shall not prohibit the
Holder from seeking to enforce damages pursuant to any other Section hereof or
under applicable law.

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v. Compensation for Buy-In on Failure to Timely Deliver Certificates upon
Conversion. In addition to any other rights available to the Holder, if the
Company fails for any reason to deliver to the Holder such certificate(s) or
shares by the Share Delivery Date pursuant to Section 4(d)(ii), and if after
such Share Delivery Date the Holder is required by its brokerage firm to
purchase (in an open market transaction or otherwise), or the Holder’s brokerage
firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a
sale by the Holder of the Conversion Shares which the Holder was entitled to
receive upon the conversion relating to such Share Delivery Date (a “Buy-In”),
then the Company shall (A) pay in cash to the Holder (in addition to any other
remedies available to or elected by the Holder) the amount by which (x) the
Holder’s total purchase price (including any brokerage commissions) for the
Common Stock so purchased exceeds (y) the product of (1) the aggregate number of
shares of Common Stock that the Holder was entitled to receive from the
conversion at issue multiplied by (2) the actual sale price at which the sell
order giving rise to such purchase obligation was executed (including any
brokerage commissions) and (B) at the option of the Holder, either reissue (if
surrendered) this Note in a principal amount equal to the principal amount of
the attempted conversion or deliver to the Holder the number of shares of Common
Stock that would have been issued if the Company had timely complied with its
delivery requirements under Section 4(d)(ii). For example, if the Holder
purchases Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted conversion of this Note with respect to
which the actual sale price of the Conversion Shares (including any brokerage
commissions) giving rise to such purchase obligation was a total of $10,000
under clause (A) of the immediately preceding sentence, the Company shall be
required to pay the Holder $1,000.  The Holder shall provide the Company written
notice indicating the amounts payable to the Holder in respect of the Buy-In
and, upon request of the Company, evidence of the amount of such loss.  Nothing
herein shall limit a Holder’s right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief with respect to the Company’s
failure to timely deliver certificates representing shares of Common Stock upon
conversion of this Note as required pursuant to the terms hereof.

 

Section 5. Certain Adjustments.

a) Stock Dividends and Stock Splits. If the Company, at any time while this Note
is outstanding: (A) pays a stock dividend or otherwise makes a distribution or
distributions payable in shares of Common Stock on shares of Common Stock or any
Convertible Securities or Options (which, for avoidance of doubt, shall not
include any shares of Common Stock issued by the Company upon conversion of, or
payment of interest on, the Notes); (B) subdivides outstanding shares of Common
Stock into a larger number of shares; (C) combines (including by way of a
reverse stock split) outstanding shares of Common Stock into a smaller number of
shares; or (D) issues, in the event of a reclassification of shares of the
Common Stock, any shares of capital stock of the Company, then the Conversion
Price shall be multiplied by a fraction of which the numerator shall be the
number of shares of Common Stock (excluding any treasury shares of the Company)
outstanding immediately before such event and of which the denominator shall be
the number of shares of Common Stock outstanding immediately after such event.
Any adjustment made pursuant to this Section shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or re-classification.

b) Subsequent Equity Sales. The Conversion Price is subject to Full Ratchet
Anti-Dilution Adjustment.

c) Subsequent Rights Offerings. If the Company, at any time while the Note is
outstanding, shall issue rights, options or warrants to all holders of Common
Stock (and not to Holders) entitling them to subscribe for or purchase shares of
Common Stock at a price per share that is lower than the VWAP on the record date
referenced below, then the Conversion Price shall be multiplied by a fraction of
which the denominator shall be the number of shares of the Common Stock
outstanding on the date of issuance of such rights or warrants plus the number
of additional shares of Common Stock offered for subscription or purchase, and
of which the numerator shall be the number of shares of the Common Stock
outstanding on the date of issuance of such rights or warrants plus the number
of shares which the aggregate offering price of the total number of shares
issued (assuming delivery to the Company in full of all consideration payable
upon exercise of such rights, options or warrants) would purchase at such VWAP.
 Such adjustment shall be made whenever such rights or warrants are issued, and
shall become effective immediately after the record date for the determination
of stockholders entitled to receive such rights, options or warrants.  

 

d) Pro Rata Distributions. If the Company, at any time while this Note is
outstanding, distributes to all holders of Common Stock (and not to the Holders
in their capacity as holders of Notes) evidences of its indebtedness or assets
(including cash and cash dividends) or rights or warrants to subscribe for or
purchase any security (other than the Common Stock, which shall be subject to
Section 5(b)), then in each such case the Conversion Price shall be adjusted by
multiplying such Conversion Price in effect immediately prior to the record date
fixed for determination of stockholders entitled to receive such distribution by
a fraction of which the denominator shall be the VWAP determined as of the
record date mentioned above, and of which the numerator shall be such VWAP on
such record date less the then fair market value at such record date of the
portion of such assets or evidence of indebtedness so distributed applicable to
1 outstanding share of the Common Stock as determined by the Board of Directors
of the Company in good faith.  In either case the adjustments shall be described
in a statement delivered to the Holder describing the portion of assets or
evidences of indebtedness so distributed or such subscription rights applicable
to 1 share of Common Stock.  Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date mentioned above.

-5-

 

e) Fundamental Transaction. If, at any time while this Note is outstanding, the
Company effects or there otherwise occurs a Fundamental Transaction, then, upon
any subsequent conversion of this Note, the Holder shall have the right to
receive, for each Conversion Share that would have been issuable upon such
conversion immediately prior to the occurrence of such Fundamental Transaction,
the same kind and amount of securities, cash or property as it would have been
entitled to receive upon the occurrence of such Fundamental Transaction if it
had been, immediately prior to such Fundamental Transaction, the holder of 1
share of Common Stock (the “Alternate Consideration”). For purposes of any such
conversion, the determination of the Conversion Price shall be appropriately
adjusted to apply to such Alternate Consideration based on the amount of
Alternate Consideration issuable in respect of 1 share of Common Stock in such
Fundamental Transaction, and the Company shall apportion the Conversion 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 conversion of this
Note 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 Note
consistent with the foregoing provisions and evidencing the Holder’s right to
convert such Note 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 5(e) and insuring that this Note (or any such replacement
security) will be similarly adjusted upon any subsequent transaction analogous
to a Fundamental Transaction.

f) Notice to the Holder. Whenever the Conversion Price is adjusted pursuant to
any provision of this Section 5, the Company shall promptly deliver to each
Holder a notice setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment.   

Section 6. No Prepayment/Redemption. The Company may not prepay or redeem this
Note in whole or in part.

Section 7. Events of Default.

 

a) “Event of Default” means, wherever used herein, any of the following events
(whatever the reason for such event and whether such event shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):

i. any default in the payment of (A) the principal amount of any Note or (B)
interest, liquidated damages and other amounts owing to a Holder on any Note, as
and when the same shall become due and payable (whether on a Conversion Date or
the Maturity Date or by acceleration or otherwise) which default, solely in the
case of an interest payment or other default under clause (B) above, is not
cured within 3 Trading Days;

 

 

 

ii. the Company shall fail to observe or perform any other covenant or agreement
contained in the Notes (other than a breach by the Company of its obligations to
deliver shares of Common Stock to the Holder upon conversion, which breach is
addressed in clause (ix) below) which failure is not cured, if possible to cure,
within 10 Trading Days after notice of such failure sent by the Holder or by any
other Holder;

 

iii. any representation or warranty made in this Note, any other Transaction
Document, any written statement pursuant hereto or thereto or any other report,
financial statement or certificate made or delivered to the Holder or any other
Holder shall be untrue or incorrect in any material respect as of the date when
made or deemed made; obligations under any mortgage, credit agreement or other
facility, indenture agreement, factoring agreement or other instrument under
which there may be issued, or by which there may be secured or evidenced, any
indebtedness for borrowed money or money due under any long term leasing or
factoring arrangement that (a) involves an obligation greater than $100,000,
whether such indebtedness now exists or shall hereafter be created, and (b)
results in such indebtedness becoming or being declared due and payable prior to
the date on which it would otherwise become due and payable;

 

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vi. if at any time the Common Stock shall not be eligible for listing or
quotation for trading on an Eligible Market and shall not be eligible to resume
listing or quotation for trading thereon within five (5) Trading Days;

 

vii. the Company shall be a party to any Change of Control Transaction or
Fundamental Transaction or shall agree to sell or dispose of all or in excess of
33% of its assets in one transaction or a series of related transactions
(whether or not such sale would constitute a Change of Control Transaction)
(except to the extent provided for in the Purchase Agreement);

viii. if at any time after three months following the Closing Date the Company
is not subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act or has failed to file all reports required to be filed thereunder
during the then preceding 12 months (or such shorter period that the Company was
required to file such reports); or

 

ix. the Company shall fail for any reason to deliver certificates to a Holder
prior to the fifth Trading Day after a Conversion Date pursuant to this Note or
the Company shall provide at any time notice to the Holder, including by way of
public announcement, of the Company’s intention to not honor requests for
conversions of any Notes in accordance with the terms hereof.

b) Remedies upon Event of Default. If any Event of Default occurs, the
outstanding principal amount of this Note, plus accrued but unpaid interest,
liquidated damages and other amounts owing in respect thereof through the date
of acceleration, shall become, at the Holder’s election, immediately due and
payable in cash at the Mandatory Default Amount. After the occurrence and during
the continuance of any Event of Default, the interest rate on this Note shall
accrue at an interest rate equal to the lesser of 24% per annum or the maximum
rate permitted under applicable law.  In connection with such acceleration
described herein, the Holder need not provide, and the Company hereby waives,
any presentment, demand, protest or other notice of any kind, and the Holder may
immediately and without expiration of any grace period enforce any and all of
its rights and remedies hereunder and all other remedies available to it under
applicable law. Such acceleration may be rescinded and annulled by Holder at any
time prior to payment hereunder and the Holder shall have all rights as a holder
of the Note until such time, if any, as the Holder receives full payment
pursuant to this Section 7(b). No such rescission or annulment shall affect any
subsequent Event of Default or impair any right consequent thereon.

Section 8. Miscellaneous.

a) Notices. Any and all notices or other communications or deliveries to be
provided by the Holder hereunder, including, without limitation, any Notice of
Conversion, shall be in writing and delivered personally, by facsimile, by
email, or sent by a nationally recognized overnight courier service, addressed
to the Company, at the address set forth above, or such other facsimile number,
email address or mailing address as the Company may specify for such purpose by
notice to the Holder delivered in accordance with this Section 8.  Any and all
notices or other communications or deliveries to be provided by the Company
hereunder shall be in writing and delivered personally, by facsimile, by email
or sent by a nationally recognized overnight courier service addressed to each
Holder at the facsimile number or address of the Holder appearing on the books
of the Company, or if no such facsimile number or address appears, at the
principal place of business of the Holder.  Except as may otherwise be provided
herein, any notice or other communication or deliveries hereunder shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile or by email prior to
5:30 p.m. (New York City time) on a Trading Day, with electronic confirmation of
such delivery, (ii) the first Trading Day immediately following the date of
transmission, if such notice or communication is delivered via facsimile or by
email not on a Trading Day or between 5:30 p.m. (New York City time) and  11:59
p.m. (New York City time) on any date, with electronic confirmation of such
delivery, (iii) the second Business Day following the date of mailing, if sent
by U.S. nationally recognized overnight courier service, or (iv) upon actual
receipt by the party to whom such notice is required to be given.  The address,
facsimile and email address for such notices and communications shall be as set
forth on the signature pages attached to the Purchase Agreement.

 

-7-

b) Absolute Obligation. Except as expressly provided herein, no provision of
this Note shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of, liquidated damages and accrued
interest, as applicable, on this Note at the time, place, and rate, and in the
coin or currency, herein prescribed. This Note is a direct debt obligation of
the Company.  This Note ranks pari passu with all other Notes now or hereafter
issued under the terms set forth herein.

c) Lost or Mutilated Note.  If this Note shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of a mutilated Note, or in lieu of or in substitution
for a lost, stolen or destroyed Note, a new Note for the principal amount of
this Note so mutilated, lost, stolen or destroyed, but only upon receipt of
evidence of such loss, theft or destruction of such Note, and of the ownership
hereof, reasonably satisfactory to the Company.

d) Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Note shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York,
without regard to the principles of conflict of laws thereof. Each party agrees
that all legal proceedings concerning the interpretation, enforcement and
defense of the transactions contemplated by any of the Transaction Documents
(whether brought against a party hereto or its respective Affiliates, directors,
officers, shareholders, employees or agents) shall be commenced in the state and
federal courts sitting in the City of New York, Borough of Manhattan (the “New
York Courts”). Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York Courts for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of such New York Courts, or such New York Courts are
improper or inconvenient venue for such proceeding.  Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding 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 Note 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 applicable law.
Each party hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding
arising out of or relating to this Note or the transactions contemplated hereby.
If either party shall commence an action or proceeding to enforce any provisions
of this Note, then the prevailing party in such action or proceeding shall be
reimbursed by the other party for its reasonable attorney’s fees and other
reasonable costs and expenses reasonably incurred in the investigation,
preparation and prosecution of such action or proceeding.

-8-

e) Waiver. Any waiver by the Company or the Holder of a breach of any provision
of this Note shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this Note.
 The failure of the Company or the Holder to insist upon strict adherence to any
term of this Note on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Note.  Any waiver by the Company or the
Holder must be in writing.

f) Severability.  If any provision of this Note is invalid, illegal or
unenforceable, the balance of this Note shall remain in effect, and if any
provision is inapplicable to any Person or circumstance, it shall nevertheless
remain applicable to all other Persons and circumstances.  If it shall be found
that any interest or other amount deemed interest due hereunder violates the
applicable law governing usury, the applicable rate of interest due hereunder
shall automatically be lowered to equal the maximum rate of interest permitted
under applicable law. The Company covenants (to the extent that it may lawfully
do so) that it shall not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay, extension or
usury law or other law which would prohibit or forgive the Company from paying
all or any portion of the principal of or interest on this Note as contemplated
herein, wherever enacted, now or at any time hereafter in force, or which may
affect the covenants or the performance of this indenture, and the Company (to
the extent it may lawfully do so) hereby expressly waives all benefits or
advantage of any such law, and covenants that it will not, by resort to any such
law, hinder, delay or impeded the execution of any power herein granted to the
Holder, but will suffer and permit the execution of every such as though no such
law has been enacted.

g) Assumption.  Any successor to the Company or any surviving entity in a
Fundamental Transaction shall (i) assume, prior to such Fundamental Transaction,
all of the obligations of the Company under this Note and the other Transaction
Documents pursuant to written agreements in form and substance satisfactory to
the Holder (such approval not to be unreasonably withheld or delayed) and (ii)
issue to the Holder a new Note of such successor entity evidenced by a written
instrument substantially similar in form and substance to this Note, including,
without limitation, having a principal amount and interest rate equal to the
principal amount and the interest rate of this Note and having similar ranking
to this Note, which shall be satisfactory to the Holder (any such approval not
to be unreasonably withheld or delayed).  The provisions of this Section 8(g)
shall apply similarly and equally to successive Fundamental Transactions and
shall be applied without regard to any limitations of this Note.

-9-

h) Usury. This Note shall be subject to the anti-usury limitations contained in
the Purchase Agreement.

*********************

IN WITNES WHEREOF, the Company has caussed this NOTE to be duly executed by a
duly authorized officer of the date first above indicated.

SAN WEST, INC.

By:/s/Frank J. Drechsler

Name Frank J. Drechsler

Title: President

ANNEX A

NOTICE OF CONVERSION

(To be executed by the Holder in order to convert the Note) TO: Frank Drechsler,
CEO

The undersigned hereby irrevocably elects to convert $ of the principal amount
of the Convertible Note Due February 1, 2011 of San West, Inc. issued to Gemini
Master Fund, Ltd. into shares of San West, Inc. Common Stock as of the
Conversion Date written below.

Conversion Date:

Principal Amount to be converted: $

Accrued Interest thereon: $

Conversion Price: $

Number of shares of Common Stock to be issued:

Principal Amount of Note Left Unconverted: $

 

Please issue the shares of Common Stock in the following name and to the
following address:

 

Gemini Master Fund, Ltd.              c/o Gemini Strategies, LLC             135
Liverpool Drive, Suite C

 

Issue to: Cardiff, CA 92007

 

Authorized Signature: By: GEMINI STRATEGIES, LLC

 By:                Steve Winters, President

 

Broker DTC Participant Code: Jefferies DTC #0019______________________________

 

Account Number: 662-70252

 

iv. the Company or any Subsidiary shall be subject to a Bankruptcy Event

v. the Company or any Subsidiary shall default on any of its

SECURITIES PURCHASE AGREEMENT

This Securities Purchase Agreement (“Agreement”) is entered into as of February
12, 2010 by and between SAN WEST, INC., a corporation organized under the laws
of the State of California (the “Company”), and the Person set forth on the
signature page hereto as the “Purchaser” hereunder (“Purchaser”).

WHEREAS, subject to the terms and conditions set forth in this Agreement, the
Company desires to issue and sell to the Purchaser, and the Purchaser desires to
purchase from the Company, a Note of the Company in a PIPE Transaction as set
forth herein;

NOW THEREFORE, in consideration of the foregoing premise and the covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and each Purchaser
agree as follows:

1.

Incorporation by Reference; Definitions.

(a)

Incorporation. This Agreement incorporates by reference, as if set forth herein
in its entirety and including without limitation all terms, conditions and
provisions set forth therein, the PipeFund Services Organization Standard
Transaction Document labeled GTC 1-10 (General Terms and Conditions) available
and accessible at www.pipefund.com (“PST Document GTC”); provided, however, that
to the extent any of the terms, conditions or provisions of this Agreement
(without such incorporation) contradict or conflict with the terms, conditions
or provisions of PST Document GTC, this Agreement shall control.

(b)

Defined Terms.  Each initially capitalized term used but not defined in this
Agreement (including PST Document GTC as incorporated herein pursuant to the
preceding Section), and each initially capitalized term used but not defined in
any other Transaction Document, shall have the meaning ascribed thereto in the
PipeFund Services Organization Standard Transaction Document labeled 1-10 DEF
(Definitions) available and accessible at www.pipefund.com.

(c)

PipeFund Transaction Code. This Securities Purchase Agreement shall be known as
“Securities Purchase Agreement #SNWT-10-A”.

-1-

 

2. Securities.  The Company agrees to issue and sell, and the Purchaser agrees
to purchase, in consideration for payment by the Purchaser of its Subscription
Amount indicated on the Purchaser’s signature page hereto, upon the terms and
conditions contained in this Securities Purchase Agreement, a Convertible Note
of the Company, in the form attached hereto as Exhibit A (“Note”), with an
aggregate original principal amount equal to the Purchaser’s Subscription
Amount, which Note shall (i) bear interest at 10% per annum, (ii) be convertible
into shares of Common Stock as set forth in the Note, and (iii) have a maturity
date of February 1, 2011.

3. Closing.  Notwithstanding anything to the contrary contained in Section
2.3(a)(viii) of PST Document GTC, the Company shall not be required to deliver a
Legal Opinion or Officer’s Certificate under subsection (B) and (C) thereof.
There shall be no Funds Escrow Agent or Documents Escrow Agent for the Closing.
 The original Note shall be delivered to the Purchaser within three (3) Trading
Days following the Closing Date.  At the Closing the Company shall

pay or reimburse to Purchaser the non-refundable, non-accountable sum equal to
$2,500 for documentation of the Transactions.  The Purchaser may withhold and
offset such amount and the PipeFund expense from the payment of such Purchaser’s
Subscription Amount otherwise payable hereunder at Closing.

4.

Company Address for Notices:

SAN WEST, INC. 10350 Mission

Gorge Road Santee, CA 92069 Attn: Frank Drechsler Facsimile: 714-968-6840 Email:
frank@buggyworld.net or "fjdrechsleryahoo.htm">fjdrechsler@yahoo.com

5.

Modifications and Additional Terms.

(a)

No Registration Rights.  Sections 6.1 through 6.3 of PST Document GTC are hereby
deleted such that the Purchaser shall not have any registration rights except
for the piggyback registration rights set forth in Section 6.4 thereof.

(b)

The Bulletin Board shall be an Eligible Market.

[Signature Page Follows]

2

IN WITNESS WHEREOF, as of the date first written above, the Parties hereto have
duly executed, or caused their authorized officers to duly execute, this
Securities Purchase Agreement.

 

COMPANY:

 

SAN WEST, INC.

By:/s/Frank J. Drechsler

Name Frank J. Drechsler

Title: President

PURCHASER:

1. Signature:

2. Subscription Amount:

3. Maximum Ownership Percentage:

 

GEMINI MASTER FUND, LTD.

BY: GEMINI STRATEGIES,LLC

 

BY:/s/ Steven W. Winters

Name Steven W. Winters

Title: President

 

$150,000

 

The Maximun Ownership Percentage shall be 9.9% if no box is checked below:

 

[ ] None [X] 4.9% [ ] 9.9% [ ] Other___%

Exhibit A

FORM OF CONVERTIBLE NOTE

[See Executed Note]

A-1

DISCLOSURE SCHEDULE

None

3