EXHIBIT 10.3
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THESE SECURITIES HAVE NOT 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. NOTWITHSTANDING THE FOREGOING, THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN OR FINANCING ARRANGEMENT SECURED BY SUCH SECURITIES.
WESTERN GOLDFIELDS, INC.
WARRANT TO PURCHASE COMMON STOCK
Warrant No.: ____________
Number of Shares: _____________
Date of Issuance: February 17, 2006 (the "ISSUANCE DATE")
Western Goldfields, Inc., an Idaho corporation (the "COMPANY"), hereby
certifies that, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, [NAME OF HOLDER], the registered holder hereof
or its permitted assigns (the "HOLDER"), is entitled, subject to the terms set
forth below, to purchase from the Company, at the Exercise Price (as defined
below) then in effect, upon surrender of this Warrant to Purchase Common Stock
(including all Warrants to Purchase Common Stock issued in exchange, transfer or
replacement hereof, the "WARRANT"), at any time or times on or after the date
hereof, but not after 11:59 P.M., New York Time, on the Expiration Date (as
defined below), [AMOUNT IN WORDS] fully paid nonassessable shares of Common
Stock (as defined below) (the "WARRANT SHARES"). Except as otherwise defined
herein, capitalized terms in this Warrant shall have the meanings set forth in
Section 15. This Warrant is one of the Warrants to Purchase Common Stock (the
"SPA WARRANTS") issued pursuant to Section 1 of that certain Securities Purchase
Agreement, dated as of February 17, 2006 (the "SUBSCRIPTION DATE"), between the
Company and the Holder referred to therein (the "SECURITIES PURCHASE
AGREEMENT").
1. EXERCISE OF WARRANT.
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(a) Mechanics of Exercise. Subject to the terms and conditions
hereof (including, the limitations set forth in Section 1(f)), this Warrant may
be exercised by the Holder on any day, in whole or in part, by (i) delivery of a
written notice, in the form attached hereto as Exhibit A (the "EXERCISE
NOTICE"), of the Holder's election to exercise this Warrant and (ii) (A) payment
to the Company of an amount equal to the applicable Exercise Price multiplied by
the
number of Warrant Shares as to which this Warrant is being exercised (the
"AGGREGATE EXERCISE PRICE") in cash or wire transfer of immediately available
funds. The Holder will not be required to deliver the original Warrant in order
to effect an exercise hereunder; provided however, that the Holder shall
covenant in the Exercise Notice, that it will deliver the original Warrant to
the Company within five (5) Business Days of such exercise. Execution and
delivery of the Exercise Notice with respect to less than all of the Warrant
Shares will have the same effect as cancellation of the original Warrant and
issuance of a new Warrant evidencing the right to purchase the remaining number
of Warrant Shares. On or before the first Business Day following the date on
which the Company has received each of the Exercise Notice and the Aggregate
Exercise Price (the "EXERCISE DELIVERY DOCUMENTS"), the Company shall transmit
by facsimile an acknowledgment of confirmation of receipt of the Exercise
Delivery Documents to the Holder and the Company's transfer agent (the "TRANSFER
AGENT"). On or before the third Business Day following the date on which the
Company has received all of the Exercise Delivery Documents (the "SHARE DELIVERY
DATE"), the Company shall (X) provided that the Transfer Agent is participating
in The Depository Trust Company ("DTC") Fast Automated Securities Transfer
Program, upon the request of the Holder, credit such aggregate number of shares
of Common Stock to which the Holder is entitled pursuant to such exercise to the
Holder's or its designee's balance account with DTC through its Deposit
Withdrawal Agent Commission system, or (Y) if the Transfer Agent is not
participating in the DTC Fast Automated Securities Transfer Program, issue and
dispatch by overnight courier to the address as specified in the Exercise
Notice, a certificate, registered in the name of the Holder or its designee, for
the number of shares of Common Stock to which the Holder is entitled pursuant to
such exercise. Upon delivery of the Exercise Notice and Aggregate Exercise Price
referred to in clause (ii)(A), the Holder will be deemed for all corporate
purposes to have become the holder of record of the Warrant Shares with respect
to which this Warrant has been exercised, irrespective of the date of delivery
of the certificates evidencing such Warrant Shares. If this Warrant is submitted
in connection with any exercise pursuant to this Section 1(a) and the number of
Warrant Shares represented by this Warrant submitted for exercise is greater
than the number of Warrant Shares being acquired upon an exercise, then the
Company shall as soon as practicable and in no event later than three Business
Days after any exercise and at its own expense, issue a new Warrant (in
accordance with Section 7(d)) representing the right to purchase the number of
Warrant Shares purchasable immediately prior to such exercise under this
Warrant, less the number of Warrant Shares with respect to which this Warrant is
exercised. No fractional shares of Common Stock are to be issued upon the
exercise of this Warrant, but rather the number of shares of Common Stock to be
issued will be rounded up to the nearest whole number. The Company shall pay any
and all taxes, including without limitation, all documentary stamp, transfer or
similar taxes, or other incidental expense that may be payable with respect to
the issuance and delivery of Warrant Shares upon exercise of this Warrant.
Notwithstanding anything contained herein to the contrary,
this Warrant may not be exercised by the Holder until the shareholders of the
Company approve an amendment to the Company's Articles of Incorporation
increasing the numbers of authorized shares of Common Stock to an amount
sufficient to cover such exercise.
(b) Exercise Price. For purposes of this Warrant, "EXERCISE
PRICE" means $0.45 per share, subject to adjustment as provided herein.
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(c) Company's Failure to Timely Deliver Securities. (i) In
addition to any other rights available to a Holder, if the Company fails to
deliver or cause to be delivered to the Holder a certificate representing
Warrant Shares by the first Business Day after the date on which delivery of
such certificate is required by this Warrant, and if on or after such Business
Day the Holder purchases (in an open market transaction or otherwise) shares of
Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant
Shares that the Holder anticipated receiving from the Company (a "BUY-IN"), then
the Company shall, within three Business Days after the Holder's request and in
the Holder's discretion, either (1) pay cash to the Holder in an amount equal to
the Holder's total purchase price (including brokerage commissions, if any) for
the shares of Common Stock so purchased (the "BUY-IN PRICE"), at which point the
Company's obligation to deliver such certificate (and to issue such Common
Stock) will terminate, or (2) promptly honor its obligation to deliver to the
Holder a certificate or certificates representing such Common Stock and pay cash
to the Holder in an amount equal to the excess (if any) of the Buy-In Price over
the product of (A) such number of shares of Common Stock, times (B) the Closing
Sale Price on the Exercise Date.
(ii) If the provisions of clause (i) above does not apply, if the
Company fails for any reason or for no reason to issue to the Holder
within seven Business Days of the Exercise Date, a certificate for the
number of shares of Common Stock to which the Holder is entitled or to
credit the Holder's balance account with DTC for such number of shares
of Common Stock to which the Holder is entitled upon the Holder's
exercise of this Warrant, the Company shall pay as additional damages
in cash to such Holder on each day after such tenth Business Day that
the issuance of such Common Stock is not timely effected an amount
equal to 0.5% of the product of (A) the sum of the number of shares of
Common Stock not issued to the Holder on a timely basis and to which
the Holder is entitled, and (B) the Closing Sale Price of the Common
Stock on the trading day immediately preceding the last possible date
which the Company could have issued such Common Stock to the Holder
without violating Section 1(a).
(d) Disputes. In the case of a dispute as to the determination
of the Exercise Price or the arithmetic calculation of the Warrant Shares, the
Company shall promptly issue to the Holder the number of Warrant Shares that are
not disputed and resolve such dispute in accordance with Section 12.
(e) No Fractional Shares or Scrip. No fractional shares or
scrip representing fractional shares will be issued upon the exercise of this
Warrant. In lieu of any fractional share to which the Holder would otherwise be
entitled, the Company shall make a cash payment equal to the fair market value
of such fractional share.
(f) Forced Exercise By Company.
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(i) Notwithstanding the foregoing, if at any time from and after the
twelve month anniversary of the Issuance Date, the Conditions to Forced
Exercise (as defined below) will have been satisfied on each day during
the period commencing on the Forced Exercise Notice Date and ending on
the Forced Exercise Date (each, as defined below), the Company will
have the right to require the Holder to exercise all or a portion of
this Warrant, as designated in the Forced Exercise Notice (as defined
below) into Common
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Stock at the Exercise Price as of the Forced Exercise Date (as defined
below) (a "FORCED EXERCISE"). The Company may exercise its right to
require exercise under this Section 1(f) by delivering within not more
than two (2) Trading Days following the end of the applicable Measuring
Period (as defined below) a written notice thereof by facsimile and
overnight courier to all, but not less than all, of the holders of the
SPA Warrants and the Transfer Agent (the "FORCED EXERCISE NOTICE" and
the date all of the holders received such notice by facsimile is
referred to as the "FORCED EXERCISE NOTICE DATE"). The Forced Exercise
Notice will be irrevocable. The Company shall make a public
announcement with respect to the Forced Exercise Notice on the Forced
Exercise Notice Date. The Forced Exercise Notice must state (i) the
Business Day selected for the Forced Exercise, which Business Day will
be at least twenty (20) Business Days but not more than forty (40)
Business Days following the Forced Exercise Notice Date (the "FORCED
EXERCISE DATE"), and (ii) the number of Warrants for which such Forced
Exercise will be applicable. Upon a Forced Exercise, the Holder will be
deemed to have delivered an Exercise Notice pursuant to Section 1(a) on
the Forced Exercise Notice Date.
(ii) If the Company elects to cause a Forced Exercise of any portion of
this Warrant pursuant to Section 1(f)(i), then it must simultaneously
take the same action in the same proportion with respect to the other
SPA Warrants which provide for the Company's right to a Forced
Exercise. If the Company has elected a Forced Exercise, the mechanics
of exercise set forth in Section 1(a) shall apply, to the extent
applicable, as if the Company had received from the Holder on the
Forced Exercise Notice Date the Exercise Notice.
(iii) For purposes of this Section 1(f), the following definitions
shall apply:
(1) "CONDITIONS TO FORCED EXERCISE" means that each of the
following conditions have been met: (i) the Weighted Average Price of
the shares of Common Stock exceeds 200% of the Exercise Price as of the
Issuance Date (approximately $0.90 per share, as of the Issuance Date)
(subject to appropriate adjustments for stock splits, stock dividends,
stock combinations and other similar transactions after the Issuance
Date) for each of any twenty (20) consecutive Trading Days prior to the
Forced Exercise Date; (ii) on each day during the period beginning
three (3) months prior to the applicable Forced Exercise Date (such
period, the "MEASURING PERIOD"), either (x) a Registration Statement
filed pursuant to the Securities Purchase Agreement will be effective
and available for the resale of all remaining Registrable Securities in
accordance with the terms of the Securities Purchase Agreement, or (y)
all shares of Common Stock issuable upon conversion of the Warrants
will be eligible for sale under Rule 144(k); (iii) on each day during
the Measuring Period, the Common Stock is designated for quotation on
the Principal Market and must not have been suspended from trading on
such exchange or market (other than suspensions of not more than one
(1) day and occurring prior to the applicable date of determination due
to business announcements by the Company) nor shall delisting or
suspension by such exchange or market been threatened or pending either
(A) in writing by such exchange or market, or (B) by falling below the
minimum listing maintenance requirements of such exchange or market;
(iv) during the Measuring Period there may not have occurred the public
announcement of a pending, proposed or intended Organic Change which
has not been abandoned, terminated or consummated; (v) the Company must
have no knowledge of any fact that would cause any one of the
following: (x) a Registration Statement is
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required pursuant to the Securities Purchase Agreement not to be
effective and available for the resale of all remaining Registrable
Securities in accordance with the terms of the Securities Purchase
Agreement, or (y) any shares of Common Stock issuable upon exercise of
the Warrants not to be eligible for sale without restriction pursuant
to Rule 144(k) and any applicable state securities laws; and (vi) the
Company otherwise must have been in material compliance with and must
not have materially breached any provision, covenant, representation or
warranty of any Transaction Document (as defined in the Securities
Purchase Agreement).
(2) "WEIGHTED AVERAGE PRICE" means, for any security as of any
date, the dollar volume-weighted average price for such security on the
Principal Market during the period beginning at 9:30:01 a.m., New York
Time (or such other time as the Principal Market publicly announces is
the official open of trading), and ending at 4:00:00 p.m., New York
Time (or such other time as the Principal Market publicly announces is
the official close of trading) as reported by Bloomberg through its
"Volume at Price" functions, or, if the foregoing does not apply, the
dollar volume-weighted average price of such security in the
over-the-counter market on the electronic bulletin board for such
security during the period beginning at 9:30:01 a.m., New York Time (or
such other time as such market publicly announces is the official open
of trading), and ending at 4:00:00 p.m., New York Time (or such other
time as such market publicly announces is the official close of
trading) as reported by Bloomberg, or, if no dollar volume-weighted
average price is reported for such security by Bloomberg for such
hours, the average of the highest closing bid price and the lowest
closing ask price of any of the market makers for such security as
reported in the "pink sheets" by Pink Sheets LLC (formerly the National
Quotation Bureau, Inc.). If the Weighted Average Price cannot be
calculated for a security on a particular date on any of the foregoing
bases, the Weighted Average Price of such security on such date will be
the fair market value as mutually determined by the Company and the
Holder. If the Company and the Holder are unable to agree upon the fair
market value of such security, then such dispute will be resolved
pursuant to Section 12. All such determinations are to be appropriately
adjusted for any stock dividend, stock split, stock combination or
other similar transaction during the applicable calculation period.
(g) Compliance with Securities Laws.
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(i) The Holder of this Warrant, by acceptance hereof, acknowledges that
this Warrant and the Common Stock to be issued upon exercise hereof are
being acquired solely for the Holder's own account and not as a nominee
for any other party; and for investment, and that the Holder will not
offer, sell or otherwise dispose of this Warrant or any Common Stock to
be issued upon exercise hereof except under circumstances that will not
result in a violation of the Securities Act or any state securities
laws. Upon exercise of this Warrant, the Holder shall, if requested by
the Company, confirm in writing, in a form satisfactory to the Company,
that the Common Stock so purchased are being acquired solely for the
Holder's own account and not as a nominee for any other party, for
investment, and not with a view toward distribution or resale.
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(ii) This Warrant and all Common Stock issued upon exercise hereof
unless registered under the Securities Act must be stamped or imprinted
with a legend in substantially the following form (in addition to any
legend required by state securities laws):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR ANY
APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO WESTERN GOLDFIELDS, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED."
2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The
Exercise Price and the number of Warrant Shares will be adjusted from time to
time as follows:
(a) Adjustment upon Issuance of Common Stock. If and whenever
on or after the date of issuance of this Warrant the Company issues or sells, or
in accordance with this Section 2 is deemed to have issued or sold, any shares
of Common Stock (including the issuance or sale of shares of Common Stock owned
or held by or for the account of the Company, but excluding Excluded Securities
(as defined below) for a consideration per share less than a price (the
"APPLICABLE PRICE") equal to the Exercise Price in effect immediately prior to
such issue or sale or deemed issuance or sale (the foregoing, a "DILUTIVE
ISSUANCE"), then immediately after such Dilutive Issuance the Exercise Price
then in effect will be reduced to an amount equal to the Applicable Price. Upon
each such adjustment of the Exercise Price hereunder, the number of Warrant
Shares will be adjusted to the number of shares of Common Stock determined by
multiplying the Exercise Price in effect immediately prior to such adjustment by
the number of Warrant Shares acquirable upon exercise of this Warrant
immediately prior to such adjustment and dividing the product thereof by the
Exercise Price resulting from such adjustment. Notwithstanding the foregoing,
this Section 2 shall not apply, and no adjustment to the Exercise Price shall be
made, as a result of the issuance of 7,600,000 stock options to directors,
officers and employees of the Company and the issuance of 1,000,000 warrants to
Metalmark Capital LLC. For purposes of determining the adjusted Exercise Price
under this Section 2(a), the following will be applicable:
(i) Issuance of Options. If the Company in any manner grants any
Options and the lowest price per share for which one share of Common
Stock is issuable upon the exercise of any such Option or upon
conversion, exercise or exchange of any Convertible Securities issuable
upon exercise of any such Option is less than the Applicable Price,
then such share of Common Stock will be deemed to be outstanding and to
have been issued and sold by the Company at the time of the granting or
sale of such Option for such price per share. For purposes of this
Section 2(a)(i), the "lowest price per share for which one share of
Common Stock is issuable upon exercise of such Options or upon
conversion, exercise or exchange of such Convertible Securities" will
be equal to the sum of the lowest amounts of consideration (if any)
received or receivable by the Company
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with respect to any one share of Common Stock upon the granting or sale
of the Option, upon exercise of the Option and upon conversion,
exercise or exchange of any Convertible Security issuable upon exercise
of such Option. No further adjustment of the Exercise Price or number
of Warrant Shares will be made upon the actual issuance of such Common
Stock or of such Convertible Securities upon the exercise of such
Options or upon the actual issuance of such Common Stock upon
conversion, exercise or exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the Company in any manner
issues or sells any Convertible Securities and the lowest price per
share for which one share of Common Stock is issuable upon the
conversion, exercise or exchange thereof is less than the Applicable
Price, then such share of Common Stock will be deemed to be outstanding
and to have been issued and sold by the Company at the time of the
issuance or sale of such Convertible Securities for such price per
share. For the purposes of this Section 2(a)(ii), the "lowest price per
share for which one share of Common Stock is issuable upon the
conversion, exercise or exchange" will be equal to the sum of the
lowest amounts of consideration (if any) received or receivable by the
Company with respect to one share of Common Stock upon the issuance or
sale of the Convertible Security and upon conversion, exercise or
exchange of such Convertible Security. No further adjustment of the
Exercise Price or number of Warrant Shares will be made upon the actual
issuance of such Common Stock upon conversion, exercise or exchange of
such Convertible Securities, and if any such issue or sale of such
Convertible Securities is made upon exercise of any Options for which
adjustment of this Warrant has been or is to be made pursuant to other
provisions of this Section 2(a), no further adjustment of the Exercise
Price or number of Warrant Shares shall be made by reason of such issue
or sale.
(iii) Change in Option Price or Rate of Conversion. If the purchase
price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion, exercise or exchange of any
Convertible Securities, or the rate at which any Convertible Securities
are convertible into or exercisable or exchangeable for Common Stock
increases or decreases at any time, the Exercise Price and the number
of Warrant Shares in effect at the time of such increase or decrease
shall be adjusted to the Exercise Price and the number of Warrant
Shares which would have been in effect at such time had such Options or
Convertible Securities provided for such increased or decreased
purchase price, additional consideration or increased or decreased
conversion rate, as the case may be, at the time initially granted,
issued or sold. For purposes of this Section 2(a)(iii), if the terms of
any Option or Convertible Security that was outstanding as of the date
of issuance of this Warrant are increased or decreased in the manner
described in the immediately preceding sentence, then such Option or
Convertible Security and the Common Stock deemed issuable upon
exercise, conversion or exchange thereof shall be deemed to have been
issued as of the date of such increase or decrease. No adjustment
pursuant to this Section 2(a) shall be made if such adjustment would
result in an increase of the Exercise Price then in effect or a
decrease in the number of Warrant Shares.
(iv) Calculation of Consideration Received. In case any Option is
issued in connection with the issue or sale of other securities of the
Company, together comprising
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one integrated transaction in which no specific consideration is
allocated to such Options by the parties thereto, the Options will be
deemed to have been issued for a consideration of $0.01. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed
to have been issued or sold for cash, the consideration received
therefor will be deemed to be the net amount received by the Company
therefor. If any Common Stock, Options or Convertible Securities are
issued or sold for a consideration other than cash, the amount of such
consideration received by the Company will be the fair value of such
consideration, except where such consideration consists of securities,
in which case the amount of consideration received by the Company will
be the Closing Sale Price of such security on the date of receipt. If
any Common Stock, Options or Convertible Securities are issued to the
owners of the non-surviving entity in connection with any merger in
which the Company is the surviving entity, the amount of consideration
therefor will be deemed to be the fair value of such portion of the net
assets and business of the non-surviving entity as is attributable to
such Common Stock, Options or Convertible Securities, as the case may
be. The fair value of any consideration other than cash or securities
will be determined jointly by the Company and the holders of the SPA
Warrants representing at least a majority of the shares of Common Stock
obtainable upon exercise of the SPA Warrants then outstanding. If such
parties are unable to reach an agreement within 10 days after the
occurrence of an event requiring valuation (the "VALUATION EVENT"), the
fair value of such consideration will be determined within fifteen
Business Days after the tenth day following the Valuation Event by an
independent, reputable appraiser jointly selected by the Company and
the holders of SPA Warrants representing at least a majority of the
shares of Common Stock obtainable upon exercise of the SPA Warrants
then outstanding. The determination of such appraiser shall be final
and binding upon all parties absent manifest error and the fees and
expenses of such appraiser shall be borne by the Company.
(v) Record Date. If the Company takes a record of the holders of Common
Stock for the purpose of entitling them (A) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible
Securities, or (B) to subscribe for or purchase Common Stock, Options
or Convertible Securities, then such record date will be deemed to be
the date of the issue or sale of the shares of Common Stock deemed to
have been issued or sold upon the declaration of such dividend or the
making of such other distribution or the date of the granting of such
right of subscription or purchase, as the case may be.
(b) Adjustment upon Subdivision or Combination of Common
Stock. If the Company at any time after the Subscription Date subdivides (by any
stock split, stock dividend, recapitalization or otherwise) one or more classes
of its outstanding shares of Common Stock into a greater number of shares, the
Exercise Price in effect immediately prior to such subdivision will be
proportionately reduced and the number of Warrant Shares will be proportionately
increased. If the Company at any time on or after the Subscription Date combines
(by combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination will be proportionately
increased and the number of Warrant Shares will be proportionately decreased.
Any adjustment under this Section 2(b)
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shall become effective at the close of business on the date the subdivision or
combination becomes effective.
(c) Other Events. If any event occurs of the type contemplated
by the provisions of this Section 2 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's Board of Directors will make an appropriate adjustment in the Exercise
Price and the number of Warrant Shares so as to protect the rights of the
Holder; provided that no such adjustment pursuant to this Section 2(c) will
increase the Exercise Price or decrease the number of Warrant Shares as
otherwise determined pursuant to this Section 2.
3. RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall declare or
make any dividend or other distribution of its assets (or rights to acquire its
assets) to holders of Common Stock, by way of return of capital or otherwise
(including, without limitation, any distribution of cash, stock or other
securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement or other similar transaction) (a
"DISTRIBUTION"), at any time after the issuance of this Warrant, then, in each
such case:
(a) any Exercise Price in effect immediately prior to the
close of business on the record date fixed for the determination of holders of
Common Stock entitled to receive the Distribution shall be reduced, effective as
of the close of business on such record date, to a price determined by
multiplying such Exercise Price by a fraction of which (i) the numerator shall
be the Closing Bid Price of the Common Stock on the trading day immediately
preceding such record date minus the value of the Distribution (as determined in
good faith by the Company's Board of Directors) applicable to one share of
Common Stock, and (ii) the denominator shall be the Closing Bid Price of the
Common Stock on the trading day immediately preceding such record date; and
(b) the number of Warrant Shares shall be increased to a
number of shares equal to the number of shares of Common Stock obtainable
immediately prior to the close of business on the record date fixed for the
determination of holders of Common Stock entitled to receive the Distribution
multiplied by the reciprocal of the fraction set forth in the immediately
preceding paragraph (a); provided, that, in the event that the Distribution is
of common stock ("OTHER COMMON STOCK") of a company whose common stock is traded
on a national securities exchange or a national automated quotation system, then
the Holder may elect to receive a warrant to purchase Other Common Stock in lieu
of an increase in the number of Warrant Shares, the terms of which shall be
identical to those of this Warrant, except that such warrant shall be
exercisable into the number of shares of Other Common Stock that would have been
payable to the Holder pursuant to the Distribution had the Holder exercised this
Warrant immediately prior to such record date and with an aggregate exercise
price equal to the product of the amount by which the exercise price of this
Warrant was decreased with respect to the Distribution pursuant to the terms of
the immediately preceding paragraph (a) and the number of Warrant Shares
calculated in accordance with the first part of this paragraph (b).
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4. PURCHASE RIGHTS; ORGANIC CHANGE.
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(a) Purchase Rights. In addition to any adjustments pursuant
to Section 2 above, if at any time the Company grants, issues or sells any
Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the "PURCHASE RIGHTS"), then the Holder will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which the Holder could have acquired if such holder had held the
number of shares of Common Stock acquirable upon complete exercise of this
Warrant (without regard to any limitations on the exercise of this Warrant)
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights.
(b) Organic Change. Any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially all of the
Company's assets to another Person or other transaction, in each case which is
effected in such a way that holders of Common Stock are entitled to receive
securities or assets with respect to or in exchange for Common Stock is referred
to herein as an "ORGANIC Change." Prior to the consummation of any (i) sale of
all or substantially all of the Company's assets to an acquiring Person, or (ii)
other Organic Change following which the Company is not a surviving entity, the
Company will secure from the Person purchasing such assets or the Person issuing
the securities or providing the assets in such Organic Change (in each case, the
"ACQUIRING ENTITY") a written agreement (in form and substance reasonably
satisfactory to the holders of SPA Warrants representing at least a majority of
the shares of Common Stock obtainable upon exercise of the SPA Warrants then
outstanding) to deliver to the Holder in exchange for this Warrant, a security
of the Acquiring Entity evidenced by a written instrument substantially similar
in form and substance to this Warrant and reasonably satisfactory to the holder
of this Warrant (including an adjusted exercise price equal to the value for the
Common Stock reflected by the terms of such consolidation, merger or sale, and
exercisable for a corresponding number of shares of Common Stock acquirable and
receivable upon exercise of this Warrant (without regard to any limitations on
the exercise of this Warrant), if the value so reflected is less than the
Exercise Price in effect immediately prior to such consolidation, merger or
sale). In the event that an Acquiring Entity is directly or indirectly
controlled by a company or entity whose common stock or similar equity interest
is listed, designated or quoted on a securities exchange or trading market, the
Holder may elect to treat such Person as the Acquiring Entity for purposes of
this Section 4(b). Notwithstanding the foregoing and except with respect to the
Organic Change contemplated by the Merger (as defined in the Securities Purchase
Agreement), at the Holder's option and request, the Acquiring Entity shall
purchase the Warrant from such Holder for a purchase price, payable in cash
within five Business Days after such request (or, if later, on the effective
date of the Organic Change), equal to the Black Scholes value of the remaining
unexercised portion of this Warrant on the date of such request. The terms of
any agreement pursuant to which a Organic Change is effected shall include terms
requiring any such successor or surviving entity to comply with the provisions
of this Section 4(b) and insuring that the Warrants (or any such replacement
security) will be similarly adjusted upon any subsequent transaction analogous
to an Organic Change. Prior to the consummation of any other Organic Change, the
Company shall make appropriate provision (in form and substance reasonably
satisfactory to the holders of SPA Warrants representing at least a majority of
the shares of Common Stock obtainable upon exercise of the SPA Warrants then
outstanding) to insure that the Holder thereafter will have the right to acquire
10
and receive in lieu of or in addition to (as the case may be) the shares of
Common Stock immediately theretofore acquirable and receivable upon the exercise
of this Warrant (without regard to any limitations on the exercise of this
Warrant), such shares of stock, securities or assets that would have been issued
or payable in such Organic Change with respect to or in exchange for the number
of shares of Common Stock which would have been acquirable and receivable upon
the exercise of this Warrant as of the date of such Organic Change (without
regard to any limitations on the exercise of this Warrant).
5. NONCIRCUMVENTION. The Company hereby covenants and agrees that the
Company will not, by amendment of its Certificate of Incorporation or through
any reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities, or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant, and
will at all times in good faith carry out all the provisions of this Warrant and
take all action as may be required to protect the rights of the Holder. Without
limiting the generality of the foregoing, the Company (i) will not increase the
par value of any shares of Common Stock receivable upon the exercise of this
Warrant above the Exercise Price then in effect, and (ii) will take all such
actions as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant.
6. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise
specifically provided herein, the Holder, solely in such Person's capacity as a
holder of this Warrant, shall not be entitled to vote or receive dividends or be
deemed the holder of shares of the Company for any purpose, nor shall anything
contained in this Warrant be construed to confer upon the Holder, solely in such
Person's capacity as the Holder, any of the rights of a shareholder of the
Company or any right to vote, give or withhold consent to any corporate action
(whether any reorganization, issue of stock, reclassification of stock,
consolidation, merger, conveyance or otherwise), receive notice of meetings,
receive dividends or subscription rights, or otherwise, prior to the issuance to
the Holder of the Warrant Shares which such Person is then entitled to receive
upon the due exercise of this Warrant. In addition, nothing contained in this
Warrant shall be construed as imposing any liabilities on the Holder to purchase
any securities (upon exercise of this Warrant or otherwise) or as a stockholder
of the Company, whether such liabilities are asserted by the Company or by
creditors of the Company.
7. REISSUANCE OF WARRANTS.
----------------------
(a) Transfer of Warrant. If this Warrant is to be transferred,
the Holder shall surrender this Warrant to the Company, whereupon the Company
will forthwith issue and deliver upon the order of the Holder a new Warrant (in
accordance with Section 7(d)), registered as the Holder may request,
representing the right to purchase the number of Warrant Shares being
transferred by the Holder and, if less then the total number of Warrant Shares
then underlying this Warrant is being transferred, a new Warrant (in accordance
with Section 7(d)) to the Holder representing the right to purchase the number
of Warrant Shares not being transferred.
(b) Lost, Stolen or Mutilated Warrant. Upon receipt by the
Company of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant, and, in the case of loss, theft or
destruction, of any indemnification undertaking by
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the Holder to the Company in customary form and, in the case of mutilation, upon
surrender and cancellation of this Warrant, the Company shall execute and
deliver to the Holder a new Warrant (in accordance with Section 7(d))
representing the right to purchase the Warrant Shares then underlying this
Warrant.
(c) Warrant Exchangeable for Multiple Warrants. This Warrant
is exchangeable, upon the surrender hereof by the Holder at the principal office
of the Company, for a new Warrant or Warrants (in accordance with Section 7(d))
representing in the aggregate the right to purchase the number of Warrant Shares
then underlying this Warrant, and each such new Warrant will represent the right
to purchase such portion of such Warrant Shares as is designated by the Holder
at the time of such surrender; provided, however, that no Warrants for
fractional shares of Common Stock shall be given.
(d) Issuance of New Warrants. Whenever the Company is required
to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant
(i) shall be of like tenor with this Warrant, (ii) shall represent, as indicated
on the face of such new Warrant, the right to purchase the Warrant Shares then
underlying this Warrant (or in the case of a new Warrant being issued pursuant
to Section 7(a) or Section 7(c), the Warrant Shares designated by the Holder
which, when added to the number of shares of Common Stock underlying the other
new Warrants issued in connection with such issuance, does not exceed the number
of Warrant Shares then underlying this Warrant), (iii) except for new warrants
issued pursuant to section 7(a), shall have an issuance date, as indicated on
the face of such new Warrant, which is the same as the Issuance Date, and (iv)
shall have the same rights and conditions as this Warrant.
8. NOTICES. Whenever notice is required to be given under this Warrant,
unless otherwise provided herein, such notice shall be given in accordance with
Section 7.4 of the Securities Purchase Agreement. The Company shall provide the
Holder with prompt written notice of all actions taken pursuant to this Warrant,
including in reasonable detail a description of such action and the reason
therefore. Without limiting the generality of the foregoing, the Company will
give written notice to the Holder (i) promptly upon any adjustment of the
Exercise Price or number of Warrant Shares or number or kind of securities
purchasable upon exercise of this Warrant, setting forth in reasonable detail,
and certifying, the facts requiring such adjustment and the calculation of such
adjustment, and (ii) at least fifteen days prior to the date on which the
Company closes its books or takes a record (A) with respect to any dividend or
distribution upon the Common Stock, (B) with respect to any grants, issues or
sales of any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property to holders of Common Stock, or (C) for
determining rights to vote with respect to any Change of Control, dissolution or
liquidation, provided in each case that such information shall be made known to
the public prior to or in conjunction with such notice being provided to the
Holder.
9. AMENDMENT AND WAIVER. Except as otherwise provided herein, the
provisions of this Warrant may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the holders of SPA
Warrants representing at least a majority of the shares of Common Stock
obtainable upon exercise of the SPA Warrants then outstanding; provided, that,
no such action may increase the exercise price of any SPA Warrant or decrease
the number of shares or class of stock obtainable upon exercise of any SPA
Warrant without the
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written consent of the Holder. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the SPA Warrants then
outstanding.
10. GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Warrant shall be governed by, the
internal laws of the State of New York, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York.
11. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly
drafted by the Company and all the holders of the SPA Warrants and shall not be
construed against any person as the drafter hereof. The headings of this Warrant
are for convenience of reference and shall not form part of, or affect the
interpretation of, this Warrant.
12. DISPUTE RESOLUTION. In the case of a dispute as to the
determination of the Exercise Price or the arithmetic calculation of the Warrant
Shares, the Company shall submit the disputed determinations or arithmetic
calculations via facsimile within two Business Days of receipt of the Exercise
Notice giving rise to such dispute, as the case may be, to the Holder. If the
Holder and the Company are unable to agree upon such determination or
calculation of the Exercise Price or the Warrant Shares within three Business
Days of such disputed determination or arithmetic calculation being submitted to
the Holder, then the Company shall, within two Business Days submit via
facsimile (a) the disputed determination of the Exercise Price to an
independent, reputable investment bank selected by the Company and approved by
the Holder or (b) the disputed arithmetic calculation of the Warrant Shares to
the Company's independent, outside accountant. The Company shall use its
reasonable best efforts to cause the investment bank or the accountant, as the
case may be, to perform the determinations or calculations and notify the
Company and the Holder of the results no later than ten Business Days from the
time it receives the disputed determinations or calculations. Such investment
bank's or accountant's determination or calculation, as the case may be, shall
be binding upon all parties absent demonstrable error.
13. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The
remedies provided in this Warrant shall be cumulative and in addition to all
other remedies available under this Warrant and the other Transaction Documents
at law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit the right of the Holder to
pursue actual damages for any failure by the Company to comply with the terms of
this Warrant. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the holder of this Warrant and that the
remedy at law for any such breach may be inadequate. The Company therefore
agrees that, in the event of any such breach or threatened breach, the Holder
shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
14. TRANSFER. This Warrant may be offered for sale, sold, transferred
or assigned without the consent of the Company.
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15. CERTAIN DEFINITIONS. For purposes of this Warrant, the following
terms shall have the following meanings:
(a) "BLOOMBERG" means Bloomberg Financial Markets.
(b) "BUSINESS DAY" means any day other than Saturday, Sunday
or other day on which commercial banks in The City of New York are authorized or
required by law to remain closed.
(c) "CHANGE OF CONTROL" means each occurrence of any of the
following:
(i) the acquisition, directly or indirectly, by any
person or group (within the meaning of Section 13(d)(3) of the Exchange
Act) of beneficial ownership of more than 30% of the aggregate
outstanding voting power of the capital stock of the Company;
(ii) during any period of 12 consecutive months,
individuals who at the beginning of such period constituted the Board
of Directors of the Company (together with any new directors whose
election by such Board of Directors or whose nomination for election by
the shareholders of the Company was approved by a vote of at least a
majority the directors of the Company then still in office who were
either directors at the beginning of such period, or whose election or
nomination for election was previously approved) cease for any reason
to constitute a majority of the Board of Directors of the Company;
(iii) the Company ceases to own and control 100% (or
such lesser percentage ownership with respect to any subsidiaries of
the Company which are not 100% owned by the Company as of the date
hereof) of the shares of the capital stock of the Company's
Subsidiaries, unless otherwise permitted hereunder; or
(iv) (1) the Company consolidates with or merges into
another entity, or (2) conveys, transfers or leases all or
substantially all of its property and assets to any Person, which in
either event (1) or (2) is pursuant to a transaction in which the
outstanding voting capital stock of the Company is reclassified or
changed into or exchanged for cash, securities or other property.
(d) "CLOSING BID PRICE" and "CLOSING SALE PRICE" means, for
any security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade price, respectively,
of such security prior to 4:00 p.m., New York Time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if
14
no closing bid price or last trade price, respectively, is reported for such
security by Bloomberg, the average of the bid prices, or the ask prices,
respectively, of any market makers for such security as reported in the "pink
sheets" by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If
the Closing Bid Price or the Closing Sale Price cannot be calculated for a
security on a particular date on any of the foregoing bases, the Closing Bid
Price or the Closing Sale Price, as the case may be, of such security on such
date shall be the fair market value as mutually determined by the Company and
the Holder. If the Company and the Holder are unable to agree upon the fair
market value of such security, then such dispute shall be resolved pursuant to
Section 12. All such determinations to be appropriately adjusted for any stock
dividend, stock split, stock combination or other similar transaction during the
applicable calculation period.
(e) "COMMON STOCK" means (i) the Company's common stock, par
value $0.01 per share, and (ii) any capital stock into which such Common Stock
shall have been changed or any capital stock resulting from a reclassification
of such Common Stock.
(f) "COMMON STOCK DEEMED OUTSTANDING" means, at any given
time, the number of shares of Common Stock actually outstanding at such time,
plus the number of shares of Common Stock deemed to be outstanding pursuant to
Sections 2(a)(i) and 2(a)(ii) hereof regardless of whether the Options or
Convertible Securities are actually exercisable or convertible at such time, but
excluding any shares of Common Stock owned or held by or for the account of the
Company or issuable upon exercise of the SPA Warrants.
(g) "CONVERTIBLE SECURITIES" means any stock or securities
(other than Options) directly or indirectly convertible into or exercisable or
exchangeable for Common Stock.
(h) "EXCLUDED SECURITIES" means shares of Common Stock deemed
to have been issued or sold by the Company (i) in connection with any employee
benefit plan which has been approved by the Board of Directors of the Company,
pursuant to which the Company's securities may be issued to any employee,
officer or director for services provided to the Company, (ii) in connection
with any acquisition by the Company, whether through an acquisition for stock or
a merger, of any business, assets or technologies the primary purpose of which
is not to raise equity capital, (iii) pursuant to a bona fide firm commitment
underwritten public offering with a nationally recognized underwriter which
generates net proceeds to the Company in excess of $10,000,000 (other than an
"at-the-market offering" as defined in Rule 415(a)(4) under the 1933 Act and
"equity lines") and (iv) upon conversion of any Options or Convertible
Securities which are outstanding under any stock option plan of the Company on
the day immediately preceding the Issuance Date, provided that the terms of such
Options or Convertible Securities are not amended, modified or changed on or
after the Issuance Date.
(i) "EXPIRATION DATE" means the date two years after the
applicable Closing Date (as defined in the Securities Purchase Agreement) at
which the Company's obligation to issue this Warrant arose or, if such date
falls on a day other than a Business Day or on which trading does not take place
on the Principal Market (a "HOLIDAY"), the next date that is not a Holiday.
15
(j) "OPTIONS" means any rights, warrants or options to
subscribe for or purchase Common Stock or Convertible Securities.
(k) "PERSON" means an individual, a limited liability company,
a partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency
thereof.
(l) "PRINCIPAL MARKET" means any of The New York Stock
Exchange, Inc., the American Stock Exchange, the Nasdaq National Market, The
Nasdaq SmallCap Market or the OTC Bulletin Board.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has caused this Warrant to
Purchase Common Stock to be duly executed as of the Issuance Date set out above.
WESTERN GOLDFIELDS, INC.
By:
-----------------------------
Name:
Title:
17
EXHIBIT A
---------
EXERCISE NOTICE
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT TO PURCHASE COMMON STOCK
WESTERN GOLDFIELDS, INC. CORPORATION
The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("WARRANT SHARES") of Western
Goldfields, Inc., an Idaho corporation (the "COMPANY"), evidenced by the
attached Warrant to Purchase Common Stock (the "WARRANT"). Capitalized terms
used herein and not otherwise defined shall have the respective meanings set
forth in the Warrant.
1. Payment of Exercise Price. Upon exercise of the Warrant, the holder
shall pay the Aggregate Exercise Price in the sum of $___________________ to the
Company in accordance with the terms of the Warrant.
2. Accredited Investor. The holder is an "accredited investor" as
defined in Rule 501(c) under the Securities Act.
3. Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.
4. Delivery of Warrant. The Holder shall deliver the original Warrant
to the Company within five (5) Business Days from the date hereof.
[5. The Holder hereby represents that contemporaneous with the delivery
of this exercise notice, that the Holder has sold __________ Warrant Shares and
hereby represents that it has complied with the prospectus delivery requirements
of the Securities Act as applicable in connection with such sale.](1)
Date: _______________ __, ______
--------------------------------
Name of Registered Holder
By:
-----------------------------
Name:
Title:
18
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(1) Add only if a contemporaneous sale has occurred pursuant to a
Registration Statement.
ACKNOWLEDGMENT
The Company hereby acknowledges this Exercise Notice and hereby directs
OTC Stock Transfer Company of Salt Lake City, Utah to issue the above indicated
number of shares of Common Stock in accordance with the Transfer Agent
Instructions dated _________, ____ from the Company and acknowledged and agreed
to by OTC Stock Transfer Company of Salt Lake City, Utah.
WESTERN GOLDFIELDS, INC.
By:
-----------------------------
Name:
Title:
19
