EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "AGREEMENT") is dated as of
February 13, 2006 by and among Western Goldfields, Inc., an Idaho corporation
(the "COMPANY"), and each purchaser listed on the Schedule of Purchasers
attached hereto (each, a "PURCHASER" and collectively, the "PURCHASERS").
WHEREAS:
A. The Company and each Purchaser is executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Section 4(2) of the Securities Act of 1933, as amended (the "SECURITIES
ACT"), Regulation D ("REGULATION D") or Regulation S ("REGULATION S"), each as
promulgated by the United States Securities and Exchange Commission (the "SEC")
under the Securities Act.
B. Each Purchaser wishes to purchase, and the Company wishes to sell,
upon the terms and conditions stated in this Agreement (i) the aggregate number
of shares of common stock, par value US$0.01 per share, of the Company (the
"COMMON STOCK") set forth opposite such Purchaser's name in column (3) on the
Schedule of Purchasers (collectively, the "Shares"), and (ii) Warrants, in
substantially the form attached hereto as Exhibit A (collectively the
"WARRANTS"), to acquire up to that number of shares of Common Stock set forth
opposite such Purchaser's name in column (4) of the Schedule of Purchasers
attached hereto (collectively, the "WARRANT SHARES").
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each of the
Purchasers agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement, the following terms have the meanings indicated:
"AFFILIATE" means any Person that, directly or indirectly
through one or more intermediaries, controls or is controlled by or is
under common control with a Person, as such terms are used in and
construed under Rule 144.
"ANNUAL REPORT" means the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 2004.
"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.
"CLOSING" means the multiple closings of the purchase and sale
of the Shares and Warrants pursuant to Section 2.1.
"CLOSING DATE" means the dates of each Closing.
"COMMON STOCK EQUIVALENTS" means, collectively, Options and
Convertible Securities.
"COMPANY COUNSEL" means Troutman Sanders LLP.
"CONVERTIBLE SECURITIES" means any stock or securities (other
than Options) convertible into or exercisable or exchangeable for
Common Stock.
"EFFECTIVE DATE" means the date that the Registration
Statement is first declared effective by the SEC.
"EFFECTIVENESS PERIOD" means the third anniversary of the
Effective Date or such earlier date when either (i) all Registrable
Securities of the Purchasers covered by the applicable Registration
Statement have been sold, or (ii) all Registrable Securities owned by
each Purchaser may be sold pursuant to Rule 144(k) as evidenced by a
written opinion letter to such effect, addressed to the Company's
transfer agent and the affected Holders.
"ELIGIBLE 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.
"EVENT" means any of the following:
(i) the Registration Statement is not filed on or
prior to the Filing Date or is not declared effective on or
prior to the Required Effectiveness Date;
(ii) a Post-Effective Amendment is not filed on or
prior to the Post-Effective Amendment Filing Deadline; or
(iii) after the Effective Date, a Purchaser is not
permitted to sell Registrable Securities under the
Registration Statement (or a subsequent Registration Statement
filed in replacement thereof) for any reason (other than the
requirement of the Company to file a Post-Effective Amendment
and for such Post-Effective Amendment to be declared
effective) for either (A) 45 or more consecutive Trading Days,
or (B) 90 Trading Days, whether or not consecutive, in any
365-day period); provided, however, that none of the foregoing
will constitute an "Event" if the delay is caused by any act
of war, terrorism, natural disaster or power failure.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FILING DATE" means ninety days after the final Closing Date.
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"LIEN" means any lien, charge, claim, tax, security interest,
encumbrance, right of first refusal or other restriction.
"LOSSES" means any and all losses, claims, damages,
liabilities, settlement costs and expenses, including, without
limitation, costs of preparation and reasonable attorneys' fees.
"MERGER AGREEMENT" means that certain merger agreement, dated
as of September 30, 2005 by and among the Company, Romarco Minerals
Inc., an Ontario corporation and Romarco Merger Corporation, a Delaware
corporation.
"OPTIONS" means any rights, warrants or options to subscribe
for or purchase Common Stock or Convertible Securities.
"PERSON" means any individual or corporation, partnership,
trust, incorporated or unincorporated association, joint venture,
limited liability company, joint stock company, government (or an
agency or subdivision thereof) or any court or other federal, state,
local or other governmental authority or other entity of any kind.
"POST-EFFECTIVE AMENDMENT" means a post-effective amendment to
the Registration Statement.
"POST-EFFECTIVE AMENDMENT FILING DEADLINE" means the thirtieth
Trading Day after the Registration Statement ceases to be effective
pursuant to applicable securities laws due to the passage of time or
the occurrence of an event requiring the Company to file a
Post-Effective Amendment; provided, however, that such number of
Trading Days does not include any days that the Post-Effective
Amendment cannot be filed because any Purchaser has not provided the
Company with information required to be contained in the Post-Effective
Amendment.
"PROCEEDING" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"PROSPECTUS" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes
any information previously omitted from a prospectus filed as part of
an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act), as amended or supplemented by
any prospectus supplement, with respect to the terms of the offering of
any portion of the Registrable Securities covered by the Registration
Statement, and all other amendments and supplements to the Prospectus,
including post-effective amendments, and all material incorporated by
reference or deemed to be incorporated by reference in such Prospectus.
"REGISTRABLE SECURITIES" means any Shares or Warrant Shares
issued or issuable pursuant to the Transaction Documents, together with
any securities issued or issuable upon any stock split, dividend or
other distribution, recapitalization or similar event with respect to
the foregoing.
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"REGISTRATION STATEMENT" means each registration statement
required to be filed under Article VI, including (in each case) the
Prospectus, amendments and supplements to such registration statement
or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference or deemed
to be incorporated by reference in such registration statement.
"REQUIRED EFFECTIVENESS DATE" means 120 days after the Filing
Date, provided, however, that such date shall be extended by such
number of days as the Company is unable to file the Registration
Statement or an amendment thereto because one or more Purchasers has
not provided the Company with information required to be included in
the Registration Statement or an amendment thereto.
"RULE 144," "RULE 415," and "RULE 424" means Rule 144, Rule
415 and Rule 424, respectively, promulgated by the SEC pursuant to the
Securities Act, as such Rules may be amended from time to time, or any
similar rule or regulation hereafter adopted by the SEC having
substantially the same effect as such Rule.
"SECURITIES" means, collectively, the Shares, the Warrants and
the Warrant Shares.
"SUBSIDIARY" means any Person in which the Company, directly
or indirectly, owns capital stock or holds an equity or similar
interest.
"TRADING DAY" means (a) any day on which the Common Stock is
listed or quoted and traded on its primary Trading Market, (b) if the
Common Stock is not then listed or quoted and traded on any Eligible
Market, then a day on which trading occurs on The Nasdaq SmallCap
Market (or any successor thereto), or (c) if trading does not occur on
The Nasdaq SmallCap Market (or any successor thereto), any Business
Day.
"TRADING MARKET" means the OTC Bulletin Board or any other
Eligible Market on which the Common Stock is then listed or quoted.
"TRANSACTION DOCUMENTS" means this Agreement, the Warrants,
the Transfer Agent Instructions and any other documents or agreements
executed in connection with the transactions contemplated hereunder.
"TRANSFER AGENT" means OTC Stock Transfer Company of Salt Lake
City, Utah, or any other transfer agent selected by the Company
"TRANSFER AGENT INSTRUCTIONS" means the Irrevocable Transfer
Agent Instructions, in the form of Exhibit B, executed by the Company
and delivered to and acknowledged in writing by the Transfer Agent.
ARTICLE II
PURCHASE AND SALE
2.1 Closing. Subject to the satisfaction (or waiver) of the conditions
set forth in Section 5 below, the Company shall issue and sell to each
Purchaser, and each Purchaser
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severally, but not jointly, agrees to purchase from the Company on each Closing
Date, (A) such number of shares of Common Stock as is set forth opposite such
Purchaser's name in column (3) on the Schedule of Purchasers, and (B) one or
more Warrants to acquire up to that number of Warrant Shares as is set forth
opposite such Purchaser's name in column (4) on the Schedule of Purchasers. The
purchase price for the Securities to be purchased by each Purchaser at each
respective Closing (the "PURCHASE PRICE") shall be the amount set forth opposite
such Purchaser's name in column (5) of the Schedule of Purchasers. Each Closing
shall take place at the offices of Troutman Sanders LLP immediately following
the execution hereof, or at such other location or time as the parties may
agree.
2.2 Closing Deliveries.
(a) At each Closing, the Company shall deliver or cause to be
delivered to each Purchaser the following:
(i) each of the Transaction Documents to which the
Company is a party duly executed by the Company;
(ii) the Warrants and the certificate for the Shares;
(iii) a certificate, executed by a duly authorized
executive officer of the Company, dated as of each Closing
Date in the form attached hereto as Exhibit C; and
(iv) duly executed Transfer Agent Instructions
acknowledged by the Transfer Agent.
(b) At each Closing, the applicable Purchaser(s) shall deliver
or cause to be delivered to the Company (i) each Transaction Document
to which such Purchaser is a party, duly executed by such Purchaser,
and (ii) the purchase price as is set forth opposite such Purchaser's
name in column (5) on the Schedule of Purchasers, in United States
dollars and in immediately available funds, by wire transfer to an
account designated in writing by the Company for such purpose.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. The Company hereby
represents and warrants to each of the Purchasers as follows:
(a) Subsidiaries. The Company has no direct or indirect
Subsidiaries other than those listed in Schedule 3.1(a). Except as
disclosed in Schedule 3.1(a), the Company owns, directly or indirectly,
all of the capital stock or comparable equity interests of each
Subsidiary free and clear of any Lien, and all the issued and
outstanding shares of capital stock or comparable equity interests of
each Subsidiary are validly issued and are fully paid, non-assessable
and free of preemptive and similar rights.
(b) Organization and Qualification. Except as disclosed in
Schedule 3.1(b) each of the Company and the Subsidiaries is an entity
duly organized, validly existing and in
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good standing under the laws of the jurisdiction of its incorporation
or organization (as applicable), with the requisite power and authority
to own and use its properties and assets and to carry on its business
as currently conducted. Neither the Company nor any Subsidiary is in
violation of any of the provisions of its respective certificate or
articles of incorporation, bylaws or other organizational or charter
documents. To the knowledge of the Company, each of the Company and the
Subsidiaries is duly qualified to do business and is in good standing
as a foreign corporation or other entity in each jurisdiction in which
the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or
in good standing, as the case may be, could not, individually or in the
aggregate, have or result in a material adverse effect on the results
of operations, assets, prospects, business or condition (financial or
otherwise) of the Company and the Subsidiaries, taken as a whole (a
"MATERIAL ADVERSE EFFECT").
(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations hereunder and thereunder. The
execution and delivery of each of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated
hereby and thereby have been duly authorized by all necessary action on
the part of the Company and no further consent or action is required by
the Company, its Board of Directors or its stockholders, except the
consent of Romarco Minerals, Inc. pursuant to the Merger Agreement.
Each of the Transaction Documents has been (or upon delivery will be)
duly executed by the Company and is, or when delivered in accordance
with the terms hereof, will constitute, the valid and binding
obligation of the Company enforceable against the Company in accordance
with its terms, except as limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors' rights generally and
(ii) equitable principles relating to the availability of specific
performance, injunctive relief and other equitable remedies.
(d) No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby do not and
will not (i) conflict with or violate any provision of the Company's or
any Subsidiary's certificate or articles of incorporation, bylaws or
other organizational or charter documents, (ii) conflict with, or
constitute a default (or an event that with notice or lapse of time or
both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt
or other instrument (evidencing a Company or Subsidiary debt or
otherwise) or other understanding to which the Company, or any
Subsidiary is a party or by which any property or asset of the Company
or any Subsidiary is bound or affected, except to the extent that such
conflict, default or termination right could not reasonably be expected
to have a Material Adverse Effect and except for any conflict, default
or termination right that may arise under the Merger Agreement, or
(iii), to the knowledge of the Company, result in a violation of any
law, rule, regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the Company
or a Subsidiary is subject (including federal and state securities laws
and regulations and the rules and regulations of any self-regulatory
organization to which the Company or its securities are subject), or by
which any property or asset of the Company or a Subsidiary is bound or
affected.
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(e) Issuance of the Securities. The Shares and Warrants are
duly authorized and, when issued and paid for in accordance with the
Transaction Documents, shall be free and clear from all Liens with
respect to the issue thereof and shall not be subject to preemptive
rights or similar rights of stockholders. As of each Closing Date, a
number of shares of Common Stock shall have been duly authorized and
reserved for issuance which equals the number of shares of Common Stock
issuable upon conversion of the exercise of the Warrants to be issued
at such Closing. Upon exercise and issuance in accordance with the
Warrants, the Warrant Shares shall be validly issued, fully paid and
nonassessable and free from all Liens with respect to the issue
thereof, with the holder(s) being entitled to all rights accorded to a
holder of Common Stock. Assuming the accuracy of each of the
representations and warranties of the Purchasers contained in Section
3.2, the issuance by the Company of the Securities is exempt from
registration under the Securities Act.
(f) Capitalization. The number of shares and type of all
authorized, issued and outstanding capital stock, options and other
securities of the Company (whether or not presently convertible into or
exercisable or exchangeable for shares of capital stock of the Company)
is set forth in Schedule 3.1(f). All outstanding shares of capital
stock are duly authorized, validly issued, fully paid and nonassessable
and have been issued in compliance with all applicable securities laws,
except where the failure to be so authorized, issued or in compliance
could not reasonably be expected to result in a Material Adverse Effect
(as defined below). Except as disclosed in Schedule 3.1(f), there are
no outstanding options, warrants, script rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities,
rights or obligations convertible into or exercisable or exchangeable
for, or giving any Person any right to subscribe for or acquire, any
shares of Common Stock, or contracts, commitments, understandings or
arrangements by which the Company or any Subsidiary is or may become
bound to issue additional shares of Common Stock, or securities or
rights convertible or exchangeable into shares of Common Stock.
(g) SEC Reports; Financial Statements. The Company has filed
all reports required to be filed by it under the Securities Act and the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for
the two years preceding the date hereof (or such shorter period as the
Company was required by law to file such material) (the foregoing
materials being collectively referred to herein as, the "SEC REPORTS"
and, together with this Agreement and the Schedules to this Agreement,
the "DISCLOSURE MATERIALS") on a timely basis or has received a valid
extension of such time of filing and has filed any such SEC Reports
prior to the expiration of any such extension. As of their respective
dates, the SEC Reports complied in all material respects with the
requirements of the Securities Act and the Exchange Act and the rules
and regulations of the SEC promulgated thereunder, and none of the SEC
Reports, when filed, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Reports comply in all
material respects with applicable accounting requirements and the rules
and regulations of the SEC with respect thereto as in effect at the
time of filing. Such financial statements have been prepared in
accordance with United States generally accepted accounting principles
applied on a consistent basis during the periods involved ("GAAP"),
except as may be otherwise specified in such financial statements or
the notes thereto, and fairly present in all material respects the
financial position of the
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Company and its consolidated subsidiaries as of and for the dates
thereof and the results of operations and cash flows for the periods
then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.
(h) Material Changes. Since the date of the latest audited
financial statements included within the SEC Reports, except as
specifically disclosed in the SEC Reports, (i) there has been no event,
occurrence or development that, individually or in the aggregate, has
had or that could result in a Material Adverse Effect, (ii) the Company
has not incurred any liabilities (contingent or otherwise) other than
(A) trade payables and accrued expenses incurred in the ordinary course
of business consistent with past practice and (B) liabilities not
required to be reflected in the Company's financial statements pursuant
to GAAP or required to be disclosed in filings made with the SEC, (iii)
the Company has not altered its method of accounting or the identity of
its auditors, (iv) the Company has not declared or made any dividend or
distribution of cash or other property to its stockholders or
purchased, redeemed or made any agreements to purchase or redeem any
shares of its capital stock, and (v) the Company has not issued any
equity securities to any officer, director or Affiliate, except
pursuant to existing Company stock option plans or as set forth in
Schedule 3.1(h).
(i) Absence of Litigation. Except as set forth in Schedule
3.1(i), there is no action, suit, claim, proceeding, inquiry or
investigation before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of
the Company, threatened against or affecting the Company or any of its
Subsidiaries that could, individually or in the aggregate, have a
Material Adverse Effect.
(j) Compliance. Except as set forth on Schedule 3.1(j),
neither the Company nor any Subsidiary (i) is in default under or
violation of (and no event has occurred that has not been waived that,
with notice or lapse of time or both, would result in a default by the
Company or any Subsidiary under), nor has the Company or any Subsidiary
received notice of a claim that it is in default under or that it is in
violation of, any indenture, loan or credit agreement or any other
agreement or instrument to which it is a party or by which it or any of
its properties is bound (whether or not such default or violation has
been waived), (ii) is in violation of any order of any court,
arbitrator or governmental body, or (iii) to the knowledge of the
Company, is or has been in violation of any statute, rule or regulation
of any governmental authority, including without limitation all
foreign, federal, state and local laws relating to taxes, environmental
protection, occupational health and safety, product quality and safety
and employment and labor matters, except in each case as could not,
individually or in the aggregate, have or result in a Material Adverse
Effect.
(k) Title to Assets. The Company and the Subsidiaries have
good and marketable title in all personal property owned by them that
is material to the business of the Company and the Subsidiaries, in
each case free and clear of all Liens, except for Liens as do not
materially affect the value of such property and do not materially
interfere with the use made and proposed to be made of such property by
the Company and the Subsidiaries, and except for the first priority
security granted to RMB International (Dublin) Limited and RMB
Resources Limited. To the knowledge of the Company, any real property
and facilities held under lease by the Company and the Subsidiaries are
held by them under valid, subsisting and enforceable leases of which
the Company and the Subsidiaries are in compliance.
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(l) Private Placement. Neither the Company nor any Person
acting on the Company's behalf has sold or offered to sell or solicited
any offer to buy the Securities by means of any form of general
solicitation or advertising. To the knowledge of the Company, neither
the Company nor any of its Affiliates nor any Person acting on the
Company's behalf has, directly or indirectly, at any time within the
past six months, made any offer or sale of any security or solicitation
of any offer to buy any security under circumstances that would (i)
eliminate the availability of the exemption from registration under
Regulation D or Regulation S under the Securities Act in connection
with the offer and sale of the Securities as contemplated hereby or
(ii) cause the offering of the Securities pursuant to the Transaction
Documents to be integrated with prior offerings by the Company for
purposes of any applicable law, regulation or stockholder approval
provisions, including, without limitation, under the rules and
regulations of any Trading Market. The Company is not, and was not an
Affiliate of, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(m) Form SB-2 Eligibility. The Company is eligible to register
its Common Stock for resale by the Purchasers using Form SB-2
promulgated under the Securities Act.
(n) Application of Takeover Protections. There is no control
share acquisition, business combination, poison pill (including any
distribution under a rights agreement) or other similar anti-takeover
provision under the Company's charter documents or the laws of its
state of incorporation that is or could become applicable to any of the
Purchasers as a result of the Purchasers and the Company fulfilling
their obligations or exercising their rights under the Transaction
Documents, including, without limitation, as a result of the Company's
issuance of the Securities and the Purchasers' ownership of the
Securities.
(o) Acknowledgment Regarding Purchasers' Purchase of
Securities. The Company acknowledges and agrees that each of the
Purchasers is acting solely in the capacity of an arm's length
purchaser with respect to this Agreement and the transactions
contemplated hereby. The Company further acknowledges that no Purchaser
is acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to this Agreement and the transactions
contemplated hereby and any advice given by any Purchaser or any of
their respective representatives or agents in connection with this
Agreement and the transactions contemplated hereby is merely incidental
to such Purchaser's purchase of the Securities. The Company further
represents to each such Purchaser that the Company's decision to enter
into this Agreement has been based solely on the independent evaluation
of the transactions contemplated hereby by the Company and its
representatives.
(p) Patents and Trademarks. The Company and the Subsidiaries
have, or have rights to use, all patents, patent applications,
trademarks, trademark applications, service marks, trade names,
copyrights, licenses and other similar rights that are necessary or
material for use in connection with their respective businesses as
described in the SEC Reports and which the failure to so have could
have a Material Adverse Effect (collectively, the "INTELLECTUAL
PROPERTY RIGHTS"). Neither the Company nor any Subsidiary has received
a written notice that the Intellectual Property Rights used by the
Company or any Subsidiary violates or infringes upon the rights of any
Person. To the knowledge of the Company, all such Intellectual Property
Rights are enforceable and there is no existing infringement by another
Person of any of the Intellectual Property Rights.
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(q) Regulatory Permits. To the knowledge of the Company, the
Company and the Subsidiaries possess all certificates, authorizations
and permits issued by the appropriate federal, state, local or foreign
regulatory authorities necessary to conduct their respective businesses
as described in the SEC Reports, except where the failure to possess
such permits could not, individually or in the aggregate, have or
result in a Material Adverse Effect ("MATERIAL PERMITS"), and neither
the Company nor any Subsidiary has received any notice of proceedings
relating to the revocation or modification of any Material Permit.
(r) Sarbanes-Oxley Act. The Company is in compliance with any
and all applicable requirements of the Sarbanes-Oxley Act of 2002 that
are effective as of the date hereof, and any and all applicable rules
and regulations promulgated by the SEC thereunder that are effective as
of the date hereof, except where such noncompliance would not have,
individually or in the aggregate, a Material Adverse Effect.
3.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, as to itself only and for no other Purchaser, represents and warrants to
the Company as follows:
(a) Organization; Authority. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite corporate or
partnership or other applicable power and authority to enter into and
to consummate the transactions contemplated by the Transaction
Documents and otherwise to carry out its obligations hereunder and
thereunder. The purchase by such Purchaser of the Securities hereunder
has been duly authorized by all necessary action on the part of such
Purchaser. This Agreement has been duly executed and delivered by such
Purchaser and constitutes the valid and binding obligation of such
Purchaser, enforceable against it in accordance with its terms, except
as limited by (i) applicable bankruptcy, insolvency, reorganization,
moratorium, and other laws of general application affecting enforcement
of creditors' rights generally and (ii) equitable principles relating
to the availability of specific performance, injunctive relief and
other equitable remedies.
(b) Investment Intent. Such Purchaser is (i) acquiring the
Shares and Warrants, and (ii) upon exercise of the Warrants will
acquire the Warrant Shares issuable upon exercise of the Warrants, in
the ordinary course of business for its own account and not with a view
towards, or for resale in connection with, the public sale or
distribution thereof. Such Purchaser does not have any agreement or
understanding, directly or indirectly, with any Person to distribute
any of the Securities.
(c) Purchaser Status. At the time such Purchaser was offered
the Securities, it was, and at the date hereof it is, an "accredited
investor" as defined in Rule 501(a) under the Securities Act.
(d) Experience of such Purchaser. Such Purchaser, either alone
or together with its representatives, has such knowledge,
sophistication and experience in business and financial matters so as
to be capable of evaluating the merits and risks of the prospective
investment in the Securities, and has so evaluated the merits and risks
of such investment. Such Purchaser is able to bear the economic risk of
an investment in the Securities and, at the present time, is able to
afford a complete loss of such investment.
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(e) Access to Information. Such Purchaser acknowledges that it
has reviewed the Disclosure Materials and has been afforded (i) the
opportunity to ask such questions as it has deemed necessary of, and to
receive answers from, representatives of the Company concerning the
terms and conditions of the offering of the Securities and the merits
and risks of investing in the Securities; (ii) access to information
about the Company and the Subsidiaries and their respective financial
condition, results of operations, business, properties, management and
prospects sufficient to enable it to evaluate its investment; and (iii)
the opportunity to obtain such additional information that the Company
possesses or can acquire without unreasonable effort or expense that is
necessary to make an informed investment decision with respect to the
investment. Neither such inquiries nor any other investigation
conducted by or on behalf of such Purchaser or its representatives or
counsel shall modify, amend or affect such Purchaser's right to rely on
the truth, accuracy and completeness of the Disclosure Materials and
the Company's representations and warranties contained in the
Transaction Documents.
(f) Compliance with Securities Act. Such Purchaser understands
that the sale of the Securities has not been registered under the
Securities Act in reliance upon an exemption therefrom for non-public
or limited offerings. The undersigned covenants that it will not make
any resale, transfer or other disposition of the Shares (and any
securities issued upon conversion thereof) except pursuant to
registration under the Securities Act, or pursuant to an available
exemption from registration (accompanied by an option of counsel
acceptable to the Company that such resale, transfer or other
disposition is exempt from the registration provisions of all
applicable federal and state laws). The undersigned agrees not to
engage in any hedging transactions with regard to the Securities (or
any securities issued upon conversion thereof) unless the same are in
compliance with the Securities Act.
(g) Prior Short Selling. At no time during the 30 days prior
to each respective Closing has such Purchaser engaged in or effected,
in any manner whatsoever, directly or indirectly, in any "short sale"
(as such term is defined in Rule 3b-3 of the Exchange Act) of the
Common Stock.
(h) Commissions. Such Purchaser has not incurred any
obligation for any finder's or broker's or agent's fees or commissions
in connection with the transactions contemplated hereby.
(i) No Broker -Dealer. Such Purchaser is not required to be
registered as a broker-dealer pursuant to Section 15 of the Exchange
Act.
(j) No Advertisements. Such Purchaser is not purchasing the
Shares and Warrants as a result of or subsequent to any advertisement,
article, notice or other communication published in any newspaper,
magazine, or similar media or broadcast over television or radio, or
presented at any seminar or meeting.
11
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
(a) The Securities may only be disposed of pursuant to an
effective registration statement under the Securities Act or pursuant
to an available exemption from the registration requirements of the
Securities Act, and in compliance with any applicable state securities
laws. In connection with any transfer of Securities other than pursuant
to an effective registration statement or to the Company or pursuant to
Rule 144(k), except as otherwise set forth herein, the Company may
require the transferor to provide to the Company an opinion of counsel
selected by the transferor, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that
such transfer does not require registration under the Securities Act.
Notwithstanding the foregoing, the Company hereby consents to and
agrees to register on the books of the Company and with its Transfer
Agent, without any such legal opinion, any transfer of Securities by a
Purchaser to an Affiliate of such Purchaser, provided that the
transferee certifies to the Company that it is an "accredited investor"
as defined in Rule 501(a) under the Securities Act.
(b) The Purchasers agree to the imprinting, so long as is
required by this Section 4.1(b), of a legend substantially in the
following form on any certificate evidencing Securities:
"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."
Certificates evidencing Securities may not be required to contain such legend or
any other legend (i) while a Registration Statement covering the resale of such
Securities is effective under the Securities Act; provided, that, the Company's
counsel has delivered a legal opinion relating to the removal of legends upon a
sale or transfer of such Securities, or (ii) following any sale of such
Securities pursuant to Rule 144, or (iii) if such Securities are eligible for
sale under Rule 144(k), or (iv) if such legend is not required under applicable
requirements of the Securities Act. The Company will cause its counsel to issue
the legal opinion included in the Transfer Agent Instructions to the Transfer
Agent on the Effective Date and to deliver any required legal opinions with
respect to the removal of legends upon the sale or transfer of Securities.
Following the Effective Date or at such earlier time as a legend is no longer
required for certain Securities, the Company will no later than five Trading
Days following the delivery by a Purchaser to the Company of a legended
certificate representing such Securities, use its reasonable best efforts to
deliver or cause to be delivered to such Purchaser a certificate representing
such Securities that is free from all restrictive and other legends. The Company
12
may not make any notation on its records or give instructions to any transfer
agent of the Company that enlarge the restrictions on transfer set forth in this
Section.
4.2 Furnishing of Information. As long as any Purchaser owns
Securities, the Company agrees to use its best efforts to timely file (or obtain
extensions in respect thereof and file within the applicable grace period) all
reports required to be filed by the Company after the date hereof pursuant to
the Exchange Act. As long as any Purchaser owns any Securities, if the Company
is not required to file reports pursuant to such laws, it will prepare and
furnish to the Purchasers and make publicly available in accordance with
paragraph (c) of Rule 144 such information as is required for the Purchasers to
sell the Securities under Rule 144. The Company further covenants that it will
take such further action as the Purchasers or subsequent holders of Securities
may reasonably request to satisfy the provisions of Rule 144 applicable to the
issuer of securities relating to transactions for the sale of securities
pursuant to Rule 144, but only to the extent that the Company, or counsel of the
Company agree, that the Purchasers or subsequent holders are able to avail
themselves of the exemption created by Rule 144.
4.3 Integration. The Company shall not, and shall use its best efforts
to ensure that no Affiliate of the Company shall, sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Purchasers, or
that would be integrated with the offer or sale of the Securities for purposes
of the rules and regulations of any Trading Market.
4.4 Reservation of Common Stock.
The Company shall maintain a reserve from its duly authorized
shares of Common Stock for issuance pursuant to the Transaction
Documents in such amount as may be required to fulfill its obligations
in full under the Transaction Documents. In the event that at any time
the then authorized shares of Common Stock are insufficient for the
Company to satisfy its obligations in full under the Transaction
Documents, the Company shall promptly take such actions as may be
required to increase the number of authorized shares.
4.5 [Intentionally Deleted.]
4.6 Variable Securities; Additional Registration Statement. For so long
as any Warrants remain outstanding, the Company shall not, in any manner, issue
or sell any rights, warrants or options to subscribe for or purchase Common
Stock or directly or indirectly convertible into or exchangeable or exercisable
for Common Stock at a price which varies or may vary with the market price of
the Common Stock, including by way of one or more reset(s) to any fixed price
unless the conversion, exchange or exercise price of any such security cannot be
less than the then applicable Exercise Price (as defined in the Warrants) with
respect to the Common Stock under any into which any Warrant is exerciseable.
Until the Effective Date, the Company will not file a registration statement
under the Securities Act relating to securities that are not the Securities,
other than a registration statement on Form S-8, in order to register increases
in the shares underlying equity incentive plans in existence as of the date of
this Agreement. Notwithstanding the foregoing, this Section 4.6 shall not apply
to the issuance of
13
7,600,000 stock options to directors, officers and employees of the Company and
the issuance of 1,000,000 warrants to purchase Common Stock to Metalmark Capital
LLC.
4.7 Securities Laws Disclosure; Publicity. The Company shall, on the
day following execution of this Agreement, issue a press release, not in
violation of any applicable securities laws, disclosing all material terms of
the transactions contemplated hereby. On the first Trading Day following the
latest Closing Date of all the Purchasers, the Company shall file a Current
Report on Form 8-K with the SEC (the "8-K FILING") describing the terms of the
transactions contemplated by the Transaction Documents and including as exhibits
to such Current Report on Form 8-K this Agreement, the form of the Warrant in
the form required by the Exchange Act. Thereafter, the Company shall timely file
any filings and notices required by the SEC or applicable law with respect to
the transactions contemplated hereby and provide copies thereof to the
Purchasers promptly after filing. The Company and the Purchasers shall consult
with each other in issuing any press releases or otherwise making public
statements or filings and other communications with the SEC or any regulatory
agency or Trading Market with respect to the transactions contemplated hereby,
and neither party shall issue any such press release or otherwise make any such
public statement, filing or other communication without the prior consent of the
other, except if such disclosure is required by law, in which case the
disclosing party shall promptly provide the other party with prior notice of
such public statement, filing or other communication.
4.8 Use of Proceeds. The Company shall use the net proceeds from the
sale of the Shares and Warrants hereunder (i) to pay any and all expenses
incurred in connection with the sale of the Securities hereunder, (ii) to pay
for the filing and maintaining of any registration statement required by this
Agreement, (iii) to pay off US$1,500,000 face principal amount of notes (plus
accrued and unpaid interest thereon and other expenses) issued to RMB
International (Dublin) Limited and RMB Resources Limited, (iv) to pay off
AUD$25,185.86 to Freehills (v) to pay off US$705,186.12 face principal amount of
promissory notes (plus accrued and unpaid interest thereon) issued to Romarco;
(vi) to pay off US$225,000 of expenses incurred by Romarco in connection with
the Merger Agreement; (vii) to pay US$1,000,000 to Romarco and (vii) for the
general working capital requirements of the Company.
4.9 Lost, etc. Certificates Evidencing New Common Stock; Exchange. Upon
receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of any certificate evidencing the Shares owned
by any Purchaser, and (in the case of loss, theft or destruction) of an
unsecured indemnity satisfactory to it, and upon reimbursement to the Company of
all reasonable expenses incidental thereto, and upon surrender and cancellation
of such certificate, if mutilated, the Company will make and deliver in lieu of
such certificate a new certificate of like tenor and for the number of shares
evidenced by such certificate which remain outstanding. Each Purchaser's
agreement of indemnity shall constitute indemnity satisfactory to the Company
for purposes of this Section 4.9. Upon surrender of any certificate representing
any Shares for exchange at the office of the Company, the Company at its expense
will cause to be issued in exchange therefor new certificates in such
denomination or denominations as may be requested for the same aggregate number
of the Shares represented by the certificate so surrendered and registered as
such holder may request. The Company will also pay the cost of all deliveries of
certificates for such shares to the office of such Purchaser
14
(including the cost of insurance against loss or theft in an amount satisfactory
to the holders) upon any exchange provided for in this Section 4.9.
ARTICLE V
CONDITIONS
5.1 Conditions Precedent to the Obligations of the Purchasers. The
obligation of each Purchaser to acquire the Shares and Warrants at any Closing
is subject to the satisfaction or waiver by such Purchaser, at or before each
respective Closing, of each of the following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company contained herein must be true and correct in
all material respects as of the date when made and as of each Closing
Date as though made on and as of such date.
(b) Performance. The Company and such Purchaser shall have
performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by it at or prior
to such Closing Date.
(c) Listing. The Common Stock (I) shall be designated for
quotation or listed on the Trading Market, and (II) shall not have been
suspended, as of the respective Closing Date, by the SEC or the Trading
Market from trading on the Trading Market nor shall suspension by the
SEC or the Trading Market have been threatened, as of such Closing
Date, either (A) in writing by the SEC or the Trading Market, or (B) by
falling below the minimum listing maintenance requirements of the
Trading Market.
5.2 Conditions Precedent to the Obligations of the Company. The
obligation of the Company to sell the Shares and Warrants set forth opposite
each Purchaser's name on the Schedule of Purchasers is subject to the
satisfaction or waiver by the Company, at or before any Closing Date, of each of
the following conditions:
(a) Representations and Warranties. The representations and
warranties of the Purchasers contained herein shall be true and correct
in all material respects as of the date when made and as of each
respective Closing Date as though made on and as of such date; and
(b) Performance. The Purchasers shall have performed,
satisfied and complied in all material respects with all covenants,
agreements and conditions required by the Transaction Documents to be
performed, satisfied or complied with by the Purchasers at or prior to
each respective Closing Date.
ARTICLE VI
REGISTRATION RIGHTS
6.1 Shelf Registration.
(a) On or prior to the Filing Date, the Company shall prepare
and file with the SEC a Registration Statement covering the resale of
all Registrable Securities. The Registration
15
Statement shall be on Form SB-2 (except if the Company is not then
eligible to register for resale the Registrable Securities on Form
SB-2, in which case such registration shall be on another appropriate
form in accordance herewith as the Purchasers may reasonably consent)
and shall contain (except if otherwise directed by the Purchasers) the
"Plan of Distribution" attached hereto as Exhibit D.
(b) The Company shall use its best efforts to cause the
Registration Statement to be declared effective by the SEC as promptly
as possible after the filing thereof, but in any event prior to the
Required Effectiveness Date, and shall use its best efforts to keep the
Registration Statement continuously effective under the Securities Act
until the end of the Effectiveness Period.
(c) The Company shall notify the Purchasers promptly (and in
any event within one Trading Day) after receiving notification from the
SEC that the Registration Statement has been declared effective.
(d) As promptly as possible, and in any event no later than
the Post-Effective Amendment Filing Deadline, the Company shall prepare
and file with the SEC a Post-Effective Amendment. The Company shall use
its best efforts to cause the Post-Effective Amendment to be declared
effective by the SEC as promptly as possible after the filing thereof,
but in any event prior to the fifteenth Trading Day after the
Post-Effective Amendment Filing Deadline. The Company shall notify each
Purchaser promptly (and in any event within one business day) after
receiving notification from the SEC that the Post-Effective Amendment
has been declared effective.
(e) The Company shall not, prior to the Effective Date of the
Registration Statement, prepare and file with the SEC a registration
statement relating to an offering for its own account or the account of
others under the Securities Act of any of its equity securities.
6.2 Registration Procedures. In connection with the Company's
registration obligations hereunder, the Company shall:
(a) Not less than three Trading Days prior to the filing of a
Registration Statement or any related Prospectus or any amendment or
supplement thereto (including any document that would be incorporated
or deemed to be incorporated therein by reference), the Company shall
(i) furnish to each Purchaser and any counsel designated by any
Purchaser (each a "PURCHASER COUNSEL") copies of all such documents
proposed to be filed, which documents (other than those incorporated or
deemed to be incorporated by reference) will be subject to the review
of the Purchasers and each Purchaser Counsel, and (ii) cause its
officers and directors, counsel and independent certified public
accountants to respond to such inquiries as shall be necessary, in the
reasonable opinion of each Purchaser Counsel, to conduct a reasonable
investigation within the meaning of the Securities Act. The Company
shall not file a Registration Statement or any such Prospectus or any
amendments or supplements thereto to which Purchasers holding a
majority of the Registrable Securities shall reasonably object.
However, any objection to the filing of such registration statement or
other document enumerated above, shall suspend from occurring any of
the "Events" as defined in Section 1.1,
16
for the period of time during which the objection remains, but in no
case will the period of suspension exceed ten Trading Days.
(b) (i) Prepare and file with the SEC such amendments,
including post-effective amendments, to each Registration Statement and
the Prospectus used in connection therewith as may be necessary to keep
the Registration Statement continuously effective as to the applicable
Registrable Securities for the Effectiveness Period and prepare and
file with the SEC such additional Registration Statements in order to
register for resale under the Securities Act all of the Registrable
Securities; (ii) cause the related Prospectus to be amended or
supplemented by any required Prospectus supplement, and as so
supplemented or amended to be filed pursuant to Rule 424; (iii) respond
as promptly as reasonably possible to any comments received from the
SEC with respect to the Registration Statement or any amendment
thereto; and (iv) comply in all material respects with the provisions
of the Securities Act and the Exchange Act with respect to the
disposition of all Registrable Securities covered by the Registration
Statement during the applicable period in accordance with the intended
methods of disposition by the Purchasers thereof set forth in the
Registration Statement as so amended or in such Prospectus as so
supplemented
(c) Notify the Purchasers of Registrable Securities to be sold
and each Purchaser Counsel as promptly as reasonably practicable of any
of the following events: (i) the SEC notifies the Company whether there
will be a "review" of any Registration Statement; (ii) the SEC comments
in writing on any Registration Statement (in which case the Company
shall deliver to each Purchaser a copy of such comments and of all
written responses thereto); (iii) any Registration Statement or any
post-effective amendment is declared effective; (iv) the SEC or any
other federal or state governmental authority requests any amendment or
supplement to any Registration Statement or Prospectus or requests
additional information related thereto; (v) the SEC issues any stop
order suspending the effectiveness of any Registration Statement or
initiates any Proceedings for that purpose; (vi) the Company receives
notice of any suspension of the qualification or exemption from
qualification of any Registrable Securities for sale in any
jurisdiction, or the initiation or threat of any Proceeding for such
purpose; or (vii) the financial statements included in any Registration
Statement become ineligible for inclusion therein or any statement made
in any Registration Statement or Prospectus or any document
incorporated or deemed to be incorporated therein by reference is
untrue in any material respect or any revision to a Registration
Statement, Prospectus or other document is required so that it will not
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading.
(d) Use its reasonable efforts to avoid the issuance of or, if
issued, obtain the withdrawal of (i) any order suspending the
effectiveness of any Registration Statement, or (ii) any suspension of
the qualification (or exemption from qualification) of any of the
Registrable Securities for sale in any jurisdiction, at the earliest
practicable moment.
(e) Furnish to each Purchaser and each Purchaser Counsel,
without charge, one conformed copy of each Registration Statement and
each amendment thereto, including financial statements and schedules,
all documents incorporated or deemed to be incorporated therein by
reference, and all exhibits to the extent requested by such Person
(including those
17
previously furnished or incorporated by reference) as promptly as
practicable after the filing of such documents with the SEC.
(f) Promptly deliver to each Purchaser and each Purchaser
Counsel, without charge, as many copies of the Prospectus or
Prospectuses (including each form of prospectus) and each amendment or
supplement thereto as such Persons may reasonably request within five
Business Days of such request. The Company hereby consents to the use
of such Prospectus and each amendment or supplement thereto by each of
the selling Purchasers in connection with the offering and sale of the
Registrable Securities covered by such Prospectus and any amendment or
supplement thereto.
(g) (i) In the time and manner required by the Trading Market,
prepare and file with the Trading Market an additional shares listing
application covering all of the Registrable Securities; (ii) take all
steps necessary to cause such Registrable Securities to be approved for
listing on the Trading Market as soon as practicable thereafter; (iii)
provide to the Purchasers evidence of such listing; and (iv) maintain
the listing of such Registrable Securities on the Trading Market or
another Eligible Market.
(h) Prior to any public offering of Registrable Securities,
use its best efforts to register or qualify or cooperate with the
selling Purchasers and each applicable Purchaser Counsel in connection
with the registration or qualification (or exemption from such
registration or qualification) of such Registrable Securities for offer
and sale under the securities or blue sky laws of such jurisdictions
within the United States as any Purchaser requests in writing, to keep
each such registration or qualification (or exemption therefrom)
effective during the Effectiveness Period and to do any and all other
acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by a Registration
Statement; provided, however, that the Company shall not be obligated
to file any general consent to service of process or to qualify as a
foreign corporation or as a dealer in securities in any jurisdiction in
which it is not so qualified or to subject itself to taxation in
respect of doing business in any jurisdiction in which it is not
otherwise subject.
(i) Cooperate with the Purchasers to facilitate the timely
preparation and delivery of certificates representing Registrable
Securities to be delivered to a transferee pursuant to a Registration
Statement, which certificates shall be free, to the extent permitted by
the securities laws, of all restrictive legends, and to enable such
Registrable Securities to be in such denominations and registered in
such names as any such Purchaser may request.
(j) Upon the occurrence of any event described in Section
6.2(c)(vii), as promptly as reasonably practicable, prepare a
supplement or amendment, including a post-effective amendment, to the
Registration Statement or a supplement to the related Prospectus or any
document incorporated or deemed to be incorporated therein by
reference, and file any other required document so that, as thereafter
delivered, neither the Registration Statement nor such Prospectus will
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading.
18
(k) Reasonably cooperate with any due diligence investigation
undertaken by the Purchasers in connection with the sale of Registrable
Securities, including without limitation by making available any
documents and information; provided that the Company will not deliver
or make available to any Purchaser material, nonpublic information
unless such Purchaser specifically requests in advance to receive
material, nonpublic information in writing.
(l) If Holders of a majority of the Registrable Securities
being offered pursuant to a Registration Statement select underwriters
for the offering, the Company shall enter into and perform its
obligations under an underwriting agreement, in usual and customary
form reasonably acceptable to the Company, including, without
limitation, by providing customary legal opinions, comfort letters and
indemnification and contribution obligations; provided, that no such
agreement shall obligate the Company to pay any amount not otherwise
contemplated by this Article VI.
(m) Comply with all applicable rules and regulations of the
SEC.
(n) Notwithstanding anything contain in this Section 6.3 to
the contrary, if the Company's shares of Common Stock are listed on a
Canadian stock exchange, in lieu of registering the Registrable
Securities for reseale under the Securities Act, the Company may
register the Registrable Securities for resale on a Canadian stock
exchange.
6.3 Registration Expenses. The Company shall pay all fees and expenses
incident to the performance of or compliance with this Agreement by the Company,
including without limitation (a) all registration and filing fees and expenses,
including without limitation those related to filings with the SEC, any Trading
Market and in connection with applicable state securities or blue sky laws, (b)
printing expenses (including without limitation expenses of printing
certificates for Registrable Securities and of printing prospectuses requested
by the Purchasers), (c) messenger, telephone and delivery expenses incurred by
the Company, (d) fees and disbursements of counsel for the Company (incurred in
preparing the initial filing of the registration statement for the Registrable
Securities and all amendments thereto prior to it being declared effective), (e)
fees and expenses of all other Persons retained by the Company in connection
with the consummation of the transactions contemplated by this Agreement, and
(f) all listing fees to be paid by the Company to the Trading Market. In all
events, the Purchasers shall be solely responsible for paying all brokerage
fees, underwriter commissions or similar compensation relating to their sale of
Registrable Securities and any income taxes resulting from any such sale of
Registrable Securities.
6.4 Indemnification.
(a) Indemnification by the Company. The Company shall
indemnify and hold harmless each Purchaser, the officers, directors,
partners, members, agents, brokers (including brokers who offer and
sell Registrable Securities as principal as a result of a pledge or any
failure to perform under a margin call of Common Stock), investment
advisors and employees of each of them, each Person who controls any
such Purchaser (within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act) and the officers, directors,
partners, members, agents and employees of each such controlling
Person, to the fullest extent permitted by applicable law, from and
against any and all Losses, as incurred, arising out of or relating to
any
19
untrue or alleged untrue statement of a material fact contained in the
Registration Statement, any Prospectus or any form of prospectus or in
any amendment or supplement thereto or in any preliminary prospectus,
or arising out of or relating to any omission or alleged omission of a
material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of prospectus
or supplement thereto, in the light of the circumstances under which
they were made) not misleading, except to the extent that (i) such
untrue statements, alleged untrue statements, omissions or alleged
omissions are based solely upon information regarding such Purchaser
furnished to the Company by such Purchaser expressly for use therein,
or to the extent that such information relates to such Purchaser or
such Purchaser's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved by such Purchaser
expressly for use in the Registration Statement, such Prospectus or
such form of Prospectus or in any amendment or supplement thereto or
(ii) in the case of an occurrence of an event of the type specified in
Section 6.2(c)(v)-(vii), the use by such Purchaser of an outdated or
defective Prospectus after the Company has notified such Purchaser in
writing that the Prospectus is outdated or defective and prior to the
receipt by such Purchaser of the advice contemplated in Section 6.5.
(b) Indemnification by Purchasers. Each Purchaser shall
indemnify and hold harmless the Company, its directors, officers,
agents and employees, each Person who controls the Company (within the
meaning of Section 15 of the Securities Act and Section 20 of the
Exchange Act), and the directors, officers, agents or employees of such
controlling Persons, to the fullest extent permitted by applicable law,
from and against all Losses (as determined by a court of competent
jurisdiction in a final judgment not subject to appeal or review)
arising solely out of any untrue statement of a material fact contained
in the Registration Statement, any Prospectus, or any form of
prospectus, or in any amendment or supplement thereto, or arising
solely out of any omission of a material fact required to be stated
therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in the light of
the circumstances under which they were made) not misleading to the
extent, but only to the extent, that such untrue statement or omission
is contained in any information so furnished in writing by such
Purchaser to the Company specifically for inclusion in such
Registration Statement or such Prospectus or to the extent that (i)
such untrue statements or omissions are based solely upon information
regarding such Purchaser furnished to the Company by such Purchaser
expressly for use therein, or to the extent that such information
relates to such Purchaser or such Purchaser's proposed method of
distribution of Registrable Securities and was reviewed and expressly
approved by such Purchaser expressly for use in the Registration
Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto or (ii) in the case of an occurrence of
an event of the type specified in Section 6.2(c)(v)-(vii), the use by
such Purchaser of an outdated or defective Prospectus after the Company
has notified such Purchaser in writing that the Prospectus is outdated
or defective and prior to the receipt by such Purchaser of the Advice
contemplated in Section 6.5. In no event will the liability of any
selling Purchaser hereunder be greater in amount than the dollar amount
of the net proceeds received by such Purchaser upon the sale of the
Registrable Securities giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity
hereunder (an "INDEMNIFIED PARTY"), such Indemnified Party shall
promptly notify the Person from whom indemnity is
20
sought (the "INDEMNIFYING PARTY") in writing, and the Indemnifying
Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the
payment of all fees and expenses incurred in connection with defense
thereof; provided, that the failure of any Indemnified Party to give
such notice shall not relieve the Indemnifying Party of its obligations
or liabilities pursuant to this Agreement, except (and only) to the
extent that it shall be finally determined by a court of competent
jurisdiction (which determination is not subject to appeal or further
review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Party or Parties. The Indemnifying Party
shall not be liable for any settlement of any such Proceeding effected
without its written consent, which consent shall not be unreasonably
withheld. No Indemnifying Party shall, without the prior written
consent of the Indemnified Party, effect any settlement of any pending
Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified
Party from all liability on claims that are the subject matter of such
Proceeding.
All fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party,
as incurred, within ten Trading Days of written notice thereof to the
Indemnifying Party (regardless of whether it is ultimately determined
that an Indemnified Party is not entitled to indemnification hereunder;
provided, that the Indemnifying Party may require such Indemnified
Party to undertake to reimburse all such fees and expenses to the
extent it is finally judicially determined that such Indemnified Party
is not entitled to indemnification hereunder).
(d) Contribution. If a claim for indemnification under Section
6.4(a) or (b) is unavailable to an Indemnified Party (by reasons other
than the specified exclusions to indemnification), then each
Indemnifying Party, in lieu of indemnifying such Indemnified Party,
shall contribute to the amount paid or payable by such Indemnified
Party as a result of such Losses, in such proportion as is appropriate
to reflect the relative fault of the Indemnifying Party and Indemnified
Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable
considerations. The relative fault of such Indemnifying Party and
Indemnified Party will be determined by reference to, among other
things, whether any action in question, including any untrue or alleged
untrue statement of a material fact or omission or alleged omission of
a material fact, has been taken or made by, or relates to information
supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such action, statement or omission.
The amount paid or payable by a party as a result of any Losses will be
deemed to include, subject to the limitations set forth in Section
6.4(c), any reasonable attorneys' or other reasonable fees or expenses
incurred by such party in connection with any Proceeding to the extent
such party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such
party in accordance with its terms.
21
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 6.4(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 6.4(d), no Purchaser will not be
required to contribute, in the aggregate, any amount in excess of the amount by
which the proceeds actually received by such Purchaser from the sale of the
Registrable Securities subject to the Proceeding exceeds the amount of any
damages that such Purchaser has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) will be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section are
in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
6.5 Dispositions. Each Purchaser agrees that it will comply with the
prospectus delivery requirements of the Securities Act as applicable to it in
connection with sales of Registrable Securities pursuant to the Registration
Statement. Each Purchaser further agrees that, upon receipt of a notice from the
Company of the occurrence of any event of the kind described in Sections
6.2(c)(v), (vi) or (vii), such Purchaser will discontinue disposition of such
Registrable Securities under the Registration Statement until such Purchaser's
receipt of the copies of the supplemented Prospectus and/or amended Registration
Statement contemplated by Section 6.2(j), or until it is advised in writing (the
"ADVICE") by the Company that the use of the applicable Prospectus may be
resumed, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus or Registration Statement. The Company may provide
appropriate stop orders to enforce the provisions of this paragraph.
6.6 No Piggyback on Registrations. Except as set forth on Schedule 6.6,
neither the Company nor any of its security holders (other than the Purchasers
in such capacity pursuant hereto) may include securities of the Company in the
Registration Statement other than the Registrable Securities. In addition, the
Company shall not after the date hereof enter into any agreement providing any
such right to any of its security holders.
6.7 Piggy-Back Registrations. If at any time during the Effectiveness
Period there is not an effective Registration Statement covering all of the
Registrable Securities and the Company decides to prepare and file with the SEC
a registration statement relating to an offering for its own account or the
account of others under the Securities Act of any of its equity securities,
other than on Form S-4 or Form S-8 (each as promulgated under the Securities
Act) or their then equivalents relating to equity securities to be issued solely
in connection with any acquisition of any entity or business or equity
securities issuable in connection with stock option or other employee benefit
plans, then the Company shall send to each Purchaser written notice of such
determination and if, within fifteen days after receipt of such notice, the
Purchasers do so request in writing, the Company shall include in such
registration statement all or any part of such Registrable Securities the
Purchasers request to be registered.
22
6.8 Tag Along Rights. (a) With respect to any proposed transfer of
shares of Common Stock or securities convertible or exchangeable into Common
Stock by any officer or director of the Company owning more than twenty (20%)
percent of the issued and outstanding shares of Common Stock, assuming
conversion of all shares of preferred stock, convertible debentures or other
securities into shares of Common Stock (for purposes of this Section 6.8, a
"Transferring Stockholder"), no Transferring Stockholder shall sell, assign,
pledge, mortgage, encumber, hypothecate, dispose of by gift or bequest or
otherwise transfer or dispose of any right, title or interest in any or all of
the shares held by the Transferring Stockholder (collectively, "Transfer") any
shares unless, prior to such Transfer, each Purchaser and the Company have been
given no less than 10 days prior written notice of the proposed transaction,
which notice shall specify the number of shares that the Transferring
Stockholder desires to sell, the identity of the prospective purchaser (the
"Prospective Purchaser"), and the proposed terms thereof and must also include a
copy of the written offer from the Prospective Purchaser, and each Purchaser
will have been provided a firm irrevocable right, which right will be
exercisable by written notice (which shall specify the number of shares (up to
the total number of shares held by the Transferring Stockholder) that each
Purchaser desires to sell) within 60 days after notice to each Purchaser has
been given, to sell to the Prospective Purchaser, at the same time and upon the
same terms and conditions offered to the Transferring Stockholder by the
Prospective Purchaser, the number of shares held by each Purchaser (the
"Proportionate Amount") that bears the same ratio to the total number of shares
held by such Purchaser as the total number of shares proposed to be sold by the
Transferring Stockholder to the Prospective Purchaser bears to the total number
of shares held by the Transferring Stockholder.
(b) If the Prospective Purchaser is unable or unwilling to purchase the
aggregate number or type of shares to be sold by the Transferring Stockholder
and any Purchaser elects to sell pursuant to this Section 6.8(b) at the price
specified in the notice, then the number of shares to be sold by the
Transferring Stockholder and the number of shares to be sold by such Purchaser
will be reduced ratably to the extent necessary to reduce the total number of
shares to be included in such transaction to the maximum number that the
Prospective Purchaser would be willing and able to purchase at such price.
Whether or not any such adjustment in the number of shares to be sold is
required to be made, the Transferring Stockholder shall give to such Purchaser
upon election to sell its shares, written notice of the number of shares it is
permitted to sell pursuant to this Section 6.8(b) (after giving effect to the
provisions of this paragraph) not less than 10 days prior to the date of such
sale; and the buyer of the shares shall, and the Transferring Stockholder shall
cause the buyer to remit to such Purchaser that portion of the sale proceeds to
which such Purchaser is entitled by reason of its participation in the
transaction.
ARTICLE VII
MISCELLANEOUS
7.1 Termination. This Agreement may be terminated by the Purchasers by
written notice to the Company, if any Closing has not been consummated by the
tenth Trading Day following the date of this Agreement; provided that no such
termination will affect the right of any party to sue for any breach by the
other party (or parties).
7.2 Fees and Expenses. Each party shall pay the fees and expenses of
its advisers, counsel, accountants and other experts, if any, and all other
expenses incurred by such party
23
incident to the negotiation, preparation, execution, delivery and performance of
this Agreement. The Company shall pay all Transfer Agent fees, stamp taxes and
other taxes and duties levied in connection with the issuance of the Securities.
7.3 Entire Agreement. The Transaction Documents, together with the
Exhibits and Schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules. At or
after each Closing, and without further consideration, the Company will execute
and deliver to the Purchasers such further documents as may be reasonably
requested in order to give practical effect to the intention of the parties
under the Transaction Documents. Notwithstanding anything to the contrary
herein, the Securities may be assigned to any Person in connection with a bona
fide margin account or other loan or financing arrangement secured by such
Securities.
7.4 Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one Business Day after deposit with
an overnight courier service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
(a) If to the Company:
Western Goldfields, Inc.
1575 DeLucchi Lane, Suite 116
Reno, Nevada 89502
Telephone No.: (775) 337-9433
Attn: Becky Corigiliano
With a copy to:
Troutman Sanders LLP
The Chrysler Building
New York, New York 10174
Facsimile No.: (212) 704-6288
Telephone No.: (212)704-6000
Attn: Henry I. Rothman, Esq.
If to a Purchaser, to its address and facsimile number set
forth on the Schedule of Purchasers, with copies to such
Purchaser's representatives as set forth on the Schedule of
Purchasers,
or to such other address and/or facsimile number and/or to the attention of such
other Person as the recipient party has specified by written notice given to
each other party five (5) days prior to the effectiveness of such change.
Written confirmation of receipt (A) given by the recipient of such notice,
consent, waiver or other communication, (B) mechanically or electronically
24
generated by the sender's facsimile machine containing the time, date, recipient
facsimile number and an image of the first page of such transmission, or (C)
provided by an overnight courier service will be rebuttable evidence of personal
service, receipt by facsimile or receipt from an overnight courier service in
accordance with clause (i), (ii) or (iii) above, respectively.
7.5 Amendments; Waivers. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by the Company and each of the Purchasers or, in the case of a waiver, by the
party against whom enforcement of any such waiver is sought. No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right.
7.6 Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and must not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
7.7 Successors and Assigns. This Agreement will be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchasers. Any Purchaser may assign
its rights (except those of indemnification or reimbursement) under this
Agreement to any Person to whom such Purchaser assigns or transfers any
Securities, provided such transferee agrees in writing to be bound, with respect
to the transferred Securities, by the provisions hereof that apply to the
"Purchasers."
7.8 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except that each Related Person is an intended third party
beneficiary of Section 4.8 and each Indemnified Party is an intended third party
beneficiary of Section 6.4 and (in each case) may enforce the provisions of such
Sections directly against the parties with obligations thereunder.
7.9 Governing Law; Venue; Waiver Of Jury Trail. ALL QUESTIONS
CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK. THE COMPANY AND PURCHASERS HEREBY IRREVOCABLY
SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN
THE CITY OF NEW YORK, BOROUGH OF MANHATTAN FOR THE ADJUDICATION OF ANY DISPUTE
BROUGHT BY THE COMPANY OR ANY PURCHASER HEREUNDER, 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 WAIVE, AND AGREE NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING
BROUGHT BY THE COMPANY OR ANY
25
PURCHASER, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF
ANY SUCH COURT, OR THAT SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER. 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
AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT
SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED
TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.
THE COMPANY AND PURCHASERS HEREBY WAIVE ALL RIGHTS TO A TRIAL BY JURY.
7.10 Survival. The representations, warranties, agreements and
covenants contained herein will survive each Closing and the delivery and/or
exercise of the Securities, as applicable.
7.11 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
7.12 Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement will not in any way be affected
or impaired thereby and the parties will attempt to agree upon a valid and
enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, will incorporate such substitute provision in this Agreement.
7.13 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights.
7.14 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities. The Purchasers
agree that the loss, mutilation, theft, or destruction of any certificate shall
not trigger the occurrence of an Event as defined in Section 1.1, unless
26
such loss, mutilation, theft, or destruction is directly caused by the
negligence of the Company. The phrase "directly" specifically excludes any
persons or parties who are agents of the Company.
7.15 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the Purchasers
and the Company will be entitled to specific performance under the Transaction
Documents. The parties agree that monetary damages may not be adequate
compensation for any loss incurred by reason of any breach of obligations
described in the foregoing sentence and hereby agrees to waive in any action for
specific performance of any such obligation the defense that a remedy at law
would be adequate.
7.16 Payment Set Aside. To the extent that the Company makes a payment
or payments to any Purchaser hereunder or any Purchaser enforces or exercises
its rights hereunder or thereunder, and such payment or payments or the proceeds
of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company by a trustee, receiver or any other Person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
7.17 Adjustments in Share Numbers and Prices. In the event of any stock
split, subdivision, dividend or distribution payable in shares of Common Stock
(or other securities or rights convertible into, or entitling the holder thereof
to receive directly or indirectly shares of Common Stock), combination or other
similar recapitalization or event occurring after the date hereof, each
reference in any Transaction Document to a number of shares or a price per share
shall be amended to appropriately account for such event.
[SIGNATURE PAGES TO FOLLOW]
27
IN WITNESS WHEREOF, each of the parties hereto have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed by their respective authorized signatories as of the date first
indicated above.
WESTERN GOLDFIELDS, INC.
By: __________________________
Name: Douglas J. Newby
Title: President
IN WITNESS WHEREOF, each of the parties hereto have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed by their respective authorized signatories as of the date first
indicated above.
INVESTEC BANK (UK) LIMITED
By: __________________________
Name:
Title:
IN WITNESS WHEREOF, each of the parties hereto have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed by their respective authorized signatories as of the date first
indicated above.
GEORGE MOLYVIATIS
--------------------------
IN WITNESS WHEREOF, each of the parties hereto have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed by their respective authorized signatories as of the date first
indicated above.
MARTYN KONIG
--------------------------
IN WITNESS WHEREOF, each of the parties hereto have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed by their respective authorized signatories as of the date first
indicated above.
BRIAN PENNY
--------------------------
IN WITNESS WHEREOF, each of the parties hereto have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed by their respective authorized signatories as of the date first
indicated above.
ROCKCLIFF GROUP LIMITED
By: __________________________
Name:
Title:
SCHEDULE OF PURCHASERS
First Closing
NUMBER OF
SHARES OF NUMBER OF
ADDRESS, PHONE AND COMMON WARRANT PURCHASE
PURCHASER FAX NUMBER STOCK SHARES PRICE
- -----------------------------------------------------------------------------------------
Investec Bank (UK) Investec Bank (UK) Limited
Limited 2 Gresham Street
London EC2V 7 QP
United Kingdom 7,500,000 3,750,000 $2,250,000
George Molyviatis 1,666,667 833,333 $500,000
Martyn Konig Smarkham, Madgehole Lane,
Shamley Green, Surrey, GU5
0SS
UK 333,333 166,666 $100,000
Brian Penny c/o Silver Bear Resources,
Inc.
2 Bloor Street West
Suite 2102, P.O. Box 110
Toronto, Ontario
Canada M4W3E12 333,333 166,666 $100,000
Rockcliff Group
Limited 2,500,000 1,250,000 $750,000
Total 12,333,333 6,166,665 $3,700,000
Exhibits:
A Form of Warrant
B Form of Transfer Agent Instructions
C Company Officer's Certificate
D Plan of Distribution
EXHIBIT A
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 __, 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,[warrant holder name], 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), [number of shares 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 __, 2006 (the "SUBSCRIPTION
DATE"), between the Company and the Holder referred to therein (the "SECURITIES
PURCHASE AGREEMENT").
1. EXERCISE OF WARRANT.
(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
A-1
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.
(b) Exercise Price. For purposes of this Warrant, "EXERCISE PRICE"
means $0.45 per share, subject to adjustment as provided herein.
(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
A-2
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.
(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 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
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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 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
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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.
(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.
(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):
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"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 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
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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 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,
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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) 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
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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).
4. PURCHASE RIGHTS; ORGANIC CHANGE.
(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
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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
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).
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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 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
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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 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
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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.
15. CERTAIN DEFINITIONS. For purposes of this Warrant, the following
terms shall have the following meanings:
(a) "BLOOMBERG" means Bloomberg Financial Markets.
A-13
(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 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
A-14
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.
(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.
A-15
(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]
A-16
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:
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:
- --------
(1) Add only if a contemporaneous sale has occurred pursuant to a Registration
Statement.
A-18
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
A-19
EXHIBIT B
TRANSFER AGENT INSTRUCTIONS
WESTERN GOLDFIELDS, INC.
February __, 2006
OTC Stock Transfer Company
2310 East 2100 South
Salt Lake City, UT 84115
Ladies and Gentlemen:
Reference is made to that certain Securities Purchase
Agreement, dated as of February __, 2006 (the "AGREEMENT"), by and among Western
Goldfields, Inc., an Idaho corporation (the "COMPANY"), and the investors named
on the Schedule of Purchasers attached thereto (collectively, the "HOLDERS"),
pursuant to which the Company is issuing to the Holders common stock of the
Company, par value $0.01 per share (the "COMMON STOCK"), and warrants to
purchase Common Stock (the "WARRANTS"), which are exercisable into shares of
Common Stock.
This letter shall serve as our irrevocable authorization and
direction to you (provided that you are the transfer agent of the Company at
such time) to issue shares of Common Stock upon the exercise of the Warrants, to
or upon the order of a Holder from time to time upon delivery to you of a
properly completed and duly executed Exercise Notice, in the form attached
hereto as Exhibit I, which has been acknowledged by the Company as indicated by
the signature of a duly authorized officer of the Company thereon.
You acknowledge and agree that so long as you have previously
received (a) written confirmation from the Company's outside legal counsel that
either (i) a registration statement covering resales of the Common Stock
underlying the Warrants ("WARRANT SHARES") has been declared effective by the
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 ACT"), or (ii) sales of the Warrant Shares may be made in
conformity with Rule 144 under the 1933 Act, and (b) if applicable, a copy of
such registration statement, then within two (2) business days of your receipt
of the Exercise Notice, you shall issue the certificates representing the
Warrant Shares, and such certificates shall not bear any legend restricting
transfer of the Warrant Shares thereby and should not be subject to any
stop-transfer restriction; provided, however, that if such Warrant Shares are
not sold pursuant to a registration statement under the 1933 Act, are not sold
in conformity with Rule 144 or are not able to be sold under Rule 144(k), then,
the certificates for such Warrant Shares shall bear a legend in substantially
the following form:
[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES
INTO WHICH THESE
B-1
SECURITIES ARE EXERCISABLE HAVE
BEEN][THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN] REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF
(A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR (B)
AN OPINION OF COUNSEL, IN A FORM REASONABLY
ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT
TO RULE 144 OR RULE 144A UNDER SAID ACT.
A form of written confirmation from the Company's outside
legal counsel that a registration statement covering resales of the Warrant
Shares has been declared effective by the SEC under the 1933 Act is attached
hereto as Exhibit II.
Please be advised that the Holders are relying upon this
letter as an inducement to enter into the Agreement and, accordingly, each
Holder is a third party beneficiary to these instructions.
B-2
Please execute this letter in the space indicated to
acknowledge your agreement to act in accordance with these instructions. Should
you have any questions concerning this matter, please contact me at (775)
337-9433.
Very truly yours,
WESTERN GOLDFIELDS, INC.
By: ________________________________
Name:
Title:
THE FOREGOING INSTRUCTIONS ARE
ACKNOWLEDGED AND AGREED TO
this ___ day of February, 2006
OTC STOCK TRANSFER COMPANY
By:
------------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
B-3
EXHIBIT I
EXERCISE NOTICE
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT TO PURCHASE COMMON STOCK
WESTERN GOLDFIELDS, INC.
The undersigned holder (the "HOLDER") hereby exercises the right to
purchase _________________ 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. Form of Exercise Price. The Holder intends that payment of the
Exercise Price shall be made as a cash exercise with respect to ____________
Warrant Shares.
2. Payment of Exercise Price. The holder shall pay the Aggregate
Exercise Price in the sum of $___________________ to the Company in accordance
with the terms of the Warrant.
3. Accredited Investor. The holder is an "accredited investor" as
defined in Rule 501(c) under the Securities Act.
4. Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.
5. Delivery of Warrant. The Holder shall deliver the original Warrant
to the Company within five (5) Business Days from the date hereof.
[6. 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.](2)
Date: _______________ __, 20__
- -----------------------------------
Name of Registered Holder
By:
-----------------------------------------
Name:
Title:
- ----------
(2) Add only if a contemporaneous sale has occurred pursuant to a Registration
Statement.
B-4
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 February __, 2006 from the Company and acknowledged and
agreed to by OTC Stock Transfer Company of Salt Lake City, Utah.
WESTERN GOLDFIELDS, INC.
By:
-------------------------------------------------
Name:
Title:
B-5
EXHIBIT II
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
OTC Stock Transfer Company
2310 East 2100 South
Salt Lake City, UT 84115
Attn: [ ]
Re: Western Goldfields, Inc.
Ladies and Gentlemen:
We are counsel to Western Goldfields, Inc., an Idaho
corporation (the "COMPANY"), and have represented the Company in connection with
that certain Securities Purchase Agreement, dated as of February __, 2006 (the
"SECURITIES PURCHASE AGREEMENT"), entered into by and among the Company and the
buyers named therein (collectively, the "HOLDERS") pursuant to which the Company
issued to the Holders _____ shares (the "SHARES") of the Company's common stock,
par value $0.01 per share ("COMMON STOCK"), and warrants (the "WARRANTS")
exercisable for shares of the common Stock. Pursuant to the Securities Purchase
Agreement, the Company agreed, among other things, to register the resale of the
Registrable Securities (as defined in the Securities Purchase Agreement),
including the Shares and the shares of Common Stock issuable upon exercise of
the Warrants under the Securities Act of 1933, as amended (the "1933 ACT"). In
connection with the Company's obligations under the Securities Purchase
Agreement, on ________ __, 2006, the Company filed a Registration Statement on
Form SB-2 (File No. 333-_____________) (the "REGISTRATION STATEMENT") with the
Securities and Exchange Commission (the "SEC") relating to the Registrable
Securities which names each of the Holders as a selling stockholder thereunder.
In connection with the foregoing, we advise you that a member
of the SEC's staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER TIME
OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge,
after telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and the Registrable
Securities are available for resale under the 1933 Act pursuant to the
Registration Statement.
Very truly yours,
[ISSUER'S COUNSEL]
By:
----------------------------------------------
EXHIBIT C
WESTERN GOLDFIELDS, INC.
OFFICER'S CERTIFICATE
The undersigned, President of Western Goldfields, Inc., an
Idaho corporation (the "COMPANY"), pursuant to the Securities Purchase
Agreement, dated as of February __, 2006, by and among the Company and the
investors identified on the Schedule of Purchasers attached thereto (the
"SECURITIES PURCHASE AGREEMENT"), hereby represents, warrants and certifies to
the Purchasers as follows (capitalized terms used but not otherwise defined
herein shall have the meaning set forth in the Securities Purchase Agreement):
1. The representations and warranties made by the
Company as set forth in Section 3.1 of the Securities
Purchase Agreement are true and correct as of the
date hereof (except for representations and
warranties that speak as of a specific date, which
are true as of such date).
2. The Company has, in all material respects, performed,
satisfied or complied with all covenants, agreements
and conditions required to be performed, satisfied or
complied with by the Transaction Documents to be
performed, satisfied or complied with by it at or
prior to the Closing.
IN WITNESS WHEREOF, the undersigned has executed this
certificate this __ day of February, 2006.
---------------------------
Name:
Title:
EXHIBIT D
Plan of Distribution
The selling stockholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of our common stock on the trading market or any other stock exchange, market or
trading facility on which our shares of common stock are traded or in private
transactions. These sales may be at fixed or negotiated prices. The selling
stockholders may use any one or more of the following methods when selling
shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell
the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o settlement of short sales entered into after the effective
date of the registration statement of which this prospectus is
a part;
o broker-dealers may agree with the selling stockholders to sell
a specified number of such shares at a stipulated price per
share;
o a combination of any such methods of sale;
o through the writing or settlement of options or other hedging
transactions, whether through an options exchange or
otherwise;
o any other method permitted pursuant to applicable law; or
o under Rule 144 under the Securities Act, if available, rather
than under this prospectus.
Broker-dealers engaged by the selling stockholders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the selling stockholders (or, if any broker-dealer
acts as agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated, but, except as set forth in a supplement to this Prospectus, in the
case of an agency transaction not in excess
D-1
of a customary brokerage commission in compliance with NASDR Rule 2440; and in
the case of a principal transaction a markup or markdown in compliance with
NASDR IM-2440.
In connection with the sale of our common stock or interests
therein, the selling stockholders may enter into hedging transactions with
broker-dealers or other financial institutions, which may in turn engage in
short sales of our common stock in the course of hedging the positions they
assume. The selling stockholders holder may also sell shares of our common stock
short and deliver these securities to close out their short positions, or loan
or pledge our common stock to broker-dealers that in turn may sell these
securities. The selling stockholders may also enter into option or other
transactions with broker-dealers or other financial institutions or the creation
of one or more derivative securities which require the delivery to such
broker-dealer or other financial institution of shares offered by this
prospectus, which shares such broker-dealer or other financial institution may
resell pursuant to this prospectus (as supplemented or amended to reflect such
transaction).
The selling stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. The selling stockholders have
informed us that they do not have any written or oral agreement or
understanding, directly or indirectly, with any person to distribute our common
stock. In no event shall any broker-dealer receive fees, commissions and markups
which, in the aggregate, would exceed eight percent (8%).
We are required to pay certain fees and expenses incurred by us
incident to the registration of the shares. We have agreed to indemnify the
selling stockholders against certain losses, claims, damages and liabilities,
including liabilities under the Securities Act.
Because the selling stockholders may be deemed to be "underwriters"
within the meaning of the Securities Act, they will be subject to the prospectus
delivery requirements of the Securities Act. In addition, any securities covered
by this prospectus which qualify for sale pursuant to Rule 144 under the
Securities Act may be sold under Rule 144 rather than under this prospectus. The
stockholders have advised us that they have not entered into any written or oral
agreements, understandings or arrangements with any underwriter or broker-dealer
regarding the sale of the resale shares. There is no underwriter or coordinating
broker acting in connection with the proposed sale of the resale shares by the
selling stockholders.
The resale shares will be sold only through registered or licensed
brokers or dealers if required under applicable state securities laws. In
addition, in certain states, the resale shares may not be sold unless they have
been registered or qualified for sale in the
D-2
applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the resale shares may not simultaneously
engage in market making activities with respect to the common stock for the
applicable restricted period, as defined in Regulation M, prior to the
commencement of the distribution. In addition, the selling stockholders will be
subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including Regulation M, which may limit the timing of
purchases and sales of shares of the common stock by the selling stockholders or
any other person. We will make copies of this prospectus available to the
selling stockholders and have informed them of the need to deliver a copy of
this prospectus to each purchaser at or prior to the time of the sale.
D-3