EXHIBIT 10.2
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 13, 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 13, 2006 (the "SUBSCRIPTION
DATE"), among the Company and the purchasers (the "PURCHASERS") 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 Exhibit A (the "EXERCISE NOTICE"), of the Holder's
election to exercise this Warrant and (ii) (A) payment to the Company of an
amount equal to the applicable Exercise Price multiplied by the number of
Warrant Shares as to which this Warrant is being exercised (the "AGGREGATE
EXERCISE PRICE") in cash or wire transfer of immediately available funds. The
Holder will not be required to deliver the original Warrant in order to effect
an exercise hereunder; provided however, that the Holder shall covenant in the
Exercise Notice, that it will deliver the original Warrant to the Company within
five (5) Business Days of such exercise. Execution and delivery of the Exercise
Notice with respect to less than all of the Warrant Shares will have the same
effect as cancellation of the original Warrant and issuance of a new Warrant
evidencing the right to purchase the remaining number of Warrant Shares. On or
before the first Business Day following the date on which the Company has
received each of the Exercise Notice and the Aggregate Exercise Price (the
"EXERCISE DELIVERY DOCUMENTS"), the Company shall transmit by facsimile an
acknowledgment of confirmation of receipt of the Exercise Delivery Documents to
the Holder and the Company's transfer agent (the "TRANSFER AGENT"). On or before
the third Business Day following the date on which the Company has received all
of the Exercise Delivery Documents (the "SHARE DELIVERY DATE"), the Company
shall (X) provided that the Transfer Agent is participating in The Depository
Trust Company ("DTC") Fast Automated Securities Transfer Program, upon the
request of the Holder, credit such aggregate number of shares of Common Stock to
which the Holder is entitled pursuant to such exercise to the Holder's or its
designee's balance account with DTC through its Deposit Withdrawal Agent
Commission system, or (Y) if the Transfer Agent is not participating in the DTC
Fast Automated Securities Transfer Program, issue and dispatch by overnight
courier to the address as specified in the Exercise Notice, a certificate,
registered in the name of the Holder or its designee, for the number of shares
of Common Stock to which the Holder is entitled pursuant to such exercise. Upon
delivery of the Exercise Notice and Aggregate Exercise Price referred to in
clause (ii)(A), the Holder will be deemed for all corporate purposes to have
become the holder of record of the Warrant Shares with respect to which this
Warrant has been exercised, irrespective of the date of delivery of the
certificates evidencing such Warrant Shares. If this Warrant is submitted in
connection with any exercise pursuant to this Section 1(a) and the number of
Warrant Shares represented by this Warrant submitted for exercise is greater
than the number of Warrant Shares being acquired upon an exercise, then the
Company shall as soon as practicable and in no event later than three Business
Days after any exercise and at its own expense, issue a new Warrant (in
accordance with Section 7(d)) representing the right to purchase the number of
Warrant Shares purchasable immediately prior to such exercise under this
Warrant, less the number of Warrant Shares with respect to which this Warrant is
exercised. No fractional shares of Common Stock are to be issued upon the
exercise of this Warrant, but rather the number of shares of Common Stock to be
issued will be rounded up to the nearest whole number. The Company shall pay any
and all taxes, including without limitation, all documentary stamp, transfer or
similar taxes, or other incidental expense that may be payable with respect to
the issuance and delivery of Warrant Shares upon exercise of this Warrant.
Notwithstanding anything contained herein to the contrary, this
Warrant may not be exercised by the Holder until the shareholders of the Company
approve an amendment to the Company's Articles of Incorporation increasing the
number of authorized shares of Common Stock to amount greater than 115,000,000
shares.
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(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 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)
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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 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
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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 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
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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):
"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,
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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 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
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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, 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
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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 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
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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 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
10
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).
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
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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 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,
12
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 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
13
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.
(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.
14
(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 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
15
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.
(l) "PRINCIPAL MARKET" means any of The New York Stock Exchange, Inc.,
the American Stock Exchange, the Nasdaq National Market, The Nasdaq SmallCap
Market or the OTC Bulletin Board.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has caused this Warrant to
Purchase Common Stock to be duly executed as of the Issuance Date set out above.
WESTERN GOLDFIELDS, INC.
By:
-----------------------------------------
Name: Douglas J. Newby
Title: President
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.
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: