Exhibit 10.1
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SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "AGREEMENT") is dated as of
February __, 2006 by and among Western Goldfields, Inc., an Idaho corporation
(the "COMPANY"), and the purchaser listed on Schedule 1 attached hereto (the
"PURCHASER").
WHEREAS:
A. The Company and the Purchaser are 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. The 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 the Purchaser's name in column (3) on
Schedule 1 (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 the Purchaser's name
in column (4) of Schedule 1 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 the Purchaser 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 closing of the purchase and sale of the
Shares and Warrants pursuant to Section 2.1.
"CLOSING DATE" means the date the 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 Purchaser covered by the applicable Registration
Statement have been sold, or (ii) all Registrable Securities owned by
the 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, the 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.
"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.
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"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 the 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.
"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 the Purchaser has not
provided the Company with information required to be included in the
Registration Statement or an amendment thereto.
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"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 the Purchaser,
and the Purchaser agrees to purchase from the Company on the Closing Date, (A)
such number of shares of Common Stock as is set forth opposite the Purchaser's
name in column (3) on Schedule 1, and (B) one or more Warrants to acquire up to
that number of Warrant Shares as is set forth opposite the Purchaser's name in
column (4) on Schedule 1. The purchase price for the Securities to be purchased
by the Purchaser at the Closing (the "PURCHASE PRICE") shall be the amount set
forth opposite the Purchaser's name in column (5) of Schedule 1. The 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.
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2.2 Closing Deliveries.
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(a) At the Closing, the Company shall deliver or cause to be
delivered to the 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 the Closing Date in the form attached hereto as
Exhibit C; and
(iv) duly executed Transfer Agent Instructions acknowledged by the
Transfer Agent.
(b) At the Closing, the Purchaser shall deliver or cause to be
delivered to the Company (i) each Transaction Document to which the Purchaser is
a party, duly executed by the Purchaser, and (ii) the purchase price as is set
forth opposite the Purchaser's name in column (5) on Schedule 1, 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 the Purchaser 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 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").
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(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. 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, 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.
(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. 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 Purchaser
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
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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), and
except for (i) options to purchase 7,600,000 shares of Common Stock granted to
certain officers and directors of the Company on January 13, 2006 and (ii) a
warrant to purchase 1,000,000 shares of Common Stock issued to Metalmark
Capital, LLC, 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 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
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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. 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.
(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.
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(m) Form SB-2 Eligibility. The Company is eligible to register its
Common Stock for resale by the Purchaser 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 the Purchaser as a result of the Purchaser 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 Purchaser's ownership of the Securities.
(o) Acknowledgment Regarding Purchaser's Purchase of Securities. The
Company acknowledges and agrees that the Purchaser 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 the Purchaser's
purchase of the Securities. The Company further represents to the 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.
(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.
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3.2 Representations and Warranties of the Purchaser. The Purchaser
hereby represents and warrants to the Company as follows:
(a) Organization; Authority. The 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 the Purchaser of
the Securities hereunder has been duly authorized by all necessary action on the
part of the Purchaser. This Agreement has been duly executed and delivered by
the Purchaser and constitutes the valid and binding obligation of the 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. The 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. The 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 the 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 the Purchaser. The 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. The 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.
(e) Access to Information. The 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 the Purchaser or its representatives or counsel shall modify, amend
or affect the 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.
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(f) Compliance with Securities Act. The 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
Purchaser 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 Purchaser 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 the
Closing Date has the 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. The 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. The Purchaser is not required to be
registered as a broker-dealer pursuant to Section 15 of the Exchange Act.
(j) No Advertisements. The 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.
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
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(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 the Purchaser to an Affiliate
of the 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.
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(b) The Purchaser agrees 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 the Purchaser to the Company of a legended
certificate representing such Securities, use its reasonable best efforts to
deliver or cause to be delivered to the Purchaser a certificate representing
such Securities that is free from all restrictive and other legends. The Company
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 the 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 the Purchaser owns any Securities, if the Company is
not required to file reports pursuant to such laws, it will prepare and furnish
to the Purchaser and make publicly available in accordance with paragraph (c) of
Rule 144 such information as is required for the Purchaser to sell the
Securities under Rule 144. The Company further covenants that it will take such
further action as the Purchaser 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 Purchaser 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
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Securities Act of the sale of the Securities to the Purchaser, 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 7,600,000 stock options to directors, officers and employees
of the Company and the issuance of a warrant to purchase 1,000,000 shares of
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
Closing Date, 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 Purchaser promptly after filing. The
Company and the Purchaser 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.
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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 and (iii) 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 the 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. The 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 the Purchaser (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 Purchaser. The
obligation of the Purchaser to acquire the Shares and Warrants at any Closing is
subject to the satisfaction or waiver by the Purchaser, at or before the
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 the Closing Date as though
made on and as of such date.
(b) Performance. The Company and the 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.
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5.2 Conditions Precedent to the Obligations of the Company. The
obligation of the Company to sell the Shares and Warrants set forth opposite the
Purchaser's name on Schedule 1 is subject to the satisfaction or waiver by the
Company, at or before the Closing Date, of each of the following conditions:
(a) Representations and Warranties. The representations and
warranties of the Purchaser contained herein shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made on and as of such date; and
(b) Performance. The 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 the Purchaser at or prior to each respective Closing Date.
ARTICLE VI
REGISTRATION RIGHTS
6.1 Shelf Registration.
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(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 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 Purchaser may reasonably consent)
and shall contain (except if otherwise directed by the Purchaser) 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 Purchaser 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 the 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.
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(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 the
Purchaser and any counsel designated by the Purchaser (the "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 Purchaser and the 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
the 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 a majority
of all purchasers in the private placement conducted by the Company in February,
2006 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, 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 Purchaser thereof set forth in
the Registration Statement as so amended or in such Prospectus as so
supplemented
(c) Notify the Purchaser of Registrable Securities to be sold and
the 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 the 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
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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 the Purchaser and the 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 previously furnished or
incorporated by reference) as promptly as practicable after the filing of such
documents with the SEC.
(f) Promptly deliver to the Purchaser and the 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 the Purchaser 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 Purchaser
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 Purchaser and the
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 the 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,
17
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 Purchaser 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 the 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.
(k) Reasonably cooperate with any due diligence investigation
undertaken by the Purchaser 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 the
Purchaser material, nonpublic information unless the Purchaser specifically
requests in advance to receive material, nonpublic information in writing.
(l) 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 Purchaser), (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 Purchaser shall be solely responsible for paying all brokerage fees,
underwriter commissions or similar
18
compensation relating to their sale of Registrable Securities and any income
taxes resulting from any such sale of Registrable Securities.
6.4 Indemnification.
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(a) Indemnification by the Company. The Company shall indemnify and
hold harmless the 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 the 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 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 the Purchaser furnished to the Company by the Purchaser
expressly for use therein, or to the extent that such information relates to the
Purchaser or the Purchaser's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved by the 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 the Purchaser of an outdated or defective Prospectus after the Company has
notified the Purchaser in writing that the Prospectus is outdated or defective
and prior to the receipt by the Purchaser of the advice contemplated in Section
6.5.
(b) Indemnification by the Purchaser. The 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 the
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 the Purchaser furnished to
the Company by the Purchaser expressly for use therein, or to the extent that
such information relates to the Purchaser or the Purchaser's proposed method of
distribution of Registrable Securities and was
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reviewed and expressly approved by the 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 the Purchaser of an
outdated or defective Prospectus after the Company has notified the Purchaser in
writing that the Prospectus is outdated or defective and prior to the receipt by
the Purchaser of the Advice contemplated in Section 6.5. In no event will the
liability of the Purchaser hereunder be greater in amount than the dollar amount
of the net proceeds received by the 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 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
20
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.
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), the Purchaser will not be
required to contribute, in the aggregate, any amount in excess of the amount by
which the proceeds actually received by the Purchaser from the sale of the
Registrable Securities subject to the Proceeding exceeds the amount of any
damages that the 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. The 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. The 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), the Purchaser will discontinue disposition of such
Registrable Securities under the Registration Statement until the 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 Purchaser 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.
21
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 the Purchaser written notice of such
determination and if, within fifteen days after receipt of such notice, the
Purchaser does so request in writing, the Company shall include in such
registration statement all or any part of such Registrable Securities the
Purchaser request to be registered.
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, the 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 the 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 the Purchaser desires to
sell) within 60 days after notice to the 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 the Purchaser (the "Proportionate Amount") that
bears the same ratio to the total number of shares held by the 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 the 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 the 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 the 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
22
Stockholder shall cause the buyer to remit to the Purchaser that portion of the
sale proceeds to which the Purchaser is entitled by reason of its participation
in the transaction.
ARTICLE VII
MISCELLANEOUS
7.1 Termination. This Agreement may be terminated by the Purchaser 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 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 the Closing, and without further consideration, the Company will execute
and deliver to the Purchaser 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
23
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 the Purchaser, to its address and facsimile number set forth on Schedule
1, with copies to the Purchaser's representatives as set forth on Schedule 1, 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
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 the Purchaser 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 Purchaser. The Purchaser may assign its
rights (except those of indemnification or reimbursement) under this Agreement
to any Person to whom the 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 "Purchaser."
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.
24
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 THE PURCHASER 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 THE 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 THE 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 THE PURCHASER 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 the 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
25
therein provided, then the 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 Purchaser
agrees 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 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 Purchaser
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 the Purchaser hereunder or the 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]
26
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:
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.
Number of Units to be purchased at
US$0.30 each: ------------------------------------------
------------------------------------------
Aggregate Purchase Price: $
-----------------------------------------
THE UNDERSIGNED HAS REVIEWED THE DEFINITION OF U.S. "ACCREDITED INVESTOR"
CONTAINED IN SCHEDULE 4, AND AFFIRMS THAT THE UNDERSIGNED IS AN ACCREDITED
INVESTOR BY REASON OF THE FOLLOWING SUBSECTION(S) OF THAT DEFINITION (Please
complete even if you are not a U.S. Person):
IF THE UNDERSIGNED IS A "U.S. PERSON" (AS THAT TERM IS DEFINED IN RULE 902 OF
REGULATION S UNDER THE U.S. SECURITIES ACT PLEASE CHECK THE FOLLOWING BOX: [ ]
-----------------------------------------
Name (full legal name of subscriber) and Address of subscriber:
-----------------------------------------
-----------------------------------------
(address, including postal code)
-----------------------------------------
(telephone number)
-----------------------------------------
(facsimile number)
By:
---------------------------------------
(signature)
-----------------------------------------
(please print name)
-----------------------------------------
(official capacity)
-----------------------------------------
SCHEDULE 1
----------
NUMBER OF
SHARES OF NUMBER OF
ADDRESS, PHONE AND COMMON WARRANT PURCHASE
PURCHASER FAX NUMBER STOCK SHARES PRICE
- --------------------------------------------------------------------------------
1-1
SCHEDULE 2
----------
ALL SUBSCRIBERS
REGISTRATION AND DELIVERY INSTRUCTIONS
1. Delivery: Please deliver the certificates representing the Securities to:
-------------------------------------------------------------------------
Name
-------------------------------------------------------------------------
Account reference, if applicable
-------------------------------------------------------------------------
Contact name
-------------------------------------------------------------------------
Address, including postal code
-------------------------------------------------------------------------
Telephone number
7.18 Registration: The certificates representing the Securities which are to
be delivered at Closing should be registered as follows:
-------------------------------------------------------------------------
Name
-------------------------------------------------------------------------
Account reference, if applicable
-------------------------------------------------------------------------
Address, including postal code
Words and terms herein with the initial letter or letters thereof capitalized
and defined in the Agreement shall have the meanings given to such capitalized
words and terms in the Agreement.
2-1
SCHEDULE 3
----------
ONTARIO, ALBERTA AND BRITISH COLUMBIA SUBSCRIBERS
-------------------------------------------------
TO: WESTERN GOLDFIELDS, INC.
CERTIFICATE
In connection with the purchase by the undersigned purchaser (the "Purchaser")
of Shares and Warrants (the "Securities") of the Corporation, the Purchaser
hereby represents, warrants, covenants and certifies that:
2. the Purchaser is resident in one of the provinces of Ontario, Alberta
or British Columbia or is subject to the laws of one of these
provinces;
7.19 the Purchaser is purchasing the Securities as principal for its own
account;
7.20 the Purchaser is an "accredited investor" within the meaning of
National Instrument 45-106 Prospectus and Registration Exemptions by
virtue of satisfying the indicated criterion as set out in appendix A
to this certificate;
7.21 the above representations, warranties and covenants will be true and
correct both as of the execution of this certificate and as of the
closing time of the purchase and sale of the Securities and will
survive the completion of the issue of the Securities; and
7.22 the foregoing representations, warranties and covenants are made by the
undersigned with the intent that they be relied upon in determining the
suitability of the undersigned as a purchaser of the Securities and the
undersigned undertakes to immediately notify the Corporation of any
change in any statement or other information relating to the Purchaser
set forth herein which takes place prior to the closing time of the
purchase and sale of the Securities.
Dated: _____________, 200__.
--------------------------------
Print name of Purchaser
By:
-----------------------------
Signature
-----------------------------
Title
3-1
IMPORTANT: PLEASE INITIAL THE APPLICABLE ITEM(S) ON APPENDIX A ATTACHED TO THIS
CERTIFICATE.
3-2
APPENDIX "A"
TO SCHEDULE "3"
ACCREDITED INVESTOR (defined in NI 45-106) means:
- ------- (a) A Canadian financial institution, or a Schedule III bank,
- ------- (b) the Business Development Bank of Canada incorporated under the
Business Development Bank of Canada Act (Canada),
- ------- (c) a subsidiary of any person referred to in paragraphs (a) or
(b), if the person owns all of the voting securities of the
subsidiary, except the voting securities required by law to be
owned by directors of that subsidiary,
- ------- (d) a person registered under the securities legislation of a
jurisdiction of Canada as an adviser or dealer, other than a
person registered solely as a limited market dealer under one
or both of the Securities Act (Ontario) or the Securities Act
(Newfoundland and Labrador),
- ------- (e) an individual registered or formerly registered under the
securities legislation of a jurisdiction of Canada as a
representative of a person referred to in paragraph (d),
- ------- (f) the Government of Canada or a jurisdiction of Canada, or any
crown corporation, agency or wholly owned entity of the
Government of Canada or a jurisdiction of Canada,
- ------- (g) a municipality, public board or commission in Canada and a
metropolitan community, school board, the Comite de gestion de
la taxe scolaire de l'ile de Montreal or an intermunicipal
management board in Quebec,
- ------- (h) any national, federal, state, provincial, territorial or
municipal government of or in any foreign jurisdiction, or any
agency of that government,
- ------- (i) a pension fund that is regulated by either the Office of the
Superintendent of Financial Institutions (Canada) or a pension
commission or similar regulatory authority of a jurisdiction
of Canada,
- ------- (j) an individual who, either alone or with a spouse, beneficially
owns, directly or indirectly, financial assets having an
aggregate realizable value that before taxes, but net of any
related liabilities, exceeds $1,000,000,
3-3
- ------- (k) an individual whose net income before taxes exceeded $200,000
in each of the 2 most recent calendar years or whose net
income before taxes combined with that of a spouse exceeded
$300,000 in each of the 2 most recent calendar years and who,
in either case, reasonably expects to exceed that net income
level in the current calendar year,
- ------- (l) an individual who, either alone or with a spouse, has net
assets of at least $5,000,000,
- ------- (m) a person, other than an individual or investment fund, that
has net assets of at least $5,000,000 as shown on its most
recently prepared financial statements,
- ------- (n) an investment fund that distributes or has distributed its
securities only to
(i) a person that is or was an accredited investor at the
time of the distribution,
(ii) a person that acquires or acquired securities in the
circumstances referred to in sections 2.10 [Minimum
amount investment], and 2.19 [Additional investment
in investment funds], or
(iii) a person described in paragraph (i) or (ii) that
acquires or acquired securities under section 2.18
[Investment fund reinvestment],
- ------- (o) an investment fund that distributes or has distributed
securities under a prospectus in a jurisdiction of Canada for
which the regulator or, in Quebec, the securities regulatory
authority, has issued a receipt,
- ------- (p) a trust company or trust corporation registered or authorized
to carry on business under the Trust and Loan Companies Act
(Canada) or under comparable legislation in a jurisdiction of
Canada or a foreign jurisdiction, acting on behalf of a fully
managed account managed by the trust company or trust
corporation, as the case may be,
- ------- (q) a person acting on behalf of a fully managed account managed
by that person, if that person
(i) is registered or authorized to carry on business as
an adviser or the equivalent under the securities
legislation of a jurisdiction of Canada or a foreign
jurisdiction, and
(ii) in Ontario, is purchasing a security that is not a
security of an investment fund,
3-4
- ------- (r) a registered charity under the Income Tax Act (Canada) that,
in regard to the trade, has obtained advice from an
eligibility adviser or other adviser registered under the
securities legislation of the jurisdiction of the registered
charity to give advice on the securities being traded
- ------- (s) an entity organized in a foreign jurisdiction that is
analogous to any of the entities referred to in paragraphs (a)
to (d) or paragraph (i) in form and function,
- ------- (t) a person in respect of which all of the owners of interests,
direct, indirect or beneficial, except the voting securities
required by law to be owned by directors, are persons or
companies that are accredited investors,
- ------- (u) an investment fund that is advised by a person registered as
an adviser or a person that is exempt from registration as an
adviser, or
- ------- (v) a person that is recognized or designated by the securities
regulatory authority or, except in Ontario and Quebec, the
regulator as
(i) an accredited investor, or
(ii) an exempt purchaser in Alberta or British Columbia
after this Instrument comes into force.
NOTE: THE INVESTOR MUST INITIAL BESIDE THE APPLICABLE PORTIONS OF THE ABOVE
DEFINITION.
FOR THE PURPOSES HEREOF:
(a) "CANADIAN FINANCIAL INSTITUTION" means
(i) an association governed by the Cooperative Credit Associations Act
(Canada) or a central cooperative credit society for which an order has
been made under section 473(1) of that Act, or
(ii) a bank, loan corporation, trust company, trust corporation, insurance
company, treasury branch, credit union, caisse populaire, financial
services cooperative, or league that, in each case, is authorized by an
enactment of Canada or a jurisdiction of Canada to carry on business in
Canada or a jurisdiction of Canada.
(b) "ELIGIBILITY ADVISER" means
(i) a person that is registered as an investment dealer or in an equivalent
category of registration under the securities legislation of a
jurisdiction of a purchaser and authorized to give advice with respect
to the type of security being distributed, and
(ii) in Saskatchewan or Manitoba, also means a lawyer who is a practising
member in good standing with a law society of a jurisdiction of Canada
or a public accountant who is a member in good standing of an institute
or association of chartered accountants, certified general accountants
or management accountants in a jurisdiction of Canada provided that the
lawyer or public accountant must not:
(A) have a professional, business or personal relationship with
the issuer, or any of its directors, executive officers,
founders or control persons, and
(B) have acted for or been retained personally or otherwise as an
employee, executive officer, director, associate or partner of
a person or company that has acted for or been retained by the
issuer or any of its directors, senior officers, founders or
control persons within the previous 12 months.
(c) "FINANCIAL ASSETS" means
(iii) cash;
(iv) securities; or
(v) a contract of insurance, a deposit or an evidence of a deposit that is
not a security for the purposes of securities legislation.
(d) "FULLY MANAGED ACCOUNT" means an account of a client for which a
person makes the investment decisions if that person has full discretion to
trade in securities for the account without requiring the client's express
consent to a transaction.
(e) "INVESTMENT FUND" has the same meaning as in National Instrument
81-106 Investment Fund Continuous Disclosure.
(f) "NON-REDEEMABLE INVESTMENT FUND" has the same meaning as in
National Instrument 81-106 Investment Fund Continuous Disclosure.
(g) "PERSON" includes
(vi) an individual;
(vii) a corporation;
(viii) a partnership, trust, fund and an association, syndicate, organization
or other organized group of persons, whether incorporated or not, and
(ix) an individual or other person in that person's capacity as a trustee,
executor, administrator or personal or other legal representative.
(h) "RELATED LIABILITIES" means
(x) liabilities incurred or assumed for the purpose of financing the
acquisition or ownership of financial assets; or
(xi) liabilities that are secured by financial assets.
(i) "SPOUSE" means, an individual who,
3-6
(xii) is married to another individual and is not living separate and apart
within the meaning of the Divorce Act (Canada), from the other
individual,
(xiii) is living with another individual in a marriage-like relationship,
including a marriage-like relationship between individuals of the same
gender, or
(xiv) in Alberta, is an individual referred to in paragraph (a) or (b), or is
an adult interdependent partner within the meaning of the Adult
Interdependent Relationships Act (Alberta).
(j) "SUBSIDIARY" means an issuer that is controlled directly or
indirectly by another issuer and includes a subsidiary of that subsidiary.
For the purpose of this Instrument, an issuer is an affiliate of another issuer
if
(xv) one of them is the subsidiary of the other, or
(xvi) each of them is controlled by the same person.
All monetary references are in Canadian Dollars.
3-7
SCHEDULE 4
----------
U.S. DEFINITION OF ACCREDITED INVESTOR
SEC RULE 501(a)
---------------
Sec. 230.501 Definitions and terms used in Regulation D.
As used in Regulation D, the following terms shall have the
meaning indicated:
(a) Accredited Investor. "Accredited Investor" shall mean any person
who comes within any of the following categories, or who the issuer reasonably
believes comes within any of the following categories, at the time of the sale
of the securities to that person:
(1) Any bank as defined in Section 3(a(2) of the Act, or any
savings and loan association or other institution as defined in Section
3(a)(5)(A) of the Act whether acting in its individual or fiduciary
capacity; any broker or dealer registered pursuant to Section 15 of the
Securities Exchange Act of 1934; insurance company as defined in
Section 2(13) of the Act; investment company registered under the
Investment Company Act of 1940 or a business development company as
defined in Section 2(a)(48) of that Act; Small Business Investment
Company licensed by the U.S. Small Business Administration under
Section 301(c) or (d) of the Small Business Investment Act of 1958; any
plan established and maintained by a state, its political subdivisions,
or any agency or instrumentality of a state or its political
subdivisions for the benefit of its employees, if investment decisions
are made by a plan fiduciary which is a bank, savings and loan
association, insurance company, or registered investment adviser and
the plan establishes fiduciary principles the same or similar to those
contained in sections 404-407 of Title I of the Employee Retirement
Income Security Act of 1974, employee benefit plan within the meaning
of the Employee Retirement Income Security Act of 1974 if the
investment decision is made by a plan fiduciary, as defined in Section
3(21) of such Act, which is either a bank, savings and loan
association, insurance company, or registered investment adviser, or if
the employee benefit plan has total assets in excess of U.S.$5,000,000
or, if a self-directed plan, with investment decisions made solely by
persons that are accredited investors;
(2) Any private business development company as defined in
Section 202(a)(22) of the Investment Advisors Act of 1940;
(3) Any organization described in Section 501(c)(3) of the
Internal Revenue Code, corporation, Massachusetts or similar business
trust, or partnership, not formed for the specific purpose of acquiring
the securities offered, with total assets in excess of U.S.$5,000,000;
(4) Any director, executive officer, or general partner of the
issuer of the securities being offered or sold, or any director,
executive officer, or general partner of a general partner of that
issue;
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(5) Any natural person whose individual net worth, or joint
net worth with that person's spouse, at the time of his purchase,
exceeds U.S.$1,000,000;
(6) Any natural person who had an individual income in excess
of U.S.$200,000 in each of the two most recent years or joint income
with that person's spouse in excess of U.S.$300,000 in each of those
years and has a reasonable expectation of reaching the same income
level in the current year;
(7) Any trust, with total assets in excess of U.S.$5,000,000,
not formed for the specific purpose of acquiring the securities
offered, whose purchase is directed by a sophisticated person as
described in '230.506(b)(2)(ii); and
(8) Any entity in which all of the equity owners are
accredited investors.
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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
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Exhibit A (the "EXERCISE NOTICE"), of the Holder's election to exercise this
Warrant and (ii) (A) payment to the Company of an amount equal to the applicable
Exercise Price multiplied by the number of Warrant Shares as to which this
Warrant is being exercised (the "AGGREGATE EXERCISE PRICE") in cash or wire
transfer of immediately available funds. The Holder will not be required to
deliver the original Warrant in order to effect an exercise hereunder; provided
however, that the Holder shall covenant in the Exercise Notice, that it will
deliver the original Warrant to the Company within five (5) Business Days of
such exercise. Execution and delivery of the Exercise Notice with respect to
less than all of the Warrant Shares will have the same effect as cancellation of
the original Warrant and issuance of a new Warrant evidencing the right to
purchase the remaining number of Warrant Shares. On or before the first Business
Day following the date on which the Company has received each of the Exercise
Notice and the Aggregate Exercise Price (the "EXERCISE DELIVERY DOCUMENTS"), the
Company shall transmit by facsimile an acknowledgment of confirmation of receipt
of the Exercise Delivery Documents to the Holder and the Company's transfer
agent (the "TRANSFER AGENT"). On or before the third Business Day following the
date on which the Company has received all of the Exercise Delivery Documents
(the "SHARE DELIVERY DATE"), the Company shall (X) provided that the Transfer
Agent is participating in The Depository Trust Company ("DTC") Fast Automated
Securities Transfer Program, upon the request of the Holder, credit such
aggregate number of shares of Common Stock to which the Holder is entitled
pursuant to such exercise to the Holder's or its designee's balance account with
DTC through its Deposit Withdrawal Agent Commission system, or (Y) if the
Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, issue and dispatch by overnight courier to the address as
specified in the Exercise Notice, a certificate, registered in the name of the
Holder or its designee, for the number of shares of Common Stock to which the
Holder is entitled pursuant to such exercise. Upon delivery of the Exercise
Notice and Aggregate Exercise Price referred to in clause (ii)(A), the Holder
will be deemed for all corporate purposes to have become the holder of record of
the Warrant Shares with respect to which this Warrant has been exercised,
irrespective of the date of delivery of the certificates evidencing such Warrant
Shares. If this Warrant is submitted in connection with any exercise pursuant to
this Section 1(a) and the number of Warrant Shares represented by this Warrant
submitted for exercise is greater than the number of Warrant Shares being
acquired upon an exercise, then the Company shall as soon as practicable and in
no event later than three Business Days after any exercise and at its own
expense, issue a new Warrant (in accordance with Section 7(d)) representing the
right to purchase the number of Warrant Shares purchasable immediately prior to
such exercise under this Warrant, less the number of Warrant Shares with respect
to which this Warrant is exercised. No fractional shares of Common Stock are to
be issued upon the exercise of this Warrant, but rather the number of shares of
Common Stock to be issued will be rounded up to the nearest whole number. The
Company shall pay any and all taxes, including without limitation, all
documentary stamp, transfer or similar taxes, or other incidental expense that
may be payable with respect to the issuance and delivery of Warrant Shares upon
exercise of this Warrant.
Notwithstanding anything contained herein to the contrary,
this Warrant may not be exercised by the Holder until the shareholders of the
Company approve an amendment to the Company's Articles of Incorporation
increasing the numbers of authorized shares of Common Stock to an amount
sufficient to cover such exercise.
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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) will have been satisfied on each day during
the period commencing on the Forced
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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 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
A-4
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 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
A-5
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,
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
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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 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.
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(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 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
A-8
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 immediately prior to such record date and with an aggregate exercise
price equal to the product of the amount by which the exercise price of this
Warrant was decreased with respect to the Distribution pursuant to the terms of
the immediately preceding paragraph (a) and the number of Warrant Shares
calculated in accordance with the first part of this paragraph (b).
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4. PURCHASE RIGHTS; ORGANIC CHANGE.
-------------------------------
(a) Purchase Rights. In addition to any adjustments pursuant
to Section 2 above, if at any time the Company grants, issues or sells any
Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the "PURCHASE RIGHTS"), then the Holder will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which the Holder could have acquired if such holder had held the
number of shares of Common Stock acquirable upon complete exercise of this
Warrant (without regard to any limitations on the exercise of this Warrant)
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights.
(b) Organic Change. Any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially all of the
Company's assets to another Person or other transaction, in each case which is
effected in such a way that holders of Common Stock are entitled to receive
securities or assets with respect to or in exchange for Common Stock is referred
to herein as an "ORGANIC Change." Prior to the consummation of any (i) sale of
all or substantially all of the Company's assets to an acquiring Person, or (ii)
other Organic Change following which the Company is not a surviving entity, the
Company will secure from the Person purchasing such assets or the Person issuing
the securities or providing the assets in such Organic Change (in each case, the
"ACQUIRING ENTITY") a written agreement (in form and substance reasonably
satisfactory to the holders of SPA Warrants representing at least a majority of
the shares of Common Stock obtainable upon exercise of the SPA Warrants then
outstanding) to deliver to the Holder in exchange for this Warrant, a security
of the Acquiring Entity evidenced by a written instrument substantially similar
in form and substance to this Warrant and reasonably satisfactory to the holder
of this Warrant (including an adjusted exercise price equal to the value for the
Common Stock reflected by the terms of such consolidation, merger or sale, and
exercisable for a corresponding number of shares of Common Stock acquirable and
receivable upon exercise of this Warrant (without regard to any limitations on
the exercise of this Warrant), if the value so reflected is less than the
Exercise Price in effect immediately prior to such consolidation, merger or
sale). In the event that an Acquiring Entity is directly or indirectly
controlled by a company or entity whose common stock or similar equity interest
is listed, designated or quoted on a securities exchange or trading market, the
Holder may elect to treat such Person as the Acquiring Entity for purposes of
this Section 4(b). Notwithstanding the foregoing and except with respect to the
Organic Change contemplated by the Merger (as defined in the Securities Purchase
Agreement), at the Holder's option and request, the Acquiring Entity shall
purchase the Warrant from such Holder for a purchase price, payable in cash
within five Business Days after such request (or, if later, on the effective
date of the Organic Change), equal to the Black Scholes value of the remaining
unexercised portion of this Warrant on the date of such request. The terms of
any agreement pursuant to which a Organic Change is effected shall include terms
requiring any such successor or surviving entity to comply with the provisions
of this Section 4(b) and insuring that the Warrants (or any such replacement
security) will be similarly adjusted upon any subsequent transaction analogous
to an Organic Change. Prior to the consummation of any other Organic Change, the
Company shall make appropriate provision (in form and substance reasonably
satisfactory to the holders of SPA Warrants representing at least a majority of
the shares of Common Stock obtainable upon exercise of the SPA Warrants then
outstanding) to insure that the Holder thereafter will have the right to acquire
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and receive in lieu of or in addition to (as the case may be) the shares of
Common Stock immediately theretofore acquirable and receivable upon the exercise
of this Warrant (without regard to any limitations on the exercise of this
Warrant), such shares of stock, securities or assets that would have been issued
or payable in such Organic Change with respect to or in exchange for the number
of shares of Common Stock which would have been acquirable and receivable upon
the exercise of this Warrant as of the date of such Organic Change (without
regard to any limitations on the exercise of this Warrant).
5. NONCIRCUMVENTION. The Company hereby covenants and agrees that the
Company will not, by amendment of its Certificate of Incorporation or through
any reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities, or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant, and
will at all times in good faith carry out all the provisions of this Warrant and
take all action as may be required to protect the rights of the Holder. Without
limiting the generality of the foregoing, the Company (i) will not increase the
par value of any shares of Common Stock receivable upon the exercise of this
Warrant above the Exercise Price then in effect, and (ii) will take all such
actions as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant.
6. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise
specifically provided herein, the Holder, solely in such Person's capacity as a
holder of this Warrant, shall not be entitled to vote or receive dividends or be
deemed the holder of shares of the Company for any purpose, nor shall anything
contained in this Warrant be construed to confer upon the Holder, solely in such
Person's capacity as the Holder, any of the rights of a shareholder of the
Company or any right to vote, give or withhold consent to any corporate action
(whether any reorganization, issue of stock, reclassification of stock,
consolidation, merger, conveyance or otherwise), receive notice of meetings,
receive dividends or subscription rights, or otherwise, prior to the issuance to
the Holder of the Warrant Shares which such Person is then entitled to receive
upon the due exercise of this Warrant. In addition, nothing contained in this
Warrant shall be construed as imposing any liabilities on the Holder to purchase
any securities (upon exercise of this Warrant or otherwise) or as a stockholder
of the Company, whether such liabilities are asserted by the Company or by
creditors of the Company.
7. REISSUANCE OF WARRANTS.
---------------------
(a) Transfer of Warrant. If this Warrant is to be transferred,
the Holder shall surrender this Warrant to the Company, whereupon the Company
will forthwith issue and deliver upon the order of the Holder a new Warrant (in
accordance with Section 7(d)), registered as the Holder may request,
representing the right to purchase the number of Warrant Shares being
transferred by the Holder and, if less then the total number of Warrant Shares
then underlying this Warrant is being transferred, a new Warrant (in accordance
with Section 7(d)) to the Holder representing the right to purchase the number
of Warrant Shares not being transferred.
(b) Lost, Stolen or Mutilated Warrant. Upon receipt by the
Company of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant, and, in the case of loss, theft or
destruction, of any indemnification undertaking by
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the Holder to the Company in customary form and, in the case of mutilation, upon
surrender and cancellation of this Warrant, the Company shall execute and
deliver to the Holder a new Warrant (in accordance with Section 7(d))
representing the right to purchase the Warrant Shares then underlying this
Warrant.
(c) Warrant Exchangeable for Multiple Warrants. This Warrant
is exchangeable, upon the surrender hereof by the Holder at the principal office
of the Company, for a new Warrant or Warrants (in accordance with Section 7(d))
representing in the aggregate the right to purchase the number of Warrant Shares
then underlying this Warrant, and each such new Warrant will represent the right
to purchase such portion of such Warrant Shares as is designated by the Holder
at the time of such surrender; provided, however, that no Warrants for
fractional shares of Common Stock shall be given.
(d) Issuance of New Warrants. Whenever the Company is required
to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant
(i) shall be of like tenor with this Warrant, (ii) shall represent, as indicated
on the face of such new Warrant, the right to purchase the Warrant Shares then
underlying this Warrant (or in the case of a new Warrant being issued pursuant
to Section 7(a) or Section 7(c), the Warrant Shares designated by the Holder
which, when added to the number of shares of Common Stock underlying the other
new Warrants issued in connection with such issuance, does not exceed the number
of Warrant Shares then underlying this Warrant), (iii) except for new warrants
issued pursuant to section 7(a), shall have an issuance date, as indicated on
the face of such new Warrant, which is the same as the Issuance Date, and (iv)
shall have the same rights and conditions as this Warrant.
8. NOTICES. Whenever notice is required to be given under this Warrant,
unless otherwise provided herein, such notice shall be given in accordance with
Section 7.4 of the Securities Purchase Agreement. The Company shall provide the
Holder with prompt written notice of all actions taken pursuant to this Warrant,
including in reasonable detail a description of such action and the reason
therefore. Without limiting the generality of the foregoing, the Company will
give written notice to the Holder (i) promptly upon any adjustment of the
Exercise Price or number of Warrant Shares or number or kind of securities
purchasable upon exercise of this Warrant, setting forth in reasonable detail,
and certifying, the facts requiring such adjustment and the calculation of such
adjustment, and (ii) at least fifteen days prior to the date on which the
Company closes its books or takes a record (A) with respect to any dividend or
distribution upon the Common Stock, (B) with respect to any grants, issues or
sales of any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property to holders of Common Stock, or (C) for
determining rights to vote with respect to any Change of Control, dissolution or
liquidation, provided in each case that such information shall be made known to
the public prior to or in conjunction with such notice being provided to the
Holder.
9. AMENDMENT AND WAIVER. Except as otherwise provided herein, the
provisions of this Warrant may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the holders of SPA
Warrants representing at least a majority of the shares of Common Stock
obtainable upon exercise of the SPA Warrants then outstanding; provided, that,
no such action may increase the exercise price of any SPA Warrant or decrease
the number of shares or class of stock obtainable upon exercise of any SPA
Warrant without the
A-12
written consent of the Holder. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the SPA Warrants then
outstanding.
10. GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Warrant shall be governed by, the
internal laws of the State of New York, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York.
11. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly
drafted by the Company and all the holders of the SPA Warrants and shall not be
construed against any person as the drafter hereof. The headings of this Warrant
are for convenience of reference and shall not form part of, or affect the
interpretation of, this Warrant.
12. DISPUTE RESOLUTION. In the case of a dispute as to the
determination of the Exercise Price or the arithmetic calculation of the Warrant
Shares, the Company shall submit the disputed determinations or arithmetic
calculations via facsimile within two Business Days of receipt of the Exercise
Notice giving rise to such dispute, as the case may be, to the Holder. If the
Holder and the Company are unable to agree upon such determination or
calculation of the Exercise Price or the Warrant Shares within three Business
Days of such disputed determination or arithmetic calculation being submitted to
the Holder, then the Company shall, within two Business Days submit via
facsimile (a) the disputed determination of the Exercise Price to an
independent, reputable investment bank selected by the Company and approved by
the Holder or (b) the disputed arithmetic calculation of the Warrant Shares to
the Company's independent, outside accountant. The Company shall use its
reasonable best efforts to cause the investment bank or the accountant, as the
case may be, to perform the determinations or calculations and notify the
Company and the Holder of the results no later than ten Business Days from the
time it receives the disputed determinations or calculations. Such investment
bank's or accountant's determination or calculation, as the case may be, shall
be binding upon all parties absent demonstrable error.
13. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The
remedies provided in this Warrant shall be cumulative and in addition to all
other remedies available under this Warrant and the other Transaction Documents
at law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit the right of the Holder to
pursue actual damages for any failure by the Company to comply with the terms of
this Warrant. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the holder of this Warrant and that the
remedy at law for any such breach may be inadequate. The Company therefore
agrees that, in the event of any such breach or threatened breach, the Holder
shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
14. TRANSFER. This Warrant may be offered for sale, sold, transferred
or assigned without the consent of the Company.
A-13
15. CERTAIN DEFINITIONS. For purposes of this Warrant, the following
terms shall have the following meanings:
(a) "BLOOMBERG" means Bloomberg Financial Markets.
(b) "BUSINESS DAY" means any day other than Saturday, Sunday
or other day on which commercial banks in The City of New York are authorized or
required by law to remain closed.
(c) "CHANGE OF CONTROL" means each occurrence of any of the
following:
(i) the acquisition, directly or indirectly, by any
person or group (within the meaning of Section 13(d)(3) of the Exchange
Act) of beneficial ownership of more than 30% of the aggregate
outstanding voting power of the capital stock of the Company;
(ii) during any period of 12 consecutive months,
individuals who at the beginning of such period constituted the Board
of Directors of the Company (together with any new directors whose
election by such Board of Directors or whose nomination for election by
the shareholders of the Company was approved by a vote of at least a
majority the directors of the Company then still in office who were
either directors at the beginning of such period, or whose election or
nomination for election was previously approved) cease for any reason
to constitute a majority of the Board of Directors of the Company;
(iii) the Company ceases to own and control 100% (or
such lesser percentage ownership with respect to any subsidiaries of
the Company which are not 100% owned by the Company as of the date
hereof) of the shares of the capital stock of the Company's
Subsidiaries, unless otherwise permitted hereunder; or
(iv) (1) the Company consolidates with or merges into
another entity, or (2) conveys, transfers or leases all or
substantially all of its property and assets to any Person, which in
either event (1) or (2) is pursuant to a transaction in which the
outstanding voting capital stock of the Company is reclassified or
changed into or exchanged for cash, securities or other property.
(d) "CLOSING BID PRICE" and "CLOSING SALE PRICE" means, for
any security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade price, respectively,
of such security prior to 4:00 p.m., New York Time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if
A-14
no closing bid price or last trade price, respectively, is reported for such
security by Bloomberg, the average of the bid prices, or the ask prices,
respectively, of any market makers for such security as reported in the "pink
sheets" by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If
the Closing Bid Price or the Closing Sale Price cannot be calculated for a
security on a particular date on any of the foregoing bases, the Closing Bid
Price or the Closing Sale Price, as the case may be, of such security on such
date shall be the fair market value as mutually determined by the Company and
the Holder. If the Company and the Holder are unable to agree upon the fair
market value of such security, then such dispute shall be resolved pursuant to
Section 12. All such determinations to be appropriately adjusted for any stock
dividend, stock split, stock combination or other similar transaction during the
applicable calculation period.
(e) "COMMON STOCK" means (i) the Company's common stock, par
value $0.01 per share, and (ii) any capital stock into which such Common Stock
shall have been changed or any capital stock resulting from a reclassification
of such Common Stock.
(f) "COMMON STOCK DEEMED OUTSTANDING" means, at any given
time, the number of shares of Common Stock actually outstanding at such time,
plus the number of shares of Common Stock deemed to be outstanding pursuant to
Sections 2(a)(i) and 2(a)(ii) hereof regardless of whether the Options or
Convertible Securities are actually exercisable or convertible at such time, but
excluding any shares of Common Stock owned or held by or for the account of the
Company or issuable upon exercise of the SPA Warrants.
(g) "CONVERTIBLE SECURITIES" means any stock or securities
(other than Options) directly or indirectly convertible into or exercisable or
exchangeable for Common Stock.
(h) "EXCLUDED SECURITIES" means shares of Common Stock deemed
to have been issued or sold by the Company (i) in connection with any employee
benefit plan which has been approved by the Board of Directors of the Company,
pursuant to which the Company's securities may be issued to any employee,
officer or director for services provided to the Company, (ii) in connection
with any acquisition by the Company, whether through an acquisition for stock or
a merger, of any business, assets or technologies the primary purpose of which
is not to raise equity capital, (iii) pursuant to a bona fide firm commitment
underwritten public offering with a nationally recognized underwriter which
generates net proceeds to the Company in excess of $10,000,000 (other than an
"at-the-market offering" as defined in Rule 415(a)(4) under the 1933 Act and
"equity lines") and (iv) upon conversion of any Options or Convertible
Securities which are outstanding under any stock option plan of the Company on
the day immediately preceding the Issuance Date, provided that the terms of such
Options or Convertible Securities are not amended, modified or changed on or
after the Issuance Date.
(i) "EXPIRATION DATE" means the date two years after the
applicable Closing Date (as defined in the Securities Purchase Agreement) at
which the Company's obligation to issue this Warrant arose or, if such date
falls on a day other than a Business Day or on which trading does not take place
on the Principal Market (a "HOLIDAY"), the next date that is not a Holiday.
A-15
(j) "OPTIONS" means any rights, warrants or options to
subscribe for or purchase Common Stock or Convertible Securities.
(k) "PERSON" means an individual, a limited liability company,
a partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency
thereof.
(l) "PRINCIPAL MARKET" means any of The New York Stock
Exchange, Inc., the American Stock Exchange, the Nasdaq National Market, The
Nasdaq SmallCap Market or the OTC Bulletin Board.
[SIGNATURE PAGE FOLLOWS]
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:
A-17
EXHIBIT A
---------
EXERCISE NOTICE
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT TO PURCHASE COMMON STOCK
WESTERN GOLDFIELDS, INC. CORPORATION
The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("WARRANT SHARES") of Western
Goldfields, Inc., an Idaho corporation (the "COMPANY"), evidenced by the
attached Warrant to Purchase Common Stock (the "WARRANT"). Capitalized terms
used herein and not otherwise defined shall have the respective meanings set
forth in the Warrant.
1. Payment of Exercise Price. Upon exercise of the Warrant, the holder
shall pay the Aggregate Exercise Price in the sum of $___________________ to the
Company in accordance with the terms of the Warrant.
2. Accredited Investor. The holder is an "accredited investor" as
defined in Rule 501(c) under the Securities Act.
3. Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.
4. Delivery of Warrant. The Holder shall deliver the original Warrant
to the Company within five (5) Business Days from the date hereof.
[5. The Holder hereby represents that contemporaneous with the delivery
of this exercise notice, that the Holder has sold __________ Warrant Shares and
hereby represents that it has complied with the prospectus delivery requirements
of the Securities Act as applicable in connection with such sale.](1)
Date: _______________ __, ______
- --------------------------------
Name of Registered Holder
By:
-----------------------
Name:
Title:
A-18
- ----------
(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:
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:
B-4
- ---------
(2) 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 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:
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EXHIBIT C
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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:
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EXHIBIT D
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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
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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
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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.
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