THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. EXCEPT AS OTHERWISE SET FORTH HEREIN OR IN A SECURITIES
PURCHASE AGREEMENT DATED AS OF JULY 31, 2008, NEITHER THIS WARRANT
NOR ANY OF SUCH SHARES MAY BE SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES
UNDER SAID ACT OR, AN OPINION OF COUNSEL, IN FORM, SUBSTANCE AND
SCOPE, CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE
TRANSACTIONS, THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR
UNLESS SOLD PURSUANT TO RULE 144 OR REGULATION S UNDER SUCH
ACT.
Right to Purchase 4,000,000
Shares of Common Stock, par
value $.001 per share
STOCK PURCHASE
WARRANT
THIS CERTIFIES THAT , for value received, AJW Master
Fund, Ltd. or its registered assigns, is entitled to purchase from
Itronics Inc., a Texas corporation (the "Company"), at any
time or from time to time during the period specified in
Paragraph 2 hereof, 4,000,000 fully paid and nonassessable
shares of the Company’s Common Stock, par value $.001 per
share (the "Common Stock"), at an exercise price per share equal to
$.001 (the "Exercise Price"). The term "Warrant Shares," as used
herein, refers to the shares of Common Stock purchasable hereunder.
The Warrant Shares and the Exercise Price are subject to adjustment
as provided in Paragraph 4 hereof. The term "Warrants" means this
Warrant and the other warrants issued pursuant to that certain
Securities Purchase Agreement, dated July 31, 2008, by and among
the Company and the Buyers listed on the execution page thereof
(the "Securities Purchase Agreement").
This Warrant is subject to the following terms, provisions, and
conditions:
1.
Manner of
Exercise; Issuance of Certificates; Payment for
Shares.
Subject to the provisions hereof, this Warrant may be exercised
by the holder hereof, in whole or in part, by the surrender of this
Warrant, together with a completed exercise agreement in the form
attached hereto (the "Exercise Agreement"), to the Company during
normal business hours on any business day at the Company’s
principal executive offices (or such other office or agency of the
Company as it may designate by notice to the holder hereof), and
upon (i) payment to the Company
in cash, by certified or official bank check or by wire transfer
for the account of the Company of the Exercise Price for the
Warrant Shares specified in the Exercise Agreement or (ii) if the
resale of the Warrant Shares by the holder is not then registered
pursuant to an effective registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), delivery
to the Company of a written notice of an election to effect a
"Cashless Exercise" (as defined in Section 11(c) below) for the
Warrant Shares specified in the Exercise Agreement. The Warrant
Shares so purchased shall be deemed to be issued to the holder
hereof or such holder’s designee, as the record owner of such
shares, as of the close of business on the date on which this
Warrant shall have been surrendered, the completed Exercise
Agreement shall have been delivered, and payment shall have been
made for such shares as set forth above. Certificates for the
Warrant Shares so purchased, representing the aggregate number of
shares specified in the Exercise Agreement, shall be delivered to
the holder hereof within a reasonable time, not exceeding five (5)
business days, after this Warrant shall have been so exercised. The
certificates so delivered shall be in such denominations as may be
requested by the holder hereof and shall be registered in the name
of such holder or such other name as shall be designated by such
holder. If this Warrant shall have been exercised only in part,
then, unless this Warrant has expired, the Company shall, at its
expense, at the time of delivery of such certificates, deliver to
the holder a new Warrant representing the number of shares with
respect to which this Warrant shall not then have been exercised.
In addition to all other available remedies at law or in equity, if
the Company fails to deliver certificates for the Warrant Shares
within five (5) business days after this Warrant is exercised, then
the Company shall pay to the holder in cash a penalty (the
"Penalty") equal to 2% of the number of Warrant Shares that the
holder is entitled to multiplied by the Market Price (as
hereinafter defined) for each day that the Company fails to deliver
certificates for the Warrant Shares. For example, if the holder is
entitled to 100,000 Warrant Shares and the Market Price is $2.00,
then the Company shall pay to the holder $4,000 for each day that
the Company fails to deliver certificates for the Warrant Shares.
The Penalty shall be paid to the holder by the fifth day of the
month following the month in which it has accrued.
Notwithstanding anything in this Warrant to the contrary, in no
event shall the holder of this Warrant be entitled to exercise a
number of Warrants (or portions thereof) in excess of the number of
Warrants (or portions thereof) upon exercise of which the sum of
(i) the number of shares of Common Stock beneficially owned by the
holder and its affiliates (other than shares of Common Stock which
may be deemed beneficially owned through the ownership of the
unexercised Warrants and the unexercised or unconverted portion of
any other securities of the Company (including the Notes (as
defined in the Securities Purchase Agreement)) subject to a
limitation on conversion or exercise analogous to the limitation
contained herein) and (ii) the number of shares of Common Stock
issuable upon exercise of the Warrants (or portions thereof) with
respect to which the determination described herein is being made,
would result in beneficial ownership by the holder and its
affiliates of more than 4.9% of the outstanding shares of Common
Stock. For purposes of the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and
Regulation 13D-G thereunder, except as otherwise provided in clause
(i) of the preceding sentence. Notwithstanding anything to the
contrary contained herein, the limitation on exercise of this
Warrant set forth herein may not be amended without (i) the written
consent of the holder hereof and the Company and (ii) the approval
of a majority of shareholders of the Company.
2.
Period of
Exercise .
This Warrant is exercisable at any time or from time to time on
or after the date on which this Warrant is issued and delivered
pursuant to the terms of the Securities Purchase Agreement and
before 6:00 p.m., New York, New York time on the seventh (7
th ) anniversary of the date of issuance (the "Exercise
Period").
3.
Certain
Agreements of the Company .
The Company hereby covenants and agrees as follows:
(a) Shares to be Fully Paid . All Warrant Shares
will, upon issuance in accordance with the terms of this Warrant,
be validly issued, fully paid, and nonassessable and free from all
taxes, liens, and charges with respect to the issue thereof.
(b) Reservation of Shares . During the Exercise
Period, the Company shall at all times have authorized, and
reserved for the purpose of issuance upon exercise of this Warrant,
a sufficient number of shares of Common Stock to provide for the
exercise of this Warrant.
(c) Listing . The Company shall promptly secure
the listing of the shares of Common Stock issuable upon exercise of
the Warrant upon each national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are
then listed (subject to official notice of issuance upon exercise
of this Warrant) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all shares of
Common Stock from time to time issuable upon the exercise of this
Warrant; and the Company shall so list on each national securities
exchange or automated quotation system, as the case may be, and
shall maintain such listing of, any other shares of capital stock
of the Company issuable upon the exercise of this Warrant if and so
long as any shares of the same class shall be listed on such
national securities exchange or automated quotation system.
(d) Certain Actions Prohibited . The Company will
not, by amendment of its charter 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 to be
observed or performed by it hereunder, but will at all times in
good faith assist in the carrying out of all the provisions of this
Warrant and in the taking of all such action as may reasonably be
requested by the holder of this Warrant in order to protect the
exercise privilege of the holder of this Warrant against dilution
or other impairment, consistent with the tenor and purpose of this
Warrant. 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.
(e) Successors and Assigns . This Warrant will be
binding upon any entity succeeding to the Company by merger,
consolidation, or acquisition of all or substantially all the
Company’s assets.
4.
Antidilution
Provisions .
During the Exercise Period, the Exercise Price and the number of
Warrant Shares shall be subject to adjustment from time to time as
provided in this Paragraph 4.
In the event that any adjustment of the Exercise Price as
required herein results in a fraction of a cent, such Exercise
Price shall be rounded up to the nearest cent.
(a) Adjustment of Exercise Price and Number of Shares upon
Issuance of Common Stock . Except as otherwise provided in
Paragraphs 4(c) and 4(e) hereof, if and whenever on or after the
date of issuance of this Warrant, the Company issues or sells, or
in accordance with Paragraph 4(b) hereof is deemed to have issued
or sold, any shares of Common Stock for no consideration or for a
consideration per share (before deduction of reasonable expenses or
commissions or underwriting discounts or allowances in connection
therewith) less than the Market Price on the date of issuance (a
"Dilutive Issuance"), then immediately upon the Dilutive Issuance,
the Exercise Price will be reduced to a price determined by
multiplying the Exercise Price in effect immediately prior to the
Dilutive Issuance by a fraction, (i) the numerator of which is an
amount equal to the sum of (x) the number of shares of Common Stock
actually outstanding immediately prior to the Dilutive Issuance,
plus (y) the quotient of the aggregate consideration, calculated as
set forth in Paragraph 4(b) hereof, received by the Company upon
such Dilutive Issuance divided by the Market Price in effect
immediately prior to the Dilutive Issuance, and (ii) the
denominator of which is the total number of shares of Common Stock
Deemed Outstanding (as defined below) immediately after the
Dilutive Issuance.
(b) Effect on Exercise Price of Certain Events .
For purposes of determining the adjusted Exercise Price under
Paragraph 4(a) hereof, the following will be applicable:
(i) Issuance of Rights or Options . If the Company
in any manner issues or grants any warrants, rights or options,
whether or not immediately exercisable, to subscribe for or to
purchase Common Stock or other securities convertible into or
exchangeable for Common Stock ("Convertible Securities") (such
warrants, rights and options to purchase Common Stock or
Convertible Securities are hereinafter referred to as "Options")
and the price per share for which Common Stock is issuable upon the
exercise of such Options is less than the Market Price on the date
of issuance or grant of such Options, then the maximum total number
of shares of Common Stock issuable upon the exercise of all such
Options will, as of the date of the issuance or grant of such
Options, be deemed to be outstanding and to have been issued and
sold by the Company for such price per share. For purposes of the
preceding sentence, the "price per share for which Common Stock is
issuable upon the exercise of such Options" is determined by
dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the issuance or granting of all
such Options, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the exercise of
all such Options, plus, in the case of Convertible Securities
issuable upon the exercise of such Options, the minimum aggregate
amount of additional consideration payable upon the conversion or
exchange thereof at the time such Convertible Securities first
become convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the exercise of all
such Options (assuming full conversion of Convertible Securities,
if applicable). No further adjustment to the Exercise Price will be
made upon the actual issuance of such Common Stock upon the
exercise of such Options or upon the conversion or exchange of
Convertible Securities issuable upon exercise of such Options.
(ii) Issuance of Convertible Securities . If the
Company in any manner issues or sells any Convertible Securities,
whether or not immediately convertible (other than where the same
are issuable upon the exercise of Options) and the price per share
for which Common Stock is issuable
upon such conversion or exchange is less than the Market Price
on the date of issuance, then the maximum total number of shares of
Common Stock issuable upon the conversion or exchange of all such
Convertible Securities will, as of the date of the issuance of such
Convertible Securities, be deemed to be outstanding and to have
been issued and sold by the Company for such price per share. For
the purposes of the preceding sentence, the "price per share for
which Common Stock is issuable upon such conversion or exchange" is
determined by dividing (i) the total amount, if any, received or
receivable by the Company as consideration for the issuance or sale
of all such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the Company
upon the conversion or exchange thereof at the time such
Convertible Securities first become convertible or exchangeable, by
(ii) the maximum total number of shares of Common Stock issuable
upon the conversion or exchange of all such Convertible Securities.
No further adjustment to the Exercise Price will be made upon the
actual issuance of such Common Stock upon conversion or exchange of
such Convertible Securities.
(iii) Change in Option Price or Conversion Rate .
If there is a change at any time in (i) the amount of additional
consideration payable to the Company upon the exercise of any
Options; (ii) the amount of additional consideration, if any,
payable to the Company upon the conversion or exchange of any
Convertible Securities; or (iii) the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock
(other than under or by reason of provisions designed to protect
against dilution), the Exercise Price in effect at the time of such
change will be readjusted to the Exercise Price which would have
been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed additional
consideration or changed conversion rate, as the case may be, at
the time initially granted, issued or sold.
(iv) Treatment of Expired Options and Unexercised
Convertible Securities . If, in any case, the total number
of shares of Common Stock issuable upon exercise of any Option or
upon conversion or exchange of any Convertible Securities is not,
in fact, issued and the rights to exercise such Option or to
convert or exchange such Convertible Securities shall have expired
or terminated, the Exercise Price then in effect will be readjusted
to the Exercise Price which would have been in effect at the time
of such expiration or termination had such Option or Convertible
Securities, to the extent outstanding immediately prior to such
expiration or termination (other than in respect of the actual
number of shares of Common Stock issued upon exercise or conversion
thereof), never been issued.
(v) Calculation of Consideration Received . If any
Common Stock, Options or Convertible Securities are issued, granted
or sold for cash, the consideration received therefor for purposes
of this Warrant will be the amount received by the Company
therefor, before deduction of reasonable commissions, underwriting
discounts or allowances or other reasonable expenses paid or
incurred by the Company in connection with such issuance, grant or
sale. In case any Common Stock, Options or Convertible Securities
are issued or sold for a consideration
