Exhibit 10.3

UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST
NOT TRADE THE SECURITY BEFORE THE DATE THAT IS 4 MONTHS AND A DAY AFTER THE
LATER OF (i) JANUARY 18, 2007, AND (ii) THE DATE THE ISSUER BECAME A REPORTING
ISSUER IN ANY PROVINCE OR TERRITORY.

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR APPLICABLE
STATE SECURITIES LAWS. THESE SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT AND SUCH LAWS COVERING SUCH SECURITIES, OR THE COMPANY
RECEIVES AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY STATING THAT SUCH
OFFER, SALE, PLEDGE OR OTHER TRANSFER IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THE
SECURITIES REPRESENTED BY THIS CERTIFICATE CANNOT BE THE SUBJECT OF HEDGING
TRANSACTIONS UNLESS SUCH TRANSACTIONS ARE CONDUCTED IN COMPLIANCE WITH THE
SECURITIES ACT.

SERIES “A” COMMON STOCK PURCHASE WARRANT

STERLING MINING COMPANY

 

Warrants:                     

   Initial Issuance Date: January 18, 2007

THIS SERIES A COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for
value received,                      (the “Holder”), is entitled, upon the terms
and subject to the limitations on exercise and the conditions hereinafter set
forth, at any time on or after the Initial Issuance Date and on or prior to the
close of business on the two year anniversary of the Initial Issuance Date (the
“Termination Date”) but not thereafter, to subscribe for and purchase from
Sterling Mining Company, an Idaho corporation (the “Company”), up to
                     shares (the “Warrant Shares”) of common stock, par value
$.05 per share, of the Company (the “Common Stock”). The purchase price of one
share of Common Stock under this Warrant shall be equal to the Exercise Price,
as defined in Section 2(b).

Section 1. Definitions. Capitalized terms used and not otherwise defined herein
shall have the meanings set forth in that certain Subscription Agreement (the
“Subscription Agreement”), dated January 18, 2007, among the Company and the
purchasers signatory thereto.

Section 2. Exercise.

a) Exercise of Warrant. Exercise of the purchase rights represented by this
Warrant may be made, in whole or in part, at any time or times on or before the
Termination Date by delivery to the Company of a duly executed facsimile copy of
the

 

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Notice of Exercise Form annexed hereto (or such other office or agency of the
Company as it may designate by notice in writing to the registered Holder at the
address of such Holder appearing on the books of the Company); and, within three
Business Days of the date said Notice of Exercise is delivered to the Company,
the Company shall have received payment of the aggregate Exercise Price of the
shares thereby purchased by wire transfer or cashier’s check drawn on a United
States or Canadian bank. Notwithstanding anything herein to the contrary, the
Holder shall not be required to physically surrender this Warrant to the Company
until the Holder has purchased all of the Warrant Shares available hereunder and
the Warrant has been exercised in full, in which case, the Holder shall
surrender this Warrant to the Company for cancellation within three Business
Days of the date the final Notice of Exercise is delivered to the Company.
Partial exercises of this Warrant resulting in purchases of a portion of the
total number of Warrant Shares available hereunder shall have the effect of
lowering the outstanding number of Warrant Shares purchasable hereunder in an
amount equal to the applicable number of Warrant Shares purchased. The Holder
and the Company shall maintain records showing the number of Warrant Shares
purchased and the date of such purchases. The Company shall deliver any
objection to any Notice of Exercise Form within one Business Day of receipt of
such notice. In the event of any dispute or discrepancy, the records of the
Company shall be controlling and determinative in the absence of manifest error.
The Holder and any assignee, by acceptance of this Warrant, acknowledge and
agree that, by reason of the provisions of this paragraph, following the
purchase of a portion of the Warrant Shares hereunder, the number of Warrant
Shares available for purchase hereunder at any given time may be less than the
amount stated on the face hereof.

b) Exercise Price. The exercise price per share of the Common Stock under this
Warrant shall be U.S.$4.25, subject to adjustment hereunder (the “Exercise
Price”).

c) Cashless Exercise. If at any time after a Registration Statement covering the
Warrant Shares has been declared effective by the Securities and Exchange
Commission (the “Commission”) there is no effective Registration Statement
registering, or no current prospectus available for, the resale of the Warrant
Shares by the Holder, then this Warrant may also be exercised at such time by
means of a “cashless exercise” in which the Holder shall be entitled to receive
a certificate for the number of Warrant Shares equal to the quotient obtained by
dividing [(A-B) (X)] by (A), where:

 

  (A)  = the daily volume weighted average price of the Common Stock on the
Business Day immediately preceding the date of such election on the trading
market on which the Common Stock is then listed or quoted, based on a Business
Day from 9:30 a.m. New York City time to 4:02 p.m. New York City time (“VWAP);

 

  (B)  = the Exercise Price of this Warrant, as adjusted; and

 

  (X)  = the number of Warrant Shares issuable upon exercise of this Warrant in
accordance with the terms of this Warrant by means of a cash exercise rather
than a cashless exercise.

 

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d) Exercise Limitations. The Company shall not effect any exercise of this
Warrant, and a Holder shall not have the right to exercise any portion of this
Warrant, pursuant to Section 2(c) or otherwise, to the extent that after giving
effect to such issuance after exercise as set forth on the applicable Notice of
Exercise, such Holder (together with such Holder’s Affiliates (as such term is
defined under Rule 144 of the Securities Act), and any other person or entity
acting as a group together with such Holder or any of such Holder’s Affiliates),
as set forth on the applicable Notice of Exercise, would beneficially own in
excess of the Beneficial Ownership Limitation (as defined below). For purposes
of the foregoing sentence, the number of shares of Common Stock beneficially
owned by such Holder and its Affiliates shall include the number of shares of
Common Stock issuable upon exercise of this Warrant with respect to which such
determination is being made, but shall exclude the number of shares of Common
Stock which would be issuable upon (A) exercise of the remaining, nonexercised
portion of this Warrant beneficially owned by such Holder or any of its
Affiliates and (B) exercise or conversion of the unexercised or nonconverted
portion of any other securities of the Company (including, without limitation,
any other Warrants) subject to a limitation on conversion or exercise analogous
to the limitation contained herein beneficially owned by such Holder or any of
its Affiliates. Except as set forth in the preceding sentence, for purposes of
this Section 2(d)(i), beneficial ownership shall be calculated in accordance
with Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder, it being acknowledged by a Holder that the Company is not
representing to such Holder that such calculation is in compliance with
Section 13(d) of the Exchange Act and such Holder is solely responsible for any
schedules required to be filed in accordance therewith. To the extent that the
limitation contained in this Section 2(d) applies, the determination of whether
this Warrant is exercisable (in relation to other securities owned by such
Holder together with any Affiliates) and of which a portion of this Warrant is
exercisable shall be in the sole discretion of a Holder, and the submission of a
Notice of Exercise shall be deemed to be each Holder’s determination of whether
this Warrant is exercisable (in relation to other securities owned by such
Holder together with any Affiliates) and of which portion of this Warrant is
exercisable, in each case subject to such aggregate percentage limitation, and
the Company shall have no obligation to verify or confirm the accuracy of such
determination. In addition, a determination as to any group status as
contemplated above shall be determined in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder. For purposes
of this Section 2(d), in determining the number of outstanding shares of Common
Stock, a Holder may rely on the number of outstanding shares of Common Stock as
reflected in (x) the Company’s most recent Form 10-Q or Form 10-K, as the case
may be, (y) a more recent public announcement by the Company or (z) any other
notice by the Company or the Company’s transfer agent setting forth the number
of shares of Common Stock outstanding. Upon the written or oral request of a
Holder, the Company shall within two Business Days confirm orally and in writing
to such Holder the number of shares of Common Stock then outstanding. In any
case, the number of outstanding shares of Common Stock shall be determined after
giving effect to the conversion or exercise of securities of the Company,
including this Warrant, by such Holder or its Affiliates since

 

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the date as of which such number of outstanding shares of Common Stock was
reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of
shares of the Common Stock outstanding immediately after giving effect to the
issuance of shares of Common Stock issuable upon exercise of this Warrant. The
Beneficial Ownership Limitation provisions of this Section 2(d)(i) may be waived
by such Holder, at the election of such Holder, upon not less than 61 days’
prior notice to the Company to change the Beneficial Ownership Limitation to
9.99% of the number of shares of the Common Stock outstanding immediately after
giving effect to the issuance of shares of Common Stock upon exercise of this
Warrant, and the provisions of this Section 2(d) shall continue to apply. Upon
such a change by a Holder of the Beneficial Ownership Limitation from such 4.99%
limitation to such 9.99% limitation, the Beneficial Ownership Limitation may not
be further waived by such Holder. The provisions of this paragraph shall be
construed and implemented in a manner otherwise than in strict conformity with
the terms of this Section 2(d)(i) to correct this paragraph (or any portion
hereof) which may be defective or inconsistent with the intended Beneficial
Ownership Limitation herein contained or to make changes or supplements
necessary or desirable to properly give effect to such limitation. The
limitations contained in this paragraph shall apply to a successor holder of
this Warrant.

e) Mechanics of Exercise.

i. Authorization of Warrant Shares. The Company covenants that all Warrant
Shares which may be issued upon the exercise of the purchase rights represented
by this Warrant will, upon exercise of the purchase rights represented by this
Warrant, be duly authorized, validly issued, fully paid and nonassessable and
free from all taxes, liens and charges created by the Company in respect of the
issue thereof (other than taxes in respect of any transfer occurring
contemporaneously with such issue).

ii. Delivery of Certificates Upon Exercise. Certificates for shares purchased
hereunder shall be delivered by the transfer agent of the Company to the Holder
to the address specified by the Holder in the Notice of Exercise within 3
Business Days from the delivery to the Company of the Notice of Exercise Form,
surrender of this Warrant (if required) and payment of the aggregate Exercise
Price as set forth above (“Warrant Share Delivery Date”). This Warrant shall be
deemed to have been exercised on the date the Exercise Price is received by the
Company. The Warrant Shares shall be deemed to have been issued, and Holder or
any other person so designated to be named therein shall be deemed to have
become a holder of record of such shares for all purposes, as of the date the
Warrant has been exercised by payment to the Company of the Exercise Price (or
by cashless exercise, if permitted) and all taxes required to be paid by the
Holder, if any, pursuant to Section 2(e)(vii) prior to the issuance of such
shares, have been paid.

 

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iii. Delivery of New Warrants Upon Exercise. If this Warrant shall have been
exercised in part, the Company shall, at the request of a Holder and upon
surrender of this Warrant certificate, at the time of delivery of the
certificate or certificates representing Warrant Shares, deliver to Holder a new
Warrant evidencing the rights of Holder to purchase the unpurchased Warrant
Shares called for by this Warrant, which new Warrant shall in all other respects
be identical with this Warrant.

iv. Rescission Rights. If the Company fails to cause its transfer agent to
transmit to the Holder a certificate or certificates representing the Warrant
Shares pursuant to this Section 2(e)(iv) by the Warrant Share Delivery Date,
then the Holder will have the right to rescind such exercise.

v. Compensation for Buy-In on Failure to Timely Deliver Certificates Upon
Exercise. In addition to any other rights available to the Holder, if the
Company fails to cause its transfer agent to transmit to the Holder a
certificate or certificates representing the Warrant Shares pursuant to an
exercise on or before the Warrant Share Delivery Date, and if after such date
the Holder is required by its broker to purchase (in an open market transaction
or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of
Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant
Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”),
then the Company shall (1) pay in cash to the Holder the amount by which (x) the
Holder’s total purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased exceeds (y) the amount obtained by
multiplying (A) the number of Warrant Shares that the Company was required to
deliver to the Holder in connection with the exercise at issue times (B) the
price at which the sell order giving rise to such purchase obligation was
executed, and (2) at the option of the Holder, either reinstate the portion of
the Warrant and equivalent number of Warrant Shares for which such exercise was
not honored or deliver to the Holder the number of shares of Common Stock that
would have been issued had the Company timely complied with its exercise and
delivery obligations hereunder. For example, if the Holder purchases Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
an attempted exercise of shares of Common Stock with an aggregate sale price
giving rise to such purchase obligation of $10,000, under clause (1) of the
immediately preceding sentence the Company shall be required to pay the Holder
$1,000. The Holder shall provide the Company written notice indicating the
amounts payable to the Holder in respect of the Buy-In and, upon request of the
Company, evidence of the amount of such loss. Nothing herein shall limit a
Holder’s right to pursue any other remedies available to it hereunder, at law or
in equity including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company’s failure to timely deliver
certificates representing shares of Common Stock upon exercise of the Warrant as
required pursuant to the terms hereof.

 

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vi. No Fractional Shares or Scrip. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. As to any
fraction of a share which Holder would otherwise be entitled to purchase upon
such exercise, the Company shall at its election, either pay a cash adjustment
in respect of such final fraction in an amount equal to such fraction multiplied
by the Exercise Price or round up to the next whole share.

vii. Charges, Taxes and Expenses. Issuance of certificates for Warrant Shares
shall be made without charge to the Holder for any issue or transfer tax or
other incidental expense in respect of the issuance of such certificate, all of
which taxes and expenses shall be paid by the Company, and such certificates
shall be issued in the name of the Holder or in such name or names as may be
directed by the Holder; provided, however, that in the event certificates for
Warrant Shares are to be issued in a name other than the name of the Holder,
this Warrant when surrendered for exercise shall be accompanied by the
Assignment Form attached hereto duly executed by the Holder; and the Company may
require, as a condition thereto, the payment of a sum sufficient to reimburse it
for any transfer tax incidental thereto.

viii. Closing of Books. The Company will not close its stockholder books or
records in any manner which prevents the timely exercise of this Warrant,
pursuant to the terms hereof.

ix. Exercise Mechanics if Registration Statement Not Effective: Notwithstanding
any provision to the contrary contained herein, if the issuance of Warrant
Shares upon the exercise of Warrants requires the maintenance of an effective
Registration Statement, with respect to such Warrant Shares under the Securities
Act, in no event shall such Warrant Shares be issued unless the Warrant Shares
are registered under the Securities Act pursuant to an effective Registration
Statement; provided, however, that if the Registration Statement ceases to be
effective, prior to the Termination Date and for so long as the Registration
Statement is not effective, subject to applicable law, a holder of any Warrant
may only exercise the right to purchase Warrant Shares issuable upon the
exercise of the Warrants the circumstances noted below:

 

  A.

exercise such Warrants, if the holder is a purchaser who is not (A) a resident
of the United States or (B) a U.S. Person (a “U.S. Purchaser”) and the holder
delivers a duly completed and executed Notice of Exercise (If Registration
Statement Not Effective) certifying that the holder: (A)(1) is not in the United
States; (2) is not a U.S. Person and is

 

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not exercising the Warrants for, or on behalf or benefit of, a U.S. Person or
person in the United States; (3) did not execute or deliver the Warrant exercise
form in the United States; (4) agrees not to engage in hedging transactions with
regard to the Common Shares prior to the expiration of the one-year distribution
compliance period set forth in Rule 903(b)(3) of Regulation S under the
Securities Act (“Regulation S”); (5) acknowledges that the Warrant Shares
issuable upon exercise of the Warrants are “restricted securities” as defined in
Rule 144 of the Securities Act and upon the issuance thereof, and until such
time as the same is no longer required under the applicable requirements of the
Securities Act or applicable U.S. state laws and regulations, the certificates
representing the Warrant Shares will bear a restrictive legend; and
(6) acknowledges that the Company shall refuse to register any transfer of the
Warrant Shares not made in accordance with the provisions of Regulation S,
pursuant to registration under the Securities Act, or pursuant to an available
exemption from registration under the 1933 Act; and (B) neither the Corporation
nor the holder has engaged in any “directed selling efforts” (as defined in
Regulation S) in the United States; or

 

  B. exercise such Warrants in a transaction that does not require registration
under the Securities Act or any applicable U.S. state laws and regulations and
the holder has (A) delivered a duly completed and executed Notice of Exercise
(If Registration Statement Not Effective) certifying that the holder is
exercising the Warrants pursuant to such exemptions and (B) furnished to the
Company, prior to such exercise, an opinion of counsel of recognized standing in
form and substance satisfactory to the Company to such effect.

x. Legending if Registration Statement Not Effective: Unless the Warrant is
exercised pursuant to an effective Registration Statement, the certificate
representing the Warrant Shares is issued upon exercise of the Warrant will bear
legends restricting the transfer without registration under the U.S. Securities
Act and applicable state securities laws and restricting transfer under the
Toronto Stock Exchange, substantially in the form set forth below:

“THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR APPLICABLE
STATE SECURITIES

 

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LAWS. THESE SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND SUCH LAWS COVERING SUCH SECURITIES, OR THE COMPANY RECEIVES
AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY STATING THAT SUCH OFFER, SALE,
PLEDGE OR OTHER TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THE SECURITIES REPRESENTED BY
THIS CERTIFICATE CANNOT BE THE SUBJECT OF HEDGING TRANSACTIONS UNLESS SUCH
TRANSACTIONS ARE CONDUCTED IN COMPLIANCE WITH THE SECURITIES ACT.”

If the Common Shares are also then listed on the Toronto Stock Exchange or the
TSX Venture Exchange certificates representing the Common Shares will also bear
the following legend

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE LISTED ON THE [TORONTO STOCK
EXCHANGE (“TSX”)][TSX VENTURE EXCHANGE (“TSX-V”)]; HOWEVER, THE SAID SECURITIES
CANNOT BE TRADED THROUGH THE FACILITIES OF [TSX][TSX-V] SINCE THEY ARE NOT
FREELY TRANSFERABLE, AND CONSEQUENTLY ANY CERTIFICATE REPRESENTING SUCH
SECURITIES IS NOT “GOOD DELIVERY” IN SETTLEMENT OF TRANSACTIONS ON
[TSX][TSX-V].”

xi. Suspensions of Registration Statement, etc,…: If any Warrant Shares issuable
upon the exercise of Warrants require the maintenance of a current Registration
Statement, with respect to such Warrant Shares under the Securities Act, the
Company shall have the authority to suspend the exercise of any or all Warrants
while such registration statement is not current. Similarly, a Holder residing
in a state where a required registration or governmental approval of issuance of
the Warrant Shares is not in effect as of or has not been obtained within a
reasonable time after the surrender date of the Warrant Certificate for exercise
shall not be entitled to exercise Warrants, unless in the opinion of counsel to
the Company such registration or approval in such state shall not be required or
the Company otherwise authorizes the issuance. In such event, the Holder shall
be entitled to transfer the Warrants to others, but only prior to the
Termination Date for the Warrants being transferred. If no Registration
Statement is effective at any time when any Warrant is exercised, such Holder
shall be notified forthwith by the transfer agent that such Holder is entitled,
at his or her option, to exercise the Warrant only in

 

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accordance with the conditions set forth in Sections 2(e)(ix)(A) and (B) and
upon delivery of a Notice of Exercise (If Registration Statement Not Effective)
to the Company.

Section 3. Certain Adjustments.

a) Stock Dividends and Splits. If the Company, at any time while this Warrant is
outstanding: (A) pays a stock dividend or otherwise makes a distribution or
distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of Common Stock (which, for avoidance of
doubt, shall not include any shares of Common Stock issued by the Company upon
exercise of this Warrant), (B) subdivides outstanding shares of Common Stock
into a larger number of shares, (C) combines (including by way of reverse stock
split) outstanding shares of Common Stock into a smaller number of shares, or
(D) issues by reclassification of shares of the Common Stock any shares of
capital stock of the Company, then in each case the Exercise Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock (excluding treasury shares, if any) outstanding immediately before
such event and of which the denominator shall be the number of shares of Common
Stock outstanding immediately after such event and the number of shares issuable
upon exercise of this Warrant shall be proportionately adjusted. Any adjustment
made pursuant to this Section 3(a) shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or re-classification.

b) Subsequent Equity Sales. If the Company, at any time while this Warrant is
outstanding, shall sell or grant any option to purchase, or sell or grant any
right to reprice its securities, or otherwise dispose of or issue (or announce
any offer, sale, grant or any option to purchase or other disposition) any
Common Stock or equivalent securities (“Common Stock Equivalents”) entitling any
Person to acquire shares of Common Stock (the “Additional Shares”), at an
effective price per share less than the then Exercise Price (such lower price,
the “Base Share Price” and such issuances collectively, a “Dilutive Issuance”)
(if the holder of the Common Stock or Common Stock Equivalents so issued shall
at any time, whether by operation of purchase price adjustments, reset
provisions, floating conversion, exercise or exchange prices or otherwise, or
due to warrants, options or rights per share which are issued in connection with
such issuance, be entitled to receive shares of Common Stock at an effective
price per share which is less than the Exercise Price, such issuance shall be
deemed to have occurred for less than the Exercise Price on such date of the
Dilutive Issuance), then the Exercise Price shall be reduced to a price
determined by multiplying the Exercise Price then in effect by a fraction
(i) the numerator of which shall be (A) the number of Common Shares deemed
outstanding (as determined below) immediately prior to such issue or sale, plus
(B) the number of Common Shares that the aggregate Base Share Price amount
received by the Company for the total number of Additional Shares of Common
Stock so issued would purchase at such Exercise Price, and (ii) the denominator
of which shall be the number of Common Shares deemed outstanding (as defined
below) immediately prior to such issue or sale plus the total number of
Additional Shares of

 

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Common Stock so issued. Such adjustment shall be made whenever such Additional
Shares are issued. Notwithstanding the foregoing, no adjustments shall be made,
paid or issued under this Section 3(b) in respect of any issuance under or
pursuant to: (i) shares of Common Stock or options issued to employees, officers
or directors of the Company pursuant to the Company’s 2006 Equity Incentive Plan
and 2006 Employee Stock Purchase Plan adopted by the Board of Directors on
September 28, 2006, and pursuant to any other stock or option plan duly adopted
for such purpose by a majority of the non-employee members of the Board of
Directors of the Company or a majority of the members of a committee of
non-employee directors, (ii) securities upon the exercise or exchange of or
conversion of any Securities issued hereunder and/or other securities
exercisable or exchangeable for or convertible into shares of Common Stock
issued and outstanding on the date of this Agreement, provided that such
securities have not been amended since the date of this Agreement to increase
the number of such securities or to decrease the exercise, exchange or
conversion price of such securities, (iii) securities issuable upon obligations
or instruments outstanding on the date of this Agreement, and (iv) securities
issued pursuant to acquisitions or strategic transactions approved by a majority
of the disinterested directors of the Company, provided any such issuance shall
only be to a Person which is, itself or through its subsidiaries, a company in a
business synergistic with the business of the Company and in which the Company
receives benefits in addition to the investment of funds, but shall not include
a transaction in which the Company is issuing securities primarily for the
purpose of raising capital or to an entity whose primary business is investing
in securities. The Company shall notify the Holder in writing, no later than the
Business Day following the issuance of any Additional Shares subject to this
Section 3(b), indicating therein the applicable issuance price, or applicable
reset price, exchange price, conversion price and other pricing terms (such
notice the “Dilutive Issuance Notice”). Upon the expiration or other termination
without being exercised, exchanged, or converted of Common Stock Equivalents
that triggered any adjustment under this Section 3(b), the number of Common
Shares deemed to be outstanding pursuant to this Section 3(b) shall be reduced
by the number of shares as to which the Common Stock Equivalents shall have
expired or terminated unexercised, and the Exercise Price then in effect shall
forthwith be readjusted and thereafter be the price that it would have been had
adjustment been made on the basis of the issuance only of the Common Shares
actually issued. For purposes of this Section 3(b), the number of Common Shares
deemed to be outstanding as of a given date shall be the sum of (x) the number
of Common Shares actually outstanding, (y) the number of Common Shares for which
this Warrant could be exercised on the day immediately preceding the given date,
and (z) the number of Common Shares which could be obtained through the exercise
or conversion of all other rights, options and convertible securities
outstanding on the day immediately preceding the given date.

c) Pro Rata Distributions. If the Company, at any time prior to the Termination
Date, shall distribute to all holders of Common Stock (and not to Holders of the
Warrants) evidences of its indebtedness or assets (including cash and cash
dividends) or rights or warrants to subscribe for or purchase any security other
than the Common Stock (which shall be subject to Section 3(a) or 3(b) as
applicable), then in each such case the Exercise Price shall be adjusted by
multiplying the Exercise Price in effect immediately prior to the record date
fixed for determination of stockholders entitled to

 

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receive such distribution by a fraction of which the denominator shall be the
VWAP as of the Business Day immediately prior to the record date mentioned
above, and of which the numerator shall be such VWAP as of the Business Day
immediately prior to such record date less the then per share fair market value
at such record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of the Common Stock as
determined by the Board of Directors in good faith. In either case the
adjustments shall be described in a statement provided to the Holder of the
portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.

d) Fundamental Transaction. If, at any time while this Warrant is outstanding,
(A) the Company effects any merger or consolidation of the Company with or into
another Person, (B) the Company effects any sale of all or substantially all of
its assets in one or a series of related transactions, (C) any tender offer or
exchange offer (whether by the Company or another Person) is completed pursuant
to which holders of Common Stock are permitted to tender or exchange their
shares for other securities, cash or property, or (D) the Company effects any
reclassification of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is effectively converted into or exchanged for other
securities, cash or property (in any such case, a “Fundamental Transaction”),
then, upon any subsequent exercise of this Warrant, the Holder shall have the
right to receive, for each Warrant Share that would have been issuable upon such
exercise immediately prior to the occurrence of such Fundamental Transaction, at
the option of the Holder, (a) upon exercise of this Warrant, the number of
shares of Common Stock of the successor or acquiring corporation or of the
Company, if it is the surviving corporation, and any additional consideration
(the “Alternate Consideration”) receivable upon or as a result of such
reorganization, reclassification, merger, consolidation or disposition of assets
by a Holder of the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such event or (b) if the Company is acquired in
an all cash transaction, cash equal to the value of this Warrant as determined
in accordance with the Black-Scholes option pricing formula. For purposes of any
such exercise, the determination of the Exercise Price shall be appropriately
adjusted to apply to such Alternate Consideration based on the amount of
Alternate Consideration issuable in respect of one share of Common Stock in such
Fundamental Transaction, and the Company shall apportion the Exercise Price
among the Alternate Consideration in a reasonable manner reflecting the relative
value of any different components of the Alternate Consideration. If holders of
Common Stock are given any choice as to the securities, cash or property to be
received in a Fundamental Transaction, then the Holder shall be given the same
choice as to the Alternate Consideration it receives upon any exercise of this
Warrant following such Fundamental Transaction. To the extent necessary to
effectuate the foregoing provisions, any successor to the Company or surviving
entity in such Fundamental Transaction shall issue to the Holder a new warrant
consistent with the foregoing provisions and evidencing the Holder’s right to
exercise such warrant into Alternate Consideration. The terms of any agreement
pursuant to which a Fundamental Transaction is effected shall include terms
requiring any such successor or surviving entity to comply with the

 

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provisions of this Section 3(e) and insuring that this Warrant (or any such
replacement security) will be similarly adjusted upon any subsequent transaction
analogous to a Fundamental Transaction.

e) Calculations. All calculations under this Section 3 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be. For purposes
of this Section 3, the number of shares of Common Stock deemed to be issued and
outstanding as of a given date shall be the sum of the number of shares of
Common Stock (excluding treasury shares, if any) issued and outstanding.

f) Voluntary Adjustment By Company. The Company may at any time during the term
of this Warrant reduce the then current Exercise Price to any amount and for any
period of time deemed appropriate by the Board of Directors of the Company.

g) Notice to Holder.

i. Adjustment to Exercise Price. Whenever the Exercise Price is adjusted
pursuant to any provision of this Section 3, the Company shall promptly mail to
the Holder a notice setting forth the Exercise Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment.

ii. Notice to Allow Exercise by Holder. If (A) the Company shall declare a
dividend (or any other distribution in whatever form) on the Common Stock;
(B) the Company shall declare a special nonrecurring cash dividend on or a
redemption of the Common Stock; (C) the Company shall authorize the granting to
all holders of the Common Stock rights or warrants to subscribe for or purchase
any shares of capital stock of any class or of any rights; (D) the approval of
any stockholders of the Company shall be required in connection with any
reclassification of the Common Stock, any consolidation or merger to which the
Company is a party, any sale or transfer of all or substantially all of the
assets of the Company, of any compulsory share exchange whereby the Common Stock
is converted into other securities, cash or property; (E) the Company shall
authorize the voluntary or involuntary dissolution, liquidation or winding up of
the affairs of the Company; then, in each case, the Company shall cause to be
mailed to the Holder at its last address as it shall appear upon the Warrant
Register of the Company, at least 20 calendar days prior to the applicable
record or effective date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as
of which the holders of the Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to be determined or
(y) the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and the
date as of which it is expected that holders of the Common Stock of record shall
be entitled to

 

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exchange their shares of the Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer or
share exchange; provided that the failure to mail such notice or any defect
therein or in the mailing thereof shall not affect the validity of the corporate
action required to be specified in such notice. The Holder is entitled to
exercise this Warrant during the 20-day period commencing on the date of such
notice to the effective date of the event triggering such notice.

Section 4. Transfer of Warrant.

a) Transferability. Subject to compliance with any applicable securities laws
and the conditions set forth in Section 4(d) hereof, this Warrant and all rights
hereunder (including, without limitation, any registration rights) are
transferable, in whole or in part, upon surrender of this Warrant at the
principal office of the Company or its designated agent, together with a written
assignment of this Warrant substantially in the form attached hereto duly
executed by the Holder or its agent or attorney and funds sufficient to pay any
transfer taxes payable upon the making of such transfer. Upon such surrender
and, if required, such payment, the Company shall execute and deliver a new
Warrant or Warrants in the name of the assignee or assignees and in the
denomination or denominations specified in such instrument of assignment, and
shall issue to the assignor a new Warrant evidencing the portion of this Warrant
not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if
properly assigned, may be exercised by a new holder for the purchase of Warrant
Shares without having a new Warrant issued.

b) New Warrants. This Warrant may be divided or combined with other Warrants
upon presentation hereof at the aforesaid office of the Company, together with a
written notice specifying the names and denominations in which new Warrants are
to be issued, signed by the Holder or its agent or attorney. Subject to
compliance with Section 4(a), as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.

c) Warrant Register. The Company shall register this Warrant, upon records to be
maintained by the Company for that purpose (the “Warrant Register”), in the name
of the record Holder hereof from time to time. The Company may deem and treat
the registered Holder of this Warrant as the absolute owner hereof for the
purpose of any exercise hereof or any distribution to the Holder, and for all
other purposes, absent actual notice to the contrary.

d) Transfer Restrictions. If, at the time of the surrender of this Warrant in
connection with any transfer of this Warrant, the transfer of this Warrant shall
not be registered pursuant to an effective registration statement under the
Securities Act and under applicable state securities or blue sky laws, the
Company may require, as a condition of allowing such transfer, that (i) the
Holder or transferee of this Warrant, as the case may be, furnish to the Company
a written opinion of counsel (which opinion shall be in form, substance and
scope customary for opinions of counsel in comparable

 

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transactions) to the effect that such transfer may be made without registration
under the Securities Act and under applicable state securities or blue sky laws,
and (ii) the Holder or transferee execute and deliver to the Company an
investment letter in form and substance acceptable to the Company, and (iii) the
transferee be an “accredited investor” as defined in Rule 501(a)(1), (a)(2),
(a)(3) and (a)(7) promulgated under the Securities Act.

Section 5. Miscellaneous.

a) No Rights as Shareholder Until Exercise. This Warrant does not entitle the
Holder to any voting rights or other rights as a shareholder of the Company
prior to the exercise hereof as set forth in Section 2(e)(ii).

b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that
upon receipt by the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant or any stock certificate
relating to the Warrant Shares, and in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to it (which, in the case of the
Warrant, shall not include the posting of any bond), and upon surrender and
cancellation of such Warrant or stock certificate, if mutilated, the Company
will make and deliver a new Warrant or stock certificate of like tenor and dated
as of such cancellation, in lieu of such Warrant or stock certificate.

c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
taking of any action or the expiration of any right required or granted herein
shall not be a Business Day, then such action may be taken or such right may be
exercised on the next succeeding Business Day.

d) Authorized Shares.

The Company covenants that during the period the Warrant remains outstanding it
will reserve from its authorized and unissued Common Stock a sufficient number
of shares to provide for the issuance of the Warrant Shares upon the exercise of
any purchase rights under this Warrant. The Company further covenants that its
issuance of this Warrant shall constitute full authority to its officers who are
charged with the duty of executing stock certificates to execute and issue the
necessary certificates for the Warrant Shares upon the exercise of the purchase
rights under this Warrant. The Company will take all such reasonable action as
may be necessary to assure that such Warrant Shares may be issued as provided
herein without violation of any applicable law or regulation, or of any
requirements of the trading market upon which the Common Stock may be listed.

Except and to the extent as waived or consented to by the Holder, the Company
shall not by any action, including, without limitation, amending 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, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such

 

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actions as may be necessary or appropriate to protect the rights of Holder as
set forth in this Warrant against impairment. Without limiting the generality of
the foregoing, the Company will (a) not increase the par value of any Warrant
Shares above the amount payable therefor upon such exercise immediately prior to
such increase in par value, (b) take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable Warrant Shares upon the exercise of this Warrant, and (c) use
commercially reasonable efforts to obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be
necessary to enable the Company to perform its obligations under this Warrant.

Before taking any action which would result in an adjustment in the number of
Warrant Shares for which this Warrant is exercisable or in the Exercise Price,
the Company shall obtain all such authorizations or exemptions thereof, or
consents thereto, as may be necessary from any public regulatory body or bodies
having jurisdiction thereof.

e) Jurisdiction. All questions concerning the construction, validity,
enforcement and interpretation of this Warrant shall be determined in accordance
with the provisions of the Subscription Agreement.

f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon
the exercise of this Warrant, if not registered, will have restrictions upon
resale imposed by state, provincial and federal securities laws.

g) Nonwaiver and Expenses. No course of dealing or any delay or failure to
exercise any right hereunder on the part of Holder shall operate as a waiver of
such right or otherwise prejudice Holder’s rights, powers or remedies,
notwithstanding the fact that all rights hereunder terminate on the Termination
Date. If the Company willfully and knowingly fails to comply with any provision
of this Warrant, which results in any material damages to the Holder, the
Company shall pay to Holder such amounts as shall be sufficient to cover any
costs and expenses including, but not limited to, reasonable attorneys’ fees,
including those of appellate proceedings, incurred by Holder in collecting any
amounts due pursuant hereto or in otherwise enforcing any of its rights, powers
or remedies hereunder.

h) Notices. Any notice, request or other document required or permitted to be
given or delivered to the Holder by the Company shall be delivered in accordance
with the notice provisions of the Subscription Agreement.

i) Limitation of Liability. No provision hereof, in the absence of any
affirmative action by Holder to exercise this Warrant to purchase Warrant
Shares, and no enumeration herein of the rights or privileges of Holder, shall
give rise to any liability of Holder for the purchase price of any Common Stock
or as a stockholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.

 

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j) Remedies. Holder, in addition to being entitled to exercise all rights
granted by law, including recovery of damages, will be entitled to specific
performance of its rights under this Warrant. The Company agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of the provisions of this Warrant and hereby agrees to waive and
not to assert the defense in any action for specific performance that a remedy
at law would be adequate.

k) Successors and Assigns. Subject to applicable securities laws, this Warrant
and the rights and obligations evidenced hereby shall inure to the benefit of
and be binding upon the successors of the Company and the successors and
permitted assigns of Holder. The provisions of this Warrant are intended to be
for the benefit of all Holders from time to time of this Warrant and shall be
enforceable by any such Holder or holder of Warrant Shares.

l) Amendment. This Warrant may be modified or amended or the provisions hereof
waived with the written consent of the Company and the Holder.

m) Severability. Wherever possible, each provision of this Warrant shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Warrant shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provisions
or the remaining provisions of this Warrant.

n) Headings. The headings used in this Warrant are for the convenience of
reference only and shall not, for any purpose, be deemed a part of this Warrant.

o) Counterparts and Facsimile. This Warrant may be executed in any number of
counterparts and by facsimile, each of which so executed shall constitute an
original and all of which taken together shall form one and the same Warrant.

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REMAINDER OF PAGE LEFT INTENTIONALLY BLANK

 

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
officer thereunto duly authorized as of the date first above indicated.

 

STERLING MINING COMPANY By:  

 

Name:   Title:  

 

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NOTICE OF EXERCISE

TO: STERLING MINING COMPANY

(1) The undersigned hereby elects to purchase             Warrant Shares of the
Company pursuant to the terms of the attached Warrant (only if exercised in
full), and tenders herewith payment of the exercise price in full, together with
all applicable transfer taxes, if any.

(2) Payment shall take the form of (check applicable box):

¨ in lawful money of the United States; or

¨ [if permitted] the cancellation of such number of Warrant Shares as is
necessary, in accordance with the formula set forth in subsection 2(c), to
exercise this Warrant with respect to the maximum number of Warrant Shares
purchasable pursuant to the cashless exercise procedure set forth in subsection
2(c).

(3) Please issue a certificate or certificates representing said Warrant Shares
in the name of the undersigned or in such other name as is specified below:

 

 

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The Warrant Shares shall be delivered by physical delivery of a certificate to:

 

 

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(4) Accredited Investor. The undersigned is an “accredited investor” as defined
in Regulation D promulgated under the Securities Act of 1933, as amended.

 

[SIGNATURE OF HOLDER]      Name of Investing Entity:  

 

Signature of Authorized Signatory of Investing Entity:  

 

Name of Authorized Signatory:  

 

Title of Authorized Signatory:  

 

Date:       

 

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NOTICE OF EXERCISE

(If Registration Statement Not Effective)

 

TO: STERLING MINING COMPANY

The undersigned holder of the within Warrant Certificate, hereby exercises
certain Warrants (the “Exercised Warrants”) evidenced thereby and hereby
subscribes for a number of Common Shares of Sterling Mining Company equal to
such number of Common Shares or number or amount of other securities or
property, or combination thereof, to which such exercise entitles him under the
provisions of the Warrant at an aggregate price equal to the product of the
Exercise Price and the number of Exercised Warrants, and on the terms specified
in such Warrant Certificate, and in payment therefor, delivers herewith a bank
draft, certified cheque or money order payable to Sterling Mining
Company. Capitalized terms not defined herein shall have the definitions set
forth in the Agency Agreement.

The undersigned represents that it (A) has had access to such current public
information concerning Sterling Mining Company as it considered necessary in
connection with its investment decision and (B) understands that the securities
issuable upon exercise hereof have not been registered under the United States
Securities Act of 1933, as amended (the “1933 Act”).

The undersigned represents and warrants that it: [CHECK ONE ONLY]

A. is not a U.S. Purchaser and it (1) is not in the United States; (2) is not a
U.S. Person and is not exercising the Warrants for, or on behalf or benefit of,
a U.S. Person or person in the United States; (3) did not execute or deliver the
Subscription Form in the United States; (4) agrees not to engage in hedging
transactions with regard to the Common Shares prior to the expiration of the
one-year distribution compliance period set forth in Rule 903(b)(3) of
Regulation S; (5) acknowledges that the Common Shares issuable upon exercise of
the Warrants are “restricted securities” as defined in Rule 144 of the 1933 Act
and upon the issuance thereof, and until such time as the same is no longer
required under the applicable requirements of the 1933 Act or applicable U.S.
state laws and regulations, the certificates representing the Common Shares will
bear a restrictive legend; and (6) acknowledges that the Company shall refuse to
register any transfer of the Common Shares not made in accordance with the
provisions of Regulation S, pursuant to registration under the 1933 Act, or
pursuant to an available exemption from registration under the 1933 Act; and
(B) it holder has not engaged in any “directed selling efforts” (as defined in
Regulation S) in the United States.

B. the undersigned is delivering a written opinion of United States counsel or a
written confirmation from the Company to the effect that the Common Shares to be
delivered upon exercise hereof have been registered under the 1933 Act or are
exempt from registration thereunder.

C. the undersigned elects to exercise its the “cashless” exercise right in
accordance with the terms hereof and Section 2(c) of the Warrant Certificate
with respect to             Warrants. The undersigned receive that number of
Common Shares equal to quotient obtained by dividing [(A-B) (X)] by (A), where:

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(A) = the daily volume weighted average price of the Common Stock on the
Business Day immediately preceding the date of such election on the trading
market on which the Common Stock is then listed or quoted, based on a Business
Day from 9:30 a.m. New York City time to 4:02 p.m. New York City time (“VWAP);

(B) = the Exercise Price of this Warrant, as adjusted; and

(X) = the number of Warrant Shares issuable upon exercise of this Warrant in
accordance with the terms of this Warrant by means of a cash exercise rather
than a cashless exercise.

Unless Box C above is checked, the undersigned holder understands that the
certificate representing the Company’s Common Shares is issued upon exercise of
this Warrant will bear a legend restricting the transfer without registration
under the U.S. Securities Act and applicable state securities laws substantially
the form set forth in Section 2(e)(x) of the Warrant certificate.

If the holder has checked Box C above, upon exercise of the Warrants pursuant to
the cashless exercise provision in Section 2(c) of the Warrant Certificate, the
holder must tender the original warrant certificate; the exercise form and this
Notice of Exercise directly to Sterling Mining Company.

Name:

Please print or type name and address (including postal code)

Address:

Number of Warrants being Exercised:

DATED this      day of                     ,         

Signature guaranteed by:

Name of registered holder (please print)

 

 

Signature of or on behalf of registered holder

 

Office, Title or other Authorization (if holder not an individual)

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ASSIGNMENT FORM

(To assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.)

FOR VALUE RECEIVED, [            ] all of or [            ] shares of the
foregoing Warrant and all rights evidenced thereby are hereby assigned to

 

                                                                               
               whose address is

.

 

 

 

Dated:                     ,             

Holder’s Signature:

 

 

Holder’s Address:    

 

 

 

Signature Guaranteed:                                         
                            

NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.