Exhibit 3.1
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
WESTERN GOLDFIELDS, INC.
Pursuant to the provisions of the Idaho Business Corporation Act, the
Western Goldfields, Inc. (the "Corporation") adopts the following Articles of
Amendment to its Articles of Incorporation:
FIRST: The following amendments to the Articles of Incorporation were
adopted by the Board of Directors of the Corporation on December 30, 2004. The
following amendments were duly approved by the Board of Directors of the
Corporation, and shareholder approval was not required. Article IX of the
Articles of Incorporation is hereby added to read in its entirety as follows:
IX
There are hereby established a class of authorized preferred stock,
which shall be reclassified from the unissued shares of Series "A"
Convertible Preferred Stock, which series be designated as "Series "A-1"
Convertible Preferred Stock" (the "Series A Preferred"), shall consist of
9,000,000 shares and shall have the preferences, rights and limitations as
follows:
1. Dividends and Distributions. The holders of record of shares of
Series A Preferred shall be entitled to receive dividends at a rate of
7.5% of the Conversion Value (as defined in Section 3(a) below) per annum
per share of Series A Preferred (the "Series A Dividend"), which shall be
fully cumulative, prior and in preference to any declaration or payment of
any dividend or other distribution on the Common Stock (and excluding any
stock splits and subdivisions for which an adjustment is made under
Section 3(d)(i) below). The foregoing dividend on the Series A Preferred
shall accrue from the date of issuance of each share until the earlier of
(i) the conversion of the Series A Preferred to Common Stock, or (ii) the
liquidation, distribution or winding up of the Corporation. Such dividend
shall be payable annually on November 30 of each year (each a "Series A
Annual Dividend Date") commencing on November 30, 2005, except that if any
such date is a Saturday, Sunday or legal holiday then such dividend shall
be payable on the next day that is not a Saturday, Sunday or legal holiday
on which banks in the State of Idaho are permitted to be closed to holders
of record as they appear on the stock books of the Corporation on the
applicable record date, which shall be not more than sixty (60) nor less
than ten (10) days preceding the payment date for such dividends, as fixed
by the Board of Directors. The dividends shall be payable only when, as
and if declared by the Board of Directors out of funds legally available
therefor. The dividends shall either (i) accrue, or (ii) be payable in
cash. The dividends shall automatically accrue in the absence of an
election by the Board of Directors within sixty (60) days after each
Series A Annual Dividend Date to pay the dividends. The amount of
dividends payable for any period that is shorter or longer than a full
annual dividend shall be computed on the basis of a 360-day year and the
actual number of days elapsed (including the first day but excluding the
last day) occurring in the period for which such amount is payable.
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2. Liquidation Rights. In the event of any liquidation, dissolution
or winding-up of the Corporation, whether voluntary or involuntary (a
"Liquidation"), distributions (other than as set forth herein) shall be
made to the holders of Series A Preferred in respect of such Series A
Preferred before any amount shall be paid to the holders of the Common
Stock in the following manner:
(a) Liquidation Amount. The holders of the Series A Preferred,
subject to the other terms contained herein, shall be entitled to be
paid first out of the assets of the Corporation available for
distribution to holders of its capital stock an amount equal to (i)
the Conversion Value, as appropriately adjusted to reflect any stock
split, stock dividend, combination, recapitalization and the like
(collectively a "Recapitalization"), plus (ii) all accrued but
unpaid dividends (whether declared or undeclared), prior to any
distribution to the holders of Common Stock. If the proceeds from a
Liquidation are not sufficient to pay to the holders of Series A
Preferred the full preference amount set forth above, then such
holders shall instead be entitled to receive the entire assets and
funds of the Corporation legally available for distribution to the
holders of capital stock, which assets and funds shall be
distributed ratably among the holders of the Series A Preferred.
(b) Valuation of Securities and Property. In the event the
Corporation proposes to distribute assets other than cash in
connection with any Liquidation, the value of the assets to be
distributed to the holders of shares of Series A Preferred shall be
determined in good faith by the Board of Directors.
3. Conversion. The holders of Series A Preferred have conversion
rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series A Preferred shall
initially be convertible, at the option of the holder thereof, at
any time on or after the date of issuance thereof, into the number
of fully paid and nonassessable shares of Common Stock which results
from dividing (i) the sum of (A) the per share Conversion Value in
effect at the time of conversion plus (B) all declared but unpaid
dividends then owed per share on the Series A Preferred so converted
by (ii) the Conversion Price (as hereinafter specified) per share in
effect at the time of conversion. The initial Conversion Price of
the Series A Preferred shall be $0.50 per share, and the Conversion
Value of the Series A Preferred shall be $0.50 per share. The
initial Conversion Price of the Series A Preferred shall be subject
to adjustment from time to time as set forth below and as provided
in Section 3(d) hereof. The per share Conversion Value shall not be
subject to adjustment (except in connection with a
Recapitalization). Upon conversion, all declared but unpaid
dividends then owed on the Series A Preferred so converted shall, at
the option of the Corporation, be paid in either cash, to the extent
permitted by applicable law (and if not then permitted by applicable
law, at such time as the Corporation is permitted by applicable law
to pay any such dividends) or converted into the number of fully
paid and nonassessable shares of Common Stock which results from
dividing the fair market value of a share of Common Stock (as
determined in good faith by the Board of Directors) in effect at
such time into the aggregate of all such declared but unpaid
dividends then owed.
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(b) Conversion at Option of Corporation. Each share of Series
A Preferred shall be convertible, at the option of the Corporation,
at any time after the payment of the first dividend pursuant to
Section 1, if (i) the average Closing Price of the Common Stock for
at least 20 Trading Days is more than 200% of the Conversion Price
of Common Stock and (ii)(A) a registration statement filed in
accordance with the Securities Act of 1933, as amended, registering
the resale by the holder of the Common Stock issued upon conversion
of the Series A Preferred shares, has been declared effective and is
effective on the conversion date or (B) certificates representing
such shares of Common Stock issued upon conversion of the Series A
Preferred shares may be issued to the holder without any restrictive
legends. "Closing Price" of the Common Stock means, as of any date
of determination, the closing per share sale price on such date as
reported by the principal securities exchange on which the Common
Stock is listed, or if the Common Stock is not so listed, the
over-the-counter market on the electronic bulletin board on which
the Common Stock is quoted. "Trading Day" means, with respect to any
security, each Monday, Tuesday, Wednesday, Thursday and Friday,
other than any day on which securities are not generally traded on
the principal exchange or market in which such security is traded or
quoted on the over-the-counter market on the electronic bulletin
board.
(c) Mechanics of Conversion. Before any holder of Series A Preferred
shall be entitled to convert the same into shares of Common Stock and to
receive certificates therefor, such holder shall surrender the certificate
or certificates therefor, duly endorsed, at the principal office of the
Corporation or of any transfer agent for the Series A Preferred, and shall
give written notice to the Corporation at such office that such holder
elects to convert the same; provided, however, that in the event of
conversion pursuant to Section 3(b) hereof, the outstanding shares of
Series A Preferred shall be converted without any further action by the
holders of such shares and whether or not the certificates representing
such shares are surrendered to the Corporation or its transfer agent; and,
provided, further that the Corporation shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon
conversion unless and until the certificates evidencing such shares of
Series A Preferred are either delivered to the Corporation or its transfer
agent as provided above, or the holder notifies the Corporation or its
transfer agent that such certificates have been lost, stolen or destroyed
and executes an agreement reasonably satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in connection with
such certificates. The Corporation shall as soon as practicable after such
delivery, or after such agreement and indemnification, issue and deliver
at such office to such holder of Series A Preferred, a certificate or
certificates for the number of shares of Common Stock to which it, he or
she shall be entitled as aforesaid and, at the option of the Corporation,
either a check payable to the holder in the amount of any declared but
unpaid dividends then owed pursuant to Section 1 hereof, if any, or the
number of fully paid and nonassessable shares of Common Stock which
results from dividing the fair market value of a share of Common Stock (as
determined in good faith by the Board of Directors) in effect at such time
into the aggregate of all such declared but unpaid dividends then owed.
Conversion of the shares of Series A Preferred shall be deemed to have
been made immediately prior to the close of business on the date of such
surrender of the shares of Series A Preferred to be converted, or, in the
case of automatic conversion, simultaneously upon the occurrence of the
event leading to such automatic conversion, and the person or persons
entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date.
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(d) Adjustments to Conversion Price.
(i) Special Definitions. For purposes of this Section 3(d),
the following definitions shall apply:
(1) "Options" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common
Stock or Convertible Securities.
(2) "Convertible Securities" shall mean any evidences of
indebtedness, shares or other securities convertible into or
exchangeable for Common Stock, other than shares of Series A
Preferred.
(3) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued (or, pursuant to Section
3(d)(iii), deemed to be issued) by the Corporation after the
Original Issue Date, other than shares of Common Stock issued
or issuable:
(A) upon conversion of shares of Series A
Preferred;
(B) the issuance or sale of options, or the
shares of capital stock of the Corporation issuable upon
exercise of such options, to purchase securities of the
Corporation to directors, officers, employees or
consultants of the Corporation, whether "qualified" for
tax purposes or not, pursuant to plans or arrangements
approved by the Board of Directors or stockholders of
the Corporation;
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(C) the issuance of securities of the
Corporation pursuant to options, warrants or other
convertible securities of the Corporation outstanding as
of the date hereof;
(D) as a dividend or distribution on shares of
Series A Preferred;
(E) pursuant to an agreement or plan of merger
approved by holders of a majority of the issued and
outstanding Series A Preferred;
(F) in a transaction described in Section
3(d)(vi);
(G) the issuance of securities of the
Corporation concurrently with the issuance of the Series
A Preferred;
(H) the issuance of common stock and warrants to
Newmont Mining Corporation or its affiliates ("Newmont")
to purchase Mesquite mine or any adjustment to
securities of the Corporation previously issued to
Newmont in connection therewith; or
(I) by way of dividend or other distribution on
shares of Common Stock excluded from the definition of
Additional Shares of Common Stock by the foregoing
clauses (A) through (H) or this clause (I).
(4) "Original Issue Date" shall mean the date on which
the first share of Series A Preferred was issued.
(ii)No Adjustment of Conversion Price.
Notwithstanding anything to the contrary, no adjustment
in the Conversion Price of the Series A Preferred shall
be made in respect of the issuance of Additional Shares
of Common Stock unless the consideration per share for
an Additional Share of Common Stock issued or deemed to
be issued by the Corporation is less than the Conversion
Price for the Series A Preferred in effect on the date
of, and immediately prior to, such issue.
(iii) Deemed Issue of Additional Shares of
Common Stock. In the event the Corporation at any time
or from time to time after the Original Issue Date shall
issue any Options (other than an issuance described in
Section 3(d)(i)(3)(A) through (I)) or Convertible
Securities or shall fix a record date for the
determination of holders of any class of securities
entitled to receive any such Options or Convertible
Securities then the maximum number of shares (as set
forth in the instrument relating thereto without regard
to any provisions contained therein for a subsequent
adjustment of such number) of Common Stock issuable upon
the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the
exercise of such Options and conversion or exchange of
such Convertible Securities shall be deemed to be
Additional Shares of Common Stock issued as of the time
of such issue or, in case such a record date shall have
been fixed, as of the close of business on such record
date; provided that Additional Shares of Common Stock
shall not be deemed to have been issued unless the
consideration per share (determined pursuant to Section
3(d)(v) hereof) of such Additional Shares of Common
Stock would be less than the Conversion Price in effect
on the date of and immediately prior to such issue, or
such record date, as the case may be, and provided
further that in any such case in which Additional Shares
of Common Stock are deemed to be issued:
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(1) except as provided in Section 3(d)(iii)(2),
no further adjustment in the Conversion Price shall be
made upon the subsequent issue of Convertible Securities
or shares of Common Stock upon the exercise of such
Options or conversion or exchange of such Convertible
Securities;
(2) if such Options or Convertible Securities by
their terms provide, with the passage of time or
otherwise, for any change in the consideration payable
to the Corporation, or change in the number of shares of
Common Stock issuable, upon the exercise, conversion or
exchange thereof (other than under or by reason of
provisions designed to protect against dilution), the
Conversion Price computed upon the original issue
thereof (or upon the occurrence of a record date with
respect thereto) and any subsequent adjustments based
thereon, shall, upon any such increase or decrease
becoming effective, be recomputed to reflect such
increase or decrease insofar as it affects such Options
or the rights of conversion or exchange under such
Convertible Securities; and
(3) no readjustment pursuant to clause (2) above
shall have the effect of increasing the Conversion Price
to an amount which exceeds the lower of (A) the
Conversion Price on the original adjustment date or (B)
the Conversion Price that would have resulted from any
issuance of Additional Shares of Common Stock between
the original adjustment date and such readjustment date.
(iv)Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common Stock.
(A) In the event the Corporation shall issue
Additional Shares of Common Stock (including Additional
Shares of Common Stock deemed to be issued pursuant to
Section 3(d)(iii)) without consideration or for a
consideration per share less than the Conversion Price
in effect on the date of and immediately prior to such
issue, then, and in each such event, the Conversion
Price of the Series A Preferred shall be reduced to a
price equal to the consideration per share received by
the Corporation for such issue.
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(v) Determination of Consideration. For purposes of this
Section 3(d), the consideration received by the Corporation
for the issue of any Additional Shares of Common Stock shall
be computed as follows:
(1) Cash and Property: Such consideration shall
be computed as follows:
(A) insofar as it consists of cash, such
consideration shall be computed at the aggregate amount
of cash received by the Corporation;
(B) insofar as it consists of property other
than cash, such consideration shall be computed at the
fair value thereof at the time of such issue, as
determined by the Board of Directors in the good faith
exercise of its reasonable business judgment; and
(C) in the event Additional Shares of Common
Stock are issued together with other shares or
securities or other assets of the Corporation for
consideration which covers both, such consideration
shall be the proportion of such consideration so
received, computed as provided in clauses (A) and (B)
above, as determined by the Board of Directors in the
good faith exercise of its reasonable business judgment.
(2) Options and Convertible Securities. The
consideration per share received by the Corporation for
Additional Shares of Common Stock deemed to have been
issued pursuant to Section 3(d)(iii), relating to
Options and Convertible Securities, shall be determined
by dividing
(A) the total amount, if any, received or
receivable by the Corporation as consideration for the
issue of such Options or Convertible Securities, plus
the minimum aggregate amount of additional consideration
(as set forth in the instruments relating thereto,
without regard to any provision contained therein for a
subsequent adjustment of such consideration) payable to
the Corporation upon the exercise of such Options or the
conversion or exchange of such Convertible Securities,
or in the case of Options for Convertible Securities,
the exercise of such Options for Convertible Securities
and the conversion or exchange of such Convertible
Securities, by
(B) the maximum number of shares of Common Stock
(as set forth in the instruments relating thereto,
without regard to any provision contained therein for a
subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange
of such Convertible Securities.
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(vi) Other Adjustments.
(1) Subdivisions, Combinations, or Consolidate
of Common Stock. In the event the outstanding shares of
Common Stock shall be subdivided, combined or
consolidated, by stock split, stock dividend,
combination or like event, into a greater or lesser
number of shares of Common Stock, the Conversion Price
of the Series A Preferred in effect immediately prior to
such subdivision, combination, consolidation, stock
split or stock dividend shall, concurrently with the
effectiveness of such subdivision, combination,
consolidation, stock split or stock dividend be
proportionately adjusted.
(2) Reclassifications. In the case, at any time
after the date hereof, of any capital reorganization or
any reclassification of the stock of the Corporation
(other than as a result of a stock dividend or
subdivision, split-up or combination of shares), or the
consolidation or merger of the Corporation with or into
another person (other than a consolidation or merger (A)
in which the Corporation is the continuing entity and
which does not result in any change in the Common Stock
or (B) which is treated as a liquidation pursuant to
Section 3(c) above), the shares of Series A Preferred
shall, after such reorganization, reclassification,
consolidation or merger be convertible into the kind and
number of shares of stock or other securities or
property of the Corporation or otherwise to which such
holder would have been entitled if immediately prior to
such reorganization, reclassification, consolidation or
merger such holder had converted his shares of Series A
Preferred into Common Stock. The provisions of this
Section 3(d)(vi)(2) shall similarly apply to successive
reorganizations, reclassifications, consolidations or
mergers.
(e) Status of Converted Stock. In case any shares of Series A
Preferred shall be converted pursuant to Section 3 hereof, the shares so
converted shall be canceled.
(f) Fractional Shares. In lieu of any fractional shares in the
aggregate to which the holder of Series A Preferred would otherwise be
entitled upon conversion, the Corporation shall pay cash equal to such
fraction multiplied by the fair market value of one share of Common Stock
as determined by the Board of Directors in the good faith exercise of its
reasonable business judgment.
(g) Miscellaneous.
(i) All calculations under this Section 3 shall be made to the
nearest cent or to the nearest one hundredth (1/100) of a share, as
the case may be.
(ii) No adjustment in the Conversion Price of the Series A
Preferred will be made if such adjustment would result in a change
in such Conversion Price of less than $0.01. Any adjustment of less
than $0.01 which is not made shall be carried forward and shall be
made at the time of and together with any subsequent adjustment
which, on a cumulative basis, amounts to an adjustment of $0.01 or
more in such Conversion Price.
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(h) Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the
purpose of effecting the conversion of the shares of Series A
Preferred, such number of its shares of Common Stock as shall from
time to time be sufficient to effect the conversion of all
outstanding shares of Series A Preferred. If at any time the number
of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares
of Series A Preferred, the Corporation will take such corporate
action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose.
(i) Restrictions on Conversion. Notwithstanding any
other provision hereof, no holder of Series A Preferred shall
convert such shares of Series A Preferred pursuant to Section
3(a) above, nor shall the Company exercise any right to
convert such shares of Series A Preferred pursuant to Section
3(b) above, if as a result of such conversion the holder would
then become a "ten percent beneficial owner" (as defined in
Rule 16a-2 under the Securities Exchange Act of 1934, as
amended) of Common Stock. For greater certainty, the Series A
Preferred shall not be convertible by the holder of such
securities, and the Corporation shall not give effect to any
conversion of Series A Preferred, if, after giving effect to
such exercise, the holder of such securities, together with
its affiliates, would in aggregate beneficially own, or
exercise control or direction over that number of shares of
Common Stock which is 10% or greater of the total issued and
outstanding shares of Common Stock, immediately after giving
effect to such conversion.
4. Voting Rights. Except as otherwise required by law, the
holder of each share of Series A Preferred will be entitled to vote
on all matters with the Common Stock as a single class, and not as a
separate class or series. Each share of Series A Preferred will
entitle the holder to the number of votes per share equal to the
full number of shares of Common Stock into which each share of
Series A Preferred is convertible on the record date for such vote.
The holders of Series A Preferred shall receive notice of and shall
be entitled to attend in person or by proxy any meeting of the
holders of Common Stock.
5. Notices. Any notice required by the provisions of this
Certificate to be given to the holders of Series A Preferred shall
be deemed given when deposited in the United States mail, postage
prepaid, and addressed to each holder of record at such holder's
address appearing on the books of the Corporation.
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6. Headings of Subdivisions. The headings of the various
subdivisions hereof are for convenience of reference only and shall
not affect the interpretation of any of the provisions hereof.
7. Severability of Provisions. If any voting powers,
preferences and relative, participating, optional and other special
rights of the Series A Preferred and qualifications, limitations and
restrictions thereof set forth in this resolution (as such
resolution may be amended from time to time) are invalid, unlawful
or incapable of being enforced by reason of any rule of law or
public policy, all other voting powers, preferences and relative,
participating, optional and other special rights of Series A
Preferred and qualifications, limitations and restrictions thereof
set forth in this resolution (as so amended) which can be given
effect without the invalid, unlawful or unenforceable voting powers,
preferences and relative, participating, optional and other special
rights of Series A Preferred and qualifications, limitations and
restrictions thereof shall, nevertheless, remain in full force and
effect, and no voting powers, preferences and relative,
participating, optional or other special rights of Series A
Preferred and qualifications, limitations and restrictions thereof
herein set forth shall be deemed dependent upon any other such
voting powers, preferences and relative, participating, optional or
other special rights of Series A Preferred and qualifications,
limitations and restrictions thereof unless so expressed herein.
DATED: December 30, 2004 WESTERN GOLDFIELDS, INC.
By: /s/ Mark C. Shonnard
-------------------------------------
Mark C. Shonnard
Secretary
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