EXHIBIT 3.1
ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
DIGITAL RECORDERS, INC.
The undersigned Corporation hereby executes these Articles of Amendment
for the purpose of amending its Articles of Incorporation.
1. The name of the Corporation is Digital Recorders, Inc.
2. The Certificate of Designation attached as Exhibit A was
adopted by the Board of Directors in the manner prescribed by
law and is an amendment to the Articles of Incorporation of
the Corporation.
3. The date of the adoption of these Articles of Amendment by the
Board of Directors was June 2, 2003.
4. These Articles of Amendment do not effect an exchange,
reclassification or cancellation of issued shares of the
Corporation.
Dated this 4th day of June, 2003.
DIGITAL RECORDERS, INC.
/s/ David L. Turney
----------------------------------
David L. Turney, President
CERTIFICATE OF DESIGNATION
OF
SERIES E REDEEMABLE NONVOTING CONVERTIBLE PREFERRED STOCK
OF
DIGITAL RECORDERS, INC.
Digital Recorders, Inc., a corporation organized and existing under the
Business Corporation Act of the State of North Carolina (hereinafter called the
"Corporation"), hereby certifies that the following resolution was adopted by
the Board of Directors of the Corporation as required by Section 55-6-02 of the
Business Corporation Act at a meeting duly called and held on June 2, 2003;
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Articles of
Incorporation of the Corporation ("Articles of Incorporation"), the Board of
Directors hereby create a series of Preferred Stock, par value $.10 per share
(the "Preferred Stock"), of the Corporation and hereby states the designation
and number of shares, and fixes the relative rights, preferences, and
limitations thereof as follows:
Section 1. Designation and Amount. The shares of this series
shall be designated as "Series E Redeemable Nonvoting
Convertible Preferred Stock" (the "Series E Preferred
Stock") and the number of shares constituting the
Series E Preferred Stock shall be 500 shares. Such
number of shares may be increased or decreased by
resolution of the Board of Directors; provided that
no decrease shall reduce the number of shares of
Series E Preferred Stock to a number less than the
number of shares then outstanding plus the number of
shares reserved for issuance upon the exercise of
outstanding options, rights or warrants or upon the
conversion of any outstanding securities issued by
the Corporation convertible into Series E Preferred
Stock.
Section 2. Dividends and Distributions. The holders of shares of
Series E Preferred Stock shall be entitled to receive
when, as and if declared by the Board of Directors of
the Corporation, consistent with applicable law,
dividends which shall accrue quarterly at an annual
rate of seven percent (7%). Dividends shall accrue as
of March 31st, June 30th, September 30th, and
December 31st of each year. Dividends shall be
cumulative if not paid when and as they accrue. The
Series E Preferred Stock shall rank prior and
superior to the Series AAA Preferred Stock with
respect to the payment of dividends.
In the event any shares of Series E Preferred Stock
are issued during any calendar quarter or are
redeemed by the Corporation during any calendar
quarter, the accrued dividends shall be prorated in
proportion to the number of days during that calendar
year during which such shares were outstanding. All
accrued but unpaid dividends shall be paid upon
redemption of the shares of Series E Preferred Stock.
Section 3. Voting Rights. Except as is required by applicable
law, the holders of Series E Preferred Stock shall
not be entitled to vote.
Section 4. Liquidation.
(a) The Liquidation Preference for the Series E Preferred
Stock shall equal Five Thousand Dollars ($5,000.00)
per share, plus all accrued but unpaid dividends. The
Series E Preferred Stock shall rank prior and
superior to the Series AAA Preferred Stock with
respect to payments upon liquidation, dissolution and
winding up.
(2) In the event of any liquidation, dissolution or
winding up of the Corporation, either voluntary or
involuntary (collectively, a "Liquidating Event"),
the Corporation shall pay or make adequate provision
for the payment of all indebtedness and other
obligations of the Corporation. Thereafter, the
remaining assets of the Corporation shall be used to
pay, prior to any distribution of any of the assets
of the Corporation, to the holders of the Common
Stock by reason of the ownership thereof, an amount
equal to the Liquidation Preference per share of the
Preferred Stock set forth by the Board of Directors
in priority fixed by the Board of Directors, plus an
amount equal to accrued and unpaid dividends on such
shares, if any.
(3) After all such Liquidation Preferences shall have
been paid in full to each holder of Preferred Stock
(including accrued but unpaid dividends), each holder
of Common Stock shall be entitled to be paid from the
remaining assets of the Corporation an amount equal
to the cash purchase price per share paid to the
Corporation for such stock, plus, in the case of each
share, an amount equal to any dividends declared but
unpaid thereon.
(4) Any assets of the Corporation remaining after the
payments specified in paragraphs (b) and (c) above
shall be distributed with respect to the outstanding
shares of Common Stock.
(5) If upon any Liquidating Event, the assets of the
Corporation shall be insufficient to pay all the
holders of any class or series of capital stock the
full amount to which they are entitled pursuant to
this Section 3, then the following rules shall apply:
(i) each holder of shares of the class or series
shall be paid his pro rata share, which shall equal
the product determined by multiplying the aggregate
amount to be paid to all holders of that class or
series by a fraction (x) whose numerator equals the
number of shares of that class or series owned by the
shareholder, and (y) whose denominator equals the
number of issued and outstanding shares of that class
or series, and (ii) in any case in which the owner of
two or more series or classes of capital stock shall
have equal priority to any distribution, each holder
shall be paid his pro rata share, which shall equal
the product determined by multiplying the aggregate
amount available for payment to all holders of the
series or classes with equal priority, by a fraction
(x) whose numerator equals the amount such
shareholder would receive if the Corporation had
adequate funds to pay the Liquidation Preferences of
the shares of the series or classes having equal
priorities owned by the shareholder, and (y) whose
denominator equals the aggregate Liquidation
Preferences of all issued and outstanding shares of
the series or classes having equal priorities.
(6) For the purposes of this Section 4, any merger or
consolidation of the Corporation into or with any
other corporation or entity, or a sale, conveyance,
mortgage, transfer, license, pledge, lease or other
disposition of all or substantially all of the assets
of the Corporation, shall be deemed to be a
liquidation, dissolution or winding up of the
Corporation unless the shareholders of the
Corporation immediately prior thereto shall,
immediately thereafter, hold as a group the right to
cast at least a majority of the votes of all holders
of voting securities of the resulting or surviving
corporation or entity on any matter on which any such
holders of voting securities shall be entitled to
vote.
(7) For purposes of this Section 4, if any asset
distributed to shareholders upon liquidation of the
Corporation consists of property other than cash, the
amount of such distribution shall be deemed to be the
fair market value thereof at the time of such
distribution, as determined in good faith by the
Board of Directors of the Corporation.
(8) Written notice of any Liquidation Event stating a
payment date, the place where such payment shall be
made, the amount of each payment in liquidation and
the amount of accrued dividends to be paid, shall be
given by first class mail, postage prepaid, not less
than ten (10) days prior to the payment date stated
therein, to each shareholder of record (whether or
not
the shareholder is to receive any payment) at such
shareholder's address as shown in the records of the
Corporation.
Section 5. Redemption.
(a) The Corporation may redeem shares of its Series E
Preferred Stock at any one or more time(s) in its
sole discretion. All optional redemptions shall be
conducted on a pro rata basis in accordance with the
provisions of paragraph (f) below.
(2) Subject to paragraph (c) below, each share of issued
and outstanding Series E Preferred Stock shall be
redeemed by the sole option of the Corporation, upon
it providing the holders of such shares to be
redeemed written notice of the number of shares to be
redeemed, the redemption price and the redemption
date in accordance with paragraph (g) below.
Notwithstanding the ten (10) day notice prescribed by
paragraph (f), 30 days' notice shall be given with
respect to any optional redemption of the Series E
Preferred Stock.
(3) Shares of Series E Preferred Stock are not redeemable
at the option of the holders of such shares.
(4) The redemption price to be paid by the Corporation
for any shares of Series E Preferred Stock shall
equal the Liquidation Preferences for those shares
(including accrued but unpaid dividends).
(5) If the assets of the Corporation shall be
insufficient to pay all the holders of any class or
series of capital stock the full amount to which they
are entitled upon mandatory redemption pursuant to
this Section, then the following rules shall apply:
(i) each holder of shares of the class or series
shall be paid his pro rata share, which shall equal
the product determined by multiplying the aggregate
amount to be paid to all holders of that class or
series by a fraction (x) whose numerator equals the
number of shares of that class or series owned by the
shareholder, and (y) whose denominator equals the
number of issued and outstanding shares of that class
or series, and (ii) in any case in which the owners
of two or more series or classes of capital stock
shall have equal to any distribution, each holder
shall be paid his pro rata share, which shall equal
the product determined by multiplying the aggregate
amount available for payment to all holders of the
series or classes with equal priority, by a fraction
(x) whose numerator equals the amount such
shareholder would receive if the Corporation had
adequate funds to pay the redemption prices of the
shares of the series or classes having equal
priorities owned by the shareholder, and (y) whose
denominator equals the aggregate of all issued and
outstanding shares of the series or classes having
equal priorities.
(6) At least ten (10) days prior to any optional or
mandatory redemption, the Corporation will provide to
the holders of shares to be redeemed written notice
(the "Redemption Notice") of the number of shares to
be redeemed (the "Redemption Shares"), the redemption
price and the redemption date (the "Redemption
Date"). Such notice shall be sent to the address for
each shareholder on the records of the Corporation.
Upon receipt of any Redemption Notice holders of
Series E Preferred Stock shall send to the
Corporation stock certificate(s) duly endorsed for
transfer representing the Redemption Shares as
provided in the Redemption Notice for receipt by the
Corporation on or before the Redemption Date. Upon
receipt of stock certificate(s) representing the
Redemption Shares endorsed as provided above (but not
prior to the Redemption Date), the Corporation will
send to the holders of the Redemption Shares payment
for the redemption price as stated in the Redemption
Notice, and if not all the shares represented by the
stock certificate(s) provided to the Corporation are
to be redeemed, stock certificate(s) representing the
shares that have not been redeemed.
The Corporation shall have no obligation to make any
payment for Redemption Shares until the owner of the
Redemption Shares complies in full with the
procedures set forth above. Notwithstanding failure
by any shareholder to comply with the procedure set
forth above and the consequent failure by the
Corporation to pay the redemption price for the
Redemption Shares, the Redemption Shares shall, from
and after the Redemption Date stated in the
Redemption Notice, cease to be issued and outstanding
shares of capital stock of the Corporation and the
former owner shall not be entitled to vote, receive
dividends or exercise any other rights of a
shareholder on account of the Redemption Shares. From
and after the Redemption Date the sole obligation of
the Corporation on account of the Redemption Shares
shall be to pay the redemption price stated in the
Redemption Notice without interest of any kind for
late payment.
Section 6. Conversion of Series E Preferred Stock. Each holder
of shares of Series E Preferred Stock shall have the
right to convert all or any portion of such shares as
such holder desires to convert, at any time and from
time to time, into shares of the Common Stock of the
Corporation as follows:
(2) Optional Conversion. Subject to and in
compliance with the provisions of this
Section 6, any or all shares of the Series E
Preferred Stock, at the option of the
holder, may be converted at
any time or from time to time into fully
paid and nonassessable shares (calculated as
to each conversion to the largest whole
share) of Common Stock at a Conversion Price
of $3.00 per share.
(3) Mechanics of Conversion. Before any holder
of Series E Preferred Stock shall be
entitled to convert the same into full
shares of Common Stock, the holder shall
surrender the certificate or certificates
therefor, duly endorsed for transfer, at the
office of the Corporation or any transfer
agent of the Corporation and shall give
written notice to the Corporation at such
office that he elects to convert the same,
such notice to state the name or names and
addresses to which certificates for Common
Stock will be issued. No fractional shares
of Common Stock shall be issued upon
conversion of Series E Preferred Stock. In
lieu of any fractional shares to which the
holder would otherwise be entitled, the
Corporation shall pay cash equal to such
fraction multiplied by the then effective
Conversion Price. The Corporation shall, as
soon as practicable thereafter, issue and
deliver at such office to such holder of
Series E Preferred Stock, or to a third
party such holder may designate in writing,
a certificate or certificates for the number
of shares of Common Stock to which he shall
be entitled as aforesaid and, a check
payable to the holder in the amount of any
cash amounts payable as the result of
conversion into fractional shares of Common
Stock plus declared but unpaid dividends,
and if less than all the shares of the
Series E Preferred Stock represented by such
certificates are converted, a certificate
representing the shares of Series E
Preferred Stock not converted. Such
conversion 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 E Preferred Stock to be converted,
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.
(c) Adjustments to Conversion Price.
(1) Adjustments for Subdivisions, Common Stock
Dividends, Combinations or Consolidations of
Common Stock. In the event the outstanding
shares of Common Stock shall be subdivided
or increased by stock split or stock
dividend, into a greater number of shares of
Common Stock, the Conversion Price then in
effect shall concurrently with the
effectiveness of such subdivision or payment
of such stock dividend, be proportionately
decreased. In the event
the outstanding shares of Common Stock shall
be combined or consolidated, by
reclassification or otherwise, into a lesser
number of shares of Common Stock, the
Conversion Price then in effect shall
concurrently with the effectiveness of such
combination or consolidation, be
proportionately increased.
(2) Adjustments for Reclassification, Exchange
and Substitution. If the Common Stock
issuable upon conversion of the Series E
Preferred Stock shall be changed into the
same or a different number of shares of any
other class or classes of stock, whether by
capital reorganization, reclassification or
otherwise (other than a subdivision or
combination or shares provided for above),
the Conversion Price then in effect shall,
concurrently with the effectiveness of such
reorganization or reclassification, be
proportionately adjusted such that the
Series E Preferred Stock shall be
convertible into, in lieu of the number of
shares of Common Stock which the holders
would otherwise have been entitled to
receive, a number of shares of such other
class or classes of stock, equivalent to the
number of shares of Common Stock that would
have been subject to receipt by the holders
upon conversion of the Series E Preferred
Stock immediately before that change.
(4) Certificate as to Adjustments. Upon the occurrence of
each adjustment or readjustment of the Conversion
Price pursuant to this Section 6, the Corporation at
its expense, shall promptly compute such adjustment
or readjustment in accordance with the terms hereof
and furnish to each holder of Series E Preferred
Stock a certificate setting forth such adjustment or
readjustment in accordance with the terms hereof and
furnish to each holder of Series E Preferred Stock a
certificate setting forth such adjustment or
readjustment and showing in detail the facts upon
which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any
time of any holder of Series E Preferred Stock,
furnish or cause to be furnished to such holder a
like certificate setting forth (i) such adjustments
and readjustments, (ii) the Conversion Price at the
time in effect and (iii) the number of shares of
Common Stock and the amount, if any, of other
property which at the time would be received upon the
conversion of Series E Preferred Stock.
(5) No Impairment. The Corporation will not, by amendment
of its Articles of Incorporation or through any
reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or
any other voluntary action (other than actions taken
in good faith), avoid the observance or performance
of any of the terms to be observed or
performed hereunder by the Corporation but will at
all times in good faith assist in carrying out all
the provisions of this Section 6 and in taking all
such action as may be necessary or appropriate in
order to protect the conversion rights of the holders
of the Series E Preferred Stock against impairment.
(6) Reservation of Common Stock. The Corporation shall,
at all times when the Series E Preferred Stock shall
be outstanding, reserve and keep available out of its
authorized but unissued stock, for the purpose of
effecting the conversion of the Series E Preferred
Stock, such number of its duly authorized shares of
Common Stock as shall from time to time be sufficient
to effect the conversion of all outstanding Series E
Preferred Stock.
(7) No Adjustment. Upon any voluntary conversion of the
Series E Preferred Stock no adjustment to the
conversion rights shall be made for declared but
unpaid dividends on the Series E Preferred Stock
surrendered for conversion or on the Common Stock
delivered.
(8) Cancellation of Series E Preferred Stock. All shares
of the Series E Preferred Stock, which shall have
been surrendered for conversion as herein provided,
shall no longer be deemed to be outstanding. Any
shares of the Series E Preferred Stock so converted
shall be retired and canceled and shall not be
reissued, and the Corporation may from time to time
take such appropriate action as may be necessary to
reduce the authorized Series E Preferred stock
accordingly.