Exhibit 3.2
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 October 13, 2003.
4. These Articles of Amendment do not effect an exchange,
reclassification or cancellation of issued shares of the
Corporation.
Dated this 24th day of October, 2003.
DIGITAL RECORDERS, INC.
/s/ David L. Turney
----------------------------------------
David L. Turney, President
CERTIFICATE OF DESIGNATION
OF
SERIES F REDEEMABLE 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 October 13, 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 creates 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 F Redeemable
Convertible Preferred Stock" (the "Series F Preferred
Stock") and the number of shares constituting the
Series F Preferred Stock shall be 300 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 F 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 F Preferred
Stock.
Section 2. Dividends and Distributions. The holders of shares of
Series F Preferred Stock shall not be entitled to
receive dividends.
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Section 3. Voting Rights. Except as is required by applicable
law, the holders of Series F Preferred Stock shall be
entitled to vote with the holders of Common Stock,
voting together as a single class, on any matters on
which holders of Common Stock are entitled to vote,
and the holder of each outstanding share of Series F
Preferred Stock shall be entitled to a number of
votes equal to the number of shares of Common Stock
into which such share of Series F Preferred Stock
could then be converted. Fractional votes shall not,
however, be permitted and any fractional voting
rights resulting from the above formula (after
aggregating all shares of Common Stock into which
shares of Series F Preferred Stock held by each
holder could be converted) shall be adjusted to the
nearest whole number.
Section 4. Liquidation.
(a) The Liquidation Preference for the Series F
Preferred Stock shall equal Five Thousand Dollars
($5,000.00) per share. The Series F Preferred Stock
shall be pari passu with Series E Preferred Stock
(collectively with the Series F Preferred Stock, the
"Preferred Stock") and rank prior and superior to the
Series AAA Preferred Stock with respect to payments
upon liquidation, dissolution and winding up. The
Series AAA Preferred Stock, the Common Stock and any
other class or series of stock ranking junior to the
Preferred Stock with respect to payments upon
liquidation, dissolution and winding up are referred
to, collectively, herein as "Junior Stock".
(b) 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 Junior Stock by
reason of the ownership thereof, an amount equal to
the Liquidation Preference per share of the
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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.
(c) 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 Junior Stock other than Common Stock shall be
entitled to be paid from the remaining assets of the
Corporation such amounts, if any, to which such
holder may be entitled under any other provision of
these Articles of Incorporation prior to any
distribution of any of the assets of the Corporation
to the holders of Common Stock.
(d) Any assets of the Corporation remaining after the
payments specified in paragraphs (b) and (c) above
shall be distributed pro rata with respect to the
outstanding shares of Common Stock.
(e) 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 4, 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
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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.
(f) 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 (i) 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; or (ii) the holders of Series F Preferred Stock
shall determine, by vote of the holders of a majority
of the outstanding shares of such series, voting as a
separate class, that it shall not be so deemed.
(g) 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.
(h) Written notice of any Liquidating 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.
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Section 5. Redemption.
(a) The holders of the Series F Preferred Stock may
elect to cause the Corporation to redeem shares of
their Series F Preferred Stock at any one or more
time(s) in their sole discretion pursuant to the
specific terms of paragraph (b) below. All
redemptions shall be effected on a pro rata basis.
(b) Subject to paragraph (e) below, a number of
shares of Series F Preferred Stock equal to one-third
of the total number of shares issued on the initial
issue date of the Series F Preferred Stock shall be
redeemed on each of the fourth, fifth and sixth
anniversaries of such initial issue date, provided,
with respect to each such redemption date, that the
holder gives written notice to the Corporation of its
election to require the Corporation to redeem said
shares 120 days prior to such redemption date. The
foregoing redemption right shall not be cumulative
and shall apply, on each redemption date, only with
respect to the number of shares stated above.
(c) Shares of Series F Preferred Stock are not
redeemable at the option of the holder of such shares
other than as set forth in (b) above.
(d) The redemption price to be paid by the
Corporation for any shares of Series F Preferred
Stock shall equal the Liquidation Preference for
those shares. If there is more than one holder of
Series F Preferred Stock, the right to require
redemption pursuant to this Section 5 shall be
exercisable at the election of the holders of not
less than three-fourths of the then-outstanding
shares of Series F Preferred Stock.
(e) If the assets of the Corporation legally
available shall be insufficient to pay all the
holders of Series F Preferred Stock the full amount
to which they are entitled upon any redemption
pursuant to this Section, then the following rules
shall apply: (i) each such holder shall be paid his
pro rata share, which shall equal the product
determined by
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multiplying the aggregate amount to be paid to all
holders by a fraction (x) whose numerator equals the
number of shares of Series F Preferred Stock owned by
the holder, and (y) whose denominator equals the
number of issued and outstanding shares of Series F
Preferred Stock, and (ii) in any case in which the
owners of two or more series or classes of capital
stock shall have equal rights to any distribution in
connection with the redemption of shares of all such
classes of series, 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 all shares of the series or
classes having equal priorities, and (y) whose
denominator equals the aggregate redemption prices of
all issued and outstanding shares of the series or
classes having equal priorities.
(f) At least ten (10) days prior to any 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 F 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 of 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
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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 in the paragraph 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.
(g) Cancellation of Series F Preferred Stock. All
shares of the Series F Preferred Stock that shall
have been redeemed as herein provided shall no longer
be deemed to be outstanding. Any shares of Series F
Preferred Stock so redeemed 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 F Preferred stock accordingly.
Section 6. Conversion of Series F Preferred Stock. Each holder
of shares of Series F 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, and in certain circumstances such
shares shall be automatically converted, into shares
of the Common Stock of the Corporation, as follows:
(a) Optional Conversion. Subject to and in compliance
with the provisions of this Section 6, any or all
shares of Series F Preferred Stock, at the option of
the holder, may be
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converted at any time or from time to time into a
number of fully paid and nonassessable shares
(calculated as to each conversion to the largest
whole share) of Common Stock determined by
multiplying the number of shares of Series F
Preferred Stock to be converted by a fraction, the
numerator of which is the Liquidation Preference of a
share of Series F Preferred Stock and the denominator
of which is the conversion price then in effect for
the Series F Preferred Stock (the "Conversion
Price"). Initially, the Conversion Price is $2.35 per
share; provided, however, that the Conversion Price
shall be subject to adjustment at the times and in
accordance with the provisions set forth below.
(b) Automatic Conversion. If the average closing bid
price for the Common Stock on The Nasdaq Stock Market
(or other exchange or market on which the Common
Stock may from time to time be traded) for any period
of ten (10) consecutive trading days exceeds $5.88
(the "Target Price"), then all outstanding shares of
Series F Preferred Stock shall automatically convert,
at the close of the market on the last trading day in
such period, into a number of fully paid and
nonassessable shares (calculated to the largest whole
share) of Common Stock determined by multiplying the
number of shares of Series F Preferred Stock then
outstanding by a fraction, the numerator of which is
the Liquidation Preference of a share of Series F
Preferred Stock and the denominator of which is the
Target Price, provided that the Target Price shall be
adjusted for any stock splits, combinations or
similar events occurring after the initial issuance
date of the Series F Preferred Stock; and provided
further that the resale of the shares issuable upon
conversion shall have been registered or shall be
subject to available exemption under applicable
security laws. Upon any conversion of all or part of
the debentures in the face amount of $3,979,000
issued to The Frost National Bank, custodian FBO
Renaissance US Growth and Income Trust PLC Trust No.
W00740100 and HSBC Global Custody Nominee (U.K)
Limited Designation No. 896414 (the "Debentures")
into Common Stock, all or a
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proportionate part, as the case may be, of the
outstanding shares of Series F Preferred Stock shall
automatically convert into a number of fully paid and
nonassessable shares (calculated to the largest whole
share) of Common Stock determined by multiplying the
number of shares of Series F Preferred Stock being
converted by a fraction, the numerator of which is
the Liquidation Preference of a share of Series F
Preferred Stock and the denominator of which is the
greater of the Conversion Price then in effect or the
deemed price (or average price, if more than one) per
share of Common Stock at which the conversion of the
Debentures shall have been effected; provided that
the resale of the shares issuable upon conversion
shall have been registered or shall be subject to
available exemption under applicable security laws.
(c) Mechanics of Conversion. Before any holder of
Series F Preferred Stock shall be entitled to convert
the same into full shares of Common Stock, unless the
conversion is an automatic conversion, 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 F 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 F
Preferred Stock, or to a third party such holder may
designate in writing, a certificate or certificates
for the number of whole shares of Common Stock to
which he shall be entitled and a check payable to the
holder in the amount of any cash amounts payable in
lieu of fractional shares as aforesaid, and if less
than all the shares of Series F Preferred Stock
represented by such certificates
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are converted, a certificate representing the shares
of Series F 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 F
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.
(d) Adjustments to Conversion Price.
(i) Adjustment for Issuance of Shares at Less
Than the Conversion Price. If and whenever
any Additional Common Stock shall be issued
by the Corporation (the "Stock Issue Date")
for a consideration per share less than the
Conversion Price, then in each such case the
initial Conversion Price shall be reduced to
a new Conversion Price in an amount equal to
the price per share for the Additional
Common Stock then issued, if issued in
connection with a sale of shares, or the
value of the Additional Common Stock then
issued, as determined in accordance with
generally accepted accounting principles, if
issued other than for cash, and the number
of shares issuable to the Stockholder upon
conversion shall be proportionately
increased; and, in the case of Additional
Common Stock issued without consideration,
the initial Conversion Price shall be
reduced in amount and the number of shares
issuable upon conversion shall be increased
in an amount so as to maintain for the
holder the right to convert the Series F
Preferred Stock into a number of shares of
Common Stock representing the same
percentage interest in the Common Stock of
the Corporation, on a fully diluted basis,
as existed for such holder immediately
preceding the issuance of such Additional
Common Stock without consideration.
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(ii) 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.
(iii) Adjustments for Reclassification,
Exchange and Substitution. If the Common
Stock issuable upon conversion of the Series
F 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 of shares provided for above),
the Series F Preferred Stock shall
thereafter be convertible into, in lieu of
the 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 that would have
been obtainable in exchange for the shares
of Common Stock that were issuable upon
conversion of the Series F Preferred Stock
immediately before that change.
(iv) Exceptions. The term "Additional Common
Stock" herein shall mean all shares of
Common Stock hereafter issued by the
Corporation (including Common
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Stock held in the treasury of Corporation),
except (A) Common Stock issuable upon the
conversion of any outstanding debentures,
preferred stock or other convertible
securities existing as of October 13, 2003;
(B) Common Stock issuable upon exercise of
any outstanding warrants, stock options or
similar rights existing as of October 13,
2003; (C) up to 300,000 shares of Common
Stock issuable upon exercise of employee or
director stock options to be granted in the
future at less than the initial Conversion
Price; (D) Common Stock that may be issued
in connection with bona fide business
acquisitions of or by the Corporation,
whether by merger, consolidation, sale of
assets, sale or exchange of stock or
otherwise (or upon the conversion of any
convertible securities, or the exercise of
any rights, that may be issued in connection
with any such acquisition); or (E) Common
Stock that may be issued in connection with
leases, bank financings or similar
transactions that are primarily of a
nonequity financing nature and are approved
by the Board of Directors.
(e) 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
F Preferred Stock a certificate setting forth such
adjustment or readjustment in accordance with the
terms hereof and furnish to each holder of Series F
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 F
Preferred Stock, furnish or cause to be furnished to
such holder a like certificate setting forth (i) such
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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 F Preferred Stock.
(f) 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 F Preferred Stock against impairment.
(g) Reservation of Common Stock. The Corporation
shall, at all times when the Series F 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 F 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 F
Preferred Stock.
(h) No Adjustment. Upon any voluntary or automatic
conversion of the Series F Preferred Stock no
adjustment to the conversion rights shall be made for
declared but unpaid dividends on the Series F
Preferred Stock surrendered for conversion or on the
Common Stock delivered.
(i) Cancellation of Series F Preferred Stock. All
shares of the Series F Preferred Stock that shall
have been surrendered for conversion as herein
provided shall no longer be deemed to be outstanding.
Any shares of
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the Series F 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 F Preferred stock accordingly.
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