Articles of Amendment

Approval of Authorization of Preferred Stock

The Board of Directors has recommended that the Articles of Incorporation of the Company be further amended to authorize the Company's issuance of up to 1,000,000 shares of preferred stock, par value $1.00 per share (the "Preferred Stock"). To accomplish this, the Board of Directors has recommended that ARTICLE VI of the Company's Articles of incorporation be further amended through the addition and inclusion of the following provision, which describes and defines the terms and conditions of the Preferred Stock.

The authorized shares of preferred stock of this Corporation shall consist of 1,000,000 shares of preferred stock, par value $1.00 per share. Ownership of the preferred stock shall entitle the holders thereof to the following rights:

SECTION 1. Dividend Preference. The holders of the preferred stock shall be entitled to receive a cumulative dividend equal to eight percent (8%) per annum of the per share par value of the preferred stock.

Such dividends shall be payable to the extent that the Corporation has sufficient profits and earnings to make the dividend payments.

In the event that dividends are not paid on the preferred stock, then the dividends shall accumulate, and such accumulated dividends must all be paid prior to the payment of any dividend declared by the Corporation on any shares of its common stock or preferred stock authorized and issued by the Corporation.

SECTION 2. Liquidation Preference. If any voluntary or involuntary sale of all or substantially all of the Corporation's capital stock or all or substantially all of the Corporation's assets, or any merger or consolidation of the Corporation with another entity, or any liquidation or dissolution of the Corporation, shall be effected (such events to be hereinafter collectively referred to as the "Corporate Events"), then the holders of the preferred stock shall be entitled to receive, prior to the receipt of any assets by holders of all other equity securities of the Corporation, a cash amount equal to an initial value of $1.00 for each share of preferred stock held, plus any and all accumulated dividends thereon together with any dividends payable in the then current year calculated on a pro rata basis from the beginning of such year to the effective date of the relevant Corporate Event.

Such payment with respect to the preferred stock shall constitute the extent of the participation of the preferred stockholders in any and all present or future corporate distributions, or the stock, securities, or assets to be received by holders of equity securities of the Corporation, and the shares of the preferred stock shall thereafter be redeemed and canceled and shall be so reflected on the books of the Corporation.

SECTION 3. Voting Rights. Except as provided herein, the holders of the preferred stock shall not be entitled to any voting rights as stockholders of the Corporation prior to conversion pursuant to Section 4 hereof.

Notwithstanding the foregoing, the following actions by the Corporation will require prior approval by the holders of a majority of the issued and outstanding shares of preferred stock:

(a) a material change in the business of the Corporation;

(b) the sale of all or substantially all of the assets of the Corporation;

(c) a change in the rights, preferences, privileges or restrictions related to the preferred stock;

(d) the authorization or issuance of any shares of any class of stock of the Corporation not currently authorized;

(e) the retirement of any class of outstanding securities of the Corporation;

(f) the reclassification of any class or series of securities of the Corporation; and

(g) the issuance of additional shares, or an increase in the number of authorized shares, of the preferred stock.

SECTION 4. Conversion of Preferred Stock to Common Stock. The shares of preferred stock shall be convertible at the holder's option into common stock, at any time after issuance of the shares of preferred stock, at the initial rate of ten (10) shares of common stock for each share of preferred stock.

Except upon the occurrence of a Corporate Event, a preferred stockholder will be required to provide the Corporation with not less than ninety (90) days' advance notice of its intent to convert all or a portion of its shares of preferred stock to common stock.

(The conversion price of the shares of preferred stock into shares of common stock, which initially is $.10 per share, shall hereinafter be referred to as the "Conversion Price.")

Upon the occurrence of a Corporate Event, the preferred stockholder shall give reasonable prior notice of such conversion to the Corporation taking into consideration when the preferred stockholder is advised of the pendency of a Corporate Event. After notice of conversion from the preferred stockholder to the Corporation, and prior to the expiration of the ninety (90) day notice period, the preferred stockholder will surrender all shares of the preferred stock to the Corporation, and the Corporation will simultaneously issue the appropriate number of shares of common stock to the preferred stockholder.

SECTION 5. Anti-Dilution Provisions.

(a) If the Corporation shall at any time after the issuance of the shares of preferred stock subdivide or combine the outstanding shares of common stock or declare a dividend payable in common stock, the Conversion Price in effect immediately prior to the subdivision, combination or record date for such dividend payable in common stock shall forthwith be proportionately increased, in the case of combination, or proportionately decreased, in the case of a subdivision or dividend payable in common stock, by multiplying the Conversion Price in effect immediately prior to the combination, subdivision, or dividend payable in common stock, by a fraction the numerator of which is the number of shares of common stock outstanding immediately prior to such combination, subdivision or record date for the dividend payable in common stock and the denominator of which is the number of shares of common stock outstanding immediately after such combination, subdivision or record date for the dividend payable in common stock. Correspondingly, in the event of any such combination, subdivision or dividend payable in common stock, each share of common stock into which the preferred stock is convertible shall be changed to the number determined by dividing the Conversion Price in effect immediately prior to the subdivision, combination, or dividend payable in common stock by the Conversion price as adjusted immediately after the subdivision, combination, or dividend payable in common stock.

(b) No fractional shares of common stock are to be issued upon a conversion of preferred stock into shares of common stock, but the Corporation shall pay a cash adjustment in respect of any fraction of a share which would otherwise be issuable in an amount equal to the same fraction of the per share market price of the common stock on the date of exercise as determined in good faith by the corporation.

(c) The Conversion Price of the shares of preferred stock into shares of the common stock shall additionally be subject to adjustment as follows:

(i) If the Company shall issue shares of common stock other than "Excluded Stock" without consideration or for a consideration per share less than the Conversion Price in effect immediately prior to the issuance of such common stock, the Conversion Price in effect immediately prior to such issuance shall forthwith be adjusted to a price equal to the lesser of $.10 per share or the quotient obtained by dividing the total aggregate consideration paid for all common stock issued subsequent to June 15, 1988, by the total number of shares of common stock issued subsequent to June 15, 1988.

(ii) For the purpose of any adjustment of the Conversion Price pursuant to Section 5(c), the following provisions shall be applicable:

1. the aggregate maximum number of shares of common stock deliverable upon exercise of such options or warrants to purchase or rights to subscribe for common stock shall be deemed to have been issued at the time such options or rights were issued and for a consideration equal to the consideration received by the Corporation upon the issuance of such options, warrants, or rights, plus the purchase price provided in such options, warrants, or rights for the common stock covered thereby;

2. the aggregate maximum number of shares of common stock deliverable upon conversion of or in exchange for any such convertible or exchangeable securities or debt shall be deemed to have been issued at the time such securities were issued and for a consideration equal to the consideration received by the Corporation for any such securities, plus the additional consideration, if any, to be received by the Corporation upon the conversion or exchange of such securities or the exercise of any related options, warrants or rights;

3. on the expiration of any such options, warrants, rights or debt, the termination of any such rights to convert or exchange or the expiration of any options, warrants, or rights related to such convertible or exchangeable securities or debt, the Conversion Price shall forthwith be readjusted to such conversion price as would have obtained had the adjustment made upon the issuance of such options, warrants, rights or securities been made upon the basis of the issuance of only the number of shares of common stock, if any, actually issued upon the conversion or exchange of such securities or upon the exercise of the options or rights related to such securities; and

(iii) the term "Excluded Stock" shall mean shares of common stock issued as a stock dividend payable in shares of common stock or upon any subdivision or split-up of the outstanding shares of common stock or otherwise as described in Section 5(a) or 5(b) hereof, and upon the exercise of any options, warrants, or convertible debt outstanding as of June 15, 1988.

SECTION 6. Corporation's Call Option. At any time after issuance of shares of preferred stock, and upon ninety (90) days' prior notice to the holder hereof, the Corporation shall have the option to call the shares of preferred stock, and the holders thereof shall be obligated to sell the shares of the preferred stock to the Corporation upon the exercise of such call option, at the greater of the following prices:

(a) One and 00/100 Dollars ($1.00) per share plus any unpaid dividends, including any pro rata dividend due in the then current year calculated on a pro rata basis to the date the option is exercised; or

(b) at a price equal to the average of the closing bid prices of the common stock as reported in the Minneapolis Tribune for the ten (10) successive business days immediately preceding the Corporation's notice to the preferred stockholder of the Corporation's exercise of the call, provided that any and all material information regarding the Corporation had been publicly disclosed on a timely basis prior to the date of such notice.

SECTION 7. Holder's Put Option. At any time after issuance of shares of preferred stock, and upon ninety (90) days' prior notice to the Corporation, the holders thereof may sell to the Corporation, and the Corporation shall be obligated to buy from the holders thereof upon exercise of such put option, up to twenty percent (20%) per year of the shares of preferred stock originally issued to the stockholder at the lesser of the following prices:

(a) One and 00/100 Dollars ($1.00) per share plus any unpaid dividends, including any pro rata dividends due in the then current year calculated on a pro rata basis to the date the option is exercised; or

(b) at a price equal to the average of the closing bid prices of the common stock as reported in the Minneapolis Tribune for the ten (10) successive business days immediately preceding the holder's notice to the Corporation of the holder's exercise of the put, provided that any and all material information regarding the Corporation has been publicly disclosed on a timely basis prior to the date of such notice.

The Company has entered into the Investment Agreement with CDC pursuant to which CDC has agreed to convert up to $750,000 of debt owed by the Company to CDC into shares of Preferred Stock. See "Election of Directors-Certain Transactions." Under the terms and subject to the conditions of the Investment Agreement, one share of the par value $1.00 per share Preferred Stock will be issued for each dollar of debt converted.

The CDC debt consists of trade accounts payable, real estate taxes payable, lease payments due and other outstanding obligations of the Company to CDC, totalling $1,296,811 plus interest, which were consolidated pursuant to the terms of the Restructuring Agreement.

Shareholder approval of the amendment described above is necessary to enable the Company to obtain the benefits and advantages available to it under the Investment Agreement. The CDC debt converted to Preferred Stock under the Investment Agreement presently accrues interest at 3% in excess of the prime rate of interest quoted by the Chase Manhattan Bank, New York, New York. As of June 15, 1988, this would yield an annual rate of 12%.

In contrast, the Preferred Stock provides a dividend rate of 8% per annum. Further, although dividends accumulate if not paid, they must be paid only to the extent that the Company has sufficient profits and earnings to make the payments, thus reducing the Company's financial burden in the event of a cash flow deficiency.

However, this assumes that the Preferred Stock holders do not exercise those put option rights described in Section 7 of the proposed amendment pursuant to which they may obligate the Company to purchase up to 20% per year of their Preferred Stock at a specified price regardless of the Company's cash flow position.

Finally, the amount of CDC debt so converted pursuant to the Investment Agreement will not be included as a liability on the Company's financial statements, thus improving the financial statements of the Company and perhaps increasing its ability to raise additional funds at a lower cost as needed. Consequently, the Board of Directors and management for the Company believe that it is essential for the shareholders to approve this amendment authorizing the Preferred Stock and that the failure to do so would substantially hinder the Company's future growth and financial improvement.

UNAUDITED PRO FORMA CONSOLIDATED CONDENSED INCOME (LOSS) STATEMENTS

For the Year Ended 12/31/87 and For the Three Months Ended 3/31/88

For purposes of the pro forma consolidated condensed income (loss) statement for the year ended 12/31/87, and for the three months ended 3/31/88, it is assumed that the maximum conversion of debt to preferred stock occurred at the beginning of the year ended 12/31/87 and three months ended 3/31/88, respectively.

(A) Adjustment is for a reduction in interest expense due to the conversion of $750,000 of outstanding debt to the 8% cumulative redeemable Preferred Stock.

(B) Consolidated net income (loss) per share is based on the weighted average number of shares of Common Stock outstanding during each period and has been adjusted for the 8% cumulative redeemable Preferred Stock dividend requirement.

UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET

December 31, 1987 and March 31, 1988

For purposes of the 12/31/87 and 3/31/88 pro forma consolidated condensed balance sheets, it is assumed that the conversion of debt to preferred stock occurred on 12/31/87 and 3/31/88, respectively.

(A) Adjustment for a reduction of long-term debt to shareholder by conversion into 8% cumulative redeemable Preferred Stock.

(B) Adjustment for issuance of redeemable Preferred Stock on a dollar for dollar basis up to the maximum agreed amount of $750,000 in debt.

Digigraphic Systems Corporation 8/11/88