UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) DECEMBER 28, 1999
BTI TELECOM CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NORTH CAROLINA 333-41723 56-2047220
(STATE OR OTHER (COMMISSION (I.R.S. EMPLOYER
JURISDICTION FILE NUMBER) IDENTIFICATION NO.)
OF INCORPORATION)
4300 SIX FORKS ROAD, RALEIGH, NORTH CAROLINA 27609
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (800) 849-9100
NOT APPLICABLE
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT.)
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ITEM 5. OTHER EVENTS.
BTI Telecom Corp. ("BTI") received a $200 million investment
on December 28, 1999, from Welsh, Carson, Anderson & Stowe VIII, L.P.,
a New York-based private equity firm, and two affiliated funds
(together, "WCAS"). BTI plans to use the proceeds from the investment
to expand its current operations. Specifically, the Company plans to
add to its telecommunications network and fiber optic infrastructure as
well as to enhance its data services such as DSL high-speed Internet
access. In addition, BTI used $65 million of the proceeds to repurchase
a portion of the Company's outstanding shares of common stock, at a
price of $8.55 per share.
The Company issued 200,000 shares of Series A Preferred Stock
to WCAS, each share of which may be converted initially into 116.959
shares of Common Stock, subject to adjustment for certain dilutive
issuances. The Series A Preferred Stock has a six percent accrued
dividend payable upon conversion in cash or in kind at the election of
BTI. WCAS can redeem the Series A Preferred Stock at a price equal to
the greater of liquidation value or fair market value upon the later of
December 28, 2006 or six months after the date on which all amounts
owing under BTI's 10-1/2% Senior Notes due 2007 are paid in full. In
addition, BTI issued WCAS warrants to purchase 4,500,000 shares of
Common Stock (subject to adjustment for certain dilutive issuances),
which may be canceled based on the Company's future performance. Two
WCAS general partners will join BTI's Board of Directors.
Forward-Looking Statements
Statements contained in this Form 8-K regarding planned
financial transactions and other events are forward-looking statements,
subject to uncertainties and risks, including but not limited to the
Company's negative cash flow after capital expenditures, significant
capital requirements, and ability to manage growth and expansion
(including into the local services market). These and other applicable
risks are summarized in the Company's Registration Statement on Form
S-1 (File No. 333-83101) filed with the SEC on July 16, 1999.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) EXHIBITS
3.1 Articles of Restatement of BTI Telecom Corp.
3.2 Second Amended and Restated Bylaws of BTI Telecom
Corp.
10.21 Shareholders Agreement, among BTI Telecom Corp.,
Peter T. Loftin, Welsh, Carson, Anderson & Stowe
VIII, L.P., WCAS Information Partners, L.P., and BTI
Investors LLC, dated December 28, 1999.
10.22 Redemption Agreement, among BTI Telecom Corp., Welsh,
Carson, Anderson & Stowe VIII, L.P., WCAS Information
Partners, L.P., and BTI Investors LLC, dated December
28, 1999.
10.23 Investor Rights Agreement, among BTI Telecom Corp.,
Welsh, Carson, Anderson & Stowe VIII, L.P., WCAS
Information Partners, L.P., and BTI Investors LLC,
dated December 28, 1999.
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10.24 Common Stock Purchase Warrant issued by BTI Telecom
Corp. to Welsh, Carson, Anderson & Stowe VII, L.P.,
dated December 28, 1999.
10.25 Common Stock Purchase Warrant issued by BTI
Telecom Corp. to WCAS Information Partners, L.P.,
dated December 28, 1999.
10.26 Common Stock Purchase Warrant issued by BTI Telecom
Corp. to BTI Investors LLC, dated December 28, 1999.
10.27 Series A Preferred Stock Purchase Agreement, among
BTI Telecom Corp., FS Multimedia, Inc., Welsh,
Carson, Anderson & Stowe VIII, L.P., WCAS Information
Partners, L.P., and BTI Investors LLC, dated December
28, 1999.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: January 12, 2000
By: /s/ Brian Branson
------------------------
Brian Branson
Chief Financial Officer
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EXHIBIT INDEX
Exhibit
Number Description
3.1 Articles of Restatement of BTI Telecom Corp.
3.2 Second Amended and Restated Bylaws of BTI Telecom Corp.
10.21 Shareholders Agreement, among BTI Telecom Corp., Peter T. Loftin,
Welsh, Carson, Anderson & Stowe VIII, L.P., WCAS Information Partners,
L.P., and BTI Investors LLC, dated December 28, 1999.
10.22 Redemption Agreement, among BTI Telecom Corp., Welsh, Carson, Anderson
& Stowe VIII, L.P., WCAS Information Partners, L.P., and BTI Investors
LLC, dated December 28, 1999.
10.23 Investor Rights Agreement, among BTI Telecom Corp., Welsh, Carson,
Anderson & Stowe VIII, L.P., WCAS Information Partners, L.P., and BTI
Investors LLC, dated December 28, 1999.
10.24 Common Stock Purchase Warrant issued by BTI Telecom Corp. to Welsh,
Carson, Anderson & Stowe VII, L.P., dated December 28, 1999.
10.25 Common Stock Purchase Warrant issued by BTI Telecom Corp. to WCAS
Information Partners, L.P., dated December 28, 1999.
10.26 Common Stock Purchase Warrant issued by BTI Telecom Corp. to BTI
Investors LLC, dated December 28, 1999.
10.27 Series A Preferred Stock Purchase Agreement, among BTI Telecom Corp.,
FS Multimedia, Inc., Welsh, Carson, Anderson & Stowe VIII, L.P., WCAS
Information Partners, L.P., and BTI Investors LLC, dated December 28,
1999.
EXHIBIT 3.1
ARTICLES OF RESTATEMENT
OF
BTI TELECOM CORP.
Pursuant to Section 55-10-07 of the North Carolina General Statutes,
the undersigned corporation hereby submits the following for the purpose of
amending and restating its Articles of Incorporation and does hereby certify as
follows:
1. The name of the corporation is BTI Telecom Corp. The corporation's
original Articles of Incorporation were filed on August 19, 1997.
2. The corporation's Articles of Incorporation are hereby amended and
restated in their entirety, as set forth in the text of the Amended and Restated
Articles of Incorporation attached hereto as Exhibit A.
3. The Amended and Restated Articles of Incorporation of the
corporation were adopted by its shareholders on the 16th day of December 1999,
in the manner prescribed by law.
4. These Amended and Restated Articles of Incorporation will be
effective upon filing.
IN WITNESS WHEREOF, the corporation has caused these Articles of
Amendment and Restatement to be signed by R. Michael Newkirk, its President, and
attested by Anthony M. Copeland, its Secretary, this 16th day of December 1999.
BTI TELECOM CORP.
By: /s/ R. Michael Newkirk
________________________________
R. Michael Newkirk, President
Attest:
By: /s/ Anthony M. Copeland
______________________________
Anthony M. Copeland, Secretary
<PAGE>
EXHIBIT A
---------
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
BTI TELECOM CORP.
ARTICLE I.
The name of the corporation is "BTI Telecom Corp." (the "Corporation").
ARTICLE II.
The current address and county of the registered office of the
Corporation is 4101 Lake Boone Trail, Suite 300, Raleigh, Wake County, North
Carolina 27607, and the name of the registered agent is Larry E. Robbins. The
mailing address of the registered office of the Corporation is the same as its
street address.
ARTICLE III.
The purpose for which the Corporation is organized is to engage in any
lawful act or activity for which corporations may be organized under Chapter 55
of the General Statutes of North Carolina.
ARTICLE IV.
The Corporation shall have authority to issue five hundred ten million
(510,000,000) shares. Five hundred million (500,000,000) of such shares shall be
designated Common Stock ("Common Stock"), no par value per share, and ten
million (10,000,000) of such shares shall be designated Preferred Stock
("Preferred Stock"), $0.01 par value per share. Of the authorized shares of
Preferred Stock, two hundred thousand (200,000) shares are designated Series A
Preferred Stock ("Series A Preferred Stock").
The Board of Directors is authorized to determine or alter the rights,
preferences, privileges and restrictions granted to or imposed upon any wholly
unissued series of Series A Preferred Stock, and within the limitations and
restrictions stated in any resolution or resolutions of the Board of Directors
originally fixing the number of shares constituting any series, to increase or
decrease (but not below the number of shares of any such series then
outstanding) the number of shares of any such series subsequent to the issue of
shares of that series, to determine the designation of any series and to fix the
number of shares of any series.
The Series A Preferred Stock shall, with respect to dividend rights and
rights on liquidation, dissolution and winding up, rank prior to all classes and
series of capital stock of the Corporation, including the Common Stock and the
Preferred Stock, but shall be junior in right of payment with respect to all
indebtedness incurred by the Corporation. The Series A Preferred
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Stock shall have the rights, preferences, privileges and restrictions set forth
below in this Article IV.
1. Dividends.
(a) Dividends. The holders of the Series A Preferred Stock shall
be entitled to receive, out of funds legally available therefor, cumulative
semi-annual dividends equal to the greater of (i) the amount of dividends
calculated at an annual rate per share equal to six percent (6%) of the original
purchase price of $1,000 paid per share for the Series A Preferred Stock (which
amount shall be subject to adjustment whenever there shall occur a stock split,
combination, reclassification or other similar event involving the Series A
Preferred Stock) and (ii) the amount of dividends that would have been received
during such period by the holders of the same number of shares of Common Stock
as the number of shares of Common Stock into which the Series A Preferred Stock
was convertible at such time, such amounts in clause (i) or (ii) above to be
compounded semi-annually such that if the dividend is not paid on June 30 or
December 31, as applicable, for the immediately preceding six month period (or
portion thereof if less than a full six month period), the unpaid amount shall
be added to the original purchase price paid per share of the Series A Preferred
Stock, for purposes of calculating succeeding periods' dividends. Such dividends
shall be payable, at the Corporation's option, in cash or additional shares of
Series A Preferred Stock (the "Additional Shares"); provided that if, following
its initial public offering, the Company has elected to pay such dividends in
cash, but is prevented from doing so by the terms of any of its outstanding
indebtedness, the Company may pay such dividends in shares of registered Common
Stock, valued for purposes of this Section 1(a) at 95% of the Fair Market Value
thereof on the record date relating to such dividend. Such dividends shall be
deemed to accrue on the Series A Preferred Stock and be cumulative, whether or
not earned or declared and whether or not there are profits, surplus or other
funds of the Corporation legally available for the payment of dividends. If such
cumulative dividends in respect of any prior or current semi-annual dividend
period shall not have been declared and paid or if there shall not have been a
sum sufficient for the payment thereof set apart in trust for the account of
holders of the Series A Preferred Stock, the deficiency shall first be fully
paid before any dividend or other distribution shall be paid or declared with
respect to any other class of the Corporation's capital stock, now or hereafter
outstanding. To the extent dividends are paid in Additional Shares, such
Additional Shares shall be valued at the Series A Original Price. Upon any
conversion of the Series A Preferred Stock hereunder, all accumulated and unpaid
dividends on the Series A Preferred Stock, whether or not declared, since the
date of issue up to and including the date of conversion thereof shall be paid
as set forth above.
(b) Dividends Payable With Respect to Common Stock. In the event
the Corporation shall pay or declare, make or issue, or shall fix a record date
for the determination of holders of Common Stock entitled to receive, a dividend
or other distribution with respect to the Common Stock payable in (i) securities
of the Corporation other than shares of Common Stock or (ii) cash or other
assets, then and in each such event the Corporation shall concurrently pay or
declare, make or issue, or fix a record date for the determination of holders of
Series A Preferred Stock entitled to receive, and the holders of Series A
Preferred Stock shall receive, at the same time such distribution is made with
respect to Common Stock, the number of securities or the amount of cash or other
assets which they would have received had their Series A Preferred Stock been
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converted into Common Stock immediately prior to the record date for determining
holders of Common Stock entitled to receive such distribution.
2. Liquidation, Dissolution or Winding Up.
(a) Treatment at Liquidation, Dissolution or Winding Up. In the
event of any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, before any distribution may be made with respect to
the Common Stock or any other class or series of capital stock, holders of each
share of Series A Preferred Stock shall be entitled to be paid out of the assets
of the Corporation available for distribution to holders of the Corporation's
capital stock of all classes or series, whether such assets are capital,
surplus, or capital earnings, an amount equal to the greater of (i) the Series A
Liquidation Amount (as defined below) and (ii) such amount per share of Series A
Preferred Stock as would have been payable had each such share been converted
into Common Stock immediately prior to such event of liquidation, dissolution or
winding up of the Corporation pursuant to this Section 2. If the assets of the
Corporation available for distribution to its shareholders shall be insufficient
to pay the holders of shares of Series A Preferred Stock the full amount of the
Series A Liquidation Amount to which they shall be entitled, the holders of
shares of Series A Preferred Stock shall share ratably in any distribution of
assets according to the amounts which would be payable with respect to the
Series A Preferred Stock held by them upon such distribution if all amounts
payable on or with respect to said shares were paid in full.
With respect to the Series A Preferred Stock, the "Series A
Liquidation Amount" shall equal $1,000.00 (the "Series A Original Price") per
share of Series A Preferred Stock plus all accrued and unpaid dividends thereon
(compounded as described in Section 1(a) above), whether or not earned or
declared, since the date of issue up to and including the date full payment
shall be tendered to the holders of the Series A Preferred Stock with respect to
such liquidation, dissolution or winding up, provided that such Series A
Original Price shall be subject to equitable adjustment whenever there shall
occur a stock split, combination, reclassification or other similar event
involving such Series A Preferred Stock.
After the payment of all amounts due pursuant to the preceding
paragraphs shall have been made in full to the holders of the Series A Preferred
Stock, the holders of the Series A Preferred Stock shall be entitled to no
further participation in the distribution of the assets of the Corporation.
(b) Treatment of Reorganizations. Any Reorganization (as such term
is defined in Section 4(f)), shall be regarded as a liquidation, dissolution or
winding up of the affairs of the Corporation within the meaning of this Section
2.
(c) Distributions. Amounts payable pursuant to this Section 2
shall in all events be paid in cash; provided, however, that if such amounts are
payable in connection with a Reorganization, then each holder of the Series A
Preferred Stock shall receive payment as follows: (i) if such consideration
consists of either 100% cash or 100% property or other securities, the holders
of the Series A Preferred Stock shall be entitled to receive the same form of
consideration as is payable with respect to the Common Stock and (ii) if such
consideration consists of a combination of cash and securities or other
property, the holders of the Series A
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Preferred Stock shall receive the same mix of consideration as the holders of
the Common Stock, pro rata with such holders of Common Stock on the basis
described in Section 4(f) below, unless the aggregate Daily Prices of all
outstanding shares of publicly registered common stock of the issuer of such
securities is less than or equal to $200 million, in which case the holders of
the Series A Preferred Stock may elect to receive all or any portion of such
consideration payment in the form of cash (but in no event more than the
aggregate amount of the cash portion of the consideration being offered to all
shareholders of the Corporation). Notwithstanding the foregoing, the accrued but
unpaid dividends payable in connection with a Reorganization pursuant to this
Section 2 shall, in all events, be paid in the manner set forth in Section 1(a)
above. Whenever a distribution provided for in this Section 2 is payable in
property other than cash, the value of such distribution shall be the Fair
Market Value of such property.
For purposes of these Amended and Restated Articles of Incorporation,
"Fair Market Value" means (i) with respect to one share of common stock to be
received, if the aggregate Daily Prices of all the outstanding shares of such
common stock that have been registered pursuant to a public offering is at least
$200 million as of such date, the average (weighted by daily trading volume) of
the Daily Prices, if any, per share of such common stock for the period of 20
consecutive trading days immediately prior to such date or (ii) in all other
events with respect to such common stock, or with respect to any other property
or consideration, the fair market value of such common stock or other property
or consideration as determined by two appraisers, one selected by the Board of
Directors of the Corporation and one selected by the holders of a majority of
the outstanding shares of Series A Preferred Stock. No Director who is a holder
of shares of Series A Preferred Stock or who is designated by or affiliated with
a holder of shares of Series A Preferred Stock shall vote on the selection of
the appraiser chosen by the Corporation. In the event the Board of Directors or
holders of Series A Preferred Stock fail to appoint an appraiser within a
reasonable period of time, the appraisal shall be undertaken by the remaining
single appraiser. The Fair Market Value shall be the fair market value
(determined in the manner described above) arrived at by the appraisers within
thirty (30) days following the appointment of the last appraiser to be
appointed. In the event that the two appraisers agree in good faith on such fair
market value within such a period of time, such agreed value shall be used for
these purposes. If the appraisers cannot agree but their valuations are within
10% of each other, the Fair Market Value shall be the mean of the two
valuations. If the appraisers cannot agree and the differences in the valuations
are greater than 10%, the appraisers shall select a third appraiser who will
calculate fair market value independently (provided that such calculation shall
not be more than the value calculated by the appraiser selected by the holders
of Series A Preferred Stock or less than the value calculated by the appraiser
selected by the Board of Directors) and, except as provided in the next
sentence, the Fair Market Value of the shares shall be the mean of the two fair
market values arrived at by the appraisers who are closest in amount. If one
appraiser's valuation is the mean of the other two valuations, such mean
valuation shall be the Fair Market Value. In the event that the two original
appraisers cannot agree upon a third appraiser within ten (10) days following
the end of the thirty (30) day period referred to above, then the third
appraiser, which appraiser shall be a nationally recognized investment banking
firm, shall be appointed by the American Arbitration Association in Washington,
D.C. If the Board of Directors proposes a transaction in which the property
distributed is described in clause (ii) of the first sentence of this paragraph
and the holders of a majority of the Series A Preferred Stock approve
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the terms of such transaction, then the Fair Market Value of all such property
distributed shall be equal to the value as initially determined by the Board of
Directors and approved by the holders of a majority of the Series A Preferred
Stock. As used herein, "Daily Price" means (1) if the shares of such common
stock then are listed and traded on the New York Stock Exchange, Inc. ("NYSE"),
the closing price on such day as reported on the NYSE Composite Transactions
Tape; (2) if the shares of common stock then are not listed and traded on the
NYSE, the closing price on such day as reported by the principal national
securities exchange on which the shares are listed and traded; (3) if the shares
of common stock then are not listed and traded on any such securities exchange,
the last reported sale price on such day on the National Market of the National
Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ");
or (4) if the shares of common stock then are not traded on the NASDAQ National
Market, the average of the highest reported bid and lowest reported asked price
on such day as reported by NASDAQ.
3. Voting Power. Except as otherwise expressly provided in Section 6
hereof, or as required by law, each holder of Series A Preferred Stock shall be
entitled to vote on all matters and shall be entitled to that number of votes
equal to the largest number of shares (including fractional shares) of Common
Stock into which such holder's shares of Series A Preferred Stock could be
converted, pursuant to the provisions of Section 4 hereof, at the record date
for the determination of shareholders entitled to vote on such matter or, if no
such record date is established, at the date such vote is taken or any written
consent of shareholders is solicited. Except as otherwise expressly provided
herein or as required by law, the holders of shares of Series A Preferred Stock
and Common Stock shall vote together as a single class on all matters.
4. Conversion Rights for the Series A Preferred Stock. The holders of
the Series A Preferred Stock shall have the following rights with respect to the
conversion of the Series A Preferred Stock into shares of Common Stock.
(a) General. Subject to and in compliance with the provisions of
this Section 4, any share of the Series A Preferred Stock may, at the option of
the holder, be converted at any time into fully paid and nonassessable shares of
Common Stock. The number of shares of Common Stock to which a holder of Series A
Preferred Stock shall be entitled upon conversion shall be the product obtained
by multiplying the Series A Conversion Rate (determined as provided in Section
4(b) and subject to adjustment as described below) by the number of shares of
Series A Preferred Stock being converted.
(b) Applicable Conversion Rate. The conversion rate for Series A
Preferred Stock in effect at any time (the "Series A Conversion Rate") shall be
the quotient obtained by dividing $1,000.00 by the Series A Conversion Value,
calculated as provided in Section 4(c).
(c) Series A Conversion Value. The Series A Conversion Value shall be
$8.55, except that such amount shall be adjusted from time to time in accordance
with this Section 4 (the "Series A Conversion Value").
(d) Adjustments to the Series A Conversion Value.
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(i) (A) Upon Sale of Common Stock. Except as otherwise provided in
Section 4(d)(i)(E) or 4(d)(i)(F), if the Corporation shall, while there are any
shares of Series A Preferred Stock outstanding, issue or sell (or in accordance
with Section 4(d)(i)(B) below is deemed to have issued or sold) shares of its
Common Stock without consideration or at a price per share less than the Series
A Conversion Value in effect immediately prior to such issuance or sale (or
deemed issuance or sale), then in each such case such Series A Conversion Value,
upon each such issuance or sale, except as hereinafter provided, shall be
lowered so as to be equal to an amount determined by multiplying the Series A
Conversion Value in effect immediately prior to such issuance or sale by the
following fraction:
P + (N*X)
---------
P + F
where
P = the number of shares of Common
Stock outstanding immediately prior
to such issuance or sale, assuming
the exercise or conversion of all
outstanding securities exercisable
for or convertible into Common Stock
at any time on or after the date of
such calculation
N = the number of shares of Common
Stock which the net aggregate
consideration, if any, received by
the Corporation for the total number
of such additional shares of Common
Stock so issued or sold would
purchase at the Series A Conversion
Value in effect immediately prior to
such issuance or sale
X = P
--
P+F
F = the number of additional shares of
Common Stock so issued or sold
(B) Upon Issuance of Warrants, Options and
Rights to Common Stock.
(1) For the purposes of this Section
4(d)(i), the issuance of any warrants, options, subscriptions, or
purchase rights with respect to shares of Common Stock and the issuance
of any securities convertible into or exchangeable for shares of Common
Stock (or the issuance of any warrants, options or any rights with
respect to such convertible or exchangeable securities) shall be deemed
an issuance of such Common Stock at such time if the Net Consideration
Per Share (as hereinafter determined) which may be received by the
Corporation for such Common Stock shall be less than the Series A
Conversion Value in effect immediately prior to the time of such
issuance. Any obligation, agreement, or undertaking (including by
fixing of a record date) to issue warrants, options, subscriptions,
purchase rights or convertible or
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exchangeable securities at any time in the future shall be deemed to be
an issuance at the time such obligation, agreement or undertaking is
made or arises. No adjustment of the Series A Conversion Value shall be
made under this Section 4(d)(i) upon the issuance of any shares of
Common Stock which are issued pursuant to the exercise of any warrants,
options, subscriptions, or purchase rights or pursuant to the exercise
of any conversion or exchange rights in any convertible or exchangeable
securities if any adjustment shall previously have been made upon the
issuance of any such warrants, options, or subscription or purchase
rights or upon the issuance of any convertible or exchangeable
securities (or upon the issuance of any warrants, options or any rights
therefor) as above provided.
Should the Net Consideration Per Share of any such warrants,
options, subscriptions, or purchase rights or convertible or
exchangeable securities be decreased from time to time (other than as a
result of a stock split, stock dividend or other similar event), then,
upon the effectiveness of each such change, the Series A Conversion
Value shall be adjusted to such Series A Conversion Value as would have
been obtained (1) had the adjustments made upon the issuance of such
warrants, options, subscriptions, purchase rights, or convertible or
exchangeable securities been made upon the basis of the decreased Net
Consideration Per Share of such securities, and (2) had the adjustments
made to the Series A Conversion Value since the date of issuance of
such securities been made to the Series A Conversion Value as adjusted
pursuant to (1) above. Any adjustment of the Series A Conversion Value
with respect to this Section 4(d)(i)(B) which relates to warrants,
options, subscriptions, purchase rights or convertible or exchangeable
securities with respect to shares of Common Stock shall be disregarded
if, as, when and to the extent such warrants, options, subscriptions,
purchase rights or convertible or exchangeable securities expire or are
canceled without being exercised or converted, so that the Series A
Conversion Value effective immediately upon such cancellation or
expiration shall be equal to the Series A Conversion Value in effect at
the time of the issuance of the expired or canceled warrants, options,
subscriptions, purchase rights, or convertible or exchangeable
securities with such additional adjustments as would have been made to
the Series A Conversion Value had the expired or canceled warrants,
options, subscriptions, purchase rights or convertible or exchangeable
securities not been issued.
(2) For purposes of this paragraph, the "Net
Consideration Per Share" which may be received by the Corporation shall
be determined as follows.
(a) The "Net Consideration Per
Share" shall mean the amount equal to the total amount of
consideration, if any, received by the Corporation for the issuance of
such warrants, options, subscriptions, or other purchase rights or
convertible or exchangeable securities, plus the minimum amount of
consideration, if any, payable to the Corporation upon exercise,
conversion or exchange thereof, divided by the aggregate number of
shares of Common Stock that would be issued if all such warrants,
options, subscriptions, or other purchase rights or convertible or
exchangeable securities were exercised, exchanged, or converted.
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(b) The "Net Consideration Per
Share" which may be received by the Corporation shall be determined in
each instance as of the date of issuance of warrants, options,
subscriptions, or other purchase rights or convertible or exchangeable
securities without giving effect to any possible future upward price
adjustments or rate adjustments which may be applicable with respect to
such warrants, options, subscriptions, or other purchase rights or
convertible or exchangeable securities.
(C) Stock Dividends. Except as provided in paragraph (D) of
this Section 4(d)(i), in the event the Corporation shall make or issue a
dividend or other distribution payable in Common Stock or securities of the
Corporation convertible into or otherwise exchangeable for the Common Stock of
the Corporation, then such dividend or distribution shall be treated as an
Extraordinary Common Stock Event (as defined below).
(D) Consideration Other than Cash. For purposes of this
Section 4(d), if a part or all of the consideration received by the Corporation
in connection with the issuance of shares of the Common Stock or the issuance of
any of the securities described in this Section 4(d) consists of property other
than cash, such consideration shall be valued at its Fair Market Value.
(E) IPO. Notwithstanding anything herein to the contrary, if
immediately prior to the effectiveness of the Corporation's initial public
offering of equity securities pursuant to an effective registration statement
under the Act, the Corporation has not achieved the financial benchmarks
described in the letter agreement among the Corporation and Welsh, Carson,
Anderson & Stowe VIII, L.P., WCAS Information Partners, L.P. and BTI Investors
LLC (collectively, the "Investor"), the Series A Conversion Value shall be
adjusted to equal the initial public offering price if such price is less than
the Series A Conversion Value immediately prior to the effectiveness of such
initial public offering.
(F) Exceptions. This Section 4(d)(i) shall not apply under
any of the circumstances which would constitute an Extraordinary Common Stock
Event (as hereinafter defined in Section 4(d)(ii)). Further, the Corporation
shall not be required to make any adjustment of the Series A Conversion Value
pursuant to the provisions of this Section 4(d):
(1) in the case of (i) the issuance of shares of
Common Stock upon conversion of the Series A Preferred Stock, (ii) the issuance
or sale of shares of Common Stock upon exercise of stock options or warrants
outstanding on the date of filing of these Articles of Incorporation or granted
under the Corporation's 1997 Stock Option Plan, (iii) the issuance or sale of
shares of Common Stock upon exercise of that certain warrant issued to Welsh,
Carson, Anderson & Stowe VIII, L.P., or its affiliates in connection with the
sale and issuance of shares of Series A Preferred Stock of the Corporation; (iv)
the issuance or sale of shares or options to purchase shares of the
Corporation's capital stock at a price per share less than such Series A
Conversion Value, to employees or directors of, or consultants to, the
Corporation pursuant to stock plans or arrangements under the Corporation's 1997
Stock Option Plan or any other stock option or similar plan approved unanimously
by the Corporation's Board of Directors; (v) shares of blank check preferred
stock issued to the Company's shareholders (including a pro rata issuance to the
holders of Series A Preferred Stock) in connection with a rights plan in
accordance with these Amended and Restated Articles of Incorporation, or (vi)
the issuance of
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securities pursuant to the acquisition of another corporation by the Corporation
by merger, purchase of substantially all the assets or other reorganization
unless, in the case of this clause (vi), the Fair Market Value of the
acquisition consideration is less than $25,000,000; or
(2) if the Corporation receives written
notice from the holders of at least a majority of the then outstanding shares of
Series A Preferred Stock agreeing that no such adjustment shall be made as the
result of such issuance.
(ii) Upon Extraordinary Common Stock Event. Upon the
happening of an Extraordinary Common Stock Event (as hereinafter defined), the
Series A Conversion Value for the Series A Preferred Stock shall, simultaneously
with the happening of such Extraordinary Common Stock Event, be adjusted by
multiplying the then effective Series A Conversion Value by a fraction, the
numerator of which shall be the number of shares of Common Stock (assuming the
conversion or exchange of all securities convertible into or otherwise
exchangeable for the Common Stock) outstanding immediately prior to such
Extraordinary Common Stock Event and the denominator of which shall be the
number of shares of Common Stock (assuming the conversion or exchange of all
securities convertible into or otherwise exchangeable for the Common Stock)
outstanding immediately after such Extraordinary Common Stock Event, and the
products so obtained shall thereafter be the Series A Conversion Value. For the
purposes of this Section 4(d)(ii) and Section 4(d)(i)(F), "Extraordinary Common
Stock Event" shall mean (A) a subdivision of outstanding shares of Common Stock
into a greater number of shares of Common Stock, (B) a combination of
outstanding shares of the Common Stock into a smaller number of shares of Common
Stock or (C) an event described in Section 4(d)(i)(C).
(iii) The Series A Conversion Value shall be readjusted
in the manner described in this Section 4(d) upon the happening of any
successive events described herein that, pursuant to this Section 4(d), would
require an adjustment to the Series A Conversion Value.
(e) Reclassification. If the Common Stock issuable upon the
conversion of the Series A Preferred Stock shall be changed into the same or
different number of shares of any class or classes of stock, by reclassification
(other than a subdivision or combination of shares or stock dividend or
distribution provided for elsewhere in this Section 4 or by a Reorganization (as
defined in Section 4(f) below)), then and in each such event, the holder of each
share of Series A Preferred Stock shall have the right thereafter to convert
such share into the kind and amount of shares of stock and other securities and
property receivable upon such reclassification by holders of the number of
shares of Common Stock into which such shares of Series A Preferred Stock might
have been converted immediately prior to such reclassification .
(f) Capital Reorganization; Merger or Sale of Assets. If at any
time or from time to time there shall be a capital reorganization of the Common
Stock (other than a subdivision, combination, reclassification or exchange of
shares provided for elsewhere in this Section 4) or a merger, consolidation or
similar business combination of the Corporation with or into another entity, or
the sale, assignment, lease or transfer of all or substantially all of the
Corporation's properties and assets to any other person, or the sale of a
majority of the voting securities of the Corporation in one transaction or a
series of related transactions (any of which events is herein referred to as a
"Reorganization"), then, subject to Section 2(b), as a part of such
Reorganization, provision shall be made so that the holders of the Series A
Preferred Stock shall thereafter be
9
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entitled to receive, upon conversion of the Series A Preferred Stock, the number
of shares of stock or other securities or property of the Corporation, or of the
successor corporation resulting from such Reorganization, to which such holder
would have been entitled if such holder had converted all (or, at the election
of such holder of Series A Preferred Stock in connection with a Reorganization
in which the holders of the Common Stock sell or exchange fewer than 100% of
their shares, the same percentage as is being sold by the holders of the Common
Stock) of its shares of Series A Preferred Stock immediately prior to such
Reorganization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 4 with respect to the rights of
the holders of the Series A Preferred Stock after the Reorganization, to the end
that the provisions of this Section 4 (including adjustment of the Series A
Conversion Value then in effect and the number of shares issuable upon
conversion of the Series A Preferred Stock) shall be applicable after that event
in as nearly equivalent a manner as may be practicable.
(g) Certificate as to Adjustments; Notice by Corporation. In each
case of an adjustment or readjustment of the Series A Conversion Rate, the
Corporation at its expense will furnish each holder of Series A Preferred Stock
with a certificate, executed by the president and chief financial officer (or in
the absence of a person designated as the chief financial officer, by the
treasurer) showing such adjustment or readjustment, and stating in detail the
facts upon which such adjustment or readjustment is based.
(h) Exercise of Conversion Privilege. To exercise its conversion
privilege, a holder of Series A Preferred Stock shall surrender the certificate
or certificates representing the shares being converted to the Corporation at
its principal office, and shall give written notice to the Corporation at that
office that such holder elects to convert such shares. Such notice shall also
state the name or names (with address or addresses) in which the certificate or
certificates for shares of Common Stock issuable upon such conversion shall be
issued. The certificate or certificates for shares of Series A Preferred Stock
surrendered for conversion shall be accompanied by proper assignment thereof to
the Corporation or in blank. The date when such written notice is received by
the Corporation, together with the certificate or certificates representing the
shares of Series A Preferred Stock being converted, shall be the "Conversion
Date." As promptly as practicable after the Conversion Date, the Corporation
shall issue and shall deliver to the holder of the shares of Series A Preferred
Stock being converted, or on its written order, such certificate or certificates
as it may request for the number of whole shares of Common Stock issuable upon
the conversion of such shares of Series A Preferred Stock in accordance with the
provisions of this Section 4, and cash, as provided in Section 4(i), in respect
of any fraction of a share of Common Stock issuable upon such conversion, and
Section 1(a). Such conversion shall be deemed to have been effected immediately
prior to the close of business on the Conversion Date, and at such time the
rights of the holder as holder of the converted shares of Series A Preferred
Stock shall cease (other than the right to receive the Common Stock and other
amounts payable pursuant to this Section 4) and the person or persons in whose
name or names any certificate or certificates for shares of Common Stock shall
be issuable upon such conversion shall be deemed to have become the holder or
holders of record of the shares of Common Stock represented thereby. All shares
of Common Stock delivered upon conversion of the Series A Preferred Stock will
upon delivery be duly and validly issued and fully paid and non-assessable, free
of all liens and charges and not subject to any preemptive rights other than as
set forth in the Investor Rights Agreement among the Corporation and the
Investor (the "Investor Rights Agreement").
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From the date of delivery by a holder of shares of Series A Preferred
Stock of such notice of election to convert, in lieu of dividends on such Series
A Preferred Stock pursuant to Section 1(a), such Series A Preferred Stock shall
participate equally and ratably with the holders of shares of Common Stock in
all dividends paid on the Common Stock as if such shares of Series A Preferred
Stock had been converted to shares of Common Stock at the time of such delivery.
(i) Cash in Lieu of Fractional Shares. The Corporation shall, in
lieu of issuing fractional shares of Common Stock or scrip representing
fractional shares upon the conversion of shares of Series A Preferred Stock, pay
to the holder of the shares of Series A Preferred Stock which were converted a
cash adjustment in respect of such fractional shares in an amount equal to the
same fraction of the Fair Market Value per share of the Common Stock at the
close of business on the Conversion Date.
(j) Partial Conversion. In the event some but not all of the
shares of Series A Preferred Stock represented by a certificate or certificates
surrendered by a holder are converted, the Corporation shall execute and deliver
to or on the order of the holder, at the expense of the Corporation, a new
certificate representing the number of shares of Series A Preferred Stock which
were not converted.
(k) Reservation of Common Stock. The Corporation shall at all
times reserve and keep available out of its authorized but unissued shares of
capital stock, solely for the purpose of effecting the conversion of the shares
of the Series A Preferred Stock, such number of its shares of Common Stock (or
any other securities into which the Series A Preferred Stock may become
convertible) as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Series A Preferred Stock, and if at any time
the number of authorized but unissued shares of Common Stock (or such other
securities) shall not be sufficient to effect the conversion of all then
outstanding shares of the Series A Preferred Stock, the Corporation shall take
such corporate action as may be necessary to increase its authorized but
unissued shares of Common Stock (or such other securities) to such number of
shares as shall be sufficient for such purpose.
The Corporation will pay any and all documentary, stamp or similar
issue or transfer taxes payable in respect of the issue or delivery of shares of
Common Stock on conversion of the Series A Preferred Stock pursuant hereto;
provided that the Corporation shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issue or delivery of shares
of Common Stock in a name other than that of the holder the Series A Preferred
Stock to be converted and no such issue or delivery shall be made unless and
until the person requesting such issue or delivery has paid to the Corporation
the amount of any such tax or has established, to the satisfaction of the
Corporation, that such tax has been paid.
(l) Minimum Adjustment. Any provision of this Section 4 to the
contrary notwithstanding, no adjustment in the Series A Conversion Value shall
be made if the amount of such adjustment would be less than 1% of the Series A
Conversion Value then in effect, but any such amount shall be carried forward
and an adjustment with respect thereto shall be made at the time of and together
with any subsequent adjustment which, together with all amounts so carried
forward, aggregates 1% or more of the Series A Conversion Value then in effect.
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(m) Termination of Preferences. Upon the election of the
Corporation, following (i) the effectiveness of the Corporation's registration
statement for the sale of the Corporation's Common Stock in a Qualified Public
Offering (as hereinafter defined) and the date not earlier than three years from
the issuance of the Series A Preferred Stock that the average (weighted by daily
trading volume) Daily Price of the Corporation's Common Stock is at least 200%
of the Series A Conversion Value for the 90 prior consecutive trading days, or
(ii) the election by holders of the majority of the then outstanding Series A
Preferred Stock to convert some or all of the Series A Preferred Stock into
shares of Common Stock, the dividend preferences described in Section 1 hereof,
the liquidation preferences described in Section 2 hereof, the voting rights set
forth in Section 3 and Section 6 hereof and the rights for adjustments to the
Series A Conversion A Value described in Section 4(d) hereof shall terminate and
be of no further force and effect and the holders of the Series A Preferred
Stock shall be entitled to receive only those dividend and liquidation payments
that they would have received had the Series A Preferred Stock been converted
into shares of Common Stock pursuant to Section 4 and there shall be no further
adjustments to the Series A Conversion Value. For purposes hereof, the term
"Qualified Public Offering" shall mean (i) an underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "Act"), covering the offer and sale of Common Stock for
the account of the Corporation in which the aggregate net proceeds to the
Corporation equal at least $100,000,000 or (ii) any Reorganization or similar
transaction, that has been approved by the holders of a majority of the shares
of Series A Preferred Stock, in which the surviving entity has a class of
securities registered under the Act with a market capitalization equal to or
greater than $100,000,000. The Corporation shall provide the holders of Series A
Preferred Stock fourteen (14) days prior written notice of any election to be
made at the end of such fourteen (14) day period pursuant to this Section 4(m).
5. No Reissuance of Series A Preferred Stock. No share or shares
of Series A Preferred Stock acquired by the Corporation by reason of redemption,
purchase, conversion or otherwise shall be reissued, and all such shares shall
be canceled, retired and eliminated from the shares which the Corporation shall
be authorized to issue. The Corporation may from time to time take such
appropriate corporate action as may be necessary to reduce the authorized number
of shares of the Series A Preferred Stock accordingly.
6. Restrictions and Limitations.
(a) Corporate Action. Except as expressly provided herein or as
required by law, so long as the Series A Preferred Stock remains outstanding,
the Corporation shall not, and shall not permit any subsidiary (which shall mean
any corporation, association or other business entity which the Corporation
and/or any of its other subsidiaries directly or indirectly owns at the time
more than fifty percent (50%) of the outstanding voting shares of such entity,
other than directors' qualifying shares or has the power by contract or
otherwise to elect a majority of the board of directors or equivalent governing
body) to, without the approval by vote or written consent by the holders of at
least a majority of the then outstanding shares of Series A Preferred Stock,
consenting or voting separately as a class:
(i) redeem, purchase or otherwise acquire for value (or pay into or
set aside for a sinking fund for such purpose), or declare and pay or set aside
funds for the payment of any dividend with respect to, any share or shares of
capital stock, except as required hereunder with
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respect to the Series A Preferred Stock, except for repurchasing shares of
Common Stock from employees or consultants of the Corporation at the original
purchase price thereof pursuant to vesting agreements unanimously approved by
the Board of Directors and except for any prior S Corporation shareholder tax
liabilities pursuant to arrangements previously disclosed to the holders of the
Series A Preferred Stock where the Corporation reimburses shareholders of
Business Telecom, Inc. for S Corporation taxes;
(ii) authorize or issue, or obligate itself to authorize or
issue, additional shares of Series A Preferred Stock;
(iii) authorize or issue, or obligate itself to authorize or
issue, any equity security on a parity with or having preference or priority
over the Series A Preferred Stock as to liquidation preferences, redemption
rights, dividend rights, voting rights or otherwise;
(iv) authorize or issue, or obligate itself to authorize or
issue, any equity security (or security convertible or exchangeable into an
equity security) that by its terms, obligates the Corporation to redeem shares
of such security while any shares of Series A Preferred Stock are outstanding;
(v) through one transaction or a series of transactions, (a)
sell, assign, lease or transfer all the shares of the Corporation's capital
stock or of all or substantially all of its assets to, or merge, consolidate or
enter into a similar business combination with or into, or sell securities
constituting a majority of the voting securities of the Corporation to, an
entity, a majority of the voting power of which is not owned or controlled,
directly or indirectly, by one or more shareholders of the Corporation
immediately prior to the transaction or (b) liquidate or distribute all or
substantially all of the assets of the Corporation, (any of the foregoing, a
"Change in Control Transaction"), unless the proceeds received by the holders of
the Series A Preferred Stock have a Fair Market Value equal to or greater than
$2,000 per share, subject to adjustment for stock splits, stock dividends,
reorganizations and the like, the Internal Rate of Return to the holders of
Series A Preferred Stock (the "Holders") equals or exceeds thirty percent (30%),
and the holders of the Series A Preferred Stock receive the same form of
consideration as the holders of the Corporation's Common Stock, except for (1)
any wholly-owned subsidiary may merge into or consolidate with or transfer
assets to any other wholly-owned subsidiary, and (2) any wholly-owned subsidiary
may merge into or transfer assets to the Corporation. For purposes hereof,
"Internal Rate of Return" means the effective annual rate of interest which,
when applied to all cash flows (as determined below) made to, or received from,
the Corporation with respect to the aggregate dollar amount of all equity
capital invested by the Holders in the Series A Preferred Stock on or prior to
such date (the "Series A Investment"), makes the net present value of all such
cash flows equal to zero. The Series A Investment shall be deemed to be a cash
outflow. Payments made by a new Holder for a purchase of securities from an
existing Holder shall not be deemed to be a cash outflow. Cash dividends or
other cash amounts, if any, paid by the Corporation to the Holders in respect of
the Series A Investment will be deemed to be interim cash inflows with respect
to the Series A Investment. Distributions or proceeds received by the Holders in
respect of the Series A Investment consisting of property other than cash shall
be valued at the Fair Market Value thereof as determined as of the date such
distributions or proceeds were received. The final cash flow with respect to the
Series A Investment will be based on the total net proceeds that will be
actually received by the Holders on the date of the
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completion of a Change in Control Transaction. Notwithstanding the foregoing,
the Internal Rate of Return will be calculated on a fully diluted basis. The
Internal Rate of Return will be calculated with the timing of cash flows assumed
to be on a quarterly basis (March 31, June 30, September 30 and December 31) and
with all specific cash flows during a quarter deemed to have occurred on the
last day of such quarter; or
(vi) amend, restate, modify or alter the Bylaws of the
Corporation in any way which adversely affects the rights of the holders of the
Series A Preferred Stock.
(b) Amendments to Charter. (x) The Corporation shall not amend its
Articles of Incorporation without the approval, by vote or written consent, by
the holders of at least a majority of the then outstanding shares of Series A
Preferred Stock affected by such action, consenting or voting separately as a
class, if such amendment would:
(i) materially and adversely amend, alter or change the
rights, preferences, privileges of or limitations provided for herein with
respect to the Series A Preferred Stock or the holders thereof;
(ii) change the relative seniority rights of the holders of
the Series A Preferred Stock as to the payment of dividends in relation to the
holders of any other capital stock of the Corporation, or create any other class
or series of capital stock entitled to seniority as to the payment of dividends
in relation to the holders of such Series A Preferred Stock; or
(iii) reduce the amount payable to the holders of such Series A
Preferred Stock upon the voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, or change the relative seniority of the
liquidation preferences of the holders of such Series A Preferred Stock to the
rights upon liquidation of the holders of other capital stock of the
Corporation, or change the dividend rights of the holders of such Series A
Preferred Stock.
(y) The Corporation shall not amend Articles VI or VII of its Articles
of Incorporation without the prior written consent of the Investor, for so long
as the Investor has any rights under the applicable sections of the Investor
Rights Agreement or the Shareholders Agreement (as defined below), as the case
may be.
7. No Dilution or 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, avoid or seek to avoid the observance
or performance of any of the terms of the Series A Preferred Stock set forth
herein. Without limiting the generality of the foregoing, the Corporation (a)
will not increase the par value of any shares of stock receivable on the
conversion of the Series A Preferred Stock above the amount payable therefor on
such conversion, and (b) will take all such action as may be necessary or
appropriate in order that the Corporation may validly and legally issue fully
paid and nonassessable shares of stock on the conversion of all Series A
Preferred Stock from time to time outstanding.
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8. Notices of Record Date. In the event of:
(a) any taking by the Corporation of a record of the holders of
any class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, or
(b) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger of the Corporation, or any transfer of all or substantially all of
the assets of the Corporation to any other corporation, or any other entity or
person,
(c) any voluntary or involuntary dissolution, liquidation or winding up
of the Corporation, or
(d) any event described in Section 4(e), 4(f) or 6(a)(v) or clauses (i)
or (ii) of the first sentence of Section 4(m), then and in each such event the
Corporation shall mail or cause to be mailed to each holder of Series A
Preferred Stock a notice specifying (i) the date on which any such record is to
be taken for the purpose of such dividend, distribution or right and a
description of such dividend, distribution or right, (ii) the date on which any
such reorganization, reclassification, recapitalization, transfer, merger,
dissolution, liquidation, winding up, Qualified Public Offering or election is
expected to become effective and (iii) the time, if any, that is to be fixed, as
to when the holders of record of Common Stock (or other securities) shall be
entitled to exchange their shares of Common Stock (or other securities) for
securities or other property deliverable upon such reorganization,
reclassification, recapitalization, transfer, merger, dissolution, liquidation
or winding up. Such notice shall be mailed at least fifteen (15) business days
prior to the date specified in such notice on which such action is to be taken.
ARTICLE V.
For the management of the business and for the conduct of the affairs
of the Corporation, and in further definition, limitation and regulation of the
powers of the Corporation, of its directors and of its shareholders or any class
thereof, as the case may be, it is further provided that:
1. The management of the business and the conduct of the affairs
of the Corporation shall be vested in its Board of Directors.
2. The number of Directors of the Corporation may be fixed by the
Bylaws.
3. Except as otherwise provided in these Amended and Restated Articles
of Incorporation, the Board of Directors may from time to time make, amend,
supplement or repeal the Bylaws of the Corporation.
4. Elections of Directors may be, but shall not be required to be, by
written ballot.
5. Except to the extent that the North Carolina General Statutes
prohibit such limitation or elimination of liability of directors for breaches
of duty, no Director of the
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Corporation shall be liable to the Corporation or to any of its shareholders for
monetary damages for breach of duty as a Director. No amendment to or repeal of
this provision or adoption of a provision inconsistent herewith shall apply to
or have any effect on the liability or alleged liability of any Director of the
Corporation for or with respect to any acts or omissions of such Director
occurring prior to such amendment or repeal or adoption of an inconsistent
provision. The provisions of this Article shall not be deemed to limit or
preclude indemnification of a Director by the Corporation for any liability that
has not been eliminated by the provisions of this Article.
ARTICLE VI.
Certain shareholders of the Corporation shall have preemptive rights to
purchase additional securities of the Corporation pursuant to, and to the extent
set forth in, Article II of the Investor Rights Agreement. Such preemptive
rights, including rights regarding amendment, waiver or termination of such
rights, shall be governed by the Investor Rights Agreement.
ARTICLE VII.
The Corporation shall not, and shall not permit any of its subsidiaries
to, take any of the actions set forth in Section 7 of the Shareholders Agreement
by and among the Corporation, Peter T. Loftin and the Investor (the
"Shareholders Agreement"), without the prior written consent of the parties
specified in such Section 7. Election of members of the board of directors of
the Corporation and its subsidiaries shall be subject to the right of the
Investor pursuant to Sections 5 and 6 of the Shareholders Agreement to designate
the number of directors to each such board of directors as is specified in
Sections 5 and 6. The amendment, waiver or termination of the rights set forth
in the Shareholders Agreement shall be governed by the terms of the Shareholders
Agreement.
16
EXHIBIT 3.2
SECOND AMENDED AND RESTATED BYLAWS
OF
BTI TELECOM CORP.
ARTICLE I
OFFICES
Section 1. Principal Office. The principal office of the corporation
shall be located at such place as the Board of Directors may
fix from time to time.
Section 2. Registered Office. The registered office of the corporation
required by law to be maintained in the State of North
Carolina may be, but need not be, identical with the
principal office.
Section 3. Other Offices. The corporation may have offices at
such other places, either within or without the State
of North Carolina, as the Board of Directors may
designate or as the affairs of the corporation may
require from time to time.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. Place of Meetings. All meetings of shareholders
shall be held at the principal office of the
corporation, or at such other place, whether within
or without the State of North Carolina, as shall be
designated in the notice of the meeting or agreed
upon by the Board of Directors.
Section 2. Annual Meeting. The annual meeting of shareholders
shall be held during the fourth full month following
the end of the corporation's fiscal year at a time
and on any day (except Saturday, Sunday or a legal
holiday) in that month as determined by the Board of
Directors for the purpose of electing directors of
the corporation and for the transaction of such other
business as may be properly brought before the
meeting.
Section 3. Substitute Annual Meetings. If the annual meeting
shall not be held on the day designated by these
Bylaws, a substitute annual meeting may be called in
accordance with the provisions of Section 4 of this
Article II. A
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meeting so called shall be designated and treated for all
purposes as the annual meeting.
Section 4. Special Meetings. Special meetings of the shareholders, for
any purpose or purposes, unless otherwise prescribed by
statute, may be called by the President, the Chief Executive
Officer, the Chairman of the Board or a majority of the
members of the Board of Directors then in office and shall
be called by the Secretary at the written request of holders
of a majority of the outstanding shares of Series A
Preferred Stock.
Any person or persons entitled to call a special meeting of
shareholders shall do so by delivering written notice to the
Secretary of the corporation stating that a special meeting
has been called and certifying to facts establishing that
the person or persons delivering the notice are entitled to
call a special meeting.
Section 5. Notice of Meetings. Written or printed notice stating the
time and place of the meeting shall be delivered not less
than ten (10) nor more than sixty (60) days before the date
of any shareholders' meeting, either personally or by
telegraph, teletype or other form of wire or wireless
communication, or by facsimile, by or at the direction of
the Chairman of the Board, the President, the Secretary or
other person calling the meeting, to each shareholder of
record entitled to vote at such meeting; provided that such
notice must be given to all shareholders with respect to any
meeting at which a merger, share exchange, sale of assets
other than in the regular course of business or voluntary
dissolution is to be considered and in such other instances
as required by law. If mailed, such notice shall be deemed
to be delivered when deposited in the United States mail,
addressed to the shareholder at his address as it appears on
the record of shareholders of the corporation, with postage
thereon prepaid.
In the case of a special meeting, the notice of meeting
shall specifically state the purpose or purposes for which
the meeting is called; but, in the case of an annual or
substitute annual meeting, the notice of meeting need not
specifically state the business to be transacted thereat
unless such a statement is required by the provisions of the
North Carolina Business Corporation Act.
When a meeting is adjourned to a different date, time or
place, notice need not be given of the new date, time or
place if the new date, time or place is announced at the
meeting before adjournment. If, however, a new record date
for the adjourned meeting is fixed, notice of the adjourned
meeting will be given to all persons who are shareholders as
of the new record date in accordance with this Section 5.
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Section 6. Waiver of Notice. Any shareholder may waive notice of any
meeting. The waiver must be in writing, signed by the
shareholder and delivered to the corporation for inclusion
in the minutes or filing with the corporate records. A
shareholder's attendance at a meeting (a) waives objection
to lack of notice or defective notice of the meeting, unless
the shareholder at the beginning of the meeting objects to
holding the meeting or transacting business at the meeting;
and (b) waives objection to consideration of a particular
matter at the meeting that is not within the purpose or
purposes described in the meeting notice, unless the
shareholder objects to considering the matter before it is
voted upon.
Section 7. Shareholder Lists. Before each meeting of shareholders, the
Secretary of the corporation shall prepare an alphabetical
list of the shareholders entitled to notice of such meeting.
The list shall be arranged by voting group (and within each
voting group by class or series of shares) and show the
address and number of shares held by each shareholder. The
list shall be kept on file at the principal office of the
corporation, or at a place identified in the meeting notice
in the city where the meeting will be held, for the period
beginning two business days after notice of the meeting is
given and continuing through the meeting, and shall be
subject to inspection by any shareholder at any time during
regular business hours. This list shall also be produced and
kept open at the time and place of the meeting and shall be
subject to inspection by any shareholder during the meeting
or any adjournment thereof.
Section 8. Quorum. A majority of the outstanding shares of the
corporation entitled to vote, and until the consummation of
the Corporation's initial public offering of capital stock
pursuant to a registration statement under the Securities
Act of 1933, as amended (an "IPO"), the holders of a
majority of the outstanding shares of Series A Stock
represented in person or by proxy, shall be required for,
and shall constitute a quorum at all meetings of
shareholders; provided, that, if the Corporation provides
reasonable notice and makes reasonable accommodations for
the holders of Series A Preferred Stock to attend a meeting
where a majority of holders of Series A Preferred Stock is
required for a quorum, and such holders of majority of
shares of Series A Preferred Stock are not present, the
holders of a majority of the shares of Series A Preferred
Stock shall not be required for quorum. Shares entitled to
vote as a separate voting group may take action on a matter
only if a quorum of those shares exists; a majority of the
votes entitled to be cast on the matter by the voting group
constitutes a quorum of that voting group. The shareholders
present at a duly organized meeting may continue to do
business until adjournment, notwithstanding the withdrawal
of enough shareholders to leave less than a quorum.
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In the absence of a quorum at the opening of any meeting of
shareholders, such meeting may be adjourned from time to
time by a vote of a majority of the shares voting on the
motion to adjourn; and at any adjourned meeting at which a
quorum is present, any business may be transacted that might
have been transacted at the original meeting.
Section 9. Organization. Each meeting of shareholders shall be presided
over by the Chairman of the Board, and in his absence or at
his request by the President, and in their absence or at
their request by any person selected to preside by vote of
the holders of a majority of the shares present and entitled
to vote at the meeting. The Secretary, or in his absence or
at his request, any person designated by the person
presiding at the meeting, shall act as secretary of the
meeting.
Section 10. Proxies. Shares may be voted either in person or by one or
more agents authorized by a written proxy executed by the
shareholder or by his duly authorized attorney-in-fact. A
proxy is not valid after the expiration of eleven months
from the date of its execution, unless the person executing
it specifies therein the length of time for which it is to
continue in force, or limits its use to a particular
meeting. Any proxy shall be revocable by the shareholder
unless the written appointment expressly and conspicuously
provides that it is irrevocable and the appointment is
coupled with an interest as required by law.
Section 11. Voting of Shares. Subject to the provisions of Section 4 of
Article III and the corporation's Articles of Incorporation,
each outstanding share entitled to vote shall be entitled to
one vote on each matter submitted to a vote at a meeting of
shareholders. All shares entitled to vote shall be counted
together collectively on a matter as provided by the
Articles of Incorporation or by the North Carolina Business
Corporation Act and shall constitute a single voting group.
Additional required voting groups shall be determined in
accordance with the Articles of Incorporation and these
Bylaws of this corporation and the North Carolina Business
Corporation Act.
Except in the election of directors as governed by the
provisions of Section 3 of Article III, the vote of a
majority of the shares voted on any matter at a meeting of
shareholders at which a quorum is present shall be the act
of the shareholders on that matter, unless the vote of a
greater number is required by law or by the Articles of
Incorporation or Bylaws of this corporation. Further, except
in the election of directors, action on a matter by a voting
group shall be approved if the votes cast within the voting
group favoring the action exceed the votes cast opposing the
action, unless the vote by a greater number is required by
law or by the Articles of Incorporation or Bylaws of this
corporation. Corporate action on such
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matters shall be taken only when approved by each and every
voting group entitled to vote as a separate voting group on
such matters as provided by the Articles of Incorporation or
Bylaws of this corporation or by the North Carolina Business
Corporation Act. The foregoing provisions of this Section 11
are subject to the rights of the holders of the Series A
Preferred Stock pursuant to the provisions of the Articles
of Incorporation of the corporation and the Shareholders
Agreement (as amended from time to time, the "Shareholders
Agreement") dated as of _________ ___, 1999 among the
Corporation and certain holders of Common Stock and Series A
Preferred Stock.
Voting on all matters except the election of directors shall
be by voice vote or by a show of hands unless the holders of
one-tenth (1/10th) of the shares represented at the meeting
shall, prior to the voting on any matter, demand a ballot
vote on that particular matter. Abstentions shall not be
treated as negative votes.
Shares of the corporation's stock are not entitled to vote
if they are owned, directly or indirectly, by a second
corporation and the corporation owns, directly or
indirectly, a majority of the shares entitled to vote for
directors of the second corporation, except that shares held
in a fiduciary capacity, including the corporation's own
shares, may be voted.
Section 12. Informal Action by Shareholders. Any action that is
required or permitted to be taken at a meeting of the
shareholders may be taken without a meeting if one or more
written consents, describing the action so taken, shall be
signed by all of the persons who would be entitled to vote
upon such action at a meeting, and delivered to the
corporation for inclusion in the minutes or filing with the
corporate records. Such consent shall have the same force
and effect as a unanimous vote of shareholders. Any
shareholder may retract his consent until the last
shareholder entitled to vote has signed the appropriate
written consent and all consents have been delivered to the
Secretary of the corporation. When notice of a proposed
action is required to be given to nonvoting shareholders as
provided in Section 5 of Article II of these Bylaws, the
corporation shall give the nonvoting shareholders notice at
least ten (10) days before action is taken in lieu of a
meeting by unanimous consent of the voting shareholders.
Such notice to nonvoting shareholders shall contain or be
accompanied by any material that would have been required to
be sent to the nonvoting shareholders in a notice of meeting
at which the proposed action would have been submitted to
the shareholders for action.
Section 13. Inspectors of Election.
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(a) Appointment of Inspectors of Election. In advance of any
meeting of shareholders, the Board of Directors may appoint
any persons, other than nominees for office, as inspectors
of election to act at such meeting or any adjournment
thereof. If inspectors of election are not so appointed, the
chairman of any such meeting may appoint inspectors of
election at the meeting. The number of inspectors shall be
either one or three. In case any person appointed as
inspector fails to appear or fails or refuses to act, the
vacancy may be filled by appointment by the Board of
Directors in advance of the meeting or at the meeting by the
person acting as chairman.
(b) Duties of Inspectors. The inspectors of election shall
determine the number of shares outstanding and the voting
power of each, the shares represented at the meeting, the
existence of a quorum, the authenticity, validity and effect
of proxies, receive votes, ballots or consents, hear and
determine all challenges and questions in any way arising in
connection with the right to vote, count and tabulate all
votes or consents, determine the result and do such acts as
may be proper to conduct the election or vote with fairness
to all shareholders. The inspectors of election shall
perform their duties impartially, in good faith, to the best
of their ability and as expeditiously as is practical.
(c) Vote of Inspectors. If there are three inspectors of
election, the decision, act or certificate of a majority
shall be effective in all respects as the decision, act or
certificate of all.
(d) Report of Inspectors. On a request of the chairman of
the meeting, the inspectors shall make a report in writing
of any challenge or question or matter determined by them
and shall execute a certificate of any fact found by them.
Any report or certificate made by them shall be a prima
facie evidence of the facts stated therein.
Section 14. Shareholder Proposals. Any shareholder wishing to bring
any other business before a meeting of the shareholders must
provide notice to the corporation not more than ninety (90)
and not less than fifty (50) days before the meeting in
writing by registered mail, return receipt requested, of the
business to be presented by such shareholder at the
shareholders meeting. Any such notice shall set forth the
following as to each matter the shareholder proposes to
bring before the meeting: (A) a brief description of the
business desired to be brought before the meeting and the
reasons for conducting such business at the meeting and, if
such business includes a proposal to amend the Bylaws of the
corporation, the language of the proposed amendment; (B) the
name and address, as they appear on the corporation's books,
of the shareholder proposing such business; (C) the class
and number of shares of the corporation which are
beneficially owned by such shareholder; (D) a representation
that the
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shareholder is a holder of record of stock of the
corporation entitled to vote at such meeting and intends to
appear in person or by proxy at the meeting to propose such
business; and (E) any material interest of the shareholder
in such business. Notwithstanding the foregoing provisions
of this Section, a shareholder shall also comply with all
applicable requirements of the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated
thereunder with respect to the matters set forth in this
Section. In the absence of such notice to the corporation
meeting the above requirements, a shareholder shall not be
entitled to present any business at any meeting of
shareholders, provided, that, until the corporation's IPO,
the Investor (as defined in the Shareholders Agreement)
shall be entitled to present any business at any meeting of
shareholders without complying with the notice requirements
of this Section 14.
ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers. Subject to and in compliance with the
provisions of Section 7 of the Shareholders Agreement and
Section 6 of the corporation's Articles of Incorporation,
all corporate powers shall be exercised by or under the
authority of, and the business and affairs of the
corporation managed under the direction of, its Board of
Directors or by such executive or other committees as the
Board may establish pursuant to these Bylaws.
Section 2. Number and Qualifications. The number of directors
constituting the initial Board of Directors shall be not
less than five (5) nor more than ten (10) as may be fixed or
changed from time to time, within the minimum and maximum,
by the shareholders or by the Board of Directors. Directors
need not be residents of the State of North Carolina or
shareholders of the corporation.
Section 3. Nomination and Election of Directors. The Board of Directors
shall be constituted as set forth in Section 5 of the
Shareholders Agreement. Subject to the provisions of the
Shareholders Agreement, nominations for the election of
directors may only be made by the Board of Directors, by the
Nominating Committee of the Board of Directors (or, if none,
any other committee serving a similar function) or by any
shareholder entitled to vote generally in elections of
directors where the shareholder complies with the
requirements of this Section. Unless otherwise provided in
the Shareholders Agreement, any shareholder of record
entitled to vote generally in elections of directors may
nominate one or more persons for election as directors at a
meeting of shareholders only if written notice of
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such shareholder's intent to make such nomination or
nominations has been given, either by personal delivery or
by United States certified mail, postage prepaid, to the
Secretary of the corporation (i) with respect to an election
to be held at an annual meeting of shareholders, not more
than ninety (90) days nor less than fifty (50) days in
advance of such meeting and (ii) with respect to an election
to be held at a special meeting of shareholders called for
the purpose of the election of directors, not later than the
close of business on the tenth business day following the
date on which notice of such meeting is first given to
shareholders, provided that the foregoing notice provisions
shall not apply to the nomination of any directors
designated pursuant to the terms of the Shareholders
Agreement. Each such notice of a shareholder's intent to
nominate a director or directors at an annual or special
meeting shall set forth the following: (A) the name and
address, as they appear on the corporation's books, of the
shareholder who intends to make the nomination and the name
and residence address of the person or persons to be
nominated; (B) the class and number of shares of the
corporation which are beneficially owned by the shareholder;
(C) a representation that the shareholder is a holder of
record of stock of the corporation entitled to vote at such
meeting and intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the
notice; (D) a description of all arrangements or
understandings between the shareholder and each nominee and
any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be
made by the shareholder; (E) such other information
regarding each nominee proposed by such shareholder as would
be required to be disclosed in solicitations of proxies for
election of directors, or as would otherwise be required, in
each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended, including any information
that would be required to be included in a proxy statement
filed pursuant to Regulation 14A had the nominee been
nominated by the Board of Directors; and (F) the written
consent of each nominee to be named in a proxy statement and
to serve as director of the corporation if so elected.
Subject to the provisions of the Shareholders Agreement, no
person shall be eligible to serve as a director of the
corporation unless nominated in accordance with the
procedures set forth in this Section. If the chairman of the
shareholders meeting shall determine that a nomination was
not made in accordance with the procedures described by
these bylaws, he shall so declare to the meeting, and the
defective nomination shall be disregarded. Notwithstanding
the foregoing provisions of this Section, a shareholder
shall also comply with all applicable requirements of the
Securities Exchange Act of 1934, as amended, and the rules
and regulations promulgated thereunder with respect to the
matters set forth in this Section.
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Except as provided in Section 6 of this Article III, the
directors shall be elected at the annual meeting of
shareholders; and those persons who receive the highest
number of votes at a meeting at which a quorum is present
shall be deemed to have been elected. Every shareholder
entitled to vote at an election of directors shall have the
right to vote the number of shares standing of record in his
name for as many persons as there are directors to be
elected and for whose election he has a right to vote.
Section 4. Term of Directors. Each initial director shall hold office
until the first shareholders' meeting at which directors are
elected, or until such director's death, resignation or
removal. The terms of every other director shall expire at
the next annual shareholders' meeting following a director's
election or upon such director's death, resignation or
removal. The term of a director elected to fill a vacancy
expires at the next shareholders' meeting at which directors
are elected. Despite the expiration of a director's term,
such director shall continue to serve until a qualified
successor shall be elected. A decrease in the number of
directors does not shorten an incumbent director's term.
Section 5. Removal. Subject to the provisions of the Shareholders
Agreement, any director may be removed at any time with or
without cause by a vote of the shareholders if the number or
votes cast to remove such director exceeds the number of
votes cast not to remove him. If a director is elected by a
voting group of shareholders, only the shareholders of that
voting group may participate in the vote to remove him. If
any directors are so removed, new directors may be elected
at the same meeting. A director may not be removed by the
shareholders at a meeting unless the notice of the meeting
states that the purpose, or one of the purposes, of the
meeting, is removal of the director.
Section 6. Vacancies. Unless otherwise provided in the Shareholders
Agreement, any vacancy occurring in the Board of Directors,
including, without limitation, a vacancy resulting from an
increase in the number of directors or from the failure by
the shareholders to elect the full authorized number of
directors, may be filled by the shareholders or the Board of
Directors, whichever group shall act first. Unless otherwise
provided in the Shareholders Agreement, if the directors
remaining in office do not constitute a quorum of the Board,
the directors may fill the vacancy by the affirmative vote
of a majority of the remaining directors.
Section 7. Chairman of the Board. There may be a Chairman of the Board
of Directors elected by the directors from their number at
any meeting of the Board. The Chairman shall preside at all
meetings of the Board of Directors and perform such other
duties as may be directed by the Board. He shall be an ex
officio member of all committees. He shall make a
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report in writing at the annual meeting of the Board of
Directors stating the condition of the corporation and shall
make such suggestions and recommendations as he shall deem
proper for the best interests of the corporation. He shall
appoint delegates and representatives to the organizations
with which the corporation is affiliated. He shall have the
power to call the regular and any special meetings of the
Board of Directors. Until a Chairman is elected, the
President of the corporation shall preside at the meetings
of the Board of Directors and shareholders.
Section 8. Compensation. The Board of Directors, in its discretion, may
compensate directors for their services as such and may
provide for the payment of all expenses incurred by
directors in attending regular and special meetings of the
Board or of the Executive Committee. Nothing herein
contained, however, shall be construed to preclude any
director from serving the corporation in any other capacity
and receiving compensation therefor.
Section 9. Executive Committees. Subject to and in compliance with
Section 6 of the Shareholders Agreement, the Board of
Directors, by resolution adopted by a majority of the number
of directors in office when the action is taken or, if
greater, the number of directors required to take action
pursuant to Section 6 of Article IV, may designate two or
more directors to constitute an Executive Committee and
other committees, each of which, to the extent authorized by
law and provided in such resolution, shall have and may
exercise all of the authority of the Board of Directors in
the management of the corporation. Unless otherwise provided
in Section 6 of the Shareholders Agreement, each committee
member serves at the pleasure of the Board of Directors. The
provisions in these Bylaws that govern meetings, action
without meetings, notice and waiver of notice, and quorum
and voting requirements of the Board of Directors apply to
committees established by the Board.
ARTICLE IV
MEETINGS OF DIRECTORS
Section 1. Regular Meetings. A regular meeting of the Board of
Directors shall be held immediately after, and at the same
place as, the annual meeting of shareholders. In addition,
the Board of Directors may provide, by resolution, the time
and place, either within or without the State of North
Carolina, for the holding of additional regular meetings.
Section 2. Special Meetings. Special meetings of the Board of
Directors may be called by or at the request of the Chairman
of the Board of Directors, if any, by the President or any
two directors. Such meetings may be held
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either within or without the State of North Carolina, as
fixed by the person or persons calling the meeting.
Section 3. Notice of Meetings. Regular meetings of the Board of
Directors may be held without notice.
The person or persons calling a special meeting of the Board
of Directors shall, at least two days before the meeting,
give notice thereof by any usual means of communication.
Such notice need not specify the purpose for which the
meeting is called.
Section 4. Waiver of Notice. Any director may waive notice of any
meeting. The waiver must be in writing, signed by the
director entitled to the notice and delivered to the
corporation for inclusion in the minutes or filing with the
corporate records. A director's attendance at or
participation in a meeting shall constitute a waiver of
notice of such meeting, unless the director at the beginning
of the meeting (or promptly on arrival) objects to holding
the meeting or transacting business at the meeting and does
not thereafter vote for or assent to action taken at the
meeting.
Section 5. Quorum. A majority of the directors fixed by these Bylaws
shall be required for, and shall constitute, a quorum for
the transaction of business at any meeting of the Board of
Directors unless the Articles of Incorporation or these
Bylaws provide otherwise; provided, that, so long as the
Investor (as defined in the Shareholders Agreement) has the
right to designate a director to the Board of Directors
pursuant to the Shareholders Agreement, a quorum must
include at least one director designated by the Investor
unless the Corporation has given reasonable prior notice and
has made reasonable accommodations for such Investor
designee or designees to attend such meeting.
Section 6. Manner of Acting. Except as otherwise provided in the
Articles of Incorporation or these Bylaws, the act of the
majority of the directors present at a meeting at which a
quorum is present shall be the act of the Board of
Directors.
Section 7. Presumption of Assent. A director of the corporation who is
present at a meeting of the Board of Directors or a
committee of the Board of Directors when corporate action is
taken is deemed to have assented to the action taken unless
(a) he objects at the beginning of the meeting (or promptly
upon his arrival) to holding it or transacting business at
the meeting, or (b) his dissent or abstention from the
action taken is entered in the minutes of the meeting, or
(c) he files written notice of his dissent or abstention
with the presiding officer of the meeting before its
adjournment
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or with the corporation immediately after the adjournment.
Such right to dissent shall not apply to a director who
voted in favor of such action.
Section 8. Action Without Meeting. Action required or permitted to be
taken at a meeting of the Board of Directors may be taken
without a meeting if the action is taken by all members of
the Board. The action must be evidenced by one or more
written consents signed by each director before or after
such action, describing the action taken, and included in
the minutes or filed with the corporate records. Such action
will become effective when the last director signs the
consent, unless the consent specifies a different date.
Section 9. Conference Telephone Meetings. Any one or more directors or
members of a committee may participate in a meeting of the
Board of Directors or committee by means of a conference
telephone or similar communications device that allows all
persons participating in the meeting to hear each other, and
such participation in a meeting shall be deemed presence in
person at such meeting.
ARTICLE V
OFFICERS
Section 1. Officers of the Corporation. The officers of the
corporation shall consist of a Chairman of the Board,
President, a Secretary, a Treasurer and such
Vice-Presidents, Assistant Secretaries, Assistant
Treasurers, and other officers (including Controllers and
Assistant Controllers) as the Board of Directors may from
time to time elect, subject to and in compliance with
Section 7 of the Shareholders Agreement. Any two or more
offices may be held by the same person, but no officer may
act in more than one capacity where action of two or more
officers is required.
Section 2. Appointment and Term. The officers of the corporation shall
be appointed by the Board of Directors and each officer
shall hold office until his death, resignation, retirement,
removal, disqualification, or his successor shall have been
appointed and qualified.
Section 3. Removal. Any officer or agent elected or appointed by the
Board of Directors may be removed by the Board at any time
with or without cause; but such removal shall be without
prejudice to the contract rights, if any, of the person so
removed.
Section 4. Resignation. An officer may resign at any time by
communicating his resignation to the corporation, orally or
in writing. A resignation is effective when communicated
unless it specifies in writing a later effective
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date. If a resignation is made effective at a later date
that is accepted by the corporation, the Board of Directors
may fill the pending vacancy before the effective date if
the Board provides that the successor does not take office
until the effective date. An officer's resignation does not
affect the corporation's contract rights, if any, with the
officer.
Section 5. Compensation of Officers. The compensation of all officers
of the corporation shall be fixed by the Board of Directors
and no officer shall serve the corporation in any other
capacity and receive compensation therefor unless such
additional compensation be authorized by the Board of
Directors.
Section 6. Chairman of the Board. Unless otherwise specified by
resolution of the Board, the Chairman of the Board shall be
the Chief Executive Officer of the corporation (and may be
identified as such in his title) and, subject to the
direction and control of the Board of Directors, shall
supervise and control the management of the corporation. The
Chairman of the Board shall, when present, preside at all
meetings of the directors and shareholders and, in general,
shall perform all duties incident to the office of Chairman
of the Board and such other duties as may be prescribed from
time to time by the Board of Directors.
Section 7. President. Unless otherwise specified by resolution of the
Board, the President shall be the Chief Operating Officer of
the corporation and, subject to the control of the Board of
Directors, shall in general supervise and control all of the
business and affairs of the corporation. He shall, in the
absence of the Chairman of the Board, preside at all
meetings of the shareholders. He shall sign, with the
Secretary, an Assistant Secretary, or any other proper
officer of the corporation thereunto authorized by the Board
of Directors, certificates for shares of the corporation,
any deeds, mortgages, bonds, contracts, or other instruments
that the Board of Directors has authorized to be executed,
except in cases where the signing and execution thereof
shall be expressly delegated by the Board of Directors or by
these Bylaws to some other officer or agent of the
corporation, or shall be required by law to be, otherwise
signed or executed; and, in general, he shall perform all
duties incident to the office of President and such other
duties as may be prescribed by the Board of Directors from
time to time.
Section 8. Vice-Presidents. In the absence of the President or in the
event of his death, inability or refusal to act, the
Vice-Presidents in the order of their length of service as
such, unless otherwise determined by the Board of Directors,
shall perform the duties of the President, and when so
acting shall have all the powers of and be subject to all
the restrictions upon the President. Any Vice-President may
sign, with the Secretary or an
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Assistant Secretary, certificates of shares of the
corporation; and shall perform such other duties as from
time to time may be assigned to him by the President or
Board of Directors. The Board of Directors may designate one
or more Vice-Presidents to be responsible for certain
functions, including, without limitation, Marketing,
Finance, Manufacturing and Personnel.
Section 9. Secretary. The Secretary shall: (a) keep the minutes of the
meetings of shareholders, of the Board of Directors and of
all Executive Committees in one or more books provided for
that purpose; (b) see that all notices are duly given in
accordance with the provisions of these Bylaws or as
required by law; (c) be custodian of the corporate records
and of the seal of the corporation and see that the seal of
the corporation is affixed to all documents the execution of
which on behalf of the corporation under its seal is duly
authorized; (d) keep a register of the post office address
of each shareholder which shall be furnished to the
Secretary by such shareholder; (e) sign with the President,
or a Vice-President, certificates for shares of the
corporation, the issuance of which shall have been
authorized by resolution of the Board of Directors; (f)
maintain and have general charge of the stock transfer books
of the corporation; (g) prepare or cause to be prepared
shareholder lists prior to each meeting of shareholders as
required by law; (h) attest the signature or certify the
incumbency or signature of any officer of the corporation;
and (i) in general perform all duties incident to the office
of Secretary and such other duties as from time to time may
be assigned to him by the President or by the Board of
Directors.
Section 10. Assistant Secretaries. In the absence of the Secretary or in
the event of his death, inability or refusal to act, the
Assistant Secretaries in the order of their lengths of
service as Assistant Secretaries, unless otherwise
determined by the Board of Directors, shall perform the
duties of the Secretary, and when so acting shall have all
the powers of and be subject to all the restrictions upon
the Secretary. They shall perform such other duties as may
be assigned to them by the Secretary, by the President, or
by the Board of Directors. Any Assistant Secretary may sign,
with the President or a Vice-President, certificates for
shares of the corporation.
Section 11. Treasurer. The Treasurer shall: (a) have charge and custody
of and be responsible for all funds and securities of the
corporation; receive and give receipts for monies due and
payable to the corporation from any source whatsoever, and
deposit all such monies in the name of the corporation in
such depositories as shall be selected in accordance with
the provisions of Section 4 of Article VI of these Bylaws;
(b) maintain appropriate accounting records as required by
law; (c) prepare, or cause to be prepared, annual financial
statements of the corporation that include a
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balance sheet as of the end of the fiscal year and an income
and cash flow statement for that year, which statements, or
a written notice of their availability, shall be mailed to
each shareholder within One Hundred Twenty (120) days after
the end of such fiscal year; and (d) in general perform all
of the duties incident to the office of Treasurer and such
other duties as from time to time may be assigned to him by
the President or by the Board of Directors, or by these
Bylaws.
Section 12. Assistant Treasurers. In the absence of the Treasurer or in
the event of his death, inability or refusal to act, the
Assistant Treasurers in the order of their length of service
as such, unless otherwise determined by the Board of
Directors, shall perform the duties of the Treasurer, and
when so acting shall have all the powers of and be subject
to all the restrictions upon the Treasurer. They shall
perform such other duties as may be assigned to them by the
Treasurer, by the President, or by the Board of Directors.
Section 13. Controller and Assistant Controllers. The Controller, if
one has been appointed, shall have charge of the accounting
affairs of the corporation and shall have such other powers
and perform such other duties as the Board of Directors
shall designate. Each Assistant Controller shall have such
powers and perform such duties as may be assigned by the
Board of Directors and the Assistant Controller shall
exercise the powers of the Controller during that officer's
absence or inability to act.
Section 14. Delegation of Duties of Officers. In case of the absence of
any officer of the corporation or for any other reason that
the Board may deem sufficient, the Board may delegate the
powers or duties of such officer to any other officer or to
any director for the time being provided a majority of the
entire Board of Directors concurs herein.
Section 15. Bonds. The Board of Directors may by resolution, require any
or all officers, agents or employees of the corporation to
give bond to the corporation, with sufficient sureties,
conditioned on the faithful performance of the duties of
their respective offices or positions, and to comply with
such other conditions as may from time to time be required
by the Board of Directors.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts. The Board of Directors may authorize any officer
or officers, agent or agents, to enter into any contract or
execute and deliver any instrument in the name of and on
behalf of the corporation, and such
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authority may be general or confined to specific instances.
Any resolution of the Board of Directors authorizing the
execution of documents by the proper officers of the
corporation or by the officers generally shall be deemed to
authorize such execution by the Chairman of the Board, the
President, any Vice-President, or the Treasurer, or any
other officer if such execution is generally within the
scope of the duties of his office. The Board of Directors
may by resolution authorize such execution by means of one
or more facsimile signatures.
Section 2. Loans. No loans shall be contracted on behalf of the
corporation and no evidence of indebtedness shall be issued
in its name unless authorized by a resolution of the Board
of Directors. Such authority may be general or confined to
specific instances.
Section 3. Checks and Drafts. All checks, drafts or other orders for
the payment of money issued in the name of the corporation
shall be signed by such officer or officers, agent or agents
of the corporation and in such manner as shall from time to
time be determined by resolution of the Board of Directors.
Section 4. Deposits. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit
of the corporation in such depositories as the Board of
Directors may select.
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. The Board of Directors may
authorize the issuance of some or all of the shares of the
corporation's classes or series without issuing certificates
to represent such shares. If shares are represented by
certificates, the certificates shall be in such form as
required by law and shall be determined by the Board of
Directors. Certificates shall be signed (either manually or
in facsimile) by the Chairman of the Board, President or a
Vice-President and by the Secretary or Treasurer or an
Assistant Secretary or an Assistant Treasurer. The
signatures of any such officers upon a certificate may be
facsimiles or may be engraved or printed. In case any
officer who has signed or whose facsimile or other signature
has been placed upon such certificate shall have ceased to
be such officer before such certificate is issued, it may be
issued by the corporation with the same effect as if he were
such officer at the date of its issue. All certificates for
shares shall be consecutively numbered or otherwise
identified and entered into the stock transfer books of the
corporation. When shares are represented by certificates,
the corporation shall issue and deliver to each shareholder
to whom such shares have been issued or
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transferred, certificates representing the shares owned by
him. When shares are not represented by certificates, then
within a reasonable time after the issuance or transfer of
such shares, the corporation shall send the shareholder to
whom such shares have been issued or transferred a written
statement of the information required by law to be on
certificates.
Section 2. Stock Transfer Books. The corporation shall keep a book or
set of books, to be known as the stock transfer books of the
corporation, containing the name of each shareholder of
record, together with such shareholder's address and the
number and class or series of shares held by him. Transfer
of shares shall be made only on the stock transfer books of
the corporation by the holder of record thereof or by his
legal representative, who shall furnish proper evidence of
authority to transfer, or by his attorney thereunto
authorized by power of attorney duly executed and filed with
the Secretary, and on surrender for cancellation of the
certificate for such shares (if the shares are represented
by certificates). All certificates surrendered for transfer
(if the shares are represented by certificates) shall be
cancelled before new certificates (or written statements in
lieu thereof) for the transferred shares shall be issued or
delivered to the shareholder.
Section 3. Reserved.
Section 4. Fixing Record Date. The Board of Directors may fix a future
date as the record date for one or more voting groups in
order to determine the shareholders entitled to notice of or
to vote at any meeting of shareholders or any adjournment
thereof, or entitled to receive payment of any distribution,
or in order to make a determination of shareholders for any
other proper purpose. Such record date may not be more than
seventy (70) days before the meeting or date on which the
particular action requiring such determination of
shareholders is to be taken. A determination of shareholders
entitled to notice of or to vote at a shareholders' meeting
is effective for any adjournment of the meeting unless the
Board of Directors fixes a new record date for the adjourned
meeting, which it must do if the meeting is adjourned to a
date more than One Hundred Twenty (120) days after the date
fixed for the original meeting.
If no record date is fixed for the determination of
shareholders entitled to notice of or to vote at a meeting
of shareholders, or shareholders entitled to receive payment
of a distribution, the close of business on the day before
the first notice of the meeting is delivered to shareholders
or the date on which the resolution of the Board of
Directors declaring such distribution is adopted, as the
case may be, shall be the record date for such determination
of shareholders.
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Section 5. Lost or Destroyed Certificate. The Board of Directors may
direct a new certificate to be issued in place of any
certificate theretofore issued by the corporation claimed to
have been lost, destroyed or wrongfully taken, upon receipt
of an affidavit of such fact from the person claiming the
certificate of stock to have been lost or destroyed. When
authorizing such issue of a new certificate, the Board of
Directors shall require that the owner of such lost or
destroyed certificate, or his legal representative, give the
corporation a bond in such sum as the Board may direct as
indemnity against any claim that may be made against the
corporation with respect to the certificate claimed to have
been lost or destroyed, except where the Board of Directors
by resolution finds that in the judgment of the directors
the circumstances justify omission of a bond.
Section 6. Holder of Record. Except as otherwise required by law, the
corporation may treat as absolute owner of shares the person
in whose name the shares stand of record on its books just
as if that person had full competency, capacity and
authority to exercise all rights of ownership irrespective
of any knowledge or notice to the contrary or any
description indicating a representative, pledge or other
fiduciary relation or any reference to any other instrument
or to the rights of any other person appearing upon its
record or upon the share certificate except that any person
furnishing to the corporation proof of his appointment as a
fiduciary shall be treated as if he were a holder of record
of its shares.
Section 7. Shares Held By Nominees.
(a) The corporation shall recognize the beneficial owner of
shares registered in the name of a nominee as the owner and
shareholder of such shares for certain purposes if the
nominee in whose name such shares are registered files with
the Secretary of the corporation a written certificate in a
form prescribed by the corporation, signed by the nominee
and indicating the following: (1) the name, address and
taxpayer identification number of the nominee; (2) the name,
address and taxpayer identification number of the beneficial
owner; (3) the number and class or series of shares
registered in the name of the nominee as to which the
beneficial owner shall be recognized as the shareholder; and
(4) the purposes for which the beneficial owner shall be
recognized as the shareholder.
(b) The purposes for which the corporation shall recognize a
beneficial owner as the shareholder may include the
following: (1) receiving notice of, voting at and otherwise
participating in shareholders' meetings; (2) executing
consents with respect to the shares; (3) exercising
dissenters' rights under Article 13 of the North Carolina
Business Corporation Act; (4) receiving distributions and
share dividends with respect to the shares; (5) exercising
inspection rights; (6) receiving reports, financial
statements,
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proxy statements and other communications from the
corporation; (7) making any demand upon the corporation
required or permitted by law; and (8) exercising any other
rights or receiving any other benefits of a shareholder with
respect to the shares.
(c) The certificate shall be effective ten (10) business
days after its receipt by the corporation and until it is
changed by the nominee, unless the certificate specifies a
later effective time or an earlier termination date.
(d) If the certificate affects less than all of the shares
registered in the name of the nominee, the corporation may
require the shares affected by the certificate to be
registered separately on the books of the corporation and be
represented by a share certificate that bears a conspicuous
legend stating that there is a nominee certificate in effect
with respect to the shares represented by that share
certificate.
Section 8. Acquisition by Corporation of its Own Shares. Subject to the
provisions of the Articles of Incorporation, the corporation
may acquire its own shares and shares so acquired shall
constitute authorized but unissued shares. Unless otherwise
prohibited by the Articles of Incorporation, the corporation
may reissue such shares. If reissue is prohibited, the
Articles of Incorporation shall be amended to reduce the
number of authorized shares by the number of shares so
acquired. Such required amendment may be adopted by the
Board of Directors without shareholder action.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. Distributions. The Board of Directors may from time to time
authorize, and the corporation may make distributions to its
shareholders pursuant to law and subject to the provisions
of its Articles of Incorporation.
Section 2. Seal. The corporate seal of the corporation shall
consist of two concentric circles between which is the name
of the corporation and in the center of which is inscribed
CORPORATE SEAL; and such seal, as impressed on the margin
hereof, is hereby adopted as the corporate seal of the
corporation.
Section 3. Fiscal Year. The fiscal year of the corporation shall be
fixed by the Board of Directors.
Section 4. Amendments. Except as otherwise provided herein and by law,
these Bylaws may be amended or repealed and new bylaws may
be adopted by the affirmative vote of a majority of the
directors then holding office at any
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regular or special meeting of the Board of Directors,
provided that (i) any provision of these bylaws that is
governed by or subject to the provisions of the Shareholders
Agreement or the Articles of Incorporation shall not be
amended except in accordance with the terms thereof and (ii)
Section 2 of Article III shall not be amended without the
prior written consent of the Investor (as defined in the
Shareholders Agreement) for so long as the Investor has the
right to designate a director to the Board of Directors
pursuant to the Shareholders Agreement.
No bylaw adopted or amended or repealed by the shareholders
shall be readopted, amended or repealed by the Board of
Directors, unless the Articles of Incorporation or a bylaw
adopted by the shareholders authorizes the Board of
Directors to adopt, amend or repeal that particular bylaw or
the Bylaws generally.
Section 5. Salary and Other Compensation. Any payments made to an
officer of the corporation such as salary, commission,
bonus, interest, rent or entertainment expense incurred by
him, that shall be disallowed in whole or in part as a
deductible expense by the Internal Revenue Service, shall be
reimbursed by such officer of the corporation to the full
extent of such disallowance.
Section 6. Indemnification. Any person who at any time serves or has
served as a director or officer of the corporation or in
such capacity at the request of this corporation as a
director or officer of another corporation, partnership,
joint venture, trust or other enterprise, shall have a right
to be indemnified by the corporation to the fullest extent
permitted by law against (a) reasonable expenses, including
attorneys' fees, actually and necessarily incurred by him in
connection with any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative
or investigative (and any appeal therein), formal or
informal, and whether or not brought by or on behalf of the
corporation, seeking to hold him liable by reason of the
fact that he is or was acting in such capacity, and (b)
reasonable payments made by him in satisfaction of any
judgment, money decree, fine, penalty or settlement for
which he may have become liable in any such action, suit or
proceeding.
The Board of Directors of the corporation shall take all
such action as may be necessary and appropriate to authorize
the corporation to pay the indemnification required by this
bylaw, including without limitation, to the extent needed,
making a good faith evaluation of the manner in which the
claimant for indemnity acted and of the reasonable amount of
indemnity due him and giving notice to, and obtaining
approval by, the shareholders of the corporation.
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Any person who is entitled to indemnification by the
corporation hereunder shall, subject to applicable law, also
be entitled to reimbursement of reasonable costs, expenses
and attorneys' fees incurred in obtaining such
indemnification.
Expenses incurred by a director in defending an action, suit
or proceeding shall be paid by the corporation in advance of
the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of the
director to pay such amount unless it shall ultimately be
determined that he or she is entitled to be indemnified by
the corporation against such expenses.
Any person who at any time after the adoption of this bylaw
serves or has served in any of the aforesaid capacities for
or on behalf of the corporation shall be deemed to be doing
or to have done so in reliance upon, and as consideration
for, the right of indemnification provided herein. Such
right shall inure to the benefit of the legal
representatives of any such person and shall not be
exclusive of any other rights to which such person may be
entitled apart from the provision of this bylaw.
Section 7. Advance Payment of Expenses. The corporation shall (upon
receipt of an undertaking by or on behalf of the director or
officer involved to repay the expenses described herein
unless it shall ultimately be determined that he is entitled
to be indemnified by the corporation against such expenses)
pay expenses (including attorneys' fees) incurred by such
director, officer, employee or agent in defending any
threatened, pending or completed action, suit or proceeding
and any appeal therein whether civil, criminal,
administrative, investigative or arbitrative and whether
formal or informal or appearing as a witness at a time when
he has not been named as a defendant or a respondent with
respect thereto in advance of the final disposition of such
proceeding.
Section 8. Directors and Officers Liability Insurance. The Board of
Directors may cause the corporation to purchase and maintain
"Directors and Officers Liability Insurance" in amounts as
are reasonable and customary for companies conducting
business similar to that of the corporation for the benefit
of any person who is or was serving as a director, officer,
employee or agent of this corporation or for the benefit of
any person who is or was serving at the request of this
corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust or
other enterprise. This insurance may cover any liability
incurred by such person in any capacity arising out of this
status as such even if the corporation would not otherwise
have the power to indemnify him against that liability.
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Section 9. Effective Date of Notice. Except as provided in Section 5 of
Article II, written notice shall be effective at the
earliest of the following: (1) when received; (2) five days
after its deposit in the United States mail, as evidenced by
the postmark, if mailed with postage thereon prepaid and
correctly addressed; or (3) on the date shown on the return
receipt, if sent by registered or certified mail, return
receipt requested and the receipt is signed by or on behalf
of the addressee.
Section 10. Corporate Records. Any records maintained by the corporation
in the regular course of its business, including its stock
ledger, books of account and minute books, may be kept on or
be in the form of punch cards, magnetic tape, photographs,
microphotographs or any other information storage device;
provided that the records so kept can be converted into
clearly legible form within a reasonable time. The
corporation shall so convert any records so kept upon the
request of any person entitled to inspect the same. The
corporation shall maintain at its principal office the
following records: (1) Articles of Incorporation or Restated
Articles of Incorporation and all amendments thereto; (2)
Bylaws or restated Bylaws and all amendments thereto; (3)
resolutions by the Board of Directors creating classes or
series of shares and affixing rights, preferences or
limitations to shares; (4) minutes of all shareholder
meetings or action taken without a meeting for the past
three years; (5) all written communications to shareholders
for the past three years, including financial statements;
and (6) the corporation's most recent annual report filed
with the North Carolina Secretary of State.
Section 11. Amendments to Articles of Incorporation. To the extent
permitted by law, the Board of Directors may amend the
Articles of Incorporation without shareholder approval to
(1) delete the initial directors' names and addresses; (2)
change the initial registered agent or office in any state
in which it is qualified to do business, provided such
change is on file with the applicable Secretary of State;
(3) change each issued and unissued share of an outstanding
class into a greater number of whole shares, provided that
class is the corporation's only outstanding share class; (4)
change the corporate name by substituting "corporation,"
"incorporated," "company," "limited" or the abbreviations
therefor for a similar word or abbreviation or by adding,
deleting or changing a geographic designation in the name;
(5) make any other change expressly permitted by the North
Carolina Business Corporation Act to be made without
shareholder action. All other amendments to the Articles of
Incorporation must be approved by the appropriate voting
group or groups as required by law.
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Section 12 The provisions of these Bylaws are subject in all respects to
the provisions of the Shareholders Agreement and the
Articles of Incorporation. In the event of any conflict
between any provision of these Bylaws and any provision of
the Shareholders Agreement or the Articles of Incorporation,
the applicable provisions of the Shareholders Agreement and
the Articles of Incorporation shall control.
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EXHIBIT 10.21
BTI TELECOM CORP.
SHAREHOLDERS AGREEMENT
THIS SHAREHOLDERS AGREEMENT (this "Agreement") is made as of the 28th
day of December 1999, by and among BTI Telecom Corp., a North Carolina
corporation (the "Company"), Peter T. Loftin ("Loftin") and Welsh, Carson,
Anderson & Stowe VIII, L.P., a Delaware limited partnership, WCAS Information
Partners, L.P., a Delaware limited partnership, and BTI Investors LLC, a
Delaware limited liability company (collectively, the "Investor," and
collectively with Loftin, the "Shareholders").
WHEREAS, the Investor is acquiring 200,000 shares of Series A Preferred
Stock, par value $.01 per share (the "Series A Preferred Stock"), of the Company
and warrants (collectively, the "Warrant") to purchase up to an aggregate of
4,500,000 shares of Common Stock, no par value per share, of the Company (the
"Warrant Stock"), pursuant to the terms of a Series A Preferred Stock Purchase
Agreement dated as of December 10, 1999 among the Company and the Investor (the
"Purchase Agreement"); and
WHEREAS, it is a condition to the obligations of the Investor under the
Purchase Agreement that this Agreement be executed by the parties hereto, and
the parties are willing to execute this Agreement and to be bound by the
provisions hereof;
NOW, THEREFORE, in consideration of the foregoing, the agreements set
forth below, and the parties' desire to provide for continuity of ownership of
the Company to further the interests of the Company and its present and future
shareholders, the Company and the Shareholders hereby agree with each other as
follows.
1. Definition of Shares. As used in this Agreement, "Shares" shall mean
and include any equity security or any security convertible or exchangeable into
an equity security of the Company now owned or hereafter acquired by any
Shareholders. Other terms used as defined terms herein and not otherwise defined
shall have the meanings set forth in the Purchase Agreement or its Related
Agreements (as such term is defined in the Purchase Agreement).
2. Restrictions on Transfers. No Shareholder shall sell, pledge,
encumber, assign, transfer or dispose of all or any of his or its Shares except
in compliance with the terms of this Agreement. Notwithstanding anything to the
contrary contained in this Agreement, any Shareholder may transfer without the
necessity of prior approval all or any of his or its Shares (a) by way of gift
to his spouse or to any of his lineal descendants or ancestors, (b) to any trust
for the sole benefit of any one or more of such Shareholder, his spouse or his
lineal descendants or ancestors; or (c) in a sale, assignment, transfer or other
disposition by the Investor to an affiliate or by a Shareholder that is a
partnership or limited liability company to a partner or member of such
partnership or limited liability company or retired partner or member who
retires after the date hereof, or to the estate of any such partner or member or
in
<PAGE>
a transfer by any partner or member in accordance with (a) or (b) hereof;
provided, however, that, except as otherwise provided below, it shall be
condition to any such transfer enumerated in items (a) through (c) above that
any such transferee shall agree in writing with the Company and the
Shareholders, as a condition to such transfer, to be bound by all of the
provisions of this Agreement in the same manner and to the same extent as the
transferor. Notwithstanding anything herein to the contrary, the proviso
contained in the immediately preceding sentence shall not be applied to any
transfer by Investor of its Shares to any partner of Investor pursuant to a
distribution in respect of the partnership interests in Investor in connection
with which Investor determines not to require such partners to have agreed in
writing to be bound by the terms of this Agreement or to be entitled to the
benefit hereof. In addition to the transfers described in the previous sentence,
Loftin shall be entitled to cause the Company to redeem $65,000,000 of Common
Stock at the per share price of $8.55 pursuant to the Stock Repurchase Agreement
attached as Exhibit G to the Purchase Agreement. If Loftin transfers any Shares
pursuant to Section 4(d) subsequent to a Qualified Public Offering, the
transferees in any such transfer shall not be bound by or entitled to the
benefits of the terms of this Agreement.
Notwithstanding anything herein to the contrary, each transfer
of Shares must be made in compliance with the 1933 Act and any applicable state
and foreign securities laws. Any attempt to transfer any Shares not in
compliance with this Agreement shall be null and void and neither the Company
nor any transfer agent shall give any effect in the Company's transfer records
to such transfer. No Shareholder shall enter into any agreement or arrangement
of any kind with any person or entity with respect to its Shares inconsistent
with the provisions of this Agreement, including, but not limited to, agreements
or arrangements with respect to the acquisition, disposition or voting of its or
his Shares.
3. Notice of Proposed Transfers. Loftin and the holder of each
certificate representing Registrable Securities (as defined in Section 1.1 of
the Investor Rights Agreement, dated as of the date hereof, by and among the
Company and the Investor) agrees to comply in all respects with the provisions
of this Section. Prior to any proposed sale, assignment, transfer or pledge of
any Registrable Securities, or of any of Loftin's Common Stock, unless (i) the
transfer is made to a person or entity described in the second sentence of
Section 2 hereof or the transfer is made to the Company, (ii) a registration
statement under the 1933 Act will cover the proposed transfer, (iii) such sale
is made pursuant to Rule 144, the holder thereof shall give written notice to
the Company of the holder's intention to effect such transfer, sale, assignment
or pledge. Each such notice shall describe the manner and circumstances of the
proposed transfer, sale, assignment or pledge in sufficient detail, and if
requested by the Company, shall be accompanied at such holder's expense by a
written opinion of legal counsel who shall, and whose legal opinion shall, be
reasonably satisfactory to the Company addressed to the Company, to the effect
that the proposed transfer of the Registrable Securities or Loftin's Common
Stock may be effected without registration under the 1933 Act. Each certificate
evidencing the Registrable Securities or Loftin's Common Stock transferred as
above provided shall bear, except if such transfer is made pursuant to Rule 144
or a public offering, the appropriate restrictive legends set forth in Section
10 below, except that such certificate shall not bear such restrictive legend if
in the opinion of counsel for such holder and
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the Company such legend is not required in order to establish compliance with
any provisions of the 1933 Act.
4. Prohibited Transfers. Notwithstanding anything herein to the
contrary:
(a) The Investor shall not, prior to the date which is two (2)
years after the date hereof, sell, pledge, encumber, assign, transfer or dispose
of all or any of its Shares except in the event of (i) a liquidation,
dissolution or winding up of the Company, either voluntary or involuntary, (ii)
a transfer permitted pursuant to the second sentence of Section 2 or (iii) the
sale, transfer or other disposition of all the stock or all or substantially all
the assets of the Company to, or a merger or consolidation or other similar
business combination with or into, an entity that is not controlled, directly or
indirectly, by the shareholders of the Company. For purposes of the preceding
sentence, "control" shall mean ownership of more than fifty percent of the
voting power of an entity.
(b) Reserved.
(c) The Investor shall not sell, assign or otherwise transfer
any of its Series A Preferred Stock to a Competitor or any person or entity that
owns greater than twenty-five percent (25%) of the outstanding shares
(calculated on a fully-diluted basis) of a Competitor and that actually
designates at least that number of members of the Board of Directors of such
Competitor that is proportional to its equity interest in such Competitor. For
purposes of the preceding sentence, a person or entity shall be deemed a
"Competitor" if it is engaged in providing integrated communications services to
small and medium sized businesses and, at the time of the proposed sale,
assignment or transfer, directly competes with the Company in the Company's
markets.
(d) Neither Peter Loftin nor his transferees described in the
second sentence of Section 2, shall sell, pledge, encumber, assign, transfer or
otherwise dispose of more than five percent (5%) of the Common Stock of the
Company owned by them as of the date hereof in any twelve (12) month period,
except for a transfer of shares described in the second or fourth sentences of
Section 2; provided, that, no such transfer by Loftin to the Company shall be
permitted pursuant to this Section 4(d) without the written consent of the
Investor.
(e) The restrictions placed on the Investor in subsections (a)
- - (c) of this Section 4 shall not apply to transfers from the Investor to its
limited partners or affiliates.
5. Election of Directors. At each annual meeting of the shareholders of
the Company, and at each special meeting of the shareholders of the Company
called for the purpose of electing directors of the Company, and at any time at
which shareholders of the Company shall have the right to, or shall, vote
(whether by written consent or otherwise) for directors of the Company, then,
and in each event, the Shareholders shall vote all Shares owned by them for the
election of a Board of Directors consisting of not more than ten directors,
designated as follows:
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(a) so long as Investor and its transferees described in the
second sentence of Section 2 beneficially own at least 11,700,000 (as adjusted
for stock splits, combinations, stock dividends, recapitalizations and the like)
shares of Common Stock (calculated after giving effect to the conversion of the
Series A Preferred Stock and, commencing at such time as the Warrant becomes
exercisable, the exercise or exchange of the Warrant ("Fully-Diluted Basis"))
(A) two directors shall be designated by Investor, (B) one observer (who shall
be entitled to attend each meeting of the Board of Directors but shall not be
entitled to vote or otherwise exercise any right or authority granted to the
members of the Board of Directors) shall be designated by Investor, and (C) the
remaining directors shall be designated by the holders of a majority of the
outstanding shares of Common Stock;
(b) so long as Investor and its transferees described in the
second sentence of Section 2 beneficially own at least 6,000,000, (as adjusted
for stock splits, combinations, stock dividends, recapitalizations and the
like), but less than 11,700,000, (as adjusted for stock splits, combinations,
stock dividends, recapitalizations and the like), shares of Common Stock
(calculated on a Fully-Diluted Basis) (A) one director shall be designated by
the Investor, (B) one observer (who shall be entitled to attend each meeting of
the Board of Directors but shall not be entitled to vote, or otherwise exercise
any right or authority granted to the members of the Board of Directors) shall
be designated by the Investor, and (C) the remaining directors shall be
designated by the holders of a majority of the outstanding shares of Common
Stock; and
(c) so long as Investor and its transferees described in the
second sentence of Section 2 beneficially own in the aggregate less than
6,000,000, (as adjusted for stock splits, combinations, stock dividends,
recapitalizations and the like), shares of Common Stock (calculated on a
Fully-Diluted Basis) all directors shall be designated in the manner set forth
in the Company's bylaws.
No party hereto shall vote to remove any member of the Board of
Directors designated in accordance with the aforesaid procedure unless the
persons or groups so designating such director specified above so vote, and if
such persons or groups so vote then the non-designating party or parties shall
likewise so vote. Any vacancy on the Board of Directors created by the
resignation, removal, incapacity or death of any person nominated by the party
which originally nominated such person under this Section 5 shall be filled by
another person designated in a manner so as to preserve the constituency of the
Board of Directors as provided above. The Company shall use its best efforts to
implement the provisions of this Section 5 and shall take such actions as may be
necessary in furtherance of the foregoing.
6. Committees and Subsidiary Boards. The Board of Directors of each
subsidiary of the Company at all times shall reflect the proportional
representation of the Board of Directors of the Company described in Section 5.
The Company shall vote its shares of stock of each subsidiary, and each
Shareholder shall take all other actions necessary, to ensure that the
composition of the Board of Directors of such subsidiary is as set forth above.
For so long as the Investor is entitled to designate any directors pursuant to
Section 5, the Investor shall
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have the right to designate at least one member of each committee of the Board
of Directors of the Company and the Board of Directors of each of its
subsidiaries.
7. Restriction on Corporate Action. In addition to any action which is
required by law or the Company's Amended and Restated Articles of Incorporation:
(a) prior to a Qualified Public Offering (as defined in the
Company's Amended and Restated Articles of Incorporation), the written approval
of the holders of a majority of the outstanding shares of Series A Preferred
Stock shall be required in order for the Company to, or permit any of its
subsidiaries to:
(i) sell, transfer or otherwise dispose of assets of
the Company, or any of its subsidiaries, purchase the equity or assets
of another entity, or enter into a joint venture in a transaction in
which the Fair Market Value of the consideration for such assets is
greater than $25,000,000;
(ii) make any material change in any year to the
annual operating and capital expenditure plan for the Company or any of
its subsidiaries presented to the Board of Directors or the board of
directors of any of the Company's subsidiaries for such year;
(iii) make any material change to the Company's 1997
Stock Option Plan or adopt or make any material change to a new stock
option plan, stock purchase plan or other equity or equity-based
incentive compensation plan or arrangement; and
(iv) hire a new chief executive officer or chief
operating officer.
(b) after a Qualified Public Offering, the Company shall not,
and shall not permit any of its subsidiaries to:
(i) unless approved by a majority of the members of
the Board of Directors, sell, transfer or otherwise dispose of assets
of the Company or any of its subsidiaries, purchase the equity or
assets of another entity, or enter into a joint venture, in a
transaction in which the Fair Market Value of the consideration for
such assets is greater than $25,000,000;
(ii) unless approved by a majority of the members of
the Board of Directors, make any material change in any year to the
annual operating and capital expenditure plan for the Company or any of
its subsidiaries presented to the Board of Directors or the board of
directors of any of the Company's subsidiaries for such year;
(iii) unless approved by a majority of the members of
the Board of Directors who are not also officers of the Company, make
any material change to the Company's 1997 Stock Option Plan or adopt or
make any material changes to a new
5
<PAGE>
stock option plan, stock purchase plan or other equity or equity-based
incentive compensation plan or arrangement;
(iv) unless approved by a majority of the members of
the Board of Directors who are not also officers of the Company, hire a new
chief executive officer or chief operating officer.
(c) Without the consent of the holders of a majority of the
outstanding shares of Series A Preferred Stock, during the period that ends upon
the later of (i) the date which is three years after the date hereof or (ii) the
date which is 270 days after the consummation of a Qualified Public Offering
(such period, the "Private Sale Restricted Period") the Company shall not sell
any equity securities or securities convertible or exchangeable into an equity
security of the Company (an "Equity Security") to an entity (or group of related
entities) in a transaction other than a registered public offering whereby as a
result of such transaction the purchasing entity or entities beneficially owns a
number of Equity Securities in excess of the number of Shares beneficially owned
by the Shareholders (a "Qualifying Private Equity Sale"). During the two year
period starting the day after the end of the Private Sale Restricted Period, the
Company shall not consummate a Qualifying Private Equity Sale unless the
purchaser or purchasers in such transaction becomes a party to this Agreement.
8. Term. This Agreement shall terminate upon the first date on which
Investor and its transferees described in the second sentence of Section 2
beneficially own less than 6,000,000, (as adjusted for stock splits,
combinations, stock dividends, recapitalizations and the like), shares of Common
Stock (calculated on a Fully-Diluted Basis); provided that Section 5 hereof
shall terminate, if earlier, on the date on which such Section is required to
terminate under applicable law. Within 30 days prior to the date such Section 5
would otherwise terminate as a result of the proviso to the previous sentence,
the parties shall extend the term of such Section 5 for the maximum period
permitted by applicable law.
9. Specific Enforcement. Each party hereto expressly agrees that the
other parties hereto may be irreparably damaged if this Agreement is not
specifically enforced. Upon a breach or threatened breach of the terms or
covenants of this Agreement by any party hereto, the other parties hereto shall,
in addition to all other remedies, each be entitled to apply for a temporary or
permanent injunction, and/or a decree for specific performance, in accordance
with the provisions hereof.
10. Legend. Each certificate evidencing any of the Shares now owned or
hereafter acquired by the Shareholders shall bear a legend substantially as
follows, in addition to any other legends required by law, and each Shareholder
shall surrender to the Company the certificate(s) representing the Shares for
purposes of placement of the following legends:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE
6
<PAGE>
SECURITIES LAWS. THESE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND
MAY NOT BE SOLD, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR
SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND ANY APPLICABLE STATE SECURITIES LAWS, OR THE AVAILABILITY
OF AN EXEMPTION FROM THE REGISTRATION PROVISIONS OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE
SECURITIES LAWS.
ANY SALE, ASSIGNMENT, TRANSFER OR OTHER DISPOSITION OF, OR THE
VOTING OF, THE SHARES REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED BY, AND SUBJECT TO, THE TERMS AND PROVISIONS OF A
SHAREHOLDERS AGREEMENT, AS AMENDED FROM TIME TO TIME. A COPY
OF SAID AGREEMENT IS ON FILE WITH THE SECRETARY OF THE
CORPORATION.
Each Shareholder consents to the Company's making a notation on its records and
giving instructions to any transfer agent of the Series A Preferred Stock, the
Conversion Shares, the Common Stock, the Warrant, the Warrant Stock and any
securities issued with respect to any of the foregoing in order to implement the
restrictions on transfer established in this Agreement. Such legends shall be
removed by the Company from any certificate at such time as the Shares
represented by such certificate cease to be subject to the restrictions
described in such legends.
11. Notices. All notices and other communications between the
parties hereto shall be delivered in the manner set forth in the Investor
Rights Agreement.
12. Entire Agreement. This Agreement, along with the Articles of
Incorporation, the Investor Rights Agreement, the Series A Purchase Agreement,
the Warrant, and the Redemption Agreement, constitutes the full and entire
understanding and agreement among the parties with regard to the subjects hereof
and thereof and supercedes all prior agreements and understanding between them
or any of them as to such subject matter.
13. Amendment. Neither this Agreement nor any provision hereof may be
waived, modified, amended or terminated except by a written agreement signed by
the parties hereto. Each of the Shareholders represents that he or it is not a
party to any other agreement which would prevent him or it from performing his
or its obligations hereunder. No waiver of any breach or default hereunder shall
be considered valid unless in writing, and no such waiver shall be deemed a
waiver of any subsequent breach or default of the same or similar nature.
7
<PAGE>
14. Governing Law. This Agreement shall be deemed a contract made under
the laws of the State of North Carolina and together with the rights and
obligations of the parties hereunder, shall be construed under and governed by
the laws of such State without regard to the conflicts of laws provisions
thereof.
15. Severability. Any invalidity, illegality or limitation of the
enforceability with respect to any party of any one or more of the provisions of
this Agreement, or any part thereof, whether arising by reason of the law of any
such person's domicile or otherwise, shall in no way affect or impair the
validity, legality or enforceability of the remainder of this Agreement with
respect to such party or the validity, legality or enforceability of this
Agreement with respect to any other party. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall to the extent
practicable, be modified so as to make it valid, legal and enforceable and to
retain as nearly as practicable the intent of the parties, and the validity,
legality, and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
16. Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto; provided, that (i) the Company may not assign its obligations
under this Agreement and (ii) the Investor may not assign its rights under
Sections 5, 6 or 7 to any person other than a person described in the second
sentence of Section 2.
17. Recapitalization, etc. In the event that any capital stock or other
securities are issued in respect of, in exchange for, or in substitution of, any
Shares by reason of any reorganization, recapitalization, reclassification,
merger, consolidation, spin-off, partial or complete liquidation, stock
dividend, split-up, sale of assets, distribution to stockholders or combination
of the Shares or any other change in capital structure of the Company,
appropriate adjustments shall be made with respect to the relevant provisions of
this Agreement so as to fairly and equitably preserve, as far as practicable,
the original rights and obligations of the parties hereto under this Agreement.
18. No Inconsistent Agreements. The Company will not hereafter enter
into any agreement with respect to its securities which is inconsistent with, or
grant rights superior to the rights granted to the Shareholders pursuant to,
this Agreement.
19. Captions. Captions are for convenience only and are not deemed to
be part of this Agreement.
20. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall constitute an original but all of which shall
constitute but one and the same instrument. One or more counterparts of this
Agreement or any exhibit hereto may be delivered via telecopier, with the
intention that they shall have the same effect as an original counterpart
hereof.
8
<PAGE>
21. No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person or entity other than the parties hereto and
their respective successors and permitted assigns.
9
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Shareholders Agreement
to be duly executed as of the date first above written.
COMPANY: BTI TELECOM CORP.
By: /s/ Peter T. Loftin
_______________________________
Name: Peter T. Loftin
Title: Chief Executive Officer
LOFTIN: /s/ Peter T. Loftin
___________________________________
Peter T. Loftin
INVESTOR: WELSH, CARSON, ANDERSON
& STOWE VIII, L.P.
By: WCAS VIII Associates LLC,
General Partner
By: /s/ Jonathan Rather
_______________________________
Name: Jonathan M. Rather
Title: Member
WCAS INFORMATION PARTNERS, L.P.
By: WCAS Info Partners,
General Partner
By: /s/ Jonathan Rather
_______________________________
Name: Jonathan M. Rather
Title: Attorney-in-fact
BTI INVESTORS LLC
By: /s/ Jonathan Rather
_______________________________
Name: Jonathan M. Rather
Title: Authorized Person
10
EXHIBIT 10.22
BTI TELECOM CORP.
REDEMPTION AGREEMENT
THIS REDEMPTION AGREEMENT (this "Agreement") is dated as of the 28th
day of December 1999, by and among BTI Telecom Corp., a North Carolina
corporation (the "Company") and Welsh, Carson, Anderson & Stowe VIII, L.P., a
Delaware limited partnership, WCAS Information Partners, L.P. a Delaware limited
partnership, and BTI Investors LLC, a Delaware limited liability company
(collectively, the "Investor"). Capitalized terms used herein and not otherwise
defined in this Agreement shall have the meanings assigned to them in the
Purchase Agreement (as defined below).
WHEREAS, in connection with the purchase by the Investor of 200,000
shares of the Series A Stock, par value $.01 per share, of the Company, pursuant
to a Series A Preferred Stock Purchase Agreement dated as of December 10, 1999
(the "Purchase Agreement"), the Company desires to provide the Investor certain
rights with respect to the redemption of the Series A Preferred Stock held by it
as an inducement to the Investor to purchase shares of the Series A Preferred
Stock;
NOW, THEREFORE, in consideration of the mutual agreements, covenants
and conditions contained herein, the Company and the Investor hereby agree as
follows.
1. Option to Sell Shares to Company. Following the date (such date
being hereinafter referred to as the "Liquidity Exercise Date") that is the
later of (a) the seventh anniversary of the date hereof or (b) six months after
the date on which all amounts owing under the 10 1/2% Senior Notes due 2007
issued by the Company pursuant to that certain Indenture, dated September 22,
1997, by and among the Company, Business Telecom, Inc. and First Trust of New
York, National Association, are repaid in full, if the Company receives from the
Investor or its transferees (collectively with the Investor, the "Holders")
holding a majority of the Series A Preferred Stock a written demand (the
"Investors' Notice") that the Company redeem all, but not less than all, of the
Series A Preferred Stock held by such Holders, the Company shall redeem all of
the Series A Preferred Stock then held by all the Holders on the terms herein
provided. The Company shall, within thirty (30) days after the Liquidity
Exercise Date, deliver a written notice (a "Redemption Notice") to the Holders
of their right to demand that the Company redeem Series A Preferred Stock held
by them. The Holders of a majority of the Series A Preferred Stock may, within
sixty (60) days after receipt of such notice, notify the Company that they
demand that the Company redeem all of the Series A Preferred Stock then held by
them. The Company shall repurchase all such Series A Preferred Stock under this
Agreement as set forth below. The demand to redeem Series A Preferred Stock
pursuant to this Section 1 shall be referred to as the "Option."
2. Price.
(a) The price to be paid by the Company for the Series A
Preferred Stock to be sold under the Option shall be as follows: (i) if the
redemption occurs prior to a Qualified
<PAGE>
Public Offering (as defined in the Company's Amended and Restated Articles of
Incorporation), the redemption price shall be the higher of (A) the Fair Market
Value of the Common Stock issuable upon conversion of such Series A Preferred
Stock as of the Liquidity Exercise Date, or (B) the Series A Liquidation Amount
(as defined in the Company's Amended and Restated Articles of Incorporation); or
(ii) if the redemption occurs after a Qualified Public Offering, the redemption
price shall be the Series A Liquidation Amount. For purposes of this Agreement,
the Fair Market Value of the Common Stock issuable on conversion of the Series A
Preferred Stock shall be, as of a particular date, (i) with respect to one share
of Common Stock, if the aggregate Daily Prices of all of the outstanding shares
of Common Stock that have been registered pursuant to a public offering is at
least $200 million as of such date, the average (weighted by daily trading
volume) of the Daily Prices (defined below) per share of Common Stock for the 20
consecutive trading days immediately prior to such date or (ii) in any other
event, an amount determined in the manner described in clause (5) of the
definition of "Daily Price" below. "Daily Price" means (1) if the shares of such
Common Stock then are listed and traded on the New York Stock Exchange, Inc.
("NYSE"), the closing price on such day as reported on the NYSE Composite
Transactions Tape; (2) if the shares of Common Stock then are not listed and
traded on the NYSE, the closing price on such day as reported by the principal
national securities exchange on which the shares are listed and traded; (3) if
the shares of Common Stock then are not listed and traded on any such securities
exchange, the last reported sale price on such day on the National Market of the
National Association of Securities Dealers, Inc. Automated Quotation System
("NASDAQ"); (4) if the shares of Common Stock then are not traded on the NASDAQ
National Market, the average of the highest reported bid and lowest reported
asked price on such day as reported by NASDAQ; or (5) if there are no bid/asked
prices so reported, an amount agreed upon in good faith by the Company and a
representative designated by the Holders of a majority of the outstanding Series
A Preferred Stock, taking into account, in valuing such shares, all relevant
facts and circumstances; provided, however, that there shall be no discount to
reflect the fact that the shares represent a minority interest in the Company
and no premium to reflect any special voting or approval rights of the Holders
with respect to certain matters. If no such agreement is reached pursuant to
clause (5) above or clause (ii) of the definition of "Fair Market Value" within
thirty (30) days after notice is given to the Company of the Holders' exercise
of the Option the Fair Market Value shall be determined by appraisal as set
forth below.
(b) All appraisals shall be undertaken by two appraisers, one
selected by the Board of Directors of the Company and one selected by the
Holders of a majority of the outstanding Series A Preferred Stock. No Director
whose Series A Preferred Stock is being appraised or who is designated by or
affiliated with a person whose Series A Preferred Stock is being appraised shall
vote on the selection of the appraiser chosen by the Company. In the event the
Board of Directors or Holders fails to appoint an appraiser within a reasonable
period of time, the appraisal shall be undertaken by the remaining single
appraiser. The Fair Market Value shall be the fair market value (determined in
the manner described above) arrived at by the appraisers (based upon the number
of shares of Common Stock into which the Series A Preferred Stock is convertible
(as determined in the Company's Amended and Restated Articles of Incorporation))
within thirty (30) days following the appointment of the last appraiser to be
appointed. In the event that the two appraisers agree in good faith on such fair
market value within such a period of time, such agreed value shall be used for
these purposes. If the appraisers cannot agree but their valuations are within
10% of each other, the fair market value shall be the mean of the two
valuations. If the appraisers cannot agree and the differences in the valuations
are greater than
2
<PAGE>
10%, the appraisers shall select a third appraiser who will calculate fair
market value independently (provided that such calculation shall not be more
than the value calculated by the appraiser selected by the Holders or less than
the value calculated by the appraiser selected by the Board of Directors) and,
except as provided in the next sentence, the fair market value of the shares
shall be the mean of the two fair market values arrived at by the appraisers who
are closest in amount. If one appraiser's valuation is the mean of the other two
valuations, such mean valuation shall be the fair market value. In the event
that the two original appraisers cannot agree upon a third appraiser within ten
(10) days following the end of the thirty (30) day period referred to above,
then the third appraiser, which appraiser shall be a nationally recognized
investment banking firm, shall be appointed by the American Arbitration
Association in Washington, D.C. If, following the final determination of the
purchase price for the shares, a Holder previously offering its shares for
repurchase shall choose not to sell any or all of its shares, then such Holder
shall so notify the Company within ten (10) days following receipt of the
results of the appraisal; provided that if a Holder shall choose not to sell any
of its shares, such Holder shall forfeit its Option hereunder. Notwithstanding
the foregoing, if a Holder chooses not to sell any of its shares as a result of
the Company's delay in repurchase pursuant to Section 3(b) below, such Holder
shall not be required to forfeit its Option. The expenses of the appraisers will
be borne by the Company.
3. Payment.
(a) Within sixty (60) days following either the agreement, as
provided above, of the Company and the Holders concerning the Fair Market Value
of the Series A Preferred Stock or the receipt of the results of the last of the
appraisals referred to above (the date of closing hereinafter referred to as the
"Redemption Date"), the Company shall purchase the Series A Preferred Stock
tendered to it at the price established by this Agreement (the "Redemption
Price"). The Company shall pay the Redemption Price for the tendered Series A
Preferred Stock on the Redemption Date.
(b) Notwithstanding the other provisions of this Agreement,
the Company shall not be obligated to repurchase any Series A Preferred Stock to
the extent such repurchase would violate applicable law. If, on account of the
first sentence of this subparagraph (b) the Company cannot fund the entire
purchase price of all of the Series A Preferred Stock offered for redemption on
the Redemption Date, the Company shall pay for such remaining Series A Preferred
Stock when permitted; and any amounts not paid at the Redemption Date shall be
paid as soon as permitted. Upon redemption of any Series A Preferred Stock, all
rights of such Series A Preferred Stock shall terminate.
(c) Payment shall be made by check or wire transfer of funds
to such bank account as the Holders shall direct.
4. Termination of Option. Except as provided in Section 2(b) above, the
obligation of the Company to purchase the Series A Preferred Stock as provided
in this Agreement shall terminate if the Company does not receive the Investors'
Notice within sixty (60) after receipt by the Holders of the Redemption Notice.
In addition, the obligations of the Company to purchase the Series A Preferred
Stock shall terminate at such time as the Series A Preferred Stock is converted
into Common Stock or at such time as the Company elects to terminate certain
rights
3
<PAGE>
of the Series A Preferred Stock pursuant to Article IV, Section 4(m) of
the Company's Amended and Restated Articles of Incorporation.
5. Amendments; Waivers and Consents. Any provision in this Agreement to
the contrary notwithstanding, changes in or additions to this Agreement may be
made if the Company shall obtain consent thereto in writing from the Holders
holding at least a majority of the Series A Preferred Stock; and compliance with
any covenant or provision herein set forth may be omitted or waived (in a
particular instance and either retroactively or prospectively) if the Company
shall obtain consent thereto in writing from the Holders holding at least a
majority of the Series A Preferred Stock. No failure or delay on the part of any
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege.
6. Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors and assigns, heirs, executors and administrators of the
parties hereto, provided that the Company may not assign its obligations under
this Agreement.
7. Entire Agreement. This Agreement, along with the Amended and
Restated Articles of Incorporation, the Series A Purchase Agreement, the
Warrant, the Shareholders Agreement and the Investor Rights Agreement,
constitutes the full and entire understanding and agreement among the parties
with regard to the subjects hereof and thereof and supersedes all prior
agreements and understanding between them or any of them as to such subject
matter. This Agreement shall not confer any rights or remedies upon any person
or entity other than the parties hereto and their respective successors and
permitted assigns.
8. Severability. Any invalidity, illegality or limitation of the
enforceability with respect to any party of any one or more of the provisions of
this Agreement, or any part thereof, whether arising by reason of the law of any
such person's domicile or otherwise, shall in no way affect or impair the
validity, legality or enforceability of the remainder of this Agreement with
respect to such party or the validity, legality or enforceability of this
Agreement with respect to any other party. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall to the extent
practicable, be modified so as to make it valid, legal and enforceable and to
retain as nearly as practicable the intent of the parties, and the validity,
legality, and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
9. Notices. All notices and other communications between the Company
and the Holders shall be delivered in the manner set forth in the Investor
Rights Agreement.
10. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall constitute an original but all of which shall
constitute but one and the same instrument. One or more counterparts of this
Agreement or any exhibit hereto may be
4
<PAGE>
delivered via telecopier, with the intention that they shall have the same
effect as an original counterpart hereof.
11. Effect of Headings. The article and section headings herein are for
convenience only and shall not affect the construction hereof.
12. Recapitalization, etc. In the event that any capital stock or other
securities are issued in respect of, in exchange for, or in substitution of, any
shares of Series A Preferred Stock by reason of any reorganization,
recapitalization, reclassification, merger, consolidation, spin-off, partial or
complete liquidation, stock dividend, split-up, sale of assets, distribution to
stockholders or combination of the shares of Series A Preferred Stock or any
other change in capital structure of the Company, appropriate adjustments shall
be made with respect to the relevant provisions of this Agreement so as to
fairly and equitably preserve, as far as practicable, the original rights and
obligations of the parties hereto under this Agreement.
13. Governing Law. This Agreement shall be deemed a contract made under
the laws of the State of North Carolina and together with the rights and
obligations of the parties hereunder, shall be construed under and governed by
the laws of such State without regard to the conflicts of laws provisions
thereof.
14. Specific Performance. Each of the parties hereto expressly agrees
that the other parties hereto may be irreparably damaged if this Agreement is
not specifically enforced. Upon a breach or threatened breach of the terms or
covenants of this Agreement by any party hereto, the other parties shall, in
addition to all other remedies, each be entitled to apply for a temporary or
permanent injunction and/or a decree for specific performance in accordance with
the provisions hereof.
[THE NEXT PAGE IS THE SIGNATURE PAGE.]
5
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Redemption Agreement
to be duly executed as of the date first above written.
COMPANY: BTI TELECOM CORP.
By: /s/ Peter T. Loftin
_________________________________________
Name: Peter T. Loftin
Title: Chief Executive Officer
INVESTOR: WELSH, CARSON, ANDERSON & STOWE VIII, L.P.
By: WCAS VIII Associates LLC, General Partner
By: /s/ Jonathan M. Rather
_______________________________________
Name: Jonathan M. Rather
Title: Member
WCAS INFORMATION PARTNERS, L.P.
By: WCAS Info Partners, General Partner
By: /s/ Jonathan M. Rather
_______________________________________
Name: Jonathan M. Rather
Title: Attorney-in-fact
BTI INVESTORS LLC
By: /s/ Jonathan M. Rather
________________________________________
Name: Jonathan M. Rather
Title: Authorized Person
6
EXHIBIT 10.23
BTI TELECOM CORP.
- --------------------------------------------------------------------------------
INVESTOR RIGHTS AGREEMENT
December 28, 1999
- --------------------------------------------------------------------------------
<PAGE>
BTI TELECOM CORP.
INVESTOR RIGHTS AGREEMENT
December 28, 1999
INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
PAGE
ARTICLE I.........................................................................................................1
REGISTRATION RIGHTS............................................................................................1
1.1 CERTAIN DEFINITIONS...................................................................................1
1.2 DEMAND REGISTRATIONS..................................................................................3
1.3 "PIGGY BACK" REGISTRATIONS............................................................................4
1.4 EXPENSES OF REGISTRATION..............................................................................5
1.5 REGISTRATION PROCEDURES...............................................................................6
1.6 INDEMNIFICATION.......................................................................................8
1.7 INFORMATION BY HOLDER................................................................................11
1.8 LIMITATIONS ON REGISTRATION RIGHTS...................................................................11
1.9 RESERVED.............................................................................................11
1.10 RULE 144 REPORTING................................................................................11
1.11 LISTING APPLICATION...............................................................................12
1.12 RESERVED..........................................................................................12
1.13 MARKET STAND OFF..................................................................................12
1.14 DAMAGES...........................................................................................13
1.15 TERMINATION OF REGISTRATION RIGHTS................................................................13
ARTICLE II.......................................................................................................13
PREEMPTIVE RIGHTS.............................................................................................13
2.1 RIGHT OF PURCHASE....................................................................................13
2.2 DEFINITION OF NEW SECURITIES.........................................................................13
2.3 NOTICE FROM THE COMPANY..............................................................................14
2.4 SALE BY THE COMPANY..................................................................................14
2.5 TERMINATION OF RIGHTS................................................................................15
ARTICLE III......................................................................................................15
INFORMATION RIGHTS............................................................................................15
3.1 ACCOUNTS AND REPORTS.................................................................................15
3.2 INSPECTION...........................................................................................16
3.3 MEETINGS OF THE BOARD OF DIRECTORS...................................................................17
3.4 RESTRICTIONS ON INFORMATION RIGHTS...................................................................17
ARTICLE IV.......................................................................................................18
MISCELLANEOUS.................................................................................................18
4.1 RECAPITALIZATION, ETC................................................................................18
4.2 SUCCESSORS AND ASSIGNS...............................................................................18
4.3 ENTIRE AGREEMENT.....................................................................................18
4.4 SEVERABILITY.........................................................................................18
4.5 SHARES OWNED BY AFFILIATES...........................................................................18
4.6 AMENDMENTS AND WAIVERS...............................................................................19
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
4.7 NOTICES..............................................................................................19
4.8 COUNTERPARTS.........................................................................................20
4.9 EFFECT OF HEADINGS...................................................................................20
4.10 GOVERNING LAW.....................................................................................20
4.12 SPECIFIC ENFORCEMENT.................................................................................19
</TABLE>
ii
<PAGE>
BTI TELECOM CORP.
INVESTOR RIGHTS AGREEMENT
THIS INVESTOR RIGHTS AGREEMENT (the "Agreement") is entered into as of
the 28th day of December 1999, by and among BTI Telecom Corp., a North Carolina
corporation (the "Company"), and Welsh, Carson, Anderson & Stowe VIII, L.P., a
Delaware limited partnership, WCAS Information Partners, L.P., a Delaware
limited partnership, and BTI Investors LLC, a Delaware limited liability company
(collectively, the "Investor"). Capitalized terms used herein as defined terms
and not otherwise defined shall have the meanings set forth in the Series A
Purchase Agreement (as defined below) or its Related Agreements (as such term is
defined in the Series A Purchase Agreement).
WHEREAS, in connection with the issuance and sale of shares of the
Company's Series A Preferred Stock (the "Series A Stock" or the "Preferred
Stock") and warrants (collectively, the "Warrant") to purchase shares of the
Company's Common Stock (the "Warrant Stock") to the Investor pursuant to that
certain Series A Preferred Stock Purchase Agreement, dated December 10, 1999, by
and among the Company, the Investor and FS Multimedia, Inc. (the "Series A
Purchase Agreement"), the Company desires to provide the Investor certain rights
with respect to registration of the shares of stock held by it and certain other
rights with respect to such shares as an inducement to the Investor to purchase
shares of the Series A Stock;
NOW, THEREFORE, in consideration of the mutual agreements, covenants
and conditions contained herein, the Company and the Investor hereby agree as
follows.
ARTICLE I
REGISTRATION RIGHTS
The Company hereby grants to each of the Holders (as defined below) the
registration rights set forth in this Article I, with respect to the Registrable
Securities (as defined below) owned by such Holders.
1.1 Certain Definitions. As used in this Agreement, the following
terms shall have the following meanings:
"Conversion Value" shall mean the Series A Conversion Value as defined
in Article IV.4 of the Company's Amended and Restated Articles of Incorporation.
"Holder" (collectively, "Holders") means the Investor and each of its
assignees who is then a record owner of Registrable Securities.
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"Initiating Holder(s)" means the Investor or its assignees who in the
aggregate are holders of at least a majority of the Registrable Securities held
by all Holders and their assigns.
"Person" means an individual, corporation, partnership, joint venture,
trust, limited liability company or any other entity, or unincorporated
organization or a government or agency or political subdivision thereof.
"Qualified Public Offering" shall have the meaning set forth in Article
IV of the Company's Amended and Restated Articles of Incorporation.
"Registrable Securities" means (i) all shares of Series A Stock owned
by any Holder, (ii) all of the shares of the Company's common stock, no par
value per share (the "Common Stock"), issued or issuable upon conversion of the
shares of Preferred Stock owned by any Holder (the "Conversion Shares"), (iii)
all other shares of Common Stock now owned or hereafter acquired by any Holder;
(iv) all shares of Common Stock issuable with respect to securities of the
Company (including the Warrant) convertible into or exercisable for shares of
Common Stock now owned or hereafter acquired by any Holder; and (v) any Common
Stock or other securities issued in respect of the shares described in clauses
(i) through (iv) upon any stock split, stock dividend, recapitalization or other
similar event; provided, however, that shares of Common Stock or other
securities shall only be treated as Registrable Securities if and so long as (A)
they have not been sold to or through a broker or dealer or underwriter in a
public distribution or a public securities transaction, and (B) the registration
rights associated with such securities have not been terminated pursuant to
Section 1.15 hereof.
The term "register" means to register under the Securities Act of 1933,
as amended (the "1933 Act") and applicable state securities laws for the purpose
of effecting a public sale of securities.
"Registration Expenses" means all expenses incurred by the Company in
compliance with Sections 1.2 or 1.3 hereof, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, blue sky fees and expenses, expenses of listing the
Registrable Securities on a securities exchange, reasonable fees and
disbursements of one counsel for all the selling Holders (which counsel shall be
selected by the Initiating Holders in the case of any registration requested
pursuant to Section 1.2), and the expense of any special audits incident to or
required by any such registration.
"Selling Expenses" means all taxes, underwriting discounts and selling
commissions applicable to the sale of Registrable Securities.
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1.2 Demand Registrations.
(a) Demand for Registration. If the
Company shall receive from Initiating Holders a written demand that the Company
effect any registration (a "Demand Registration") of the Registrable Securities
(including a registration on Form S-3 or any successor form of registration
statement) having an anticipated net aggregate offering price (after deduction
of Selling Expenses) of at least $25,000,000, the Company will:
(i) promptly give written notice of the proposed
registration to all other Holders; and
(ii) as soon as practicable, use commercially
reasonable efforts to effect such registration as may be so requested
and as would permit or facilitate the sale and distribution of all or
such portion of such Registrable Securities as are specified in such
demand, together with such portion of the Registrable Securities of any
Holder or Holders joining in such demand as are specified in a written
demand given within twenty (20) days after receipt of written notice of
such proposed registration from the Company, provided that the Company
shall not be obligated to take any action to effect any such
registration, pursuant to this Section 1.2:
(A) Except as otherwise provided below,
after the Company has effected one (1) such registration
pursuant to this Section 1.2 and all of the Registrable
Securities included in such registration have been sold;
(B) If the Company shall furnish to such
Holders a certificate signed by the President of the Company,
stating that in the good faith judgment of the Board of
Directors of the Company it would be significantly detrimental
to the Company and its shareholders for such Registration
Statement to be filed at the date filing would be required in
light of the existence, or in anticipation, of any acquisition
or financing activity involving the Company or the
unavailability for reasons beyond the Company's control of any
required financial statements, in which case the Company shall
have an additional period of not more than 90 days within
which to file such Registration Statement; provided, however,
that the Company shall not use this right more than once in
any 12-month period; or
(C) Prior to December 31, 2002.
The Initiating Holders may, at any time prior to the effective
date of the registration statement relating to such
registration, revoke such request, without forfeiture of their
demand right under Section 1.2 and without liability (except
as set forth in Section 1.4) to any other Holder of
Registrable Securities requested to be registered pursuant to
this Section 1.2, by providing a written notice to the Company
revoking such request.
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(b) Underwriting. If the Initiating Holders intend to
distribute the Registrable Securities covered by their demand by means of an
underwriting, they shall so advise the Company as part of their demand made
pursuant to this Section 1.2; and the Company shall include such information in
the written notice referred to in Section 1.2(a)(i). In such event, the right of
any Holder to registration pursuant to this Section 1.2 shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting to the extent provided
herein.
The Company shall, together with all holders of capital stock
of the Company proposing to distribute their securities through such
underwriting, enter into an underwriting agreement in customary form with the
underwriter or underwriters selected by a majority-in-interest of the Initiating
Holders and reasonably satisfactory to the Company. Notwithstanding any other
provision of this Section 1.2, if the managing underwriter shall advise the
Company that marketing factors (including, without limitation, an adverse effect
on the per share offering price) require a limitation of the number of shares to
be underwritten, then the Company shall so advise all Holders of Registrable
Securities that have requested to participate in such offering, and the number
of shares of Registrable Securities that may be included in the registration and
underwriting shall be allocated pro rata among such Holders thereof in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities held by such Holders at the time of filing the Registration
Statement. No Registrable Securities excluded from the underwriting by reason of
the underwriter's marketing limitation shall be included in such registration.
If at least 50% of the Registrable Securities requested to be registered by the
Initiating Holders are not included in such registration, then the Initiating
Holders may request that the Company effect an additional registration under the
1933 Act of all or part of the Initiating Holders' Registrable Securities in
accordance with Section 1.2 and the Company shall pay the Registration Expenses
in connection with such additional registration.
If any Holder disapproves of the terms of the underwriting,
such Holder may elect to withdraw therefrom by written notice to the Company,
the underwriter and the Initiating Holders. The Registrable Securities so
withdrawn shall also be withdrawn from registration.
If the underwriter has not limited the number of Registrable
Securities to be underwritten, the Company may include securities for its own
account (or for the account of other shareholders) in such registration if the
underwriter so agrees and if the number of Registrable Securities would not
thereby be limited.
1.3 "Piggy Back" Registrations.
(a) If, at anytime after the earlier of six months after an
initial public offering of equity securities of the Company or the release of
the lock-up restrictions imposed by Section 1.13 hereof or otherwise imposed by
the Company's underwriters in connection with the Company's initial public
offering, the Company shall determine to register any of its
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securities, either for its own account or the account of a security holder or
holders exercising their registration rights, other than a registration relating
solely to employee benefit plans, a registration on Form S-4 relating solely to
a Rule 145 transaction or a registration on any registration form which does not
permit secondary sales, the Company will:
(i) promptly give to each Holder of Registrable Securities
written notice thereof (which shall include the number of shares the
Company or other security holder proposes to register and, if known,
the name of the proposed underwriter); and
(ii) use its reasonable best efforts to include in such
registration all the Registrable Securities specified in a written
request or requests, made by any Holder within fifteen (15) days after
the date of delivery of the written notice from the Company described
in clause (i) above. If the managing underwriter advises the Company
that marketing considerations require a limitation on the number of
shares offered pursuant to any registration statement, then the Company
may offer all of the securities it proposes to register for its own
account or the maximum amount that the managing underwriter considers
saleable and such limitation on any remaining securities that may, in
the opinion of the managing underwriter, be sold will be imposed pro
rata among all stockholders who are entitled to include shares in such
registration statement according to the number of Registrable
Securities and other securities with comparable rights with respect to
registration each such stockholder requested to be included in such
registration statement, provided that all other shares without
contractual registration rights proposed to be included in such
registration are first excluded.
(b) The Company shall select the underwriter for an offering
made pursuant to this Section 1.3. The Company may, at its option, terminate or
withdraw any registration statement filed pursuant to this Section 1.3 prior to
the effectiveness thereof.
(c) If any Holder disapproves of the terms of the
underwriting, such holder may elect to withdraw therefrom by written notice to
the Company, the underwriter and the Initiating Holders. The Registrable
Securities so withdrawn shall be withdrawn from registration.
1.4 Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Section 1.2 or 1.3 shall be paid by the Company. All Selling Expenses incurred
in connection with any such registration, qualification or compliance shall be
borne by the holders of the securities registered, pro rata on the basis of the
number of their shares so registered. Notwithstanding the foregoing, the Company
shall not be liable for Registration Expenses in connection with a registration
that shall not have become effective due to a revocation by the Initiating
Holders requesting such registration under Section 1.2, and such Registration
Expenses shall be borne by the Initiating Holders who initially requested and
revoked such registration.
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1.5 Registration Procedures. In the case of each registration effected
by the Company pursuant to this Article I, the Company will keep each Holder of
Registrable Securities included in such registration advised in writing as to
the initiation of each registration and as to the completion thereof. At its
expense, the Company will do the following for the benefit of such Holders:
(a) Keep such registration effective (and not subject to a
stop order or injunction) for a period of one hundred twenty (120) days or until
the Holder or Holders have completed the distribution described in the
registration statement relating thereto, whichever first occurs, and amend or
supplement such registration statement and the prospectus contained therein from
time to time to the extent necessary to comply with the 1933 Act and applicable
state securities laws;
(b) As expeditiously as possible, prepare and file with the
Securities and Exchange Commission (the "Commission") such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the 1933 Act with respect to the disposition of all securities
covered by such registration statement;
(c) Use its reasonable best efforts to register or qualify the
Registrable Securities covered by such registration under the applicable
securities or "blue sky" laws of such jurisdictions as the selling stockholders
may reasonably request; provided, that the Company shall not be obligated to
qualify to do business in any jurisdiction where it is not then so qualified or
otherwise required to be so qualified or to take any action which would subject
it to the service of process in suits other than those arising out of such
registration;
(d) Furnish such number of registration statements,
prospectuses and other documents incident thereto, including any amendment or
supplement thereto, as a Holder from time to time may reasonably request;
provided that the Company will, during the preparation of the registration
statement or prospectus or any amendment or supplement thereto, furnish in a
timely manner under the circumstances to each Holder including shares in such
registration copies of such registration statement or prospectus (or amendment
or supplement) as proposed to be filed (including, upon the request of such
Holder, documents to be incorporated by reference therein) which documents will
be subject to the reasonable review and comments of such Holder (and its
attorneys) and the Company will not file any registration statement, any
prospectus or any amendment or supplement thereto (or any such documents
incorporated by reference) containing any statements with respect to such Holder
to which such Holder shall reasonably object in writing;
(e) In connection with any underwritten offering pursuant to a
registration statement filed pursuant to Section 1.2 hereof, the Company will
enter into any underwriting agreement reasonably necessary to effect the offer
and sale of Common Stock, provided such underwriting agreement contains
customary underwriting provisions and is entered into by the Holders including
Registrable Securities in such offering;
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(f) Obtain a comfort letter from the Company's independent
public accountants consistent with applicable professional guidelines and
standards in customary form and covering such matters of the type customarily
covered by comfort letters and an opinion from the Company's counsel in
customary form and covering such matters of the type customarily covered in a
public issuance of securities, in each case addressed to the Holders, and
provide copies thereof to the Holders;
(g) Permit any attorney, accountant or other agent retained by
the Holders to inspect and copy such corporate documents as any such Holder,
attorney, accountant or agent may reasonably request;
(h) Promptly notify each Holder of the Registrable Securities
and each underwriter under such registration statement, at any time when a
prospectus relating thereto is required to be delivered under the 1933 Act, of
the happening of an event of which the Company has knowledge as a result of
which the prospectus contained in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing, and promptly
prepare and furnish to such Holder a reasonable number of copies of a prospectus
supplemented or amended so that, as thereafter delivered to the purchasers of
Registrable Securities, such prospectus shall not include an untrue statement or
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances then existing;
(i) Use commercially reasonable best efforts to comply with
all applicable rules and regulations of the Commission, and make available to
Holders, as soon as reasonably practicable, an earnings statement covering a
period of twelve (12) months, beginning within three (3) months after the
effective date of the registration statement. The Company will use reasonable
best efforts to cause the earnings statement to satisfy the provisions of
Section 11(a) of the 1933 Act;
(j) Cause appropriate officers of the Company to attend and
participate in any "road shows" and analyst and investor presentations scheduled
in connection with any such registration and use its reasonable best efforts to
cooperate as reasonably requested by the Holders in the marketing of the
Registrable Securities; and
(k) Cooperate with the Holders of Registrable Securities to
take such actions as are reasonably required in order to facilitate the
disposition of Registrable Securities, including to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be sold, such certificates to be in such denominations and registered in such
names as such Holders may request at least two (2) business days prior to any
sale of Registrable Securities.
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1.6 Indemnification.
(a) The Company will, and hereby does, indemnify each Holder,
each of its officers, directors and partners, and each person controlling such
Holder within the meaning of the 1933 Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Article I, and
each underwriter, if any, and each person who controls such underwriter within
the meaning of the 1933 Act, against all claims, losses, damages and liabilities
(or actions in respect thereof) (i) arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
prospectus, offering circular or other document (including any related
registration statement, notification or the like) or any amendment or supplement
thereto incident to any such registration, qualification or compliance, or based
on any omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
or (ii) arising out of any violation by the Company of the 1933 Act or the
Securities Exchange Act of 1934, as amended, or securities act of any state or
any rule or regulation thereunder applicable to the Company and relating (in the
case of clause (ii)) to action or inaction required of the Company in connection
with any such registration, qualification or compliance, and will reimburse each
such Holder, each of its officers, directors and partners, and each person
controlling such Holder, each such underwriter and each person who controls any
such underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating and defending any such claim, loss, damage,
liability or action, whether or not resulting in any liability, provided that
the Company will not be liable in any such case to the extent that any such
claim, loss, damage, liability or expense arises out of or is based on any
untrue statement (or alleged untrue statement) or omission (or alleged omission)
based upon written information furnished to the Company by any such Holder or
underwriter and stated to be specifically for use therein.
(b) Each Holder, severally and not jointly, will, if
Registrable Securities held by it are included in the securities as to which
such registration, qualification or compliance is being effected, indemnify the
Company, each of its directors and officers, and each underwriter, if any, of
the Company's securities covered by such a registration statement, each person
who controls the Company or such underwriter within the meaning of the 1933 Act
and the rules and regulations thereunder, and each of their officers, directors
and partners, against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the Company and such directors, officers, partners, persons, underwriters or
control persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, whether or not resulting in liability, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information
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furnished to the Company by such Holder and stated to be specifically for use
therein; provided, however, that the obligations of each Holder hereunder shall
be limited to an amount equal to the net proceeds received by such Holder from
the sale of Registrable Securities covered by such registration statement.
(c) Each party entitled to indemnification under this Section
1.6 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, but the
failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations under this Section 1.6 (except and to the
extent the Indemnifying Party has been materially prejudiced as a consequence
thereof). The Indemnifying Party shall be responsible for the payment of all
fees and expenses in connection with the defense of any such claim or any
litigation resulting therefrom and will be entitled to participate in, and to
the extent that it may elect by written notice delivered to the Indemnified
Party promptly after receiving the aforesaid notice from such Indemnified Party,
at its expense to assume, the defense of any such claim or any litigation
resulting therefrom, with counsel reasonably satisfactory to such Indemnified
Party, provided that the Indemnified Party may participate in such defense at
its expense, notwithstanding the assumption of such defense by the Indemnifying
Party, and provided, further, that if the defendants in any such action shall
include both the Indemnified Party and the Indemnifying Party and the
Indemnified Party shall have reasonably concluded that there may be legal
defenses available to it and/or other Indemnified Parties which are different
from or additional to those available to the Indemnifying Party, the Indemnified
Party or Parties shall have the right to select separate counsel to assert such
legal defenses and to otherwise participate in the defense of such action on
behalf of such Indemnified Party or Parties and the reasonable fees and expenses
of such counsel shall be paid by the Indemnifying Party. No Indemnifying Party,
in the defense of any such claim or litigation, shall, except with the consent
of each Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation. Each Indemnified Party shall
(i) furnish such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with defense of such claim and litigation resulting
therefrom and (ii) shall reasonably assist the Indemnifying Party in any such
defense, provided that the Indemnified Party shall be entitled to be reimbursed
by the Indemnifying Party for its out-of-pocket expenses paid in connection with
such assistance.
(d) If the indemnification provided for in this Section 1.6 is
held by a court of competent jurisdiction to be unavailable to the Indemnified
Parties in respect of any losses, claims, damages or liabilities referred to
herein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party, shall contribute to the amount paid or payable by such Indemnified Party
as a result of such losses, claims, damages or liabilities (i) as between the
Company and the Holders holding Registrable Securities covered by a registration
statement on the one hand and the underwriters on the other, in such proportion
as is appropriate to reflect
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the relative benefits received by the Company and such Holders on the one hand
and the underwriters on the other, from the offering of the Registrable
Securities, or if such allocation is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits but also
the relative fault of the Company and such Holders on the one hand and of such
underwriters on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations and (ii) as between the Company on the one
hand and each such Holder on the other, in such proportion as is appropriate to
reflect the relative fault of the Company and of each such Holder in connection
with such statements or omissions, as well as any other relevant equitable
considerations. The relative benefits received by the Company and such Holders
on the one hand and such underwriters on the other shall be deemed to be in the
same proportion as the total proceeds from the offering (net of underwriting
discounts and commissions but before deducting expenses) received by the Company
and such Holders bear to the total underwriting discounts and commissions
received by such underwriters, in each case as set forth in the table on the
cover page of the prospectus. The relative fault of the Company and such Holders
on the one hand and of such underwriters on the other shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company and such Holders or by such
underwriters. The relative fault of the Company on the one hand and of each such
Holder on the other shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by such party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Holders agree that it would not
be just and equitable if contribution pursuant to this Section 1.6(d) were
determined by PRO RATA allocation (even if the underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an Indemnified Party as a
result of the losses, claims, damages or liabilities referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such Indemnified Party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 1.6(d), no
underwriter shall be required to contribute any amount in excess of the amount
by which the underwriting discount applicable to Registrable Securities
purchased by such underwriter in such offering exceeds the amount of any damages
which such underwriter has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission, and no
Holder shall be required to contribute any amount in excess of the amount by
which the net proceeds realized on the sale of the Registrable Securities of
such Holder exceeds the amount of any damages which such Holder has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
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misrepresentation. Each Holder's obligation to contribute pursuant to this
Section 1.6(d) is several in the proportion that the proceeds of the offering
received by such Holder bears to the total proceeds of the offering received by
all such Holders and not joint.
(e) No Holder shall be required to participate in a
registration pursuant to which it would be required to execute an underwriting
agreement in connection with a registration effected under Section 1.2 or 1.3
which imposes indemnification or contribution obligations on such Holder more
onerous than those imposed hereunder; provided, however, that the Company shall
not be deemed to breach the provisions of Section 1.2 or 1.3 if a Holder is not
permitted to participate in a registration on account of his refusal to execute
an underwriting agreement on the basis of this subsection (d).
1.7 Information by Holder. Each Holder of Registrable Securities
included in any registration shall furnish to the Company such information
regarding such Holder and the distribution proposed by such Holder as the
Company may reasonably request in writing and as shall be reasonably required in
connection with any registration, qualification or compliance referred to in
this Article I or otherwise required by applicable state or federal securities
laws.
1.8 Limitations on Registration Rights. From and after the date of this
Agreement, the Company shall not enter into any agreement with any holder or
prospective holder of any securities of the Company giving such holder or
prospective holder (a) the right to require the Company, upon any registration
of any of its securities, to include, among the securities which the Company is
then registering, securities owned by such holder, unless under the terms of
such agreement, such holder or prospective holder may include such securities in
any such registration only to the extent that the inclusion of its securities
will not limit the number of Registrable Securities sought to be included by the
Holders of Registrable Securities or reduce the offering price thereof; or (b)
the right to require the Company to initiate any registration of any securities
of the Company unless the Holders are entitled to participate in such
registration on a pro rata basis with the Person who initiated such
registration.
1.9 Reserved.
1.10 Rule 144 Reporting. With a view to making available the benefits
of certain rules and regulations of the Commission which may permit the sale of
restricted securities (as that term is used in Rule 144 under the 1933 Act) to
the public without registration, the Company agrees to:
(a) make and keep public information available as those terms
are understood and defined in Rule 144 under the 1933 Act, at all times from and
after ninety (90) days following the effective date of the first registration
under the 1933 Act filed by the Company for an offering of its securities to the
general public;
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(b) use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
1933 Act and the Exchange Act at any time after it has become subject to such
reporting requirements; and
(c) so long as a Holder owns any Registrable Securities,
furnish to the Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of Rule 144 (at any time
from and after ninety (90) days following the effective date of the first
registration statement filed by the Company for an offering of its securities to
the general public), and of the 1933 Act and Exchange Act (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
so filed as a Holder may reasonably request in availing itself of any rule or
regulation of the Commission allowing a Holder to sell any such securities
without registration.
1.11 Listing Application. If shares of any class of stock of the
Company shall be listed on a national securities exchange, the Company shall, at
its expense, include in its listing application all of the shares of the listed
class then owned by any Holder at the time the initial public offering by the
Company pursuant to a registration statement filed under the 1933 Act..
1.12 Reserved.
1.13 "Market Stand Off" Agreement. Each Holder hereby agrees that
during the 180 day period following the effective date of the initial public
offering by the Company pursuant to a registration statement filed under the
1933 Act and during the 180 day period (or such shorter period Peter T. Loftin
agrees to pursuant to a similar agreement with the Company) following the
effective date of any subsequent offering of the Company pursuant to a
registration statement filed under the 1933 Act, it shall not, to the extent
requested by the Company and any managing underwriter, publicly sell, make any
short sale of, or otherwise publicly transfer or dispose of (other than to
donees who agree to be similarly bound) any Common Stock held by it at any time
during such period except Common Stock included in such registration; provided
that Peter T. Loftin enters into a similar agreement with the Company. In order
to enforce the foregoing covenant, the Company may impose stop transfer
instructions with respect to the Registrable Securities of each Holder (and the
shares or securities of every other person subject to the foregoing restriction)
until the end of such period.
The Company agrees that any agreement entered into after the date of
this Agreement pursuant to which the Company issues or agrees to issue any
privately placed securities shall contain a provision under which holders of
such securities agree not to effect any public sale of distribution of any such
securities during the periods described in Section 1.13 above, in each case
including a sale pursuant to Rule 144 (except as part of any such registration,
if permitted).
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1.14 Damages. The Company recognizes and agrees that the holders of
Registrable Securities shall not have an adequate remedy if the Company fails to
comply with the provisions of this Article I, and that damages will not be
readily ascertainable, and the Company expressly agrees that in the event of
such failure any Holder of Registrable Securities shall be entitled to seek
specific performance of the Company's obligations hereunder and that the Company
will not oppose an application seeking such specific performance based on there
being an adequate remedy at law.
1.15 Termination of Registration Rights. No Holder shall be permitted
to exercise the rights afforded under Sections 1.2 or 1.3 after the time when
such Holder owns less than one percent (1%) of the Company's outstanding shares
of Common Stock (computed on a fully-diluted basis).
ARTICLE II
PREEMPTIVE RIGHTS
2.1 Right of Purchase. The Company hereby grants to each Holder so long
as it shall own, of record or beneficially, any shares of Preferred Stock or
Common Stock, the right to purchase all or part of its pro rata share of New
Securities (as defined in Section 2.2 below) which the Company, from time to
time, proposes to sell and issue. A Holder's pro rata share, for purposes of
this preemptive right, is the fraction, the numerator of which is the number of
issued or issuable shares of Common Stock which such Holder owns and the
denominator of which is the total number of shares of Common Stock then
outstanding (both the numerator and the denominator being calculated on a
fully-diluted basis). Each Holder shall have a right of over-allotment pursuant
to this Article II such that to the extent a Holder does not exercise its
preemptive right in full hereunder, such additional shares of New Securities
which such Holder did not purchase may be purchased by the other Holders in
proportion to the total number of shares of New Securities which each such other
Holder elected to purchase compared to the total number of shares of New
Securities which all such other Holders elected to purchase.
2.2 Definition of New Securities. "New Securities" shall mean any
capital stock of the Company whether now authorized or not, and rights, options
or warrants to purchase capital stock, and securities of any type whatsoever
that are, or may become convertible into or exchangeable for capital stock,
issued on or after the date hereof; provided that the term "New Securities" does
not include (i) Conversion Shares issuable upon conversion of the Preferred
Stock, (ii) Warrant Stock issuable upon exercise of the Warrant, (iii) Common
Stock issued as a stock dividend to holders of Common Stock or upon any stock
split, subdivision or combination of shares of Common Stock, (iv) Preferred
Stock issued as a dividend to holders of Preferred Stock or upon any stock
split, subdivision or combination of Preferred Stock, (v) shares of Common Stock
issuable upon exercise of options granted under the Company's 1997 Stock Option
Plan, or any other stock option plan approved unanimously by the Board of
Directors of the Company, (vi) securities issued in connection with the
acquisition of any other
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corporation or business concern, whether by acquisition of assets or stock,
(vii) securities issued in connection with strategic or collaborative
relationships and approved unanimously by the Board of Directors of the Company,
and (viii) blank check preferred stock issued to the Company's shareholders
(including a pro rata issuance to the holders of Series A Preferred Stock), in
connection with a rights plan, in accordance with the Company's Articles of
Incorporation, and (ix) capital stock or securities exercisable for or
convertible into such capital stock issued in connection with any borrowings or
equipment lease financings from financial or other institutions regularly
engaged in the business of lending money or leasing equipment if such issuance
is approved unanimously by the Board of Directors of the Company.
2.3 Notice from the Company. In the event the Company proposes to
undertake an issuance of New Securities, it shall give each Holder written
notice of its intention, describing the type of New Securities and the price and
the terms upon which the Company proposes to issue the same. Each Holder shall
have twenty (20) business days from the date of receipt of any such notice to
agree to purchase up to the Holder's pro rata share of such New Securities for
the price and upon the terms specified in the notice by giving written notice to
the Company and stating therein the quantity of New Securities to be purchased.
If any Holder decides not to purchase its full pro rata share of such New
Securities, the Company shall give to the other Holders written notice of their
ability to purchase such additional shares and such Holders shall have ten (10)
business days from the date of receipt of such notice to agree to purchase any
over-allotment amount pursuant to Section 2.1. The closing of the purchase of
the New Securities shall be at the Company's principal place of business within
fifteen (15) days following the expiration of the 20 (or 30) day period, or at
such other time or place as the Company and the Holders may determine; provided
that if any governmental, regulatory or other similar approval or consent is
required prior to the closing of the purchase of the New Securities, such
closing shall occur fifteen (15) days following the later to occur of (i) the
expiration of such 20 (or 30) day period, or (ii) receipt by the Company of such
approval or consent, unless the Company and the Holders otherwise agree.
2.4 Sale by the Company. In the event any Holder fails to exercise in
full its preemptive right (after giving effect to the over-allotment provision
of Section 2.1 hereof), the Company shall have 120 days thereafter to enter into
written agreements that include the price and structure terms with respect to
the sale of the New Securities with respect to which the Holder's option was not
exercised on terms no more favorable to the purchaser than those set forth in
the notice in the notice provided pursuant to Section 2.3. To the extent the
Company does not (i) enter into written agreements that include the price and
structure terms with respect to the sale of all the New Securities offered
within said 120 day period, or (ii) consummate the transactions covered by
written agreements with respect to the sale of New Securities entered into
within said 120 day period on terms no more favorable (and with the same
purchaser or purchasers) than those set forth in such written agreements, the
Company shall not thereafter issue or sell such New Securities without first
again offering such securities to the Holders in the manner provided above.
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2.5 Termination of Rights. The rights granted to the Holders under this
Article II shall expire immediately prior to, and shall not apply in connection
with, the consummation of the Company's first Qualified Public Offering.
ARTICLE III
INFORMATION RIGHTS
Without limiting any other covenants and provisions hereof, the Company
covenants and agrees that it will observe the following covenants until a
Holder's rights terminate pursuant to Section 1.15, unless the failure to comply
with any such covenant is waived by the Holders pursuant to the terms hereof.
3.1 Accounts and Reports. The Company will, and will cause each of its
Subsidiaries to, maintain a standard system of accounts in accordance with
generally accepted accounting principles consistently applied ("GAAP") and the
Company will, and will cause each of its Subsidiaries to, keep full and complete
financial records. The Company will furnish to each Holder the information set
forth in this Section 3.1.
(a) Promptly after being filed with the Commission (or, if no
filing with the Commission is required, within forty-five (45) days after the
end of each fiscal quarter (except the last fiscal quarter of any fiscal year)),
copies of the unaudited consolidated balance sheet of the Company and its
Subsidiaries as of the end of such fiscal quarter and the related consolidated
statements of operations, shareholders' equity and cash flows for such fiscal
quarter and for that portion of the fiscal year ending as of the end of such
fiscal quarter, setting forth in comparative form in each case the consolidated
and consolidating budgeted figures for the corresponding periods and the
consolidated and consolidating actual figures for the corresponding periods in
the preceding fiscal year. To the extent that the Company's Form 10-Q filed with
the Commission satisfies the foregoing requirements, the Company may deliver to
each Holder a copy of the Company's Form 10-Q in lieu of providing such
information separately to each Holder.
(b) Promptly after being filed with the Commission (or, if no
filing with the Commission is required, within ninety (90) days after the close
of each fiscal year), a copy of the annual audited consolidated and
consolidating financial statements of the Company and its Subsidiaries
consisting of the consolidated and consolidating balance sheets and consolidated
and consolidating statements of operations, shareholders' equity and
consolidated and consolidating statements of cash flows, setting forth in
comparative form in each case the consolidated and consolidating figures for the
previous fiscal year, which financial statements shall be prepared in accordance
with GAAP. To the extent that the Company's Form 10-K filed with the Commission
satisfies the foregoing requirements, the Company may deliver to each Holder a
copy of the Company's filed Form 10-K in lieu of providing such information
separately to each Holder.
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(c) Within twenty (20) days after the end of each monthly
accounting period in each fiscal year: (i) unaudited consolidating and
consolidated statements of operations, shareholders' equity and cash flows of
the Company and its Subsidiaries for such monthly period and for the period from
the beginning of the fiscal year to the end of such month, and unaudited
consolidating and consolidated balance sheets of the Corporation and its
Subsidiaries as of the end of such monthly period, setting forth in each case
comparisons to the corresponding period in the preceding fiscal year (all such
statements shall be prepared in accordance with GAAP) and (ii) a summary of such
monthly financial statements, in the form agreed upon by the Company and the
Holders, prepared by the Company's chief financial officer.
(d) Within one (1) day after filing thereof, copies of all
registration statements, proxy statements and all regular, special or periodic
reports or other documents which the Company files, or (to the Company's
knowledge) any of its officers or directors file with respect to the Company,
with the Commission, the National Association of Securities Dealers, Inc. or
with any securities exchange.
(e) At least twenty-four (24) hours or as soon as is
reasonably practicable prior to transmission or release thereof, copies of all
financial statements, proxy statements, reports and any other general written
communications which the Company sends to its stockholders, and copies of all
material press releases and other material public statements made by the Company
(or by any third party, of which the Company has knowledge).
(f) At least twenty-four (24) hours, or as soon as reasonably
practicable, prior thereto, notice of any telephonic or other meetings with
equity or high yield analysts or rating agencies that are open to public
participation.
(g) A copy of the operating and capital expenditure plan and
budget, ("Business Plan") for each fiscal year, when such Business Plan has been
approved by the Board of Directors. Such Business Plan shall be submitted to the
Board of Directors for approval, and discussed at a meeting of the Board held,
no later than March 31 of the fiscal year covered by the Business Plan.
3.2 Inspection. At any reasonable time during normal business hours and
from time to time, but not more frequently than once per calendar quarter for
all Holders and transferees of Holders as a group, upon five (5) days written
notice, the Company (and each of its Subsidiaries) will permit any one or more
of the Holders, or any transferee of any such Holders, who then own, of record
or beneficially, or have the right to acquire, not less than 25% of the
Conversion Shares or Series A Stock or Warrant Stock, or any of the agents or
representatives of the foregoing Persons, to examine and make copies of and
extracts from the records and books of account of and visit the properties of
the Company (and any of its Subsidiaries) and to discuss the Company's affairs,
finances and accounts with any of its officers or directors; provided that any
Person or Persons exercising rights under this Section 3.2 shall (a) use all
reasonable efforts to ensure that any such examination or visit results in a
minimum of disruption to the operations of the Company and shall not occur more
than once per calendar quarter for all Holders and their transferees as a group
and (b) shall agree in
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writing to keep any information of the Company disclosed to him in the course of
such inspection confidential pursuant to Section 4.7 hereof. The rights granted
under this Section 3.2 shall be in addition to any rights which any Holder may
have under Section 1.5(g) or under applicable law in its capacity as a
stockholder of the Company. Any Holder requesting inspection rights shall
deliver written notice of such request to the other Holders simultaneously with
the delivery of such notice to the Company.
3.3 Meetings of the Board of Directors. The Directors shall schedule
regular meetings not less frequently than once every calendar quarter. The
Company shall reimburse the Holders for all reasonable direct out-of-pocket
expenses incurred by any director designees of the Holders in attending Board
meetings and monthly strategy planning meetings.
3.4 Restrictions on Information Rights. The Company shall not be
obligated pursuant to this Article III to provide trade secrets or confidential
information to any person whom the Company reasonably believes is a competitor
of the Company. Notwithstanding anything to the contrary contained herein, the
rights granted pursuant to this Article III may not be assigned or otherwise
conveyed by any Investor or by any subsequent transferee of any such rights
except in connection with a transfer of securities of the Company in which the
transferee acquires at least 25,000 shares of Common Stock (calculated on a
Fully-Diluted Basis) subject to adjustment for combinations, consolidations,
recapitalizations, stock splits, stock dividends and the like, or such lesser
number of shares representing all the shares of the shares owned by the
transferor.
3.5 Confidentiality. The Company hereby agrees that the identity of the
Investor as a stockholder of the Company, and the terms and conditions of the
Investor's investment in the Company, are confidential and shall not be
disclosed by the Company or any of its affiliates to any person (other than the
Company's advisors, employees, investors, analysts and stockholders in the
ordinary course), and that no use of, or reference to, the name of the Investor
or any subsidiaries or affiliates of the Investor shall be made by the Company
or its affiliates, in each case without the prior written consent of the
Investor, except as may be required by applicable law, rule or regulation.
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ARTICLE IV
MISCELLANEOUS
4.1 Recapitalization, etc.. 4.1 Recapitalization, etc. In the event
that any capital stock or other securities are issued in respect of, in exchange
for, or in substitution of, any Shares by reason of any reorganization,
recapitalization, reclassification, merger, consolidation, spin-off, partial or
complete liquidation, stock dividend, split-up, sale of assets, distribution to
stockholders or combination of the Shares or any other change in capital
structure of the Company, appropriate adjustments shall be made with respect to
the relevant provisions of this Agreement so as to fairly and equitably
preserve, as far as practicable, the original rights and obligations of the
parties hereto under this Agreement.
4.2 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto, provided, however, that the Company may not transfer or assign
its obligations hereunder.
4.3 Entire Agreement. This Agreement, along with the Amended and
Restated Articles of Incorporation, the Series A Purchase Agreement, the
Warrant, the Shareholders Agreement and the Redemption Agreement, constitutes
the full and entire understanding and agreement among the parties with regard to
the subjects hereof and thereof and supersedes all prior agreements and
understanding between them or any of them as to such subject matter. This
Agreement shall not confer any rights or remedies upon any person or entity
other than the parties hereto and their respective successors and permitted
assigns.
4.4 Severability. Any invalidity, illegality or limitation of the
enforceability with respect to any party of any one or more of the provisions of
this Agreement, or any part thereof, whether arising by reason of the law of any
such person's domicile or otherwise, shall in no way affect or impair the
validity, legality or enforceability of the remainder of this Agreement with
respect to such party or the validity, legality or enforceability of this
Agreement with respect to any other party. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall to the extent
practicable, be modified so as to make it valid, legal and enforceable and to
retain as nearly as practicable the intent of the parties, and the validity,
legality, and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
4.5 Shares Owned by Affiliates. For the purposes of applying all
provisions of this Agreement which condition the receipt of information or
access to information or exercise of any rights upon ownership of a specified
number or percentage of shares, the shares owned of record by any affiliate of a
Holder shall be deemed to be owned by such Holder. For the
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purpose of this Agreement, the term "affiliate" shall mean any Person
controlling, controlled by or under common control with, a Holder and any
general or limited partner of a Holder.
4.6 Amendments and Waivers. Amendments or additions to this Agreement
may only be made and compliance with any term, covenant, agreement, condition or
provision set forth herein may be omitted or waived only (in a particular
instance and either retroactively or prospectively) upon the written consent of
the Company and the holders of a majority of the then issued and issuable Series
A Stock, Conversion Shares and Warrant Stock (voting together as a class).
Prompt notice of any such amendment or waiver shall be given to any Person who
did not consent thereto. No failure or delay on the part of any party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
4.7 Confidentiality. Each Holder will keep confidential information
provided to such Holder pursuant to Section 3.1, except that the Holders may
disclose such terms and information to their advisors, employees, investors or
potential investors, stockholders, successors and assigns in the ordinary
course. Notwithstanding the foregoing, information will not be treated as
confidential if it: (A) is or becomes generally available to the public other
than as a result of a disclosure by the recipient party or its agents,
representatives, affiliates, employees, officers or directors; (B) was available
to third parties on a nonconfidential basis prior to its disclosure by the
recipient party or its agents, representatives, affiliates, employees, officers
or directors; or (C) becomes available to the recipient party on a
nonconfidential basis from a Person (other than the recipient party, its agents,
affiliates, employees, officers or directors) who is not known to the Holders to
be otherwise bound by a confidentiality agreement with respect to the
information.
Nothing herein shall deprive a recipient party from using or disclosing
information that is otherwise confidential to the extent required: (i) to comply
with applicable requirements of any governmental entity; (ii) to prepare, file
and disseminate tax returns in accordance with applicable law and financial
statements in accordance with generally accepted accounting practices
consistently applied; (iii) to exercise or enforce any of such recipient party's
rights hereunder or under any other agreement among one or more of the parties
hereto or to conduct any defense of any action brought against such recipient
party; and (iv) to respond to any court order or legal or administrative
process.
4.8 Notices. All notices, requests, consents, reports and demands shall
be in writing and shall be hand delivered, sent by facsimile or other electronic
medium, or sent by express delivery or mailed, postage prepaid, to the Company
or to the Holders at the address set forth below or to such other address as may
be furnished in writing to the other parties hereto:
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The Company: BTI Telecom Corp
4300 Six Forks Road
Raleigh, NC 27609
Attention: Brian Branson
with a copy to: Wyrick Robbins Yates & Ponton LLP
4101 Lake Boone Trail, Suite 300
Post Office Drawer 17803
Raleigh, NC 27619
Attention: Larry E. Robbins
The Investor: Welsh, Carson, Anderson & Stowe
320 Park Avenue, Suite 2500
New York, NY 10022
Attention: Sanjay Swani, John Almeida
with a copy to: Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Attention: Carole Schiffman
4.9 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall constitute an original but all of which shall
constitute but one and the same instrument. One or more counterparts of this
Agreement or any exhibit hereto may be delivered via telecopier, with the
intention that they shall have the same effect as an original counterpart
hereof.
4.10 Effect of Headings. The article and section headings herein are
for convenience only and shall not affect the construction hereof.
4.11 Governing Law. This Agreement shall be deemed a contract made
under the laws of the State of North Carolina and together with the rights and
obligations of the parties hereunder, shall be construed under and governed by
the laws of such State, without regard to the conflict of laws provisions
thereof.
4.12 Specific Enforcement. The Company expressly agrees that the
Holders may be irreparably damaged if this Agreement is not specifically
enforced. Upon a breach or threatened breach of the terms or covenants of this
Agreement by the Company, the Holders shall, in addition to all other remedies,
each be entitled to apply for a temporary or permanent injunction, and/or a
decree for specific performance, in accordance with the provisions hereof.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
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IN WITNESS WHEREOF, this Investor Rights Agreement has been duly
executed and delivered by the parties as of the date first above written.
COMPANY: BTI TELECOM CORP.
By: /s/ Peter T. Loftin
____________________________________
Name: Peter T. Loftin
Title: Chief Executive Officer
INVESTOR: WELSH, CARSON, ANDERSON & STOWE VIII, L.P.
BY: WCAS VIII Associates, LLC,
General Partner
By: /s/ Jonathan M. Rather
_____________________________________
Name: Jonathan M. Rather
Title: Member
WCAS INFORMATION PARTNERS, L.P.
By: WCAS Info Partners,
General Partner
By: /s/ Jonathan M. Rather
_____________________________________
Name: Jonathan M. Rather
Title: Attorney-in-fact
BTI INVESTORS LLC
By: /s/ Jonathan M. Rather
_____________________________________
Name: Jonathan M. Rather
Title: Authorized Person
21
EXHIBIT 10.24
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
APPLICABLE STATE SECURITIES LAWS, OR APPLICABLE LAWS OF ANY FOREIGN
JURISDICTION. THIS WARRANT AND SUCH UNDERLYING SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE
OFFERED, SOLD, PLEDGED, HYPOTHECATED, RENOUNCED OR OTHERWISE TRANSFERRED EXCEPT
IN COMPLIANCE WITH THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS
AND APPLICABLE LAWS OF ANY FOREIGN JURISDICTION.
BTI TELECOM CORP.
COMMON STOCK PURCHASE WARRANT
4,264,290 Shares
This Warrant is issued as of this 28th day of December 1999, by BTI
TELECOM CORP., a North Carolina corporation (the "Company"), to WELSH, CARSON,
ANDERSON & STOWE VIII, L.P., a Delaware limited partnership (together with its
successors and permitted assigns, the "Holder").
1. Issuance of Warrant; Term; Price.
1.1 Issuance. Subject to the terms and conditions herein set
forth, the Company hereby grants to Holder the right to purchase Four Million
Two Hundred Sixty-Four Thousand Two Hundred Ninety (4,264,290) fully paid and
non-assessable shares of common stock, no par value per share ("Common Stock")
of the Company (the "Shares"). The number of Shares to be received on exercise
or exchange of this Warrant and the price to be paid for each Share are subject
to adjustment from time to time as hereinafter set forth. This Warrant is being
issued pursuant to the terms of a Series A Preferred Stock Purchase Agreement,
dated as of December 10, 1999 among the Company, the Purchaser named therein and
FS Multimedia, Inc. (the "Purchase Agreement").
1.2 Term. This Warrant shall be exercisable or exchangeable at
any time and from time to time in whole or in part during the period commencing
on the date which is the earlier of (i) the last day of the Measurement Period
(as hereinafter defined) or (ii) the date on which a Change in Control
Transaction is consummated, and from such date, and ending on the date which is
ten (10) years after the date hereof.
1.3. Exercise Price. Subject to adjustment as hereinafter
provided, the exercise price (the "Warrant Price") per share for which all or
any of the Shares may be purchased pursuant to the terms of this Warrant shall
be equal to One Cent ($0.01).
2. Adjustment of Warrant Price, Number and Kind of Shares. The Warrant
Price and the number and kind of securities issuable upon the exercise or
exchange of this Warrant shall be
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subject to adjustment from time to time, and the Company agrees to provide ten
(10) days prior written notice of the happening of any of the following events,
together with a certificate of adjustment executed by an officer of the Company
setting forth the nature of the adjustment and a brief description of such event
triggering adjustment. The Company further agrees that it will not change the
par value of the Common Stock from no par value per share to any higher par
value which exceeds the Warrant Price then in effect.
2.1 Dividends in Stock Adjustment. In case at any time and
from time to time on or after the date hereof the holders of the Common Stock of
the Company (or any shares of stock or other securities at the time receivable
upon the exercise or exchange of this Warrant) shall have received, or, on or
after the record date fixed for the determination of eligible stockholders,
shall have become entitled to receive, without payment therefor, other
additional securities or other property (other than regular cash dividends) by
way of dividend or distribution, then and in each case, the holder of this
Warrant shall, upon the exercise or exchange hereof, be entitled to receive, in
addition to the number of Shares receivable thereupon, and without payment of
any additional consideration therefor, the amount of such other or additional
securities or other property (other than regular cash dividends) which such
holder would hold on the date of such exercise or exchange had it been the
holder of record of such Shares on the date hereof and had thereafter, during
the period from the date hereof to and including the date of such exercise or
exchange, retained such Shares and/or all other additional securities or other
property receivable by it as aforesaid during such period, giving effect to all
adjustments called for during such period by this Section 2.
2.2 Reclassification Adjustment. In case of any
reclassification or change of the outstanding securities of the Company at any
time and from time to time on or after the date hereof, the holder of this
Warrant, upon the exercise or exchange hereof at any time after the consummation
of such reclassification or change, shall be entitled to receive, in lieu of the
stock or other securities and property receivable upon the exercise or exchange
hereof prior to such consummation, the stock or other securities or property to
which such holder would have been entitled upon such consummation if such holder
had exercised or exchanged this Warrant immediately prior thereto, all subject
to further adjustment as provided in this Section 2.
2.3 Capital Reorganization; Merger or Sale of Assets. If at
any time or from time to time there shall be a capital reorganization of the
Common Stock (other than a subdivision, combination, reclassification or
exchange of shares provided for elsewhere in this Section 2) or a merger,
consolidation or similar business combination of the Company with or into
another entity, or the sale, assignment, lease or transfer of all or
substantially all of the Company's properties and assets to any other person, or
the sale of a majority of the voting securities of the Company in one
transaction or a series of related transactions (any of which events is herein
referred to as a "Reorganization"), then as a part of such Reorganization,
provision shall be made so that the Holder, upon the exercise or exchange hereof
at any time on or after the consummation of such Reorganization, shall be
entitled to receive, in lieu of the stock or other securities and property
receivable upon the exercise or exchange hereof, the number of shares of stock
or other securities or property of the Company, or of the successor corporation
resulting from such Reorganization, to which such Holder would have been
entitled if such Holder had exercised or exchanged this Warrant immediately
prior thereto, all such subject to further adjustment as set forth in this
Section 2. In any such case, appropriate adjustment shall
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<PAGE>
be made in the application of the provisions of this Section 2 with respect to
the rights of the Holder after the Reorganization, to the end that the
provisions of this Section 2 shall be applicable after that event in as nearly
equivalent a manner as may be practicable.
2.4 Stock Splits and Reverse Stock Splits. If at any time and
from time to time on or after the date hereof the Company shall subdivide or
otherwise change its outstanding shares of Common Stock into a greater number of
shares, the number of shares receivable upon exercise or exchange of this
Warrant shall thereby be proportionately increased; and, conversely, if at any
time and from time to time on or after the date hereof the outstanding number of
shares of Common Stock shall be combined or otherwise changed into a smaller
number of shares, the number of shares receivable upon exercise or exchange of
this Warrant shall thereby be proportionately decreased.
2.5 Anti-dilution. Adjustments shall be made on an equitable
basis to the Warrant Price and the number of shares issuable upon exercise or
exchange of this Warrant in the manner set forth in Section 4(d) of the Amended
and Restated Articles of Incorporation of the Company except that instead of the
adjustments to the Series A Conversion Value adjustments shall be made on an
equitable basis to adjust the Warrant Price and/or the number of shares of
Common Stock issuable upon exercise or exchange of this Warrant. The provisions
of this Section 2.5 shall terminate upon any conversion of any Series A
Preferred Stock under the Amended and Restated Articles of Incorporation of the
Corporation or at such time as the Company elects pursuant to Article IV,
Section 4(m) of the Amended and Restated Articles of Incorporation of the
Company to terminate certain rights of the Series A Preferred Stock as set forth
in such Section 4(m).
3. No Fractional Shares. No fractional shares of Common Stock will be
issued in connection with any exercise or exchange hereunder. In lieu of any
fractional shares that would otherwise be issuable, the Company shall pay cash
equal to the product of such fraction multiplied by the Fair Market Value
(defined below) of one share of Common Stock on the date of exercise or
exchange.
4. No Shareholder Rights. This Warrant as such shall not entitle Holder
to any of the rights of a shareholder of the Company until the Holder has
exercised or exchanged this Warrant in accordance with Section 6 or Section 7
hereof.
5. Reservation of Stock. The Company covenants that during the period
this Warrant is exercisable, the Company will reserve a sufficient number of
shares of its authorized and unissued Common Stock or other securities of the
Company from time to time issuable upon the exercise or exchange of this Warrant
to provide for the issuance of Shares or other securities upon the exercise or
exchange of this Warrant. The Company agrees 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
Shares or other securities upon the exercise or exchange of this Warrant.
6. Exercise of Warrant. This Warrant may be exercised, in whole or in
part, by Holder by the surrender of this Warrant at the principal office of the
Company, accompanied by notice of and payment in full of the purchase price of
the Shares the Holder elects to purchase hereunder.
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<PAGE>
This Warrant shall be deemed to have been exercised immediately prior to the
close of business on the date of its surrender for exercise as provided above,
and the person entitled to receive the Shares or other securities and/or
property issuable upon such exercise shall be treated for all purposes as the
holder of such Shares or other securities of record as of the close of business
on such date. As promptly as practicable, the Company shall issue and deliver
(or, if so requested at the time of surrender of this Warrant, hold for pick-up
at its principal office by) to the person or persons entitled to receive the
same a certificate or certificates for the number of full Shares or other
securities issuable upon such exercise, together with cash in lieu of any
fraction of a share as provided above. The Shares or other securities issuable
upon exercise hereof shall, upon their issuance, be fully paid and nonassessable
and free and clear of all liens, security interests or other encumbrances. If
this Warrant shall be exercised in part only, the Company shall, at the time of
delivery of the certificate representing the Shares or other securities in
respect of which this Warrant has been exercised, deliver to the Holder a new
Warrant evidencing the right to purchase the remaining Shares or other
securities purchasable under this Warrant, which new warrant shall, in all other
respects, be identical to this Warrant. The Company shall pay any and all
documentary, stamp or similar issue or transfer taxes payable in respect of the
issue or delivery of the Shares to the Holder.
7. Right to Exchange Warrant for Stock.
7.1 Right to Exchange. In addition to and without limiting the
rights of the Holder under the terms of this Warrant, but subject to the
provisions of Section 1.2, the Holder shall have the right to exchange this
Warrant or any portion hereof (the "Exchange Right") for Shares as provided in
this Section 7. Upon exercise of the Exchange Right with respect to a particular
number of Shares subject to this Warrant (the "Exchange Warrant Shares"), the
Company shall deliver to the Holder (without payment by the Holder of any cash
or other consideration other than shares of Common Stock in the case of clause
(i) of the first sentence of Section 7.2) that number of Shares equal to the
quotient obtained by dividing (x) the value of this Warrant (or the specified
portion hereof) on the Exchange Date (as defined in Section 7.2 hereof), which
value shall be equal to the aggregate Fair Market Value of the Exchange Warrant
Shares issuable upon exchange of this Warrant (or the specified portion hereof)
on the Exchange Date (as herein defined) minus, in the case of clause (ii) of
the first sentence of Section 7.2, the aggregate Warrant Price of the Exchange
Warrant Shares immediately prior to the exercise of the Exchange Right by (y)
the Fair Market Value of one Share on the Exchange Date (as herein defined). No
fractional shares shall be issuable upon exercise of the Exchange Right, and if
the number of shares to be issued determined in accordance with the foregoing
formula is other than a whole number, the Company shall pay to the Holder an
amount in cash equal to the Fair Market Value of the resulting fractional share
on the Exchange Date (as herein defined).
7.2 Method of Exchange. The Exchange Right may be exercised by
the Holder by the surrender of this Warrant at the principal office of the
Company (the date of such surrender, the "Exchange Date") together with a
written statement specifying that the Holder thereby intends to exercise the
Exchange Right, indicating the number of shares subject to this Warrant that are
being surrendered (referred to in Section 7.1 hereof as the Exchanged Warrant
Shares) in exercise of the Exchange Right and specifying whether the Holder has
elected to pay the exchange price (i) in shares of Common Stock owned by the
Holder (in which case the Holder shall surrender a number of shares having a
Fair Market Value equal to the aggregate
4
<PAGE>
Warrant Price of the Exchanged Warrant Shares) or (ii) in shares of Common Stock
to be issued upon exchange of this Warrant. Certificates for the Shares issuable
upon exercise of the Exchange Right (or any other securities deliverable in lieu
thereof under Section 2) shall be issued as of the Exchange Date and shall be
delivered to the Holder immediately following the Exchange Date.
7.3 Reserved.
7.4 Exchange. This Warrant shall be deemed to have been
exchanged immediately prior to the close of business on the date of its
surrender for exchange as provided above, and the person entitled to receive the
Shares or other securities and/or property issuable upon such exchange shall be
treated for all purposes as the holder of such Shares or other securities of
record as of the close of business on such date. As promptly as practicable, the
Company shall issue and deliver (or, if so requested at the time of surrender of
this Warrant, hold for pick-up at its principal office by) to the person or
persons entitled to receive the same a certificate or certificates for the
number of full Shares or other securities issuable upon such exchange, together
with cash in lieu of any fraction of a share as provided above. The Shares or
other securities issuable upon exchange hereof shall, upon their issuance, be
fully paid and nonassessable and free and clear of all liens, security interests
or other encumbrances. If this Warrant shall be exchanged in part only, the
Company shall, at the time of delivery of the certificate representing the
Shares or other securities in respect of which this Warrant has been exchanged,
deliver to the Holder a new Warrant evidencing the right to purchase the
remaining Shares or other securities purchasable under this Warrant, which new
warrant shall, in all other respects, be identical to this Warrant. The Company
shall pay any and all documentary, stamp or similar issue or transfer taxes
payable in respect of the issue or delivery of the Shares to the Holder.
8. Reduction in Number of Shares.
8.1 Notwithstanding anything contained herein to the contrary,
if prior to the date which is three (3) years after the date hereof the Company
undertakes a Qualified Public Offering (as defined in the Company's Amended and
Restated Articles of Incorporation), then the number of Shares that may be
purchased upon exercise or exchange of this Warrant shall be reduced as follows:
(a) If the average (weighted by daily trading volume)
Daily Price of the Company's publicly traded shares of Common Stock during the
Measurement Period (as defined below) exceeds the product obtained by
multiplying 2.5 by the Series A Conversion Value (as such term is defined in the
Company's Amended and Restated Articles of Incorporation) on the last day of the
Measurement Period, this Warrant shall terminate immediately and the Holder of
this Warrant shall not be entitled to purchase any shares pursuant to the
exercise or exchange hereof; and
(b) If the average (weighted by daily trading volume)
Daily Price of the Company's publicly traded shares of Common Stock during the
Measurement Period exceeds the product obtained by multiplying 2.0 by the Series
A Conversion Value on the last day of the Measurement Period (the "2.0 Value")
but is less than or equal to the product obtained by
5
<PAGE>
multiplying 2.5 by such Series A Conversion Value (the "2.5 Value"), the total
number of Shares issuable upon exercise or exchange hereof, taking into account
all adjustments to the number and kind of Shares provided in this Warrant, shall
automatically be reduced in accordance with the formula set forth at Schedule A
attached hereto.
(c) As used herein, "Measurement Period" means any
single period of ninety (90) consecutive trading days including the date which
is three (3) years after the date hereof, which period shall be selected by the
Company. The Company shall provide written notice to the Holder within three (3)
days after the end of the Measurement Period in which the average (weighted by
daily trading volume) Daily Price exceeds the 2.5 Value, which notice shall
specify the number of Shares provided in this Warrant that have been reduced in
accordance with the formula set forth at Schedule A attached hereto.
(d) For purposes of this Section 8.1 the term
"Company" shall include any successor entity or any surviving entity as a result
of a Reorganization (other than a Change in Control Transaction) that has a
class of securities registered under the Securities Act of 1933, as amended,
with a market capitalization equal or greater than $100,000,000.
8.2 If, at any time prior to December 28, 2001,
a Change in Control Transaction (as hereinafter defined) is consummated in which
the Fair Market Value of the per share consideration received by a holder of
Common Stock (i) exceeds the product obtained by multiplying 2.0 by the Series A
Conversion Value at the time of such Change in Control Transaction and (ii)
represents an Internal Rate of Return (defined below) on the Series A Preferred
Stockholders' investment of at least 30% (assuming for the purposes of this
Section 8.2, that the Holder continues to own its Series A Preferred Stock at
the time of such Change in Control Transaction), this Warrant shall terminate
without exercise or exchange hereof and the Holder shall receive that portion of
the consideration to which it would have been entitled had it exercised or
exchanged this Warrant for the maximum number of shares for which it was
exercisable or exchangeable immediately prior to the closing of the Change in
Control Transaction. For purposes of this Warrant, a "Change in Control
Transaction" shall mean one transaction or a series of transactions involving
(x) the sale, assignment, lease or transfer of all the shares of the Company's
capital stock or of all or substantially all of its assets to, or a merger,
consolidation or similar business combination with or into, or the sale of a
majority of the voting securities of the Company to, an entity, a majority of
the voting power of which is not owned or controlled, directly or indirectly, by
one or more shareholders of the Company immediately prior to the transaction, or
(y) a liquidation or distribution of all or substantially all the assets of the
Company.
8.3 If, at any time after December 28, 2001, and before March
28, 2002, a Change in Control Transaction is consummated in which the Fair
Market Value of the per share consideration received by a holder of Common Stock
(i) exceeds the product obtained by multiplying 2.25 by the Series A Conversion
Value at the time of such Change in Control Transaction and (ii) represents an
Internal Rate of Return on the Series A Preferred Stockholders' investment of at
least 30% (assuming for the purposes of this Section 8.3, that the Holder
continues to own its Series A Preferred Stock at the time of such Change in
Control
6
<PAGE>
Transaction), this Warrant shall terminate without exercise or exchange hereof
and the Holder shall receive that portion of the consideration to which it would
have been entitled had it exercised or exchanged this Warrant for the maximum
number of shares for which it was exercisable or exchangeable immediately prior
to the closing of the Change in Control Transaction.
8.4 If, at any time after March 28, 2002, and before December
28, 2002, a Change in Control Transaction is consummated in which the Fair
Market Value of the per share consideration received by a holder of Common Stock
(i) exceeds the product obtained by multiplying 2.5 by the Series A Conversion
Value at the time of such Change in Control transaction and (ii) represents an
Internal Rate of Return on the Series A Preferred Stockholders' investment of at
least 30% (assuming for the purposes of this Section 8.4, that the Holder
continues to own its Series A Preferred Stock at the time of such Change in
Control Transaction), this Warrant shall terminate without exercise or exchange
hereof and the Holder shall receive that portion of the consideration to which
it would have been entitled had it exercised or exchanged this Warrant for the
maximum number of shares for which it was exercisable or exchangeable
immediately prior to the closing of the Change in Control Transaction.
9. Notice of Proposed Transfers. This Warrant and the Shares may be
transferred and assigned by the Holder subject to the restrictions on transfer
set forth in the Shareholders Agreement, dated as of the date hereof by and
among the Company, Peter T. Loftin and the Holder (the "Shareholders
Agreement"). Each certificate evidencing the securities transferred as above
provided shall bear the appropriate restrictive legends set forth in the
Shareholders Agreement for so long as such legend is required pursuant to the
terms of such Agreement.
10. Replacement of Warrants. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of the Warrant, and in the case of any such loss, theft or
destruction of the Warrant, on delivery of an indemnity agreement or security
satisfactory in form and amount to the Company acting reasonably, and
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of the Warrant if mutilated, the Company will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
11. Certain Definitions. As used in this Warrant, the following terms,
have the following meanings:
11.1 "Daily Price" means (1) if the shares of such Common
Stock then are listed and traded on the New York Stock Exchange, Inc. ("NYSE"),
the closing price on such day as reported on the NYSE Composite Transactions
Tape; (2) if the shares of Common Stock then are not listed and traded on the
NYSE, the closing price on such day as reported by the principal national
securities exchange on which the shares are listed and traded; (3) if the shares
of Common Stock then are not listed and traded on any such securities exchange,
the last reported sale price on such day on the National Market of the National
Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ");
or (4) if the shares of Common Stock
7
<PAGE>
then are not traded on the NASDAQ National Market, the average of the highest
reported bid and lowest reported asked price on such day as reported by NASDAQ.
11.2 "Fair Market Value", as of a particular date, means (i)
with respect to one share of Common Stock, if the aggregate Daily Prices of all
of the outstanding shares of Common Stock that have been registered pursuant to
a public offering is at least $200 million as of such date, the average
(weighted by daily trading volume) of the Daily Prices, if any, per share of
Common Stock for the 20 consecutive trading days immediately prior to such date
or (ii) in all other events with respect to the Common Stock, or with respect to
any other property or consideration, the fair market value of such Common Stock
or other property or consideration as determined by two appraisers, one selected
by the Board of Directors of the Company and one selected by the Holder. No
Director who is a Holder or who is designated by or affiliated with a Holder
shall vote on the selection of the appraiser chosen by the Company. In the event
the Board of Directors or the Holder fails to appoint an appraiser within a
reasonable period of time, the appraisal shall be undertaken by the remaining
single appraiser. The Fair Market Value shall be the fair market value
(determined in the manner described above) arrived at by the appraisers within
thirty (30) days following the appointment of the last appraiser to be
appointed. In the event that the two appraisers agree in good faith on such fair
market value within such a period of time, such agreed value shall be used for
these purposes. If the appraisers cannot agree, but their valuations are within
10% of each other, the Fair Market Value shall be the mean of the two
valuations. If the appraisers cannot agree and the differences in the valuations
are greater than 10%, the appraisers shall select a third appraiser who will
calculate fair market value independently (provided that such calculations shall
not be more than the value calculated by the appraiser selected by the Holder or
less than the value calculated by the appraiser selected by the Board of
Directors) and, except as provided in the next sentence, the Fair Market Value
of the shares shall be the mean of the two fair market values arrived at by the
appraisers who are closest in amount. If one appraiser's valuations is the mean
of the other two valuations, such mean valuation shall be the Fair Market Value.
In the event that the two original appraisers cannot agree upon a third
appraiser within ten (10) days following the end of the thirty (30) day period
referred to above, then the third appraiser, which appraiser shall be a
nationally recognized investment banking firm, shall be appointed by the
American Arbitration Association in Washington, D.C. The expenses of the
appraisers will be borne by the Company.
11.3 "Internal Rate of Return" means the effective annual rate
of interest which, when applied to all cash flows (as determined below) made to,
or received from, the Company with respect to the Series A Investment, makes the
net present value of all such cash flows equal to zero. The Series A Investment
shall be deemed to be a cash outflow. Payments made by a new Holder for a
purchase of securities from an existing Holder shall not be deemed to be a cash
outflow. Cash dividends or other cash amounts, if any, paid by the Company to
the Holder in respect of the Series A Investment will be deemed to be interim
cash inflows with respect to the Series A Investment. Distributions or proceeds
received by the Holder in respect of the Series A Investment consisting of
property other than cash shall be valued at the Fair Market Value thereof as
determined as of the date such distributions or proceeds were received. The
final cash flow with respect to the Series A Investment will be based on the
total net proceeds that will be actually received by the Holder on the date of
the completion of a Change in Control Transaction. Notwithstanding the
foregoing, the Internal Rate of Return will be calculated on a
8
<PAGE>
fully diluted basis taking into account any and all dilution, if any, to the
Holder, including without limitation (i) the dilution, if any, that will result
from this Warrant and (ii) the assumed exercise of any then outstanding stock
options of the Company to the extent that the per share consideration received,
or that would be received upon the deemed exercise of such option, in connection
with such Change in Control Transaction exceeds the exercise price of any such
outstanding options at the date of such Change in Control Transaction. The
Internal Rate of Return will be calculated with the timing of cash flows assumed
to be on a quarterly basis (March 31, June 30, September 30 and December 31) and
with all specific cash flows during a quarter deemed to have occurred on the
last day of such quarter.
11.4 "Series A Investment" means, as of any date, the
aggregate dollar amount of all equity capital invested by the Holder in the
Series A Participating Preferred Stock on or prior to such date.
12. Amendment. Any term of this Warrant may be amended with the written
consent of the Company and the Holder. Any amendment effected in accordance with
this Section 12 shall be binding upon the Holder of this Warrant, each future
holder of such Warrant, and the Company.
13. Remedies. In the event of any default or threatened default by the
Company in the performance of or observance with any of the terms of this
Warrant, it is agreed that remedies at law are not and will not be adequate for
the Holder and that such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise.
14. Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto, provided that the Company may not assign its obligations under
this Warrant.
15. Entire Agreement. This Warrant, along with the Amended and Restated
Articles of Incorporation, the Series A Purchase Agreement, the Investor Rights
Agreement, the Shareholders Agreement and the Redemption Agreement, constitutes
the full and entire understanding and agreement among the parties with regard to
the subjects hereof and thereof and supersedes all prior agreements and
understanding between them or any of them as to such subject matter.
16. Severability. Any invalidity, illegality or limitation of the
enforceability with respect to any party of any one or more of the provisions of
this Warrant, or any part thereof, whether arising by reason of the law of any
such person's domicile or otherwise, shall in no way affect or impair the
validity, legality or enforceability of the remainder of this Warrant with
respect to such party or the validity, legality or enforceability of this
Agreement with respect to any other party. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall to the extent
practicable, be modified so as to make it valid, legal and enforceable and to
retain as nearly as practicable the intent of the parties, and the validity,
9
<PAGE>
legality, and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
17. Notices. All notices and other communications between the Company
and the holder of this Warrant shall be delivered in the manner set forth in the
Investor Rights Agreement.
18. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall constitute an original but all of which shall
constitute but one and the same instrument. One or more counterparts of this
Agreement or any exhibit hereto may be delivered via telecopier, with the
intention that they shall have the same effect as an original counterpart
hereof.
19. Effect of Headings. The article and section headings herein are for
convenience only and shall not affect the construction hereof.
20. Governing Law. This Warrant shall be governed by the laws of the
State of North Carolina, without regard to the conflict of laws provisions
thereof, and together with the rights and obligations of the parties hereunder,
shall be construed under and governed by the laws of such State without regard
to the conflicts of laws provisions thereof.
21. No Third Party Beneficiaries. This Warrant shall not confer any
rights or remedies upon any person or entity other than the parties hereto and
their respective successor and permitted assigns.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
10
<PAGE>
IN WITNESS WHEREOF, the undersigned officer of the Company has executed
this Common Stock Purchase Warrant as of the date first above written.
BTI TELECOM CORP.
By: /s/ R. Michael Newkirk
_________________________________
Name: R. Michael Newkirk
Title: President
Acknowledged and Agreed as of the date first above written:
WELSH, CARSON, ANDERSON & STOWE VIII, L.P.
By: WCAS VIII Associates LLC,
General Partner
By: /s/ Jonathan M. Rather
_______________________
Name: Jonathan M. Rather
Title: Member
<PAGE>
SCHEDULE A
Formula: j-[[[(a/b)-c] / f] * g]
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
EXAMPLE EXAMPLE 1 EXAMPLE 2 EXAMPLE 3
--------- --------- ---------
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
Average Daily Price of Common Stock $ 19.24 [a] $ 18.38 [a] $ 20.09 [a]
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
Series A Conversion Value $ 8.55 [b] $ 8.55 [b] $ 8.55 [b]
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
Multiple of Series A Conversion Value (Actual Multiple) 2.25x 2.15x 2.35x
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
Minimum multiple of Series A Conversion Value (Minimum Multiple) 2.00 [c] 2.00x [c] 2.00x [c]
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
Difference: Actual Multiple - Minimum Multiple 0.25x 0.15x 0.35x
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
Multiple difference between 100% cancellation and no cancellation 0.50x [f] 0.50x [f] 0.50x [f]
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
% of Maximum Shares subject to cancellation 50.0% 30.0% 70.0%
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
Maximum Shares subject to cancellation 1,421,430 [g] 1,421,430 [g] 1,421,430 [g]
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
NUMBER OF SHARES CANCELLED 710,715 426,429 995,001
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
Total Shares issuable upon exercise or exchange of Warrant ("Maximum WCAS 4,264,290 [j] 4,264,290 [j] 4,264,290 [j]
Warrants")
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
Maximum WCAS Warrants less cancelled Shares ("WCAS Warrants") 3,553,575 3,837,861 3,269,289
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
<S> <C> <C>
- ------------------------------------------------------------------------------
SUMMARY TABLE
- ---------------------------- ------------------------- -----------------------
MULTIPLE OF SHARES WCAS
SERIES A CANCELLED WARRANTS
- ---------------------------- ------------------------- -----------------------
- ---------------------------- ------------------------- -----------------------
2.00x -- 4,264,290
- ---------------------------- ------------------------- -----------------------
2.05x 142,143 4,122,147
- ---------------------------- ------------------------- -----------------------
2.10x 284,286 3,980,004
- ---------------------------- ------------------------- -----------------------
2.15x 426,429 3,837,861
- ---------------------------- ------------------------- -----------------------
2.20x 568,572 3,695,718
- ---------------------------- ------------------------- -----------------------
2.25x 710,715 3,553,575
- ---------------------------- ------------------------- -----------------------
2.30x 852,858 3,411,432
- ---------------------------- ------------------------- -----------------------
2.35x 995,001 3,269,289
- ---------------------------- ------------------------- -----------------------
2.40x 1,137,144 3,127,146
- ---------------------------- ------------------------- -----------------------
2.45x 1,279,287 2,985,003
- ---------------------------- ------------------------- -----------------------
2.50x 1,421,430 2,842,860
- ---------------------------- ------------------------- -----------------------
</TABLE>
EXHIBIT 10.25
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
APPLICABLE STATE SECURITIES LAWS, OR APPLICABLE LAWS OF ANY FOREIGN
JURISDICTION. THIS WARRANT AND SUCH UNDERLYING SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE
OFFERED, SOLD, PLEDGED, HYPOTHECATED, RENOUNCED OR OTHERWISE TRANSFERRED EXCEPT
IN COMPLIANCE WITH THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS
AND APPLICABLE LAWS OF ANY FOREIGN JURISDICTION.
BTI TELECOM CORP.
COMMON STOCK PURCHASE WARRANT
22,500 Shares
This Warrant is issued as of this 28th day of December 1999, by BTI
TELECOM CORP., a North Carolina corporation (the "Company"), to WCAS INFORMATION
PARTNERS, L.P., a Delaware limited partnership (together with its successors and
permitted assigns, the "Holder").
1. Issuance of Warrant; Term; Price.
1.1 Issuance. Subject to the terms and conditions herein set
forth, the Company hereby grants to Holder the right to purchase Twenty-Two
Thousand Five Hundred (22,500) fully paid and non-assessable shares of common
stock, no par value per share ("Common Stock") of the Company (the "Shares").
The number of Shares to be received on exercise or exchange of this Warrant and
the price to be paid for each Share are subject to adjustment from time to time
as hereinafter set forth. This Warrant is being issued pursuant to the terms of
a Series A Preferred Stock Purchase Agreement, dated as of December 10, 1999
among the Company, the Purchaser named therein and FS Multimedia, Inc. (the
"Purchase Agreement").
1.2 Term. This Warrant shall be exercisable or exchangeable at
any time and from time to time in whole or in part during the period commencing
on the date which is the earlier of (i) the last day of the Measurement Period
(as hereinafter defined) or (ii) the date on which a Change in Control
Transaction is consummated, and from such date, and ending on the date which is
ten (10) years after the date hereof.
1.3. Exercise Price. Subject to adjustment as hereinafter
provided, the exercise price (the "Warrant Price") per share for which all or
any of the Shares may be purchased pursuant to the terms of this Warrant shall
be equal to One Cent ($0.01).
2. Adjustment of Warrant Price, Number and Kind of Shares. The Warrant
Price and the number and kind of securities issuable upon the exercise or
exchange of this Warrant shall be subject to adjustment from time to time, and
the Company agrees to provide ten (10) days prior written notice of the
happening of any of the following events, together with a certificate of
<PAGE>
adjustment executed by an officer of the Company setting forth the nature of the
adjustment and a brief description of such event triggering adjustment. The
Company further agrees that it will not change the par value of the Common Stock
from no par value per share to any higher par value which exceeds the Warrant
Price then in effect.
2.1 Dividends in Stock Adjustment. In case at any time and
from time to time on or after the date hereof the holders of the Common Stock of
the Company (or any shares of stock or other securities at the time receivable
upon the exercise or exchange of this Warrant) shall have received, or, on or
after the record date fixed for the determination of eligible stockholders,
shall have become entitled to receive, without payment therefor, other
additional securities or other property (other than regular cash dividends) by
way of dividend or distribution, then and in each case, the holder of this
Warrant shall, upon the exercise or exchange hereof, be entitled to receive, in
addition to the number of Shares receivable thereupon, and without payment of
any additional consideration therefor, the amount of such other or additional
securities or other property (other than regular cash dividends) which such
holder would hold on the date of such exercise or exchange had it been the
holder of record of such Shares on the date hereof and had thereafter, during
the period from the date hereof to and including the date of such exercise or
exchange, retained such Shares and/or all other additional securities or other
property receivable by it as aforesaid during such period, giving effect to all
adjustments called for during such period by this Section 2.
2.2 Reclassification Adjustment. In case of any
reclassification or change of the outstanding securities of the Company at any
time and from time to time on or after the date hereof, the holder of this
Warrant, upon the exercise or exchange hereof at any time after the consummation
of such reclassification or change, shall be entitled to receive, in lieu of the
stock or other securities and property receivable upon the exercise or exchange
hereof prior to such consummation, the stock or other securities or property to
which such holder would have been entitled upon such consummation if such holder
had exercised or exchanged this Warrant immediately prior thereto, all subject
to further adjustment as provided in this Section 2.
2.3 Capital Reorganization; Merger or Sale of Assets. If at
any time or from time to time there shall be a capital reorganization of the
Common Stock (other than a subdivision, combination, reclassification or
exchange of shares provided for elsewhere in this Section 2) or a merger,
consolidation or similar business combination of the Company with or into
another entity, or the sale, assignment, lease or transfer of all or
substantially all of the Company's properties and assets to any other person, or
the sale of a majority of the voting securities of the Company in one
transaction or a series of related transactions (any of which events is herein
referred to as a "Reorganization"), then as a part of such Reorganization,
provision shall be made so that the Holder, upon the exercise or exchange hereof
at any time on or after the consummation of such Reorganization, shall be
entitled to receive, in lieu of the stock or other securities and property
receivable upon the exercise or exchange hereof, the number of shares of stock
or other securities or property of the Company, or of the successor corporation
resulting from such Reorganization, to which such Holder would have been
entitled if such Holder had exercised or exchanged this Warrant immediately
prior thereto, all such subject to further adjustment as set forth in this
Section 2. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 2 with respect to the rights of
the
2
<PAGE>
Holder after the Reorganization, to the end that the provisions of this Section
2 shall be applicable after that event in as nearly equivalent a manner as may
be practicable.
2.4 Stock Splits and Reverse Stock Splits. If at any time and
from time to time on or after the date hereof the Company shall subdivide or
otherwise change its outstanding shares of Common Stock into a greater number of
shares, the number of shares receivable upon exercise or exchange of this
Warrant shall thereby be proportionately increased; and, conversely, if at any
time and from time to time on or after the date hereof the outstanding number of
shares of Common Stock shall be combined or otherwise changed into a smaller
number of shares, the number of shares receivable upon exercise or exchange of
this Warrant shall thereby be proportionately decreased.
2.5 Anti-dilution. Adjustments shall be made on an equitable
basis to the Warrant Price and the number of shares issuable upon exercise or
exchange of this Warrant in the manner set forth in Section 4(d) of the Amended
and Restated Articles of Incorporation of the Company except that instead of the
adjustments to the Series A Conversion Value adjustments shall be made on an
equitable basis to adjust the Warrant Price and/or the number of shares of
Common Stock issuable upon exercise or exchange of this Warrant. The provisions
of this Section 2.5 shall terminate upon any conversion of any Series A
Preferred Stock under the Amended and Restated Articles of Incorporation of the
Corporation or at such time as the Company elects pursuant to Article IV,
Section 4(m) of the Amended and Restated Articles of Incorporation of the
Company to terminate certain rights of the Series A Preferred Stock as set forth
in such Section 4(m).
3. No Fractional Shares. No fractional shares of Common Stock will be
issued in connection with any exercise or exchange hereunder. In lieu of any
fractional shares that would otherwise be issuable, the Company shall pay cash
equal to the product of such fraction multiplied by the Fair Market Value
(defined below) of one share of Common Stock on the date of exercise or
exchange.
4. No Shareholder Rights. This Warrant as such shall not entitle Holder
to any of the rights of a shareholder of the Company until the Holder has
exercised or exchanged this Warrant in accordance with Section 6 or Section 7
hereof.
5. Reservation of Stock. The Company covenants that during the period
this Warrant is exercisable, the Company will reserve a sufficient number of
shares of its authorized and unissued Common Stock or other securities of the
Company from time to time issuable upon the exercise or exchange of this Warrant
to provide for the issuance of Shares or other securities upon the exercise or
exchange of this Warrant. The Company agrees 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
Shares or other securities upon the exercise or exchange of this Warrant.
6. Exercise of Warrant. This Warrant may be exercised, in whole or in
part, by Holder by the surrender of this Warrant at the principal office of the
Company, accompanied by notice of and payment in full of the purchase price of
the Shares the Holder elects to purchase hereunder. This Warrant shall be deemed
to have been exercised immediately prior to the close of business on
3
<PAGE>
the date of its surrender for exercise as provided above, and the person
entitled to receive the Shares or other securities and/or property issuable upon
such exercise shall be treated for all purposes as the holder of such Shares or
other securities of record as of the close of business on such date. As promptly
as practicable, the Company shall issue and deliver (or, if so requested at the
time of surrender of this Warrant, hold for pick-up at its principal office by)
to the person or persons entitled to receive the same a certificate or
certificates for the number of full Shares or other securities issuable upon
such exercise, together with cash in lieu of any fraction of a share as provided
above. The Shares or other securities issuable upon exercise hereof shall, upon
their issuance, be fully paid and nonassessable and free and clear of all liens,
security interests or other encumbrances. If this Warrant shall be exercised in
part only, the Company shall, at the time of delivery of the certificate
representing the Shares or other securities in respect of which this Warrant has
been exercised, deliver to the Holder a new Warrant evidencing the right to
purchase the remaining Shares or other securities purchasable under this
Warrant, which new warrant shall, in all other respects, be identical to this
Warrant. The Company shall pay any and all documentary, stamp or similar issue
or transfer taxes payable in respect of the issue or delivery of the Shares to
the Holder.
7. Right to Exchange Warrant for Stock.
7.1 Right to Exchange. In addition to and without limiting the
rights of the Holder under the terms of this Warrant, but subject to the
provisions of Section 1.2, the Holder shall have the right to exchange this
Warrant or any portion hereof (the "Exchange Right") for Shares as provided in
this Section 7. Upon exercise of the Exchange Right with respect to a particular
number of Shares subject to this Warrant (the "Exchange Warrant Shares"), the
Company shall deliver to the Holder (without payment by the Holder of any cash
or other consideration other than shares of Common Stock in the case of clause
(i) of the first sentence of Section 7.2) that number of Shares equal to the
quotient obtained by dividing (x) the value of this Warrant (or the specified
portion hereof) on the Exchange Date (as defined in Section 7.2 hereof), which
value shall be equal to the aggregate Fair Market Value of the Exchange Warrant
Shares issuable upon exchange of this Warrant (or the specified portion hereof)
on the Exchange Date (as herein defined) minus, in the case of clause (ii) of
the first sentence of Section 7.2, the aggregate Warrant Price of the Exchange
Warrant Shares immediately prior to the exercise of the Exchange Right by (y)
the Fair Market Value of one Share on the Exchange Date (as herein defined). No
fractional shares shall be issuable upon exercise of the Exchange Right, and if
the number of shares to be issued determined in accordance with the foregoing
formula is other than a whole number, the Company shall pay to the Holder an
amount in cash equal to the Fair Market Value of the resulting fractional share
on the Exchange Date (as herein defined).
7.2 Method of Exchange. The Exchange Right may be exercised by
the Holder by the surrender of this Warrant at the principal office of the
Company (the date of such surrender, the "Exchange Date") together with a
written statement specifying that the Holder thereby intends to exercise the
Exchange Right, indicating the number of shares subject to this Warrant that are
being surrendered (referred to in Section 7.1 hereof as the Exchanged Warrant
Shares) in exercise of the Exchange Right and specifying whether the Holder has
elected to pay the exchange price (i) in shares of Common Stock owned by the
Holder (in which case the Holder shall surrender a number of shares having a
Fair Market Value equal to the aggregate Warrant Price of the Exchanged Warrant
Shares) or (ii) in shares of Common Stock to be issued
4
<PAGE>
upon exchange of this Warrant. Certificates for the Shares issuable upon
exercise of the Exchange Right (or any other securities deliverable in lieu
thereof under Section 2) shall be issued as of the Exchange Date and shall be
delivered to the Holder immediately following the Exchange Date.
7.3 Reserved.
7.4 Exchange. This Warrant shall be deemed to have been
exchanged immediately prior to the close of business on the date of its
surrender for exchange as provided above, and the person entitled to receive the
Shares or other securities and/or property issuable upon such exchange shall be
treated for all purposes as the holder of such Shares or other securities of
record as of the close of business on such date. As promptly as practicable, the
Company shall issue and deliver (or, if so requested at the time of surrender of
this Warrant, hold for pick-up at its principal office by) to the person or
persons entitled to receive the same a certificate or certificates for the
number of full Shares or other securities issuable upon such exchange, together
with cash in lieu of any fraction of a share as provided above. The Shares or
other securities issuable upon exchange hereof shall, upon their issuance, be
fully paid and nonassessable and free and clear of all liens, security interests
or other encumbrances. If this Warrant shall be exchanged in part only, the
Company shall, at the time of delivery of the certificate representing the
Shares or other securities in respect of which this Warrant has been exchanged,
deliver to the Holder a new Warrant evidencing the right to purchase the
remaining Shares or other securities purchasable under this Warrant, which new
warrant shall, in all other respects, be identical to this Warrant. The Company
shall pay any and all documentary, stamp or similar issue or transfer taxes
payable in respect of the issue or delivery of the Shares to the Holder.
8. Reduction in Number of Shares.
8.1 Notwithstanding anything contained herein to the contrary,
if prior to the date which is three (3) years after the date hereof the Company
undertakes a Qualified Public Offering (as defined in the Company's Amended and
Restated Articles of Incorporation), then the number of Shares that may be
purchased upon exercise or exchange of this Warrant shall be reduced as follows:
(a) If the average (weighted by daily trading volume)
Daily Price of the Company's publicly traded shares of Common Stock during the
Measurement Period (as defined below) exceeds the product obtained by
multiplying 2.5 by the Series A Conversion Value (as such term is defined in the
Company's Amended and Restated Articles of Incorporation) on the last day of the
Measurement Period, this Warrant shall terminate immediately and the Holder of
this Warrant shall not be entitled to purchase any shares pursuant to the
exercise or exchange hereof; and
(b) If the average (weighted by daily trading volume)
Daily Price of the Company's publicly traded shares of Common Stock during the
Measurement Period exceeds the product obtained by multiplying 2.0 by the Series
A Conversion Value on the last day of the Measurement Period (the "2.0 Value")
but is less than or equal to the product obtained by multiplying 2.5 by such
Series A Conversion Value (the "2.5 Value"), the total number of Shares
5
<PAGE>
issuable upon exercise or exchange hereof, taking into account all adjustments
to the number and kind of Shares provided in this Warrant, shall automatically
be reduced in accordance with the formula set forth at Schedule A attached
hereto.
(c) As used herein, "Measurement Period" means any
single period of ninety (90) consecutive trading days including the date which
is three (3) years after the date hereof, which period shall be selected by the
Company. The Company shall provide written notice to the Holder within three (3)
days after the end of the Measurement Period in which the average (weighted by
daily trading volume) Daily Price exceeds the 2.5 Value, which notice shall
specify the number of Shares provided in this Warrant that have been reduced in
accordance with the formula set forth at Schedule A attached hereto.
(d) For purposes of this Section 8.1 the term
"Company" shall include any successor entity or any surviving entity as a
result of a Reorganization (other than a Change in Control Transaction) that has
a class of securities registered under the Securities Act of 1933, as amended,
with a market capitalization equal or greater than $100,000,000.
8.2 If, at any time prior to December 28, 2001, a
Change in Control Transaction (as hereinafter defined) is consummated in which
the Fair Market Value of the per share consideration received by a holder of
Common Stock (i) exceeds the product obtained by multiplying 2.0 by the Series A
Conversion Value at the time of such Change in Control Transaction and (ii)
represents an Internal Rate of Return (defined below) on the Series A Preferred
Stockholders' investment of at least 30% (assuming for the purposes of this
Section 8.2, that the Holder continues to own its Series A Preferred Stock at
the time of such Change in Control Transaction), this Warrant shall terminate
without exercise or exchange hereof and the Holder shall receive that portion of
the consideration to which it would have been entitled had it exercised or
exchanged this Warrant for the maximum number of shares for which it was
exercisable or exchangeable immediately prior to the closing of the Change in
Control Transaction. For purposes of this Warrant, a "Change in Control
Transaction" shall mean one transaction or a series of transactions involving
(x) the sale, assignment, lease or transfer of all the shares of the Company's
capital stock or of all or substantially all of its assets to, or a merger,
consolidation or similar business combination with or into, or the sale of a
majority of the voting securities of the Company to, an entity, a majority of
the voting power of which is not owned or controlled, directly or indirectly, by
one or more shareholders of the Company immediately prior to the transaction, or
(y) a liquidation or distribution of all or substantially all the assets of the
Company.
8.3 If, at any time after December 28, 2001, and before March
28, 2002, a Change in Control Transaction is consummated in which the Fair
Market Value of the per share consideration received by a holder of Common Stock
(i) exceeds the product obtained by multiplying 2.25 by the Series A Conversion
Value at the time of such Change in Control Transaction and (ii) represents an
Internal Rate of Return on the Series A Preferred Stockholders' investment of at
least 30% (assuming for the purposes of this Section 8.3, that the Holder
continues to own its Series A Preferred Stock at the time of such Change in
Control Transaction), this Warrant shall terminate without exercise or exchange
hereof and the Holder
6
<PAGE>
shall receive that portion of the consideration to which it would have been
entitled had it exercised or exchanged this Warrant for the maximum number of
shares for which it was exercisable or exchangeable immediately prior to the
closing of the Change in Control Transaction.
8.4 If, at any time after March 28, 2002, and before December
28, 2002, a Change in Control Transaction is consummated in which the Fair
Market Value of the per share consideration received by a holder of Common Stock
(i) exceeds the product obtained by multiplying 2.5 by the Series A Conversion
Value at the time of such Change in Control transaction and (ii) represents an
Internal Rate of Return on the Series A Preferred Stockholders' investment of at
least 30% (assuming for the purposes of this Section 8.4, that the Holder
continues to own its Series A Preferred Stock at the time of such Change in
Control Transaction), this Warrant shall terminate without exercise or exchange
hereof and the Holder shall receive that portion of the consideration to which
it would have been entitled had it exercised or exchanged this Warrant for the
maximum number of shares for which it was exercisable or exchangeable
immediately prior to the closing of the Change in Control Transaction.
9. Notice of Proposed Transfers. This Warrant and the Shares may be
transferred and assigned by the Holder subject to the restrictions on transfer
set forth in the Shareholders Agreement, dated as of the date hereof by and
among the Company, Peter T. Loftin and the Holder (the "Shareholders
Agreement"). Each certificate evidencing the securities transferred as above
provided shall bear the appropriate restrictive legends set forth in the
Shareholders Agreement for so long as such legend is required pursuant to the
terms of such Agreement.
10. Replacement of Warrants. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of the Warrant, and in the case of any such loss, theft or
destruction of the Warrant, on delivery of an indemnity agreement or security
satisfactory in form and amount to the Company acting reasonably, and
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of the Warrant if mutilated, the Company will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
11. Certain Definitions. As used in this Warrant, the following terms,
have the following meanings:
11.1 "Daily Price" means (1) if the shares of such Common
Stock then are listed and traded on the New York Stock Exchange, Inc. ("NYSE"),
the closing price on such day as reported on the NYSE Composite Transactions
Tape; (2) if the shares of Common Stock then are not listed and traded on the
NYSE, the closing price on such day as reported by the principal national
securities exchange on which the shares are listed and traded; (3) if the shares
of Common Stock then are not listed and traded on any such securities exchange,
the last reported sale price on such day on the National Market of the National
Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ");
or (4) if the shares of Common Stock then are not traded on the NASDAQ National
Market, the average of the highest reported bid and lowest reported asked price
on such day as reported by NASDAQ.
7
<PAGE>
11.2 "Fair Market Value", as of a particular date, means (i)
with respect to one share of Common Stock, if the aggregate Daily Prices of all
of the outstanding shares of Common Stock that have been registered pursuant to
a public offering is at least $200 million as of such date, the average
(weighted by daily trading volume) of the Daily Prices, if any, per share of
Common Stock for the 20 consecutive trading days immediately prior to such date
or (ii) in all other events with respect to the Common Stock, or with respect to
any other property or consideration, the fair market value of such Common Stock
or other property or consideration as determined by two appraisers, one selected
by the Board of Directors of the Company and one selected by the Holder. No
Director who is a Holder or who is designated by or affiliated with a Holder
shall vote on the selection of the appraiser chosen by the Company. In the event
the Board of Directors or the Holder fails to appoint an appraiser within a
reasonable period of time, the appraisal shall be undertaken by the remaining
single appraiser. The Fair Market Value shall be the fair market value
(determined in the manner described above) arrived at by the appraisers within
thirty (30) days following the appointment of the last appraiser to be
appointed. In the event that the two appraisers agree in good faith on such fair
market value within such a period of time, such agreed value shall be used for
these purposes. If the appraisers cannot agree, but their valuations are within
10% of each other, the Fair Market Value shall be the mean of the two
valuations. If the appraisers cannot agree and the differences in the valuations
are greater than 10%, the appraisers shall select a third appraiser who will
calculate fair market value independently (provided that such calculations shall
not be more than the value calculated by the appraiser selected by the Holder or
less than the value calculated by the appraiser selected by the Board of
Directors) and, except as provided in the next sentence, the Fair Market Value
of the shares shall be the mean of the two fair market values arrived at by the
appraisers who are closest in amount. If one appraiser's valuations is the mean
of the other two valuations, such mean valuation shall be the Fair Market Value.
In the event that the two original appraisers cannot agree upon a third
appraiser within ten (10) days following the end of the thirty (30) day period
referred to above, then the third appraiser, which appraiser shall be a
nationally recognized investment banking firm, shall be appointed by the
American Arbitration Association in Washington, D.C. The expenses of the
appraisers will be borne by the Company.
11.3 "Internal Rate of Return" means the effective annual rate
of interest which, when applied to all cash flows (as determined below) made to,
or received from, the Company with respect to the Series A Investment, makes the
net present value of all such cash flows equal to zero. The Series A Investment
shall be deemed to be a cash outflow. Payments made by a new Holder for a
purchase of securities from an existing Holder shall not be deemed to be a cash
outflow. Cash dividends or other cash amounts, if any, paid by the Company to
the Holder in respect of the Series A Investment will be deemed to be interim
cash inflows with respect to the Series A Investment. Distributions or proceeds
received by the Holder in respect of the Series A Investment consisting of
property other than cash shall be valued at the Fair Market Value thereof as
determined as of the date such distributions or proceeds were received. The
final cash flow with respect to the Series A Investment will be based on the
total net proceeds that will be actually received by the Holder on the date of
the completion of a Change in Control Transaction. Notwithstanding the
foregoing, the Internal Rate of Return will be calculated on a fully diluted
basis taking into account any and all dilution, if any, to the Holder, including
without limitation (i) the dilution, if any, that will result from this Warrant
and (ii) the assumed
8
<PAGE>
exercise of any then outstanding stock options of the Company to the extent that
the per share consideration received, or that would be received upon the deemed
exercise of such option, in connection with such Change in Control Transaction
exceeds the exercise price of any such outstanding options at the date of such
Change in Control Transaction. The Internal Rate of Return will be calculated
with the timing of cash flows assumed to be on a quarterly basis (March 31, June
30, September 30 and December 31) and with all specific cash flows during a
quarter deemed to have occurred on the last day of such quarter.
11.4 "Series A Investment" means, as of any date, the
aggregate dollar amount of all equity capital invested by the Holder in the
Series A Participating Preferred Stock on or prior to such date.
12. Amendment. Any term of this Warrant may be amended with the written
consent of the Company and the Holder. Any amendment effected in accordance with
this Section 12 shall be binding upon the Holder of this Warrant, each future
holder of such Warrant, and the Company.
13. Remedies. In the event of any default or threatened default by the
Company in the performance of or observance with any of the terms of this
Warrant, it is agreed that remedies at law are not and will not be adequate for
the Holder and that such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise.
14. Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto, provided that the Company may not assign its obligations under
this Warrant.
15. Entire Agreement. This Warrant, along with the Amended and Restated
Articles of Incorporation, the Series A Purchase Agreement, the Investor Rights
Agreement, the Shareholders Agreement and the Redemption Agreement, constitutes
the full and entire understanding and agreement among the parties with regard to
the subjects hereof and thereof and supersedes all prior agreements and
understanding between them or any of them as to such subject matter.
16. Severability. Any invalidity, illegality or limitation of the
enforceability with respect to any party of any one or more of the provisions of
this Warrant, or any part thereof, whether arising by reason of the law of any
such person's domicile or otherwise, shall in no way affect or impair the
validity, legality or enforceability of the remainder of this Warrant with
respect to such party or the validity, legality or enforceability of this
Agreement with respect to any other party. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall to the extent
practicable, be modified so as to make it valid, legal and enforceable and to
retain as nearly as practicable the intent of the parties, and the validity,
legality, and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
9
<PAGE>
17. Notices. All notices and other communications between the Company
and the holder of this Warrant shall be delivered in the manner set forth in the
Investor Rights Agreement.
18. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall constitute an original but all of which shall
constitute but one and the same instrument. One or more counterparts of this
Agreement or any exhibit hereto may be delivered via telecopier, with the
intention that they shall have the same effect as an original counterpart
hereof.
19. Effect of Headings. The article and section headings herein are for
convenience only and shall not affect the construction hereof.
20. Governing Law. This Warrant shall be governed by the laws of the
State of North Carolina, without regard to the conflict of laws provisions
thereof, and together with the rights and obligations of the parties hereunder,
shall be construed under and governed by the laws of such State without regard
to the conflicts of laws provisions thereof.
21. No Third Party Beneficiaries. This Warrant shall not confer any
rights or remedies upon any person or entity other than the parties hereto and
their respective successor and permitted assigns.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
10
<PAGE>
IN WITNESS WHEREOF, the undersigned officer of the Company has executed
this Common Stock Purchase Warrant as of the date first above written.
BTI TELECOM CORP.
By: /s/ R. Michael Newkirk
_________________________________
Name: R. Michael Newkirk
Title: President
Acknowledged and Agreed as of the date first above written:
WCAS INFORMATION PARTNERS, L.P.
By: WCAS Info Partners,
General Partner
By: /s/ Jonathan M. Rather
___________________________
Name: Jonathan M. Rather
Title: Attorney-in-fact
11
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Formula: j-[[[(a/b)-c] / f] * g]
<S> <C> <C> <C>
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
EXAMPLE EXAMPLE 1 EXAMPLE 2 EXAMPLE 3
--------- --------- ---------
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
Average Daily Price of Common Stock $ 19.24 [a] $ 18.38 [a] $ 20.09 [a]
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
Series A Conversion Value $ 8.55 [b] $ 8.55 [b] $ 8.55 [b]
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
Multiple of Series A Conversion Value (Actual Multiple) 2.25X 2.15X 2.35X
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
Minimum multiple of Series A Conversion Value (Minimum Multiple) 2.00 [c] 2.00x [c] 2.00x [c]
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
Difference: Actual Multiple - Minimum Multiple 0.25X 0.15X 0.35X
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
Multiple difference between 100% cancellation and no cancellation 0.50x [f] 0.50x [f] 0.50x [f]
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
% of Maximum Shares subject to cancellation 50.0% 30.0% 70.0%
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
Maximum Shares subject to cancellation 7,500 [g] 7,500 [g] 7,500 [g]
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
NUMBER OF SHARES CANCELLED 3,750 2,250 5,250
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
Total Shares issuable upon exercise or exchange of Warrant ("Maximum WCAS 22,500 [j] 22,500 [j] 22,500 [j]
Warrants")
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
Maximum WCAS Warrants less cancelled Shares ("WCAS Warrants") 18,750 20,250 17,250
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
</TABLE>
- --------------------------------------------------------------------------------
SUMMARY TABLE
- --------------------------------------------------------------------------------
MULTIPLE OF SHARES WCAS
SERIES A CANCELLED WARRANTS
- ---------------------------- ------------------------- -------------------------
- ---------------------------- ------------------------- -------------------------
2.00x -- 22,500
- ---------------------------- ------------------------- -------------------------
2.05x 750 21,750
- ---------------------------- ------------------------- -------------------------
2.10x 1,500 21,000
- ---------------------------- ------------------------- -------------------------
2.15x 2,250 20,250
- ---------------------------- ------------------------- -------------------------
2.20x 3,000 19,500
- ---------------------------- ------------------------- -------------------------
2.25x 3,750 18,750
- ---------------------------- ------------------------- -------------------------
2.30x 4,500 18,000
- ---------------------------- ------------------------- -------------------------
2.35x 5,250 17,250
- ---------------------------- ------------------------- -------------------------
2.40x 6,000 16,500
- ---------------------------- ------------------------- -------------------------
2.45x 6,750 15,750
- ---------------------------- ------------------------- -------------------------
2.50x 7,500 15,000
- ---------------------------- ------------------------- -------------------------
12
EXHIBIT 10.26
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
APPLICABLE STATE SECURITIES LAWS, OR APPLICABLE LAWS OF ANY FOREIGN
JURISDICTION. THIS WARRANT AND SUCH UNDERLYING SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE
OFFERED, SOLD, PLEDGED, HYPOTHECATED, RENOUNCED OR OTHERWISE TRANSFERRED EXCEPT
IN COMPLIANCE WITH THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS
AND APPLICABLE LAWS OF ANY FOREIGN JURISDICTION.
BTI TELECOM CORP.
COMMON STOCK PURCHASE WARRANT
213,210 Shares
This Warrant is issued as of this 28th day of December 1999, by BTI
TELECOM CORP., a North Carolina corporation (the "Company"), to BTI INVESTORS
LLC, a Delaware limited liability company (together with its successors and
permitted assigns, the "Holder").
1. Issuance of Warrant; Term; Price.
1.1 Issuance. Subject to the terms and conditions herein set
forth, the Company hereby grants to Holder the right to purchase Two Hundred
Thirteen Thousand Two Hundred Ten (213,210) fully paid and non-assessable shares
of common stock, no par value per share ("Common Stock") of the Company (the
"Shares"). The number of Shares to be received on exercise or exchange of this
Warrant and the price to be paid for each Share are subject to adjustment from
time to time as hereinafter set forth. This Warrant is being issued pursuant to
the terms of a Series A Preferred Stock Purchase Agreement, dated as of December
10, 1999 among the Company, the Purchaser named therein and FS Multimedia, Inc.
(the "Purchase Agreement").
1.2 Term. This Warrant shall be exercisable or exchangeable at
any time and from time to time in whole or in part during the period commencing
on the date which is the earlier of (i) the last day of the Measurement Period
(as hereinafter defined) or (ii) the date on which a Change in Control
Transaction is consummated, and from such date, and ending on the date which is
ten (10) years after the date hereof.
1.3. Exercise Price. Subject to adjustment as hereinafter
provided, the exercise price (the "Warrant Price") per share for which all or
any of the Shares may be purchased pursuant to the terms of this Warrant shall
be equal to One Cent ($0.01).
2. Adjustment of Warrant Price, Number and Kind of Shares. The Warrant
Price and the number and kind of securities issuable upon the exercise or
exchange of this Warrant shall be subject to adjustment from time to time, and
the Company agrees to provide ten (10) days prior
<PAGE>
written notice of the happening of any of the following events, together with a
certificate of adjustment executed by an officer of the Company setting forth
the nature of the adjustment and a brief description of such event triggering
adjustment. The Company further agrees that it will not change the par value of
the Common Stock from no par value per share to any higher par value which
exceeds the Warrant Price then in effect.
2.1 Dividends in Stock Adjustment. In case at any time and
from time to time on or after the date hereof the holders of the Common Stock of
the Company (or any shares of stock or other securities at the time receivable
upon the exercise or exchange of this Warrant) shall have received, or, on or
after the record date fixed for the determination of eligible stockholders,
shall have become entitled to receive, without payment therefor, other
additional securities or other property (other than regular cash dividends) by
way of dividend or distribution, then and in each case, the holder of this
Warrant shall, upon the exercise or exchange hereof, be entitled to receive, in
addition to the number of Shares receivable thereupon, and without payment of
any additional consideration therefor, the amount of such other or additional
securities or other property (other than regular cash dividends) which such
holder would hold on the date of such exercise or exchange had it been the
holder of record of such Shares on the date hereof and had thereafter, during
the period from the date hereof to and including the date of such exercise or
exchange, retained such Shares and/or all other additional securities or other
property receivable by it as aforesaid during such period, giving effect to all
adjustments called for during such period by this Section 2.
2.2 Reclassification Adjustment. In case of any
reclassification or change of the outstanding securities of the Company at any
time and from time to time on or after the date hereof, the holder of this
Warrant, upon the exercise or exchange hereof at any time after the consummation
of such reclassification or change, shall be entitled to receive, in lieu of the
stock or other securities and property receivable upon the exercise or exchange
hereof prior to such consummation, the stock or other securities or property to
which such holder would have been entitled upon such consummation if such holder
had exercised or exchanged this Warrant immediately prior thereto, all subject
to further adjustment as provided in this Section 2.
2.3 Capital Reorganization; Merger or Sale of Assets. If at
any time or from time to time there shall be a capital reorganization of the
Common Stock (other than a subdivision, combination, reclassification or
exchange of shares provided for elsewhere in this Section 2) or a merger,
consolidation or similar business combination of the Company with or into
another entity, or the sale, assignment, lease or transfer of all or
substantially all of the Company's properties and assets to any other person, or
the sale of a majority of the voting securities of the Company in one
transaction or a series of related transactions (any of which events is herein
referred to as a "Reorganization"), then as a part of such Reorganization,
provision shall be made so that the Holder, upon the exercise or exchange hereof
at any time on or after the consummation of such Reorganization, shall be
entitled to receive, in lieu of the stock or other securities and property
receivable upon the exercise or exchange hereof, the number of shares of stock
or other securities or property of the Company, or of the successor corporation
resulting from such Reorganization, to which such Holder would have been
entitled if such Holder had exercised or exchanged this Warrant immediately
prior thereto, all such subject to further adjustment as set forth in this
Section 2. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 2 with respect to the rights of
the
2
<PAGE>
Holder after the Reorganization, to the end that the provisions of this Section
2 shall be applicable after that event in as nearly equivalent a manner as may
be practicable.
2.4 Stock Splits and Reverse Stock Splits. If at any time and
from time to time on or after the date hereof the Company shall subdivide or
otherwise change its outstanding shares of Common Stock into a greater number of
shares, the number of shares receivable upon exercise or exchange of this
Warrant shall thereby be proportionately increased; and, conversely, if at any
time and from time to time on or after the date hereof the outstanding number of
shares of Common Stock shall be combined or otherwise changed into a smaller
number of shares, the number of shares receivable upon exercise or exchange of
this Warrant shall thereby be proportionately decreased.
2.5 Anti-dilution. Adjustments shall be made on an equitable
basis to the Warrant Price and the number of shares issuable upon exercise or
exchange of this Warrant in the manner set forth in Section 4(d) of the Amended
and Restated Articles of Incorporation of the Company except that instead of the
adjustments to the Series A Conversion Value adjustments shall be made on an
equitable basis to adjust the Warrant Price and/or the number of shares of
Common Stock issuable upon exercise or exchange of this Warrant. The provisions
of this Section 2.5 shall terminate upon any conversion of any Series A
Preferred Stock under the Amended and Restated Articles of Incorporation of the
Corporation or at such time as the Company elects pursuant to Article IV,
Section 4(m) of the Amended and Restated Articles of Incorporation of the
Company to terminate certain rights of the Series A Preferred Stock as set forth
in such Section 4(m).
3. No Fractional Shares. No fractional shares of Common Stock will be
issued in connection with any exercise or exchange hereunder. In lieu of
any fractional shares that would otherwise be issuable, the Company shall pay
cash equal to the product of such fraction multiplied by the Fair Market Value
(defined below) of one share of Common Stock on the date of exercise or
exchange.
4. No Shareholder Rights. This Warrant as such shall not entitle Holder
to any of the rights of a shareholder of the Company until the Holder has
exercised or exchanged this Warrant in accordance with Section 6 or Section 7
hereof.
5. Reservation of Stock. The Company covenants that during the period
this Warrant is exercisable, the Company will reserve a sufficient number of
shares of its authorized and unissued Common Stock or other securities of the
Company from time to time issuable upon the exercise or exchange of this Warrant
to provide for the issuance of Shares or other securities upon the exercise or
exchange of this Warrant. The Company agrees 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
Shares or other securities upon the exercise or exchange of this Warrant.
6. Exercise of Warrant. This Warrant may be exercised, in whole or in
part, by Holder by the surrender of this Warrant at the principal office of the
Company, accompanied by notice of and payment in full of the purchase price of
the Shares the Holder elects to purchase hereunder. This Warrant shall be deemed
to have been exercised immediately prior to the close of business on
3
<PAGE>
the date of its surrender for exercise as provided above, and the person
entitled to receive the Shares or other securities and/or property issuable upon
such exercise shall be treated for all purposes as the holder of such Shares or
other securities of record as of the close of business on such date. As promptly
as practicable, the Company shall issue and deliver (or, if so requested at the
time of surrender of this Warrant, hold for pick-up at its principal office by)
to the person or persons entitled to receive the same a certificate or
certificates for the number of full Shares or other securities issuable upon
such exercise, together with cash in lieu of any fraction of a share as provided
above. The Shares or other securities issuable upon exercise hereof shall, upon
their issuance, be fully paid and nonassessable and free and clear of all liens,
security interests or other encumbrances. If this Warrant shall be exercised in
part only, the Company shall, at the time of delivery of the certificate
representing the Shares or other securities in respect of which this Warrant has
been exercised, deliver to the Holder a new Warrant evidencing the right to
purchase the remaining Shares or other securities purchasable under this
Warrant, which new warrant shall, in all other respects, be identical to this
Warrant. The Company shall pay any and all documentary, stamp or similar issue
or transfer taxes payable in respect of the issue or delivery of the Shares to
the Holder.
7. Right to Exchange Warrant for Stock.
7.1 Right to Exchange. In addition to and without limiting the
rights of the Holder under the terms of this Warrant, but subject to the
provisions of Section 1.2, the Holder shall have the right to exchange this
Warrant or any portion hereof (the "Exchange Right") for Shares as provided in
this Section 7. Upon exercise of the Exchange Right with respect to a particular
number of Shares subject to this Warrant (the "Exchange Warrant Shares"), the
Company shall deliver to the Holder (without payment by the Holder of any cash
or other consideration other than shares of Common Stock in the case of clause
(i) of the first sentence of Section 7.2) that number of Shares equal to the
quotient obtained by dividing (x) the value of this Warrant (or the specified
portion hereof) on the Exchange Date (as defined in Section 7.2 hereof), which
value shall be equal to the aggregate Fair Market Value of the Exchange Warrant
Shares issuable upon exchange of this Warrant (or the specified portion hereof)
on the Exchange Date (as herein defined) minus, in the case of clause (ii) of
the first sentence of Section 7.2, the aggregate Warrant Price of the Exchange
Warrant Shares immediately prior to the exercise of the Exchange Right by (y)
the Fair Market Value of one Share on the Exchange Date (as herein defined). No
fractional shares shall be issuable upon exercise of the Exchange Right, and if
the number of shares to be issued determined in accordance with the foregoing
formula is other than a whole number, the Company shall pay to the Holder an
amount in cash equal to the Fair Market Value of the resulting fractional share
on the Exchange Date (as herein defined).
7.2 Method of Exchange. The Exchange Right may be exercised by
the Holder by the surrender of this Warrant at the principal office of the
Company (the date of such surrender, the "Exchange Date") together with a
written statement specifying that the Holder thereby intends to exercise the
Exchange Right, indicating the number of shares subject to this Warrant that are
being surrendered (referred to in Section 7.1 hereof as the Exchanged Warrant
Shares) in exercise of the Exchange Right and specifying whether the Holder has
elected to pay the exchange price (i) in shares of Common Stock owned by the
Holder (in which case the Holder shall surrender a number of shares having a
Fair Market Value equal to the aggregate Warrant Price of the Exchanged Warrant
Shares) or (ii) in shares of Common Stock to be issued
4
<PAGE>
upon exchange of this Warrant. Certificates for the Shares issuable upon
exercise of the Exchange Right (or any other securities deliverable in lieu
thereof under Section 2) shall be issued as of the Exchange Date and shall be
delivered to the Holder immediately following the Exchange Date.
7.3 Reserved.
7.4 Exchange. This Warrant shall be deemed to have been
exchanged immediately prior to the close of business on the date of its
surrender for exchange as provided above, and the person entitled to receive the
Shares or other securities and/or property issuable upon such exchange shall be
treated for all purposes as the holder of such Shares or other securities of
record as of the close of business on such date. As promptly as practicable, the
Company shall issue and deliver (or, if so requested at the time of surrender of
this Warrant, hold for pick-up at its principal office by) to the person or
persons entitled to receive the same a certificate or certificates for the
number of full Shares or other securities issuable upon such exchange, together
with cash in lieu of any fraction of a share as provided above. The Shares or
other securities issuable upon exchange hereof shall, upon their issuance, be
fully paid and nonassessable and free and clear of all liens, security interests
or other encumbrances. If this Warrant shall be exchanged in part only, the
Company shall, at the time of delivery of the certificate representing the
Shares or other securities in respect of which this Warrant has been exchanged,
deliver to the Holder a new Warrant evidencing the right to purchase the
remaining Shares or other securities purchasable under this Warrant, which new
warrant shall, in all other respects, be identical to this Warrant. The Company
shall pay any and all documentary, stamp or similar issue or transfer taxes
payable in respect of the issue or delivery of the Shares to the Holder.
8. Reduction in Number of Shares.
8.1 Notwithstanding anything contained herein to the contrary,
if prior to the date which is three (3) years after the date hereof the Company
undertakes a Qualified Public Offering (as defined in the Company's Amended and
Restated Articles of Incorporation), then the number of Shares that may be
purchased upon exercise or exchange of this Warrant shall be reduced as follows:
(a) If the average (weighted by daily trading
volume) Daily Price of the Company's publicly traded shares of Common Stock
during the Measurement Period (as defined below) exceeds the product obtained by
multiplying 2.5 by the Series A Conversion Value (as such term is defined in the
Company's Amended and Restated Articles of Incorporation) on the last day of the
Measurement Period, this Warrant shall terminate immediately and the Holder of
this Warrant shall not be entitled to purchase any shares pursuant to the
exercise or exchange hereof; and
(b) If the average (weighted by daily trading volume)
Daily Price of the Company's publicly traded shares of Common Stock during the
Measurement Period exceeds the product obtained by multiplying 2.0 by the Series
A Conversion Value on the last day of the Measurement Period (the "2.0 Value")
but is less than or equal to the product obtained by multiplying 2.5 by such
Series A Conversion Value (the "2.5 Value"), the total number of Shares
5
<PAGE>
issuable upon exercise or exchange hereof, taking into account all adjustments
to the number and kind of Shares provided in this Warrant, shall automatically
be reduced in accordance with the formula set forth at Schedule A attached
hereto.
(c) As used herein, "Measurement Period" means any
single period of ninety (90) consecutive trading days including the date which
is three (3) years after the date hereof, which period shall be selected by the
Company. The Company shall provide written notice to the Holder within three (3)
days after the end of the Measurement Period in which the average (weighted by
daily trading volume) Daily Price exceeds the 2.5 Value, which notice shall
specify the number of Shares provided in this Warrant that have been reduced in
accordance with the formula set forth at Schedule A attached hereto.
(d) For purposes of this Section 8.1 the term
"Company" shall include any successor entity or any surviving entity as a result
of a Reorganization (other than a Change in Control Transaction) that has a
class of securities registered under the Securities Act of 1933, as amended,
with a market capitalization equal or greater than $100,000,000.
8.2 If, at any time prior to December 28, 2001,
a Change in Control Transaction (as hereinafter defined) is consummated in which
the Fair Market Value of the per share consideration received by a holder of
Common Stock (i) exceeds the product obtained by multiplying 2.0 by the Series A
Conversion Value at the time of such Change in Control Transaction and (ii)
represents an Internal Rate of Return (defined below) on the Series A Preferred
Stockholders' investment of at least 30% (assuming for the purposes of this
Section 8.2, that the Holder continues to own its Series A Preferred Stock at
the time of such Change in Control Transaction), this Warrant shall terminate
without exercise or exchange hereof and the Holder shall receive that portion of
the consideration to which it would have been entitled had it exercised or
exchanged this Warrant for the maximum number of shares for which it was
exercisable or exchangeable immediately prior to the closing of the Change in
Control Transaction. For purposes of this Warrant, a "Change in Control
Transaction" shall mean one transaction or a series of transactions involving
(x) the sale, assignment, lease or transfer of all the shares of the Company's
capital stock or of all or substantially all of its assets to, or a merger,
consolidation or similar business combination with or into, or the sale of a
majority of the voting securities of the Company to, an entity, a majority of
the voting power of which is not owned or controlled, directly or indirectly, by
one or more shareholders of the Company immediately prior to the transaction, or
(y) a liquidation or distribution of all or substantially all the assets of the
Company.
8.3 If, at any time after December 28, 2001, and before March
28, 2002, a Change in Control Transaction is consummated in which the Fair
Market Value of the per share consideration received by a holder of Common Stock
(i) exceeds the product obtained by multiplying 2.25 by the Series A Conversion
Value at the time of such Change in Control Transaction and (ii) represents an
Internal Rate of Return on the Series A Preferred Stockholders' investment of at
least 30% (assuming for the purposes of this Section 8.3, that the Holder
continues to own its Series A Preferred Stock at the time of such Change in
Control Transaction), this Warrant shall terminate without exercise or exchange
hereof and the Holder
6
<PAGE>
shall receive that portion of the consideration to which it would have been
entitled had it exercised or exchanged this Warrant for the maximum number of
shares for which it was exercisable or exchangeable immediately prior to the
closing of the Change in Control Transaction.
8.4 If, at any time after March 28, 2002, and before December
28, 2002, a Change in Control Transaction is consummated in which the Fair
Market Value of the per share consideration received by a holder of Common Stock
(i) exceeds the product obtained by multiplying 2.5 by the Series A Conversion
Value at the time of such Change in Control transaction and (ii) represents an
Internal Rate of Return on the Series A Preferred Stockholders' investment of at
least 30% (assuming for the purposes of this Section 8.4, that the Holder
continues to own its Series A Preferred Stock at the time of such Change in
Control Transaction), this Warrant shall terminate without exercise or exchange
hereof and the Holder shall receive that portion of the consideration to which
it would have been entitled had it exercised or exchanged this Warrant for the
maximum number of shares for which it was exercisable or exchangeable
immediately prior to the closing of the Change in Control Transaction.
9. Notice of Proposed Transfers. This Warrant and the Shares may be
transferred and assigned by the Holder subject to the restrictions on transfer
set forth in the Shareholders Agreement, dated as of the date hereof by and
among the Company, Peter T. Loftin and the Holder (the "Shareholders
Agreement"). Each certificate evidencing the securities transferred as above
provided shall bear the appropriate restrictive legends set forth in the
Shareholders Agreement for so long as such legend is required pursuant to the
terms of such Agreement.
10. Replacement of Warrants. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of the Warrant, and in the case of any such loss, theft or
destruction of the Warrant, on delivery of an indemnity agreement or security
satisfactory in form and amount to the Company acting reasonably, and
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of the Warrant if mutilated, the Company will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
11. Certain Definitions. As used in this Warrant, the following terms,
have the following meanings:
11.1 "Daily Price" means (1) if the shares of such Common
Stock then are listed and traded on the New York Stock Exchange, Inc. ("NYSE"),
the closing price on such day as reported on the NYSE Composite Transactions
Tape; (2) if the shares of Common Stock then are not listed and traded on the
NYSE, the closing price on such day as reported by the principal national
securities exchange on which the shares are listed and traded; (3) if the shares
of Common Stock then are not listed and traded on any such securities exchange,
the last reported sale price on such day on the National Market of the National
Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ");
or (4) if the shares of Common Stock then are not traded on the NASDAQ National
Market, the average of the highest reported bid and lowest reported asked price
on such day as reported by NASDAQ.
7
<PAGE>
11.2 "Fair Market Value", as of a particular date, means (i)
with respect to one share of Common Stock, if the aggregate Daily Prices of all
of the outstanding shares of Common Stock that have been registered pursuant to
a public offering is at least $200 million as of such date, the average
(weighted by daily trading volume) of the Daily Prices, if any, per share of
Common Stock for the 20 consecutive trading days immediately prior to such date
or (ii) in all other events with respect to the Common Stock, or with respect to
any other property or consideration, the fair market value of such Common Stock
or other property or consideration as determined by two appraisers, one selected
by the Board of Directors of the Company and one selected by the Holder. No
Director who is a Holder or who is designated by or affiliated with a Holder
shall vote on the selection of the appraiser chosen by the Company. In the event
the Board of Directors or the Holder fails to appoint an appraiser within a
reasonable period of time, the appraisal shall be undertaken by the remaining
single appraiser. The Fair Market Value shall be the fair market value
(determined in the manner described above) arrived at by the appraisers within
thirty (30) days following the appointment of the last appraiser to be
appointed. In the event that the two appraisers agree in good faith on such fair
market value within such a period of time, such agreed value shall be used for
these purposes. If the appraisers cannot agree, but their valuations are within
10% of each other, the Fair Market Value shall be the mean of the two
valuations. If the appraisers cannot agree and the differences in the valuations
are greater than 10%, the appraisers shall select a third appraiser who will
calculate fair market value independently (provided that such calculations shall
not be more than the value calculated by the appraiser selected by the Holder or
less than the value calculated by the appraiser selected by the Board of
Directors) and, except as provided in the next sentence, the Fair Market Value
of the shares shall be the mean of the two fair market values arrived at by the
appraisers who are closest in amount. If one appraiser's valuations is the mean
of the other two valuations, such mean valuation shall be the Fair Market Value.
In the event that the two original appraisers cannot agree upon a third
appraiser within ten (10) days following the end of the thirty (30) day period
referred to above, then the third appraiser, which appraiser shall be a
nationally recognized investment banking firm, shall be appointed by the
American Arbitration Association in Washington, D.C. The expenses of the
appraisers will be borne by the Company.
11.3 "Internal Rate of Return" means the effective annual rate
of interest which, when applied to all cash flows (as determined below) made to,
or received from, the Company with respect to the Series A Investment, makes the
net present value of all such cash flows equal to zero. The Series A Investment
shall be deemed to be a cash outflow. Payments made by a new Holder for a
purchase of securities from an existing Holder shall not be deemed to be a cash
outflow. Cash dividends or other cash amounts, if any, paid by the Company to
the Holder in respect of the Series A Investment will be deemed to be interim
cash inflows with respect to the Series A Investment. Distributions or proceeds
received by the Holder in respect of the Series A Investment consisting of
property other than cash shall be valued at the Fair Market Value thereof as
determined as of the date such distributions or proceeds were received. The
final cash flow with respect to the Series A Investment will be based on the
total net proceeds that will be actually received by the Holder on the date of
the completion of a Change in Control Transaction. Notwithstanding the
foregoing, the Internal Rate of Return will be calculated on a fully diluted
basis taking into account any and all dilution, if any, to the Holder, including
without limitation (i) the dilution, if any, that will result from this Warrant
and (ii) the assumed
8
<PAGE>
exercise of any then outstanding stock options of the Company to the extent that
the per share consideration received, or that would be received upon the deemed
exercise of such option, in connection with such Change in Control Transaction
exceeds the exercise price of any such outstanding options at the date of such
Change in Control Transaction. The Internal Rate of Return will be calculated
with the timing of cash flows assumed to be on a quarterly basis (March 31, June
30, September 30 and December 31) and with all specific cash flows during a
quarter deemed to have occurred on the last day of such quarter.
11.4 "Series A Investment" means, as of any date, the
aggregate dollar amount of all equity capital invested by the Holder in the
Series A Participating Preferred Stock on or prior to such date.
12. Amendment. Any term of this Warrant may be amended with the written
consent of the Company and the Holder. Any amendment effected in accordance with
this Section 12 shall be binding upon the Holder of this Warrant, each future
holder of such Warrant, and the Company.
13. Remedies. In the event of any default or threatened default by the
Company in the performance of or observance with any of the terms of this
Warrant, it is agreed that remedies at law are not and will not be adequate for
the Holder and that such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise.
14. Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto, provided that the Company may not assign its obligations under
this Warrant.
15. Entire Agreement. This Warrant, along with the Amended and Restated
Articles of Incorporation, the Series A Purchase Agreement, the Investor Rights
Agreement, the Shareholders Agreement and the Redemption Agreement, constitutes
the full and entire understanding and agreement among the parties with regard to
the subjects hereof and thereof and supersedes all prior agreements and
understanding between them or any of them as to such subject matter.
16. Severability. Any invalidity, illegality or limitation of the
enforceability with respect to any party of any one or more of the provisions of
this Warrant, or any part thereof, whether arising by reason of the law of any
such person's domicile or otherwise, shall in no way affect or impair the
validity, legality or enforceability of the remainder of this Warrant with
respect to such party or the validity, legality or enforceability of this
Agreement with respect to any other party. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall to the extent
practicable, be modified so as to make it valid, legal and enforceable and to
retain as nearly as practicable the intent of the parties, and the validity,
legality, and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
9
<PAGE>
17. Notices. All notices and other communications between the Company
and the holder of this Warrant shall be delivered in the manner set forth in the
Investor Rights Agreement.
18. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall constitute an original but all of which shall
constitute but one and the same instrument. One or more counterparts of this
Agreement or any exhibit hereto may be delivered via telecopier, with the
intention that they shall have the same effect as an original counterpart
hereof.
19. Effect of Headings. The article and section headings herein are for
convenience only and shall not affect the construction hereof.
20. Governing Law. This Warrant shall be governed by the laws of the
State of North Carolina, without regard to the conflict of laws provisions
thereof, and together with the rights and obligations of the parties hereunder,
shall be construed under and governed by the laws of such State without regard
to the conflicts of laws provisions thereof.
21. No Third Party Beneficiaries. This Warrant shall not confer any
rights or remedies upon any person or entity other than the parties hereto and
their respective successor and permitted assigns.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
10
<PAGE>
IN WITNESS WHEREOF, the undersigned officer of the Company has executed
this Common Stock Purchase Warrant as of the date first above written.
BTI TELECOM CORP.
By: /s/ R. Michael Newkirk
_________________________________
Name: R. Michael Newkirk
Title: President
Acknowledged and Agreed as of the date first above written:
BTI INVESTORS LLC
By: /s/ Jonathan M. Rather
____________________________
Name: Jonathan M. Rather
Title: Authorized Person
11
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Formula: j-[[[(a/b)-c] / f] * g]
<S> <C> <C> <C>
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
EXAMPLE EXAMPLE 1 EXAMPLE 2 EXAMPLE 3
--------- --------- ---------
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
Average Daily Price of Common Stock $ 19.24 [a] $ 18.38 [a] $ 20.09 [a]
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
Series A Conversion Value $ 8.55 [b] $ 8.55 [b] $ 8.55 [b]
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
Multiple of Series A Conversion Value (Actual Multiple) 2.25x 2.15x 2.35x
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
Minimum multiple of Series A Conversion Value (Minimum Multiple) 2.00 [c] 2.00x [c] 2.00x [c]
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
Difference: Actual Multiple - Minimum Multiple 0.25x 0.15x 0.35x
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
Multiple difference between 100% cancellation and no cancellation 0.50x [f] 0.50x [f] 0.50x [f]
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
% of Maximum Shares subject to cancellation 50.0% 30.0% 70.0%
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
Maximum Shares subject to cancellation 71,070 [g] 71,070 [g] 71,070 [g]
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
NUMBER OF SHARES CANCELLED 35,535 21,321 49,749
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
Total Shares issuable upon exercise or exchange of Warrant ("Maximum WCAS 213,210 [j] 213,210 [j] 213,210 [j]
Warrants")
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
Maximum WCAS Warrants less cancelled Shares ("WCAS Warrants") 177,675 191,889 163,461
- --------------------------------------------------------------------------- ----------------- ---------------- -----------------
- ---------------------------------------------------------------------------------
SUMMARY TABLE
- ---------------------------------------------------------------------------------
MULTIPLE OF SHARES WCAS
SERIES A CANCELLED WARRANTS
- ---------------------------- ------------------------- --------------------------
- ---------------------------- ------------------------- --------------------------
2.00x -- 213,210
- ---------------------------- ------------------------- --------------------------
2.05x 7,107 206,103
- ---------------------------- ------------------------- --------------------------
2.10x 14,214 198,996
- ---------------------------- ------------------------- --------------------------
2.15x 21,321 191,889
- ---------------------------- ------------------------- --------------------------
2.20x 28,428 184,782
- ---------------------------- ------------------------- --------------------------
2.25x 35,535 177,675
- ---------------------------- ------------------------- --------------------------
2.30x 42,642 170,568
- ---------------------------- ------------------------- --------------------------
2.35x 49,749 163,461
- ---------------------------- ------------------------- --------------------------
2.40x 56,856 156,354
- ---------------------------- ------------------------- --------------------------
2.45x 63,963 149,247
- ---------------------------- ------------------------- --------------------------
2.50x 71,070 142,140
- ---------------------------- ------------------------- --------------------------
</TABLE>
EXHIBIT 10.27
BTI TELECOM CORP.
- --------------------------------------------------------------------------------
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
December 10, 1999
- --------------------------------------------------------------------------------
<PAGE>
BTI TELECOM CORP.
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
December 10, 1999
INDEX
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I PURCHASE AND SALE OF SHARES........................................................................1
1.1 PURCHASE AND SALE OF SERIES A PARTICIPATING PREFERRED STOCK AT THE CLOSING...............................1
--------------------------------------------------------------------------
1.2 WARRANT..................................................................................................1
1.3 THE CONVERSION SHARES....................................................................................2
---------------------
1.4 CLOSING; DELIVERY........................................................................................2
-----------------
1.5 USE OF PROCEEDS..........................................................................................2
---------------
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................................................3
2.1 ORGANIZATION AND CORPORATE POWER.........................................................................3
--------------------------------
2.2 AUTHORIZATION............................................................................................3
-------------
2.3 GOVERNMENT APPROVALS.....................................................................................4
--------------------
2.4 AUTHORIZED AND OUTSTANDING STOCK.........................................................................4
--------------------------------
2.5 CHARTER DOCUMENTS........................................................................................5
-----------------
2.6 SUBSIDIARIES.............................................................................................5
------------
2.7 FINANCIAL INFORMATION....................................................................................5
---------------------
2.8 EVENTS SUBSEQUENT TO THE DATE OF THE FINANCIAL STATEMENTS................................................6
---------------------------------------------------------
2.9 SEC FILINGS..............................................................................................7
-----------
2.10 LITIGATION............................................................................................7
----------
2.11 COMPLIANCE WITH LAWS AND OTHER INSTRUMENTS............................................................8
------------------------------------------
2.12 TAXES.................................................................................................8
-----
2.13 REAL PROPERTY.........................................................................................9
-------------
2.14 TITLE TO PROPERTIES AND ASSETS........................................................................9
------------------------------
2.15 INTELLECTUAL PROPERTY................................................................................10
---------------------
2.16 AGREEMENTS OF DIRECTORS, OFFICERS AND EMPLOYEES......................................................10
-----------------------------------------------
2.17 GOVERNMENTAL AND INDUSTRIAL APPROVALS................................................................10
-------------------------------------
2.18 FEDERAL RESERVE REGULATIONS..........................................................................11
---------------------------
2.19 CONTRACTS AND COMMITMENTS............................................................................11
-------------------------
2.20 SECURITIES ACT.......................................................................................12
--------------
2.21 REGISTRATION RIGHTS..................................................................................12
-------------------
2.22 INSURANCE COVERAGE...................................................................................13
------------------
2.23 EMPLOYEE MATTERS.....................................................................................13
----------------
2.24 NO BROKERS OR FINDERS................................................................................14
---------------------
2.25 TRANSACTIONS WITH AFFILIATES.........................................................................14
----------------------------
2.26 ASSUMPTIONS, GUARANTEES, ETC. OF INDEBTEDNESS OF OTHER PERSONS.......................................14
--------------------------------------------------------------
2.27 U.S. REAL PROPERTY HOLDING CORPORATION...............................................................14
--------------------------------------
2.28 DISCLOSURES..........................................................................................14
-----------
2.29 ENVIRONMENTAL AND SAFETY LAWS........................................................................15
-----------------------------
2.30 YEAR 2000............................................................................................15
---------
2.31 INVESTMENT COMPANY ACT...............................................................................16
----------------------
ARTICLE III INVESTMENT REPRESENTATIONS.....................................................................16
3.1 REPRESENTATIONS AND WARRANTIES..........................................................................16
------------------------------
3.2 PERMITTED SALES.........................................................................................17
---------------
</TABLE>
i
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<TABLE>
<CAPTION>
<S> <C>
ARTICLE IV COVENANTS OF THE COMPANY.......................................................................17
4.1 CONDUCT OF BUSINESS.....................................................................................17
-------------------
4.2 ACCESS TO INFORMATION...................................................................................18
---------------------
4.3 NOTICE OF CERTAIN EVENTS................................................................................18
------------------------
4.4 APPROVALS...............................................................................................19
---------
ARTICLE V COVENANTS OF THE COMPANY AND THE PURCHASER.....................................................19
5.1 FURTHER ASSURANCES......................................................................................19
5.2 TAX CONSISTENCY.........................................................................................19
ARTICLE VI CONDITIONS OF OBLIGATIONS OF THE PURCHASER AND THE COMPANY.....................................19
ARTICLE VII CONDITIONS OF PURCHASERS' OBLIGATION...........................................................19
7.1 EFFECT OF CONDITIONS....................................................................................19
--------------------
7.2 REPRESENTATIONS AND WARRANTIES..........................................................................20
------------------------------
7.3 PERFORMANCE.............................................................................................20
-----------
7.4 OPINIONS OF COUNSEL.....................................................................................20
-------------------
7.5 COMPLIANCE CERTIFICATE..................................................................................20
----------------------
7.6 AMENDED AND RESTATED ARTICLES AND BYLAWS................................................................20
7.7 CERTIFIED CHARTER DOCUMENTS.............................................................................20
---------------------------
7.8 NO MATERIAL ADVERSE CHANGE..............................................................................20
--------------------------
7.9 SHAREHOLDERS AGREEMENT..................................................................................20
----------------------
7.10 REDEMPTION AGREEMENT.................................................................................21
--------------------
7.11 INVESTOR RIGHTS AGREEMENT............................................................................21
-------------------------
7.12 STOCK REPURCHASE AGREEMENT...........................................................................21
--------------------------
7.13 CONSENTS AND WAIVERS.................................................................................21
--------------------
7.14 PROCEEDINGS AND DOCUMENTS............................................................................21
-------------------------
ARTICLE VIII CONDITIONS OF THE COMPANY'S OBLIGATION.........................................................21
8.1 EFFECT OF CONDITIONS....................................................................................21
--------------------
8.2 REPRESENTATIONS AND WARRANTIES..........................................................................21
------------------------------
8.3 PERFORMANCE.............................................................................................21
-----------
8.4 SHAREHOLDERS AGREEMENT..................................................................................21
----------------------
8.5 REDEMPTION AGREEMENT....................................................................................22
--------------------
8.6 INVESTOR RIGHTS AGREEMENT...............................................................................22
-------------------------
ARTICLE IX CERTAIN DEFINITIONS............................................................................22
ARTICLE X RIGHT OF FIRST REFUSAL.........................................................................23
10.1 RIGHT OF FIRST REFUSAL...............................................................................23
----------------------
10.2 NOTICE...............................................................................................23
------
10.3 SALE BY FSM..........................................................................................23
-----------
10.4 SALE OF ADDITIONAL SERIES A PARTICIPATING PREFERRED STOCK............................................24
---------------------------------------------------------
10.5 TERMINATION OF RIGHTS................................................................................24
---------------------
ARTICLE XI MISCELLANEOUS..................................................................................24
11.1 SURVIVAL OF REPRESENTATIONS..........................................................................24
11.2 INDEMNIFICATION......................................................................................24
---------------
11.3 TERMINATION..........................................................................................26
-----------
11.4 PARTIES IN INTEREST..................................................................................26
-------------------
11.5 AMENDMENTS AND WAIVERS...............................................................................26
----------------------
11.6 NOTICES..............................................................................................27
-------
11.7 COUNTERPARTS.........................................................................................27
------------
11.8 EFFECT OF HEADINGS...................................................................................28
------------------
11.9 SEVERABILITY.........................................................................................28
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
11.10 SPECIFIC ENFORCEMENT.................................................................................28
11.11 GOVERNING LAW........................................................................................28
-------------
11.12 PUBLIC ANNOUNCEMENTS.................................................................................28
--------------------
11.13 NO THIRD PARTY BENEFICIARIES.........................................................................28
11.14 EXPENSES.............................................................................................28
SCHEDULES
EXHIBITS
A Amended and Restated Articles of Incorporation
B Common Stock Purchase Warrant
C Opinion of Company Counsel
D Shareholders Agreement
E Redemption Agreement
F Investor Rights Agreement
G Stock Repurchase Agreement
</TABLE>
iii
<PAGE>
BTI TELECOM CORP.
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES A PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is
entered into as of the 10th day of December 1999, by and among BTI Telecom
Corp., a North Carolina corporation (the "Company"); FS Multimedia, Inc., a
North Carolina corporation and wholly-owned subsidiary of the Company ("FSM");
and Welsh, Carson, Anderson & Stowe VIII, L.P., a Delaware limited partnership,
WCAS Information Partners, L.P., a Delaware limited partnership, and BTI
Investors LLC, a Delaware limited liability company (collectively, the
"Purchaser").
WHEREAS, the Company desires to enter into this agreement with the
Purchaser to raise capital through the sale and issuance of shares of its
preferred stock to the Purchaser; and
WHEREAS, the Purchaser desires to enter into this agreement to acquire
shares of preferred stock of the Company on the terms and conditions set forth
herein.
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement, the parties to this Agreement hereby mutually agree as follows.
ARTICLE I
PURCHASE AND SALE OF SHARES
1.1 Purchase and Sale of Series A Preferred Stock at the Closing. At
the Closing (as herein defined), the Company will sell to the Purchaser, and the
Purchaser agrees to purchase, an aggregate of Two Hundred Thousand (200,000)
shares of the Company's Series A Preferred Stock, par value $.01 per share (the
"Series A Preferred Stock"), at a price of One Thousand Dollars ($1,000.00) per
share, for an aggregate purchase price of Two Hundred Million Dollars
($200,000,000) (the "Purchase Price") payable as provided in Section 1.4. The
Series A Preferred Stock shall have the rights, terms and privileges set forth
in the Company's Amended and Restated Articles of Incorporation, a copy of which
is attached hereto as Exhibit A (the "Articles"). The shares of Series A
Preferred Stock purchased pursuant to this Section 1.1 are referred to herein as
the "Purchased Shares." The Purchased Shares and the Warrant shall be allocated
among the Purchaser as set forth on Schedule 1.1.
1.2 Warrant. In addition to the Series A Preferred Stock, at the
Closing the Company shall, subject to the terms and conditions contained in the
warrant, issue to Purchaser one or more warrants in the form of Exhibit B
attached hereto (collectively, the "Warrant") to purchase up to an aggregate of
Four Million Five Hundred Thousand (4,500,000) shares of the Company's Common
Stock at an initial exercise price per share of One Cent ($0.01).
<PAGE>
1.3 The Conversion Shares. The Company has authorized and reserved and
hereby covenants that it will continue to reserve, free of any preemptive rights
or encumbrances, a sufficient number of its authorized but previously unissued
shares of Common Stock, no par value per share (the "Common Stock"), to satisfy
the rights of conversion of the holders of the Purchased Shares and the rights
of exercise or exchange of the holder of the Warrant. The shares of Common Stock
issued or issuable upon conversion of the Purchased Shares are referred to
herein as the "Conversion Shares"; the shares of Common Stock issued or issuable
upon the exercise or exchange of the Warrant are referred to herein as the
"Warrant Shares"; and the Conversion Shares and Warrant Shares shall be
collectively referred to herein as the "Underlying Shares."
1.4 Closing; Delivery.
(a) Closing. The purchase of the Purchased Shares by the
Purchaser and the issuance to the Purchaser of the Warrant shall be made at a
closing (the "Closing") to be held at the offices of Wyrick Robbins Yates &
Ponton LLP, 4101 Lake Boone Trail, Suite 300, Raleigh, North Carolina 27607, at
10:00 a.m. within two business days following the later of (i) satisfaction or
waiver of the conditions to closing set forth in Articles VI, VII and VIII, and
(ii) the due date for the Purchaser's receipt of capital contributions from its
limited partners in response to a capital call notice in respect of the Purchase
Price, or at such other time and on such other date as the Purchaser and the
Company may mutually agree.
(b) Payment and Delivery. Subject to the satisfaction or
waiver of the conditions set forth in Articles VI, VII and VIII hereof,
Purchaser shall pay the Purchase Price at the Closing, which payment shall be by
check or wire transfer of immediately available federal funds. At the Closing,
the Company will deliver to the Purchaser one or more certificates representing
the Purchased Shares purchased by such Purchaser and the Warrant.
1.5 Use of Proceeds. The Company shall use the proceeds received upon
the sale of the Purchased Shares at the Closing (i) to develop and enhance its
telecommunications network, (ii) to expand its infrastructure and marketing
resources, (iii) to make acquisitions, (iv) to pay debt obligations, (v) for
working capital purposes, (vi) to purchase shares of its Common Stock held by
Peter T. Loftin pursuant to a Stock Repurchase Agreement in the form attached
hereto as Exhibit G, provided that the aggregate purchase price for such shares
shall not exceed $65,000,000 (at a per share price of $8.55), (vii) to make
investments in FSM, or, upon approval by the Board of Directors of the Company,
investments in a joint venture, strategic alliance or other arrangement
involving the FSM business, to which FSM has contributed its assets, and to
which FSM, Business Telecom, Inc. ("BTI") or the Company is a party (the "FSM
Related Entity"); provided that such investments shall not exceed $10,000,000 in
the aggregate, and (viii) to pay fees, costs and expenses incurred by the
Company in connection with the transactions contemplated by this Agreement.
2
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In order to induce the Purchaser to purchase the Purchased Shares and
the Warrant, the Company makes the following representations and warranties as
of the date hereof and as of the date of the Closing.
2.1 Organization and Corporate Power.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority and all
material licenses, permits, authorizations, consents and approvals necessary to
own and operate its properties and to carry on its business as presently
conducted. The Company is duly licensed or qualified to do business as a foreign
corporation and is in good standing in each jurisdiction wherein the character
of its property, or the nature of the activities presently conducted by it,
makes such license or qualification necessary, except for those jurisdictions
where the failure to be so licensed or to so qualify would not, individually or
in the aggregate, have a material adverse effect on the condition (financial or
otherwise), business, assets, results of operations or prospects of the Company
and it Subsidiaries, taken as a whole (a "Material Adverse Effect").
(b) Each of the Company's Subsidiaries is a corporation
duly organized, validly existing and in good standing under the laws of its
respective jurisdiction of incorporation and has all requisite corporate power
and authority and all material licenses, permits, authorizations, consents and
approvals necessary to own and operate its properties and to carry on its
business as presently conducted. Each of the Company's Subsidiaries is duly
licensed or qualified to do business as a foreign corporation and is in good
standing in each jurisdiction wherein the character of its property, or the
nature of the activities presently conducted by it, makes such license or
qualification necessary, except for those jurisdictions where the failure to be
so licensed or to so qualify would not, individually or in the aggregate, have a
Material Adverse Effect.
2.2 Authorization. The Company has all necessary corporate power and
has taken all necessary corporate action required for the due authorization,
execution, delivery and performance by the Company of this Agreement, the
Shareholders Agreement referred to in Section 7.9, the Redemption Agreement
referred to in Section 7.10, the Investor Rights Agreement referred to in
Section 7.11, the Stock Repurchase Agreement referred to in Section 7.12, and
any other agreements or instruments executed by the Company in connection
herewith or therewith (collectively, the "Related Agreements"), and the
consummation of the transactions contemplated herein or therein, and for the due
authorization, issuance, sale and delivery of the Purchased Shares, the Warrant
and the Underlying Shares. Except as set forth on Schedule 2.2, the issuance of
the Purchased Shares and the Warrant does not, and the issuance of the
Underlying Shares will not, require any further corporate action and is not and
will not be subject to any preemptive right, right of first refusal or the like.
Assuming due execution and delivery of
3
<PAGE>
this Agreement and the Related Agreements by the Purchaser, this Agreement, the
Related Agreements and the other agreements and instruments executed by the
Company in connection herewith or therewith constitute legal, valid and binding
obligations of the Company enforceable against the Company in accordance with
their respective terms except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally and by general equitable
principles.
2.3 Government Approvals. Except as set forth on Schedule 2.3, no
material consent, approval, permit, license or authorization of, or designation,
declaration or filing with, any court or governmental authority is or will be
required on the part of the Company in connection with the execution, delivery
and performance by the Company of this Agreement, any of the Related Agreements
and any other agreements or instruments executed by the Company in connection
herewith or therewith, or in connection with the issuance of the Purchased
Shares, the Warrant or the Underlying Shares.
2.4 Authorized and Outstanding Stock. As of the date hereof, the
authorized capital stock of the Company consists of (i) 500,000,000 shares of
Common Stock, of which 100,000,000 shares are validly issued and outstanding and
held of record and owned beneficially as set forth in Schedule 2.4 attached
hereto; 23,391,813 shares have been reserved for issuance upon conversion of
Series A Preferred Stock; 4,500,000 shares have been reserved for issuance upon
exercise or exchange of the Warrant; shares have been reserved to be sold in an
initial public offering that would have an aggregate offering price of up to
$125,000,000, plus an additional number of shares equal to 15% of the total
offering amount to cover over-allotments in connection with such offering and
7,500,000 shares have been reserved for issuance pursuant to the Company's 1997
Stock Plan, under which no shares of Common Stock have been issued upon the
exercise or exchange of options, options to purchase 3,386,259 shares of Common
Stock were issued and outstanding as of September 30, 1999, and options to
purchase 4,113,741 shares of Common Stock remain available for future issuance;
and (ii) 10,000,000 shares of Preferred Stock of which 200,000 shares are
designated "Series A Preferred Stock," none of which are issued and outstanding.
The designations, powers, preferences, rights, qualifications, limitations and
restrictions in respect of each class and series of authorized capital stock of
the Company are as set forth in the Articles, and all such designations, powers,
preferences, rights qualifications, limitations and restrictions are valid,
binding and enforceable and in accordance with all applicable laws except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally and by general equitable principles. All issued and
outstanding shares of capital stock are, and when issued in accordance with the
terms hereof, all Purchased Shares, the Warrant and all Underlying Shares will
be, duly and validly authorized, validly issued and fully paid and nonassessable
with no personal liability attaching to the ownership thereof (other than
attributable to acts of the Purchaser), free and clear of all liens, charges,
restrictions, claims or encumbrances of any nature whatsoever and free from any
restrictions on transfer (collectively, "Liens"), except for restrictions
imposed by federal or state securities or "blue-sky" laws and except for those
imposed pursuant to this Agreement or any Related Agreement. Except as set forth
on Schedule 2.4, (i) there are no outstanding shares of capital stock or voting
securities of the Company, (ii) the Company is not party to any shareholder
agreement, voting agreement or
4
<PAGE>
any other agreement, and, to the best knowledge of the Company, there is no
shareholder agreement, voting agreement, first refusal or preemptive rights
agreement or any other agreement, which would affect the rights of the
shareholders of the Company, and (iii) there are no outstanding warrants,
options, commitments, preemptive rights, rights to acquire or purchase,
obligations to repurchase, redeem or otherwise acquire or to pay any dividend or
make any other distribution in respect of, or conversion rights or demands of
any character relating to the capital stock or other securities of the Company.
All issued and outstanding shares of capital stock of the Company were issued
(x) in transactions exempt from the registration provisions of the Act, (y) in
compliance with or in transactions exempt from the registration provisions of
applicable state securities or "blue-sky" laws, and (z) in compliance with law
in all other respects. The Company has provided the Purchaser or its
representatives with a true, correct and complete copy of the Company's 1997
Stock Plan, which is the only equity incentive plan or proposal that has been
offered to any of the Company's or any of its Subsidiaries' employees,
directors, officers or consultants, except as otherwise disclosed on Schedule
2.4.
2.5 Charter Documents. The Company has provided to the Purchaser or its
representatives for their examination (a) complete and accurate copies of the
Articles of Incorporation and Bylaws of the Company, both as amended to date and
(b) the minute books of the Company containing all consents to actions without a
meeting and all minutes of meetings of the Company's shareholders and Board of
Directors which are complete and accurate records of all such meetings and
consents. The Company is not in violation of any term of its Articles, Bylaws,
or other organizational documents.
2.6 Subsidiaries. Except as set forth on Schedule 2.6, the Company has
no Subsidiaries nor any investment or other interest in (including any interest
in any partnership, joint venture or other non-corporate business enterprise),
or any outstanding loan or advance to or from, any Person, including, without
limitation, any officer, director or shareholder. Except as set forth on
Schedule 2.6, all of the outstanding shares of capital stock of each of the
Company's Subsidiaries are owned by the Company, directly or indirectly, in each
case free and clear of any Liens, and all of such shares are duly authorized,
validly issued, fully paid and non-assessable. There are no outstanding
subscriptions, warrants, options, convertible securities, or other rights
(contingent or other) pursuant to which any of the Company's Subsidiaries is or
may become obligated to issue any shares of its capital stock to any Person
other than the Company or one of its other Subsidiaries.
2.7 Financial Information. The Company has previously delivered to the
Purchaser (i) the audited consolidated balance sheets of the Company and its
Subsidiaries as of December 31, 1996, 1997 and 1998 and the related audited
consolidated statements of operations, shareholders' equity and cash flows for
each of the years ended December 31, 1996, 1997 and 1998, and (ii) the unaudited
consolidated balance sheet of the Company and its Subsidiaries as of September
30, 1999, and the related unaudited consolidated statements of operations,
shareholders' equity and cash flows, for the nine (9) months then ended
(collectively, the "Financial Statements"). The Financial Statements, together
with any accompanying footnotes, are complete and correct in all material
respects, are in accordance with the books and records of the Company and
present fairly, in accordance with generally accepted accounting principles
5
<PAGE>
("GAAP") applied on a basis consistent with prior periods, the consolidated
financial condition and results of operations and cash flows of the Company and
its Subsidiaries as of the dates and for the periods shown, except that the
unaudited Financial Statements do not contain footnote disclosures that would be
required by GAAP. The Company and its Subsidiaries do not have any material
liability, contingent or otherwise, which is not adequately reflected in or
reserved against in the Financial Statements, except for liabilities arising in
the ordinary course of business since December 31, 1998. Since December 31,
1998, (i) there has been no material change in the business, assets,
liabilities, condition (financial or otherwise) or operations of the Company and
its Subsidiaries (on a consolidated basis) except for changes in the ordinary
course of business which, in the aggregate, would not reasonably be expected to
be materially adverse, and (ii) none of the business, prospects, condition
(financial or otherwise), operations, property or affairs of the Company and its
Subsidiaries (on a consolidated basis) has been materially adversely affected by
any occurrence or development, in the aggregate, whether or not insured against.
2.8 Events Subsequent to the Date of the Financial Statements. Except
as set forth on Schedule 2.8, since December 31, 1998, neither the Company nor
any of its Subsidiaries has (i) issued or repurchased any stock, bond or other
security, (ii) incurred or assumed any indebtedness for borrowed money in excess
of $1,000,000 in the aggregate for the Company and its Subsidiaries or incurred
or become subject to any material liability (absolute, accrued or contingent),
except liabilities (other than indebtedness) under contracts entered into in the
ordinary course of business, (iii) discharged or satisfied any material Lien or
incurred or paid any material obligation or liability (absolute, accrued or
contingent), other than liabilities shown on the Financial Statements and
liabilities incurred since December 31, 1998 in the ordinary course of business,
(iv) declared, set aside or made any payment or distribution to shareholders or
purchased or redeemed any shares of its capital stock or other securities, (v)
mortgaged, pledged or subjected to any material Lien any of its assets, tangible
or intangible, other than Liens of real property taxes not yet due and payable,
(vi) sold, assigned or transferred any of its material tangible assets except in
the ordinary course of business, or canceled any material debt or claim, (vii)
sold, assigned, transferred or granted any license with respect to any material
patent, trademark, trade name, service mark, copyright, trade secret or other
intangible asset, except pursuant to license or other agreements entered into in
the ordinary course of business, (viii) suffered any material loss, waived any
right or relinquished any contract of substantial value whether or not in the
ordinary course of business, (ix) made any material change in the compensation
or benefits provided to any current or former director, officer, employee or
consultant of the Company or any of its Subsidiaries, (x) made any material
change in its manner of business or operations, (xi) entered into any material
transaction except in the ordinary course of business or as otherwise
contemplated hereby, (xii) incurred any material liability or obligation of any
nature whatsoever (contingent or otherwise) other than those incurred in the
ordinary course of business, (xiii) materially increased the compensation paid
to any employee, consultant, director or agent, (xiv) changed in any material
respect its accounting or tax methods or practices, or (xv) entered into any
commitment (contingent or otherwise) to do any of the foregoing.
6
<PAGE>
2.9 SEC Filings.
(a) The Company has delivered to the Purchaser (i) its
annual reports on Form 10-K for its fiscal years ended December 31, 1997 and
1998, (ii) its quarterly reports on Form 10-Q for its fiscal quarters ended
after December 31, 1998 and (iii) all of its other reports, statements,
schedules and registration statements filed with the Securities and Exchange
Commission (the "SEC") since December 31, 1998 (the documents referred to in
this Section 2.9 being referred to collectively as the "SEC Documents").
(b) As of its filing date, each SEC Document complied
as to form in all material respects with the applicable requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Act.
(c) As of its filing date, each SEC Document filed
pursuant to the Exchange Act did not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstance under which they were
made, not misleading.
(d) Each such registration statement as amended or
supplemented, if applicable, filed pursuant to the Act as of the date such
statement or amendment became effective did not contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading.
2.10 Litigation. Except as otherwise set forth on Schedule 2.10, there
is no material action, suit, claim, litigation or governmental proceeding or
investigation pending or, to the knowledge of the Company, threatened, by or
against the Company or any of its Subsidiaries or affecting any of their
respective properties or assets, or against any officer, key employee or
shareholder of the Company or any of its Subsidiaries in his capacity as such,
nor, to the knowledge of the Company, has there occurred any event or does there
exist any condition on the basis of which any such litigation, proceeding or
investigation might properly be instituted with any substantial chance of
recovery where such recovery would likely have a Material Adverse Effect or that
might materially adversely affect the validity of this Agreement, any of the
Related Agreements, any of the Purchased Shares, the Warrant or the Underlying
Shares, or prevent, alter or materially delay any action taken or to be taken
pursuant hereto. Neither the Company, nor any of its Subsidiaries, nor any
officer, key employee or shareholder of the Company or any of its Subsidiaries
in his capacity as such is, to the knowledge of the Company, in default with
respect to any order, writ, injunction, decree, ruling or decision of any court,
commission, board or other government agency which default may reasonably be
expected to have a Material Adverse Effect. The foregoing sentences include,
without limiting their generality, actions pending or, to the knowledge of the
Company, threatened involving the prior employment of employees of the Company
or any of its Subsidiaries or use in the business of the Company and its
Subsidiaries of any information or technologies allegedly proprietary to any of
such former employers. Except as set forth at Schedule 2.10, there is no action
or suit by the Company or any of its Subsidiaries pending, threatened or
contemplated against others.
7
<PAGE>
2.11 Compliance with Laws and Other Instruments. Each of the Company
and it Subsidiaries is in compliance with all of the provisions of this
Agreement and of its organizational documents, and in all material respects with
the provisions of each mortgage, indenture, lease, license, other agreement or
instrument, judgment, decree, judicial order, statute, and regulation by which
it is bound or to which it or any of its properties or assets are subject.
Except as set forth on Schedule 2.11, neither the execution, delivery or
performance of this Agreement and the Related Agreements, nor the offer,
issuance, sale or delivery of the Purchased Shares, the Warrant or the
Underlying Shares, with or without the giving of notice or passage of time, or
both, will violate, or result in any breach of, or constitute a default under,
or give rise to a right of termination, cancellation or acceleration under, or
require any consent under, or result in the imposition of any material Lien upon
any asset of the Company or any of its Subsidiaries pursuant to any provision of
the Company's Articles or Bylaws, the organizational documents of any of its
Subsidiaries, or any statute, rule or regulation, contract, lease, judgment,
decree or other document or instrument by which the Company or any of its
Subsidiaries is bound or to which the Company or any of its Subsidiaries or any
of their respective properties or assets are subject, or, to the knowledge of
the Company, will cause the Company or any of its Subsidiaries to lose the
benefit of any material right or privilege it presently enjoys or cause any
Person who is expected to normally do any material amount of business with the
Company or any of its Subsidiaries to discontinue to do so on the same basis.
2.12 Taxes. The Company and its Subsidiaries have filed all tax
returns, reports and forms (including statements of estimated taxes owed)
required to be filed within the applicable periods for such filings and have
paid all taxes required to be paid, and have established adequate reserves (net
of estimated tax payments already made) for the payment of all taxes accruing
through the end of the last period for which the Company and it Subsidiaries
ordinarily record items on their respective books. All such tax returns, reports
and forms are true, correct and complete in all material respects. Except as set
forth on Schedule 2.12, no deficiencies for any tax are currently assessed
against the Company or any of its Subsidiaries, and no tax returns of the
Company or any of its Subsidiaries have ever been audited, and, to the knowledge
of the Company, there is no such audit pending or contemplated. All returns
filed with respect to tax years of the Company and its Subsidiaries through the
tax year ended December 31, 1996, have been examined and closed or are returns
with respect to which the applicable period for assessment under applicable law,
after giving effect to extensions or waivers, has expired. Except as provided on
Schedule 2.12, neither the Company nor any of its Subsidiaries has any
obligation under any tax sharing agreement, tax allocation agreement or tax
indemnity agreement or any other agreement or arrangement in respect of any tax
with any person other than the Company or its Subsidiaries. Neither the Company
nor any of its Subsidiaries has been a member of an affiliated, consolidated,
combined or unitary group other than one of which the Company was the common
parent. Proper and adequate amounts have been withheld by the Company and its
Subsidiaries from their respective employees and other persons for all periods
in compliance in all material respects with the tax, social security and
unemployment, excise and other withholding provisions of all federal, state,
local and foreign laws. There is no tax lien, whether imposed by any federal,
state, local, or foreign taxing authority, outstanding against the assets,
properties or business of the Company or any of its Subsidiaries. For the
purposes of this Agreement, the term "tax" shall include (i) all federal, state,
local and foreign taxes, including
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income, franchise, property, sales, use, gross receipts, excise, withholding,
payroll and employment taxes and other similar assessments of any kind
whatsoever, including all interest, penalties and additions imposed with respect
to such amounts, and (ii) any liability of the Company or any of its
Subsidiaries for the payment of any amount as a result of being a party to any
tax sharing agreement or with respect to the payment of any amount of the type
described in (i) as a result of any existing express or implied agreement or
arrangement (including, but not limited to, an indemnification agreement or
arrangement). BTI Telecom Corp. was and validly elected to be an S corporation
for its taxable years ended December 31, 1986 through September 23, 1997,
inclusive, which S corporation election was accepted by the Internal Revenue
Service for periods audited by the Internal Revenue Service.
2.13 Real Property.
(a) Schedule 2.13 sets forth the addresses and uses of all real
property that the Company or any of its Subsidiaries owns, leases or subleases,
and any material Lien or encumbrance on any such owned real property or the
Company's or its Subsidiary's leasehold interest therein, specifying in the case
of each such lease or sublease, the name of the lessor or sublessor, as the case
may be, the lease term and the obligations of the lessee thereunder. To the best
knowledge of the Company, the Company and its Subsidiaries are in material
compliance with all laws, regulations and orders relating to the protection of
human health or the environment.
(b) Except as set forth on Schedule 2.13, the Company and its
Subsidiaries have good, clear and marketable title to, and own free and clear of
material Liens, all property listed as owned by the Company or any of its
Subsidiaries on Schedule 2.13, except where the failure to do so would not have
a Material Adverse Effect, and there is no material violation by the Company or
any of its Subsidiaries of any law, regulation or ordinance (including without
limitation laws, regulations or ordinances relating to zoning, environmental,
city planning or similar matters) relating to any real property owned, leased or
subleased by the Company or any of its Subsidiaries.
(c) There are no defaults by the Company or any of its Subsidiaries or,
to the knowledge of the Company, by any other party thereto, which might curtail
in any material respect the present use of the property listed on Schedule 2.13.
The performance by the Company of this Agreement and the Related Agreements will
not result in the termination of, or in any increase of any amounts payable
under, any lease listed on Schedule 2.13.
2.14 Title to Properties and Assets. Except as set forth on Schedule
2.14, each of the Company and its Subsidiaries has good, clear and marketable
title to its properties and assets held at the date of Closing (except any
properties and assets held under capitalized leases) and has good title to all
its leasehold interests, in each case subject to no mortgage, pledge, lien,
lease, encumbrance or charge, other than (a) the lien of current taxes not yet
due and payable, and (b) possible minor liens and encumbrances that do not in
any case, either individually or in the aggregate, materially detract from the
value of the property subject thereto or materially impair the intended use of
such property. The tangible property and assets held under any
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material lease by the Company or any of its Subsidiaries are held under leases
that remain in force, and there exists no default or other occurrence or
condition that could result in a material default or termination thereunder.
2.15 Intellectual Property. Each of the Company and its Subsidiaries
has sufficient title and ownership of or is licensed under all material patents,
trademarks, service marks, trade names, copyrights, trade secrets, information,
inventions, computer programs, documentation, proprietary rights and processes
(collectively, "Intellectual Property") necessary for its business as now
conducted without any infringement of the rights of others. Set forth on
Schedule 2.15, is a true, correct and complete list of all Intellectual Property
owned by, registered in the name of or of which the Company or any of its
Subsidiaries is a licensor or licensee, all registrations and applications for
registration of any of the Company's or any of its Subsidiaries' Intellectual
Property, and all material unregistered copyrights and trademarks held by the
Company or any of its Subsidiaries and a brief description of the nature of each
such right. Except as set forth on Schedule 2.15, there are no outstanding
options, licenses or agreements relating to the foregoing nor is the Company or
any of its Subsidiaries bound by or a party to any options, licenses or
agreements with respect to the Intellectual Property of any other person or
entity. Except as set forth at Schedule 2.15, neither the Company nor any of its
Subsidiaries has received any communications alleging that the Company or any of
its Subsidiaries has violated or, by conducting its business as currently
proposed, would violate any of the Intellectual Property of any other person or
entity. The Company does not believe it or any of its Subsidiaries is utilizing
or that it will be necessary to utilize any Intellectual Property of any of its
employees (or people it currently intends to hire) made or developed prior to
their employment by the Company or any of its Subsidiaries.
2.16 Agreements of Directors, Officers and Employees. To the best
knowledge of the Company, no director, officer or employee of or consultant to
the Company or any of its Subsidiaries is in violation in any material respect
of any material terms of any employment contract, noncompetition agreement,
nondisclosure agreement, patent disclosure or assignment agreement or other
contract or agreement containing restrictive covenants relating to the right of
any such director, officer, employee or consultant to be employed or engaged by
the Company or any of its Subsidiaries because of the nature of the business
conducted or proposed to be conducted by the Company or any of its Subsidiaries,
or relating to the use of trade secrets or proprietary information of others.
2.17 Governmental and Industrial Approvals. Except as set forth in
Schedule 2.17, each of the Company and its Subsidiaries has all the material
permits, licenses, orders, franchises and other rights and privileges of all
federal, state, local and foreign governmental or regulatory bodies necessary
for it to conduct its business as presently conducted and as proposed to be
conducted, and each of the Company and its Subsidiaries has been operating its
business pursuant to and in material compliance with the terms of all such
permits, licenses, orders, franchises and other rights and privileges. Except as
set forth in Schedule 2.17, all such permits, licenses, orders, franchises and
other rights and privileges are in full force and effect in all material
respects and, to the knowledge of the Company, no suspension or cancellation of
any of them is threatened. None of such permits, licenses, orders, franchises
and other rights and
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privileges will be affected by the consummation of the transactions contemplated
in this Agreement and the Related Agreements.
2.18 Federal Reserve Regulations. The Company is not engaged in the
business of extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulations T, U or X of the Board of Governors of
the Federal Reserve System), and no part of the proceeds of the sale of the
Purchased Shares will be used to purchase or carry any margin security or to
extend credit to others for the purpose of purchasing or carrying any margin
security or in any other manner which would involve a violation of any of the
regulations of the Board of Governors of the Federal Reserve System.
2.19 Contracts and Commitments. Except for such contracts, agreements
or commitments which are set forth on Schedule 2.19 attached hereto, neither the
Company nor any of its Subsidiaries is a party to or bound by:
(a) any contract, agreement or commitment which involves payment by the
Company or its Subsidiaries, or might result in payments to the Company or its
Subsidiaries, of $1,000,000 or more in the aggregate in any twelve month period;
(b) any agreement or indemnification or guarantee not entered into in
the ordinary course of business other than indemnification agreements between
the Company or any of its Subsidiaries and any of their respective officers or
directors;
(c) any agreement, contract or commitment limiting the freedom of the
Company or any of its Subsidiaries to engage in any line of business or compete
or deal with any person or in any geographic area (including, but not limited
to, any noncompetition or exclusivity provisions) or which would so limit the
Company or any of its Subsidiaries after the Closing;
(d) any agreement, contract or commitment relating to capital
expenditures and involving future obligations in excess of $1,000,000 in the
aggregate in any twelve month period for the Company and its Subsidiaries and
not cancelable without penalty;
(e) any agreement, contract or commitment currently in force relating
to the disposition or acquisition of assets not in the ordinary course of
business or any ownership interest in any corporation, partnership, joint
venture or other business enterprise;
(f) any mortgages, indentures, loans or credit agreements, security
agreements or other agreements or instruments relating to the borrowing of
money, extension of credit, or the placing of a Lien on any asset of the Company
or any of its Subsidiaries;
(g) any joint marketing or development agreement;
(h) any distribution agreement (identifying any that contain
exclusivity provisions) that involves payment to the Company or its Subsidiaries
of $1,000,000 or more in the aggregate in any twelve month period; or
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(i) any stock redemption or stock purchase agreement.
(j) any agreement with a customer, vendor or supplier involving payment
by the Company or its Subsidiaries of $1,000,000 or more in the aggregate in any
twelve month period;
(k) any lease of personal property providing for annual rentals of
$1,000,000 or more in the aggregate in any twelve month period;
(l) any material option, license, franchise or similar agreement,
including agreements with municipalities regarding license or franchise fees;
(m) any IRU, interconnection, co-location or fiber agreements involving
payment by the Company or its Subsidiaries of $1,000,000 or more in the
aggregate in any twelve month period; or
(n) any material agency, dealer, sales representative, marketing or
other similar agreement.
The Company has made available to the Purchaser a written copy all
other contracts, agreements or commitments by which the Company or any of its
Subsidiaries is a party or is bound that are otherwise material.
Each Company Contract is a valid and binding agreement of the Company
or a Subsidiary, as the case may be, and is in full force and effect. True and
complete copies of each Company Contract have been delivered to the Purchaser.
None of the Company or any of its Subsidiaries, or, to the Company's
knowledge, any other party to a Company Contract (as defined below), has
breached, violated or defaulted under, or received notice that it has breached,
violated or defaulted under, any of the material terms or conditions of any of
the agreements, contracts or commitments described in this Section 2.19 (any
such agreement, contract or commitment, including those described in the second
preceding paragraph, a "Company Contract") in such manner as would permit any
other party to cancel or terminate any such Company Contract, or would permit
any other party to seek damages, which action would have a Material Adverse
Effect.
2.20 Securities Act. The Company has complied and will comply with all
applicable federal or state securities laws in connection with the issuance and
sale of the Purchased Shares and the Warrant, the issuance of the Conversion
Shares upon conversion of the Purchased Shares and the issuance of the Warrant
Shares upon exercise of the Warrant. Neither the Company nor, to the knowledge
of the Company, anyone acting on its behalf has offered any of the Purchased
Shares or similar securities, or solicited any offers to purchase any of such
securities, so as to bring the issuance and sale of the Purchased Shares under
the registration provisions of the Act.
2.21 Registration Rights. Except as set forth on Schedule 2.21, the
Company has not granted any rights relating to registration of its capital stock
under the Act or state securities laws other than those contained in this
Agreement and any of the Related Agreements.
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2.22 Insurance Coverage. The Company and its Subsidiaries carry, or are
covered by insurance with insurers that are financially sound and reputable and
in such amounts with such deductibles and against such risks and losses as are
reasonable for the business and assets of the Company and its Subsidiaries and
is customary for companies similarly situated.
2.23 Employee Matters. Schedule 2.23 sets forth a list of each material
employment, consulting, severance, change in control, sale bonus or similar
contract (whether or not written) under which the Company of any of its
Subsidiaries has any liability, actual or contingent, and each "employee benefit
plan" (as defined in Section 3(3) of ERISA) and each other material contract,
plan or arrangements (whether or not written) providing for bonuses,
profit-sharing, stock option or other stock related rights or other forms of
incentive or deferred compensation, insurance coverage (including any
self-insured arrangements), health or medical benefits, disability benefits,
workers' compensation, supplemental unemployment benefits, severance benefits
and post-employment or retirement benefits (including compensation, pension,
health, medical or life insurance benefits) or any other material employees
benefits of any kind maintained, contributed to or required to be contributed to
by the Company or any of its Subsidiaries (collectively, the "Plans"). The
Company has made available to Purchaser copies of each such written Plan and a
written description of each unwritten Plan (in each case, including all
amendments and interpretations relating thereto) and copies of the three most
recent annual reports on Form 5500, if any, relating to each such Plan. Neither
any Plan nor any other plan maintained, contributed to or required to be
contributed to by any entity that would be treated as a single employer with the
Company under Section 414 of the Code is a plan subject to Title IV of ERISA.
Neither the Company nor any of its Subsidiaries has any material current or
projected liability in respect of post-employment or post-retirement health or
medical or life insurance benefits for retired or former employees of the
Company or any of its Subsidiaries, except pursuant to the continuation coverage
requirements of Section 4980B of the Code and Section 601 et seq. of ERISA or
other applicable law. If, as of the date of the Closing, the Purchaser were to
acquire the Purchased Shares and exercise the Warrant in full (assuming the
Warrant were immediately exercisable), such transactions would not result in any
payments, benefits or other events under any Plan which may give rise to a
"parachute payment" as defined in Section 280G(b)(2)(A), (B) or (C) of the Code,
whether or not such payment, benefit or event is exempt or excluded under
Section 280G(b)(5). The Company has no knowledge that any of the officers or
other key employees of the Company or any of its Subsidiaries presently intends
to terminate his employment. To the Company's knowledge, no employee of the
Company or any of its Subsidiaries is in violation of any term of any contract
or covenant (either with the Company or with another entity) relating to
employment, patents, assignment of inventions, proprietary information
disclosure, noncompetition or nonsolicitation. The Company and its Subsidiaries
are in compliance in all material respects with all applicable laws and
regulations relating to labor, employment, fair employment practices, terms and
conditions of employment, and wages and hours. Neither the Company nor any of
its Subsidiaries is a party to any collective bargaining agreement or other
labor union contract and, to the Company's knowledge, there are no activities or
proceedings of any labor union to organize any such employees. The Company and
its Subsidiaries are in material compliance with the terms of all Plans listed
on Schedule 2.23, and each such Plan is in compliance in all material respects
with all of the requirements and provisions of applicable law, including without
limitation the Employee Retirement Income
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Security Act of 1974, as amended ("ERISA"), and the Internal Revenue Code of
1986 (the "Code"). Each Plan intended to qualify under Code Section 401(a) so
qualifies and any related trust is exempt from federal tax under Code Section
501(a); each such Plan and trust has received a favorable determination letter
from the IRS or is an adoption of a prototype in respect of which the IRS has
issued a favorable opinion, and nothing has occurred since the date of such
determination letter that would materially adversely affect such qualification
or tax-exempt status. To the knowledge of the Company, no such Plan has been
involved in any "prohibited transaction" as defined in Code Section 4975.
2.24 No Brokers or Finders. Except as set forth on Schedule 2.24, no
person has or will have, as a result of the transactions contemplated by this
Agreement, any right, interest or claim against or upon the Company or any of
its Subsidiaries, or to the Company's best knowledge, the Purchaser for any
commission, fee or other compensation as a finder or broker; and the Company
agrees to indemnify and hold the Purchaser harmless against any such
commissions, fees or other compensation.
2.25 Transactions with Affiliates. Except as set forth on Schedule
2.25, there are no material loans, leases or other agreements or business
arrangements between the Company or any of its Subsidiaries on the one hand, and
any officer, director, employee or shareholder of the Company or any of its
Subsidiaries or any family member or affiliate of such officer, director,
employee or shareholder on the other hand. Except as set forth on Schedule 2.25,
no officer, director, shareholder or employee of the Company or any of its
Subsidiaries, including any member of their immediate families, is the direct or
indirect owner of an interest in any business or person that is a competitor,
supplier or customer of the Company or any of its Subsidiaries (except for a
passive investment in less than five percent (5%) of the common stock of any
publicly traded company).
2.26 Assumptions, Guarantees, etc. of Indebtedness of Other Persons.
Except as set forth on Schedule 2.26, neither the Company nor any of its
Subsidiaries has assumed, guaranteed, endorsed or otherwise become directly or
contingently liable on or for any indebtedness of any other Person, except where
such assumption, guarantee, endorsement or other liability would not have a
Material Adverse Effect and except guarantees by endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business. Except as set forth on Schedule 2.26, neither the Company
nor any of its Subsidiaries has assumed, guaranteed, endorsed or otherwise
become directly or contingently liable on or for any indebtedness of any
affiliate of the Company.
2.27 U.S. Real Property Holding Corporation. The Company is not now,
has never been and does not contemplate becoming a "United States Real Property
Holding Corporation" as defined in Section 897(c)(2) of the Code and Section
1.897-2(b) of the Treasury regulations thereunder.
2.28 Disclosures. Neither this Agreement, any Schedule or Exhibit to
this Agreement, the Related Agreements, the Financial Statements, nor any other
agreement, document or written statement made by the Company and furnished by
the Company to the Purchaser or counsel to
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the Purchaser in connection with the transactions contemplated hereby, contains
any untrue statement of material fact or omits to state any material fact
necessary to make the statements contained herein or therein not misleading.
There is no fact known to the Company that has not been disclosed herein or in
any other agreement, document or written statement furnished by the Company to
the Purchaser or its counsel in connection with the transactions contemplated
hereby which materially adversely affects the Company or any of its Subsidiaries
or could reasonably be expected to have a Material Adverse Effect.
2.29 Environmental and Safety Laws. Except where the failure to do so
would not have a Material Adverse Effect: (i) each of the Company and its
Subsidiaries has duly complied with, and the operation of its business,
equipment other assets and the facilities owned or leased by it are in
compliance with the provisions of all applicable federal, state and local
environmental, health and safety laws, statutes, ordinances, rules, permits and
regulations of any governmental or quasi governmental authority relating to (a)
discharges to surface water or ground water, (b) solid or liquid waste disposal,
(c) the use, storage, generation, handling, transport, discharge, release or
disposals of toxic or hazardous substances or waste, (d) the emission of
non-ionizing electromagnetic radiation, or (e) other environmental, health or
safety matters, including, without limitation, the Comprehensive Environment
Response Compensation Liability Act of 1980, as amended by the Superfund
Amendments and Authorization Act of 1986, the Occupational Safety and Health
Act, the Resource Conservation and Recovery Act of 1976, as amended, the Federal
Water Pollution Control Act of 1970, the Safe Drinking Water Act of 1974, the
Toxic Substance Control Act of 1976, the Emergency Planning and Community Right
to Know Act of 1986, as amended, and the Clean Air Act, as amended (collectively
"Environmental and Health Laws"); (ii) there are no investigations,
administrative proceedings, judicial actions, orders, claims or notices which
are pending or anticipated or threatened against the Company or any of its
Subsidiaries relating to actual or potential violations of or liability under
any of the Environmental and Health Laws; (iii) neither the Company nor any of
its Subsidiaries has received notice of or knows or has any reason to suspect,
any facts which might constitute a violation of or which might result in
liability to the Company or any of its Subsidiaries pursuant to any
Environmental and Health Laws, and (iv) there are no liabilities of or relating
to the Company or any of its Subsidiaries of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise which
relate to the use, ownership or occupancy of any property or facilities by the
Company or any of its Subsidiaries or to the operation of its business or on
prior to the date hereof and which relate to or result in a violation of or
liability under any Environmental and Health Laws.
2.30 Year 2000. The Company and its Subsidiaries have developed and
budgeted for a comprehensive program to address the "Year 2000 problem" (that
is, the inability of computers, as well as embedded microchips in non-computing
devices, to perform properly date-sensitive functions with respect to certain
dates prior to and after December 31, 1999). The Company and its Subsidiaries
have implemented that program substantially in accordance with their timetable
and budget and it has designed such program to substantially avoid the Year 2000
problem as to all computers, as well as embedded microchips in non-computing
devices, that are material to their business, properties or operations. The
Company and its Subsidiaries have developed
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feasible contingency plans that they have designed to adequately ensure
uninterrupted and unimpaired business operations in the event of failure of
their own or a third party's systems or equipment due to the Year 2000 problem,
including those of vendors, customers and suppliers, as well as a general
failure of or interruption in their communications and delivery infrastructure.
2.31 Investment Company Act. Neither the Company nor any of its
Subsidiaries is an "investment company" as defined in the Investment Company Act
of 1940, as amended. The consummation of the transactions contemplated by this
Agreement and the Related Agreements do not and will not violate any provision
of such Act or any rule, regulation or order issued by the SEC thereunder.
ARTICLE III
INVESTMENT REPRESENTATIONS
3.1 Representations and Warranties. The Purchaser hereby represents and
warrants to the Company as follows:
(a) Assuming due execution and delivery by the Company of
this Agreement and the Related Agreements, this Agreement and the Related
Agreements to which the Purchaser is a party constitute legal, valid and binding
obligations of the Purchaser, enforceable against the Purchaser in accordance
with their respective terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally and by general
equitable principles;
(b) The Purchaser has been advised and understands that
the Purchased Shares have not been registered under the Act, on the grounds that
no distribution or public offering of the Purchased Shares is to be effected,
and that in this connection, the Company is relying in part on the
representations of the Purchaser set forth in this Article III;
(c) The Purchaser has been further advised and
understands that no public market now exists for any of the securities issued by
the Company, other than the 10 1/2% Senior Notes due 2007 issued by the Company
pursuant to that certain Indenture, dated September 22, 1997, by and among the
Company, Business Telecom, Inc. and First Trust of New York, National
Association, and that a public market may never exist for the Purchased Shares,
Conversion Shares, the Warrant or the Warrant Shares;
(d) The Purchaser is purchasing the Purchased Shares for
investment purposes, for its own account and not with a view to, or for sale in
connection with, any distribution thereof in violation of Federal or state
securities laws;
(e) The Purchaser is an "accredited investor" as such
term is defined in Rule 501 promulgated under the Act;
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(f) By reason of its business or financial experience,
the Purchaser has the capacity to protect its own interest in connection with
the transactions contemplated hereunder;
(g) The Purchaser is aware of the Company's business
affairs and financial condition and has acquired sufficient information about
the Company to reach an informed and knowledgeable decision to acquire the
Purchased Shares;
(h) No person has or will have, as a result of the
transactions contemplated by this Agreement, any right, interest or claim
against or upon the Company or any of its Subsidiaries for any commission, fee
or other compensation as a finder or broker because of any act or omission by
the Purchaser; and
(i) The Purchaser has all necessary power and has taken
all necessary action required for the due authorization, execution, delivery and
performance by the Purchaser of this Agreement and the Related Agreements. The
execution, delivery and performance of this Agreement and the Related Agreements
will not violate or conflict with the organizational documents of the Purchaser
or any material agreement, contract or other instrument to which the Purchaser
is a party.
3.2 Permitted Sales. Notwithstanding the foregoing representations, the
Company agrees that it will not deem to be a breach of the Purchaser's
representations under Section 3.1 (d) any transfer permitted under the
Shareholders Agreement referred to in Section 8.4 hereof.
ARTICLE IV
COVENANTS OF THE COMPANY
The Company covenants and agrees with the Purchaser that:
4.1 Conduct of Business. From the date hereof until the date of the
Closing, the Company shall, and shall cause each of its Subsidiaries to, conduct
its business in the ordinary course consistent with past practice and shall use
its best efforts to preserve intact its business organizations and relationships
with third parties and to keep available the services of its present officers
and employees. Without limiting the generality of the foregoing, from the date
hereof until the date of the Closing, the Company shall not, and shall not
permit any of its Subsidiaries to: (a) merge or consolidate with any other
Person or acquire a material amount of assets from any other Person; (b) sell,
lease, license or otherwise dispose of any assets or property except (i)
pursuant to existing contracts or commitments or (ii) inventory in the ordinary
course consistent with past practice; (c) take any action that would require the
approval or consent of the Purchaser under the Articles or the Shareholders
Agreement had such document been effective as of the date hereof or (d) agree or
commit to do any of the foregoing. The Purchaser acknowledges that the Company
is exploring a potential acquisition of Q-Comm Corporation, subject to the
Purchaser's right, referred to in clause (c) above, to consent to such
acquisition.
The Company will not, and will not permit any of its Subsidiaries to,
(i) take or agree or commit to take any action that would make any
representation or warranty of the Company
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hereunder inaccurate in any respect at, or as of any time prior to, the date of
the Closing or (ii) omit or agree or commit to omit to take any action necessary
to prevent any such representation or warranty from being inaccurate in any
respect at any time.
4.2 Access to Information.
(a) From the date hereof until termination hereof, the
Company will (i) give, and will cause each of its Subsidiaries to give, the
Purchaser, its counsel, financial advisors, auditors and other authorized
representatives full access to the offices, properties, books and records of the
Company and its Subsidiaries, (ii) furnish, and will cause each of its
Subsidiaries to furnish, to the Purchaser, its counsel, financial advisors,
auditors and other authorized representatives such financial and operating data
and other information relating to the Company or any of its Subsidiaries as such
Persons may reasonably request and (iii) instruct the employees, counsel and
financial advisors of it or any of its Subsidiaries to cooperate with the
Purchaser in its investigation of the Company or any of its Subsidiaries. No
investigation by the Purchaser or other information received by the Purchaser
shall operate as a waiver or otherwise affect any representation, warranty or
agreement given or made by the Company hereunder.
(b) On and after the Closing, the Company will afford
promptly to the Purchaser and its agents reasonable access to the books of
account, financial and other records (including, without limitation,
accountant's work papers), information, employees and auditors of it and its
Subsidiaries to the extent necessary or useful for the Purchaser in connection
with any audit, investigation, dispute or litigation or any other reasonable
business purpose relating to the Company or its Subsidiaries.
4.3 Notice of Certain Events. Prior to Closing, the Company shall
promptly notify the Purchaser of:
(a) any notice or other communication from any Person
alleging that the consent of such Person is or may be required in connection
with the transactions contemplated by this Agreement and the Related Agreements;
(b) any notice or other communication from any
governmental or regulatory agency or authority in connection with the
transactions contemplated by this Agreement and the Related Agreements;
(c) any actions, suits, claims, investigations or
proceedings commenced or, to its knowledge threatened against, relating to or
involving or otherwise affecting the Company, any of its Subsidiaries or any of
their respective officers, key employees or shareholders that, if pending on the
date of this Agreement, would have been required to have been disclosed pursuant
to Section 2.10 or 2.28 or that relate to the consummation of the transactions
contemplated by this Agreement and the Related Agreements, and
(d) any proposed or pending changes or amendments (of
which the Company is aware) to any laws, rules or regulations, which changes or
amendments may delay, restrict, prohibit or otherwise materially adversely
affect the conduct of the business operations of the
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Company and its Subsidiaries or the consummation of the transactions
contemplated by this Agreement and the Related Agreements.
4.4 Approvals. The Company shall use all reasonable efforts to obtain
the approvals set forth on Schedule VI as soon as practicable after closing.
ARTICLE V
COVENANTS OF THE COMPANY AND THE PURCHASER
5.1 Further Assurances. Subject to the terms and conditions of this
Agreement, the Company and the Purchaser will use their reasonable best efforts
to take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary or desirable under applicable laws and regulations to
consummate the transactions contemplated by this Agreement.
5.2 Tax Consistency. The Company and the Purchaser confirm that the
Series A Preferred Stock is intended to be "common stock" for purposes of
Section 305 of the Code and agree not to take any voluntary action inconsistent
with such intention.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF THE PURCHASER AND THE COMPANY
The obligations of the Purchaser and the Company to consummate the
Closing are subject to the satisfaction of the following conditions:
(i) Except as set forth on Schedule VI, all regulatory
approvals have been received and any applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, relating to
the transactions contemplated hereby shall have expired or been terminated.
(ii) No provision of any applicable law or regulations and no
judgment, injunction, order or decree shall prohibit the consummation of the
Closing.
ARTICLE VII
CONDITIONS OF PURCHASER'S OBLIGATION
7.1 Effect of Conditions. The obligations of the Purchaser to purchase
and pay for the Purchased Shares at the Closing hereunder shall be subject at
its election to the satisfaction of each of the conditions stated in the
following Sections of this Article.
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7.2 Representations and Warranties. The representations and warranties
of the Company contained in this Agreement shall be true and correct on the date
of the Closing with the same effect as though made on and as of that date, and
the Purchasers shall have received a certificate dated as of such Closing and
signed by the Company's President on behalf of the Company to that effect.
7.3 Performance. The Company shall have performed and complied with all
of the agreements, covenants and conditions contained in this Agreement required
to be performed or complied with by it at or prior to the Closing, and the
Purchasers shall have received a certificate dated as of such Closing and signed
by the Company's President on behalf of the Company to that effect.
7.4 Opinions of Counsel. The Purchasers shall have received opinions,
dated the date of the Closing, from (i) Wyrick Robbins Yates & Ponton LLP,
corporate counsel to the Company, in the form attached as Exhibit C and (ii)
Swidler, Berlin, Shereff & Friedman, LLP, regulatory counsel to the Company,
covering customary matters in form and substance reasonably acceptable to
Purchaser.
7.5 Compliance Certificate Counsel for the Purchaser shall have
received a certificate, dated as of the Closing, signed by the Company's
President certifying that the conditions specified in this Article VII have been
fulfilled.
7.6 Amended and Restated Articles of Incorporation and Bylaws. The
Company shall have duly filed with the Secretary of State of the State of North
Carolina the Articles, and the Articles, together with the Company's Amended and
Restated Bylaws shall be in full force and effect as of the Closing.
7.7 Certified Charter Documents. Counsel for the Purchaser shall have
received a copy of the Company's Articles of Incorporation, certified by the
Secretary of State of the State of North Carolina and copies of the Company's
Bylaws certified by its Secretary, as well as any and all other documents,
including certificates as to resolutions adopted and incumbency of officers and
certificates from appropriate authorities as to the legal existence and good
standing of the Company and its Subsidiaries, which the Purchaser or its counsel
may reasonably request.
7.8 No Material Adverse Change. The business, properties, assets
results of operations or condition (financial or otherwise) of the Company or
any of its Subsidiaries shall not have been materially adversely affected since
the date of this Agreement, whether by fire, casualty, act of God or otherwise,
and there shall have been no other changes in the business, properties, assets,
results of operations, condition (financial or otherwise), management or
prospects of the Company or any of its Subsidiaries that would have a material
adverse effect on their respective businesses or assets.
7.9 Shareholders Agreement. A Shareholders Agreement in the form of
Exhibit D attached hereto shall have been executed by the Company and the
shareholders of the Company named therein.
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7.10 Redemption Agreement. A Redemption Agreement in the form of
Exhibit E attached hereto shall have been executed by the Company.
7.11 Investor Rights Agreement. An Investor Rights Agreement in the
form of Exhibit F attached hereto shall have been executed by the Company.
7.12 Stock Repurchase Agreement. A Stock Repurchase Agreement in the
form of Exhibit G attached hereto shall have been executed by the Company and
Peter T. Loftin.
7.13 Consents and Waivers. The Company shall have obtained all consents
or waivers including (i) any consents or approvals from third parties or
governmental or regulatory authorities (except for those set forth on Schedule
VI) and (ii) those consents set forth on Schedule 7.13, in form and substance
satisfactory to the Purchaser, necessary to execute this Agreement and the other
agreements and documents contemplated herein, to issue the Purchased Shares, the
Conversion Shares, the Warrant and the Warrant Shares, and to carry out the
transactions contemplated hereby and thereby. All corporate and other action and
governmental or regulatory filings necessary to effectuate the terms of this
Agreement, the Related Agreements, the Purchased Shares, the Conversion Shares,
the Warrant, the Warrant Shares, and other agreements and instruments executed
and delivered by the Company in connection herewith shall have been made or
taken.
7.14 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated at the Closing and all documents
incidental thereto shall be reasonably satisfactory in form and substance to the
Purchaser and its counsel, and the Purchaser and its counsel shall have received
all such counterpart original and certified or other copies of such documents as
it may reasonably request.
ARTICLE VIII
CONDITIONS OF THE COMPANY'S OBLIGATION
8.1 Effect of Conditions. The Company's obligation to sell the
Purchased Shares shall be subject at its election to the satisfaction of each of
the conditions stated in the following Sections of this Article.
8.2 Representations and Warranties. The representations and warranties
of the Purchaser contained in this Agreement shall be true and correct on the
date of the Closing with the same effect as though made on and as of that date.
8.3 Performance. The Purchaser shall have performed and complied with
all of the agreements, covenants and conditions contained in this Agreement
required to be performed or complied with by it at or prior to the Closing.
8.4 Shareholders Agreement. A Shareholders Agreement in the form of
Exhibit D attached hereto shall have been executed by the Purchaser and the
shareholders of the Company named therein.
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8.5 Redemption Agreement. A Redemption Agreement in the form of Exhibit
E attached hereto shall have been executed by the Purchaser.
8.6 Investor Rights Agreement. An Investor Rights Agreement in the form
of Exhibit F attached hereto shall have been executed by the Purchaser.
ARTICLE IX
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings (such meanings to be equally applicable to both the singular and plural
forms of the terms defined):
"Act" means the Securities Act of 1933, as amended.
"Agreement" means this Series A Preferred Stock Purchase Agreement as
from time to time amended and in effect between the parties.
"Closing" shall have the meaning set forth in Section 1.4.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor statute.
"Common Stock" will include the Company's Common Stock, no par value
per share, as authorized on the date of this Agreement.
"Company" means BTI Telecom Corp., a North Carolina corporation, and
its successors.
"Conversion Shares" shall have the meaning set forth in Section 1.3.
"Person" means an individual, corporation, partnership, joint venture,
trust or unincorporated organization or a government or agency or political
subdivision thereof.
"Purchased Shares" shall have the meaning set forth in Section 1.1.
"Purchaser" shall have the meaning set forth in the recitals thereof.
"Related Agreements" shall have the meaning set forth in Section 2.2.
"Series A Preferred Stock" shall have the meaning set forth in Section
1.1.
"Subsidiary" or "Subsidiaries" means any corporation, association or
other business entity of which the Company and/or any of its other Subsidiaries
(as herein defined) directly or indirectly owns at the time more than fifty
percent (50%) of the outstanding voting equity of such entity other than
directors' qualifying shares or has the power, by contract or otherwise to elect
a majority of the board of directors or equivalent governing body.
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"Underlying Shares" shall have the meaning set forth in Section 1.3.
"Warrant" shall have the meaning set forth in Section 1.2.
"Warrant Shares" shall have the meaning set forth in Section 1.3.
ARTICLE X
RIGHT OF FIRST REFUSAL
10.1 Right of First Refusal. FSM hereby grants, and, if applicable, FSM
and the Company shall cause any FSM Related Entity that is controlled by the
Company or FSM (a "Controlled FSM Related Entity"), to grant to the Purchaser so
long as it shall own, of record or beneficially, any shares of Series A
Preferred Stock or Underlying Shares, the right to purchase all, but not less
than all, of the equity securities which FSM or a Controlled FSM Related Entity,
from time to time, proposes to sell and issue (the "FSM Securities").
Notwithstanding the foregoing, the right of first refusal granted in
this Article X shall not apply to any securities issued by FSM or a Controlled
FSM Related Entity in connection with any joint venture, strategic alliance or
other arrangement involving a business similar to FSM and to which FSM, BTI or
the Company is a party, or to the transfer of assets of FSM in any such joint
venture, strategic alliance or other similar arrangements, unless the aggregate
financial commitment of BTI and FSM or the Controlled FSM Related Entity is
greater than $10,000,000. For purposes of Sections 10.2 through 10.5 hereof, the
defined term "FSM" shall mean FSM or the Controlled FSM Related Entity, as
applicable, and all references to FSM in these sections shall be modified
accordingly.
10.2 Notice. In the event FSM proposes to undertake an issuance of its
equity securities, it shall give the Purchaser written notice of its intention,
describing the type of FSM Securities and the price and the terms upon which FSM
proposes to issue the same. The Purchaser shall have forty-five (45) business
days from the date of receipt of any such notice to agree to purchase all, but
not less than all, of such FSM Securities for the price and upon the terms
specified in the notice by giving written notice to FSM. During the period
beginning upon receipt of such notice and ending upon the closing of such
purchase, FSM shall provide the Purchaser with access to all of the due
diligence information and materials that the Purchaser shall reasonably request.
The closing of the purchase of such FSM Securities shall be at FSM's principal
place of business within fifteen (15) days (subject to the satisfaction of any
required regulatory approvals) following the expiration of the 45 day period, or
at such other time or place as FSM and the Purchaser may determine.
10.3 Sale by FSM. In the event the Purchaser fails to exercise its
right of first refusal, FSM shall have 120 days thereafter to enter into written
agreements that include the price and transaction structure terms with respect
to the sale of the FSM Securities with respect to which the Purchaser's right
was not exercised, at a price and upon terms that are not more favorable to the
third party purchaser than those offered to the Purchaser. To the extent FSM
does not (i)
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enter into written agreements that include the price and transaction structure
terms with respect to the sale of all such FSM Securities within said 120 day
period, or (ii) consummate the transactions covered by written agreements with
respect to the sale of FSM Securities entered into within said 120 day period on
terms no more favorable (and with the same purchaser or purchasers) than those
set forth in such written agreements, FSM shall not thereafter issue or sell
such FSM Securities without first again offering such securities to the
Purchaser in the manner provided above.
10.4 Sale of Additional Series A Preferred Stock. In the event the
Purchaser fails to exercise its right of first refusal and FSM sells the FSM
Securities to one or more third party purchasers (the "Investors") the Company
may, within 90 days of the date hereof, sell to such Investors, in addition to
the shares of FSM Securities sold to such Investors, that number of shares of a
newly issued series of preferred stock of the Company with substantially the
same dividend, conversion and liquidation rights and preferences as the Series A
Preferred Stock (but without any governance, voting or veto rights) having a
maximum aggregate purchase price of $15,000,000.
10.5 Termination of Rights. The rights granted to the Purchaser under
this Article X shall expire upon the earlier of (a) the sale by FSM of any FSM
Securities to the Purchaser or to one or more Investors pursuant to this Article
X or (b) the date which is 24 months from the date hereof.
ARTICLE XI
MISCELLANEOUS
11.1 Survival. All covenants and agreements made herein or in any
certificates or documents executed in connection herewith shall survive the
execution and delivery hereof and the Closing in accordance with their
respective terms, or if no such term is specified, indefinitely. The
representations and warranties made herein or in any certificates or documents
executed in connection herewith shall survive the execution and delivery hereof
and the closing of the transaction contemplated hereby for a period of eighteen
months, with the exception of Sections 2.23 and 2.29, which shall survive the
execution and delivery hereof and the closing of the transaction contemplated
hereby for a period of three years, and Section 2.12, which will survive until
the expiration of the statute of limitations applicable to the matters covered
thereby (giving effect to any waiver, mitigation or extension thereof), if
later. Notwithstanding the preceding sentence, any covenant, agreement,
representation or warranty in respect of which indemnity may be sought under
this Agreement shall survive the time at which it would otherwise terminate
pursuant to the preceding sentence, if notice of the inaccuracy or breach
thereof giving rise to such right of indemnity shall have been given to the
party against whom such indemnity may be sought prior to such termination time.
11.2 Indemnification.
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(a) The Company shall indemnify and hold harmless (on an after-tax
basis, if applicable, as set forth in Section 11.2(b)) the
Purchaser and its affiliates against and from any losses, claims,
expenses (including reasonable expenses of investigation and
reasonable attorneys' fees and expenses), damages and liabilities,
insofar as such losses, claims, expenses, damages or liabilities
(or actions in respect thereof) arise out of or are based upon a
breach of or failure to perform any representations, warranty,
covenant or agreement of the Company made hereunder ("Damages");
provided that no amount of indemnity will be payable in the case
of a claim by an indemnified party under this Section 11.2 unless,
until and only to the extent claimant has suffered Damages
(determined without regard to any qualification as to materiality
or Material Adverse Effect contained in any representation,
warranty, covenant or agreement giving rise to the claim for
indemnity hereunder) aggregating in excess of $1,500,000 (the
"Threshold Amount"), at which time the indemnified party shall be
entitled to seek indemnification for all Damages in excess of the
Threshold Amount. Purchaser expressly agrees and acknowledges that
the right of indemnification granted herein to the Purchaser and
its affiliates shall be deemed to be the exclusive remedy
available to such Persons for any of the matters described in this
Section. In no case shall the indemnity obligation exceed
$70,000,000 except in the case of willful misconduct or fraud or
for Damages based upon a breach of Section 2.4 or 2.12, in which
case the indemnity obligation shall not exceed $200,000,000.
(b) Any amount paid by the Company under this Section 11.2 will be
treated as an adjustment to the Purchase Price unless a final
determination causes any such amount not to constitute an
adjustment to the Purchase Price for Federal tax purposes. In the
event of such a final determination, except to the extent, if any,
there are offsetting deductions for the respective Damages
available to the indemnitee or any such amount can be added to the
tax basis of the indemnitee's investment made pursuant to this
Agreement, the Company shall pay a grossed-up amount that reflects
the hypothetical tax consequences of the receipt or accrual of
such payment, using the maximum statutory rate (or rates, in the
case of an item that affects more than one tax) applicable to the
recipient of such payment for the relevant year, reflecting for
example, the effect of deductions available for interest paid or
accrued and for taxes such as state and local income taxes. Any
payment required to be made by the Company under this Section 11.2
that is not made when due shall bear interest at the prime rate of
interest in effect at that time for Citibank, N.A. for each day
until paid and such interest shall accrue from the date that such
obligation is due. For purposes of this Agreement, the term "final
determination" shall mean (i) any final determination of liability
in respect of a tax that, under applicable law, is not subject to
further appeal, review or modification through proceedings or
otherwise (including the expiration of a statute of limitations or
a period for the filing of claims for refunds, amended returns or
appeals from adverse determinations), including a "determination"
as defined in Section 1313(a) of the Code or execution of an
Internal Revenue
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Service Form 870AD or (ii) the payment of tax by the Purchaser or
any of its affiliates, whichever is responsible for payment of
such tax under applicable law, with respect to any item disallowed
or adjusted by any taxing authority, provided that such
responsible party determines that no action should be taken to
recoup such payment and the other party agrees.
11.3 Termination. (a) This Agreement may be terminated at any time
prior to the Closing:
(i) by mutual written agreement of the Company and the
Purchaser;
(ii) by either the Company or the Purchaser if the Closing
shall not have been consummated on or before February 28, 2000; or
(iii) by either the Company or the Purchaser if there shall
be any law or regulation that make consummation of the transactions
contemplated hereby illegal or otherwise prohibited or if consummation
of the transactions contemplated hereby would violate any nonappealable
final order, decree or judgment or any court or governmental body
having competent jurisdiction. The party desiring to terminate this
Agreement shall give notice of such termination to the other parties to
this Agreement.
(b) If this Agreement is terminated as permitted by this
Section, such termination shall be without liability of any party (or any
stockholder, director, officer, employee, agent, consultant or representative of
such party) to the other parties to this Agreement; PROVIDED that if such
termination shall result from the (i) willful failure of one party to fulfill a
condition to the performance of the obligations of another party, (ii) failure
to perform a covenant of this Agreement or (iii) breach by one party of any
representation or warranty agreement contained herein, such party shall be fully
liable for any and all Damages incurred or suffered by the other parties as a
result of such failure or breach.
11.4 Parties in Interest. Except as otherwise set forth herein, all
covenants, agreements, representations, warranties and undertakings contained in
this Agreement shall be binding on and shall inure to the benefit of the
respective successors and assigns of the parties hereto (including transferees
of any of the Purchased Shares or Conversion Shares or the Warrant or any
Warrant Shares), except that the Company shall not have the right to assign its
rights hereunder or any interest herein without the prior consent of the
Purchaser obtained in accordance with Section 11.5 hereof.
11.5 Amendments and Waivers.
(a) Amendments or additions to this Agreement may only be made
upon written consent of the Company and the holders of a majority of the then
issued Purchased Shares; and compliance with any term, covenant, agreement,
condition or provision set forth herein may only be omitted or waived (in a
particular instance and either retroactively or prospectively) upon the written
consent of the Company and the holders of a majority of the then
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<PAGE>
issued Purchased Shares. Prompt notice of any such amendment or waiver shall be
given to any Person who did not consent thereto.
(b) No failure or delay on the part of any party in exercising
any right, power or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies herein provided shall be cumulative and not exclusive of any
rights or remedies provided by law.
(c) This Agreement (including the Schedules and Exhibits
annexed hereto, which are an integral part of this Agreement) and the Related
Agreements constitute the full and entire understanding and complete agreement
of the parties with respect to the subject matter hereof and thereof and
supersedes all prior agreements and understandings between them or any of them
as to such subject matter.
11.6 Notices. All notices, requests, consents, reports and demands
shall be in writing and shall be hand delivered, sent by facsimile or other
electronic medium, or sent by express delivery or mailed, postage prepaid, to
the Company or to the Purchaser at the address set forth below or to such other
address as may be furnished in writing to the other parties hereto:
The Company: BTI Telecom Corp.
4300 Six Forks Road
Raleigh, NC 27609
Attention: Brian Branson
with a copy to: Wyrick Robbins Yates & Ponton LLP
4101 Lake Boone Trail, Suite 300
Post Office Drawer 17803
Raleigh, NC 27619
Attention: Larry E. Robbins
The Purchaser: Welsh, Carson, Anderson & Stowe
320 Park Avenue, Suite 2500
New York, NY 10022
Attention: Sanjay Swani, John Almeida
with a copy to: Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Attention: Carole Schiffman
11.7 Counterparts. This Agreement and any exhibit hereto may be
executed in multiple counterparts, each of which shall constitute an original
but all of which shall constitute but one and the same instrument. One or more
counterparts of this Agreement or any exhibit hereto may be delivered via
telecopier, with the intention that they shall have the same effect as an
original counterpart hereof.
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11.8 Effect of Headings. The article and section headings herein
are for convenience only and shall not affect the construction hereof.
11.9 Severability. Any invalidity, illegality or limitation of the
enforceability with respect to any party of any one or more of the provisions of
this Agreement, or any part thereof, whether arising by reason of the law of any
such person's domicile or otherwise, shall in no way affect or impair the
validity, legality or enforceability of the remainder of this Agreement with
respect to such party or the validity, legality or enforceability of this
Agreement with respect to any other party. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall to the extent
practicable, be modified so as to make it valid, legal and enforceable and to
retain as nearly as practicable the intent of the parties, and the validity,
legality, and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
11.10 Specific Enforcement. Each party expressly agrees that the
other parties may be irreparably damaged if this Agreement is not specifically
enforced. Upon a breach or threatened breach of the terms or covenants of this
Agreement by any party, the other parties shall, in addition to all other
remedies, each be entitled to apply for a temporary or permanent injunction,
and/or a decree for specific performance, in accordance with the provisions
hereof.
11.11 Governing Law. This Agreement shall be deemed a contract made
under the laws of the State of North Carolina and together with the rights and
obligations of the parties hereunder, shall be construed under and governed by
the laws of such State without regard to the conflict of laws provisions
thereof.
11.12 Public Announcements. No party will issue a press release or
make any public statement with respect to this Agreement or the Related
Agreements or the transactions contemplated hereby and thereby without the
approval of the other party (not to be unreasonably withheld), except as may be
required by applicable law or any listing agreement with any national securities
exchange, except that the Purchaser and the Company may disclose such terms and
information to their advisors, employees, investors, stockholders, successors or
assigns in the ordinary course.
11.13 No Third Party Beneficiaries. This Agreement shall not confer
any rights or remedies upon any person or entity other than the parties hereto
and their respective successors and permitted assigns.
11.14 Expenses. The Company agrees to pay all reasonable expenses of
the Purchaser which are currently estimated at $1,000,000, incurred in
connection with the closing of the transactions contemplated hereby; provided,
however, that the Company shall not be obligated to pay any such expenses unless
and until the Closing occurs (unless the Closing does not occur due to the
Company's breach).
[THE NEXT PAGE IS THE SIGNATURE PAGE.]
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IN WITNESS WHEREOF, the parties have executed this Series A Preferred
Stock Purchase Agreement as of the date first above written.
COMPANY: BTI TELECOM CORP.
By: /s/ Peter T. Loftin
___________________________________
Name: Peter T. Loftin
Title: Chief Executive Officer
FSM: FS MULTIMEDIA, INC.
By: /s/ Peter T. Loftin
___________________________________
Name: Peter T. Loftin
Title: Chief Executive Officer
<PAGE>
PURCHASER: WELSH, CARSON, ANDERSON &
STOWE VIII, L.P.
By: WCAS VIII Associates LLC,
General Partner
By: /s/ Jonathan M. Rather
___________________________________
Name: Jonathan M. Rather
Title: Member
BTI INVESTORS LLC
By: /s/ Jonathan M. Rather
____________________________________
Name: Jonathan M. Rather
Title: Authorized Person
WCAS INFORMATION PARTNERS, L.P.
By: WCAS Info Partners,
General Partner
By: /s/ Jonathan M. Rather
____________________________________
Name: Jonathan M. Rather
Title: Attorney-in-fact
<PAGE>
SCHEDULE 1.1
PURCHASER ALLOCATION
Shares of
Series A
Purchaser Preferred Stock Warrant Shares
- --------- --------------- --------------
Welsh, Carson, Anderson 189,524 4,264,290
& Stowe VIII, L.P.
WCAS Information Partners, L.P. 1,000 22,500
BTI Investors LLC 9,476 213,210
