-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PQpqGyKW5ToY62i9hWXpb6N1c+K7j+sjADFoXJpob02VzVg9bYyK//qZW6+jL+nH AYuLTTv2hvEFKP2QzypQ7A== 0001021408-01-000526.txt : 20010205 0001021408-01-000526.hdr.sgml : 20010205 ACCESSION NUMBER: 0001021408-01-000526 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20010112 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20010131 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BTI TELECOM CORP CENTRAL INDEX KEY: 0001050524 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 562047220 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-26771 FILM NUMBER: 1520030 BUSINESS ADDRESS: STREET 1: 4300 SIX FORKS ROAD CITY: RALIEGH STATE: NC ZIP: 27609 MAIL ADDRESS: STREET 1: 4300 SIX FORKS ROAD CITY: RALEIGH STATE: NC ZIP: 27609 8-K 1 0001.txt FORM 8-K 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) JANUARY 12, 2000 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.) ITEM 5. OTHER EVENTS. BTI Telecom Corp. ("BTI") received a $20 million investment on January 12, 2001, from Welsh, Carson, Anderson & Stowe VIII, L.P., a New York based private equity firm and one affiliated fund (together, "WCAS") and from Peter T. Loftin, Chairman and CEO of BTI. WCAS and Mr. Loftin each invested $10 million. BTI plans to use the proceeds from the investment for general working capital and capital expenditures. 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 near-term capital requirements, restrictions on the ability to execute strategies or complete certain transactions as a result of its capital structure or debt covenants, ability to manage growth and expansion (including into the local services market) regulation, competition and dependence on key personnel. These and other applicable risks are detailed in the Company's filings with the Securities and Exchange Commission. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (c) EXHIBITS 3.1 Articles of Amendment and Restatement of BTI Telecom Corp. 3.2 Third Amended and Restated Bylaws of BTI Telecom Corp. 10.21 Amended and Restated 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 January 12, 2001. 10.23 Amended and Restated Investor Rights Agreement, among BTI Telecom Corp., Welsh, Carson, Anderson & Stowe VIII, L.P., WCAS Information Partners, L.P., and BTI Investors LLC, dated January 12, 2001. 10.29 Series B Preferred Stock Purchase Agreement, among BTI Telecom Corp., Welsh, Carson, Anderson & Stowe VIII, L.P., WCAS Information Partners, L.P., and BTI Investors LLC, dated January 12, 2001. 10.30 Series B Redemption Agreement, among BTI Telecom Corp., Welsh, Carson, Anderson & Stowe VIII, L.P., and BTI Investors LLC, dated January 12, 2001. 10.31 Common Stock Purchase Warrant issued by BTI Telecom Corp. to Welsh, Carson, Anderson & Stowe VIII, L.P., dated January 12, 2001. 10.32 Common Stock Purchase Warrant issued by BTI Telecom Corp. to BTI Investors LLC, dated January 12, 2001. 10.33 Common Stock Purchase Warrant issued by BTI Telecom Corp. to Peter T. Loftin, dated January 12, 2001. 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 29, 2001 By: /s/ Brian Branson ------------------------ Brian Branson Chief Financial Officer EXHIBIT INDEX Exhibit Number Description 3.1 Articles of Amendment and Restatement of BTI Telecom Corp. 3.2 Third Amended and Restated Bylaws of BTI Telecom Corp. 10.21 Amended and Restated 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 January 12, 2001. 10.23 Amended and Restated Investor Rights Agreement, among BTI Telecom Corp., Welsh, Carson, Anderson & Stowe VIII, L.P., WCAS Information Partners, L.P., and BTI Investors LLC, dated January 12, 2001. 10.29 Series B Preferred Stock Purchase Agreement, among BTI Telecom Corp., Welsh, Carson, Anderson & Stowe VIII, L.P., WCAS Information Partners, L.P., and BTI Investors LLC, dated January 12, 2001. 10.30 Series B Redemption Agreement, among BTI Telecom Corp., Welsh, Carson, Anderson & Stowe VIII, L.P., and BTI Investors LLC, dated January 12, 2001. 10.31 Common Stock Purchase Warrant issued by BTI Telecom Corp. to Welsh, Carson, Anderson & Stowe VIII, L.P., dated January 12, 2001. 10.32 Common Stock Purchase Warrant issued by BTI Telecom Corp. to BTI Investors LLC, dated January 12, 2001. 10.33 Common Stock Purchase Warrant issued by BTI Telecom Corp. to Peter T. Loftin, dated January 12, 2001. EX-3.1 2 0002.txt ARTICLES OF AMENDMENT & RESTATEMENT Exhibit 3.1 ARTICLES OF AMENDMENT AND 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 and the corporation's Amended and Restated Articles of Incorporation were filed on December 16, 1999. 2. The corporation's Amended and Restated Articles of Incorporation are hereby amended and restated in their entirety, as set forth in the text of the Second Amended and Restated Articles of Incorporation attached hereto as Exhibit A. - --------- 3. The Second Amended and Restated Articles of Incorporation of the corporation were adopted by its shareholders on the 9th day of January 2001, in the manner prescribed by law. 4. These Second 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 10th day of January 2001. BTI TELECOM CORP. By: /s/ R. Michael Newkirk, ---------------------------- R. Michael Newkirk, President Attest: By: /s/ Anthony M. Copeland, ------------------------------- Anthony M. Copeland, Secretary EXHIBIT A --------- SECOND 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") and sixty thousand (60,000) shares are designated Series B Preferred Stock ("Series B 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 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, winding up and Reorganization, rank prior to the Common Stock and all other series of Preferred Stock (other than the Series B Preferred Stock), but shall be junior in right of payment with respect to the Series B Preferred Stock and all indebtedness incurred by the Corporation. The Series B Preferred Stock shall, with respect to dividend rights and rights on liquidation, dissolution, winding up and Reorganization, rank prior to all classes and series of capital stock of the Corporation, including the Common Stock, the Series A Preferred Stock and all other series of Preferred Stock, but shall be junior in right of payment with respect to all indebtedness incurred by the Corporation. The Series A Preferred Stock and Series B Preferred Stock (collectively, the "Outstanding Preferred Stock") shall have the rights, preferences, privileges and restrictions set forth below in this Article IV. 1. Dividends. --------- (a) Dividends Payable With Respect to Series A Preferred Stock. 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 (as adjusted as described below, the "Series A Original Price") 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 Series A Original Price for purposes of calculating succeeding periods' dividends. Such dividends for any semi-annual dividend period shall, at the Corporation's option, be payable in cash or added to the Series A Original Price; provided that if, following its initial public offering, the Corporation has elected to pay such dividends in cash, but is prevented from doing so by the terms of any of its outstanding indebtedness, the Corporation 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 (other than the Series B Preferred Stock), now or hereafter outstanding. 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 added to the Series A Original Price. (b) Dividends Payable With Respect to Series B Preferred Stock. The ---------------------------------------------------------- holders of the Series B Preferred Stock shall be entitled to receive, out of funds legally available therefor, 2 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 (as adjusted as described below, the "Series B Original Price") paid per share for the Series B 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 B 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 B 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 Series B Original Price for purposes of calculating succeeding periods' dividends. Such dividends for any semi-annual dividend period shall, at the Corporation's option, be payable in cash or added to the Series B Original Price; provided that if, following its initial public offering, the Corporation has elected to pay such dividends in cash, but is prevented from doing so by the terms of any of its outstanding indebtedness, the Corporation may pay such dividends in shares of registered Common Stock, valued for purposes of this Section 1(b) 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 B 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 B 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. Upon any conversion of the Series B Preferred Stock hereunder, all accumulated and unpaid dividends on the Series B Preferred Stock, whether or not declared, since the date of issue up to and including the date of conversion thereof shall be added to the Series B Original Price. (c) 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 and holders of Series B Preferred Stock entitled to receive, and such holders 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 or Series B Preferred Stock, as the case may be (the "Applicable Preferred Stock"), been converted into Common Stock immediately prior to the record date for determining holders of Common Stock entitled to receive such distribution. 2. Liquidation, Dissolution, Winding Up or Reorganization. ------------------------------------------------------ 3 (a) Treatment at Liquidation, Dissolution, Winding Up or Reorganization. ------------------------------------------------------------------- (i) Series A Preferred Stock. In the event of (x) any liquidation, ------------------------ dissolution or winding up of the Corporation, whether voluntary or involuntary, or (y) at the election of the holders of a majority of the Series A Preferred Stock, any Reorganization (as defined in Section 4(f)), 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 (a) the Series A Liquidation Amount and (b) 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, winding up or Reorganization of the Corporation pursuant to this Section 2. The amounts payable pursuant to the immediately preceding sentence shall be paid to the holders of Series A Preferred Stock before any distribution may be made with respect to the Common Stock or any other class or series of capital stock (other than the Series B Preferred Stock). 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 the Series A Original Price per share of Series A Preferred Stock plus, without duplication, 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, winding up or Reorganization; 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. (ii) Series B Preferred Stock. In the event of (x) any liquidation, ------------------------ dissolution or winding up of the Corporation, whether voluntary or involuntary, or (y) at the election of the holders of a majority of the Series B Preferred Stock, any Reorganization, holders of each share of Series B 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 greatest of (a) the Series B Liquidation Amount, (b) such amount per share of 4 Series B Preferred Stock as would have been payable had each such share been converted into Common Stock immediately prior to such event of liquidation, dissolution, winding up or Reorganization of the Corporation pursuant to this Section 2 and (c) the Change in Control Amount in the event of a Change in Control Transaction. The amounts payable pursuant to the immediately preceding sentence shall be paid to the holders of Series B Preferred Stock before any distribution may be made with respect to the Common Stock, the Series A Preferred Stock or any other class or series of capital stock. If the assets of the Corporation available for distribution to its shareholders shall be insufficient to pay the holders of shares of Series B Preferred Stock the full amount of the Series B Liquidation Amount to which they shall be entitled, the holders of shares of Series B Preferred Stock shall share ratably in any distribution of assets according to the amounts which would be payable with respect to the Series B 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 B Preferred Stock, the "Series B Liquidation Amount" shall equal the Series B Original Price per share of Series B Preferred Stock plus, without duplication, all accrued and unpaid dividends thereon (compounded as described in Section 1(b) 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 B Preferred Stock with respect to such liquidation, dissolution, winding up or Reorganization; provided that such Series B Original Price shall be subject to equitable adjustment whenever there shall occur a stock split, combination, reclassification or other similar event involving such Series B 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 B Preferred Stock, the holders of the Series B Preferred Stock shall be entitled to no further participation in the distribution of the assets of the Corporation. (b) Distributions. Amounts payable pursuant to Section 2(a)(i) shall in ------------- all events be paid in cash; provided 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 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 on Series A Preferred Stock that are payable in connection with a Reorganization pursuant to Section 2(a)(i) shall, in all events, be paid in the manner set forth in 5 Section 1(a) above. Whenever a distribution provided for in Section 2(a)(i) is payable in property other than cash, the value of such distribution shall be the Fair Market Value of such property. Amounts payable pursuant to Section 2(a)(ii) shall in all events be paid in cash, unless otherwise agreed to by holders of a majority of the Series B Preferred Stock. 3. Voting Power. Except as otherwise expressly provided in Section 6 ------------ hereof, or as required by law, each holder of Series A Preferred Stock and each holder of Series B 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 Applicable 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, Series B Preferred Stock and Common Stock shall vote together as a single class on all matters. 4. Conversion Rights. The holders of Series A Preferred Stock and the ----------------- holders of Series B Preferred Stock shall have the following rights with respect to the conversion of the Applicable 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 or Series B 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. The number of shares of Common Stock to which a holder of Series B Preferred Stock shall be entitled upon conversion shall be the product obtained by multiplying the Series B Conversion Rate (determined as provided in Section 4(b) and subject to adjustment as described below) by the number of shares of Series B Preferred Stock being converted. In addition, each holder of Series A Preferred Stock and each holder of Series B Preferred Stock shall be entitled to receive upon conversion all accumulated and unpaid dividends as provided in Section 1(a) or 1(b), as applicable. (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 the Series A Original Price by the Series A Conversion Value, calculated as provided in Section 4(c). The conversion rate for Series B Preferred Stock in effect at any time (the "Series B Conversion Rate") shall be the quotient obtained by dividing the Series B Original Price by the Series B Conversion Value, calculated as provided in Section 4(c). (c) Applicable 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 6 (the "Series A Conversion Value"). The Series B Conversion Value shall be $4.00, except that such amount shall be adjusted from time to time in accordance with this Section 4 (the "Series B Conversion Value"). For purposes hereof, "Applicable Conversion Value" means the Series A Conversion Value (with respect to the Series A Preferred Stock) or the Series B Conversion Value (with respect to the Series B Preferred Stock). (d) Adjustments to the Conversion Value. ----------------------------------- (i) (A) Upon Sale of Common Stock. Except as otherwise provided in ------------------------- Section 4(d)(i)(E), if the Corporation shall, while there are any shares of Applicable Preferred Stock outstanding, issue or sell (or in accordance with Section 4(d)(i)(B) shall be deemed to have issued or sold) shares of its Common Stock without consideration or at a price per share less than the Applicable Conversion Value in effect immediately prior to such issuance or sale (or deemed issuance or sale), then in each such case the Applicable Conversion Value, upon each such issuance or sale, except as hereinafter provided, shall be lowered so as to be equal to the price at which such shares of Common Stock were issued or sold; provided that if such shares were issued or sold without consideration, the Applicable Conversion Value shall be lowered to equal $0.01. (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 under Section 4(d)(i)(A) 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 Applicable 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 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 Applicable 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, subscriptions, 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. 7 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 Applicable Conversion Value shall be adjusted to the Applicable 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 Applicable Conversion Value since the date of issuance of such securities been made to the Applicable Conversion Value as adjusted pursuant to (1) above. Any adjustment of the Applicable 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 Applicable Conversion Value effective immediately upon such cancellation or expiration shall be equal to the Applicable 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 Applicable 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 Section 4(d)(i)(B), 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 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 purchase rights or convertible or exchangeable securities were exercised, exchanged, or converted. (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 purchase rights or convertible or exchangeable securities without giving effect to any possible future upward price adjustments or rate adjustments which may 8 be applicable with respect to such warrants, options, subscriptions, or 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 Common Stock, 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) 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 an Applicable Conversion Value pursuant to the provisions of this Section 4(d): (1) in the case of (i) the issuance of shares of Series B Preferred Stock approved pursuant to Section 6(a)(ii) hereof or the issuance of shares of Common Stock upon conversion of the Series A Preferred Stock or the Series B 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 Second Amended and Restated Articles of Incorporation or granted under the Corporation's 1997 Stock Option Plan; (iii) the issuance or sale of those certain warrants issued to Welsh, Carson, Anderson & Stowe VIII, L.P. and its affiliates in connection with the sale and issuance of shares of Outstanding Preferred Stock of the Corporation and the issuance or sale of shares of Common Stock upon exercise of such warrants; (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 the Applicable 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 and the holders of Series B Preferred Stock) in connection with a rights plan in accordance with these Second Amended and Restated Articles of Incorporation; or (vi) the issuance of 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 9 (2) if the Corporation receives written notice from the holders of at least a majority of the then outstanding shares of Applicable 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 and the Series B Conversion Value shall, simultaneously with the happening of such Extraordinary Common Stock Event, be adjusted by multiplying the then effective Applicable 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 Applicable Conversion Value. For the purposes of this Section 4(d)(ii) and Section 4(d)(i)(E), "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) Notwithstanding anything else contained herein, if the Second Closing (as defined in the Series B Preferred Stock Purchase Agreement dated as of January 2001 among the Corporation, Welsh, Carson, Anderson & Stowe VIII, L.P., WCAS Information Partners, L.P. and BTI Investors LLC (collectively, the "Investor")) does not occur by March 15, 2001, the Series B Conversion Value shall be lowered to $2.00. (iv) The Applicable 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 Applicable Conversion Value. (e) Reclassification. If the Common Stock issuable upon the conversion of ---------------- the Series A Preferred Stock or Series B 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 or Series B 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 Applicable Preferred Stock might have been converted immediately prior to such reclassification. 10 (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(a), as a part of such Reorganization, provision shall be made so that the holders of Series A Preferred Stock and the holders of Series B Preferred Stock shall thereafter be entitled to receive, upon conversion of the Applicable 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 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 Applicable 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 Series A Preferred Stock and holders of Series B Preferred Stock after the Reorganization, to the end that the provisions of this Section 4 (including adjustment of the Applicable Conversion Value then in effect and the number of shares issuable upon conversion of the Applicable 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 an Applicable Conversion Value, the Corporation at its expense will furnish each holder of Applicable 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 or Series B 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 Applicable 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 Applicable 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 Applicable 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 Applicable Preferred Stock in accordance with the provisions of this Section 4, and cash, as provided in Section 4(i), 11 in respect of any fraction of a share of Common Stock issuable upon such conversion, and Sections 1(a) and 1(b). 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 Applicable 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 Applicable 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 Amended and Restated Investor Rights Agreement (the "Investor Rights Agreement") among the Corporation, the Investor and Peter T. Loftin. From the date of delivery by a holder of shares of Series A Preferred Stock or Series B Preferred Stock of such notice of election to convert, in lieu of dividends on such Series A Preferred Stock pursuant to Section 1(a) or dividends on such Series B Preferred Stock pursuant to Section 1(b), such Applicable 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 Applicable 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 or Series B Preferred Stock, pay to the holder of the shares of Applicable 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 or Series B 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 Applicable 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 Outstanding Preferred Stock, such number of its shares of Common Stock (or any other securities into which the Outstanding Preferred Stock may become convertible) as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Outstanding 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 Outstanding Preferred Stock, the Corporation shall take such corporate action as may be necessary to increase its authorized but 12 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 or Series B 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 of the Applicable 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 an Applicable Conversion Value shall be made if the amount of such adjustment would be less than 1% of such Applicable 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 such Applicable Conversion Value then in effect. (m) Termination of Preferences. -------------------------- (i) Series A Preferred Stock. 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 Series 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, in each case with respect to the Series A Preferred Stock, and the rights for adjustments to the Series A Conversion 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 "Series A 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 13 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)(i). (ii) Series B Preferred Stock. 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 Series B Qualified Public Offering (as hereinafter defined) and the date not earlier than three years from the date of the initial issuance of the Series B 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 B Conversion Value for the 90 prior consecutive trading days or (ii) the election by holders of the majority of the then outstanding Series B Preferred Stock to convert some or all of the Series B 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, in each case with respect to the Series B Preferred Stock, and the rights for adjustments to the Series B Conversion Value described in Section 4(d) hereof shall terminate and be of no further force and effect and the holders of the Series B Preferred Stock shall be entitled to receive only those dividend and liquidation payments that they would have received had the Series B Preferred Stock been converted into shares of Common Stock pursuant to Section 4 and there shall be no further adjustments to the Series B Conversion Value. For purposes hereof, the term "Series B Qualified Public Offering" shall mean (i) an underwritten public offering pursuant to an effective registration statement under 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 B 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 $500,000,000. The Corporation shall provide the holders of Series B 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)(ii). 5. No Reissuance of Outstanding Preferred Stock. No share or shares of -------------------------------------------- Series A Preferred Stock or Series B 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 Applicable Preferred Stock accordingly. 6. Restrictions and Limitations. ---------------------------- 14 (a) Corporate Action. Except as expressly provided herein or as required ---------------- by law, so long as any shares of Applicable Preferred Stock remain 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 (x) the holders of at least a majority of the then outstanding shares of Series A Preferred Stock, consenting or voting separately as a class, and (y) the holders of at least a majority of the then outstanding shares of Series B 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 respect to the Applicable 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 Applicable 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 the Applicable Preferred Stock; (iii) authorize or issue, or obligate itself to authorize or issue, (y) any equity security on a parity with or having preference or priority over the Applicable Preferred Stock as to liquidation preferences, redemption rights, dividend rights, voting rights or otherwise or (z) any equity security that ranks junior to the Applicable Preferred Stock as to liquidation preferences, redemption rights, dividend rights, voting rights or otherwise if such equity security would give rise to deemed periodic dividend income to the holders of the Applicable Preferred Stock for income tax purposes; (iv) authorize or issue, or obligate itself to authorize or issue, any (y) 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 the Applicable Preferred Stock are outstanding or (z) any debt security convertible or exchangeable into an equity security of the Corporation if such equity security would give rise to deemed periodic dividend income to the holders of the Applicable Preferred Stock for income tax purposes; (v) enter into a Change in Control Transaction, or liquidate or distribute all or substantially all of the assets of the Corporation, unless (A) in the case of holders of the Series A Preferred Stock, the proceeds received by the holders of the Series A Preferred 15 Stock have a Fair Market Value equal to or greater than the Minimum Change in Control Amount and the holders of the Series A Preferred Stock receive the same form of consideration as the holders of the Corporation's Common Stock or (B) in the case of holders of Series B Preferred Stock, holders of Series B Preferred Stock receive cash consideration per share equal to or greater than the Minimum Change in Control Amount; provided that in each case, any wholly-owned subsidiary may merge into or consolidate with or transfer assets to any other wholly-owned subsidiary or the Corporation; 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 Applicable 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 (A) the holders of at least a majority of the then outstanding shares of Series A Preferred Stock, consenting or voting separately as a class, and (B) the holders of at least a majority of the then outstanding shares of Series B Preferred Stock, 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 Applicable Preferred Stock or the holders thereof; (ii) change the relative seniority rights of the holders of the Applicable 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 Applicable Preferred Stock; or (iii) reduce the amount payable to the holders of such Applicable Preferred Stock upon the voluntary or involuntary liquidation, dissolution, winding up or Reorganization of the Corporation, or change the relative seniority of the liquidation preferences of the holders of such Applicable 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 Applicable 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 Outstanding 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 or 16 Series B 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 Outstanding Preferred Stock from time to time outstanding. 8. Redemption. The Corporation is obligated to redeem (i) the Series A ---------- Preferred Stock pursuant to the terms of an Amended and Restated Shareholders Agreement by and among the Corporation, Peter T. Loftin and the Investor (as amended from time to time, the "Shareholders Agreement") and a redemption agreement dated as of December 28, 1999 among the Corporation and the Investor and (ii) the Series B Preferred Stock pursuant to the terms of the Shareholders Agreement and a Series B Redemption Agreement among the Corporation, Welsh, Carson, Anderson & Stowe VIII, L.P., BTI Investors LLC and Peter T. Loftin. 9. 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, (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 Sections 4(e), 4(f) or 6(a)(v), clauses (i) or (ii) of the first sentence of Section 4(m)(i) or clauses (i) or (ii) of the first sentence of Section 4(m)(ii), then and in each such event the Corporation shall mail or cause to be mailed to each holder of the Applicable 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, Series A Qualified Public Offering, Series B 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 event. 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. 10. Definitions. For purposes of this Article IV, the following terms ----------- shall have the following meanings. 17 "Act" has the meaning set forth in Section 4(m)(i). "Applicable Conversion Value" has the meaning set forth in Section 4(c). "Applicable Preferred Stock" has the meaning set forth in Section 1(c). "Change in Control Amount" means the greater of (i) $2,000 per share of Series B Preferred Stock, subject to adjustment for stock splits, stock dividends, reorganizations and the like, and (ii) an amount representing an Internal Rate of Return on the investment of holders of the Series B Preferred Stock of at least 30%. "Change in Control Transaction" means, through one transaction or a series of transactions, the sale, assignment, lease or transfer of securities constituting a majority of the voting securities of the Corporation to, or of all or substantially all of its assets to, or a merger, consolidation or similar business combination with or into, 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. "Common Stock" has the meaning set forth in the first paragraph of Article IV. "Conversion Date" has the meaning set forth in Section 4(h). "Extraordinary Common Stock Event" has the meaning set forth in Section 4(d)(ii). "Fair Market Value" means, when making a determination for holders of Series A Preferred Stock or Series B Preferred Stock, as the case may be, (i) with respect to one share of common stock to be received, if the sum of the Daily Prices of (x) all of the outstanding shares of common stock that have been registered pursuant to a public offering and (y) all of the outstanding shares of common stock that are not held by affiliates of the Corporation and that may be sold on such date in an open market transaction without registration, is at least $250 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 the Applicable Preferred Stock. No Director who is a holder of the Applicable Preferred Stock or who is designated by or affiliated with a holder of the Applicable Preferred Stock shall vote on the selection of the appraiser chosen by the Corporation. In the event the Board of Directors or the holders of the Applicable 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 18 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 the Applicable 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 Applicable Preferred Stock approve 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 such holders. 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. "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 of Series A Preferred Stock or Series B Preferred Stock, as the case may be (the "Holders"), in the Applicable Preferred Stock on or prior to such date (the " Investment"), makes the net present value of all such cash flows equal to zero. The 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 Investment will be deemed to be interim cash inflows with respect to the Investment. Distributions or proceeds received by the Holders in respect of the 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 Investment will be based on the total net proceeds that will be actually received by the Holders on the date of the completion of the applicable 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 19 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. "Investor" has the meaning set forth in Section 4(d)(iii). "Investor Rights Agreement" has the meaning set forth in Section 4(h). "Minimum Change in Control Amount" means an amount that (i) is equal to or greater than $2,000 per share of Applicable Preferred Stock, subject to adjustment for stock splits, stock dividends, reorganizations and the like, and (ii) represents an Internal Rate of Return on the investment of holders of the Applicable Preferred Stock of at least thirty percent (30%). "Net Consideration Per Share" has the meaning set forth in Section 4(d)(i)(B)(2)(a). "Outstanding Preferred Stock" has the meaning set forth in the third paragraph of Article IV. "Preferred Stock" has the meaning set forth in the first paragraph of Article IV. "Reorganization" has the meaning set forth in Section 4(f). "Series A Conversion Rate" has the meaning set forth in Section 4(b). "Series A Conversion Value" has the meaning set forth in Section 4(c). "Series A Liquidation Amount" has the meaning set forth in Section 2(a)(i). "Series A Original Price" has the meaning set forth in Section 1(a). "Series A Preferred Stock" has the meaning set forth in the first paragraph of Article IV. "Series A Qualified Public Offering" has the meaning set forth in Section 4(m)(i). "Series B Conversion Rate" has the meaning set forth in Section 4(b). "Series B Conversion Value" has the meaning set forth in Section 4(c). "Series B Liquidation Amount" has the meaning set forth in Section 2(a)(ii). "Series B Original Price" has the meaning set forth in Section 1(b). "Series B Preferred Stock" has the meaning set forth in the first paragraph of Article IV. "Series B Qualified Public Offering" has the meaning set forth in Section 4(m)(ii). "Shareholders Agreement" has the meaning set forth in Section 8. 20 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 Second 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 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, 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, 6 and 10 of the Shareholders Agreement to designate the number of directors to each such board of directors as is specified in Sections 5, 6 and 10. The amendment, waiver or termination 21 of the rights set forth in the Shareholders Agreement shall be governed by the terms of the Shareholders Agreement. 22 EX-3.2 3 0003.txt THIRD AMENDED & RESTATED BYLAWS Exhibit 3.2 THIRD 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 meeting 1 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 or holders of a majority of the outstanding shares of Series B 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. 2 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) A majority of the outstanding shares of the ------ corporation entitled to vote and (B) 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"), (i) the holders of a majority of the outstanding shares of Series A Preferred Stock and (ii) the holders of a majority of the outstanding shares of Series B Preferred Stock, in each case, 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 a majority of the shares of Series A Preferred Stock or Series B Preferred Stock, as applicable, to attend a meeting where such holders are required for a quorum, and such holders are not present, the holders of a majority of the shares of Series A Preferred Stock or Series B Preferred Stock, as applicable, 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 3 business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. 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 Second Amended and Restated Articles of Incorporation (as amended from time to time, the "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 4 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 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 Series A Preferred Stock and the holders of Series B Preferred Stock pursuant to the provisions of the Articles of Incorporation and the Amended and Restated Shareholders Agreement (as amended from time to time, the "Shareholders Agreement") dated as of January 2001 among the corporation and certain shareholders of the corporation. 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 such consent is 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. 5 Section 13. Inspectors of Election. ---------------------- (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, and the authenticity, validity and effect of proxies, and shall 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 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 6 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 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 (the "Exchange Act"), 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 Articles of Incorporation, all corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation shall be 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 Sections 5 and 10 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 7 meeting of shareholders only if written notice of 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 Exchange Act, 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 Exchange Act and the rules and regulations promulgated thereunder with respect to the matters set forth in this Section. 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 8 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 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 9 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. 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 either within or without the State of North Carolina, as fixed by the person or persons calling the meeting. 10 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 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. 11 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, a 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 Sections 7 and 9 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 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 12 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 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 13 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 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 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 14 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 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 15 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 of capital stock 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 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. 16 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. 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. Section 4. 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 17 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 5. 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 6. 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, 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. 18 (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 7. 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 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. 19 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, or reimbursement of rent or entertainment expenses 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. 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 20 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. 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 21 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 and all amendments thereto; (2) 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. 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. 22 EX-10.21 4 0004.txt AMENDED & RESTATED SHAREHOLDERS AGREEMENT EXHIBIT 10.21 BTI TELECOM CORP. AMENDED AND RESTATED SHAREHOLDERS AGREEMENT THIS AMENDED AND RESTATED SHAREHOLDERS AGREEMENT (this "Agreement") is made as of the 12th day of January 2001, 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 previously acquired 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 "Series A Warrant") to purchase up to an aggregate of 4,500,000 shares of Common Stock, no par value per share (the "Common Stock"), of the Company (the "Series A Warrant Stock") pursuant to the terms of a Series A Preferred Stock Purchase Agreement dated as of December 10, 1999 among the Company, FS Multimedia, Inc., a North Carolina corporation, and the Investor (the "Series A Purchase Agreement"); WHEREAS, in connection with the purchase of Series A Preferred Stock and the Series A Warrant pursuant to the terms of the Series A Purchase Agreement, the parties hereto previously entered into a Shareholders Agreement dated as of December 28, 1999 (the "Original Agreement"); WHEREAS, pursuant to the terms of Series B Preferred Stock Purchase Agreements dated as of January 12, 2001 (together, the "Series B Purchase Agreement"), Welsh, Carson, Anderson & Stowe VIII, L.P., BTI Investors LLC and Loftin are acquiring shares of Series B Preferred Stock, par value $.01 per share (the "Series B Preferred Stock"), of the Company and warrants (collectively, the "Series B Warrants" and, together with the Series A Warrant, the "Warrants") to purchase shares of Common Stock (the "Series B Warrant Stock" and, together with the Series A Warrant Stock, the "Warrant Stock"); and WHEREAS, in connection with the execution of the Series B Purchase Agreement, the parties hereto desire to amend and restate the Original Agreement in its entirety, 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 Series B Preferred Stock Purchase Agreement between the Company and the Investor or its Related Agreements (as such term is defined in such Series B Preferred Stock 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 a transfer by any partner or member in accordance with (a) or (b) hereof; provided that, except as otherwise provided below, it shall be a 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 preceding sentence, Loftin was 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 Series A Purchase Agreement. If Loftin transfers any Shares pursuant to Section 4(c) subsequent to a Series 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 each holder of a certificate ---------------------------- representing Registrable Securities (as defined in Section 1.1 of the Amended and Restated Investor Rights Agreement, dated as of the date hereof, by and among the Company and the Investor (the "Investor Rights Agreement")) agrees to comply in all respects with the provisions of this 2 Section. Prior to any proposed sale, assignment, transfer or pledge of any Registrable Securities, or of any of Loftin's Shares, 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, or (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 Shares may be effected without registration under the 1933 Act. Each certificate evidencing the Registrable Securities or Loftin's Shares 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 15 below, except that such certificate shall not bear such restrictive legend if in the opinion of counsel for such holder and 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 December 31, 2001, 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) through one transaction or a series of transactions, the sale, assignment, lease or transfer of securities constituting a majority of the voting securities of the Company to, or of all or substantially all of its assets to, or a merger, consolidation or similar business combination with or into, 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. For purposes of the preceding sentence, "control" shall mean ownership of more than fifty percent of the voting power of an entity. (b) The Investor shall not sell, assign or otherwise transfer any of its Series A Preferred Stock, Series B Preferred Stock or Warrant 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. Notwithstanding the foregoing, the restrictions contained in the preceding sentence shall not apply after December 31, 2001 if the financial plan objectives for the fiscal year ended December 31, 2001, as described in Exhibit A attached hereto, have not been --------- achieved by the Company during such period (a "2001 Plan Shortfall"). For purposes hereof, 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. 3 (c) Neither Peter Loftin nor his transferees described in the second or fourth sentences of Section 2, shall sell, pledge, encumber, assign, transfer or otherwise dispose of Shares representing (on an as converted basis) 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 sentence of Section 2; provided that, no such transfer by Loftin to the Company shall be permitted pursuant to this Section 4(c) without the written consent of the Investor. (d) The restrictions placed on the Investor in subsections (a) and (b) 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: (a) so long as Investor and its transferees described in the second sentence of Section 2 beneficially own at least 12,000,000 (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 Series B Preferred Stock and, commencing at such time as each Warrant becomes exercisable, the exercise or exchange of each Warrant ("Fully-Diluted Basis")), (i) three directors shall be designated by the Investor and (ii) 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 9,000,000 (as adjusted for stock splits, combinations, stock dividends, recapitalizations and the like), but less than 12,000,000 (as adjusted for stock splits, combinations, stock dividends, recapitalizations and the like) shares of Common Stock (calculated on a Fully-Diluted Basis), (i) two directors shall be designated by the Investor, (ii) 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 (iii) 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 at least 6,000,000 (as adjusted for stock splits, combinations, stock dividends, recapitalizations and the like), but less than 9,000,000 (as adjusted for stock splits, combinations, stock dividends, recapitalizations and the like) shares of Common Stock (calculated on a Fully-Diluted Basis), (i) one director shall be designated 4 by the Investor, (ii) 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 (iii) the remaining directors shall be designated by the holders of a majority of the outstanding shares of Common Stock; and (d) 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 each 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 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 Second Amended and Restated Articles of Incorporation (the "Articles of Incorporation"): (a) (x) prior to a Series A Qualified Public Offering (as defined in the 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, and (y) prior to a Series B Qualified Public Offering (as defined in the Articles of Incorporation) and after the Second Closing, the written approval of the holders of a majority of the outstanding shares of Series B Preferred Stock shall be required in order for the Company to, or permit any of its subsidiaries to: 5 (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 (including cash, Common Stock or the assumption of indebtedness) 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) prior to a Series B Qualified Public Offering and after the Second Closing, the written approval of the holders of a majority of the outstanding shares of Series B Preferred Stock shall be required in order for the Company to, or permit any of its subsidiaries to: (i) hire a new chief financial officer; (ii) authorize, make or commit to make capital expenditures in an amount that, individually or in the aggregate, exceeds (r) $18 million during the first quarter of fiscal year 2001, (s) $31 million during the first two quarters of fiscal year 2001, (t) $44 million during the first three quarters of fiscal year 2001, (u) $57 million during fiscal year 2001, (v) $13 million during the first quarter of fiscal year 2002, (w) $26 million during the first two quarters of fiscal year 2002, (x) $39 million during the first three quarters of fiscal year 2002, (y) $52 million during fiscal year 2002 or (z) the amount contemplated in any operating and capital expenditure plan approved by the Board of Directors thereafter; (iii) incur any additional indebtedness or assume, guarantee, endorse or otherwise become directly or contingently liable on or for any indebtedness of any other person in an aggregate principal amount that exceeds $35 million in any fiscal quarter; and (iv) approve or authorize any increase in the size of the Board of Directors or the board of directors of any Subsidiary. 6 (c) after the earlier to occur of a Series A Qualified Public Offering or, if the Second Closing has occurred, a Series B 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 (including cash, Common Stock or the assumption of indebtedness) 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 stock option plan, stock purchase plan or other equity or equity-based incentive compensation plan or arrangement; and (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. (d) after a Series B Qualified Public Offering and after the Second Closing, 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, authorize, make or commit to make capital expenditures in an amount that, individually or in the aggregate, exceeds (r) $18 million during the first quarter of fiscal year 2001, (s) $31 million during the first two quarters of fiscal year 2001, (t) $44 million during the first three quarters of fiscal year 2001, (u) $57 million during fiscal year 2001, (v) $13 million during the first quarter of fiscal year 2002, (w) $26 million during the first two quarters of fiscal year 2002, (x) $39 million during the first three quarters of fiscal year 2002, (y) $52 million during fiscal year 2002 or (z) the amount contemplated in any operating and capital expenditure plan approved by the Board of Directors thereafter; (ii) unless approved by a majority of the members of the Board of Directors, incur any additional indebtedness or assume, guarantee, endorse or otherwise become directly or contingently liable on or for any indebtedness of any 7 other person in an aggregate principal amount that exceeds $35 million in any fiscal quarter; (iii) 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 financial officer; and (iv) unless approved by a majority of the members of the Board of Directors who are not also officers of the Company, approve or authorize any increase in the size of the Board of Directors or the board of directors of any Subsidiary. (e) 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) December 28, 2002 or (ii) the date which is 270 days after the consummation of a Series A Qualified Public Offering (such period, the "Series A Private Sale Restricted Period"), the Company shall not sell any equity securities or securities convertible or exchangeable into an equity security of the Company ("Equity Securities") 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 "Series A Qualifying Private Equity Sale"). During the two year period starting the day after the end of the Series A Private Sale Restricted Period, the Company shall not consummate a Series A Qualifying Private Equity Sale unless the purchaser or purchasers in such transaction becomes a party to and bound by this Agreement as a Shareholder hereunder. (f) Without the consent of the holders of a majority of the outstanding shares of Series B Preferred Stock, during the period that ends upon the date which is 270 days after the consummation of a Series B Qualified Public Offering (such period, the "Series B Private Sale Restricted Period"), the Company shall not sell any Equity Securities 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 Investor (a "Series B Qualifying Private Equity Sale"). During the two year period starting the day after the end of the Series B Private Sale Restricted Period, the Company shall not consummate a Series B Qualifying Private Equity Sale unless the purchaser or purchasers in such transaction becomes a party to and bound by this Agreement as a Shareholder hereunder. 8. Selection of Lead Underwriter for Initial Public Offering. The ---------------------------------------------------------- Company shall notify the Investor in writing (the "IPO Notice") of any decision by the Board of Directors to undertake an initial underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock for 8 the account of the Company (the "IPO"), and shall identify in the IPO Notice the name of a nationally recognized investment banking firm (the "Investment Bank") to serve as lead underwriter to conduct the IPO. If such Investment Bank is not acceptable to the Investor, the Investor may, no later than two business days following delivery of the IPO Notice, deliver a written notice to the Company rejecting such Investment Bank (the "Rejection Notice"). If no Rejection Notice is delivered within such two business-day period, the proposed lead underwriter will be deemed to be accepted. If a Rejection Notice is delivered, the Company shall, no later than two business days following delivery thereof, propose in writing two other Investment Banks to serve as lead underwriter for consideration by the Investor (the "Second Proposal"). Within two business days of receipt of the Second Proposal, the Investor may accept by written notice to the Company (the "Acceptance Notice") one of the two Investment Banks named in the Second Proposal. If no Acceptance Notice is delivered within such two business-day period, the Company shall in its sole discretion select one of the two Investment Banks specified in the Second Proposal to serve as lead underwriter to conduct the IPO. 9. Appointment of Chief Executive Officer. The Investor shall have the -------------------------------------- right to appoint a replacement chief executive officer of the Company, which person shall be acceptable to Loftin. The Company agrees to compensate the chief executive officer at competitive market rates. Upon appointment of a replacement chief executive officer, Loftin will remain Chairman of the Board of Directors. 10. Liquidity Provision. Notwithstanding anything to the contrary ------------------- contained in this Agreement, if (i) the Second Closing has occurred and (ii) there is a 2001 Plan Shortfall, the parties hereto agree as follows (and agree to cause the Company to take all actions necessary to effect the following): (a) Immediately following the determination of a 2001 Plan Shortfall, the Company shall either (x) decrease the size of the Board of Directors by removing directors who have not been designated by the Investor or (y) increase the size of the Board of Directors by adding directors who have been designated by the Investor, such that, in either case, the number of directors designated by the Investor represents a majority of the Board of Directors; (b) If (i) the Company's annualized quarterly revenues for any fiscal quarter in fiscal year 2002 are not greater than 110% of the Company's annual fiscal year 2001 revenues (based in each case upon revenues as set forth in the Company's regularly prepared financial statements that were prepared in accordance with generally accepted accounting principles applied in a manner consistent with past practice) or (ii) the 9 Company's Cash Resources are less than $5 million at any time after December 31, 2001, then at any time thereafter the Investor, in its sole discretion, may deliver a written notice to the Company directing the Company to effect a sale of the Company, and identifying an Investment Bank, which firm shall be reasonably acceptable to the Board of Directors, to conduct such sale in accordance with Section 11. "Cash Resources" means, on any date, the sum of (x) unrestricted cash on the Company's balance sheet as of such date and (y) amounts available to be borrowed by the Company under its senior credit facilities; provided that there shall not on such date have occurred and be continuing any material default under any of (i) the Second Amended and Restated Loan Agreement dated as of September 22, 1997 between Business Telecom, Inc. and General Electric Capital Corporation and the other lenders party thereto, as amended (the "GECC Agreement"), (ii) the Loan Agreement dated as of September 8, 1999 among Business Telecom, Inc. and Bank of America, National Association, and the other lenders party thereto, as amended (the "BofA Agreement" and, together with the GECC Agreement, the "Senior Debt Agreements"), or (iii) any other senior credit facility of the Company, if the effect of such default is to enable (or with the giving of notice or lapse of time or both would enable) the lenders under the Senior Debt Agreements or other senior credit facility to declare such debt to become due and payable prior to its stated maturity. Upon the request of the Investor at any time and from time to time after December 31, 2001, the Company will notify the Investor of the amount of the Company's Cash Resources at such time, and will provide the Investor with a reasonably detailed description of the facts and calculations upon which such amount is based; (c) The Company may, at its option, redeem all of the Series A Preferred Stock and the Series B Preferred Stock for cash on or prior to December 31, 2002. The redemption price per share shall be equal to the greater of (i) $2,000 per share and (ii) an amount representing an Internal Rate of Return (as defined in the Articles of Incorporation) on the investment of holders of Series A Preferred Stock or Series B Preferred Stock, as applicable, of at least 30% (the "Change in Control Amount"); and (d) If the Company has not redeemed all of the Series A Preferred Stock and Series B Preferred Stock in accordance with Section 10(c) by December 31, 2002, then at any time thereafter the Investor, in its sole discretion, may deliver a written notice (the "Sale Notice") to the Company directing the Company to effect a sale of the Company. For purposes of this Section 10(d), the Investment Bank which will conduct such sale in accordance with Section 11 will be chosen as follows: the Investor will identify an Investment Bank in the Sale Notice, which shall be reasonably acceptable to the Board of Directors and Loftin. If such Investment Bank is not reasonably acceptable to Loftin, Loftin may, no later than two business days following delivery of the Sale Notice, deliver a written notice to the Investor rejecting such Investment Bank (the "IB Rejection Notice"). If no IB Rejection Notice is delivered within such two business-day period, the proposed Investment Bank will be deemed to be accepted. If an IB Rejection Notice is delivered, the Investor shall, no later than two business days following delivery thereof, propose in writing two other Investment Banks for consideration by Loftin (the "Second 10 IB Proposal"). Within two business days of receipt of the Second IB Proposal, Loftin may accept by written notice to the Investor (the "IB Acceptance Notice") one of the two Investment Banks named in the Second IB Proposal to conduct the sale hereunder. If no IB Acceptance Notice is delivered within such two business-day period, the Investor shall in its sole discretion select one of the two Investment Banks specified in the Second IB Proposal to conduct the sale hereunder. 11. Sale of the Company. Upon delivery to the Company of a written notice ------------------- referred to in Section 10(b) or 10(d), the Company and each other party hereto agrees to use their respective best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary or desirable to effect the sale of the Company in accordance with the following provisions: (a) The Investment Bank will establish procedures reasonably acceptable to the Investor to effect an orderly sale of the Company with the objective of achieving the highest practicable value for the shareholders of the Company within a reasonable period of time. The Company agrees to cooperate with the Investment Bank in accordance with such procedures, and agrees to use its best efforts to reach agreement on the optimum structure and the terms and conditions for the sale of the Company (including whether such sale will be by merger or sale of assets or capital stock) and will retain independent legal counsel of appropriate expertise, reasonably acceptable to the Investor, to advise the Company on such sale. The Company agrees to pay all reasonable fees and expenses of the Investment Bank and such legal counsel, as well as the reasonable fees and expenses of one law firm retained by the Investor in connection with such sale. Any sale of the Company pursuant to this Section 11 shall require the approval of the Investor. (b) Each Shareholder shall (i) vote for, consent to and raise no objections against any sale of the Company that is approved by the Investor pursuant to this Section 11 and (ii) enter into such definitive agreements as are customary for transactions of the nature of the sale of the Company. If the sale of the Company is structured as a sale of shares of capital stock, (i) each Shareholder shall agree to sell all of such holder's Shares on the terms and conditions approved by the Investor and (ii) at the closing of such sale each Shareholder will deliver to the purchaser(s) good and valid title to all Shares owned by it, free and clear of all liens and encumbrances, together with duly executed written instruments of transfer with respect thereto, in form and substance reasonably satisfactory to the purchaser(s). If the sale of the Company is structured as a sale of assets, the Company agrees to execute and deliver or cause to be executed and delivered all documents, certificates, agreements and other writings and to take, or cause to be taken, all such actions as may be necessary or desirable to vest in the purchaser(s) thereof good and marketable title to such assets. If the sale of the Company is structured as a merger or consolidation, each Shareholder shall waive any dissenters' rights, appraisal rights or similar rights in conjunction with such merger or consolidation. No Shareholder shall be subject to this Section 11(b) unless, subject to the requirements of Section 11(c), all holders of shares of capital stock of the Company shall receive the same proportion of 11 the aggregate consideration from such sale of the Company that such holder would have received if such aggregate consideration had been distribution by the Company in complete liquidation pursuant to the rights and preferences set forth in the Articles of Incorporation as in effect immediately prior to such sale of the Company and no holder of any shares of capital stock of the Company shall receive with respect to such holder's capital stock any consideration, directly or indirectly, from the purchaser other than such proportionate consideration. (c) In any sale of the Company pursuant to this Section 11 as permitted by Section 10(b) or 10(d), each holder of a share of Series A Preferred Stock or Series B Preferred Stock will be entitled to receive the Change in Control Amount in cash before any payments or distributions are made in respect of the Common Stock or any other classes or series of capital stock of the Company. 12. Determination of 2001 Plan Shortfall. The determination as to whether ------------------------------------ a 2001 Plan Shortfall has occurred shall be made in good faith by the Board of Directors of the Company. Any such determination shall be based on the Company's regularly prepared financial statements that were prepared in accordance with generally accepted accounting principles applied in a manner consistent with past practice. No later than February 15, 2002, the Board of Directors shall deliver to the Investor written notice of its determination as to whether or not a 2001 Plan Shortfall has occurred, together with a detailed description of the facts and calculations upon which such determination was based. If the Investor shall object to any such determination by the Board of Directors, the Investor shall appoint either Price Waterhouse Coopers or Arthur Andersen as an independent accountant to determine whether a 2001 Plan Shortfall has occurred. The expenses of such independent accountant shall be borne by the Company. The Company will promptly afford to the Investor and its agents, upon request, reasonable access to its books of account, financial and other records, employees and auditors (and furnish financial and other data) to the extent necessary to permit the Investor to determine any matter relating to its rights and obligations hereunder. 13. 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; provided further, that Sections 10 and 11 shall terminate and be of no further force and effect (i) upon the consummation of a Series B Qualified Public Offering in which the offering price per share of Common Stock is equal to or greater than $7.00 per share or (ii) upon a final determination pursuant to Section 12 that there was no 2001 Plan Shortfall. 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 for the maximum period permitted by applicable law. 12 14. 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. 15. 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 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 Series B Preferred Stock, the shares of Common Stock issued upon conversion of the Series A Preferred Stock and Series B Preferred Stock, the Common Stock, the Warrants, 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. 13 16. Notices. All notices and other communications between the parties ------- hereto shall be delivered in the manner set forth in the Investor Rights Agreement. 17. Further Assurances. Subject to the terms and conditions of this ------------------ Agreement, each of the parties hereto will use its best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary or desirable to consummate the transactions contemplated by and to carry out the intent and purpose of this Agreement. Each of the parties hereto agrees to execute and deliver such other documents, certificates, agreements and other writings and to take such other actions as may be necessary or desirable in furtherance of the foregoing. 18. Entire Agreement. This Agreement, along with the Articles of ---------------- Incorporation, the Investor Rights Agreement, the Series A Purchase Agreement, the Series B Purchase Agreement, the Warrants, the redemption agreement dated as of December 28, 1999 among the Company and the Investor, 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. 19. 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. 20. 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. 21. 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. 22. 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 14 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. 23. 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. 24. 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. 25. Captions. Captions are for convenience only and are not deemed to be -------- part of this Agreement. 26. 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 facsimile, with the intention that they shall have the same effect as an original counterpart hereof. 27. 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. 15 IN WITNESS WHEREOF, the parties have caused this 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 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 16 EX-10.23 5 0005.txt AMENDED & RESTATED INVESTOR RIGHTS AGREEMENT Exhibit 10.23 BTI TELECOM CORP. ________________________________________________________________________________ AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT January 12, 2001 ________________________________________________________________________________ BTI TELECOM CORP. AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT THIS AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT (the "Agreement") is entered into as of the 12/th/ day of January 2001, by and among BTI Telecom Corp., a North Carolina corporation (the "Company"), 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 "WCAS Investor") and Peter T. Loftin ("Loftin" and collectively with the WCAS Investor, the "Investor"). Capitalized terms used herein as defined terms and not otherwise defined shall have the meanings set forth in the Series B Preferred Stock Purchase Agreement entered into among the Company and the WCAS Investor or its Related Agreements (as such term is defined in such Series B Preferred Stock Purchase Agreement). WHEREAS, the WCAS Investor previously acquired 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 "Series A Warrant") to purchase up to an aggregate of 4,500,000 shares of Common Stock, no par value per share (the "Common Stock"), of the Company (the "Series A Warrant Stock") pursuant to the terms of a Series A Preferred Stock Purchase Agreement dated as of December 10, 1999 among the Company, FS Multimedia, Inc., a North Carolina corporation, and the WCAS Investor (the "Series A Purchase Agreement"); WHEREAS, in connection with the purchase of Series A Preferred Stock and the Series A Warrant pursuant to the terms of the Series A Purchase Agreement, the WCAS Investor and the Company previously entered into an Investor Rights Agreement dated as of December 28, 1999 (the "Original Agreement"); WHEREAS, pursuant to the terms of Series B Preferred Stock Purchase Agreements dated as of January 12, 2001 (together, the "Series B Purchase Agreement"), Loftin, Welsh, Carson, Anderson & Stowe VIII, L.P. and BTI Investors LLC are acquiring shares of Series B Preferred Stock, par value $.01 per share (the "Series B Preferred Stock"), of the Company and warrants (collectively, the "Series B Warrants" and, together with the Series A Warrant, the "Warrants") to purchase shares of Common Stock (the "Series B Warrant Stock" and, together with the Series A Warrant Stock, the "Warrant Stock"); and WHEREAS, in connection with the execution of the Series B Purchase Agreement, the parties hereto desire to amend and restate the Original Agreement in its entirety, and the parties are willing to execute this Agreement and to be bound by the provisions hereof. 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: "affiliate" shall have the meaning set forth in Section 4.5. "Agreement" shall have the meaning set forth in the recitals hereof. "Business Plan" shall have the meaning set forth in Section 3.1(g). "Commission" shall have the meaning set forth in Section 1.5(b). "Common Stock" shall have the meaning set forth in the recitals hereof. "Company" shall have the meaning set forth in the recitals hereof. "Demand Registration" shall have the meaning set forth in Section 1.2(a). "Fully-Diluted Basis" shall have the meaning set forth in Section 1.13. "GAAP" shall have the meaning set forth in Section 3.1. "Holder" (collectively, "Holders") means the Investor and each of its assignees who is then a record owner of Registrable Securities. "Indemnified Party" shall have the meaning set forth in Section 1.6(c). "Indemnifying Party" shall have the meaning set forth in Section 1.6(c). "Initiating Holder(s)" means the Investor or its assignees (excluding Loftin and his assignees) who in the aggregate are holders of at least a majority of the Registrable Securities held by all Holders (other than Loftin) and their assigns. "Investor" shall have the meaning set forth in the preamble hereof. "Loftin" shall have the meaning set forth in the preamble hereof. 2 "Loftin Holder" means Loftin and each of his assignees who is then a record owner of Series B Preferred Stock. "New Securities" shall have the meaning set forth in Section 2.2. "Original Agreement" shall have the meaning set forth in the recitals hereof. "Outstanding Preferred Stock" means the Series A Preferred Stock and the Series B Preferred Stock. "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. 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. "Registrable Securities" means (i) all shares of Series A Preferred Stock owned by any Holder; (ii) all shares of Series B Preferred Stock owned by any Holder; (iii) all of the shares of Common Stock issued or issuable upon conversion of the shares of Outstanding Preferred Stock owned by any Holder (the "Conversion Shares"); (iv) all other shares of Common Stock now owned or hereafter acquired by any Holder (other than Loftin and his assignees); (v) all shares of Common Stock issuable with respect to the Warrants; and (vi) any Common Stock or other securities issued in respect of the shares described in clauses (i) through (v) upon any stock split, stock dividend, recapitalization or other similar event; provided 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 1.13 hereof. "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. "Series A Preferred Stock" shall have the meaning set forth in the recitals hereof. 3 "Series A Purchase Agreement" shall have the meaning set forth in the recitals hereof. "Series A Warrant" shall have the meaning set forth in the recitals hereof. "Series A Warrant Stock" shall have the meaning set forth in the recitals hereof. "Series B Preferred Stock" shall have the meaning set forth in the recitals hereof. "Series B Purchase Agreement" shall have the meaning set forth in the recitals hereof. "Series B Qualified Public Offering" shall have the meaning set forth in Section 2.5. "Series B Warrants" shall have the meaning set forth in the recitals hereof. "Series B Warrant Stock" shall have the meaning set forth in the recitals hereof. "Warrants" shall have the meaning set forth in the recitals hereof. "Warrant Stock" shall have the meaning set forth in the recitals hereof. "WCAS Holder" means the WCAS Investor and each of its assignees who is then a record owner of Registrable Securities. "WCAS Investor" shall have the meaning set forth in the recitals hereof. 1.2 Demand Registrations. -------------------- (a) Demand for Registration. If the Company shall receive from the ----------------------- 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; 4 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, (x) on Form S-1 or any successor form of registration statement, after the Company has effected two (2) such registrations on such form pursuant to this Section 1.2 and all of the Registrable Securities included in each such registration have been sold; and (y) on Form S-2, Form S-3 or any successor forms of registration statement, after the Company has effected two (2) such registrations on any such form pursuant to this Section 1.2 and all of the Registrable Securities included in each 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 that the Company shall not use this right more than once in any 12-month period; or (C) Prior to June 30, 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. (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 5 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 1.11 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 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(s) 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 6 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. 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 7 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 that such underwriting agreement contains customary underwriting provisions and is entered into by the Holders including Registrable Securities in such offering; (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 8 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. 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 9 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 furnished to the Company by such Holder and stated to be specifically for use therein; provided 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 10 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 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 11 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 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 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 (e). 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 12 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 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; (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. 1.10 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. 1.11 "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 13 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 1.11 above, in each case including a sale pursuant to Rule 144 (except as part of any such registration, if permitted). 1.12 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. 1.13 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 (calculated after giving effect to the conversion, exercise or exchange of all equity securities that are then convertible, exercisable or exchangeable into Common Stock ("Fully-Diluted Basis")). ARTICLE II PREEMPTIVE RIGHTS ----------------- 2.1 Right of Purchase. The Company hereby grants to (i) each WCAS Holder, ----------------- so long as it shall own, of record or beneficially, any shares of Series A Preferred Stock, Series B Preferred Stock or Common Stock, and (ii) each Loftin Holder, so long as it shall own, of record or beneficially, any shares of Series B Preferred Stock, the right to purchase all or part of its pro rata share (as calculated below) of New Securities (as defined in Section 2.2 below) which the Company, from time to time, proposes to sell and issue. A WCAS 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 WCAS 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). A Loftin Holder's pro rata share, for purposes of this preemptive right, is the fraction, the numerator of which is the number of 14 shares of Common Stock which are issuable upon conversion of the Series B Preferred Stock which such Loftin 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 WCAS Holder shall have a right of over-allotment pursuant to this Article II such that to the extent a WCAS Holder does not exercise its preemptive right in full hereunder, such additional shares of New Securities which such WCAS Holder did not purchase may be purchased by such other WCAS Holders in proportion to the total number of shares of New Securities which each such other WCAS Holder elected to purchase compared to the total number of shares of New Securities which all such other WCAS Holders elected to purchase. Each Loftin Holder shall have a right of over-allotment pursuant to this Article II such that to the extent a Loftin Holder does not exercise its preemptive right in full hereunder, such additional shares of New Securities which such Loftin Holder did not purchase may be purchased by such other Loftin Holders in proportion to the total number of shares of New Securities which each such other Loftin Holder elected to purchase compared to the total number of shares of New Securities which all such other Loftin 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; (ii) Warrant Stock; (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) Series A Preferred Stock or Series B Preferred Stock issued as a dividend to holders of such Preferred Stock or upon any stock split, subdivision or combination of any such 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 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; (viii) blank check preferred stock issued to the Company's shareholders (including a pro rata issuance to the holders of Outstanding Preferred Stock), in connection with a rights plan, in accordance with the Company's Second Amended and Restated 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 (as calculated pursuant to Section 2.1 above) of such New Securities for the price and upon the terms specified in the notice 15 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 such other WCAS Holders or Loftin Holders, as applicable, 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 such 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 such 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 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 than those set forth in such written agreements (and with the same purchaser or purchasers), 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. 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 Series A Qualified Public Offering (as defined in the Company's Second Amended and Restated Articles of Incorporation). 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 1.13, unless the failure to comply with any such covenant is waived by the Holders pursuant to the terms hereof. 16 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. (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. 17 (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, Series A Preferred Stock, Series B Preferred 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 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 18 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 of the shares owned by the transferor. 3.5 Confidentiality. The Company hereby agrees that the identity of the --------------- WCAS Investor as a stockholder of the Company, and the terms and conditions of the WCAS 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 WCAS Investor or any subsidiaries or affiliates of the WCAS Investor shall be made by the Company or its affiliates, in each case without the prior written consent of the WCAS Investor, except as may be required by applicable law, rule or regulation. ARTICLE IV MISCELLANEOUS ------------- 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 that the Company may not transfer or assign its obligations hereunder. 4.3 Entire Agreement. This Agreement, along with the Company's Second ---------------- Amended and Restated Articles of Incorporation, the Series A Purchase Agreement, the Series B Purchase Agreement, the Warrants, the Shareholders Agreement, the redemption agreement dated as of December 28, 1999 between the Company and the WCAS Investor 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. 19 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 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; provided that the Company shall not be deemed an affiliate of any 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 Conversion Shares and Warrant Stock (voting together as a single 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 20 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: 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 WCAS 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 Loftin: Peter Loftin c/o BTI Telecom Corp. 4300 Six Forks Road Raleigh, NC 27609 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 facsimile, with the intention that they shall have the same effect as an original counterpart hereof. 21 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] 22 IN WITNESS WHEREOF, this 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 23 /s/ Peter T. Loftin ------------------------------------------ Peter T. Loftin 24 EX-10.29 6 0006.txt SERIES B PREFERRED STOCK PURCHASE AGREEMENT Exhibit 10.29 BTI TELECOM CORP. ___________________________________________ SERIES B PREFERRED STOCK PURCHASE AGREEMENT January 12, 2001 ___________________________________________ BTI TELECOM CORP. SERIES B PREFERRED STOCK PURCHASE AGREEMENT January 12, 2001 TABLE OF CONTENTS ----------------- ARTICLE I PURCHASE AND SALE OF SHARES................................. 1 1.1 Purchase and Sale of Series B Preferred Stock at the Closings... 1 1.2 Series B Warrants............................................... 2 1.3 The Series B Conversion Shares.................................. 2 1.4 Closings; Delivery.............................................. 2 1.5 Use of Proceeds................................................. 3 ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY............... 3 2.1 Organization and Corporate Power................................ 3 2.2 Authorization................................................... 4 2.3 Government Approvals............................................ 4 2.4 Authorized and Outstanding Stock................................ 5 2.5 Charter Documents............................................... 6 2.6 Subsidiaries.................................................... 6 2.7 Financial Information........................................... 6 2.8 Events Subsequent to the Date of the Financial Statements....... 7 2.9 SEC Filings..................................................... 8 2.10 Litigation...................................................... 8 2.11 Compliance with Laws and Other Instruments...................... 9 2.12 Taxes........................................................... 9 2.13 Real Property................................................... 10 2.14 Title to Properties and Assets.................................. 11 2.15 Intellectual Property........................................... 11 2.16 Agreements of Directors, Officers and Employees................. 11 2.17 Governmental and Industrial Approvals........................... 12 2.18 Federal Reserve Regulations..................................... 12 2.19 Contracts and Commitments....................................... 12 2.20 Securities Act.................................................. 14 2.21 Registration Rights............................................. 14 2.22 Insurance Coverage.............................................. 14 2.23 Employee Matters................................................ 14 2.24 No Brokers or Finders........................................... 15 2.25 Transactions with Affiliates.................................... 15 2.26 Assumptions, Guarantees, etc. of Indebtedness of Other Persons.. 15 2.27 Disclosures..................................................... 15 2.28 Environmental and Safety Laws................................... 16 2.29 Investment Company Act.......................................... 16 ARTICLE III INVESTMENT REPRESENTATIONS................................... 17 3.1 Representations and Warranties.................................. 17 3.2 Permitted Sales................................................. 18 ARTICLE IV COVENANTS OF THE COMPANY.................................... 18
i 4.1 Conduct of Business.............................................................................. 18 4.2 Access to Information............................................................................ 18 4.3 Notice of Certain events......................................................................... 19 4.4 Approvals........................................................................................ 19 4.5 U.S. Real Property Holding Corporation Status.................................................... 19 ARTICLE V COVENANTS OF THE COMPANY AND THE PURCHASER..................................................... 20 5.1 Further Assurances............................................................................... 20 5.2 Tax Consistency.................................................................................. 20 5.3 Waiver of Certain Adjustments; Consents.......................................................... 20 ARTICLE VI CONDITIONS OF OBLIGATIONS OF THE PURCHASER AND THE COMPANY..................................... 21 ARTICLE VII CONDITIONS OF PURCHASERS' OBLIGATION........................................................... 21 7.1 Conditions to the First Closing.................................................................. 21 7.2 Conditions to the Second Closing................................................................. 23 ARTICLE VIII CONDITIONS OF THE COMPANY'S OBLIGATION......................................................... 25 8.1 Effect of Conditions............................................................................. 25 8.2 Representations and Warranties................................................................... 25 8.3 Performance...................................................................................... 25 8.4 Shareholders Agreement........................................................................... 25 8.5 Redemption Agreement............................................................................. 25 8.6 Investor Rights Agreement........................................................................ 26 ARTICLE IX CERTAIN DEFINITIONS............................................................................ 26 ARTICLE X MISCELLANEOUS.................................................................................. 29 10.1 Survival of Representations...................................................................... 29 10.2 Indemnification.................................................................................. 29 10.3 Termination...................................................................................... 30 10.4 Parties in Interest.............................................................................. 31 10.5 Amendments and Waivers........................................................................... 31 10.6 Notices.......................................................................................... 31 10.7 Counterparts..................................................................................... 32 10.8 Effect of Headings............................................................................... 32 10.9 Severability..................................................................................... 32 10.10 Specific Enforcement............................................................................. 32 10.11 Governing Law.................................................................................... 33 10.12 Public Announcements............................................................................. 33 10.13 No Third Party Beneficiaries..................................................................... 33 10.14 Expenses......................................................................................... 33
SCHEDULES - --------- EXHIBITS - -------- A Second Amended and Restated Articles of Incorporation B First Closing Series B Warrant C Second Closing Series B Warrant D Opinion of Company Counsel E Opinion of Regulatory Counsel F Amended and Restated Shareholders Agreement G Series B Redemption Agreement H Amended and Restated Investor Rights Agreement I Loftin Purchase Agreement iii BTI TELECOM CORP. SERIES B PREFERRED STOCK PURCHASE AGREEMENT THIS SERIES B PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is entered into as of the 12/th/ day of January 2001 by and among BTI Telecom Corp., a North Carolina corporation (the "Company"), Welsh, Carson, Anderson & Stowe VIII, L.P., a Delaware limited partnership, and BTI Investors LLC, a Delaware limited liability company (together, the "Purchaser"), and WCAS Information Partners, L.P., a Delaware limited partnership ("Info Partners" and, collectively with the Purchaser, the "WCAS Purchaser"). WHEREAS, the WCAS Purchaser previously acquired 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 "Series A Warrant") to purchase up to an aggregate of 4,500,000 shares of Common Stock, no par value per share (the "Common Stock"), of the Company; WHEREAS, the Company desires to enter into this agreement with the WCAS Purchaser to raise additional capital through the sale and issuance to the Purchaser of shares of its Series B Preferred Stock, par value $.01 per share (the "Series B Preferred Stock"); and WHEREAS, the parties hereto desire to enter into this agreement to enable the Purchaser to acquire shares of Series B Preferred Stock and the Series B Warrants (defined below) 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 B Preferred Stock at each Closing. (a) ------------------------------------------------------------- At the First Closing (as herein defined), the Company will sell to the Purchaser, and the Purchaser agrees to purchase, an aggregate of Ten Thousand (10,000) shares of the Series B Preferred Stock (the "First Closing Purchased Shares") at a price of One Thousand Dollars ($1,000.00) per share, for an aggregate purchase price of Ten Million Dollars ($10,000,000) (the "First Closing Purchase Price") payable as provided in Section 1.4(a). (b) At the Second Closing (as herein defined), the Company will sell to the Purchaser, and the Purchaser agrees to purchase, an aggregate of Forty Thousand (40,000) shares of the Series B Preferred Stock (the "Second Closing Purchased Shares") at a price of One Thousand Dollars ($1,000.00) per share, for an aggregate purchase price of Forty Million Dollars ($40,000,000) (the "Second Closing Purchase Price") payable as provided in Section 1.4(b). (c) The Series B Preferred Stock shall have the rights, terms and privileges set forth in the Company's Second Amended and Restated Articles of Incorporation, a copy of which is attached hereto as Exhibit A (the "Articles"). --------- The Purchased Shares and the Series B Warrants shall be allocated between the Purchaser as set forth on Schedule 1.1. ------------ 1.2 Series B Warrants. (a) In addition to the First Closing Purchased ----------------- Shares, at the First Closing the Company shall, subject to the terms and conditions contained therein, issue to Purchaser one or more warrants in the form of Exhibit B attached hereto (collectively, the "First Closing Series B --------- Warrant") to purchase up to an aggregate of Two Million One Hundred Thousand (2,100,000) shares of the Common Stock at an initial exercise price per share of One Cent ($0.01); the shares of Common Stock issued or issuable upon the exercise or exchange of the First Closing Series B Warrant are referred to herein as the "First Closing Warrant Shares". (b) In addition to the Second Closing Purchased Shares, at the Second Closing the Company shall, subject to the terms and conditions contained therein, issue to Purchaser one or more warrants in the form of Exhibit C --------- attached hereto (collectively, the "Second Closing Series B Warrant", and together with the First Closing Series B Warrant, the "Series B Warrants") to purchase up to an aggregate of Eight Million Four Hundred Thousand (8,400,000) shares of the Common Stock at an initial exercise price per share of One Cent ($0.01); the shares of Common Stock issued or issuable upon the exercise or exchange of the Second Closing Series B Warrant are referred to herein as the "Second Closing Warrant Shares". 1.3 The Series B 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 to satisfy the rights of conversion of the holders of the Purchased Shares and the rights of exercise or exchange of the holders of the Series B Warrants. 1.4 Closings; Delivery. ------------------ (a) First Closing. The purchase of the First Closing Purchased Shares ------------- by the Purchaser and the issuance to the Purchaser of the First Closing Series B Warrant shall be made at a closing (the "First 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 and VIII and Section 7.1 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 First Closing Purchase Price, or at such other time and on such other date as the Purchaser and the Company may mutually agree. Subject to the satisfaction or waiver of the conditions set forth in Articles VI and VIII and Section 7.1, Purchaser shall pay the First Closing Purchase Price at the First Closing, which payment shall be by check or wire transfer of immediately available federal funds. At the First Closing, the Company will deliver to the Purchaser one or more certificates representing the 2 First Closing Purchased Shares purchased by such Purchaser and the First Closing Series B Warrant. (b) Second Closing. The purchase of the Second Closing Purchased -------------- Shares by the Purchaser and the issuance to the Purchaser of the Second Closing Series B Warrant shall be made at a closing (the "Second 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 and VIII and Section 7.2 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 Second Closing Purchase Price, or at such other time and on such other date as the Purchaser and the Company may mutually agree. Subject to the satisfaction or waiver of the conditions set forth in Articles VI and VIII and Section 7.2, Purchaser shall pay the Second Closing Purchase Price at the Second Closing, which payment shall be by check or wire transfer of immediately available federal funds. At the Second Closing, the Company will deliver to the Purchaser one or more certificates representing the Second Closing Purchased Shares purchased by such Purchaser and the Second Closing Series B Warrant. 1.5 Use of Proceeds. (a) The Company shall use the proceeds received --------------- upon the sale of the First Closing Purchased Shares at the First Closing immediately to pay off existing vendor obligations, for general working capital purposes and capital expenditures and to pay fees, costs and expenses incurred by the Company in connection with the transactions contemplated by this Agreement. (b) The Company shall use the proceeds received upon the sale of the Second Closing Purchased Shares at the Second Closing (i) to further build and enhance its telecommunications network, (ii) to expand its infrastructure and marketing resources, (iii) to make acquisitions, (iv) to pay interest expense related to existing indebtedness in accordance with scheduled payment dates, (v) for other general corporate purposes and (vi) to pay fees, costs and expenses incurred by the Company in connection with the transactions contemplated by this Agreement. ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY --------------------------------------------- In order to induce the Purchaser to purchase the Purchased Shares and the Series B Warrants, the Company makes the following representations and warranties as of the date hereof and as of the date of each 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 3 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 Amended and Restated Shareholders Agreement, a copy of which is attached hereto as Exhibit F (the "Shareholders Agreement"), the Series B Redemption Agreement, --------- a copy of which is attached hereto as Exhibit G (the "Redemption Agreement"), --------- the Amended and Restated Investor Rights Agreement, a copy of which is attached hereto as Exhibit H (the "Investor Rights Agreement"), 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 Series B Warrants and the Series B Underlying Shares. Except as set forth on Schedule 2.2, the ------------ issuance of the Purchased Shares and the Series B Warrants does not, and the issuance of the Series B 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 this Agreement and the Related Agreements by the Purchaser, this Agreement constitutes, and, when executed and delivered in accordance with this Agreement, the Related Agreements and the other agreements and instruments executed by the Company in connection herewith or therewith will 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 4 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 Series B Warrants or the Series B Underlying Shares. The failure of the Company to obtain the approvals set forth on Schedule VI would not have a Material Adverse Effect. ----------- 2.4 Authorized and Outstanding Stock. As of the date hereof, the date of -------------------------------- the First Closing or the date of the Second Closing, as the case may be, the authorized capital stock of the Company consists of (i) 500,000,000 shares of Common Stock (the number of validly issued and outstanding shares of Common Stock, as well as the record and beneficial owners of such shares, are 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 Series A Warrant; 15,000,000 shares have been reserved for issuance upon conversion of Series B Preferred Stock; 18,600,000 shares have been reserved for issuance upon exercise or exchange of the Series B Warrants; and 7,500,000 shares have been reserved for issuance pursuant to the Company's 1997 Stock Plan, under which 19,375 shares of Common Stock have been issued upon the exercise or exchange of options (options to purchase 3,848,583 shares of Common Stock were issued and outstanding as of October 31, 2000, and options to purchase 3,632,042 shares of Common Stock remain available for future issuance as of October 31, 2000); and (ii) 10,000,000 shares of Preferred Stock, of which 200,000 shares are designated "Series A Preferred Stock," all of which shares are validly issued and outstanding and held of record and owned beneficially as set forth in Schedule 2.4 attached hereto, and 60,000 shares are designated "Series B - ------------ Preferred Stock," none of which are issued and outstanding prior to the First Closing (the number of shares of Series B Preferred Stock which are validly issued and outstanding immediately prior to the Second Closing, as well as the record and beneficial owners of such shares, shall be as set forth in Schedule -------- 2.4 attached hereto). 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 Series B Warrants and all Series B 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 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 5 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. With respect to each outstanding warrant or option to acquire securities of the Company, Schedule 2.4 sets forth the applicable holder, ------------ exercise price, vesting provisions and number of underlying securities; provided, that such information with respect to options shall only be as of October 31, 2000. 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. Except as set forth on Schedule -------- 2.6, 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, 1997, 1998 and 1999 and the related audited consolidated statements of operations, shareholders' equity and cash flows for each of the years ended December 31, 1997, 1998 and 1999 and (ii) the unaudited consolidated balance sheet of the Company and its Subsidiaries as of September 30, 2000, 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 ("GAAP") applied on a basis consistent with prior periods, the consolidated financial condition 6 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, 1999. Since December 31, 1999, (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, 1999, 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, 1999 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. 7 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, 1998 and 1999, (ii) its quarterly reports on Form 10-Q for its fiscal quarters ended after December 31, 1999 and (iii) all of its other reports, statements, schedules and registration statements filed with the Securities and Exchange Commission (the "SEC") since December 31, 1999 (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 circumstances 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 Series B Warrants or the Series B 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 the 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. 8 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 Series B Warrants or the Series B 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. (a) 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, 1997 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 income, franchise, property, sales, use, gross receipts, 9 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. (b) 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. (c) If, as of the date of each Closing, the WCAS Purchaser were to acquire the Purchased Shares and exercise the Series B Warrants and the Series A Warrant in full (assuming the Series B Warrants and the Series A 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) (a "Parachute Payment"). The Company has no present plan or intention to make any payment or take any action that would give rise to a Parachute Payment. 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 10 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 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. Except as set forth ----------------------------------------------- in Schedule 2.16, 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. 11 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 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 each 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; 12 (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; (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 (as defined below) 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 (or made available to the Purchaser in connection with the purchase of the Series A Preferred Stock). None of the Company or any of its Subsidiaries, or, to the Company's knowledge, any other party to a Company Contract, 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. 13 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 Series B Warrants, the issuance of the Series B Conversion Shares upon conversion of the Purchased Shares and the issuance of the Series B Warrant Shares upon exercise of the Series B Warrants. 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. 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. Except as set forth on Schedule 2.23, 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. 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 14 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 Security Act of 1974, as amended ("ERISA"), and 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 Disclosures. Neither this Agreement, any Schedule or Exhibit to this ----------- Agreement, the Related Agreements, the Financial Statements, nor any other agreement, document or written 15 statement made by the Company and furnished by the Company to the Purchaser or counsel to 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. 2.28 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. 2.29 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. 16 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, Series B Conversion Shares, the Series B Warrants or the Series B 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; (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 17 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. 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 ------------------- Second 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 Second 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 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 hereunder inaccurate in any respect at, or as of any time prior to, the date of the Second 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 18 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 First 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 the Second 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 2.27 or that relate to the consummation of the transactions contemplated by this Agreement and the Related Agreements; (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 Company and its Subsidiaries or the consummation of the transactions contemplated by this Agreement and the Related Agreements; and (e) any inquiry, offer or proposal, whether written or oral, (i) received by the Company regarding a possible investment in, purchase of or other business combination involving the Company or any of its Subsidiaries or (ii) received or made by or on behalf of the Company regarding a possible sale or purchase of assets or a business by the Company or any of its Subsidiaries, in each case for consideration in excess of $25 million. 4.4 Approvals. The Company shall use all reasonable efforts to obtain the --------- approvals set forth on Schedule VI as soon as practicable after the First ----------- Closing. 4.5 U.S. Real Property Holding Corporation Status. The Company shall not, --------------------------------------------- and shall cause its Subsidiaries not to, take any action that would, or omit to take any action, the omission of which would, result in it becoming a "United States Real Property Holding 19 Corporation" as defined in Section 897(c)(2) of the Code and Treasury Regulation Section 1.897-2(b). 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 B 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. 5.3 Waiver of Certain Adjustments; Consent. (a) The WCAS Purchaser -------------------------------------- hereby waives any adjustments to the Series A Conversion Value (as defined in the Company's Amended and Restated Articles of Incorporation) that would have otherwise occurred pursuant to Section 4(d) of the Company's Amended and Restated Articles of Incorporation as a result of, and hereby consents to, the issuance of the First Closing Purchased Shares, the First Closing Series B Warrant and the Loftin Securities (as defined below). (b) The WCAS Purchaser hereby waives any adjustments to the Series A Conversion Value or the Series B Conversion Value (each, as defined in the Articles) that would have otherwise occurred pursuant to Section 4(d) of the Articles as a result of, and hereby consents to, the issuance of the Second Closing Purchased Shares and the Second Closing Series B Warrant. (c) The WCAS Purchaser hereby waives any adjustment to the exercise price or number of shares of stock issuable upon exercise of the Series A Warrant that would have otherwise occurred pursuant to the terms of the Series A Warrant as a result of the issuance of the First Closing Purchased Shares, the Second Closing Purchased Shares, the Series B Warrants and the Loftin Securities. 20 ARTICLE VI CONDITIONS TO OBLIGATIONS OF THE PURCHASER AND THE COMPANY ---------------------------------------------------------- The obligations of the Purchaser and the Company to consummate each 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 by the applicable Closing shall have expired or been terminated; and (ii) No provision of any applicable law or regulations and no judgment, injunction, order or decree shall prohibit the consummation of the applicable Closing. ARTICLE VII CONDITIONS OF PURCHASER'S OBLIGATION ------------------------------------ 7.1 Conditions to the First Closing. ------------------------------- (a) Effect of Conditions. The obligations of the Purchaser to -------------------- purchase and pay for the First Closing Purchased Shares at the First Closing hereunder shall be subject at its election to the satisfaction of each of the conditions stated in the following paragraphs of this Section 7.1. (b) Representations and Warranties. The representations and ------------------------------ warranties of the Company contained in this Agreement shall be true and correct on the date of the First Closing with the same effect as though made on and as of that date, and the Purchaser shall have received a certificate dated as of the First Closing and signed by the Company's President on behalf of the Company to that effect. (c) 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 First Closing, and the Purchaser shall have received a certificate dated as of the First Closing and signed by the Company's President on behalf of the Company to that effect. (d) Opinions of Counsel. The Purchaser shall have received opinions, ------------------- dated the date of the First Closing, from (i) Wyrick Robbins Yates & Ponton LLP, corporate counsel to the Company, in the form attached as Exhibit D, and (ii) --------- Swidler, Berlin, Shereff & Friedman, LLP, regulatory counsel to the Company, in the form attached as Exhibit E. --------- 21 (e) Compliance Certificate. Counsel for the Purchaser shall have ---------------------- received a certificate, dated as of the First Closing, signed by the Company's President certifying that the conditions specified in this Section 7.1 have been fulfilled. (f) 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 First Closing. (g) Certified Charter Documents. Counsel for the Purchaser shall --------------------------- have received a copy of the Articles, 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. (h) No Material Adverse Change. Since the date of this Agreement, -------------------------- (i) there shall have been no Material Adverse Effect, (ii) there shall have been no material adverse change in the capital markets for the equity or debt securities of comparable companies and (iii) 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. (i) Shareholders Agreement. The Shareholders Agreement shall have ---------------------- been executed by the Company and the shareholders of the Company named therein. (j) Redemption Agreement. The Redemption Agreement shall have been -------------------- executed by the Company. (k) Investor Rights Agreement. The Investor Rights Agreement shall ------------------------- have been executed by the Company. (l) 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 7.1(l), in form and - ----------- --------------- substance satisfactory to the Purchaser, necessary to execute this Agreement and the other agreements and documents contemplated herein, to issue the First Closing Purchased Shares, the First Closing Conversion Shares, the First Closing Series B Warrant and the First Closing 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 First Closing Purchased Shares, the First Closing Conversion Shares, the First Closing Series B Warrant, the First Closing Warrant Shares, and other agreements and instruments executed and delivered by the Company in connection herewith shall have been made or taken. (m) Proceedings and Documents. All corporate and other proceedings ------------------------- in connection with the transactions contemplated at the First Closing and all documents incidental 22 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. (n) Budget Approval. The Purchaser shall have approved the Company's --------------- annual budget for the fiscal year 2001. (o) Loftin Investment. Concurrently with the First Closing, Peter ----------------- Loftin shall purchase Nine Thousand Nine Hundred Ninety-Nine (9,999) shares of Series B Preferred Stock and a First Closing Series B Warrant to purchase up to an aggregate of Two Million One Hundred Thousand (2,100,000) shares of the Common Stock at an initial exercise price per share of One Cent ($0.01) in cash pursuant to the terms of a purchase agreement in the form attached as Exhibit I. -------- The shares of Series B Preferred Stock and the First Closing Series B Warrant issued to Peter Loftin pursuant to such purchase agreement are referred to collectively herein as the "Loftin Securities". (p) Use of Proceeds. Concurrently with the First Closing, the --------------- Company shall use the proceeds of the First Closing Purchased Shares to pay off existing vendor obligations and for general working capital purposes and capital expenditures. (q) Extension of Waivers. The lenders under (i) the Second Amended -------------------- and Restated Loan Agreement dated as of September 22, 1997 between Business Telecom, Inc. and General Electric Capital Corporation and the other lenders party thereto, as amended (the "GECC Agreement"), and (ii) the Loan Agreement dated as of September 8, 1999 among Business Telecom, Inc. and Bank of America, National Association, and the other lenders party thereto, as amended (the "BofA Agreement" and, together with the GECC Agreement, the "Senior Debt Agreements"), have agreed to extend until at least March 13, 2001 the waivers and forbearances granted by such lenders under the Senior Debt Agreements. 7.2 Conditions to the Second Closing. -------------------------------- (a) Effect of Conditions. The obligations of the Purchaser to -------------------- purchase and pay for the Second Closing Purchased Shares at the Second Closing hereunder shall be subject at its election to the satisfaction of each of the conditions stated in the following paragraphs of this Section 7.2. (b) Representations and Warranties. The representations and ------------------------------ warranties of the Company contained in this Agreement shall be true and correct on the date of the Second Closing with the same effect as though made on and as of that date, and the Purchaser shall have received a certificate dated as of the Second Closing and signed by the Company's President on behalf of the Company to that effect. (c) 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 Second Closing, and the Purchaser shall have received a certificate dated as of the Second Closing and signed by the Company's President on behalf of the Company to that effect. 23 (d) Opinions of Counsel. The Purchaser shall have received opinions, ------------------- dated the date of the Second Closing, from (i) Wyrick Robbins Yates & Ponton LLP, corporate counsel to the Company, in the form attached as Exhibit D, and --------- (ii) Swidler, Berlin, Shereff & Friedman, LLP, regulatory counsel to the Company, in the form attached as Exhibit E. --------- (e) Compliance Certificate. Counsel for the Purchaser shall have ---------------------- received a certificate, dated as of the Second Closing, signed by the Company's President certifying that the conditions specified in this Section 7.2 have been fulfilled. (f) Amended and Restated Articles of Incorporation and Bylaws. The --------------------------------------------------------- Articles, together with the Company's Amended and Restated Bylaws shall be in full force and effect as of the Second Closing. (g) Certified Charter Documents. Counsel for the Purchaser shall --------------------------- have received a copy of the Articles, 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. (h) Bank Financing. The Company shall have entered into definitive -------------- documentation, the terms of which shall be reasonably satisfactory to the Purchaser, for $135 million principal amount of senior bank financing for purposes of refinancing existing senior indebtedness under the Senior Debt Agreements and for general corporate purposes. (i) No Material Adverse Change. Since the date of this Agreement, -------------------------- (i) there shall have been no Material Adverse Effect, (ii) there shall have been no material adverse change in the capital markets for the equity or debt securities of comparable companies and (iii) 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. (j) Shareholders Agreement. The Shareholders Agreement shall be in ---------------------- full force and effect. (k) Redemption Agreement. The Redemption Agreement shall be in full -------------------- force and effect. (l) Investor Rights Agreement. The Investor Rights Agreement shall ------------------------- be in full force and effect. (m) 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 7.2(m), in form and - ----------- --------------- substance satisfactory to the Purchaser, necessary to execute this Agreement and the other agreements and documents contemplated herein, to issue the Second Closing Purchased Shares, the Second Closing Conversion Shares, the Second Closing Series B 24 Warrant and the Second Closing 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 Second Closing Purchased Shares, the Second Closing Conversion Shares, the Second Closing Series B Warrant, the Second Closing Warrant Shares, and other agreements and instruments executed and delivered by the Company in connection herewith shall have been made or taken. (n) Proceedings and Documents. All corporate and other proceedings ------------------------- in connection with the transactions contemplated at the Second 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. (o) Due Diligence. The Purchaser shall have completed, to its ------------- satisfaction, its due diligence investigation with respect to the Company. (p) Peter Loftin's Compensation. The parties to the Shareholders --------------------------- Agreement shall have agreed upon the compensation package payable to Peter T. Loftin following the appointment of a replacement chief executive officer of the Company in accordance with Section 9 of the Shareholders Agreement. (q) Deadline. The Second Closing shall have occurred on or prior to -------- March 13, 2001. ARTICLE VIII CONDITIONS OF THE COMPANY'S OBLIGATION -------------------------------------- 8.1 Effect of Conditions. The Company's obligation to sell Purchased -------------------- Shares at each Closing 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 applicable 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 applicable Closing. 8.4 Shareholders Agreement. The Shareholders Agreement shall have been ---------------------- executed by the Purchaser and the shareholders of the Company named therein. 8.5 Redemption Agreement. The Redemption Agreement shall have been -------------------- executed by the Purchaser. 25 8.6 Investor Rights Agreement. The Investor Rights Agreement 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 B Preferred Stock Purchase Agreement as from time to time amended and in effect between the parties. "Articles" shall have the meaning set forth in Section 1.1(c). "BofA Agreement" shall have the meaning set forth in Section 7.1(q). "Closing" means each of the First Closing and the Second Closing. "Code" means the Internal Revenue Code of 1986, as amended, and any successor statute. "Common Stock" shall have the meaning set forth in the recitals hereof. "Company" shall have the meaning set forth in the preamble hereof. "Company Contract" shall have the meaning set forth in Section 2.19. "Damages" shall have the meaning set forth in Section 10.2(a). "Environmental and Health Laws" shall have the meaning set forth in Section 2.28. "ERISA" shall have the meaning set forth in Section 2.23. "Exchange Act" shall have the meaning set forth in Section 2.9. "final determination" shall have the meaning set forth in Section 10.2(b). "Financial Statements" shall have the meaning set forth in Section 2.7. "First Closing" shall have the meaning set forth in Section 1.4(a). "First Closing Conversion Shares" means the shares of Common Stock issued or issuable upon conversion of the First Closing Purchased Shares. 26 "First Closing Purchased Shares" shall have the meaning set forth in Section 1.1(a). "First Closing Purchase Price" shall have the meaning set forth in Section 1.1(a). "First Closing Series B Warrant" shall have the meaning set forth in Section 1.2(a). "First Closing Warrant Shares" shall have the meaning set forth in Section 1.2(a). "GAAP" shall have the meaning set forth in Section 2.7. "GECC Agreement" shall have the meaning set forth in Section 7.1(q). "Info Partners" shall have the meaning set forth in the preamble hereof. "Intellectual Property" shall have the meaning set forth in Section 2.15. "Investor Rights Agreement" shall have the meaning set forth in Section 2.2. "Liens" shall have the meaning set forth in Section 2.4. "Loftin Securities" shall have the meaning set forth in Section 7.1(o). "Material Adverse Effect" shall have the meaning set forth in Section 2.1. "Parachute Payment" shall have the meaning set forth in Section 2.12(c). "Person" means an individual, corporation, partnership, joint venture, trust or unincorporated organization or a government or agency or political subdivision thereof. "Plans" shall have the meaning set forth in Section 2.23. "Purchase Price" means the First Closing Purchase Price and the Second Closing Purchase Price. "Purchased Shares" means the First Closing Purchased Shares and the Second Closing Purchased Shares. "Purchaser" shall have the meaning set forth in the preamble hereof. "Redemption Agreement" shall have the meaning set forth in Section 2.2. "Related Agreements" shall have the meaning set forth in Section 2.2. "SEC" shall have the meaning set forth in Section 2.9. "SEC Documents" shall have the meaning set forth in Section 2.9. "Second Closing" shall have the meaning set forth in Section 1.4(b). 27 "Second Closing Conversion Shares" means the shares of Common Stock issued or issuable upon conversion of the Second Closing Purchased Shares. "Second Closing Purchased Shares" shall have the meaning set forth in Section 1.1(b). "Second Closing Purchase Price" shall have the meaning set forth in Section 1.1(b). "Second Closing Series B Warrant" shall have the meaning set forth in Section 1.2(b). "Second Closing Warrant Shares" shall have the meaning set forth in Section 1.2(b). "Senior Debt Agreements" shall have the meaning set forth in Section 7.1(q). "Series A Preferred Stock" shall have the meaning set forth in the recitals hereof. "Series A Warrant" shall have the meaning set forth in the recitals hereof. "Series B Conversion Shares" means the First Closing Conversion Shares and the Second Closing Conversion Shares. "Series B Preferred Stock" shall have the meaning set forth in the recitals hereof. "Series B Underlying Shares" means the Series B Conversion Shares and Series B Warrant Shares. "Series B Warrants" shall have the meaning set forth in Section 1.2(b). "Series B Warrant Shares" means the First Closing Warrant Shares and the Second Closing Warrant Shares. "Shareholders Agreement" shall have the meaning set forth in Section 2.2. "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. "tax" shall have the meaning set forth in Section 2.12. "Threshold Amount" shall have the meaning set forth in Section 10.2(a). "WCAS Purchaser" shall have the meaning set forth in the preamble hereof. 28 ARTICLE X MISCELLANEOUS ------------- 10.1 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 each 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 each Closing for a period of eighteen months, with the exception of Sections 2.23 and 2.28, which shall survive the execution and delivery hereof and each Closing 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. 10.2 Indemnification. --------------- (a) The Company shall indemnify and hold harmless (on an after-tax basis, if applicable, as set forth in Section 10.2(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 10.2 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 $375,000 (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 $17,500,000, 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 $50,000,000. (b) Any amount paid by the Company under this Section 10.2 will be treated as an adjustment to the Purchase Price unless a final determination causes any such 29 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 10.2 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 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. 10.3 Termination. (a) This Agreement may be terminated at any time: ----------- (i) prior to either Closing, by mutual written agreement of the Company and the Purchaser; (ii) by either the Company or the Purchaser if the First Closing shall not have been consummated on or before January 12, 2001; (iii) by either the Company or the Purchaser if the Second Closing shall not have been consummated on or before March 15, 2001; or (iv) prior to either Closing, by either the Company or the Purchaser if there shall be any law or regulation that makes 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. 30 (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. 10.4 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 Series B Conversion Shares or the Series B Warrants or any Series B 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 10.5 hereof. 10.5 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 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 among them as to such subject matter. 10.6 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: 31 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 10.7 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 facsimile, with the intention that they shall have the same effect as an original counterpart hereof. 10.8 Effect of Headings. The article and section headings herein are for ------------------ convenience only and shall not affect the construction hereof. 10.9 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. 10.10 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. 32 10.11 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. 10.12 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. 10.13 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. 10.14 Expenses. The Company agrees to pay all reasonable expenses of the -------- Purchaser (which are currently estimated at $600,000) incurred in connection with each closing of the transactions contemplated hereby; provided that the Company shall not be obligated to pay any such expenses unless and until the First Closing occurs (unless such closing does not occur due to the Company's breach). 33 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. BTI TELECOM CORP. By: /s/ Peter T. Loftin --------------------------------------- Name: Peter T. Loftin Title: Chief Executive Officer 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 SCHEDULE 1.1 ------------ PURCHASER ALLOCATION
FIRST CLOSING Series B Series B Warrant Purchaser Preferred Stock Shares - --------- ------------------- -------------------- Welsh, Carson, Anderson & Stowe VIII, L.P. 9,524 2,000,040 BTI Investors LLC 476 99,960
SECOND CLOSING Series B Series B Warrant Purchaser Preferred Stock Shares - --------- ------------------- -------------------- Welsh, Carson, Anderson & Stowe VIII, L.P. 38,096 8,000,160 BTI Investors LLC 1,904 399,840
EX-10.30 7 0007.txt SERIES B REDEMPTION AGREEMENT Exhibit 10.30 BTI TELECOM CORP. SERIES B REDEMPTION AGREEMENT THIS SERIES B REDEMPTION AGREEMENT (this "Agreement") is dated as of the 12/th/ day of January 2001, by and among BTI Telecom Corp., a North Carolina corporation (the "Company"), and Welsh, Carson, Anderson & Stowe VIII, L.P., a Delaware limited partnership, BTI Investors LLC, a Delaware limited liability company, and Peter T. Loftin (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 shares of Series B Preferred Stock, par value $.01 per share, of the Company, pursuant to Series B Preferred Stock Purchase Agreements dated as of January 12, 2001 (together, the "Purchase Agreement"), the Company desires to provide the Investor certain rights with respect to the redemption of the Series B Preferred Stock held by it as an inducement to the Investor to purchase shares of the Series B 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 B Preferred Stock a written demand (the "Investors' Notice") that the Company redeem all, but not less than all, of the Series B Preferred Stock held by such Holders, the Company shall redeem all of the Series B 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 the Series B Preferred Stock. The Holders of a majority of the Series B 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 B Preferred Stock. The Company shall repurchase all such Series B Preferred Stock under this Agreement as set forth below. The demand to redeem Series B 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 B Preferred Stock to be sold under the Option shall be as follows: (i) if the redemption occurs prior to a Series B Qualified Public Offering (as defined in the Company's Second Amended and Restated Articles of Incorporation (the "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 B Preferred Stock as of the Liquidity Exercise Date or (B) the Series B Liquidation Amount (as defined in the Articles of Incorporation); or (ii) if the redemption occurs after a Series B Qualified Public Offering, the redemption price shall be the Series B Liquidation Amount. For purposes of this Agreement, the "Fair Market Value" of the Common Stock issuable on conversion of the Series B Preferred Stock shall be, as of a particular date, (i) with respect to one share of Common Stock, if the sum of the Daily Prices of (x) all of the outstanding shares of Common Stock that have been registered pursuant to a public offering and (y) all of the outstanding shares of Common Stock that are not held by affiliates of the Company and that may be sold on such date in an open market transaction without registration, is at least $250 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 B Preferred Stock, taking into account, in valuing such shares, all relevant facts and circumstances; provided 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 B Preferred Stock. No Director whose Series B Preferred Stock is being appraised or who is designated by or affiliated with a person whose Series B 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 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 in Section 2(a) above) arrived at by the appraisers (based upon the number of shares of Common Stock into which the Series B Preferred Stock is convertible (as determined in the Articles of Incorporation)) within thirty (30) days following the appointment of the last appraiser to be appointed. In the event that the two 2 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 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 the final determination of the purchase price for the Series B Preferred Stock (such 60/th/ day (or, if earlier, the date of the purchase hereinafter referred to) shall be defined herein as the "Redemption Date"), the Company shall purchase the Series B 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 B Preferred Stock in cash on the Redemption Date. (b) Notwithstanding the other provisions of this Agreement, the Company shall not be obligated to repurchase any Series B 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 B Preferred Stock offered for redemption on the Redemption Date, the Company shall pay for such remaining Series B 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 B Preferred Stock, all rights of such Series B 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 B Preferred Stock as provided in this Agreement shall 3 terminate if the Company does not receive the Investors' Notice within sixty (60) days after receipt by the Holders of the Redemption Notice. In addition, the obligations of the Company to purchase the Series B Preferred Stock shall terminate at such time as the Series B Preferred Stock is converted into Common Stock or at such time as the Company elects to terminate certain rights of the Series B Preferred Stock pursuant to Article IV, Section 4(m)(ii) of the 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 B 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 B 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 Articles of ---------------- Incorporation, the Purchase Agreement, the Series A Warrant, the Series B Warrants, 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 among 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. 4 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 may be delivered via facsimile, 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 B 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 B 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 IN WITNESS WHEREOF, the parties have caused this 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 BTI INVESTORS LLC By: /s/ Jonathan M. Rather --------------------------------------- Name: Jonathan M. Rather Title: Authorized Person /s/ Peter T. Loftin ------------------------------------------ Peter T. Loftin 6 EX-10.31 8 0008.txt COMMON STOCK PURCHASE WARRANT Exhibit 10.31 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 2,000,040 Shares This Warrant is issued as of this 12/th/ day of January 2001 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 Two Million Forty (2,000,040) 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 B Preferred Stock Purchase Agreement dated as of January 12, 2001 among the Company and the WCAS Purchaser named therein (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 hereof 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 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 (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 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 Holder after 2 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 number of shares issuable upon exercise or exchange of this Warrant in proportion to, and at the same time as, the adjustments to the Series B Conversion Value pursuant to Section 4(d) of the Second Amended and Restated Articles of Incorporation of the Company (the "Articles of Incorporation"). The provisions of this Section 2.5 shall terminate upon the conversion of more than 50% of the issued Series B Preferred Stock under the Articles of Incorporation or at such time as the Company elects pursuant to Article IV, Section 4(m)(ii) of the Articles of Incorporation to terminate certain rights of the Series B Preferred Stock as set forth in such Section 4(m)(ii). 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 the --------------------- 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 the 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 the date of its surrender for exercise as provided above, and the person entitled to 3 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 to (or, if so requested at the time of surrender of this Warrant, hold for pick-up at its principal office by) 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 be entitled to exchange this Warrant or any portion hereof for Shares as provided in this Section 7. Upon exchange of this Warrant (the "Exchange") 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 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 by (y) the Fair Market Value of one Share on the Exchange Date (as herein defined). No fractional shares shall be issuable upon the Exchange, 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. 7.2 Method of Exchange. The Exchange may be accomplished 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 exchange the Warrant for Common Stock, indicating the number of shares subject to this Warrant that are being surrendered (referred to in Section 7.1 hereof as the Exchange Warrant Shares) pursuant to such Exchange and specifying whether the Holder has elected to (i) pay an exchange price 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 4 aggregate Warrant Price of the Exchanged Warrant Shares) or (ii) not pay any exchange price. Certificates for the Shares issuable upon an Exchange (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 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 to (or, if so requested at the time of surrender of this Warrant, hold for pick-up at its principal office by) 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. Increase or Decrease in Number of Shares. ---------------------------------------- 8.1 Notwithstanding anything contained herein to the contrary and as an adjustment to the First Closing Purchase Price or Second Closing Purchase Price described in the Purchase Agreement, the number of Shares that may be purchased upon exercise or exchange of this Warrant shall be increased or decreased as follows; provided that no such increase or decrease shall be effected following the consummation of a Reorganization or a Series B Qualified Public Offering (as defined in the Articles of Incorporation): (a) Notwithstanding anything else contained in this Section, if the financial plan objectives for the three-month period ended March 31, 2001 described in Exhibit A attached hereto have not been achieved by the --------- Company, the number of Shares that may be purchased upon exercise or exchange of this Warrant shall be increased by 190,480; and (b) Notwithstanding anything else contained in this Section, if the financial plan objectives for the three-month period ended March 31, 2001 described in Exhibit B attached hereto have been achieved by the --------- Company, the number of Shares that may be purchased upon exercise or exchange of this Warrant shall be decreased by 190,480; and 5 (c) Notwithstanding anything else contained in this Section, if the financial plan objectives for the six-month period ended June 30, 2001 described in Exhibit C attached hereto have not been achieved by the --------- Company, the number of Shares that may be purchased upon exercise or exchange of this Warrant shall be increased by an additional 190,480; and (d) Notwithstanding anything else contained in this Section, if the financial plan objectives for the six-month period ended June 30, 2001 described in Exhibit D attached hereto have been achieved by the Company, --------- the number of Shares that may be purchased upon exercise or exchange of this Warrant shall be decreased by an additional 190,480; and (e) Notwithstanding anything else contained in this Section, if the financial plan objectives for the nine-month period ended September 30, 2001 described in Exhibit E attached hereto have not been achieved by the --------- Company, the number of Shares that may be purchased upon exercise or exchange of this Warrant shall be increased by an additional 190,480; and (f) Notwithstanding anything else contained in this Section, if the financial plan objectives for the nine-month period ended September 30, 2001 described in Exhibit F attached hereto have been achieved by the --------- Company, the number of Shares that may be purchased upon exercise or exchange of this Warrant shall be decreased by an additional 190,480; and (g) Notwithstanding anything else contained in this Section, if the financial plan objectives for the twelve-month period ended December 31, 2001 described in Exhibit G attached hereto have not been achieved by --------- the Company, the number of Shares that may be purchased upon exercise or exchange of this Warrant shall be increased by an additional 380,960; and (h) Notwithstanding anything else contained in this Section, if the financial plan objectives for the twelve-month period ended December 31, 2001 described in Exhibit H attached hereto have been achieved by the --------- Company, the number of Shares that may be purchased upon exercise or exchange of this Warrant shall be decreased by an additional 380,960. 8.2 The determination as to whether or not the financial plan objectives described in Section 8.1 have been achieved by the Company for any period referred to therein (each, a "Specified Period") shall be made in good faith by the Board of Directors of the Company. Any such determination shall be based on the Company's regularly prepared financial statements that were prepared in accordance with generally accepted accounting principles applied in a manner consistent with past practice. The Board of Directors shall deliver to the Holder written notice of its determination as to whether or not the financial plan objectives have been achieved, together with a detailed description of the facts and calculations upon which such determination was based, no later than the earliest of (i) the 45th day following the end of 6 each Specified Period which is a fiscal quarter, (ii) the 90th day following the end of each Specified Period that is a fiscal year, and (iii) if a Reorganization is consummated during any Specified Period, immediately prior to the consummation of such Reorganization. If the Holder shall object to any such determination by the Board of Directors, the Holder shall appoint either Price Waterhouse Coopers or Arthur Andersen as an independent accountant to determine whether or not such financial plan objectives have been achieved. The expenses of such accountant shall be borne by the Company. The Company will promptly afford to the Holder and its agents, upon request, reasonable access to its books of account, financial and other records, employees and auditors (and furnish financial and other data) to the extent necessary to permit the Holder to determine any matter relating to its rights and obligations hereunder. 8.3 Repurchase of Shares upon Warrant Decrease. In the event that ------------------------------------------ the Company is entitled pursuant to Section 8.1 to decrease the number of Shares issuable upon exercise or exchange of this Warrant, and a number of Shares in excess of such decreased number of Shares has been previously issued pursuant to the exercise or exchange of the Warrant, the Company shall have the right to repurchase such excess Shares from the Holder at the original exercise price paid by such Holder. 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 Amended and Restated Shareholders Agreement dated as of the date hereof by and among the Company, Peter T. Loftin, the Holder and the other parties thereto (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 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 sum of the Daily Prices of (x) all of the outstanding shares of Common Stock that have been registered pursuant to a public offering and (y) all of the outstanding shares of Common Stock that are not held by affiliates of the Company and that may be sold on such date in an open market transaction without registration, is at least $250 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. 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. 8 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 Articles of ---------------- Incorporation, the Purchase Agreement and the Related Agreements (as defined in the Purchase 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 among 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. 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 facsimile, 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] 9 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/ Peter T. Loftin ------------------------------- Name: Peter T. Loftin Title: Chief Executive Officer 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 10 EX-10.32 9 0009.txt COMMON STOCK PURCHASE WARRANT EXHIBIT 10.32 THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVETHIS 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 99,960 Shares This Warrant is issued as of this 12/th/ day of January 2001 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 Ninety-Nine Thousand Nine Hundred Sixty (99,960) 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 B Preferred Stock Purchase Agreement dated as of January 12, 2001 among the Company and the WCAS Purchaser named therein (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 hereof 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 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 (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 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 Holder after 2 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 number of shares issuable upon exercise or exchange of this Warrant in proportion to, and at the same time as, the adjustments to the Series B Conversion Value pursuant to Section 4(d) of the Second Amended and Restated Articles of Incorporation of the Company (the "Articles of Incorporation"). The provisions of this Section 2.5 shall terminate upon the conversion of more than 50% of the issued Series B Preferred Stock under the Articles of Incorporation or at such time as the Company elects pursuant to Article IV, Section 4(m)(ii) of the Articles of Incorporation to terminate certain rights of the Series B Preferred Stock as set forth in such Section 4(m)(ii). 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 the --------------------- 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 the 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 the date of its surrender for exercise as provided above, and the person entitled to 3 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 to (or, if so requested at the time of surrender of this Warrant, hold for pick-up at its principal office by) 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 be entitled to exchange this Warrant or any portion hereof for Shares as provided in this Section 7. Upon exchange of this Warrant (the "Exchange") 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 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 by (y) the Fair Market Value of one Share on the Exchange Date (as herein defined). No fractional shares shall be issuable upon the Exchange, 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. 7.2 Method of Exchange. The Exchange may be accomplished 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 exchange the Warrant for Common Stock, indicating the number of shares subject to this Warrant that are being surrendered (referred to in Section 7.1 hereof as the Exchange Warrant Shares) pursuant to such Exchange and specifying whether the Holder has elected to (i) pay an exchange price 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 4 aggregate Warrant Price of the Exchanged Warrant Shares) or (ii) not pay any exchange price. Certificates for the Shares issuable upon an Exchange (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 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 to (or, if so requested at the time of surrender of this Warrant, hold for pick-up at its principal office by) 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. Increase or Decrease in Number of Shares. ---------------------------------------- 8.1 Notwithstanding anything contained herein to the contrary and as an adjustment to the First Closing Purchase Price or Second Closing Purchase Price described in the Purchase Agreement, the number of Shares that may be purchased upon exercise or exchange of this Warrant shall be increased or decreased as follows; provided that no such increase or decrease shall be effected following the consummation of a Reorganization or a Series B Qualified Public Offering (as defined in the Articles of Incorporation): (a) Notwithstanding anything else contained in this Section, if the financial plan objectives for the three-month period ended March 31, 2001 described in Exhibit A attached hereto have not been achieved by the --------- Company, the number of Shares that may be purchased upon exercise or exchange of this Warrant shall be increased by 9,520; and (b) Notwithstanding anything else contained in this Section, if the financial plan objectives for the three-month period ended March 31, 2001 described in Exhibit B attached hereto have been achieved by the --------- Company, the number of Shares that may be purchased upon exercise or exchange of this Warrant shall be decreased by 9,520; and 5 (c) Notwithstanding anything else contained in this Section, if the financial plan objectives for the six-month period ended June 30, 2001 described in Exhibit C attached hereto have not been achieved by the --------- Company, the number of Shares that may be purchased upon exercise or exchange of this Warrant shall be increased by an additional 9,520; and (d) Notwithstanding anything else contained in this Section, if the financial plan objectives for the six-month period ended June 30, 2001 described in Exhibit D attached hereto have been achieved by the Company, --------- the number of Shares that may be purchased upon exercise or exchange of this Warrant shall be decreased by an additional 9,520; and (e) Notwithstanding anything else contained in this Section, if the financial plan objectives for the nine-month period ended September 30, 2001 described in Exhibit E attached hereto have not been achieved by the --------- Company, the number of Shares that may be purchased upon exercise or exchange of this Warrant shall be increased by an additional 9,520; and (f) Notwithstanding anything else contained in this Section, if the financial plan objectives for the nine-month period ended September 30, 2001 described in Exhibit F attached hereto have been achieved by the --------- Company, the number of Shares that may be purchased upon exercise or exchange of this Warrant shall be decreased by an additional 9,520; and (g) Notwithstanding anything else contained in this Section, if the financial plan objectives for the twelve-month period ended December 31, 2001 described in Exhibit G attached hereto have not been achieved by --------- the Company, the number of Shares that may be purchased upon exercise or exchange of this Warrant shall be increased by an additional 19,040; and (h) Notwithstanding anything else contained in this Section, if the financial plan objectives for the twelve-month period ended December 31, 2001 described in Exhibit H attached hereto have been achieved by the --------- Company, the number of Shares that may be purchased upon exercise or exchange of this Warrant shall be decreased by an additional 19,040. 8.2 The determination as to whether or not the financial plan objectives described in Section 8.1 have been achieved by the Company for any period referred to therein (each, a "Specified Period") shall be made in good faith by the Board of Directors of the Company. Any such determination shall be based on the Company's regularly prepared financial statements that were prepared in accordance with generally accepted accounting principles applied in a manner consistent with past practice. The Board of Directors shall deliver to the Holder written notice of its determination as to whether or not the financial plan objectives have been achieved, together with a detailed description of the facts and calculations upon which such determination was based, no later than the earliest of (i) the 45th day following the end of 6 each Specified Period which is a fiscal quarter, (ii) the 90th day following the end of each Specified Period that is a fiscal year, and (iii) if a Reorganization is consummated during any Specified Period, immediately prior to the consummation of such Reorganization. If the Holder shall object to any such determination by the Board of Directors, the Holder shall appoint either Price Waterhouse Coopers or Arthur Andersen as an independent accountant to determine whether or not such financial plan objectives have been achieved. The expenses of such accountant shall be borne by the Company. The Company will promptly afford to the Holder and its agents, upon request, reasonable access to its books of account, financial and other records, employees and auditors (and furnish financial and other data) to the extent necessary to permit the Holder to determine any matter relating to its rights and obligations hereunder. 8.3 Repurchase of Shares upon Warrant Decrease. In the event that ------------------------------------------ the Company is entitled pursuant to Section 8.1 to decrease the number of Shares issuable upon exercise or exchange of this Warrant, and a number of Shares in excess of such decreased number of Shares has been previously issued pursuant to the exercise or exchange of the Warrant, the Company shall have the right to repurchase such excess Shares from the Holder at the original exercise price paid by such Holder. 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 Amended and Restated Shareholders Agreement dated as of the date hereof by and among the Company, Peter T. Loftin, the Holder and the other parties thereto (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 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 sum of the Daily Prices of (x) all of the outstanding shares of Common Stock that have been registered pursuant to a public offering and (y) all of the outstanding shares of Common Stock that are not held by affiliates of the Company and that may be sold on such date in an open market transaction without registration, is at least $250 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. 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. 8 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 Articles of ---------------- Incorporation, the Purchase Agreement and the Related Agreements (as defined in the Purchase 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 among 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. 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 facsimile, 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] 9 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/ Peter T. Loftin ------------------------------- Name: Peter T. Loftin Title: Chief Executive Officer 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 10 EX-10.33 10 0010.txt COMMON STOCK PURCHASE WARRANT EXHIBIT 10.33 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 2,100,000 Shares This Warrant is issued as of this 12/th/ day of January 2001 by BTI TELECOM CORP., a North Carolina corporation (the "Company"), to Peter T. Loftin (together with his 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 Million One Hundred Thousand (2,100,000) 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 B Preferred Stock Purchase Agreement dated as of January 12, 2001 between the Company and the Holder (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 hereof 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 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 (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 he 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 him 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 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 Holder after 2 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 number of shares issuable upon exercise or exchange of this Warrant in proportion to, and at the same time as, the adjustments to the Series B Conversion Value pursuant to Section 4(d) of the Second Amended and Restated Articles of Incorporation of the Company (the "Articles of Incorporation"). The provisions of this Section 2.5 shall terminate upon the conversion of more than 50% of the issued Series B Preferred Stock under the Articles of Incorporation or at such time as the Company elects pursuant to Article IV, Section 4(m)(ii) of the Articles of Incorporation to terminate certain rights of the Series B Preferred Stock as set forth in such Section 4(m)(ii). 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 the --------------------- 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 the 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 the date of its surrender for exercise as provided above, and the person entitled to 3 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 to (or, if so requested at the time of surrender of this Warrant, hold for pick-up at its principal office by) 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 be entitled to exchange this Warrant or any portion hereof for Shares as provided in this Section 7. Upon exchange of this Warrant (the "Exchange") 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 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 by (y) the Fair Market Value of one Share on the Exchange Date (as herein defined). No fractional shares shall be issuable upon the Exchange, 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. 7.2 Method of Exchange. The Exchange may be accomplished 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 exchange the Warrant for Common Stock, indicating the number of shares subject to this Warrant that are being surrendered (referred to in Section 7.1 hereof as the Exchange Warrant Shares) pursuant to such Exchange and specifying whether the Holder has elected to (i) pay an exchange price 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 4 aggregate Warrant Price of the Exchanged Warrant Shares) or (ii) not pay any exchange price. Certificates for the Shares issuable upon an Exchange (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 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 to (or, if so requested at the time of surrender of this Warrant, hold for pick-up at its principal office by) 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. Increase or Decrease in Number of Shares. ---------------------------------------- 8.1 Notwithstanding anything contained herein to the contrary and as an adjustment to the Purchase Price described in the Purchase Agreement, the number of Shares that may be purchased upon exercise or exchange of this Warrant shall be increased or decreased as follows; provided that no such increase or decrease shall be effected following the consummation of a Reorganization or a Series B Qualified Public Offering (as defined in the Articles of Incorporation): (a) Notwithstanding anything else contained in this Section, if the financial plan objectives for the three-month period ended March 31, 2001 described in Exhibit A attached hereto have not been achieved by the --------- Company, the number of Shares that may be purchased upon exercise or exchange of this Warrant shall be increased by 200,000; and (b) Notwithstanding anything else contained in this Section, if the financial plan objectives for the three-month period ended March 31, 2001 described in Exhibit B attached hereto have been achieved by the --------- Company, the number of Shares that may be purchased upon exercise or exchange of this Warrant shall be decreased by 200,000; and 5 (c) Notwithstanding anything else contained in this Section, if the financial plan objectives for the six-month period ended June 30, 2001 described in Exhibit C attached hereto have not been achieved by the --------- Company, the number of Shares that may be purchased upon exercise or exchange of this Warrant shall be increased by an additional 200,000; and (d) Notwithstanding anything else contained in this Section, if the financial plan objectives for the six-month period ended June 30, 2001 described in Exhibit D attached hereto have been achieved by the Company, --------- the number of Shares that may be purchased upon exercise or exchange of this Warrant shall be decreased by an additional 200,000; and (e) Notwithstanding anything else contained in this Section, if the financial plan objectives for the nine-month period ended September 30, 2001 described in Exhibit E attached hereto have not been achieved by the --------- Company, the number of Shares that may be purchased upon exercise or exchange of this Warrant shall be increased by an additional 200,000; and (f) Notwithstanding anything else contained in this Section, if the financial plan objectives for the nine-month period ended September 30, 2001 described in Exhibit F attached hereto have been achieved by the --------- Company, the number of Shares that may be purchased upon exercise or exchange of this Warrant shall be decreased by an additional 200,000; and (g) Notwithstanding anything else contained in this Section, if the financial plan objectives for the twelve-month period ended December 31, 2001 described in Exhibit G attached hereto have not been achieved by --------- the Company, the number of Shares that may be purchased upon exercise or exchange of this Warrant shall be increased by an additional 400,000; and (h) Notwithstanding anything else contained in this Section, if the financial plan objectives for the twelve-month period ended December 31, 2001 described in Exhibit H attached hereto have been achieved by the --------- Company, the number of Shares that may be purchased upon exercise or exchange of this Warrant shall be decreased by an additional 400,000. 8.2 The determination as to whether or not the financial plan objectives described in Section 8.1 have been achieved by the Company for any period referred to therein (each, a "Specified Period") shall be made in good faith by the Board of Directors of the Company. Any such determination shall be based on the Company's regularly prepared financial statements that were prepared in accordance with generally accepted accounting principles applied in a manner consistent with past practice. The Board of Directors shall deliver to the Holder written notice of its determination as to whether or not the financial plan objectives have been achieved, together with a detailed description of the facts and calculations upon which such determination was based, no later than the earliest of (i) the 45th day following the end of 6 each Specified Period which is a fiscal quarter, (ii) the 90th day following the end of each Specified Period that is a fiscal year, and (iii) if a Reorganization is consummated during any Specified Period, immediately prior to the consummation of such Reorganization. If the Holder shall object to any such determination by the Board of Directors, the Holder shall appoint either Price Waterhouse Coopers or Arthur Andersen as an independent accountant to determine whether or not such financial plan objectives have been achieved. The expenses of such accountant shall be borne by the Company. The Company will promptly afford to the Holder and its agents, upon request, reasonable access to its books of account, financial and other records, employees and auditors (and furnish financial and other data) to the extent necessary to permit the Holder to determine any matter relating to its rights and obligations hereunder. 8.3 Repurchase of Shares upon Warrant Decrease. In the event that ------------------------------------------ the Company is entitled pursuant to Section 8.1 to decrease the number of Shares issuable upon exercise or exchange of this Warrant, and a number of Shares in excess of such decreased number of Shares has been previously issued pursuant to the exercise or exchange of the Warrant, the Company shall have the right to repurchase such excess Shares from the Holder at the original exercise price paid by such Holder. 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 Amended and Restated Shareholders Agreement dated as of the date hereof by and among the Company, the Holder and the other parties thereto (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 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 sum of the Daily Prices of (x) all of the outstanding shares of Common Stock that have been registered pursuant to a public offering and (y) all of the outstanding shares of Common Stock that are not held by affiliates of the Company and that may be sold on such date in an open market transaction without registration, is at least $250 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. 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. 8 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 Articles of ---------------- Incorporation, the Purchase Agreement and the Related Agreements (as defined in the Purchase 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 among 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. 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 facsimile, 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] 9 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/ Brian K. Branson ------------------------------- Name: Brian K. Branson Title: Chief Financial Officer Acknowledged and Agreed as of the date first above written: /s/ Peter T. Loftin - --------------------------- Peter T. Loftin 10 -----END PRIVACY-ENHANCED MESSAGE-----