EXHIBIT 3.1
ARTICLES OF RESTATEMENT
OF
BTI TELECOM CORP.
Pursuant to Section 55-10-07 of the North Carolina General Statutes,
the undersigned corporation hereby submits the following for the purpose of
amending and restating its Articles of Incorporation and does hereby certify as
follows:
1. The name of the corporation is BTI Telecom Corp. The corporation's
original Articles of Incorporation were filed on August 19, 1997.
2. The corporation's Articles of Incorporation are hereby amended and
restated in their entirety, as set forth in the text of the Amended and Restated
Articles of Incorporation attached hereto as Exhibit A.
3. The Amended and Restated Articles of Incorporation of the
corporation were adopted by its shareholders on the 16th day of December 1999,
in the manner prescribed by law.
4. These Amended and Restated Articles of Incorporation will be
effective upon filing.
IN WITNESS WHEREOF, the corporation has caused these Articles of
Amendment and Restatement to be signed by R. Michael Newkirk, its President, and
attested by Anthony M. Copeland, its Secretary, this 16th day of December 1999.
BTI TELECOM CORP.
By: /s/ R. Michael Newkirk
________________________________
R. Michael Newkirk, President
Attest:
By: /s/ Anthony M. Copeland
______________________________
Anthony M. Copeland, Secretary
EXHIBIT A
---------
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
BTI TELECOM CORP.
ARTICLE I.
The name of the corporation is "BTI Telecom Corp." (the "Corporation").
ARTICLE II.
The current address and county of the registered office of the
Corporation is 4101 Lake Boone Trail, Suite 300, Raleigh, Wake County, North
Carolina 27607, and the name of the registered agent is Larry E. Robbins. The
mailing address of the registered office of the Corporation is the same as its
street address.
ARTICLE III.
The purpose for which the Corporation is organized is to engage in any
lawful act or activity for which corporations may be organized under Chapter 55
of the General Statutes of North Carolina.
ARTICLE IV.
The Corporation shall have authority to issue five hundred ten million
(510,000,000) shares. Five hundred million (500,000,000) of such shares shall be
designated Common Stock ("Common Stock"), no par value per share, and ten
million (10,000,000) of such shares shall be designated Preferred Stock
("Preferred Stock"), $0.01 par value per share. Of the authorized shares of
Preferred Stock, two hundred thousand (200,000) shares are designated Series A
Preferred Stock ("Series A Preferred Stock").
The Board of Directors is authorized to determine or alter the rights,
preferences, privileges and restrictions granted to or imposed upon any wholly
unissued series of Series A Preferred Stock, and within the limitations and
restrictions stated in any resolution or resolutions of the Board of Directors
originally fixing the number of shares constituting any series, to increase or
decrease (but not below the number of shares of any such series then
outstanding) the number of shares of any such series subsequent to the issue of
shares of that series, to determine the designation of any series and to fix the
number of shares of any series.
The Series A Preferred Stock shall, with respect to dividend rights and
rights on liquidation, dissolution and winding up, rank prior to all classes and
series of capital stock of the Corporation, including the Common Stock and the
Preferred Stock, but shall be junior in right of payment with respect to all
indebtedness incurred by the Corporation. The Series A Preferred
Stock shall have the rights, preferences, privileges and restrictions set forth
below in this Article IV.
1. Dividends.
(a) Dividends. The holders of the Series A Preferred Stock shall
be entitled to receive, out of funds legally available therefor, cumulative
semi-annual dividends equal to the greater of (i) the amount of dividends
calculated at an annual rate per share equal to six percent (6%) of the original
purchase price of $1,000 paid per share for the Series A Preferred Stock (which
amount shall be subject to adjustment whenever there shall occur a stock split,
combination, reclassification or other similar event involving the Series A
Preferred Stock) and (ii) the amount of dividends that would have been received
during such period by the holders of the same number of shares of Common Stock
as the number of shares of Common Stock into which the Series A Preferred Stock
was convertible at such time, such amounts in clause (i) or (ii) above to be
compounded semi-annually such that if the dividend is not paid on June 30 or
December 31, as applicable, for the immediately preceding six month period (or
portion thereof if less than a full six month period), the unpaid amount shall
be added to the original purchase price paid per share of the Series A Preferred
Stock, for purposes of calculating succeeding periods' dividends. Such dividends
shall be payable, at the Corporation's option, in cash or additional shares of
Series A Preferred Stock (the "Additional Shares"); provided that if, following
its initial public offering, the Company has elected to pay such dividends in
cash, but is prevented from doing so by the terms of any of its outstanding
indebtedness, the Company may pay such dividends in shares of registered Common
Stock, valued for purposes of this Section 1(a) at 95% of the Fair Market Value
thereof on the record date relating to such dividend. Such dividends shall be
deemed to accrue on the Series A Preferred Stock and be cumulative, whether or
not earned or declared and whether or not there are profits, surplus or other
funds of the Corporation legally available for the payment of dividends. If such
cumulative dividends in respect of any prior or current semi-annual dividend
period shall not have been declared and paid or if there shall not have been a
sum sufficient for the payment thereof set apart in trust for the account of
holders of the Series A Preferred Stock, the deficiency shall first be fully
paid before any dividend or other distribution shall be paid or declared with
respect to any other class of the Corporation's capital stock, now or hereafter
outstanding. To the extent dividends are paid in Additional Shares, such
Additional Shares shall be valued at the Series A Original Price. Upon any
conversion of the Series A Preferred Stock hereunder, all accumulated and unpaid
dividends on the Series A Preferred Stock, whether or not declared, since the
date of issue up to and including the date of conversion thereof shall be paid
as set forth above.
(b) Dividends Payable With Respect to Common Stock. In the event
the Corporation shall pay or declare, make or issue, or shall fix a record date
for the determination of holders of Common Stock entitled to receive, a dividend
or other distribution with respect to the Common Stock payable in (i) securities
of the Corporation other than shares of Common Stock or (ii) cash or other
assets, then and in each such event the Corporation shall concurrently pay or
declare, make or issue, or fix a record date for the determination of holders of
Series A Preferred Stock entitled to receive, and the holders of Series A
Preferred Stock shall receive, at the same time such distribution is made with
respect to Common Stock, the number of securities or the amount of cash or other
assets which they would have received had their Series A Preferred Stock been
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converted into Common Stock immediately prior to the record date for determining
holders of Common Stock entitled to receive such distribution.
2. Liquidation, Dissolution or Winding Up.
(a) Treatment at Liquidation, Dissolution or Winding Up. In the
event of any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, before any distribution may be made with respect to
the Common Stock or any other class or series of capital stock, holders of each
share of Series A Preferred Stock shall be entitled to be paid out of the assets
of the Corporation available for distribution to holders of the Corporation's
capital stock of all classes or series, whether such assets are capital,
surplus, or capital earnings, an amount equal to the greater of (i) the Series A
Liquidation Amount (as defined below) and (ii) such amount per share of Series A
Preferred Stock as would have been payable had each such share been converted
into Common Stock immediately prior to such event of liquidation, dissolution or
winding up of the Corporation pursuant to this Section 2. If the assets of the
Corporation available for distribution to its shareholders shall be insufficient
to pay the holders of shares of Series A Preferred Stock the full amount of the
Series A Liquidation Amount to which they shall be entitled, the holders of
shares of Series A Preferred Stock shall share ratably in any distribution of
assets according to the amounts which would be payable with respect to the
Series A Preferred Stock held by them upon such distribution if all amounts
payable on or with respect to said shares were paid in full.
With respect to the Series A Preferred Stock, the "Series A
Liquidation Amount" shall equal $1,000.00 (the "Series A Original Price") per
share of Series A Preferred Stock plus all accrued and unpaid dividends thereon
(compounded as described in Section 1(a) above), whether or not earned or
declared, since the date of issue up to and including the date full payment
shall be tendered to the holders of the Series A Preferred Stock with respect to
such liquidation, dissolution or winding up, provided that such Series A
Original Price shall be subject to equitable adjustment whenever there shall
occur a stock split, combination, reclassification or other similar event
involving such Series A Preferred Stock.
After the payment of all amounts due pursuant to the preceding
paragraphs shall have been made in full to the holders of the Series A Preferred
Stock, the holders of the Series A Preferred Stock shall be entitled to no
further participation in the distribution of the assets of the Corporation.
(b) Treatment of Reorganizations. Any Reorganization (as such term
is defined in Section 4(f)), shall be regarded as a liquidation, dissolution or
winding up of the affairs of the Corporation within the meaning of this Section
2.
(c) Distributions. Amounts payable pursuant to this Section 2
shall in all events be paid in cash; provided, however, that if such amounts are
payable in connection with a Reorganization, then each holder of the Series A
Preferred Stock shall receive payment as follows: (i) if such consideration
consists of either 100% cash or 100% property or other securities, the holders
of the Series A Preferred Stock shall be entitled to receive the same form of
consideration as is payable with respect to the Common Stock and (ii) if such
consideration consists of a combination of cash and securities or other
property, the holders of the Series A
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Preferred Stock shall receive the same mix of consideration as the holders of
the Common Stock, pro rata with such holders of Common Stock on the basis
described in Section 4(f) below, unless the aggregate Daily Prices of all
outstanding shares of publicly registered common stock of the issuer of such
securities is less than or equal to $200 million, in which case the holders of
the Series A Preferred Stock may elect to receive all or any portion of such
consideration payment in the form of cash (but in no event more than the
aggregate amount of the cash portion of the consideration being offered to all
shareholders of the Corporation). Notwithstanding the foregoing, the accrued but
unpaid dividends payable in connection with a Reorganization pursuant to this
Section 2 shall, in all events, be paid in the manner set forth in Section 1(a)
above. Whenever a distribution provided for in this Section 2 is payable in
property other than cash, the value of such distribution shall be the Fair
Market Value of such property.
For purposes of these Amended and Restated Articles of Incorporation,
"Fair Market Value" means (i) with respect to one share of common stock to be
received, if the aggregate Daily Prices of all the outstanding shares of such
common stock that have been registered pursuant to a public offering is at least
$200 million as of such date, the average (weighted by daily trading volume) of
the Daily Prices, if any, per share of such common stock for the period of 20
consecutive trading days immediately prior to such date or (ii) in all other
events with respect to such common stock, or with respect to any other property
or consideration, the fair market value of such common stock or other property
or consideration as determined by two appraisers, one selected by the Board of
Directors of the Corporation and one selected by the holders of a majority of
the outstanding shares of Series A Preferred Stock. No Director who is a holder
of shares of Series A Preferred Stock or who is designated by or affiliated with
a holder of shares of Series A Preferred Stock shall vote on the selection of
the appraiser chosen by the Corporation. In the event the Board of Directors or
holders of Series A Preferred Stock fail to appoint an appraiser within a
reasonable period of time, the appraisal shall be undertaken by the remaining
single appraiser. The Fair Market Value shall be the fair market value
(determined in the manner described above) arrived at by the appraisers within
thirty (30) days following the appointment of the last appraiser to be
appointed. In the event that the two appraisers agree in good faith on such fair
market value within such a period of time, such agreed value shall be used for
these purposes. If the appraisers cannot agree but their valuations are within
10% of each other, the Fair Market Value shall be the mean of the two
valuations. If the appraisers cannot agree and the differences in the valuations
are greater than 10%, the appraisers shall select a third appraiser who will
calculate fair market value independently (provided that such calculation shall
not be more than the value calculated by the appraiser selected by the holders
of Series A Preferred Stock or less than the value calculated by the appraiser
selected by the Board of Directors) and, except as provided in the next
sentence, the Fair Market Value of the shares shall be the mean of the two fair
market values arrived at by the appraisers who are closest in amount. If one
appraiser's valuation is the mean of the other two valuations, such mean
valuation shall be the Fair Market Value. In the event that the two original
appraisers cannot agree upon a third appraiser within ten (10) days following
the end of the thirty (30) day period referred to above, then the third
appraiser, which appraiser shall be a nationally recognized investment banking
firm, shall be appointed by the American Arbitration Association in Washington,
D.C. If the Board of Directors proposes a transaction in which the property
distributed is described in clause (ii) of the first sentence of this paragraph
and the holders of a majority of the Series A Preferred Stock approve
4
the terms of such transaction, then the Fair Market Value of all such property
distributed shall be equal to the value as initially determined by the Board of
Directors and approved by the holders of a majority of the Series A Preferred
Stock. As used herein, "Daily Price" means (1) if the shares of such common
stock then are listed and traded on the New York Stock Exchange, Inc. ("NYSE"),
the closing price on such day as reported on the NYSE Composite Transactions
Tape; (2) if the shares of common stock then are not listed and traded on the
NYSE, the closing price on such day as reported by the principal national
securities exchange on which the shares are listed and traded; (3) if the shares
of common stock then are not listed and traded on any such securities exchange,
the last reported sale price on such day on the National Market of the National
Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ");
or (4) if the shares of common stock then are not traded on the NASDAQ National
Market, the average of the highest reported bid and lowest reported asked price
on such day as reported by NASDAQ.
3. Voting Power. Except as otherwise expressly provided in Section 6
hereof, or as required by law, each holder of Series A Preferred Stock shall be
entitled to vote on all matters and shall be entitled to that number of votes
equal to the largest number of shares (including fractional shares) of Common
Stock into which such holder's shares of Series A Preferred Stock could be
converted, pursuant to the provisions of Section 4 hereof, at the record date
for the determination of shareholders entitled to vote on such matter or, if no
such record date is established, at the date such vote is taken or any written
consent of shareholders is solicited. Except as otherwise expressly provided
herein or as required by law, the holders of shares of Series A Preferred Stock
and Common Stock shall vote together as a single class on all matters.
4. Conversion Rights for the Series A Preferred Stock. The holders of
the Series A Preferred Stock shall have the following rights with respect to the
conversion of the Series A Preferred Stock into shares of Common Stock.
(a) General. Subject to and in compliance with the provisions of
this Section 4, any share of the Series A Preferred Stock may, at the option of
the holder, be converted at any time into fully paid and nonassessable shares of
Common Stock. The number of shares of Common Stock to which a holder of Series A
Preferred Stock shall be entitled upon conversion shall be the product obtained
by multiplying the Series A Conversion Rate (determined as provided in Section
4(b) and subject to adjustment as described below) by the number of shares of
Series A Preferred Stock being converted.
(b) Applicable Conversion Rate. The conversion rate for Series A
Preferred Stock in effect at any time (the "Series A Conversion Rate") shall be
the quotient obtained by dividing $1,000.00 by the Series A Conversion Value,
calculated as provided in Section 4(c).
(c) Series A Conversion Value. The Series A Conversion Value shall be
$8.55, except that such amount shall be adjusted from time to time in accordance
with this Section 4 (the "Series A Conversion Value").
(d) Adjustments to the Series A Conversion Value.
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(i) (A) Upon Sale of Common Stock. Except as otherwise provided in
Section 4(d)(i)(E) or 4(d)(i)(F), if the Corporation shall, while there are any
shares of Series A Preferred Stock outstanding, issue or sell (or in accordance
with Section 4(d)(i)(B) below is deemed to have issued or sold) shares of its
Common Stock without consideration or at a price per share less than the Series
A Conversion Value in effect immediately prior to such issuance or sale (or
deemed issuance or sale), then in each such case such Series A Conversion Value,
upon each such issuance or sale, except as hereinafter provided, shall be
lowered so as to be equal to an amount determined by multiplying the Series A
Conversion Value in effect immediately prior to such issuance or sale by the
following fraction:
P + (N*X)
---------
P + F
where
P = the number of shares of Common
Stock outstanding immediately prior
to such issuance or sale, assuming
the exercise or conversion of all
outstanding securities exercisable
for or convertible into Common Stock
at any time on or after the date of
such calculation
N = the number of shares of Common
Stock which the net aggregate
consideration, if any, received by
the Corporation for the total number
of such additional shares of Common
Stock so issued or sold would
purchase at the Series A Conversion
Value in effect immediately prior to
such issuance or sale
X = P
--
P+F
F = the number of additional shares of
Common Stock so issued or sold
(B) Upon Issuance of Warrants, Options and
Rights to Common Stock.
(1) For the purposes of this Section
4(d)(i), the issuance of any warrants, options, subscriptions, or
purchase rights with respect to shares of Common Stock and the issuance
of any securities convertible into or exchangeable for shares of Common
Stock (or the issuance of any warrants, options or any rights with
respect to such convertible or exchangeable securities) shall be deemed
an issuance of such Common Stock at such time if the Net Consideration
Per Share (as hereinafter determined) which may be received by the
Corporation for such Common Stock shall be less than the Series A
Conversion Value in effect immediately prior to the time of such
issuance. Any obligation, agreement, or undertaking (including by
fixing of a record date) to issue warrants, options, subscriptions,
purchase rights or convertible or
6
exchangeable securities at any time in the future shall be deemed to be
an issuance at the time such obligation, agreement or undertaking is
made or arises. No adjustment of the Series A Conversion Value shall be
made under this Section 4(d)(i) upon the issuance of any shares of
Common Stock which are issued pursuant to the exercise of any warrants,
options, subscriptions, or purchase rights or pursuant to the exercise
of any conversion or exchange rights in any convertible or exchangeable
securities if any adjustment shall previously have been made upon the
issuance of any such warrants, options, or subscription or purchase
rights or upon the issuance of any convertible or exchangeable
securities (or upon the issuance of any warrants, options or any rights
therefor) as above provided.
Should the Net Consideration Per Share of any such warrants,
options, subscriptions, or purchase rights or convertible or
exchangeable securities be decreased from time to time (other than as a
result of a stock split, stock dividend or other similar event), then,
upon the effectiveness of each such change, the Series A Conversion
Value shall be adjusted to such Series A Conversion Value as would have
been obtained (1) had the adjustments made upon the issuance of such
warrants, options, subscriptions, purchase rights, or convertible or
exchangeable securities been made upon the basis of the decreased Net
Consideration Per Share of such securities, and (2) had the adjustments
made to the Series A Conversion Value since the date of issuance of
such securities been made to the Series A Conversion Value as adjusted
pursuant to (1) above. Any adjustment of the Series A Conversion Value
with respect to this Section 4(d)(i)(B) which relates to warrants,
options, subscriptions, purchase rights or convertible or exchangeable
securities with respect to shares of Common Stock shall be disregarded
if, as, when and to the extent such warrants, options, subscriptions,
purchase rights or convertible or exchangeable securities expire or are
canceled without being exercised or converted, so that the Series A
Conversion Value effective immediately upon such cancellation or
expiration shall be equal to the Series A Conversion Value in effect at
the time of the issuance of the expired or canceled warrants, options,
subscriptions, purchase rights, or convertible or exchangeable
securities with such additional adjustments as would have been made to
the Series A Conversion Value had the expired or canceled warrants,
options, subscriptions, purchase rights or convertible or exchangeable
securities not been issued.
(2) For purposes of this paragraph, the "Net
Consideration Per Share" which may be received by the Corporation shall
be determined as follows.
(a) The "Net Consideration Per
Share" shall mean the amount equal to the total amount of
consideration, if any, received by the Corporation for the issuance of
such warrants, options, subscriptions, or other purchase rights or
convertible or exchangeable securities, plus the minimum amount of
consideration, if any, payable to the Corporation upon exercise,
conversion or exchange thereof, divided by the aggregate number of
shares of Common Stock that would be issued if all such warrants,
options, subscriptions, or other purchase rights or convertible or
exchangeable securities were exercised, exchanged, or converted.
7
(b) The "Net Consideration Per
Share" which may be received by the Corporation shall be determined in
each instance as of the date of issuance of warrants, options,
subscriptions, or other purchase rights or convertible or exchangeable
securities without giving effect to any possible future upward price
adjustments or rate adjustments which may be applicable with respect to
such warrants, options, subscriptions, or other purchase rights or
convertible or exchangeable securities.
(C) Stock Dividends. Except as provided in paragraph (D) of
this Section 4(d)(i), in the event the Corporation shall make or issue a
dividend or other distribution payable in Common Stock or securities of the
Corporation convertible into or otherwise exchangeable for the Common Stock of
the Corporation, then such dividend or distribution shall be treated as an
Extraordinary Common Stock Event (as defined below).
(D) Consideration Other than Cash. For purposes of this
Section 4(d), if a part or all of the consideration received by the Corporation
in connection with the issuance of shares of the Common Stock or the issuance of
any of the securities described in this Section 4(d) consists of property other
than cash, such consideration shall be valued at its Fair Market Value.
(E) IPO. Notwithstanding anything herein to the contrary, if
immediately prior to the effectiveness of the Corporation's initial public
offering of equity securities pursuant to an effective registration statement
under the Act, the Corporation has not achieved the financial benchmarks
described in the letter agreement among the Corporation and Welsh, Carson,
Anderson & Stowe VIII, L.P., WCAS Information Partners, L.P. and BTI Investors
LLC (collectively, the "Investor"), the Series A Conversion Value shall be
adjusted to equal the initial public offering price if such price is less than
the Series A Conversion Value immediately prior to the effectiveness of such
initial public offering.
(F) Exceptions. This Section 4(d)(i) shall not apply under
any of the circumstances which would constitute an Extraordinary Common Stock
Event (as hereinafter defined in Section 4(d)(ii)). Further, the Corporation
shall not be required to make any adjustment of the Series A Conversion Value
pursuant to the provisions of this Section 4(d):
(1) in the case of (i) the issuance of shares of
Common Stock upon conversion of the Series A Preferred Stock, (ii) the issuance
or sale of shares of Common Stock upon exercise of stock options or warrants
outstanding on the date of filing of these Articles of Incorporation or granted
under the Corporation's 1997 Stock Option Plan, (iii) the issuance or sale of
shares of Common Stock upon exercise of that certain warrant issued to Welsh,
Carson, Anderson & Stowe VIII, L.P., or its affiliates in connection with the
sale and issuance of shares of Series A Preferred Stock of the Corporation; (iv)
the issuance or sale of shares or options to purchase shares of the
Corporation's capital stock at a price per share less than such Series A
Conversion Value, to employees or directors of, or consultants to, the
Corporation pursuant to stock plans or arrangements under the Corporation's 1997
Stock Option Plan or any other stock option or similar plan approved unanimously
by the Corporation's Board of Directors; (v) shares of blank check preferred
stock issued to the Company's shareholders (including a pro rata issuance to the
holders of Series A Preferred Stock) in connection with a rights plan in
accordance with these Amended and Restated Articles of Incorporation, or (vi)
the issuance of
8
securities pursuant to the acquisition of another corporation by the Corporation
by merger, purchase of substantially all the assets or other reorganization
unless, in the case of this clause (vi), the Fair Market Value of the
acquisition consideration is less than $25,000,000; or
(2) if the Corporation receives written
notice from the holders of at least a majority of the then outstanding shares of
Series A Preferred Stock agreeing that no such adjustment shall be made as the
result of such issuance.
(ii) Upon Extraordinary Common Stock Event. Upon the
happening of an Extraordinary Common Stock Event (as hereinafter defined), the
Series A Conversion Value for the Series A Preferred Stock shall, simultaneously
with the happening of such Extraordinary Common Stock Event, be adjusted by
multiplying the then effective Series A Conversion Value by a fraction, the
numerator of which shall be the number of shares of Common Stock (assuming the
conversion or exchange of all securities convertible into or otherwise
exchangeable for the Common Stock) outstanding immediately prior to such
Extraordinary Common Stock Event and the denominator of which shall be the
number of shares of Common Stock (assuming the conversion or exchange of all
securities convertible into or otherwise exchangeable for the Common Stock)
outstanding immediately after such Extraordinary Common Stock Event, and the
products so obtained shall thereafter be the Series A Conversion Value. For the
purposes of this Section 4(d)(ii) and Section 4(d)(i)(F), "Extraordinary Common
Stock Event" shall mean (A) a subdivision of outstanding shares of Common Stock
into a greater number of shares of Common Stock, (B) a combination of
outstanding shares of the Common Stock into a smaller number of shares of Common
Stock or (C) an event described in Section 4(d)(i)(C).
(iii) The Series A Conversion Value shall be readjusted
in the manner described in this Section 4(d) upon the happening of any
successive events described herein that, pursuant to this Section 4(d), would
require an adjustment to the Series A Conversion Value.
(e) Reclassification. If the Common Stock issuable upon the
conversion of the Series A Preferred Stock shall be changed into the same or
different number of shares of any class or classes of stock, by reclassification
(other than a subdivision or combination of shares or stock dividend or
distribution provided for elsewhere in this Section 4 or by a Reorganization (as
defined in Section 4(f) below)), then and in each such event, the holder of each
share of Series A Preferred Stock shall have the right thereafter to convert
such share into the kind and amount of shares of stock and other securities and
property receivable upon such reclassification by holders of the number of
shares of Common Stock into which such shares of Series A Preferred Stock might
have been converted immediately prior to such reclassification .
(f) Capital Reorganization; Merger or Sale of Assets. If at any
time or from time to time there shall be a capital reorganization of the Common
Stock (other than a subdivision, combination, reclassification or exchange of
shares provided for elsewhere in this Section 4) or a merger, consolidation or
similar business combination of the Corporation with or into another entity, or
the sale, assignment, lease or transfer of all or substantially all of the
Corporation's properties and assets to any other person, or the sale of a
majority of the voting securities of the Corporation in one transaction or a
series of related transactions (any of which events is herein referred to as a
"Reorganization"), then, subject to Section 2(b), as a part of such
Reorganization, provision shall be made so that the holders of the Series A
Preferred Stock shall thereafter be
9
entitled to receive, upon conversion of the Series A Preferred Stock, the number
of shares of stock or other securities or property of the Corporation, or of the
successor corporation resulting from such Reorganization, to which such holder
would have been entitled if such holder had converted all (or, at the election
of such holder of Series A Preferred Stock in connection with a Reorganization
in which the holders of the Common Stock sell or exchange fewer than 100% of
their shares, the same percentage as is being sold by the holders of the Common
Stock) of its shares of Series A Preferred Stock immediately prior to such
Reorganization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 4 with respect to the rights of
the holders of the Series A Preferred Stock after the Reorganization, to the end
that the provisions of this Section 4 (including adjustment of the Series A
Conversion Value then in effect and the number of shares issuable upon
conversion of the Series A Preferred Stock) shall be applicable after that event
in as nearly equivalent a manner as may be practicable.
(g) Certificate as to Adjustments; Notice by Corporation. In each
case of an adjustment or readjustment of the Series A Conversion Rate, the
Corporation at its expense will furnish each holder of Series A Preferred Stock
with a certificate, executed by the president and chief financial officer (or in
the absence of a person designated as the chief financial officer, by the
treasurer) showing such adjustment or readjustment, and stating in detail the
facts upon which such adjustment or readjustment is based.
(h) Exercise of Conversion Privilege. To exercise its conversion
privilege, a holder of Series A Preferred Stock shall surrender the certificate
or certificates representing the shares being converted to the Corporation at
its principal office, and shall give written notice to the Corporation at that
office that such holder elects to convert such shares. Such notice shall also
state the name or names (with address or addresses) in which the certificate or
certificates for shares of Common Stock issuable upon such conversion shall be
issued. The certificate or certificates for shares of Series A Preferred Stock
surrendered for conversion shall be accompanied by proper assignment thereof to
the Corporation or in blank. The date when such written notice is received by
the Corporation, together with the certificate or certificates representing the
shares of Series A Preferred Stock being converted, shall be the "Conversion
Date." As promptly as practicable after the Conversion Date, the Corporation
shall issue and shall deliver to the holder of the shares of Series A Preferred
Stock being converted, or on its written order, such certificate or certificates
as it may request for the number of whole shares of Common Stock issuable upon
the conversion of such shares of Series A Preferred Stock in accordance with the
provisions of this Section 4, and cash, as provided in Section 4(i), in respect
of any fraction of a share of Common Stock issuable upon such conversion, and
Section 1(a). Such conversion shall be deemed to have been effected immediately
prior to the close of business on the Conversion Date, and at such time the
rights of the holder as holder of the converted shares of Series A Preferred
Stock shall cease (other than the right to receive the Common Stock and other
amounts payable pursuant to this Section 4) and the person or persons in whose
name or names any certificate or certificates for shares of Common Stock shall
be issuable upon such conversion shall be deemed to have become the holder or
holders of record of the shares of Common Stock represented thereby. All shares
of Common Stock delivered upon conversion of the Series A Preferred Stock will
upon delivery be duly and validly issued and fully paid and non-assessable, free
of all liens and charges and not subject to any preemptive rights other than as
set forth in the Investor Rights Agreement among the Corporation and the
Investor (the "Investor Rights Agreement").
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From the date of delivery by a holder of shares of Series A Preferred
Stock of such notice of election to convert, in lieu of dividends on such Series
A Preferred Stock pursuant to Section 1(a), such Series A Preferred Stock shall
participate equally and ratably with the holders of shares of Common Stock in
all dividends paid on the Common Stock as if such shares of Series A Preferred
Stock had been converted to shares of Common Stock at the time of such delivery.
(i) Cash in Lieu of Fractional Shares. The Corporation shall, in
lieu of issuing fractional shares of Common Stock or scrip representing
fractional shares upon the conversion of shares of Series A Preferred Stock, pay
to the holder of the shares of Series A Preferred Stock which were converted a
cash adjustment in respect of such fractional shares in an amount equal to the
same fraction of the Fair Market Value per share of the Common Stock at the
close of business on the Conversion Date.
(j) Partial Conversion. In the event some but not all of the
shares of Series A Preferred Stock represented by a certificate or certificates
surrendered by a holder are converted, the Corporation shall execute and deliver
to or on the order of the holder, at the expense of the Corporation, a new
certificate representing the number of shares of Series A Preferred Stock which
were not converted.
(k) Reservation of Common Stock. The Corporation shall at all
times reserve and keep available out of its authorized but unissued shares of
capital stock, solely for the purpose of effecting the conversion of the shares
of the Series A Preferred Stock, such number of its shares of Common Stock (or
any other securities into which the Series A Preferred Stock may become
convertible) as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Series A Preferred Stock, and if at any time
the number of authorized but unissued shares of Common Stock (or such other
securities) shall not be sufficient to effect the conversion of all then
outstanding shares of the Series A Preferred Stock, the Corporation shall take
such corporate action as may be necessary to increase its authorized but
unissued shares of Common Stock (or such other securities) to such number of
shares as shall be sufficient for such purpose.
The Corporation will pay any and all documentary, stamp or similar
issue or transfer taxes payable in respect of the issue or delivery of shares of
Common Stock on conversion of the Series A Preferred Stock pursuant hereto;
provided that the Corporation shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issue or delivery of shares
of Common Stock in a name other than that of the holder the Series A Preferred
Stock to be converted and no such issue or delivery shall be made unless and
until the person requesting such issue or delivery has paid to the Corporation
the amount of any such tax or has established, to the satisfaction of the
Corporation, that such tax has been paid.
(l) Minimum Adjustment. Any provision of this Section 4 to the
contrary notwithstanding, no adjustment in the Series A Conversion Value shall
be made if the amount of such adjustment would be less than 1% of the Series A
Conversion Value then in effect, but any such amount shall be carried forward
and an adjustment with respect thereto shall be made at the time of and together
with any subsequent adjustment which, together with all amounts so carried
forward, aggregates 1% or more of the Series A Conversion Value then in effect.
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(m) Termination of Preferences. Upon the election of the
Corporation, following (i) the effectiveness of the Corporation's registration
statement for the sale of the Corporation's Common Stock in a Qualified Public
Offering (as hereinafter defined) and the date not earlier than three years from
the issuance of the Series A Preferred Stock that the average (weighted by daily
trading volume) Daily Price of the Corporation's Common Stock is at least 200%
of the Series A Conversion Value for the 90 prior consecutive trading days, or
(ii) the election by holders of the majority of the then outstanding Series A
Preferred Stock to convert some or all of the Series A Preferred Stock into
shares of Common Stock, the dividend preferences described in Section 1 hereof,
the liquidation preferences described in Section 2 hereof, the voting rights set
forth in Section 3 and Section 6 hereof and the rights for adjustments to the
Series A Conversion A Value described in Section 4(d) hereof shall terminate and
be of no further force and effect and the holders of the Series A Preferred
Stock shall be entitled to receive only those dividend and liquidation payments
that they would have received had the Series A Preferred Stock been converted
into shares of Common Stock pursuant to Section 4 and there shall be no further
adjustments to the Series A Conversion Value. For purposes hereof, the term
"Qualified Public Offering" shall mean (i) an underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "Act"), covering the offer and sale of Common Stock for
the account of the Corporation in which the aggregate net proceeds to the
Corporation equal at least $100,000,000 or (ii) any Reorganization or similar
transaction, that has been approved by the holders of a majority of the shares
of Series A Preferred Stock, in which the surviving entity has a class of
securities registered under the Act with a market capitalization equal to or
greater than $100,000,000. The Corporation shall provide the holders of Series A
Preferred Stock fourteen (14) days prior written notice of any election to be
made at the end of such fourteen (14) day period pursuant to this Section 4(m).
5. No Reissuance of Series A Preferred Stock. No share or shares
of Series A Preferred Stock acquired by the Corporation by reason of redemption,
purchase, conversion or otherwise shall be reissued, and all such shares shall
be canceled, retired and eliminated from the shares which the Corporation shall
be authorized to issue. The Corporation may from time to time take such
appropriate corporate action as may be necessary to reduce the authorized number
of shares of the Series A Preferred Stock accordingly.
6. Restrictions and Limitations.
(a) Corporate Action. Except as expressly provided herein or as
required by law, so long as the Series A Preferred Stock remains outstanding,
the Corporation shall not, and shall not permit any subsidiary (which shall mean
any corporation, association or other business entity which the Corporation
and/or any of its other subsidiaries directly or indirectly owns at the time
more than fifty percent (50%) of the outstanding voting shares of such entity,
other than directors' qualifying shares or has the power by contract or
otherwise to elect a majority of the board of directors or equivalent governing
body) to, without the approval by vote or written consent by the holders of at
least a majority of the then outstanding shares of Series A Preferred Stock,
consenting or voting separately as a class:
(i) redeem, purchase or otherwise acquire for value (or pay into or
set aside for a sinking fund for such purpose), or declare and pay or set aside
funds for the payment of any dividend with respect to, any share or shares of
capital stock, except as required hereunder with
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respect to the Series A Preferred Stock, except for repurchasing shares of
Common Stock from employees or consultants of the Corporation at the original
purchase price thereof pursuant to vesting agreements unanimously approved by
the Board of Directors and except for any prior S Corporation shareholder tax
liabilities pursuant to arrangements previously disclosed to the holders of the
Series A Preferred Stock where the Corporation reimburses shareholders of
Business Telecom, Inc. for S Corporation taxes;
(ii) authorize or issue, or obligate itself to authorize or
issue, additional shares of Series A Preferred Stock;
(iii) authorize or issue, or obligate itself to authorize or
issue, any equity security on a parity with or having preference or priority
over the Series A Preferred Stock as to liquidation preferences, redemption
rights, dividend rights, voting rights or otherwise;
(iv) authorize or issue, or obligate itself to authorize or
issue, any equity security (or security convertible or exchangeable into an
equity security) that by its terms, obligates the Corporation to redeem shares
of such security while any shares of Series A Preferred Stock are outstanding;
(v) through one transaction or a series of transactions, (a)
sell, assign, lease or transfer all the shares of the Corporation's capital
stock or of all or substantially all of its assets to, or merge, consolidate or
enter into a similar business combination with or into, or sell securities
constituting a majority of the voting securities of the Corporation to, an
entity, a majority of the voting power of which is not owned or controlled,
directly or indirectly, by one or more shareholders of the Corporation
immediately prior to the transaction or (b) liquidate or distribute all or
substantially all of the assets of the Corporation, (any of the foregoing, a
"Change in Control Transaction"), unless the proceeds received by the holders of
the Series A Preferred Stock have a Fair Market Value equal to or greater than
$2,000 per share, subject to adjustment for stock splits, stock dividends,
reorganizations and the like, the Internal Rate of Return to the holders of
Series A Preferred Stock (the "Holders") equals or exceeds thirty percent (30%),
and the holders of the Series A Preferred Stock receive the same form of
consideration as the holders of the Corporation's Common Stock, except for (1)
any wholly-owned subsidiary may merge into or consolidate with or transfer
assets to any other wholly-owned subsidiary, and (2) any wholly-owned subsidiary
may merge into or transfer assets to the Corporation. For purposes hereof,
"Internal Rate of Return" means the effective annual rate of interest which,
when applied to all cash flows (as determined below) made to, or received from,
the Corporation with respect to the aggregate dollar amount of all equity
capital invested by the Holders in the Series A Preferred Stock on or prior to
such date (the "Series A Investment"), makes the net present value of all such
cash flows equal to zero. The Series A Investment shall be deemed to be a cash
outflow. Payments made by a new Holder for a purchase of securities from an
existing Holder shall not be deemed to be a cash outflow. Cash dividends or
other cash amounts, if any, paid by the Corporation to the Holders in respect of
the Series A Investment will be deemed to be interim cash inflows with respect
to the Series A Investment. Distributions or proceeds received by the Holders in
respect of the Series A Investment consisting of property other than cash shall
be valued at the Fair Market Value thereof as determined as of the date such
distributions or proceeds were received. The final cash flow with respect to the
Series A Investment will be based on the total net proceeds that will be
actually received by the Holders on the date of the
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completion of a Change in Control Transaction. Notwithstanding the foregoing,
the Internal Rate of Return will be calculated on a fully diluted basis. The
Internal Rate of Return will be calculated with the timing of cash flows assumed
to be on a quarterly basis (March 31, June 30, September 30 and December 31) and
with all specific cash flows during a quarter deemed to have occurred on the
last day of such quarter; or
(vi) amend, restate, modify or alter the Bylaws of the
Corporation in any way which adversely affects the rights of the holders of the
Series A Preferred Stock.
(b) Amendments to Charter. (x) The Corporation shall not amend its
Articles of Incorporation without the approval, by vote or written consent, by
the holders of at least a majority of the then outstanding shares of Series A
Preferred Stock affected by such action, consenting or voting separately as a
class, if such amendment would:
(i) materially and adversely amend, alter or change the
rights, preferences, privileges of or limitations provided for herein with
respect to the Series A Preferred Stock or the holders thereof;
(ii) change the relative seniority rights of the holders of
the Series A Preferred Stock as to the payment of dividends in relation to the
holders of any other capital stock of the Corporation, or create any other class
or series of capital stock entitled to seniority as to the payment of dividends
in relation to the holders of such Series A Preferred Stock; or
(iii) reduce the amount payable to the holders of such Series A
Preferred Stock upon the voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, or change the relative seniority of the
liquidation preferences of the holders of such Series A Preferred Stock to the
rights upon liquidation of the holders of other capital stock of the
Corporation, or change the dividend rights of the holders of such Series A
Preferred Stock.
(y) The Corporation shall not amend Articles VI or VII of its Articles
of Incorporation without the prior written consent of the Investor, for so long
as the Investor has any rights under the applicable sections of the Investor
Rights Agreement or the Shareholders Agreement (as defined below), as the case
may be.
7. No Dilution or Impairment. The Corporation will not, by
amendment of its Articles of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of the Series A Preferred Stock set forth
herein. Without limiting the generality of the foregoing, the Corporation (a)
will not increase the par value of any shares of stock receivable on the
conversion of the Series A Preferred Stock above the amount payable therefor on
such conversion, and (b) will take all such action as may be necessary or
appropriate in order that the Corporation may validly and legally issue fully
paid and nonassessable shares of stock on the conversion of all Series A
Preferred Stock from time to time outstanding.
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8. Notices of Record Date. In the event of:
(a) any taking by the Corporation of a record of the holders of
any class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, or
(b) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger of the Corporation, or any transfer of all or substantially all of
the assets of the Corporation to any other corporation, or any other entity or
person,
(c) any voluntary or involuntary dissolution, liquidation or winding up
of the Corporation, or
(d) any event described in Section 4(e), 4(f) or 6(a)(v) or clauses (i)
or (ii) of the first sentence of Section 4(m), then and in each such event the
Corporation shall mail or cause to be mailed to each holder of Series A
Preferred Stock a notice specifying (i) the date on which any such record is to
be taken for the purpose of such dividend, distribution or right and a
description of such dividend, distribution or right, (ii) the date on which any
such reorganization, reclassification, recapitalization, transfer, merger,
dissolution, liquidation, winding up, Qualified Public Offering or election is
expected to become effective and (iii) the time, if any, that is to be fixed, as
to when the holders of record of Common Stock (or other securities) shall be
entitled to exchange their shares of Common Stock (or other securities) for
securities or other property deliverable upon such reorganization,
reclassification, recapitalization, transfer, merger, dissolution, liquidation
or winding up. Such notice shall be mailed at least fifteen (15) business days
prior to the date specified in such notice on which such action is to be taken.
ARTICLE V.
For the management of the business and for the conduct of the affairs
of the Corporation, and in further definition, limitation and regulation of the
powers of the Corporation, of its directors and of its shareholders or any class
thereof, as the case may be, it is further provided that:
1. The management of the business and the conduct of the affairs
of the Corporation shall be vested in its Board of Directors.
2. The number of Directors of the Corporation may be fixed by the
Bylaws.
3. Except as otherwise provided in these Amended and Restated Articles
of Incorporation, the Board of Directors may from time to time make, amend,
supplement or repeal the Bylaws of the Corporation.
4. Elections of Directors may be, but shall not be required to be, by
written ballot.
5. Except to the extent that the North Carolina General Statutes
prohibit such limitation or elimination of liability of directors for breaches
of duty, no Director of the
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Corporation shall be liable to the Corporation or to any of its shareholders for
monetary damages for breach of duty as a Director. No amendment to or repeal of
this provision or adoption of a provision inconsistent herewith shall apply to
or have any effect on the liability or alleged liability of any Director of the
Corporation for or with respect to any acts or omissions of such Director
occurring prior to such amendment or repeal or adoption of an inconsistent
provision. The provisions of this Article shall not be deemed to limit or
preclude indemnification of a Director by the Corporation for any liability that
has not been eliminated by the provisions of this Article.
ARTICLE VI.
Certain shareholders of the Corporation shall have preemptive rights to
purchase additional securities of the Corporation pursuant to, and to the extent
set forth in, Article II of the Investor Rights Agreement. Such preemptive
rights, including rights regarding amendment, waiver or termination of such
rights, shall be governed by the Investor Rights Agreement.
ARTICLE VII.
The Corporation shall not, and shall not permit any of its subsidiaries
to, take any of the actions set forth in Section 7 of the Shareholders Agreement
by and among the Corporation, Peter T. Loftin and the Investor (the
"Shareholders Agreement"), without the prior written consent of the parties
specified in such Section 7. Election of members of the board of directors of
the Corporation and its subsidiaries shall be subject to the right of the
Investor pursuant to Sections 5 and 6 of the Shareholders Agreement to designate
the number of directors to each such board of directors as is specified in
Sections 5 and 6. The amendment, waiver or termination of the rights set forth
in the Shareholders Agreement shall be governed by the terms of the Shareholders
Agreement.
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