-----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, E9V/Wi06vuWa4I8DA/7lY74c3HfGxGlQny29tLOkw2L6qvCrmENxSr7A/gkz9INh YCTwZo9TZrGKf01MQkIglg== 0000928385-01-501259.txt : 20010703 0000928385-01-501259.hdr.sgml : 20010703 ACCESSION NUMBER: 0000928385-01-501259 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20010702 GROUP MEMBERS: ITC HOLDING CO INC GROUP MEMBERS: ITC TELECOM VENTURES SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: ITC DELTACOM INC CENTRAL INDEX KEY: 0001041954 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 582301135 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: SEC FILE NUMBER: 005-51889 FILM NUMBER: 1673828 BUSINESS ADDRESS: STREET 1: 1791 O G SKINNER DRIVE CITY: WEST POINT STATE: GA ZIP: 31833 BUSINESS PHONE: 7066453880 MAIL ADDRESS: STREET 1: 1791 O G SKINNER DR CITY: WEST POINT STATE: GA ZIP: 31833 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: ITC HOLDING CO INC CENTRAL INDEX KEY: 0000851576 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 582341736 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 1230 O.G. SKINNER DR CITY: WESTPOINT STATE: GA ZIP: 31833 BUSINESS PHONE: 7066451011 MAIL ADDRESS: STREET 1: 1239 OG SKINNER DRIVE CITY: WEST POINT STATE: GA ZIP: 31833 SC 13D 1 dsc13d.txt SCHEDULE 13D UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D UNDER THE SECURITIES EXCHANGE ACT OF 1934 (Amendment No. __________)/1/ ITC/\DeltaCom, Inc. ------------------- (Name of Issuer) Common Stock, par value $.01 per share -------------------------------------- (Title of Class of Securities) 45031T 10 4 ----------- (CUSIP Number) Kimberley E. Thompson, c/o ITC Holding Company, Inc., ----------------------------------------------------- 3300 20th Avenue Valley, AL 36854 (334) 768-5067 ------------------------------------------------ (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) June 20, 2001 ------------- (Date of Event Which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box:[_] NOTE: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7(b) for other parties to whom copies are to be sent. ____________________________ /1/ The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). Page 2 of 19 CUSIP NO. 45031T 10 4 13D ----------------- - ------------------------------------------------------------------------------ 1 NAMES OF REPORTING PERSONS S.S OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS ITC Holding Company, Inc. - ------------------------------------------------------------------------------ 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [_] (b) [_] - ------------------------------------------------------------------------------ 3 SEC USE ONLY - ------------------------------------------------------------------------------ 4 SOURCE OF FUNDS WC; BK - ------------------------------------------------------------------------------ 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [_] - ------------------------------------------------------------------------------ 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - ------------------------------------------------------------------------------ 7 SOLE VOTING POWER -0- NUMBER OF ----------------------------------------------------------- SHARES 8 SHARED VOTING POWER 4,867,387 BENEFICIALLY ----------------------------------------------------------- OWNED BY 9 SOLE DISPOSITIVE POWER -0- EACH ----------------------------------------------------------- REPORTING 10 SHARED DISPOSITIVE POWER 4,867,387 PERSON WITH - ------------------------------------------------------------------------------ 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 4,867,387 - ------------------------------------------------------------------------------ 12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [_] - ------------------------------------------------------------------------------ 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 7.3% - ------------------------------------------------------------------------------ 14 TYPE OF REPORTING PERSON (See Instructions) CO - ------------------------------------------------------------------------------ Page 3 of 19 CUSIP NO. 45031T 10 4 13D ----------------- - ------------------------------------------------------------------------------ 1 NAMES OF REPORTING PERSONS S.S OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS ITC Telecom Ventures, Inc. - ------------------------------------------------------------------------------ 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [_] (b) [_] - ------------------------------------------------------------------------------ 3 SEC USE ONLY - ------------------------------------------------------------------------------ 4 SOURCE OF FUNDS WC; BK - ------------------------------------------------------------------------------ 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [_] - ------------------------------------------------------------------------------ 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - ------------------------------------------------------------------------------ NUMBER OF 7 SOLE VOTING POWER -0- ----------------------------------------------------- SHARES 8 SHARED VOTING POWER 4,561,404 BENEFICIALLY ----------------------------------------------------- OWNED BY 9 SOLE DISPOSITIVE POWER -0- EACH ----------------------------------------------------- REPORTING 10 SHARED DISPOSITIVE POWER 4,561,404 PERSON WITH - ------------------------------------------------------------------------------ 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 4,561,404 - ------------------------------------------------------------------------------ 12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [_] - ------------------------------------------------------------------------------ 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 6.8% - ------------------------------------------------------------------------------ 14 TYPE OF REPORTING PERSON (See Instructions) CO - ------------------------------------------------------------------------------ Page 4 of 18 SCHEDULE 13D ITEM 1. SECURITY AND ISSUER. This statement on Schedule 13D (the "Statement") relates to the Common Stock, par value $.01 per share ("Common Stock"), of ITC/\DeltaCom, Inc., a Delaware corporation ("ITC/\DeltaCom"), the principal executive offices of which are located at 1791 O.G. Skinner Drive, West Point, GA 31833. ITEM 2. IDENTITY AND BACKGROUND. This Statement is being filed by ITC Holding Company, Inc., a Delaware corporation ("Holding"), and ITC Telecom Ventures, Inc., a Delaware corporation which is an indirect wholly owned subsidiary of Holding ("Ventures"). Ventures is a direct wholly owned subsidiary of InterCall, Inc., a Delaware corporation ("InterCall"), and InterCall is a direct wholly owned subsidiary of Holding. Holding and Ventures are referred to collectively in this Statement as the "Reporting Persons." (a) - (c) and (f) The principal business offices of Holding are located at 3300 20th Avenue, Valley, AL 36854. Holding owns, operates and invests in companies involved in a wide range of communications and technology businesses, including telecommunications services, conference calling and videoconferencing, Internet content, and broadband cable services. The names of the directors and executive officers of Holding and their respective business addresses, citizenship and present principal occupations or employment, as well as the names, principal businesses and addresses of any corporations and other organizations in which such employment is conducted, are set forth on Schedule I hereto, which Schedule is incorporated herein by reference. The principal business offices of InterCall are located at 8420 W. Bryn Mawr Avenue, Suite 400, Chicago, Illinois 60631. InterCall provides audio and video conference communications services to businesses. The names of the directors and executive officers of InterCall and their respective business addresses, citizenship and present principal occupations or employment, as well as the names, principal businesses and addresses of any corporations and other organizations in which such employment is conducted, are set forth on Schedule II hereto, which Schedule is incorporated herein by reference. The principal business offices of Ventures are located at 3300 20th Avenue, Valley, AL 36854. Ventures owns, operates and invests in companies involved principally in communications and technology businesses. The names of the directors and executive officers of Ventures and their respective business addresses, citizenship and present principal occupations or employment, as well as the names, principal businesses and addresses of any corporations and other organizations in which such employment is conducted, are set forth on Schedule III hereto, which Schedule is incorporated herein by reference. (d) and (e) Neither Holding, nor, to the best of its knowledge, any of the persons listed in Schedule I hereto has during the last five years been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). Neither Holding nor, to the best of its knowledge, any of the persons listed in Schedule I hereto has during the last five years been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. Neither InterCall, nor, to the best of its knowledge, any of the persons listed in Schedule II hereto has during the last five years been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). Neither InterCall nor, to the best of its knowledge, any of the persons listed in Schedule II hereto has during the last five years been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such Page 5 of 19 proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. Neither Ventures, nor, to the best of its knowledge, any of the persons listed in Schedule III hereto has during the last five years been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). Neither Ventures nor, to the best of its knowledge, any of the persons listed in Schedule III hereto has during the last five years been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. As more fully described in Item 6 below, on June 20, 2001, pursuant to the terms of that certain Investment Agreement, dated as of February 27, 2001, as amended by that certain Amendment No. 1 to Investment Agreement, dated as of May 29, 2001, by and among ITC/\DeltaCom, Holding, SCANA Corporation and HBK Master Fund L.P. (together, the "Investment Agreement"), the Reporting Persons purchased from ITC/\DeltaCom for an aggregate purchase price of $20 million an aggregate of 20,000 shares of an initial series, designated "Series B-1 Cumulative Convertible Preferred Stock," of ITC/\DeltaCom's Series B Cumulative Convertible Preferred Stock, par value $.01 per share (the "Series B Preferred Stock"), and received from ITC/\DeltaCom for no additional consideration a warrant to purchase shares of Common Stock (the "Warrant") with an aggregate exercise price of $6 million. As of June 20, 2001, the shares of Series B Preferred Stock and the Warrant were convertible or exercisable for 4,561,404 shares of Common Stock. The Reporting Persons funded the investment in ITC/\DeltaCom from their working capital and through draw downs on an existing credit facility with First Union Corporation. ITEM 4. PURPOSE OF THE TRANSACTION. The Reporting Persons consummated the transactions described herein in order to acquire an equity interest in ITC/\DeltaCom for investment purposes. The Reporting Persons intend to review continuously their position in ITC/\DeltaCom. Depending on future evaluations of the business prospects of ITC/\DeltaCom and upon other developments, including, but not limited to, general economic and business conditions and stock market conditions, the Reporting Persons may retain or from time to time increase their holdings or dispose of all or a portion of their holdings, subject to any applicable legal and contractual restrictions on their ability to do so, including the terms and conditions of the Investment Agreement. In addition, the matters set forth in Item 6 below are incorporated in this Item 4 by reference as fully set forth herein. Except as set forth above, neither the Reporting Persons, nor to their knowledge, any person identified in Schedule I, Schedule II or Schedule III has any plans or proposals which relate to or would result in the types of transaction set forth in paragraph (a) through (j) of Item 4 of Schedule 13D. ITEM 5. INTEREST IN SECURITIES OF THE COMPANY. The information set forth in Schedule I, Schedule II and Schedule III as it relates to the securities ownership of the individuals identified therein is incorporated in this Item 5 by reference. (a) (i) Holding owns through ITC Service Company, Inc., an indirect wholly owned subsidiary of Holding, 269,622 shares of Common Stock; (ii) Holding has the right to acquire 36,361 shares of Common Stock within 60 days of this Statement pursuant to the earn-out provision of a merger agreement, dated as of April 15, 1999, by and among ITC/\DeltaCom, Interstate FiberNet, Inc. and AvData Systems, Inc.; (iii) Holding indirectly owns through Ventures 20,000 shares of Series B Preferred Stock, which are convertible into 3,508,772 shares of Common Page 6 of 19 Stock, assuming the conversion of all 20,000 shares of Series B Preferred Stock pursuant to Section 8(a) of the Certificate of Designation of the Series B Preferred Stock (the "Series B Certificate of Designation"), which sets forth a formula for determining the number of shares of Common Stock issuable, as at any date, upon conversion of the Series B Preferred Stock; and (iv) pursuant to the terms of the Warrant, Holding indirectly has the right to acquire through Ventures 1,052,632 shares of Common Stock upon exercise of the Warrant. Based on information set forth in ITC/\DeltaCom's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001, which stated that 62,235,883 shares of Common Stock were outstanding as of May 8, 2001, Holding is the beneficial owner of approximately 7.3% of the outstanding Common Stock, and Ventures is the beneficial owner of approximately 6.8% of the outstanding Common Stock, calculated in each case in accordance with Rule 13d-3(d) of the Act. (b) Assuming conversion of all Series B Preferred Stock and the exercise of the Warrant, the number of shares as to which Holding has: (i) sole power to vote or to direct the vote -- 0. (ii) shared power to vote or to direct the vote -- 4,867,387. (iii) sole power to dispose or to direct the disposition of -- 0. (iv) shared power to dispose or to direct the disposition of -- 4,867,387. Assuming conversion of all Series B Preferred Stock and the exercise of the Warrant, the number of shares as to which Series B Ventures has: (i) sole power to vote or to direct the vote -- 0. (ii) shared power to vote or to direct the vote -- 4,561,404. (iii) sole power to dispose or to direct the disposition of -- 0. (iv) shared power to dispose or to direct the disposition of -- 4,561,404. By virtue of its ownership of all of the outstanding capital stock of Ventures through its wholly owned subsidiary of InterCall, Holding has the power to cause Ventures to vote, and dispose or direct the disposition of, such shares of Common Stock at the times and in the manner determined by Holding. (c) The Reporting Persons have not, and to the their knowledge, the persons listed in Schedule I, Schedule II and Schedule III hereto have not, within the past 60 days, effected any Common Stock transactions, except as otherwise disclosed in such Schedules or in Item 3. (d) Not applicable. (e) Not applicable. ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE COMPANY. The responses to Items 3, 4 and 5 of this Statement are incorporated herein by reference. Except as set forth or incorporated by reference herein, neither the Reporting Persons nor, to their knowledge, any of the persons listed on Schedule I, Schedule II or Schedule III hereto, has any contract, arrangement, understanding or relationship with any other person with respect to any securities of ITC/\DeltaCom. For purposes of this Item 6, references to Holding shall be deemed to include its affiliates, including, without limitation, Ventures. Description of Investment Agreement: The following summary of the material terms and provisions of the Investment Agreement is qualified in its entirety by reference to the Investment Agreement. The Investment Agreement is attached as Exhibit 1 hereto and incorporated by reference herein. Page 7 of 19 Overview. The Investment Agreement provides that, upon the terms and conditions - -------- set forth in the Investment Agreement, Holding and other investors will purchase in a series of closings for a total purchase price of up to $150 million: . up to 150,000 shares of ITC/\DeltaCom's Series B Preferred Stock in multiple series at a purchase price of $1,000 per share; and . warrants to purchase shares of ITC/\DeltaCom's Common Stock having a total exercise price of up to $45 million. ITC/\DeltaCom will issue the warrants for no additional consideration on each closing date it issues and sells Series B Preferred Stock. The total exercise price of the warrants issued on each closing date will equal 30% of the total purchase price of the Series B Preferred Stock issued and sold on that date. Any particular investor, including Holding, and members of that investor's "group" within the meaning of Sections 13(d) and 14(d)(2) of the Act may invest pursuant to the Investment Agreement and acquire Common Stock upon conversion or exercise of the Series B Preferred Stock and the warrants only to the extent that such an investment and conversion or exercise would not result in their beneficial ownership of more than 35% of the total voting power of ITC/\DeltaCom's voting securities on a fully diluted basis, as calculated in accordance with various agreements governing ITC/\DeltaCom's indebtedness and as determined by the Board of Directors of ITC/\DeltaCom in good faith. This limitation is intended to prevent the occurrence of a change of control of ITC/\DeltaCom as defined under such agreements. The principal powers, preferences and rights of the Series B Preferred Stock are summarized below under "Description of Series B Preferred Stock" and the principal terms of the warrants are summarized below under "Description of the Warrants." As described below under "Description of Series B Preferred Stock," shares of Series B Preferred Stock issued on different closing dates will be designated and issued as different series, beginning with the designation "Series B-1 Cumulative Convertible Preferred Stock" for the 30,000 shares of Series B Preferred Stock which were issued at the initial closing on June 20, 2001 and continuing thereafter with consecutively numbered series for the Series B Preferred Stock, if any, issued at each draw down closing. Shares of any series may have conversion prices and other powers, preferences and rights that differ from those of other series. All shares of Series B Preferred Stock paid as a dividend on outstanding Series B Preferred Stock will be designated the same series as the shares with respect to which they were paid. Unless otherwise specified in the following description, references to the Series B Preferred Stock refer to all shares of Series B Preferred Stock issued or issuable pursuant to the Investment Agreement regardless of their issue date or series designation, and references to a series refer to all shares of Series B Preferred Stock issued on the same closing date and to all shares paid as dividends with respect to shares issued on that closing date. Schedule of Closings. ITC/\DeltaCom will issue and sell the Series B Preferred - -------------------- Stock and the warrants under the Investment Agreement in: . the initial closing, which occurred on June 20, 2001; and . one or more draw down closings, which may take place during a one-year period ending on June 20, 2002 if ITC/\DeltaCom exercises its right to sell additional Series B Preferred Stock and warrants during that period. Initial Closing. At the initial closing on June 20, 2001, Holding purchased, for - --------------- a total purchase price of $20 million, 20,000 shares of Series B Preferred Stock and received for no additional consideration the Warrant having a total exercise price of $6 million. At the initial closing, certain other investors, which are identified below, in the aggregate purchased, for a total purchase price of $10 million, 10,000 shares of Series B Preferred Stock and received for no additional consideration warrants having a total exercise price of $3 million. Draw Down Closings. Holding has agreed to purchase during the commitment period - ------------------ up to an additional 80,000 shares of Series B Preferred Stock and warrants with a total Page 8 of 19 exercise price of up to $24 million. The other investors have agreed to purchase in the aggregate during the commitment period up to an additional 40,000 shares of Series B Preferred Stock and warrants with a total exercise price of up to $12 million. The commitment period began on June 15, 2001 and will terminate on the first anniversary of the initial closing date or, if earlier, on the date on which ITC/\DeltaCom has sold all of the securities covered by the purchase commitment. Holding's purchase commitment will be reduced by: . $1.00 for each $1.33 of net proceeds received by ITC/\DeltaCom from any sales for cash of debt securities or equity securities that require payment of cash dividends which ITC/\DeltaCom completes on or after February 27, 2001 and before the termination of the commitment period; and . $1.00 for each $1.00 of net proceeds received by ITC/\DeltaCom from any sales of Common Stock or other equity securities for cash which the ITC/\DeltaCom completes on or after February 27, 2001 and before the termination of the commitment period, other than any equity securities that require payment of cash dividends, that are issued under any of ITC/\DeltaCom's benefit plans or that are issuable upon exercise or conversion of specified securities or other rights outstanding or contemplated to be issued as of February 27, 2001. Once Holding's commitment has been reduced to $0, the obligations of the other investors who are party to the Investment Agreement will be reduced proportionally according to their commitment amounts. ITC/\DeltaCom has the right, but is not obligated, to cause Holding and the other investors to purchase portions of the committed amount at one or more draw down closings. To exercise this right, ITC/\DeltaCom must deliver a draw down notice to Holding and the other investors that specifies the total purchase price of the shares of Series B Preferred Stock and warrants to be issued and sold at the applicable draw down closing. ITC/\DeltaCom has the right to withdraw a draw down notice and terminate its obligation to sell Series B Preferred Stock and warrants at a draw down closing based on a decrease below the "floor price" in the average market price of the Common Stock during a 20- day valuation period ending on the second business day before the scheduled draw down closing date. The floor price will be equal to 80% of the average of the market prices of the Common Stock for the 20 consecutive trading days ending on the business day before ITC/\DeltaCom delivers the draw down notice. ITC/\DeltaCom may issue and sell at any draw down closing to Holding and the other investors in the aggregate a minimum of 10,000 shares of Series B Preferred Stock and warrants having a total exercise price of $3 million, for a purchase price of $10 million, and a maximum of 30,000 shares of Series B Preferred Stock and warrants having a total exercise price of $9 million, for a purchase price of $30 million, provided that for the initial draw down closing only, the maximum amount that may be issued will be 40,000 shares of Series B Preferred Stock and warrants having a total exercise price of $12 million, for a purchase price of $40 million. A special committee of ITC/\DeltaCom's Board of Directors must approve and authorize each exercise by ITC/\DeltaCom of its right to cause Holding and the other investors to purchase portions of the committed amount. Each draw down closing will take place on the 30th day following the receipt by Holding and the other investors of ITC/\DeltaCom's draw down notice, unless the parties agree to a different date. A draw down closing may not take place earlier than the 45th day following a prior draw down closing. Assignment of Purchase Commitment by Holding. Holding may assign to other - -------------------------------------------- investors its rights to purchase Series B Preferred Stock and warrants at any or all closings and its related obligations under the Investment Agreement. ITC/\DeltaCom will not have the right to consent to any such assignment or to approve any permitted assignee. As a condition to the effectiveness of any such assignment, the permitted assignee will be required to: . meet any eligibility requirements under applicable securities laws; Page 9 of 19 . agree to become a party to, and be bound by, the Investment Agreement, including all of the terms, conditions and covenants of the Investment Agreement that are applicable to Holding and to securities held by Holding; and . agree to have made the representations and warranties set forth in the Investment Agreement. An assignment by Holding of its obligation to purchase Series B Preferred Stock and warrants at any draw down closing will relieve Holding of its obligation to purchase those securities only if the permitted assignee is, and furnishes Holding and ITC/\DeltaCom with information that establishes that it is, an entity with total assets of at least $250 million. Assignees of Holding under the Investment Agreement will not be entitled to these assignment rights granted to Holding. As of the date of this Statement, Holding has assigned $50 million of its purchase commitment to two other investors, SCANA Corporation (a publicly held energy-based holding company) and HBK Master Fund L.P. (a private investment fund), each of which will invest at each closing on a pro rata basis with Holding. Indemnification. ITC/\DeltaCom is obligated to indemnify Holding, its directors - --------------- and officers, and each person, if any, who controls Holding against all losses, claims, damages, liabilities and expenses incurred by any such party arising out of or based upon a breach of a representation or warranty or breach of or failure to perform any covenant or agreement on the part of ITC/\DeltaCom contained in the Investment Agreement, or any suit, claim, investigation, action or other proceeding before any governmental entity in connection with the Investment Agreement. Holding is obligated to indemnify ITC/\DeltaCom, its directors and officers, and each person, if any, who controls ITC/\DeltaCom against all losses, claims, damages, liabilities and expenses incurred by any such party arising out or based upon any breach of a representation or warranty or breach of or failure to perform any covenant or agreement on the part of Holding contained in the Investment Agreement. Neither ITC/\DeltaCom nor Holding will have any obligation under the Investment Agreement to indemnify any person for lost profits or for consequential, incidental, punitive or exemplary damages. The indemnification provided by the Investment Agreement will be the exclusive remedy for monetary damages available to ITC/\DeltaCom and Holding for matters for which indemnification is provided under the Investment Agreement. Payment of Fees and Expenses. ITC/\DeltaCom has agreed to pay Holding's - ---------------------------- reasonable fees and expenses, including up to $75,000 of the fees and expenses of Holding's financial adviser, which Holding incurs in connection with the negotiation, preparation, execution, delivery and performance of the Investment Agreement and to pay up to a total of $150,000 of the reasonable fees and expenses incurred by other investors in connection with any assignment by Holding to such investors of any portion of its purchase commitment under the Investment Agreement. Description of the Registration Rights Agreement: The following summary of the material terms and provisions of that certain Registration Rights Agreement, dated as of June 20, 2001, by and among ITC/\DeltaCom, Holding, SCANA Corporation and HBK Master Fund L.P. (the "Registration Rights Agreement") is qualified in its entirety by reference to the Registration Rights Agreement, which is attached as Exhibit 2 hereto and incorporated by reference herein. Securities Subject to Agreement. The Registration Rights Agreement obligates - ------------------------------- ITC/\DeltaCom to register under the Securities Act of 1933, as amended (the "Securities Act"), the resale in the public market, by the investors under the Investment Agreement (including Holding), of the Series B Preferred Stock and warrants sold under the Investment Agreement, the Series B Preferred Stock paid as dividends on other Series B Preferred Stock, and the Common Stock issued or issuable upon the conversion or exercise of those securities. The terms of the Registration Rights Agreement may be subject to amendment from time to time as and when necessary to comply with applicable securities laws. Page 10 of 19 The foregoing securities will cease to be "registrable securities" entitled to registration rights on the date and to the extent that: . the holder has disposed of such registrable securities pursuant to an effective registration statement under the Securities Act; . the holder has distributed such registrable securities to the public in accordance with Rule 144 under the Securities Act; . such registrable securities have been otherwise issued, transferred or disposed of, certificates therefor not bearing a legend restricting further transfer have been delivered by ITC/\DeltaCom and, at such time, subsequent transfer or disposition of such securities does not require registration or qualification of such securities under the Securities Act; . all such registrable securities held by any holder entitled to registration rights may be sold by such holder without any time, volume or manner limitations in accordance with Rule 144(k) under the Securities Act; or . such registrable securities have ceased to be outstanding. Holders Entitled to Registration Rights. Holding and any other investors under - --------------------------------------- the Investment Agreement will be entitled to the benefits of the Registration Rights Agreement. Any permitted transferee of registrable securities under the Investment Agreement will also be entitled to the benefits of the shelf registration rights under the agreement if immediately after the transfer the further disposition of such securities by such transferee is restricted under the Securities Act and such transferee agrees in writing to bound by the provisions of the Registration Rights Agreement. Any permitted transferee of registrable securities under the Investment Agreement who holds at least 5% of the then-outstanding registrable securities will be entitled to the benefits of the piggyback registration rights under the Registration Rights Agreement if immediately after the transfer the further disposition of such securities by such transferee is restricted under the Securities Act and such transferee agrees in writing to bound by the provisions of the Registration Rights Agreement. Manner of Registration- Shelf Registration. The shelf registration rights under - ------------------------------------------ the agreement will permit Holding and any other holder of registrable securities to sell those securities in the public market from time to time in accordance with a plan of distribution that discloses the proposed methods of sale. ITC/\DeltaCom will be required to file the first shelf registration statement with the Securities and Exchange Commission ("SEC") not later than 180 days following the initial closing under the Investment Agreement, which occurred on June 20, 2001, or on such later date not later than December 31, 2001 as Holding may designate in a written notice delivered to ITC/\DeltaCom within 150 days after the initial closing date. This registration statement will register the offering of the registrable securities that are outstanding immediately before the filing date. ITC/\DeltaCom will be required to file an additional shelf registration statement with the SEC not later than 30 days following each draw down closing under the Investment Agreement that takes place after the effective date of the first shelf registration statement. Each such additional shelf registration statement will register the offering of the registrable securities that are outstanding immediately before the filing date of such registration statement and that have not been registered pursuant to any previous registration statement. On or before March 31 of each year, beginning on March 31, 2003, ITC/\DeltaCom will be required to file an additional registration statement with the SEC registering the offering of all outstanding shares of Series B Preferred Stock that have been issued as dividends on the Series B Preferred Stock and that have not been registered pursuant to any previous registration statement. The holders of a majority of the outstanding shares of Series B Preferred Stock that have been issued as dividends on the Series B Preferred Stock and that have not been registered pursuant to any previous registration statement will also have the right to make one Page 11 of 19 request, in writing, at any date beginning after January 1, 2002, that ITC/\DeltaCom file a registration statement with the SEC registering the offering of some or all of those shares. Other holders of such shares will also have the right, by providing notice to ITC/\DeltaCom, to have their shares included in this registration statement. Manner of Registration- Piggyback Registration. The holders of registrable - ---------------------------------------------- securities will be entitled to have those securities included in other registrations by ITC/\DeltaCom covering the public offering of Common Stock for ITC/\DeltaCom's account or the account of other stockholders. The exercise of these piggyback registration rights will be subject to notice requirements, timing restrictions and volume limitations which may be imposed by the underwriters of an offering. Blackout Periods; Lock-ups. ITC/\DeltaCom will have the right to postpone the - -------------------------- filing or effectiveness of a registration statement under the agreement, or to suspend the use of an effective registration statement, for a period not to exceed 90 days if it determines that the registration and distribution of registrable securities would adversely affect any pending significant transaction involving ITC/\DeltaCom, and for a period not to exceed 30 days if it determines that such registration and distribution would require disclosure of specified non-public material information that ITC/\DeltaCom has a bona fide business purpose for preserving as confidential. ITC/\DeltaCom will be entitled to obtain the foregoing deferrals for up to a total of 90 days in any 12-month period. The Registration Rights Agreement also provides that, if requested by the managing underwriter of any securities offering by ITC/\DeltaCom, each holder of registrable securities and its affiliates will not dispose of or transfer any registrable securities or related securities, except for registrable securities included in the offering, during the 90 days following the effective date of the registration statement for the offering. The foregoing deferrals and underwriter lock-ups may not exceed a total of 90 days in any 12-month period. Indemnification. The registration rights agreement obligates ITC/\DeltaCom to - --------------- indemnify each holder of registrable securities and its controlling persons, and obligates each holder of registrable securities to indemnify ITC/\DeltaCom, its directors and officers, its controlling persons and all other holders, against specified liabilities, including specified liabilities under the Securities Act. Registration Expenses. ITC/\DeltaCom will be required to pay all expenses of - --------------------- registering the offering of Holding's securities, other than any underwriting discounts or commissions and any stock transfer taxes. Description of Series B Preferred Stock: The powers, preferences and rights of the Series B Preferred Stock issued and sold by ITC/\DeltaCom at the initial closing are set forth in the Series B Certificate of Designation which is attached as Exhibit 3 hereto and incorporated by reference herein. The following summary of the principal powers, preferences and rights of the Series B Preferred Stock, insofar as such summary relates to the series of Series B Preferred Stock issued and sold by ITC/\DeltaCom at the initial closing, is qualified in its entirety by reference to such Certificate of Designation. General. In connection with the Investment Agreement, ITC/\DeltaCom has - ------- authorized 375,000 shares of preferred stock for designation as series of the Series B Preferred Stock. Under the Investment Agreement, ITC/\DeltaCom will issue: . up to 150,000 shares of Series B Preferred Stock in multiple closings; and . additional shares of Series B Preferred Stock as payment-in-kind dividends on outstanding Series B Preferred Stock. As described below, shares of Series B Preferred Stock issued on different closing dates will be designated and issued as different series, beginning with the Page 12 of 19 designation "Series B-1 Cumulative Convertible Preferred Stock" for the 30,000 shares of Series B Preferred Stock which were issued at the initial closing on June 20, 2001 and continuing thereafter with consecutively numbered series for the Series B Preferred Stock, if any, issued at each draw down closing. Shares of any series may have conversion prices and other powers, preferences and rights that differ from those of other series. All shares of Series B Preferred Stock paid as a dividend will be designated the same series as the shares with respect to which they were paid. Unless otherwise specified in the following description, references to the Series B Preferred Stock refer to all shares of Series B Preferred Stock issued or issuable pursuant to the Investment Agreement regardless of their issue date or series designation, and references to a series refer to all shares of Series B Preferred Stock issued on the same closing date and to all shares paid as dividends with respect to shares issued on that closing date. A certificate of designation with respect to each series of the Series B Preferred Stock will become effective upon its filing with the Delaware Secretary of State. ITC/\DeltaCom will file the certificate of designation for each such series on or before the closing date on which it issues such series under the Investment Agreement. Ranking. With respect to dividend rights and rights on liquidation, dissolution - ------- or winding-up, each series of Series B Preferred Stock will rank: . senior to "junior stock," which includes the Common Stock, ITC/\DeltaCom's Series A Convertible Preferred Stock (solely with respect to dividend rights) and each class of capital stock or series of preferred stock established by ITC/\DeltaCom after such series of Series B Preferred Stock which has terms that do not expressly provide that such class or series ranks senior to, or on a parity with, such series of Series B Preferred Stock; . on a parity with "parity stock," which includes ITC/\DeltaCom's Series A Convertible Preferred Stock (solely with respect to rights on liquidation, dissolution or winding-up), each other series of Series B Preferred Stock, and each class of capital stock or series of preferred stock established by ITC/\DeltaCom after such series of Series B Preferred Stock which has terms that expressly provide that such class or series will rank on a parity with such series of Series B Preferred Stock; and . junior to "senior stock," which includes each class of ITC/\DeltaCom's capital stock or series of preferred stock established by ITC/\DeltaCom after such series of Series B Preferred Stock which has terms that expressly provide that such class or series will rank senior to such series of Series B Preferred Stock. Dividends. The holders of the Series B Preferred Stock will be entitled to - --------- receive, when, as and if declared by the Board of Directors of ITC/\DeltaCom out of funds of ITC/\DeltaCom legally available for dividend payments, cumulative dividends at the annual rate of 8% per share on the $1,000 liquidation preference per share of Series B Preferred Stock plus the amount of any accrued and unpaid dividends for past dividend periods. Dividends on shares of the Series B Preferred Stock will be payable at this annual rate quarterly in arrears on April 15, July 15, October 15, and January 15 of each year, beginning on the dividend payment date for the first full quarterly dividend period occurring after such shares are issued. The dividends will accrue from the most recent date to which dividends have been paid or, if no dividends have been paid, from the date of the original issuance of such shares of Series B Preferred Stock. Dividends will be cumulative from such quarterly dividend payment date, whether or not there are funds of ITC/\DeltaCom legally available for payment of the dividends for any dividend period or periods. Accumulations of dividends will not bear interest. ITC/\DeltaCom may pay dividends to the holders of Series B Preferred Stock at its option in cash, in shares of Series B Preferred Stock, or in a combination of cash and shares of Series B Preferred Stock. ITC/\DeltaCom's ability to pay cash dividends is currently restricted by the terms of agreements governing some of ITC/\DeltaCom's outstanding indebtedness. As a result, for so long as these restrictions remain in effect, ITC/\DeltaCom expects to pay any dividends on the Series B Preferred Stock in shares of Series B Preferred Stock. Each share of Page 13 of 19 Series B Preferred Stock issued as such a payment-in-kind dividend will be valued at $1,000 solely for the purpose of computing the dividend amount. Liquidation Preference. Upon the liquidation, dissolution or winding-up of - ---------------------- ITC/\DeltaCom, whether voluntary or involuntary, and subject to the rights of the creditors of ITC/\DeltaCom and holders of senior stock and parity stock, each holder of Series B Preferred Stock will be entitled to be paid, out of the assets of ITC/\DeltaCom available for distribution to stockholders, before any distribution is made on the Common Stock and any other junior stock, an amount in cash equal to the lesser of: . the liquidation preference of $1,000 per share of Series B Preferred Stock plus the amount of any accumulated and unpaid dividends; and . the amount that would have been received with respect to the shares of Common Stock issuable upon conversion of the shares of Series B Preferred Stock if such shares had been converted immediately before the event of dissolution, liquidation or winding-up. If the amounts payable with respect to the Series B Preferred Stock and all other parity stock are not paid in full, the holders of the Series B Preferred Stock and the parity stock will share equally and ratably in any distribution of assets of ITC/\DeltaCom in proportion to the respective amounts to which they are entitled. After payment of the full amount of the liquidation preference of the Series B Preferred Stock, the holders of shares of Series B Preferred Stock will not be entitled to any further distribution of ITC/\DeltaCom's assets. Neither the sale, conveyance, exchange or transfer of all or substantially all of the property or assets of ITC/\DeltaCom, nor the consolidation or merger of ITC/\DeltaCom with or into one or more entities, will be deemed to be a liquidation, dissolution or winding-up of ITC/\DeltaCom. Conversion. Each share of Series B Preferred Stock will be convertible, in - ----------- whole or in part, at any time after it is issued, at the option of the holder, into a number of shares of Common Stock which is obtained by dividing the $1,000 liquidation preference per share plus the amount of any accrued and unpaid dividends by the conversion price applicable to such share. Each share of Series B Preferred Stock will have an initial conversion price, which will be subject to adjustment from time to time under the circumstances described below. The right to convert shares of Series B Preferred Stock called for redemption will terminate at the close of business on the last business day before the date fixed for redemption. ITC/\DeltaCom will not issue fractional shares of Common Stock upon conversion, but instead, in its discretion, will either round up a fractional share to the nearest number of whole shares or pay cash in lieu of the fractional share based on the market price of the Common Stock on the business day preceding the conversion date. Because of the formula used to compute the initial conversion price of each series of Series B Preferred Stock, the conversion price of shares of a particular series may differ from the conversion prices of shares of the other outstanding series. The initial conversion price of the series of Series B Preferred Stock sold at the initial closing on June 20, 2001 is $5.70, which is equal to the lower of: . $8.74, which equals the sum of (x) the average of the closing market prices of the Common Stock for the 20 consecutive trading days ending on February 26, 2001 plus (y) 15% of that amount; and . $5.70, which equals the sum of (a) the average of the closing market prices of the Common Stock for the 20 consecutive trading days ending on the business day immediately before the initial closing date of June 20, 2001 plus (b) 15% of that amount. The initial conversion price of each series of Series B Preferred Stock that will be issued and sold on any draw down closing date will be equal to the lower of: . $5.70, which equals the initial conversion price of the Series B Preferred Stock issued and sold at the initial closing on June 20, 2001; and Page 14 of 19 . the sum of (x) the average of the closing market prices of the Common Stock for the 20 consecutive trading days ending on the second business day immediately before such draw down closing date plus (y) 15% of that amount. Any holder of the Series B Preferred Stock and members of that holder's "group" within the meaning of Sections 13(d) and 14(d)(2) of the Act may convert the Series B Preferred Stock into Common Stock only to the extent that such a conversion would not result in their beneficial ownership of more than 35% of the total voting power of ITC/\DeltaCom's voting securities on a fully diluted basis, as calculated in accordance with various agreements governing ITC/\DeltaCom's indebtedness and as determined by the Board of Directors of ITC/\DeltaCom in good faith. This limitation is intended to prevent the occurrence of a change of control of ITC/\DeltaCom as defined under such agreements. If a change of control were to occur, ITC/\DeltaCom might be required to repay some or all of such indebtedness before the scheduled maturity dates. Antidilution Adjustments. In order to prevent dilution of the foregoing - ------------------------ conversion rights, the conversion price of any series of Series B Preferred Stock will be subject to reduction in the manner described below. A reduction in the conversion price will result in an increase in the number of shares of Common Stock issuable upon conversion of shares of such series. If ITC/\DeltaCom issues, or is deemed to have issued, shares of Common Stock for no consideration or for a consideration per share less than the conversion price of the applicable series in effect on the date of issuance or sale, or deemed issuance or sale, of such Common Stock, the conversion price will be reduced to a price determined by multiplying the conversion price in effect immediately before the issuance or deemed issuance by the following fraction: . the numerator of the fraction will be an amount equal to the sum of (x) the total number of shares of Common Stock deemed outstanding immediately before such issuance, plus (y) the quotient of the aggregate consideration received or receivable by ITC/\DeltaCom upon such issuance divided by the applicable conversion price in effect immediately before such issuance; and . the denominator of the fraction will be the total number of shares of Common Stock deemed outstanding immediately after such issuance. For purposes of this calculation, the total number of shares of Common Stock deemed outstanding will include the shares of Common Stock actually outstanding plus the maximum number of shares of Common Stock issuable upon conversion of ITC/\DeltaCom's Series A Convertible Preferred Stock and the outstanding Series B Preferred Stock and upon exercise of the outstanding warrants issued under the Investment Agreement, whether or not such securities are actually convertible into or exercisable for Common Stock at such time. ITC/\DeltaCom will be deemed to have issued Common Stock for a price less than any applicable conversion price if it issues or grants: . any warrants, rights or options, whether or not immediately exercisable, to subscribe for or to purchase Common Stock, or other securities convertible into or exchangeable for Common Stock, under which the price per share of the Common Stock issuable upon the exercise of such securities is less than the applicable conversion price in effect on the date of issuance or grant of such securities; or . any convertible securities, whether or not immediately convertible, under which the price per share of the Common Stock issuable upon the conversion of such securities is less than the applicable conversion price in effect on the date of issuance or grant of such convertible securities. No adjustment to the applicable conversion price will be made: . upon the issuance, sale, grant, conversion or exercise of any options, warrants, rights or convertible securities issued and outstanding, or committed to be Page 15 of 19 issued, as of the date shares of the applicable series of Series B Preferred Stock are first issued and sold, including ITC/\DeltaCom's Series A Convertible Preferred Stock, the Series B Preferred Stock, the warrants, ITCdDeltaCom's 4 1/2% convertible subordinated notes due 2006 and any options, rights or convertible securities issued and outstanding, or committed to be issued, as of such date; . upon the issuance, sale, grant, conversion or exercise of any capital stock, options, rights or convertible securities which may be issued or granted after the date shares of the applicable series of Series B Preferred Stock are first issued and sold under any stock option, stock incentive or other employee benefit plan of ITC/\DeltaCom or any subsidiary in effect as of such date or which becomes effective after such date, so long as such stock option, stock incentive or other employee benefit plan is approved by ITC/\DeltaCom's Board of Directors, including the director designees, if any, of the holders of the Series B Preferred Stock; . upon the issuance, sale or exercise of the warrants issued under the Investment Agreement; . upon the issuance, sale, conversion or redemption of shares of Series B Preferred Stock; or . upon any dividend or distribution on the Series B Preferred Stock. If ITC/\DeltaCom declares or makes any distribution of cash or other assets to holders of Common Stock as a partial liquidating dividend, by way of return of capital or otherwise, then, after the record date for determining stockholders entitled to such distribution, but before the distribution date, the holders of the Series B Preferred Stock will be entitled to receive the amount of such assets which would have been payable to such holders if they had converted the Series B Preferred Stock into shares of Common Stock immediately prior to such time. The applicable conversion price of any series of Series B Preferred Stock will be proportionately reduced if ITC/\DeltaCom subdivides the shares of Common Stock into a greater number of shares by any stock split, recapitalization or other event, and will be proportionately increased if ITC/\DeltaCom combines the shares of Common Stock into a smaller number of shares by any reverse stock split, recapitalization or other event. If ITC/\DeltaCom consolidates with, or merges into, any other corporation, or sells or conveys all or substantially all of its assets other than in connection with a plan of complete liquidation, each holder of the Series B Preferred Stock will have the right to acquire upon conversion of such Series B Preferred Stock, instead or in addition to shares of Common Stock, such shares of capital stock, securities or assets as may be issued or payable with respect to or in exchange for the number of shares of Common Stock such holder would have been entitled to acquire upon conversion of such Series B Preferred Stock if such consolidation, merger, sale or conveyance had not taken place. ITC/\DeltaCom will be obligated to ensure that adequate provision for these rights is made in connection with any such transaction. No adjustment of the applicable conversion price will be made in an amount of less than 1% of the applicable conversion price in effect at the time such adjustment is otherwise required to be made. Any such lesser adjustment will be carried forward and made at the time of, and together with, the next subsequent adjustment which, together with any adjustments so carried forward, will amount to not less than 1% of such applicable conversion price. Redemption. On and after the fifth anniversary of the date any series of Series - ---------- B Preferred Stock is sold under the Investment Agreement, ITC/\DeltaCom will have the right, at its option, to redeem the shares of such series in whole or in part. The redemption price per share of Series B Preferred Stock will be equal to the liquidation preference of $1,000 per share plus the amount of any accrued and unpaid dividends as of the date fixed for redemption, without interest. Under its certificate of incorporation, ITC/\DeltaCom has the right at any time to redeem shares of any class of its capital stock, including the Series B Preferred Page 16 of 19 Stock, to prevent the loss by ITC/\DeltaCom of the governmental licenses or franchises necessary for ITC/\DeltaCom to conduct its business. On the tenth anniversary of the date any series of Series B Preferred Stock is sold under the Investment Agreement, ITC/\DeltaCom will be required to redeem all outstanding shares of such series. The redemption price per share of Series B Preferred Stock will be equal to the liquidation preference of $1,000 per share plus the amount of any accrued and unpaid dividends as of the date fixed for redemption, without interest. If and for so long as ITC/\DeltaCom has failed to discharge its mandatory redemption obligation with respect to any series, ITC/\DeltaCom will not be permitted to redeem, purchase or otherwise acquire shares of any other series of Series B Preferred Stock or any other parity stock or discharge any mandatory or optional redemption, sinking fund or other similar obligation in respect of any such series or other parity stock or declare any dividends or make any other distributions on junior stock or discharge any mandatory or optional redemption, sinking fund or other similar obligation in respect of any junior stock. Voting Rights. Except as otherwise required under Delaware law or as set forth - ------------- below, the holders of Series B Preferred Stock will be entitled to vote on an as-converted basis with the holders of the Common Stock as a single class on all matters presented for a vote to the holders of the Common Stock. So long as any holders of the Series B Preferred Stock are entitled to designate one or two directors to be nominated for election to ITC/\DeltaCom's Board of Directors, as described below, the holders of the Series B Preferred Stock will have the exclusive right, voting together as a single class, to elect the same number of directors. The as-converted voting rights of the Series B Preferred Stock will be subject to limitations under the Nasdaq Marketplace Rules, which provide that the voting rights of existing stockholders may not be disparately reduced or restricted through, among other events, the issuance of securities. Under those rules, as currently interpreted by the staff of the Nasdaq Stock Market, holders of Series B Preferred Stock will be able to cast a number of votes equal to the number of shares of Common Stock into which the Series B Preferred Stock would be convertible at the market value of the Common Stock as of the date of the Investment Agreement, as such market value is calculated for purposes of the rules. The as-converted voting rights will also be limited to the extent necessary to prevent the occurrence of a change of control of ITC/\DeltaCom as defined under various agreements governing ITC/\DeltaCom's indebtedness. Beginning on June 20, 2001, which is the date on which shares of Series B Preferred Stock were first issued under the Investment Agreement: . any holder of at least 50,000 shares of Series B Preferred Stock will be entitled to designate one individual to be nominated for election to ITC/\DeltaCom's Board of Directors, and the holders of the Series B Preferred Stock, voting together as a single class, will be entitled to elect one director to the Board; and . any holder of at least 100,000 shares of Series B Preferred Stock will be entitled to designate two individuals to be nominated for election to ITC/\DeltaCom's Board of Directors, and the holders of the Series B Preferred Stock, voting together as a single class, will be entitled to elect two directors to the Board. If any holder of the Series B Preferred Stock exercises the foregoing rights by providing notice to ITC/\DeltaCom, the Board of Directors will be required to increase the number of directors then constituting the whole Board by the number of directors specified in such notice. The holders of Series B Preferred Stock as such will not be entitled to designate for nomination, or to elect, more than two directors to the Board of Directors. If more than two holders of Series B Preferred Stock would be entitled to designate for nomination more than two directors, those holders will be required to agree on the designation of up to two directors for nomination. For so long as a holder of Series B Preferred Stock that is otherwise entitled to designate a director for nomination has an affiliate who is serving on the Board of Directors and who has not been designated for nomination in accordance with the Page 17 of 19 foregoing rights of the Series B Preferred Stock, that holder will not be entitled to designate for nomination, nor will the holders of the Series B Preferred Stock, voting together as a single class, be entitled to elect, an additional director to the Board of Directors. As a result of this limitation, Holding, seven of whose directors are also currently directors of ITC/\DeltaCom, will not be entitled, as a holder of the Series B Preferred Stock, to designate any directors for nomination for so long as at least two directors or other affiliates of Holding continue to serve on the Board of Directors. If a holder's ownership of the Series B Preferred Stock has been reduced to less than 100,000 shares, but such holder continues to own at least 50,000 shares of Series B Preferred Stock, the holder will only be entitled to designate for nomination one director for election to the Board of Directors, and the directorship of one of the two directors elected exclusively by the holders of the Series B Preferred Stock will immediately terminate. If a holder's ownership of Series B Preferred Stock is reduced to less than 50,000 shares, the holder will no longer be entitled to designate for nomination one director for election to the Board of Directors, and the directorship of the remaining director elected exclusively by the holders of the Series B Preferred Stock will immediately terminate. Directors elected by the holders of the Series B Preferred Stock voting together as a single class will not serve a classified three-year term with the directors elected by the holders of the Common Stock together with the holders of the Series B Preferred Stock. Any director elected by the holders of the Series B Preferred Stock voting together as a single class may be removed without cause only by the holders of a majority of the outstanding shares of Series B Preferred Stock. The affirmative vote of holders of a majority of the outstanding shares of the applicable series of Series B Preferred Stock will be necessary to approve any action by IT.DeltaCom to amend, alter or repeal any provision of ITC/\DeltaCom's certificate of incorporation or the certificate of designation for such series in a manner that would affect adversely the preferences, rights or powers of such series. In addition, any amendment that changes any dividend or other amount payable on, or the liquidation preference of, any series of Series B Preferred Stock will require the consent of holders of at least two-thirds of the outstanding shares of such series. The affirmative vote of holders of a majority of the outstanding shares of Series B Preferred Stock will be necessary to approve any action by ITC/\DeltaCom to authorize the issuance of or to issue any senior stock or parity stock, other than additional series of Series B Preferred Stock. In any transaction in which the Series B Preferred Stock will remain outstanding or be converted into capital stock of any entity other than ITC/\DeltaCom, ITC/\DeltaCom may, without the consent of the holders of the Series B Preferred Stock, consolidate with or merge with or into, or convey, transfer or lease all or substantially all its assets as an entirety to, any entity, provided that: . the successor, transferee or lessee, if not ITC/\DeltaCom, is organized and existing under the laws of the United States of America or any state thereof or the District of Columbia; and . the Series B Preferred Stock is converted into or exchanged for and becomes shares of, or interests in, the successor, transferee or lessee and has substantially the same powers, preferences and rights that the Series B Preferred Stock has immediately before such a transaction. Transfer. The Series B Preferred Stock and the warrants issued on any closing - -------- date will not be separately transferable until the first anniversary of such closing date. Description of the Warrants: Insofar as it relates to the Warrant issued to Ventures at the initial closing, the following summary of the principal terms of the warrants is qualified Page 18 of 19 in its entirety by reference to the text of such Warrant, which is attached as Exhibit 4 hereto and incorporated by reference herein. Term. The warrants will be exercisable for Common Stock at any time and from - ---- time to time for a period ending on the tenth anniversary of issuance. The Warrant issued to Ventures at the initial closing will be exercisable for Common Stock until June 20, 2011. Exercise Price and Limitation. The warrants issued on any closing date will - ----------------------------- have a total exercise price that is equal to 30% of the total purchase price of the shares of Series B Preferred Stock issued and sold on the same closing date. The initial exercise price per share of Common Stock of each warrant issued and sold on any closing date will equal the initial conversion price per share of Common Stock of the Series B Preferred Stock issued and sold on such closing date. The initial exercise price of the Warrant issued to Ventures at the initial closing is $5.70 per share of Common Stock. The exercise price of the warrants is subject to antidilution adjustments under substantially the same circumstances and in substantially the same manner as the conversion price of the Series B Preferred Stock, as described above under "Description of Series B Preferred Stock." Any holder of warrants and members of that holder's "group" within the meaning of Sections 13(d) and 14(d)(2) of the Act may exercise the warrants for Common Stock only to the extent that such exercise would not result in their beneficial ownership of more than 35% of the total voting power of ITC/\DeltaCom's voting securities on a fully diluted basis, as calculated in accordance with various agreements governing ITC/\DeltaCom's indebtedness and as determined by the Board of Directors in good faith. This limitation is intended to prevent the occurrence of a change of control of ITC/\DeltaCom as defined under such agreements. If a change of control were to occur, ITC/\DeltaCom might be required to repay some or all of such indebtedness before the scheduled maturity dates. Relationships between ITC/\DeltaCom and the Reporting Persons: General. Holding's predecessor company owned 100% of ITCDeltaCom's ------- outstanding Common Stock immediately before ITC/\DeltaCom's initial public offering of Common Stock in October 1997. ITC/\DeltaCom was incorporated in March 1997 as a wholly owned subsidiary of Holding's predecessor company to acquire and operate the predecessor company's retail and wholesale telecommunications businesses. ITC/\DeltaCom acquired those businesses on July 25, 1997 in a reorganization involving the predecessor company, ITC/\DeltaCom and other entities that, at the time, were members of the Holding group of companies. As part of the reorganization, the predecessor company transferred all of its assets, other than its capital stock in ITC/\DeltaCom, and all of its liabilities to Holding, which was a newly organized corporation. On October 20, 1997, immediately before completion of ITC/\DeltaCom's initial public offering, the predecessor company merged with and into ITC/\DeltaCom, which was the surviving corporation in the merger. In connection with the merger, holders of all of the predecessor company's outstanding capital stock exchanged their shares of that capital stock for shares of Common Stock or ITC/\DeltaCom's Series A Convertible Preferred Stock. Holding Directors on ITC/\DeltaCom Board. At all times since ITC/\DeltaCom's --------------------------------------- initial public offering, a majority of ITC/\DeltaCom's directors have also been directors of Holding. As of the date of the initial closing under the Investment Agreement and as of the date of this Statement, the following seven of ITC/\DeltaCom's 11 directors were also directors of Holding: Campbell B. Lanier, III, Donald W. Burton, Robert A. Dolson, O. Gene Gabbard, William T. Parr, William H. Scott, III and William B. Timmerman. Two of the Holding directors are also executive officers of Holding. One of the Holding directors, Campbell B. Lanier, III, who has served as Chairman of ITC/\DeltaCom since 1997, has served as Chairman and Chief Executive Officer of Holding or its predecessor company since 1985. The second Holding director, William H. Scott, III, has served as President of Holding or its predecessor company since 1991. Except for Messrs. Lanier and Scott, none of the Holding directors is an officer of either ITC/\DeltaCom or Holding. The Holding directors who also serve as directors of ITC/\DeltaCom receive fees for their services on ITC/\DeltaCom's Board of Directors and options to purchase Common Stock in accordance with the ITC/\DeltaCom stock option plans. Page 19 of 19 Commercial Transactions Between ITC/\DeltaCom and Holding Subsidiaries. In --------------------------------------------------------------------- connection with its provision of retail telecommunications services and broadband transport services, ITC/\DeltaCom provides telecommunications services to and purchases services from subsidiaries of Holding on an arms-length basis. During 2000, ITC/\DeltaCom received a total of $21.4 million, which represented approximately 5.9% of ITC DeltaCom's consolidated revenues, from these entities as payment for the services it rendered, and paid these entities a total of $1.6 million for the services it received. ITEM 7. MATERIAL TO BE FILED AS EXHIBITS. 1. Investment Agreement, dated as of February 27, 2001, including Amendment No. 1 to Investment Agreement, dated as of May 29, 2001, by and among ITC DeltaCom, Holding, SCANA Corporation and HBK Master Fund L.P. 2. Registration Rights Agreement, dated as of June 20, 2001, by and among ITC/\eltaCom, Holding, SCANA Corporation and HBK Master Fund L.P. 3. Certificate of Designation of the Powers, Preferences and Relative, Participating, Optional and Other Special Rights of Series B-1 Cumulative Convertible Preferred Stock and Qualifications, Limitations and Restrictions Thereof. 4. Common Stock Purchase Warrant dated June 20, 2001. After reasonable inquiry and to the best of my knowledge and belief, I hereby certify that the information set forth in this statement is true, complete and correct. Dated: July 2, 2001 ITC HOLDING COMPANY, INC. /s/ Bryan W. Adams ------------------ By: Bryan W. Adams Title: Senior Vice President and Chief Financial Officer ITC TELECOM VENTURES, INC. /s/ Bryan W. Adams ------------------ By: Bryan W. Adams Title: Senior Vice President and Chief Financial Officer SCHEDULE I DIRECTORS AND EXECUTIVE OFFICERS OF ITC HOLDING COMPANY, INC. Set forth below is the name, business address and present occupation or employment of each director and executive officer of ITC Holding Company, Inc. ("Holding"). Each such person is a citizen of the United States. Except as indicated below, the business address of each director and executive officer named below is 3300 20/th/ Avenue, Valley, AL 36854. Directors of Holding: - --------------------
Name and Address Present Occupation or Employment Campbell B. Lanier, III Chairman of the Board and Chief Executive Officer of Holding William H. Scott, III President and Chief Operating Officer of Holding Donald W. Burton Chairman and Managing General Partner of South 614 West Bay Street Atlantic Venture Funds Tampa, FL 33606 Malcolm C. Davenport, V C.P.A. and Attorney 1140 North 18/th/ Street Lanett, AL 36863 Robert A. Dolson President and Chief Executive Officer of United States 111 Ponce de Leon Avenue Sugar Corporation Clewiston, FL O. Gene Gabbard Chairman of the Board of ClearSource, Inc. 1828-B Kramer Lane Suite 100 Austin, TX J. Smith Lanier, II Chairman of the Board of J. Smith Lanier & Co. J. Smith Lanier & Co. P.O. Box 70 300 West Tenth Street West Point, GA 31833 William T. Parr Vice Chairman of J. Smith Lanier & Co. J. Smith Lanier & Co. P.O. Box 70 300 West Tenth Street West Point, GA 31833 William B. Timmerman Chief Executive Officer of SCANA Corporation SCANA Corporation 1426 Main Street Columbia, SC 29201 Donald W. Weber Retired 525 Old Cobblestone Drive Dunwoody,GA 30350
Executive Officers of Holding: - -----------------------------
Name and Address Present Occupation or Employment Bryan W. Adams Senior Vice President and Chief Financial Officer of Holding
George M. Miller, II Senior Vice President - Corporate Development of Holding Kimberley E. Thompson Senior Vice President, General Counsel and Secretary of Holding
The following table presents, as of June 10, 2001, information regarding the beneficial ownership of ITC/\DeltaCom Common Stock by the directors and executive officers of Holding. Donald W. Burton, Robert A. Dolson, O. Gene Gabbard, Campbell B. Lanier, III, William T. Parr, William H. Scott, III and William B. Timmerman are directors of ITC/\DeltaCom.
Amount of Percent of Name of Beneficial Owner Beneficial Ownership Class (%) - ------------------------ -------------------- ---------- Donald W. Burton........................... 662,347 1.0 Robert A. Dolson........................... 80,004 * O. Gene Gabbard............................ 187,277 * J. Smith Lanier, II........................ 3,292,648 5.3 Campbell B. Lanier, III.................... 6,728,998 10.7 William T. Parr............................ 337,218 * William H. Scott, III...................... 2,074,626 3.3 William B. Timmerman....................... 5,192,131 8.3 Donald W. Weber............................ 35,989 * Malcolm C. Davenport, V.................... 242,245 * Bryan W. Adams............................. 148,194 * George M. Miller, II....................... 10,000 * Kimberley E. Thompson 153,940 * All directors and executive officers as a group (13 persons)........................ 18,986,230 29.6
- -------- * Less than one percent. The Percent of Class is based on the information set forth in ITC/\DeltaCom's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001, which stated that 62,235,883 shares of Common Stock were outstanding as of May 8, 2001. Shares beneficially owned by Mr. Burton include 77,872 shares that Mr. Burton has the right to purchase within 60 days of June 10, 2001 pursuant to the exercise of options. Shares beneficially owned by Mr. Burton for which he shares voting and dispositive power include 80 shares held of record by Mr. Burton's son. Shares beneficially owned by Mr. Dolson include 78,004 shares that Mr. Dolson has the right to purchase within 60 days of June 10, 2001 pursuant to the exercise of options. Shares beneficially owned by Mr. Gabbard include 87,056 shares that Mr. Gabbard has the right to purchase within 60 days of June 10, 2001 pursuant to the exercise of options. Shares beneficially owned by Mr. Gabbard for which he shares voting and dispositive power include 2,539 shares held of record by Turtle Creek Limited Partnership, of which Mr. Gabbard is a general partner. Shares beneficially owned by Mr. J. Smith Lanier, II include 45,904 shares that Mr. Lanier has the right to purchase within 60 days of June 10, 2001 pursuant to the exercise of options. Shares beneficially owned by Mr. J. Smith Lanier, II for which he shares voting and dispositive power include 648,798 shares held of record by Mr. Lanier's wife and 600,000 shares held by the J. Smith Lanier Charitable Remainder Trust, of which Mr. Lanier is the trustee. Shares beneficially owned by Mr. Campbell B. Lanier include 730,836 shares that Mr. Lanier has the right to purchase within 60 days of June 10, 2001 pursuant to the exercise of options. Shares beneficially owned by Mr. Campbell B. Lanier for which he shares voting and dispositive power include 2,412 shares held of record by Mr. Lanier's wife; 159,387 shares held of record by the Lanier Family Foundation, of which Mr. Lanier is co-trustee; 114,760 shares held of record by the Campbell Lanier, Jr. Irrevocable Life Insurance Trust, of which Mr. Lanier is co-trustee; and 9,911 shares held of record by the C. B. Lanier, Jr., Marital Trust, of which Mr. Lanier is co-trustee. Shares beneficially owned by Mr. Parr include 78,004 shares that Mr. Parr has the right to purchase within 60 days of June 10, 2001 pursuant to the exercise of options. Shares beneficially owned by Mr. Parr for which he shares voting and dispositive power include 2,000 shares held of record by Mr. Parr's wife. Shares beneficially owned by Mr. Scott include 487,751 shares that Mr. Scott has the right to purchase within 60 days of June 10, 2001 pursuant to the exercise of options. Shares beneficially owned by Mr. Scott for which he shares voting and dispositive power include 2,524 shares held of record by Mr. Scott's wife; 458 shares held of record by Mr. Scott's minor daughter; 159,387 shares held of record by the Lanier Family Foundation, of which Mr. Scott is co- trustee; 809,428 shares held of record by the Campbell B. Lanier, III Charitable Remainder Trust, of which Mr. Scott is a trustee; and 47,162 shares held in a trust for Mr. Scott's minor daughter, of which Mr. Scott's wife is co-trustee. Shares beneficially owned by Mr. Timmerman include 78,004 shares that Mr. Timmerman has the right to purchase within 60 days of June 10, 2001 pursuant to the exercise of options. Shares beneficially owned by Mr. Timmerman for which he shares voting power include 5,112,127 shares held of record by SCANA Communications Holdings, Inc. Mr. Timmerman is the Chief Executive Officer of SCANA Corporation, the parent of SCANA Communications Holdings, Inc. Mr. Timmerman disclaims beneficial ownership of any shares held by SCANA Communications Holdings, Inc. Shares beneficially owned by Mr. Weber include 24,763 shares held by a family limited partnership of which Mr. Weber is managing partner. On May 7, 2001, Mr. Weber exercised stock options to acquire 24,763 shares at an exercise price of $5.01 per share. Shares beneficially owned by Mr. Davenport include 78,004 shares that Mr. Davenport has the right to purchase within 60 days of June 10, 2001 pursuant to the exercise of options; 96,622 shares held by family trusts of which Mr. Davenport is trustee; and 663 shares held by a family member of Mr. Davenport. Shares beneficially owned by Mr. Adams include 97,808 shares that Mr. Adams has the right to purchase within 60 days of June 10, 2001 pursuant to the exercise of options. Shares beneficially owned by Mrs. Thompson include 30,740 shares that Mrs. Thompson has the right to purchase within 60 days of June 10, 2001 pursuant to the exercise of options. Shares beneficially owned by Mrs. Thompson for which she shares voting and dispositive power include 16,294 shares held of record jointly by Mrs. Thompson and her husband. The shares beneficially owned by all directors and executive officers as a group include 1,869,983 shares which all directors and executive officers as a group have the right to purchase within 60 days of June 10, 2001 pursuant to the exercise of options. SCHEDULE II DIRECTORS AND EXECUTIVE OFFICERS OF INTERCALL, INC. Set forth below is the name, business address and present occupation or employment of each director and executive officer of InterCall, Inc. ("InterCall"). Each such person is a citizen of the United States. Except as indicated below, the business address of each director and executive officer named below is 8420 W. Bryn Mawr Avenue, Suite 400, Chicago, IL 60631. Directors of InterCall: - ---------------------- Name and Address Present Occupation or Employment Campbell B. Lanier, III Chairman of the Board and Chief Executive 3300 20/th/ Avenue Officer of Holding Valley, AL 36854 William H. Scott, III President and Chief Operating Officer of 3300 20/th/ Avenue Holding Valley, AL 36854 Ross Manire President of Flextronics, Inc. 1800 West Central Road Mt. Prospect, IL 60056 Scott Etzler President and Chief Executive Officer of InterCall Executive Officers of InterCall: - ------------------------------- Name and Address Present Occupation or Employment Robert Lamb Senior Vice President -- Global Operations of InterCall Greg Turnbull Chief Financial Officer of InterCall The following table presents, as of June 10, 2001, information regarding the beneficial ownership of ITC/\DeltaCom Common Stock by the directors and executive officers of InterCall. Campbell B. Lanier, III and William H. Scott, III are directors of ITC/\DeltaCom. Amount of Percent of Name of Beneficial Owner Beneficial Ownership Class (%) - ------------------------ -------------------- --------- Campbell B. Lanier, III.................... 6,728,998 10.7 William H. Scott, III...................... 2,074,626 3.3 Ross Manire................................ -0- -0- Scott Etzler............................... 100 * Robert Lamb................................ -0- -0- Greg Turnbull.............................. -0- -0- All directors and executive officers as a group (6 persons)......................... 8,644,337 13.6 - -------- * Less than one percent. The Percent of Class is based on the information set forth in ITC/\DeltaCom's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001, which stated that 62,235,883 shares of Common Stock were outstanding as of May 8, 2001. Shares beneficially owned by Mr. Campbell B. Lanier include 730,836 shares that Mr. Lanier has the right to purchase within 60 days of June 10, 2001 pursuant to the exercise of options. Shares beneficially owned by Mr. Campbell B. Lanier for which he shares voting and dispositive power include 2,412 shares held of record by Mr. Lanier's wife; 159,387 shares held of record by the Lanier Family Foundation, of which Mr. Lanier is co-trustee; 114,760 shares held of record by the Campbell Lanier, Jr. Irrevocable Life Insurance Trust, of which Mr. Lanier is co-trustee; and 9,911 shares held of record by the C. B. Lanier, Jr., Marital Trust, of which Mr. Lanier is co-trustee. Shares beneficially owned by Mr. Scott include 487,751 shares that Mr. Scott has the right to purchase within 60 days of June 10, 2001 pursuant to the exercise of options. Shares beneficially owned by Mr. Scott for which he shares voting and dispositive power include 2,524 shares held of record by Mr. Scott's wife; 458 shares held of record by Mr. Scott's minor daughter; 159,387 shares held of record by the Lanier Family Foundation, of which Mr. Scott is co- trustee; 809,428 shares held of record by the Campbell B. Lanier, III Charitable Remainder Trust, of which Mr. Scott is a trustee; and 47,162 shares held in a trust for Mr. Scott's minor daughter, of which Mr. Scott's wife is co-trustee. The shares beneficially owned by all directors and executive officers as a group include 1,218,647 shares which all directors and executive officers as a group have the right to purchase within 60 days of June 10, 2001 pursuant to the exercise of options. SCHEDULE III DIRECTORS AND EXECUTIVE OFFICERS OF ITC TELECOM VENTURES, INC. Set forth below is the name, business address and present occupation or employment of each director and executive officer of ITC Telecom Ventures, Inc. ("Ventures"). Each such person is a citizen of the United States. The business address of each director and executive officer named below is 3300 20th Avenue, Valley, AL 36854. Directors of Ventures: - --------------------- Name Present Occupation or Employment Campbell B. Lanier, III Chairman of the Board and Chief Executive Officer of Holding and Ventures William H. Scott, III President and Chief Operating Officer of Holding and Ventures Bryan W. Adams Senior Vice President and Chief Financial Officer of Holding and Ventures Executive Officers of Ventures: - ------------------------------ Name Present Occupation or Employment George M. Miller, II Senior Vice President - Corporate Development of Holding and Ventures Kimberley E. Thompson Senior Vice President, General Counsel and Secretary of Holding and Ventures The following table presents, as of June 10, 2001, information regarding the beneficial ownership of ITC/\DeltaCom Common Stock by the directors and executive officers of Ventures. Campbell B. Lanier, III and William H. Scott, III are directors of ITC/\DeltaCom. Amount of Percent of Name of Beneficial Owner Beneficial Ownership Class (%) - ------------------------ -------------------- --------- Campbell B. Lanier, III.................... 6,728,998 10.7 William H. Scott, III...................... 2,074,626 3.3 Bryan W. Adams............................. 148,194 * George M. Miller, II....................... 10,000 * Kimberley E. Thompson...................... 153,940 * All directors and executive officers as a group (5 persons)......................... 8,956,371 14.1 - -------- * Less than one percent. The Percent of Class is based on the information set forth in ITC/\DeltaCom's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001, which stated that 62,235,883 shares of Common Stock were outstanding as of May 8, 2001. Shares beneficially owned by Mr. Campbell B. Lanier include 730,836 shares that Mr. Lanier has the right to purchase within 60 days of June 10, 2001 pursuant to the exercise of options. Shares beneficially owned by Mr. Campbell B. Lanier for which he shares voting and dispositive power include 2,412 shares held of record by Mr. Lanier's wife; 159,387 shares held of record by the Lanier Family Foundation, of which Mr. Lanier is co-trustee; 114,760 shares held of record by the Campbell Lanier, Jr. Irrevocable Life Insurance Trust, of which Mr. Lanier is co-trustee; and 9,911 shares held of record by the C. B. Lanier, Jr., Marital Trust, of which Mr. Lanier is co-trustee. Shares beneficially owned by Mr. Scott include 487,751 shares that Mr. Scott has the right to purchase within 60 days of June 10, 2001 pursuant to the exercise of options. Shares beneficially owned by Mr. Scott for which he shares voting and dispositive power include 2,524 shares held of record by Mr. Scott's wife; 458 shares held of record by Mr. Scott's minor daughter; 159,387 shares held of record by the Lanier Family Foundation, of which Mr. Scott is co- trustee; 809,428 shares held of record by the Campbell B. Lanier, III Charitable Remainder Trust, of which Mr. Scott is a trustee; and 47,162 shares held in a trust for Mr. Scott's minor daughter, of which Mr. Scott's wife is co-trustee. Shares beneficially owned by Mr. Adams include 97,808 shares that Mr. Adams has the right to purchase within 60 days of June 10, 2001 pursuant to the exercise of options. Shares beneficially owned by Mrs. Thompson include 30,740 shares that Mrs. Thompson has the right to purchase within 60 days of June 10, 2001 pursuant to the exercise of options. Shares beneficially owned by Mrs. Thompson for which she shares voting and dispositive power include 16,294 shares held of record jointly by Mrs. Thompson and her husband. The shares beneficially owned by all directors and executive officers as a group include 1,218,647 shares which all directors and executive officers as a group have the right to purchase within 60 days of June 10, 2001 pursuant to the exercise of options. EX-1 2 dex1.txt EXHIBIT 1 Exhibit 1 Execution Copy INVESTMENT AGREEMENT dated as of February 27, 2001 by and between ITC/\DeltaCom, Inc. and ITC Holding Company, Inc. Exhibit 1 TABLE OF CONTENTS
Page ---- ARTICLE I ISSUANCE AND SALE OF PREFERRED SHARES AND WARRANTS.................................. 1 1.1. Issuance, Purchase and Sale..................................... 1 --------------------------- 1.2. Initial Closing................................................. 3 --------------- 1.3. Draw Downs; Draw Down Closings.................................. 3 ------------------------------ 1.4. Deliveries...................................................... 4 ---------- 1.5. Calculation of Initial Conversion Price......................... 4 --------------------------------------- 1.6 Capitalized Terms............................................... 5 ----------------- ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................................... 5 2.1. Organization; Subsidiaries; Books and Records................... 5 --------------------------------------------- 2.2. Due Authorization............................................... 6 ----------------- 2.3. Capitalization.................................................. 7 -------------- 2.4. SEC Reports; Registration; Listing of Common Stock.............. 7 -------------------------------------------------- 2.5. Financial Statements............................................ 8 -------------------- 2.6. Absence of Certain Changes...................................... 8 -------------------------- 2.7. Litigation...................................................... 8 ---------- 2.8. Consents; No Violations......................................... 9 ----------------------- 2.9. Compliance with Laws; Licenses.................................. 9 ------------------------------ 2.10. Commitments..................................................... 10 ----------- 2.11. Brokers or Finders.............................................. 10 ------------------ 2.12. Section 203 of the DGCL; Takeover Statute....................... 10 ----------------------------------------- 2.13. No General Solicitation or Advertising; No Integration.......... 11 ------------------------------------------------------- 2.14. Investment Company Status....................................... 11 ------------------------- 2.15. Opinion of Financial Adviser.................................... 11 ---------------------------- 2.16. Disclosure...................................................... 11 ---------- ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE PURCHASER................................... 12 3.1. Acquisition for Investment...................................... 12 -------------------------- 3.2. Accredited Investor Status...................................... 12 -------------------------- 3.3. Information..................................................... 12 ----------- 3.4. Government Review............................................... 12 ----------------- 3.5. Sale or Transfer................................................ 12 ---------------- 3.6. Residency....................................................... 13 --------- 3.7. No Brokers or Finders........................................... 13 --------------------- 3.8. Organization.................................................... 13 ------------
-i- Exhibit 1 3.9. Due Authorization............................................... 13 ----------------- 3.10. Consents, No Violations......................................... 14 ----------------------- 3.11. Litigation...................................................... 14 ---------- 3.12. Investment Company Act.......................................... 14 ---------------------- 3.13. Availability of Funds........................................... 14 --------------------- 3.14 Ownership of Capital Stock...................................... 14 -------------------------- ARTICLE IV COVENANTS................................................................ 15 4.1 Public Announcements............................................ 15 -------------------- 4.2 HSR Act......................................................... 15 ------- 4.3 Consents, Approvals and Filings................................. 16 ------------------------------- 4.4 Reasonable Best Efforts......................................... 16 ----------------------- 4.5 Company Stockholder Approval; Series A Holder Approval.......... 16 ------------------------------------------------------ 4.6. Listing......................................................... 16 ------- 4.7. Series B Certificate of Designation............................. 16 ----------------------------------- 4.8. Reservation of Common Stock..................................... 17 --------------------------- 4.9 Use of Proceeds................................................. 17 --------------- 4.10 Board Representation Rights..................................... 17 --------------------------- 4.11 Confidential Treatment of Confidential Information.............. 17 -------------------------------------------------- 4.12 Notification of Certain Matters................................. 17 ------------------------------- 4.13 Registration Rights............................................. 18 ------------------- 4.14 Legends......................................................... 18 ------- 4.15 Compliance with Securities Laws................................. 18 ------------------------------- 4.16 Further Assurances.............................................. 18 ------------------ ARTICLE V RESTRICTIONS ON TRANSFER............................................................ 19 5.1. Restrictions on Transfer........................................ 19 ------------------------ 5.2 Compliance with Laws; Stop Order................................ 19 -------------------------------- 5.3 Separation of Preferred Shares and Warrants..................... 19 ------------------------------------------- 5.4 No Short Sales.................................................. 19 -------------- ARTICLE VI CONDITIONS............................................................... 20 6.1. Conditions to Obligations of the Purchaser and the -------------------------------------------------- Company at Each Closing......................................... 20 ----------------------- 6.2. Additional Conditions to Obligations of the Purchaser at -------------------------------------------------------- Each Closing.................................................... 20 ------------ 6.3. Additional Conditions to Obligations of the Company at ------------------------------------------------------ Each Closing.................................................... 22 ------------ ARTICLE VII TERMINATION....................................................................... 23 7.1. Termination..................................................... 23 ----------- 7.2. Effect of Termination........................................... 24 --------------------- 7.3. Extensions; Waiver.............................................. 24 ------------------
-ii- Exhibit 1 ARTICLE VIII INDEMNIFICATION.......................................................... 25 8.1. Indemnification................................................. 25 --------------- 8.2. Method of Asserting Indemnification for Third Party Claims...... 25 ---------------------------------------------------------- 8.3. Method of Asserting Indemnification for Other Claims............ 26 ---------------------------------------------------- 8.4. Limitations on Indemnification.................................. 26 ------------------------------ ARTICLE IX MISCELLANEOUS............................................................ 27 9.1. Definitions..................................................... 27 ----------- 9.2. Survival of Representations and Warranties...................... 32 ------------------------------------------ 9.3. Fees and Expenses............................................... 32 ----------------- 9.4. Specific Enforcement............................................ 32 -------------------- 9.5. Restrictive Legends............................................. 32 ------------------- 9.6. Successors and Assigns.......................................... 35 ---------------------- 9.7. Inspections; No Other Representations........................... 36 ------------------------------------- 9.8. Entire Agreement................................................ 36 ---------------- 9.9. Notices......................................................... 37 ------- 9.10. Business Days................................................... 37 ------------- 9.11. Amendments; Waivers............................................. 38 ------------------- 9.12. Counterparts.................................................... 38 ------------ 9.13. Descriptive Headings; Interpretation; No Strict Construction.... 38 ------------------------------------------------------------ 9.14. References...................................................... 39 ---------- 9.15. Governing Law................................................... 39 ------------- 9.16. Exclusive Jurisdiction; Venue................................... 39 ----------------------------- 9.17. Waiver of Jury Trial............................................ 39 -------------------- 9.18. Severability.................................................... 39 ------------ 9.19. Delivery by Facsimile........................................... 40 ---------------------
-iii- INVESTMENT AGREEMENT INVESTMENT AGREEMENT (this "Agreement"), dated as of February 27, --------- 2001, is made between ITC/\DeltaCom, Inc., a Delaware corporation (the "Company"), and ITC Holding Company, Inc., Delaware corporation (the ------- "Purchaser"). --------- W I T N E S S E T H : - - - - - - - - - - WHEREAS, upon the terms and subject to the conditions set forth in this Agreement, the Company wishes to sell to the Purchaser and the Purchaser wishes to purchase from the Company (i) 150,000 shares in multiple series of cumulative convertible preferred stock, par value $.01 per share, of the Company (the "Series B Preferred Stock") and (ii) warrants (the "Warrants") to purchase ------------------------ -------- shares of the Common Stock, par value $.01 per share, of the Company (the "Common Stock"); and WHEREAS, the Purchaser and the Company wish to provide for the purchase and sale of the Series B Preferred Stock and the Warrants and to establish certain rights and obligations in connection therewith; NOW, THEREFORE, in consideration of the premises and the mutual representations, warranties, covenants and agreements set forth in this Agreement, the parties hereto agree as follows: ARTICLE I ISSUANCE AND SALE OF PREFERRED SHARES AND WARRANTS 1.1. Issuance, Purchase and Sale. (a) Upon the terms and subject to --------------------------- the conditions set forth herein, at each Closing (as defined in Section 1.3(c)) the Company shall sell to the Purchaser and the Purchaser shall purchase from the Company (i) shares of Series B Preferred Stock (the "Preferred Shares") at a ---------------- stated price of $1,000 per share and (ii) Warrants having an initial exercise price per share of Common Stock that is equal to the initial conversion price per share of Common Stock of the Preferred Shares issued and sold at such Closing. The Preferred Shares to be purchased and sold at each Closing shall be issued pursuant to a separate certificate of designation substantially in the form of Exhibit 2.2 hereto (the "Series B Certificate of Designation"). The ----------- ----------------------------------- Preferred Shares to be issued at the Initial Closing (as defined in Section 1.2) shall be designated by the Company Board as "Series B-1 Cumulative Convertible Preferred Stock," and each issue of Preferred Shares purchased and sold at any subsequent Closing shall be designated by the Company Board as a series of the Series B Preferred Stock. The various series of the Series B Preferred Stock designated by the Company Board after the Series B-1 Cumulative Convertible Preferred Stock shall be consecutively numbered, beginning with "Series B-2 Cumulative Convertible Preferred Stock" for the series to be purchased and sold at the first Closing that shall take place after the Initial Closing. (b) Upon the terms and subject to the conditions set forth herein, at the Initial Closing the Company shall sell to the Purchaser and the Purchaser shall purchase from the Company (i) 30,000 Preferred Shares for an aggregate purchase price of $30,000,000 in cash and (ii) Warrants having an aggregate exercise price of $9,000,000. The Company shall have the right, but shall not be obligated, to sell at the Initial Closing to one or more investors unaffiliated with ITC Holding Company, Inc. ("Holding") selected by the Company, in its sole discretion, upon ------- the terms and subject to the conditions set forth in this Agreement, (i) up to 50,000 Preferred Shares committed under this Agreement to be purchased by Holding after the Initial Closing and (ii) Warrants having an aggregate exercise price that is equal to 30% of the aggregate purchase price of the Preferred Shares, if any, sold to such other investors on the Initial Closing Date. Each such other investor shall be a Qualified Investor, except as otherwise provided in this Agreement. If the Company receives an indication of interest from any such Qualified Investor to purchase Preferred Shares and Warrants, it shall provide written notice of such indication of interest to the Purchaser not later than 15 Business Days before the Initial Closing Date. Such written notice shall specify with respect to each Qualified Investor (i) the name of such Qualified Investor, (ii) the number of Preferred Shares and the aggregate exercise price of the Warrants proposed to be purchased by such Qualified Investor and (iii) information as may be reasonable and customary concerning the financial capability of such Qualified Investor to consummate the purchase of such Preferred Shares and Warrants at the Initial Closing Date. Following receipt of such a notice with respect to any such Qualified Investor, the Purchaser shall have the right, but shall not be obligated, to purchase from the Company at the Initial Closing (i) all but not less than all of the Preferred Shares proposed to be sold to any such Qualified Investor and (ii) Warrants having an aggregate exercise price that is equal to 30% of the aggregate purchase price of such Preferred Shares. To exercise its right to purchase such additional number of Preferred Shares and Warrants, the Purchaser shall provide the Company with written notice of such exercise at least ten Business Days prior to the Initial Closing Date. The Purchaser's notice, which shall constitute a binding agreement upon receipt by the Company to purchase such Preferred Shares and Warrants on the Initial Closing Date, shall state the number of additional Preferred Shares for which the Purchaser has exercised its purchase right pursuant to this paragraph. Nothing in this paragraph shall limit or restrict the ability of the Company to pay to any potential investor unaffiliated with Holding customary fees (including commitment fees) which may be payable whether or not the Purchaser exercises its purchase right under this paragraph. (c) Upon the terms and subject to the conditions set forth herein, during the Commitment Period, the Company, in its sole discretion, may sell to the Purchaser and the Purchaser shall purchase from the Company, for an aggregate purchase price of up to $120,000,000 in cash (such $120,000,000 amount, as adjusted pursuant hereto, the -2- "Commitment Amount"), (i) up to 120,000 Preferred Shares at a stated price of ----------------- $1,000 per share and (ii) Warrants having an aggregate exercise price calculated in accordance with the following sentence, based on Draw Downs (subject to the Minimum Draw Down Amount and the Maximum Draw Down Amount) which the Company, in its sole discretion, may choose to exercise during the Commitment Period. In connection with each Draw Down, the Company shall issue to the Purchaser Warrants having an aggregate exercise price that is equal to 30% of the aggregate purchase price of the Preferred Shares sold pursuant to such Draw Down. The Commitment Amount shall be reduced from $120,000,000 by (i) the amount of the aggregate purchase price paid by any other investors referred to in Section 1.1(b) for the Preferred Shares and Warrants issued and sold to such other investors at the Initial Closing and (ii) (A) $1.00 for each $1.33 of Net Proceeds received by the Company from any sales of Qualifying Debt Securities for cash consummated by the Company from and after the date of this Agreement and (B) $1.00 for each $1.00 of Net Proceeds received by the Company from any sales of Qualifying Equity Securities for cash consummated by the Company from and after the date of this Agreement. 1.2. Initial Closing. The closing of the purchase and sale of the --------------- Preferred Shares and Warrants pursuant to Section 1.1(b) (the "Initial Closing") --------------- shall take place at the offices of Hogan & Hartson L.L.P., Columbia Square, 555 Thirteenth Street, NW, Washington, D.C. 20004 at 10:00 a.m. on the first Business Day following the satisfaction or waiver of the applicable conditions set forth in Article VI (other than those conditions that by their nature are to be satisfied at such Closing, but subject to the satisfaction or waiver of those conditions) provided that the Initial Closing may take place at such other place, time or date as shall be mutually agreed upon by the Company and the Purchaser (the date of the Initial Closing, the "Initial Closing Date"). -------------------- 1.3. Draw Downs; Draw Down Closings. (a) Upon the terms and subject ------------------------------ to the conditions set forth herein, on any Business Day during the Commitment Period on which the applicable conditions set forth in Article VI have been satisfied or waived, the Company may exercise a Draw Down by the delivery of a Draw Down Notice to the Purchaser. The Company may deliver the initial Draw Down Notice to the Purchaser before the commencement of the Commitment Period. (b) The aggregate purchase price for the Preferred Shares and Warrants subject to each Draw Down, as specified in the corresponding Draw Down Notice, shall not be less than the Minimum Draw Down Amount nor more than the Maximum Draw Down Amount and shall not be more than (i) the Commitment Amount minus (ii) the aggregate purchase price of all Preferred Shares and Warrants previously issued and sold pursuant to Draw Downs. (c) Each closing of the purchase and sale of the Preferred Shares and Warrants pursuant to Section 1.1(c) (each, a "Draw Down Closing") shall take ----------------- place at the offices of Hogan & Hartson L.L.P., Columbia Square, 555 Thirteenth Street, NW, -3- Washington, D.C. 20004 at 10:00 a.m. on the 30/th/ day following the receipt by the Purchaser of a Draw Down Notice; provided, that the parties' obligations at each such closing are subject to the prior satisfaction or waiver of the applicable conditions set forth in Article VI (other than those conditions that by their nature are to be satisfied at such Closing, but subject to the satisfaction or waiver of those conditions) or at such other place, time or date as shall be mutually agreed upon by the Company and the Purchaser. The date of each Draw Down Closing is referred to herein as a "Draw Down Closing Date." ---------------------- Unless mutually agreed by the Company and the Purchaser, no Draw Down Closing Date shall take place earlier than the 45/th/ day after a prior Draw Down Closing Date. The first Draw Down Closing may not take place until the earlier of (x) the 45/th/ day after the Initial Closing Date and (y) June 15, 2001. The Initial Closing and each Draw Down Closing are each referred to herein as a "Closing" and collectively as the "Closings." The Initial Closing Date and each ------- -------- Draw Down Closing Date are each referred to herein as a "Closing Date." ------------ 1.4. Deliveries. At each Closing, the Company shall deliver to the ---------- Purchaser (i) stock certificates, each registered in the name of the Purchaser, representing the Preferred Shares being purchased by the Purchaser at such Closing, (ii) the Warrants, each of which shall be substantially in the form of Exhibit 1.4, being purchased by the Purchaser at such Closing and (iii) such - ----------- other deliveries as are specified in Section 6.2(j). Delivery of such stock certificates and Warrants and such other deliveries shall be made against receipt by the Company of (i) the portion of the purchase price payable therefor, which shall be paid by wire transfer of immediately available funds to an account designated in writing by the Purchaser to the Company at least three Business Days prior to the applicable Closing Date, and (ii) such other deliveries as are specified in Section 6.3(d). 1.5. Calculation of Initial Conversion Price. The Applicable --------------------------------------- Conversion Price of the Preferred Shares that shall be issued and sold to the Purchaser on the Initial Closing Date shall be equal to the lower of (i) $8.74 and (ii) the sum of (a) the average of the daily Market Prices of the Common Stock for the 20 consecutive trading days ending on the Business Day immediately preceding the Initial Closing Date plus (b) 15% of the amount specified in clause (a) (the "Initial Series B Conversion Price"). The Applicable Conversion --------------------------------- Price of the Preferred Shares that shall be issued and sold to the Purchaser on each Draw Down Closing Date shall be equal to the lower of (a) the Initial Series B Conversion Price and (b) the sum of (A) the average of the daily Market Prices of the Common Stock for the 20 consecutive trading days ending on the Business Day immediately preceding such Draw Down Closing Date plus (B) 15% of the amount specified in clause (A). For purposes of this Section 1.5, "Applicable Conversion Price" and "Market Prices" shall have the meanings given --------------------------- ------------- to such terms in the Series B Certificate of Designation. Each Applicable Conversion Price shall be rounded to the nearest cent, with 0.5 of a cent rounded down to the nearest cent. -4- 1.6 Capitalized Terms. Capitalized terms not otherwise defined in ----------------- this Agreement shall have the meanings ascribed to such terms in Section 9.1. ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to the Purchaser, as of the date hereof and as of each Closing Date, as set forth in this Article II. Each reference in this Article II to a Schedule shall be to the disclosure schedule delivered by the Company to the Purchaser on or before the date of this Agreement (the "Company Disclosure Schedule"). --------------------------- 2.1. Organization; Subsidiaries; Books and Records. (a) The Company --------------------------------------------- is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the requisite corporate power and authority to carry on its business as it is now being conducted. The Company is duly qualified and licensed as a foreign corporation to do business, and is in good standing in each jurisdiction in which the character of its assets owned or held under lease or the nature of its business makes such qualification necessary, except where the failure so to qualify or be licensed would not, individually or in the aggregate, have a Material Adverse Effect. (b) Except as set forth on Schedule 2.1(b) or as disclosed in --------------- the SEC Reports (as defined in Section 2.4), (i) the Company owns, either directly or indirectly, all of the Capital Stock or other equity interests of the Subsidiaries free and clear of all liens, charges, claims, security interests, restrictions, options, proxies, voting trusts or other encumbrances (collectively, the "Encumbrances") and (ii) there are no outstanding ------------ subscription rights, options, warrants, convertible or exchangeable securities or other rights of any character whatsoever relating to issued or unissued Capital Stock or other equity interests of any Subsidiary, or any Commitments (as defined in Section 2.10) of any character whatsoever relating to issued or unissued Capital Stock or other equity interests of any Subsidiary or pursuant to which any Subsidiary is or may become bound to issue or grant additional shares of its Capital Stock or other equity interests or related subscription rights, options, warrants, convertible or exchangeable securities or other rights, or to grant preemptive rights. Except for the Subsidiaries or as disclosed in the SEC Reports, the Company does not own, directly or indirectly, any interest in any corporation, limited liability company, partnership, business association or other Person in excess of 9.9% of the outstanding equity of such corporation, limited liability company, partnership, business association or other Person. (c) The Company has made available to the Purchaser true and correct copies of the Company's certificate of incorporation, as amended and in effect on the date hereof, and the Company's bylaws, as amended and in effect on the date hereof. -5- The minute books and other similar records of the Company and its Subsidiaries as made available to the Purchaser prior to the date hereof contain a true and complete record, in all material respects, of all actions taken at all meetings and by all written consents in lieu of meetings of the stockholders, the boards of directors and committees of the boards of directors of the Company and the Subsidiaries. 2.2. Due Authorization. The Company has the requisite corporate power ----------------- and authority to enter into this Agreement and each of the other Transaction Documents to which it is a party and to consummate the transactions contemplated hereby and thereby. The execution and delivery by the Company of this Agreement and each of the other Transaction Documents to which it is a party, the issuance, sale and delivery of the Preferred Shares and the Warrants by the Company, and the compliance by the Company with each of the provisions of this Agreement and each of the other Transaction Documents to which it is a party (including the reservation and issuance of the Common Stock issuable upon conversion of the Series B Preferred Stock (the "Conversion Shares") and the ----------------- reservation, issuance and sale of the Common Stock issuable upon exercise of the Warrants (the "Warrant Shares"), and the consummation by the Company of the -------------- transactions contemplated hereby and thereby) (i) are within the corporate power and authority of the Company and (ii) have been duly authorized by all necessary corporate action of the Company, subject to (A) the approval and adoption of each Series B Certificate of Designation by the Company Board, (B) the Series A Holder Approval and (C) the Company Stockholder Approval. This Agreement has been, and each of the other Transaction Documents to which the Company is a party when executed and delivered by the Company shall be, duly and validly executed and delivered by the Company. Assuming due authorization, execution and delivery by the Purchaser of the Transaction Documents to which it is a party, this Agreement constitutes, and each of such other Transaction Documents when executed and delivered by the Company shall constitute, a valid and binding agreement of the Company enforceable against the Company in accordance with its terms, except as such enforcement is limited by bankruptcy, insolvency and other similar laws affecting the enforcement of creditors' rights generally and for limitations imposed by general principles of equity. The terms, designations, powers, preferences and relative participation, optional and other special rights, qualifications, limitations and restrictions of each series of the Series B Preferred Stock shall be as set forth in the Series B Certificate of Designation pursuant to which such series shall be issued. The Preferred Shares have been validly reserved for issuance and, when issued and delivered in accordance with the terms of this Agreement, shall be validly issued and outstanding, fully paid and non-assessable, and not subject to the preemptive or other similar rights of the stockholders of the Company. The Conversion Shares and the Warrant Shares have been validly reserved for issuance and, when issued and delivered in accordance with the terms of the applicable Series B Certificate of Designation and the Warrants, respectively, shall be duly and validly issued and outstanding, fully paid and non-assessable, and not subject to the preemptive or other similar rights of the stockholders of the Company. -6- 2.3. Capitalization. As of the date of this Agreement, the authorized Capital Stock of the Company consists of (i) 200,000,000 shares of Common Stock, of which, as of the close of business on February 21, 2001, 62,200,615 shares were issued and outstanding and of which no more than 10,000 additional shares (excluding any shares issued upon exercise of outstanding options set forth on Schedule 2.3) have been issued between February 21, 2001 and the date hereof; - ------------ and (iii) 5,000,000 shares of Preferred Stock, par value $.01 per share, of which as of the date hereof, 1,480,771 shares are issued and outstanding as Series A Convertible Preferred Stock, par value $0.01 per share (the "Series A -------- Preferred Stock"). As of the date of this Agreement, the Series A Preferred - --------------- Stock has an aggregate liquidation value of $10,957,705 and is convertible into 2,961,542 shares of Common Stock. All of the issued and outstanding shares of Common Stock and Series A Preferred Stock have been duly authorized and are validly issued, fully paid and non-assessable. No shares of Capital Stock of the Company are entitled to preemptive rights. Except as set forth on Schedule 2.3 ------------ or as disclosed in the SEC Reports or as otherwise contemplated by Article 1, there are no outstanding subscription rights, options, warrants, convertible or exchangeable securities or other rights of any character whatsoever (collectively, "Rights") relating to issued or unissued Capital Stock of the ------ Company, or any Commitments of any character whatsoever relating to issued or unissued Capital Stock of the Company or pursuant to which the Company is or may become bound to issue additional shares of its Capital Stock or grant related Rights, or to grant preemptive rights. To the extent that any Rights are outstanding, neither the issuance and sale of the Preferred Shares or Warrants nor any issuance of Conversion Shares or Warrant Shares shall result in an adjustment of the exercise or conversion price or number of shares issuable upon the exercise or conversion of any such Rights. Except as set forth on Schedule -------- 2.3, as disclosed in the SEC Reports or as otherwise contemplated by Article I, - --- (i) the Company has not agreed to register any securities under the Securities Act and (ii) there are no voting trusts, stockholders agreements, proxies or other Commitments or understandings in effect to which the Company is a party with respect to the voting or transfer of any of the outstanding shares of Common Stock or Series A Preferred Stock. 2.4. SEC Reports; Registration; Listing of Common Stock. (a) The -------------------------------------------------- Company has timely filed with the Securities and Exchange Commission (the "SEC") --- all reports, proxy statements, registration statements and other documents required to be filed by it under the Securities Act and the Exchange Act since January 1, 1999 and has made available to the Purchaser complete copies of all such reports, proxy statements, registration statements and other documents (including the financial statements and other financial data contained herein) (collectively, the "SEC Reports"). On the date of its filing, each SEC Report ----------- complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the SEC thereunder and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. -7- (b) The Company has registered its Common Stock pursuant to Section 12(g) of the Exchange Act. The Common Stock is currently listed on the National Market System of The Nasdaq Stock Market, Inc. (the "Nasdaq Stock Market"). ------------------- 2.5. Financial Statements. The consolidated financial statements of -------------------- the Company (including any related schedules and notes) included in the SEC Reports have been prepared in accordance with United States generally accepted accounting principles ("GAAP") consistently followed throughout the periods ---- involved (except as may be indicated in the notes thereto and, in the case of interim financial statements, as permitted by Form 10-Q under the Exchange Act) and fairly present in accordance with GAAP the consolidated financial condition, results of operations, cash flows and changes in stockholders' equity of the Company and the Subsidiaries as of the respective dates thereof and for the respective periods then ended (except as may be indicated in the notes thereto and except, in the case of interim financial statements, for the absence of notes and as permitted by Form 10-Q under the Exchange Act and subject to changes resulting from year-end adjustments, none of which are material in amount or effect). Except as set forth on Schedule 2.5 or as disclosed in the ------------ SEC Reports, neither the Company nor any of the Subsidiaries has any liability or obligation (whether accrued, absolute, contingent, unliquidated or otherwise, whether known or unknown, whether due or to become due and regardless of when asserted), except liabilities and obligations (i) in the respective amounts reflected or reserved against in the unaudited consolidated balance sheet of the Company and the Subsidiaries as of September 30, 2000 (the "Balance Sheet ------------- Date"), (ii) incurred in the ordinary course of business since the Balance Sheet - ---- Date or (iii) which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. 2.6. Absence of Certain Changes. Except as set forth on Schedule 2.6 -------------------------- ------------ or as disclosed in the SEC Reports, since the Balance Sheet Date, neither the Company nor any of the Subsidiaries has suffered any change, event or development or series of changes, events or developments which, individually or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect. 2.7. Litigation. (a) Except as set forth on Schedule 2.7(a) or as ---------- --------------- disclosed in the SEC Reports, there is no claim, action, suit, investigation or proceeding (collectively, "Litigation") pending or, to the Knowledge of the ---------- Company, threatened against the Company or any of the Subsidiaries or involving any of their respective properties or assets by or before any court, arbitrator or other Governmental Entity which (i) challenges or seeks to prevent, enjoin, alter or materially delay the transactions contemplated by this Agreement or (ii) if resolved adversely to the Company or a Subsidiary, would reasonably be expected to have a Material Adverse Effect. (b) Except as disclosed in the SEC Reports, neither the Company nor any of the Subsidiaries is in default under or in breach of any order, judgment or decree of any court, arbitrator or other Governmental Entity, except for defaults or breaches which, -8- individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. 2.8. Consents; No Violations. Neither the execution, delivery or ----------------------- performance by the Company of this Agreement or any of the other Transaction Documents to which it is a party nor the consummation of the transactions contemplated hereby or thereby shall (i) conflict with, or result in a breach or a violation of, any provision of the certificate of incorporation or bylaws of the Company or of the certificate of incorporation, bylaws or other organizational documents of any of the Subsidiaries; (ii) except as set forth on Schedule 2.8, constitute, with or without notice or the passage of time or both, - ------------ a breach, violation or default, create an Encumbrance, or give rise to any right of termination, modification, cancellation, prepayment, suspension, limitation, revocation or acceleration, under (a) any Law or (b) any provision of any agreement or other instrument to which the Company or any of the Subsidiaries is a party or pursuant to which any of them or any of their assets or properties is subject, except for breaches, violations, defaults, Encumbrances, or rights of termination, modification, cancellation, prepayment, suspension, limitation, revocation or acceleration, which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect; or (iii) require any consent, order, approval or authorization of, notification or submission to, filing with, license or permit from, or exemption or waiver by, any Governmental Entity or any other Person (collectively, the "Consents, Approvals and Filings") ------------------------------- on the part of the Company or any of the Subsidiaries, except for (a) the filing of each Series B Certificate of Designation with the Secretary of State of the State of Delaware (the "Delaware Secretary of State"), (b) the Consents, --------------------------- Approvals and Filings required under the HSR Act, (c) the Consents, Approvals and Filings required under the Securities Act, the Exchange Act and applicable state securities laws, (d) the Consents, Approvals and Filings required under rules of the Nasdaq Stock Market, (e) the Consents, Approvals and Filings set forth on Schedule 2.8 and (f) such other Consents, Approvals and Filings which ------------ the failure of the Company or any of the Subsidiaries to make or obtain would not reasonably be expected to have a Material Adverse Effect or materially adversely affect the ability of the Company to consummate the transactions contemplated by this Agreement or any Transaction Document. 2.9. Compliance with Laws; Licenses. (a) Neither the Company nor any ------------------------------ of the Subsidiaries is in violation of any applicable Laws with respect to the conduct of its business, or the ownership or operation of its properties or assets, except for failures to comply or violations which, individually or in the aggregate, have not had, and would not reasonably be expected to have, a Material Adverse Effect. (b) The Company and the Subsidiaries have all permits, licenses and franchises from Governmental Entities required to conduct their businesses as now being conducted or as presently contemplated to be conducted (collectively, the "Licenses"), except for such Licenses the absence of which, individually or -------- in the aggregate, have not had, and would not reasonably be expected to have, a Material Adverse Effect. The -9- Company and the Subsidiaries are in compliance with the terms of the Licenses, except for failures to be in compliance which, individually or in the aggregate, have not had, and would not reasonably be expected to have, a Material Adverse Effect. 2.10. Commitments. Schedule 2.10 sets forth, as of the date hereof, a ----------- ------------- complete and correct list of each contract, agreement, understanding, arrangement and commitment of any nature whatsoever, whether written or oral, including all amendments thereof and supplements thereto ("Commitments"), of the ----------- following types to which the Company or any Subsidiary is a party or by or to which the Company or any Subsidiary or any of their properties may be bound or subject and which are not filed as exhibits to any SEC Report filed by the Company with the SEC since January 1, 2000: (i) Commitments containing covenants purporting to limit the freedom of the Company or any Subsidiary to compete in any line of business in any geographic area or to hire any individual or group of individuals, except in connection with or resulting from acquisitions; (ii) Commitments relating to capital expenditures in excess of $10,000,000; (iii) Commitments relating to indentures, mortgages, promissory notes, loan agreements, guarantees, letters of credit or other substantially similar agreements or instruments of the Company or any Subsidiary involving amounts in excess of $1,000,000; (iv) Commitments in respect of any joint venture, partnership or other similar arrangement; (v) Commitments with any Governmental Entity involving payments in excess of $1,000,000; and (vi) Commitments relating to interconnection agreements with local carriers and Commitments with customers, in each case involving payments in excess of $1,000,000 per calendar year. 2.11. Brokers or Finders. Except for Banc of America Securities LLC ------------------ and Morgan Stanley & Co. Incorporated, whose fees shall be paid by the Company, no agent, broker, investment banker or other Person is or shall be entitled to any broker's or finder's fee or any other commission or similar fee from the Company or any of the Subsidiaries in connection with any of the transactions contemplated by this Agreement to occur on any Closing Date. 2.12. Section 203 of the DGCL; Takeover Statute. The Company Board ----------------------------------------- has taken all actions necessary or advisable so that the restrictions contained in -10- Section 203 of the DGCL applicable to a "business combination" (as defined in such Section) shall not apply to the execution, delivery or performance of this Agreement or any of the other Transaction Documents or the consummation of the transactions contemplated hereby or thereby. The execution, delivery and performance of this Agreement or any of the other Transaction Documents and the consummation of the transactions contemplated hereby or thereby shall not cause to be applicable to the Company any "fair price," "moratorium," "control share acquisition" or other similar antitakeover statute or regulation enacted under state or federal laws. 2.13. No General Solicitation or Advertising; No Integration. With ------------------------------------------------------- respect to any offering of the Preferred Shares, the Warrants, the Conversion Shares or the Warrant Shares (collectively, the "Securities") made without ---------- registration under the Securities Act and applicable state securities laws, the Company has not (i) engaged in any general solicitation or general advertising (as such terms are used in Rule 502(c) of the Securities Act), or (ii) made any offers or sales of any security (other than the Securities) under circumstances that would require registration of the Securities being offered or sold under this Agreement under the Securities Act or any state securities law. 2.14. Investment Company Status. The Company is not an "investment ------------------------- company," as such term is defined in the Investment Company Act (an "Investment Company"). The Company is not "controlled" by an Investment ------------------ Company, as such term is defined in the Investment Company Act. 2.15. Opinion of Financial Adviser. The Company has received the ---------------------------- opinion of Banc of America Securities LLC to the effect that, as of the date of this Agreement, the consideration to be received by the Company pursuant to Section 1.1(b) is fair from a financial point of view to the Company, subject to the qualifications and assumptions contained therein. 2.16. Disclosure. Neither this Agreement nor any other Transaction ---------- Document, nor any Schedule or Exhibit hereto or thereto (including the Company Disclosure Schedule), nor any certificate furnished to the Purchaser by or on behalf of the Company pursuant to Article VI, when considered together with the other such documents and written information, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under which they were made, not misleading. For purposes of the preceding sentence, any preliminary document or written information shall be disregarded if a final or updated version of such document or written information was delivered to the Purchaser by the Company prior to the date hereof. -11- ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE PURCHASER The Purchaser represents and warrants to the Company as of the date hereof and as of each Closing Date, as set forth in this Article III. Each reference in this Article III to a Schedule shall be to the disclosure schedule delivered by the Purchaser to the Company on or before the date of this Agreement (the "Purchaser Disclosure Schedule"). ----------------------------- 3.1. Acquisition for Investment. The Purchaser is acquiring the -------------------------- Securities for its own account, for investment and not with a view to, or for sale in connection with, the distribution thereof within the meaning of the Securities Act (it being understood that except as otherwise provided in this Agreement and the Transaction Documents to which it is a party, the Purchaser does not agree to hold the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with the Securities Act and state securities laws applicable to such disposition). 3.2. Accredited Investor Status. The Purchaser is an "accredited -------------------------- investor," as that term is as defined in Rule 501(a) of Regulation D under the Securities Act. The Purchaser has sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of its investment in the Securities and is capable of bearing the economic risks of such investment. The Purchaser understands that its investment in the Securities involves a significant degree of risk. Holding is a Qualified Investor. 3.3. Information. The Purchaser and its advisers have been ----------- furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by the Purchaser or its advisers. The Purchaser and its advisers have been afforded the opportunity to ask questions of the Company's management concerning the Company and the Securities. 3.4. Government Review. The Purchaser understands that no ----------------- Governmental Entity has passed upon or made any recommendation or endorsement of the Securities. 3.5. Sale or Transfer. The Purchaser understands that (i) except ---------------- as provided in this Agreement or the Registration Rights Agreement, the sale or re-sale of the Securities has not been and is not being registered under the Securities Act or any applicable state securities laws, and the Securities may not be sold or otherwise transferred unless (a) the Securities are sold or transferred pursuant to an effective registration statement under the Securities Act, (b) the Purchaser shall have delivered to the Company an opinion of counsel (which opinion shall be in form, substance and scope -12- customary for opinions of counsel in comparable transactions) to the effect that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration, or (c) the Securities are sold pursuant to Rule 144 under the Securities Act; (ii) any sale of such Securities made in reliance on Rule 144 may be made only in accordance with the terms of such Rule and further, if such Rule is not applicable, any sale of such Securities under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the Securities Act) may require compliance with another exemption under the Securities Act or the rules and regulations of the SEC thereunder; and (iii) neither the Company nor any other Person is under any obligation to register such Securities under the Securities Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder (in each case, other than pursuant to the Registration Rights Agreement). 3.6. Residency. The principal offices of the Purchaser and the --------- offices of the Purchaser in which it made its decision to purchase the Securities are located in the State of Alabama. 3.7. No Brokers or Finders. Except as set forth on Schedule 3.7, --------------------- ------------ no agent, broker, investment banker or other Person is or shall be entitled to any broker's or finder's fee or any other commission or similar fee from the Purchaser in connection with the transactions contemplated by this Agreement to occur on any Closing Date. 3.8. Organization. The Purchaser is an entity duly organized, ------------ validly existing and in good standing under the laws of its jurisdiction of formation and has the requisite power and authority to carry on its business as it is now being conducted. 3.9. Due Authorization. The Purchaser has the requisite power and ----------------- authority to enter into this Agreement and each of the other Transaction Documents to which it is a party and to consummate the transactions contemplated hereby and thereby. The execution and delivery by the Purchaser of this Agreement and each of the other Transaction Documents to which it is a party and the compliance by the Purchaser with each of the provisions of this Agreement and each of the Transaction Documents to which it is a party (including the consummation by the Purchaser of the transactions contemplated hereby and thereby) (i) are within the power and authority of the Purchaser and (ii) have been duly authorized by all necessary action on the part of the Purchaser. This Agreement has been, and each of the other Transaction Documents to which it is a party when executed and delivered by the Purchaser shall be, duly and validly executed and delivered by the Purchaser. Assuming due authorization, execution and delivery by the Company of the Transaction Documents to which it is a party, this Agreement constitutes, and each of such other Transaction Documents when executed and delivered by the Purchaser shall constitute, a valid and binding agreement of the Purchaser enforceable against the Purchaser in accordance with its terms, except as such enforcement is limited by bankruptcy, insolvency and other similar laws affecting the -13- enforcement of creditors' rights generally and for limitations imposed by general principles of equity. 3.10. Consents, No Violations. Neither the execution, delivery or ----------------------- performance by the Purchaser of this Agreement or any of the other Transaction Documents to which it is a party nor the consummation of the transactions contemplated hereby or thereby shall (i) conflict with, or result in a breach or a violation of, any provision of the certificate of incorporation, bylaws or other organizational documents of the Purchaser; (ii) constitute, with or without notice or the passage of time or both, a breach, violation or default, create an Encumbrance, or give rise to any right of termination, modification, cancellation, prepayment, suspension, limitation, revocation or acceleration, under (a) any Law, or (b) any provision of any agreement or other instrument to which the Purchaser is a party or pursuant to which the Purchaser or its assets or properties is subject, except for breaches, violations, defaults, Encumbrances, or rights of termination, modification, cancellation, prepayment, suspension, limitation, revocation or acceleration, which, individually or in the aggregate, would not materially adversely affect the ability of the Purchaser to consummate the transactions contemplated by this Agreement or any Transaction Document to which it is a party; or (iii) require any Consents, Approvals and Filings on the part of the Purchaser, except for (a) the Consents, Approvals and Filings required under the HSR Act, (b) the Consents, Approvals and Filings required under the Exchange Act and applicable state securities laws, (c) the Consents, Approvals and Filings set forth on Schedule 3.10 and (d) ------------- such other Consents, Approvals and Filings which the failure of the Purchaser to make or obtain would not materially adversely affect the ability of the Purchaser to consummate the transactions contemplated by this Agreement or any Transaction Document. 3.11. Litigation. There is no Litigation pending or, to the ---------- knowledge of the Purchaser, threatened against the Purchaser or any of its Affiliates or involving any of its properties or assets by or before any court, arbitrator or other Governmental Entity which in any manner challenges or seeks to prevent, enjoin, alter or materially delay the transactions contemplated by this Agreement. 3.12. Investment Company Act. The Purchaser is not an Investment ---------------------- Company or "controlled" by an Investment Company, as such term is defined in the Investment Company Act. 3.13. Availability of Funds. The Purchaser has sufficient funds to --------------------- pay the purchase price for the Preferred Shares and the Warrants to be issued and sold by the Company pursuant to Article I. 3.14 Ownership of Capital Stock. Holding is the ultimate -------------------------- beneficial owner of 305,983 shares of Common Stock. Holding is not the beneficial owner of any other Capital Stock of the Company or, except as contemplated by this Agreement, of any Rights relating to issued or unissued Capital Stock of the Company or any Commitments -14- of any character whatsoever relating to issued or unissued Capital Stock of the Company. With respect to its beneficial ownership of Common Stock, Holding is not a member of any Ownership Group as of the date hereof. ARTICLE IV COVENANTS 4.1 Public Announcements. The Company and the Purchaser shall -------------------- consult with each other before issuing any press release with respect to this Agreement or the transactions contemplated hereby and neither shall issue any such press release or make any such public statement with respect thereto without the prior consent of the other, which consent shall not be unreasonably withheld, delayed or conditioned; provided, however, that a party may, without the prior consent of the other party, issue such press release or make such public statement as may upon the advice of counsel be required by Law, by rules of the Nasdaq Stock Market, by any other automated quotation system on which the Company's securities or, if applicable, the Purchaser's securities are quoted or by any national securities exchange on which the Company's securities or, if applicable, the Purchaser's securities are listed provided that, to the extent time permits, such party has used all reasonable best efforts to consult with the other party prior thereto. 4.2 HSR Act. Subject to the terms of this Agreement, the Company ------- and the Purchaser each shall cooperate and use its reasonable best efforts (i) to make or obtain, or cause to be made or obtained, all Consents, Approvals and Filings under antitrust Laws, including the HSR Act, promptly after the date of this Agreement that are necessary, proper or advisable in order to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement, including using its reasonable best efforts to resolve such objections, if any, as the Antitrust Division of the Department of Justice or the Federal Trade Commission or state antitrust enforcement or other Governmental Entities may assert under antitrust Laws with respect to the transactions contemplated hereby, (ii) to respond to any requests of any Governmental Entity for information under antitrust Laws and (iii) to contest and resist any action, including any legislative, administrative or judicial action, and to have vacated, lifted, reversed or overturned any decree, judgment, injunction or other order (whether temporary, preliminary or permanent) that restricts, prevents or prohibits under any antitrust Law the consummation of the transactions contemplated by this Agreement. The Company and the Purchaser shall consult and cooperate with each other, and consider in good faith the other party's views, in connection with any analyses, appearances, presentations, memoranda, briefs, arguments, opinions and proposals made or submitted by or on behalf of either party in connection with proceedings under or relating to any antitrust Law. -15- 4.3 Consents, Approvals and Filings. Subject to the terms of this ------------------------------- Agreement, the Company and the Purchaser each shall use its reasonable best efforts to take, or cause to be taken, all actions, and do, or cause to be done, and to assist and cooperate with the other party in doing, all things necessary, proper, desirable or advisable to obtain and make all Consents, Approvals and Filings required to be obtained or made by the Company and its Subsidiaries or the Purchaser, as the case may be, in connection with the authorization, execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby. 4.4 Reasonable Best Efforts. Except as otherwise expressly ----------------------- provided in this Agreement, the Company and the Purchaser each shall use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable Laws to consummate the transactions contemplated by this Agreement. In furtherance and not in limitation of the other covenants of the parties contained in this Agreement, if any administrative or judicial action or proceeding, including any proceeding by a private party, is instituted (or threatened to be instituted) challenging any transaction contemplated by this Agreement, each party shall cooperate in all respects with the other party and use its reasonable best efforts to contest and resist any such action or proceeding and to have vacated, lifted, reversed or overturned any decree, judgment, injunction or other order, whether temporary, preliminary or permanent, that is in effect and that prohibits, prevents or restricts the consummation of the transactions contemplated by this Agreement; provided, however, that the Purchaser shall not be required to expend any material funds in connection with such reasonable best efforts unless the Company shall have agreed to reimburse the Purchaser for such expenditures. 4.5 Company Stockholder Approval; Series A Holder Approval. Subject ------------------------------------------------------ to the terms of this Agreement, the Company shall use its reasonable best efforts to obtain (i) the Company Stockholder Approval at a meeting of the Company's stockholders and to ensure that such meeting shall be held not later than May 31, 2001 and (ii) the Series A Holder Approval. 4.6. Listing. The Company shall use its reasonable best efforts to ------- continue to have the Common Stock quoted on the National Market System of the Nasdaq Stock Market (the "NMS"), or listed on a national securities exchange or --- quoted on a national automated quotation system other than the NMS for so long as any Securities are outstanding. The Company shall prepare and submit to the Nasdaq Stock Market one or more forms entitled "Notification Forms: Listing of Additional Shares" covering the Conversion Shares and the Warrant Shares and shall use its reasonable best efforts to submit such forms within the period prescribed by the applicable rules of the Nasdaq Stock Market. 4.7. Series B Certificate of Designation. Before the issuance of ----------------------------------- Preferred Shares at any Closing, the Company Board shall approve and adopt the Series B -16- Certificate of Designation authorizing such Preferred Shares, and the Company shall cause such Series B Certificate of Designation to be filed with the Delaware Secretary of State. 4.8. Reservation of Common Stock. The Company at all times shall --------------------------- reserve and keep available, free of preemptive rights, solely for issuance and delivery upon conversion of the Preferred Shares and upon exercise of the Warrants, the number of shares of Common Stock from time to time issuable upon conversion of all of the Preferred Shares or upon exercise of the Warrants, in each case at the time outstanding. 4.9 Use of Proceeds. The proceeds received by the Company under --------------- this Agreement shall be used by the Company for working capital and other general corporate purposes. 4.10 Board Representation Rights. The Company shall take all --------------------------- corporate action necessary to provide the Purchaser with the benefit of the Company Board representation rights set forth in each Series B Certificate of Designation. 4.11 Confidential Treatment of Confidential Information. (a) In -------------------------------------------------- the event the Purchaser (including its officers, employees, counsel, accountants, partners and other authorized representatives) obtains from the Company or the Subsidiaries any Confidential Information, the Purchaser (i) shall treat all such Confidential Information as confidential, (ii) shall use such Confidential Information only for the purposes contemplated in this Agreement, (iii) shall protect such Confidential Information with the same degree of care as the Purchaser uses to protect its own proprietary information against public disclosure, but in no case with less than reasonable care, and (iv) shall not disclose such Confidential Information to any third party except to such officers, employees, counsel, accountants, partners and other authorized representatives of the Purchaser who need to know such Confidential Information for the purpose of effectuating the transactions contemplated by this Agreement and who have been informed of and have agreed to protect the confidential nature of such Confidential Information (and the Purchaser shall be responsible for compliance with this Section 4.11 by such officers, employees, counsel, accountants, partners and other authorized representatives). (b) Upon the Company's request at any time, the Purchaser shall (i) return to the Company or destroy all documents (including any copies thereof) embodying the Confidential Information and (ii) certify in writing to the Company, within ten days following the Company's request, that all such Confidential Information has been returned or destroyed. 4.12 Notification of Certain Matters. Each party shall give prompt ------------------------------- notice to the other party of, and shall use their respective reasonable best efforts to prevent or promptly remedy, (i) the occurrence or failure to occur, or the impending or threatened -17- occurrence or failure to occur, of any event which occurrence or failure to occur would be likely to cause any of its representations or warranties in this Agreement to be untrue or inaccurate in any material respect (or in all respects in the case of any representation or warranty containing any materiality qualification) at any time after the date of this Agreement and (ii) any material failure (or any failure in the case of any covenant, condition or agreement containing any materiality qualification) on its part to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it under this Agreement. The delivery of any notice pursuant to this Section 4.12 shall not limit or otherwise affect the remedies available under this Agreement to any party receiving such notice. 4.13 Registration Rights. The Company shall cause the Registration ------------------- Rights Agreement in the form of Exhibit 4.13 (the "Registration Rights ------------ ------------------- Agreement") to remain in full force and effect, and the Company shall comply - --------- with the terms thereof. 4.14 Legends. The certificates evidencing the Securities shall be ------- free of legends, except as provided for in Section 9.5. 4.15 Compliance with Securities Laws. Pursuant to the second ------------------------------- paragraph of Section 1.1(b) and as contemplated by Section 9.6, the Company and Holding, as the case may be, may conduct discussions with institutional investors after the date hereof regarding the purchase of Securities by such institutional investors in accordance with this Agreement. In conducting discussions with any such institutional investors and taking any other actions in connection therewith, the Company and Holding shall comply, and shall ensure that their respective Affiliates comply, with all applicable securities laws, including the Securities Act and the Exchange Act and the rules and regulations promulgated under the Securities Act and the Exchange Act. Without limiting the generality of the foregoing, the Company and Holding shall comply, and shall ensure that their respective Affiliates comply, with the provisions of Exhibit ------- 9.6. - --- 4.16 Further Assurances. At any time or from time to time after ------------------ the date of this Agreement, the Company, on the one hand, and the Purchaser, on the other hand, agree to cooperate with each other, and at the request of the other party, to execute and deliver any further instruments or documents and to take all such further action as the other party may reasonably request in order to evidence or effectuate the consummation of the transactions contemplated by this Agreement or by the other Transaction Documents and to otherwise carry out the intent of the parties hereunder or thereunder, including to effect or otherwise obtain the approval of any future transfer of Securities as contemplated hereby. Without limiting the generality of the foregoing, the parties agree that, if any provision of this Agreement or any other Transaction Document shall fail to comply with any rule or policy of the National Association of Securities Dealers, Inc. or the Nasdaq Stock Market, the parties shall consult in good faith with respect to the negotiation of alternative agreements that will provide each of the parties with -18- substantially the same rights as those provided in this Agreement or such other Transaction Document. ARTICLE V RESTRICTIONS ON TRANSFER 5.1. Restrictions on Transfer. The Purchaser shall not, and shall ------------------------ ensure that its Affiliates do not, purchase, sell, transfer, assign, convey, gift, mortgage, pledge, encumber, hypothecate or otherwise dispose of, directly or indirectly ("Transfer"), any Securities except in accordance with the -------- provisions of this Agreement, including Section 3.5, and the other Transaction Documents. Any purported Transfers of Securities in violation of this Article V shall be null and void. 5.2 Compliance with Laws; Stop Order. (a) The Purchaser shall, -------------------------------- and shall ensure that its Affiliates shall, observe and comply with the Securities Act and the Exchange Act and the regulations promulgated thereunder and all other requirements of applicable Law in connection with any permitted Transfer of Securities, including all requirements of applicable Law relating to the use of insider information or the trading of securities while in the possession of nonpublic information. (b) In order to enforce the provisions of this Article V, the Company may impose stop transfer instructions with respect to all of the Securities held by the Purchaser and the Securities of every other Person subject to the foregoing restrictions. 5.3 Separation of Preferred Shares and Warrants. The Preferred ------------------------------------------- Shares and Warrants issued at each Closing Date shall not become separately transferable until the first anniversary of such Closing Date (each such first anniversary of a Closing Date, a "Separation Date"). --------------- 5.4 No Short Sales. From the date of this Agreement through the -------------- expiration of the Commitment Period, the Purchaser shall comply, and shall use its commercially reasonable efforts to cause its Affiliates to comply, with Section 16(c) of the Exchange Act with respect to transactions in the Common Stock to the same extent as if Section 16(c) of the Exchange Act applied by its terms to the Purchaser and such Affiliates. -19- ARTICLE VI CONDITIONS 6.1. Conditions to Obligations of the Purchaser and the Company at ------------------------------------------------------------- Each Closing. The obligations of the Purchaser and the Company to consummate - ------------ the transactions contemplated hereby to be consummated at each Closing are subject to the satisfaction or waiver at or prior to the applicable Closing Date of each of the following conditions: (a) no preliminary or permanent injunction or other Order by any Governmental Entity which prevents the consummation of the transactions contemplated hereby shall have been issued and remain in effect (each party agreeing to use its reasonable best efforts to have any such injunction or Order lifted); (b) the waiting period applicable to the consummation of the transactions contemplated hereby under the HSR Act shall have expired or been terminated; (c) no statute, rule, regulation or other Law shall have been enacted by any Governmental Entity which would prevent or make illegal the consummation of the transactions contemplated by this Agreement; (d) any Consents, Filings and Approvals that are necessary for the consummation of the transactions contemplated by this Agreement shall have been made or obtained except where (i) the Company's failure to make or obtain such Consents, Filings and Approvals would not have a Material Adverse Effect or a material adverse effect on the Company's ability to perform its obligations under this Agreement or (ii) the Purchaser's failure to obtain such Consents, Filings and Approvals would not have a material adverse effect on the Purchaser's ability to perform its obligations under this Agreement; and (e) no suit, claim, investigation, action or other proceeding shall be overtly threatened or pending against the Purchaser or the Company or any Subsidiary before any Governmental Entity which reasonably could be expected to result in the restraint or prohibition of any such party, or the obtaining of damages or other relief from any such party, in connection with this Agreement or the other Transaction Documents or the consummation of the transactions contemplated hereby or thereby. 6.2. Additional Conditions to Obligations of the Purchaser at Each ------------------------------------------------------------- Closing. The obligations of the Purchaser to consummate the transactions - ------- contemplated hereby to be consummated at each Closing shall be subject to the satisfaction or waiver at or prior to the applicable Closing Date of each of the following additional conditions: (a) the representations and warranties of the Company contained in this Agreement shall have been true and correct in all respects at and as of the date they were made, and shall be true and correct in all respects at and as of such Closing Date (unless -20- any such representations and warranties are stated to be made as of a date other than the date hereof, in which case they shall have been true and correct in all respects as of that date); provided, that this condition shall be deemed satisfied unless the failure of such representations and warranties to be true and correct in all respects (without regard to any qualifiers with respect to materiality or Material Adverse Effect set forth therein) would have, in the aggregate, a Material Adverse Effect or would have, in the aggregate, a material adverse effect on the Company's ability to perform its obligations under this Agreement; (b) the Company shall have performed, in all material respects, all of its obligations contemplated herein to be performed by the Company on or prior to such Closing Date; (c) from the date hereof through such Closing Date, there shall not have occurred, and be continuing, a Material Adverse Effect; (d) the Series B Certificate of Designation with respect to the series of Preferred Shares to be issued at such Closing and as dividends on Preferred Shares of such series shall have been duly filed with the Delaware Secretary of State in accordance with the laws of the State of Delaware, and such Series B Certificate of Designation shall be in full force and effect; (e) the Conversion Shares issuable upon conversion of the Preferred Shares and the Warrant Shares issuable upon exercise of the Warrants shall have been duly authorized and reserved for issuance; (f) with respect to the purchase of the Preferred Shares and Warrants by Holding at any Closing that occurs after the Initial Closing Date, the stockholders of Powertel, Inc. shall have approved the acquisition of Powertel, Inc. by VoiceStream Wireless Corporation and/or Deutsche Telecom AG; (g) the trading of the Common Stock shall not have been suspended by the SEC or the Nasdaq Stock Market or by any other automated quotation system on which the Common Stock is quoted or by any national securities exchange on which the Common Stock is listed; (h) the Series A Holder Approval and the Company Stockholder Approval shall have been obtained; (i) the Company shall have obtained the amendment of the agreements listed on Exhibit 6.2(i) to the extent specified in such Exhibit; -------------- (j) except with respect to an Existing Stockholder Investment, immediately after giving effect to the issuance of Preferred Shares and Warrants to the Purchaser at such Closing, and assuming full convertibility and full exercisability of such Preferred Shares and Warrants, the Purchaser, together with all other Persons, if any, that are members of the same Ownership Group with respect to beneficial ownership of the -21- Voting Stock, and assuming full convertibility and full exercisability of all Preferred Shares and Warrants beneficially owned by the Purchaser and all other members of such Ownership Group immediately prior to such Closing, shall not be the ultimate beneficial owner of more than 30% of the total voting power of the outstanding Voting Stock on a fully diluted basis, calculated pursuant to the Change of Control Test; and (k) the Company shall have delivered the following to the Purchaser: (i) an officer's certificate certifying as to the Company's compliance with the conditions set forth in clauses (a), (b) and (c) of this Section 6.2; (ii) a counterpart of the Registration Rights Agreement executed by the Company; (iii) the certificates and Warrants specified in Section 1.4; (iv) an opinion of the Company's independent counsel in substantially the form of, or as to substantially the matters set forth in, Exhibit 6.2(j)(iv); and ------------------ (v) such other documents as may be required by this Agreement or reasonably requested by the Purchaser. 6.3. Additional Conditions to Obligations of the Company at Each ----------------------------------------------------------- Closing. The obligations of the Company to consummate the transactions - ------- contemplated hereby to be consummated at each Closing shall be subject to the satisfaction or waiver at or prior to the applicable Closing Date of each of the following additional conditions: (a) the representations and warranties of the Purchaser contained in this Agreement shall have been true and correct in all respects at and as of the date they were made, and shall be true and correct in all respects at and as of such Closing Date (unless any such representations and warranties are stated to be made as of a date other than the date hereof, in which case they shall have been true and correct in all respects as of that date); provided, that this condition shall be deemed satisfied unless the failure of such representations and warranties to be true and correct in all respects (without regard to any qualifiers with respect to materiality or material adverse effect set forth therein) would have, in the aggregate, a material adverse effect on the Purchaser's ability to perform its obligations under this Agreement; (b) the Purchaser shall have performed, in all material respects, all of its obligations contemplated herein to be performed by the Purchaser on or prior to such Closing Date; (c) except with respect to an Existing Stockholder Investment, immediately after giving effect to the issuance of Preferred Shares and Warrants to the Purchaser at such Closing, and assuming full convertibility and full exercisability of such -22- Preferred Shares and Warrants, the Purchaser, together with all other Persons, if any, that are members of the same Ownership Group with respect to beneficial ownership of the Voting Stock, and assuming full convertibility and full exercisability of all Preferred Shares and Warrants beneficially owned by the Purchaser and all other members of such Ownership Group immediately prior to such Closing, shall not be the ultimate beneficial owner of more than 30% of the total voting power of the outstanding Voting Stock on a fully diluted basis, calculated pursuant to the Change of Control Test; (d) the Series A Holder Approval and the Company Stockholder Approval shall have been obtained; and (e) the Purchaser shall have delivered the following to the Company: (i) the portion of the purchase price payable for the Preferred Shares and Warrants being purchased at such Closing; (ii) an officer's certificate certifying as to the Purchaser's compliance with the conditions set forth in clauses (a) and (b) of this Section 6.3; (iii) an opinion of the Purchaser's independent counsel in substantially the form of, or as to substantially the matters set forth in, Exhibit 6.3(d); and -------------- (iv) such other documents as may be required by this Agreement or reasonably requested by the Company. ARTICLE VII TERMINATION 7.1. Termination. This Agreement may be terminated at any time: ----------- (a) by mutual written agreement of the Company and the Purchaser; (b) by the Company (i) upon a breach of any covenant or agreement on the part of the Purchaser set forth in this Agreement or if any representation or warranty of the Purchaser set forth in this Agreement shall not be true and correct, in either case such that the conditions set forth in Section 6.3(a) or 6.3(b) would not be satisfied (a "Terminating Purchaser Breach"); provided, that ---------------------------- such Terminating Purchaser Breach shall not have been waived or cured by the earlier of (x) the next Closing Date following such Terminating Purchaser Breach or, in the case of a Terminating Purchaser Breach occurring prior to the Initial Closing Date, June 30, 2001 (the "Outside Date") or (y) within 30 days after ------------ written notice of such Terminating Purchaser Breach is given to the Purchaser by the Company; (ii) if any condition to the Company's obligations to close at any Closing set forth in Article VI has not been satisfied as of each applicable Closing -23- Date (or, in the case of the Initial Closing, the Outside Date) or satisfaction of such a condition is or becomes impossible (other than because of the failure of the Company to comply with its obligations under this Agreement), and the Company has not waived such condition; or (iii) if the Initial Closing does not occur on or before the Outside Date (provided that the right to terminate this Agreement under this Section 7.1(b)(iii) shall not be available to the Company if the Company's failure to fulfill any of its obligations hereunder has been the cause of, or resulted in, the failure of the parties to consummate the Initial Closing on or before the Outside Date); and (c) by the Purchaser (i) upon a breach of any covenant or agreement on the part of the Company set forth in this Agreement or if any representation or warranty of the Company set forth in this Agreement shall not be true and correct, in either case such that the conditions set forth in Section 6.2(a) or 6.2(b) would not be satisfied (a "Terminating Company Breach"); provided, that -------------------------- such Terminating Company Breach shall not have been waived or cured by the earlier of (x) the next Closing Date following such Terminating Company Breach or, in the case of a Terminating Company Breach occurring prior to the Initial Closing Date, the Outside Date or (y) within 30 days after written notice of such Terminating Company Breach is given to the Company by the Purchaser; (ii) if any condition to the Purchaser's obligation to close set forth in Article VI has not been satisfied as of each applicable Closing Date (or, in the case of the Initial Closing, the Outside Date) or satisfaction of such a condition is or becomes impossible (other than because of the failure of the Purchaser to comply with its obligations under this Agreement), and the Purchaser has not waived such condition; or (iii) if the Initial Closing does not occur on or before the Outside Date (provided that the right to terminate this Agreement under this Section 7.1(c)(iii) shall not be available to the Purchaser if the Purchaser's failure to fulfill any of its obligations hereunder has been the cause of, or resulted in, the failure of the parties to consummate the Initial Closing on or before the Outside Date). 7.2. Effect of Termination. If this Agreement is terminated by either --------------------- the Company or the Purchaser pursuant to the provisions of Section 7.1, this Agreement shall forthwith become void and there shall be no further obligations on the part of the Company or the Purchaser or their respective stockholders, directors, officers, employees, agents or representatives, except for the provisions of Article VIII and Sections 4.1, 4.11, 9.2, 9.3, 9.4, 9.8, 9.9, 9.15, 9.16 and 9.17, which shall survive any termination of this Agreement; provided, that nothing in this Section 7.2 shall relieve either party from liability for any willful breach of this Agreement. 7.3. Extensions; Waiver. At any time prior to the applicable ------------------ compliance time, each party may (i) extend the time for the performance of any of the obligations or other acts of any other party, (ii) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant thereto and (iii) waive compliance with any of the agreements or conditions herein. Any agreement on the part -24- of a party to any such extension or waiver shall be valid if set forth in an instrument in writing signed on behalf of such party. ARTICLE VIII INDEMNIFICATION 8.1. Indemnification. (a) The Company shall indemnify and hold --------------- harmless the Purchaser, its directors and officers, and each Person, if any, who controls the Purchaser (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) against all losses, claims, damages, liabilities and expenses (including reasonable attorneys' and accountants' fees, disbursements and expenses, as incurred) (collectively, "Losses") incurred by ------ such party arising out of or based upon (i) any breach of a representation or warranty or breach of or failure to perform any covenant or agreement on the part of the Company contained in this Agreement or (ii) any suit, claim, investigation, action or other proceeding before any Governmental Entity in connection with this Agreement or the consummation of the transactions contemplated hereby. (b) The Purchaser shall indemnify and hold harmless the Company, its directors and officers, and each Person, if any, who controls the Company (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) against all Losses incurred by such party arising out of or based upon any breach of a representation or warranty or breach of or failure to perform any covenant or agreement on the part of the Purchaser contained in this Agreement. 8.2. Method of Asserting Indemnification for Third Party Claims. Any ---------------------------------------------------------- Person entitled to indemnification hereunder shall give prompt written notice to the indemnifying party after the receipt by such indemnified party of any written notice of the commencement of any action, suit, proceeding or investigation or threat thereof made in writing for which such indemnified party may claim indemnification pursuant to this Agreement, provided that failure to give such notification shall not affect the obligations of the indemnifying party pursuant to this Article VIII except to the extent that the indemnifying party shall have been actually prejudiced as a result of such failure. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of -25- investigation, unless in the reasonable judgment of any indemnified party, based on the written opinion of counsel, a conflict of interest is likely to exist between the indemnifying party and such indemnified party and any other of such indemnified parties with respect to such claim, in which event the indemnifying party shall not be liable for the fees and expenses of more than one counsel for all indemnified parties selected by such parties (which selection shall be reasonably satisfactory to the indemnifying party), in each case in connection with any one action or separate but similar or related actions. An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim shall not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party, based on the written opinion of counsel, a conflict of interest is likely to exist between the indemnified party and any other of such indemnified parties with respect to such claim, in which event the indemnifying party shall be obligated to pay the fees and expenses of such additional counsel. No indemnifying party, in defense of any such action, suit, proceeding or investigation, shall, except with the consent of each indemnified party, consent to the entry of any judgment or entry 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 action, suit, proceeding or investigation to the extent such liability is covered by the indemnity obligations set forth in this Section 8.2. No indemnified party shall consent to entry of any judgment or entry into any settlement without the consent of each indemnifying party. 8.3. Method of Asserting Indemnification for Other Claims. In the ---------------------------------------------------- event any indemnified party should have a claim under Section 8.1 against the indemnifying party that does not involve a third party claim, the indemnified party shall deliver a written notification of a claim for indemnity under Section 8.1 specifying the nature of and basis for such claim, together with the amount or, if not then reasonably ascertainable, the estimated amount, determined in good faith, of such claim (an "Indemnity Notice") with reasonable ---------------- promptness to the indemnifying party. The failure by any indemnified party to give the Indemnity Notice shall not impair such party's rights under Section 8.1 except to the extent that the indemnifying party shall have been actually prejudiced as a result of such failure. If the indemnifying party notifies the indemnified party that it does not dispute the claim or the amount of the claim described in such Indemnity Notice or fails to notify the indemnified party within 30 calendar days (the "Dispute Period") whether the indemnifying party -------------- disputes the claim or the amount of the claim described in the Indemnity Notice, the Losses in the amount specified in the Indemnity Notice shall be conclusively deemed a liability of the indemnifying party under Section 8.1 and the indemnifying party shall pay the amount of such Losses to the indemnified party on demand. 8.4. Limitations on Indemnification. (a) Notwithstanding any other ------------------------------ provision of this Agreement, any and all indemnification claims relating to the matters -26- expressly provided for in the Registration Rights Agreement shall be subject to, and shall be made in accordance with, the Registration Rights Agreement, rather than pursuant to this Article VIII. (b) Neither the Company nor the Purchaser shall have any obligation under this Article VIII to indemnify any Person for lost profits or for consequential, incidental, punitive or exemplary damages. (c) The indemnification provided in this Article VIII shall be the sole and exclusive remedy for monetary damages available to the Company and the Purchaser for matters for which indemnification is provided under this Article VIII. ARTICLE IX MISCELLANEOUS 9.1. Definitions. The following terms, as used in this Agreement, ----------- shall have the following meanings: "Affiliate" shall have the meaning ascribed to such term in Rule 12b-2 --------- under the Exchange Act. "beneficial owner" or "beneficially own," or any derivation of such ---------------- ---------------- terms, shall have the meaning set forth in Rule 13d-3 under the Exchange Act. "Benefit Plans" shall mean the ITC/\DeltaCom, Inc. 1997 Stock Option ------------- Plan, the ITC/\DeltaCom, Inc. Director Stock Option Plan, the ITC Holding Company, Inc. Amended and Restated Stock Option Plan, the ITC Holding Company, Inc. NonEmployee Director Stock Option Plan, the ITC/\DeltaCom, Inc. Employee Profit Sharing & 401(k) Plan and each stock option, stock incentive or other employee benefit plan of the Company or any Subsidiary of the Company that is approved by the Company Board from and after the date of this Agreement. "Business Day" shall mean any day except Saturday, Sunday and any ------------ legal holiday or a day on which banking institutions in New York City, New York or the State of Georgia generally are authorized or required by law or other governmental actions to close. "Capital Stock" shall mean, with respect to any Person, any and all ------------- shares, interests, participations, rights in, or other equivalents (however designated and whether voting or non-voting) of such Person's capital stock, and any and all rights (other than any evidence of indebtedness), warrants or options exchangeable for or convertible into such capital stock. "Change of Control Test" shall mean the calculation of the voting ---------------------- power of the Voting Stock as set forth in Schedule 9.1.1. -------------- -27- "Commitment Period" shall mean the period (i) commencing on the ----------------- earlier to occur of (x) the 45/th/ day after the Initial Closing Date and (y) June 15, 2001 and (ii) expiring on the earliest to occur of (a) the date on which the Purchaser shall have purchased Preferred Shares and Warrants pursuant to Section 1.1(c) for an aggregate purchase price equal to the Commitment Amount, (b) the date this Agreement is terminated pursuant to Section 7.1 and (c) the first anniversary of the Initial Closing Date. "Company Board" shall mean the Board of Directors of the Company. ------------- "Company Stockholder Approval" shall mean any authorization or ---------------------------- approval of the issuance, sale, conversion or exercise of the Preferred Shares and the Warrants, or the exercise of the voting rights of the Preferred Shares, the Conversion Shares or the Warrant Shares, that is required to be obtained from the Company's stockholders pursuant to the Nasdaq Marketplace Rules. "Confidential Information" shall mean technical and business ------------------------ information relating to the Company's intellectual property rights, trade secret processes or devices, techniques, data, formula, inventions (whether or not patentable) or products, research and development (including research subjects, methods and results), production, manufacturing and engineering processes, computer software, costs, profit or margin information, pricing policies, confidential market information, finances, customers, distribution, sales, marketing and production and future business plans and any other information of a "confidential" nature, specifically including any information that is identified orally or in writing by the Company to be confidential, or that the Purchaser should reasonably understand under the circumstances to be a trade secret or information of a similar nature, provided, that Confidential Information shall not include any such information which (i) was in the public domain on the date hereof or comes into the public domain other than through the fault or negligence of the Purchaser, (ii) was lawfully obtained by the Purchaser from a third party without breach of this Agreement and otherwise not in violation of the Company's rights, (iii) was known to the Purchaser at the time of disclosure of such Confidential Information to the Purchaser by the Company, provided that the Purchaser was not, at such time, subject to any confidentiality obligation with respect thereto, or (iv) was independently developed by the Purchaser without making use of any Confidential Information. "Convertible Notes" shall mean the 4 1/2% Convertible Subordinated ----------------- Notes due 2006 of the Company. "Convertible Securities" shall mean any warrants, rights or options, ---------------------- whether or not immediately exercisable, to subscribe for or to purchase Common Stock, or other securities convertible into or exchangeable for Common Stock. "DGCL" shall mean the General Corporation Law of the State of ---- Delaware, as amended, or any successor statute, in each case as the same shall be in effect at the time. -28- "Draw Down" shall mean each occasion on which the Company elects to --------- exercise its right to tender a Draw Down Notice requiring the Purchaser to purchase, subject to the terms and conditions of this Agreement, the (i) number of Preferred Shares specified in such Draw Down Notice (subject to the limitations set forth in Section 1.1) and (ii) the related Warrants which the Purchaser shall be entitled to receive pursuant to Section 1.1. "Draw Down Notice" shall mean a notice to the Purchaser which shall be ---------------- given at least 30 days prior to the applicable Draw Down Closing Date and shall set forth the aggregate number of Preferred Shares and Warrants that the Purchaser shall become obligated to purchase pursuant to a Draw Down. "Exchange Act" shall mean the Securities Exchange Act of 1934, as ------------ amended, or any successor federal statute, in each case as the same shall be in effect at the time. "Existing Stockholder" shall have the meaning set forth in the -------------------- Indentures and the Senior Credit Agreement. "Existing Stockholder Investment" shall mean the purchase of Preferred ------------------------------- Shares and Warrants at any Closing by an Existing Stockholder; provided that such Existing Stockholder shall have received an opinion of counsel to the Company, reasonably satisfactory to such Existing Stockholder, on or before the date of such Closing to the effect that the ultimate beneficial ownership by such Existing Stockholder of more than 35% of the total voting power of the outstanding Voting Stock on a fully diluted basis, as calculated pursuant to the Change of Control Test, would not result in a change of control of the Company for purposes of the definitions of "Change of Control" set forth in the Indentures or the Senior Credit Agreement. "Governmental Entity" shall mean any supranational, or United States ------------------- or foreign national, federal, state or local judicial, legislative, executive, administrative or regulatory body or authority. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act ------- of 1976, as amended, and the rules and regulations thereunder. "Indentures" shall mean (i) the Indenture, dated as of June 3, 1997, ---------- as amended from time to time, between the Company and United States Trust Company of New York, as Trustee; (ii) the Indenture, dated as of March 3, 1998, as amended from time to time, between the Company and United States Trust Company of New York, as Trustee; and (iii) the Indenture, dated as of November 5, 1998, as amended from time to time, between the Company and United States Trust Company of New York, as Trustee. "Investment Company Act" shall mean the Investment Company Act of ---------------------- 1940, as amended, or any successor federal statute, in each case as the same shall be in effect at the time. -29- "Knowledge," with respect to the Company, shall mean the actual --------- knowledge of Andrew M. Walker, Douglas A. Shumate and J. Thomas Mullis. "Laws" shall mean all United States and foreign national, federal, ---- state, and local laws, statutes, ordinances, rules, regulations, orders, and decrees. "Material Adverse Effect" shall mean a material adverse effect on the ----------------------- business, condition (financial or other) or results of operations of the Company and its Subsidiaries, taken as a whole. "Maximum Draw Down Amount" shall mean, as of the date of ------------------------ determination, the lesser of (i) the portion of the Commitment Amount outstanding as of such date of determination and (ii) $30,000,000. "Minimum Draw Down Amount" shall mean, as of the date of ------------------------ determination, the lesser of (i) the portion of the Commitment Amount outstanding as of such date of determination and (ii) $10,000,000. "Net Proceeds" shall mean the cash consideration received by the ------------ Company for the issuance and sale of Qualifying Debt Securities or Qualifying Equity Securities after deduction of commissions, underwriting discounts or allowances or other expenses paid or incurred by the Company in connection with such issuance and sale. "Options" shall mean any warrants, rights or options to purchase ------- Common Stock or Convertible Securities. "Order" shall mean any order, judgment, injunction, edict, decree, ----- ruling, pronouncement, determination, decision, opinion, sentence, subpoena, writ or award issued, made, entered or rendered by any court, administrative agency or other Governmental Entity or by any arbitrator. "Ownership Group" shall mean a "person" or "group" within the meaning --------------- of Sections 13(d) and 14(d)(2) of the Exchange Act. "Person" shall mean any individual, firm, corporation, limited ------ liability company, partnership, company or other entity, and shall include any successor (by merger or otherwise) of such entity. "Qualified Investor" shall mean either (i) a "qualified institutional ------------------ buyer" (within the meaning of Rule 144A under the Securities Act) or (ii) a large institutional "accredited investor" (within the meaning of Rule 501(a) under the Securities Act) of the type referred to in the SEC no-action letter captioned Black Box Incorporated (avail. June 26, 1990). For purposes of the ---------------------- second paragraph of Section 1.1(b) and Section 9.6, the total number of large institutional accredited investors referred to in clause (ii) above that may purchase Securities shall not exceed three (or two, if Holding is not a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act). -30- "Qualifying Debt Securities" shall mean (i) any debt securities of the -------------------------- Company and (ii) any equity securities of the Company the terms of which require the Company to pay cash dividends. "Qualifying Equity Securities" shall mean any Common Stock or other ---------------------------- equity securities of the Company, except for equity securities referred to in clause (ii) of the definition of Qualifying Debt Securities and equity securities that are issued or issuable (i) upon the grant or conversion or exercise of any Options or Convertible Securities issued and outstanding, or committed to be issued, as of the Initial Closing Date pursuant to this Agreement and the other Transaction Documents or otherwise (including the Warrants, the Series B Preferred Stock, the Series A Preferred Stock, the Convertible Notes and any Options or Convertible Securities issued and outstanding, or committed to be issued, as of the date of this Agreement under any Benefit Plan) or (ii) upon the grant or conversion or exercise of any Capital Stock, Options or Convertible Securities which may be issued or granted after the date of this Agreement under any Benefit Plan. "Securities Act" shall mean the Securities Act of 1933, as amended, or -------------- any successor federal statute, in each case as the same shall be in effect at the time. "Senior Credit Agreement" means the Credit Agreement, dated as of ----------------------- April 5, 2000, as amended from time to time, among the Company, as Parent, Interstate FiberNet, Inc., as Borrower, the Subsidiary Guarantors named therein, the Initial Lenders named therein, Morgan Stanley Senior Funding, Inc., as Administrative Agent, Morgan Stanley & Co. Incorporated, as Collateral Agent, Bank of America, N.A., as Syndication Agent, and Goldman Sachs Credit Partners L.P., as Documentation Agent. "Series A Holder Approval" means the approval of each Series B ------------------------ Certificate of Designation and the issuance of the Preferred Shares by the holders of the Series A Preferred Stock in accordance with the certificate of designation for the Series A Preferred Stock. "Subsidiary" shall mean, as to the Company, each corporation, ---------- partnership or other entity of which shares of Capital Stock or other equity interests having ordinary voting power (other than Capital Stock or other equity interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, directly or indirectly, or the management of which is otherwise controlled, directly or indirectly, or both, by the Company, in each case as listed on Schedule 9.1.2. -------------- "Transaction Documents" shall mean this Agreement, each Series B --------------------- Certificate of Designation, the Warrants and the Registration Rights Agreement. "Voting Stock" shall mean the capital stock of the Company defined as ------------ "Voting Stock" in the Indentures. -31- 9.2. Survival of Representations and Warranties. All representations ------------------------------------------ and warranties set forth in this Agreement or in any writing delivered by any party in connection herewith shall survive the transactions contemplated by this Agreement to be consummated at a Closing (regardless of any investigation, inquiry, or examination made by any party or on its behalf or any knowledge of any party or the acceptance by any party of any certificate or opinion) for a period of two years following each such Closing, except for representations and warranties contained in Sections 2.1, 2.2, 2.3, 2.12, 2.13, 2.14, 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 3.8, 3.9 and 3.12, which shall survive until the expiration of the applicable statute of limitations for any claims relating thereto. 9.3. Fees and Expenses. The Company shall be responsible for the ----------------- payment of (i) the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses (collectively, the "Fees and -------- Expenses") incurred by the Company in connection with the negotiation, - -------- preparation, execution, delivery and performance of this Agreement and the other Transaction Documents, (ii) the payment of the reasonable Fees and Expenses of Holding (including the fees and expenses of its financial adviser up to the amount set forth on Exhibit 9.3) incurred by Holding in connection with the ----------- negotiation, preparation, execution, delivery and performance of this Agreement and the other Transaction Documents and (iii) the payment of the reasonable Fees and Expenses of any Permitted Assignees pursuant to Section 9.6 (up to an aggregate amount for all such Permitted Assignees as set forth on Exhibit 9.3) ----------- incurred by such Permitted Assignees in connection with any assignment by Holding pursuant to Section 9.6, except, in each case, to the extent expressly set forth in this Agreement and the other Transaction Documents. 9.4. Specific Enforcement. The parties hereto agree that irreparable -------------------- damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific intent or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent or cure breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof, in addition to any other remedy to which they may be entitled by law or equity. 9.5. Restrictive Legends. (a) Each certificate representing any of ------------------- the Preferred Shares shall bear a legend in substantially the following form: THE SECURITIES EVIDENCED BY THIS CERTIFICATE SHALL BE REDEEMABLE AS PROVIDED IN THE CERTIFICATE OF DESIGNATION AND THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION. THE SECURITIES EVIDENCED BY THIS CERTIFICATE SHALL BE CONVERTIBLE INTO THE COMPANY'S COMMON STOCK IN THE MANNER -32- AND ACCORDING TO THE TERMS SET FORTH IN THE CERTIFICATE OF DESIGNATION. (b) Each certificate representing any of the Preferred Shares, Conversion Shares or Warrant Shares shall bear legends in substantially the following form: THE COMPANY IS AUTHORIZED TO ISSUE MORE THAN ONE CLASS OR SERIES OF CAPITAL STOCK. AS REQUIRED UNDER DELAWARE LAW, THE COMPANY SHALL FURNISH TO ANY HOLDER UPON REQUEST AND WITHOUT CHARGE A FULL SUMMARY STATEMENT OF THE DESIGNATIONS, VOTING RIGHTS, PREFERENCES, LIMITATIONS AND SPECIAL RIGHTS OF THE SHARES OF EACH CLASS OR SERIES AUTHORIZED TO BE ISSUED BY THE COMPANY SO FAR AS THEY HAVE BEEN FIXED AND DETERMINED AND THE AUTHORITY OF THE BOARD OF DIRECTORS TO FIX AND DETERMINE THE DESIGNATIONS, VOTING RIGHTS, PREFERENCES, LIMITATIONS AND SPECIAL RIGHTS OF THE CLASSES AND SERIES OF SECURITIES OF THE COMPANY. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, PLEDGED, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF AN INVESTMENT AGREEMENT DATED AS OF FEBRUARY 27, 2001, AS AMENDED FROM TIME TO TIME, A COPY OF WHICH IS AVAILABLE UPON REQUEST FOR INSPECTION AT THE OFFICES OF THE COMPANY. ANY SUCH REQUEST SHOULD BE ADDRESSED TO THE SECRETARY OF THE COMPANY. The second legend set forth immediately above and any applicable stop transfer orders shall be removed, and the Company shall issue certificates without such legend, with respect to any of such Securities transferred in any Transfer permitted by the terms of this Agreement with respect to which the provisions of this Agreement provide that the transferee of such Securities shall not be subject to the restrictions of this Agreement. In addition, certificates representing any of the Preferred Shares, Conversion Shares or Warrant Shares issued in a transaction exempt from the registration requirements of the Securities Act and applicable state securities laws, or as to which the -33- subsequent transfer or disposition of such Securities shall require registration or qualification thereof under the Securities Act or applicable state securities laws, shall bear a legend in substantially the following form: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER ANY APPLICABLE STATE SECURITIES LAWS, OR ARE SUBJECT TO RESTRICTIONS ON TRANSFER UNDER THE SECURITIES ACT OR SUCH LAWS. THE SHARES MAY NOT BE SOLD, PLEDGED, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER THE PROVISIONS OF THE SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS, OR PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR IN A TRANSACTION OTHERWISE IN COMPLIANCE WITH APPLICABLE FEDERAL AND STATE SECURITIES LAWS. The legend set forth immediately above and any applicable stop transfer orders shall be removed, and the Company shall issue certificates without such legend, with respect to any of such Securities with respect to which the Company has received an opinion from counsel to the Purchaser, in form and substance and from counsel reasonably satisfactory to the Company (which opinion shall be in addition to any opinion required to be provided pursuant to Section 3.5), to the effect that the subsequent transfer or other disposition of such Securities shall not require registration under the Securities Act. (c) Each certificate representing any of the Preferred Shares issued prior to the applicable Separation Date shall also bear a legend in substantially the following form: THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE INITIALLY ISSUED AS PART OF AN ISSUANCE OF ______________ SHARES OF SERIES B-__ CUMULATIVE CONVERTIBLE PREFERRED STOCK, PAR VALUE $0.01 PER SHARE, OF ITC/\DELTACOM, INC. AND WARRANTS INITIALLY ENTITLING THE HOLDER THEREOF TO PURCHASE ____________ SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE, OF ITC/\DELTACOM, INC. PRIOR TO THE CLOSE OF BUSINESS ON ___________________, THE -34- SECURITIES EVIDENCED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED SEPARATELY FROM, BUT MAY BE TRANSFERRED ONLY TOGETHER WITH, SUCH WARRANTS. (d) Each Warrant shall bear legends substantially in the form of the legends set forth in the form of Warrant attached hereto as Exhibit 1.4. Each ----------- Warrant issued prior to the applicable Separation Date shall also bear a legend in substantially the following form: THIS WARRANT WAS INITIALLY ISSUED AS PART OF AN ISSUANCE OF ______________ SHARES OF SERIES B-__ CUMULATIVE CONVERTIBLE PREFERRED STOCK, PAR VALUE $.01 PER SHARE (THE "SERIES B PREFERRED STOCK"), OF ITC/\DELTACOM, INC. AND WARRANTS INITIALLY ENTITLING THE HOLDER THEREOF TO PURCHASE ____________ SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE, OF ITC/\DELTACOM, INC. PRIOR TO THE CLOSE OF BUSINESS ON ________________, THIS WARRANT MAY NOT BE TRANSFERRED SEPARATELY FROM, BUT MAY BE TRANSFERRED ONLY TOGETHER WITH, SUCH SERIES B PREFERRED STOCK. (e) The Company, at its discretion, may cause a stop transfer order to be placed with its transfer agent with respect to the certificates for the Securities. 9.6. Successors and Assigns. Except as otherwise expressly provided ---------------------- herein, (i) all covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto, whether so expressed or not, and (ii) no party may assign or delegate all or any portion of its rights, obligations or liabilities under this Agreement without the prior written consent of each other party to this Agreement. Notwithstanding the foregoing, but subject to the last sentence of this Section 9.6 and Exhibit 9.6, Holding, ----------- without the prior written consent of the Company, may assign to other Persons (each, a "Permitted Assignee") its rights to purchase Preferred Shares and ------------------ Warrants at any and all Closings and its related obligations, provided that as a condition to the effectiveness of any such assignment, the Permitted Assignee shall (i) be a Qualified Investor, (ii) execute a counterpart signature page to this Agreement, (iii) agree to be deemed a "Purchaser" bound by this Agreement (including all of the terms, conditions and covenants of this Agreement that are applicable to the Purchaser and to Securities held by the Purchaser) and (iv) agree to have made all of the representations and warranties of Holding set forth in this Agreement (excluding the representations and warranties set forth in Sections 3.6 and 3.14) and represent and warrant that it is a -35- Qualified Investor. An assignment by Holding pursuant to the foregoing sentence, (i) shall not relieve Holding of its obligation under the first paragraph of Section 1.1(b) to purchase on the Initial Closing Date the 30,000 Preferred Shares and related Warrants referred to in such paragraph and (ii) except as provided in the immediately preceding clause (i), shall relieve Holding of its obligations under this Agreement to purchase the Preferred Shares and Warrants agreed to be purchased by the Permitted Assignee only if the Permitted Assignee shall be, and shall furnish Holding and the Company with information that establishes that it is, an entity with total assets of at least $250 million. In addition, in the event that the Company sells Preferred Shares and Warrants to one or more other Persons at the Initial Closing pursuant to the second paragraph of Section 1.1(b), each such other Person shall (i) execute a counterpart signature page to this Agreement, (ii) agree to be deemed a "Purchaser" bound by this Agreement (including all of the terms, conditions and covenants of this Agreement that are applicable to the Purchaser and to Securities held by the Purchaser) and (iii) agree to have made all of the representations and warranties of the Purchaser set forth in this Agreement (excluding the representations and warranties set forth in Sections 3.6 and 3.14) and, subject to Exhibit 9.6, represent and warrant that it is a Qualified ----------- Investor. The rights and obligations of Holding in Sections 4.15 and 9.3 and in this Section 9.6 shall not be assignable or otherwise transferable by Holding without the prior written consent of the Company. 9.7. Inspections; No Other Representations. The Purchaser is an ------------------------------------- informed and sophisticated purchaser, and has undertaken such investigation and has been provided with and has evaluated such documents and information as it deems necessary to enable it to make an informed decision with respect to the execution, delivery and performance of this Agreement. The Purchaser agrees to accept the Preferred Shares and Warrants based upon its own inspection, examination and determination with respect thereto as to all matters, and without reliance upon any express or implied representations or warranties of any nature made by or on behalf or imputed to the Company, except as expressly set forth in this Agreement. Without limiting the generality of the foregoing, the Purchaser acknowledges that the Company makes no representation or warranty with respect to any projections, estimates or budgets delivered to or made available to the Purchaser of future revenues, future results of operations (or any component thereof), future cash flows or future financial condition (or any component thereof) of the Company and its Subsidiaries or the future business and operations of the Company and the Subsidiaries except as expressly set forth in this Agreement. 9.8. Entire Agreement. This Agreement and the other Transaction ---------------- Documents constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof, and no party shall be liable or bound to any other in any manner by any representations, warranties, covenants and agreements except as specifically set forth herein and therein. -36- 9.9. Notices. All notices, demands, requests, consents or other ------- communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been given when (i) delivered personally to the recipient, (ii) telecopied to the recipient (with hard copy sent to the recipient by reputable overnight courier service (charges prepaid) that same day) if telecopied before 5:00 p.m. New York City time on a Business Day, and otherwise on the next Business Day, or (iii) one Business Day after being sent to the recipient by reputable overnight courier service (charges prepaid). Such notices, demands, requests, consents and other communications shall be sent to the following Persons at the following addresses: (i) if to the Company, to: ITC/\DeltaCom, Inc. 4092 South Memorial Parkway Huntsville, Alabama 35802 Telecopy No.: (256) 382-3936 Attention: J. Thomas Mullis, Esq. Senior Vice President, General Counsel and Secretary (ii) if to the Purchaser, to: ITC Holding Company, Inc. 3300 20/th/ Avenue Valley, Alabama 36854 Telecopy No.: (334) 768-5067 Attention: Kimberly E. Thompson, Esq. Senior Vice President, General Counsel and Secretary or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. Notices, demands, requests, consents or other communications required or desired to be delivered to any permitted transferee of the Purchaser having rights or obligations pursuant to this Agreement shall be addressed to such Person at the address and/or to the attention of such person as such Person shall designate by written notice to the Company. 9.10. Business Days. If any time period for giving notice or taking ------------- action hereunder expires on a day which is not a Business Day, the time period shall automatically be extended to the Business Day immediately following such day. -37- 9.11. Amendments; Waivers. The provisions of this Agreement, ------------------- including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given (i) prior to the Initial Closing Date, without the written consent thereto of the Company and Holding or (ii) after the Initial Closing Date, without the written consent thereto of the Company and the Purchasers holding a majority of the outstanding Preferred Shares held by all Purchasers; provided that any Purchaser holding Preferred Shares representing a specified minimum investment under this Agreement to be mutually agreed upon by the Company and Holding prior to the Initial Closing Date shall be required to consent to any such amendment, modification or supplement, or to consent to any such waiver or departure from the provisions hereof, after the Initial Closing Date. Notwithstanding the foregoing, a waiver of or consent to departure from the provisions hereof with respect to a matter that relates exclusively to the rights of a particular Purchaser and that does not directly or indirectly affect the rights of any other Purchaser may be given solely by the Company and such affected Purchaser; provided that the provisions of this sentence may not be amended, modified or supplemented except in accordance with the provisions of the immediately preceding sentence. Each Purchaser thereafter shall be bound by any such amendment, modification, supplement, waiver or consent effected pursuant to this Section 9.11. 9.12. Counterparts. This Agreement may be executed simultaneously in ------------ two or more counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts taken together shall constitute one and the same Agreement. 9.13. Descriptive Headings; Interpretation; No Strict Construction. ------------------------------------------------------------ The descriptive headings of this Agreement are inserted for convenience only and do not constitute a substantive part of this Agreement. Whenever required by the context, any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular forms of nouns, pronouns, and verbs shall include the plural and vice versa. Reference to any agreement, document, or instrument means such agreement, document, or instrument as amended or otherwise modified from time to time in accordance with the terms thereof and, if applicable, hereof. The use of the words "include" or "including" in this Agreement shall be by way of example rather than by limitation. The use of the words "or," "either" or "any" shall not be exclusive. The parties to this Agreement have participated jointly in the negotiation and drafting of this Agreement. If an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. The parties agree that prior drafts of this Agreement shall be deemed not to provide any evidence as to the meaning of any provision hereof or the intention of the parties hereto with respect to this Agreement. -38- 9.14. References. When a reference is made in this Agreement or any ---------- other Transaction Document to a Section, Exhibit or Schedule, such reference shall be to a Section of or an Exhibit or a Schedule to this Agreement or such other Transaction Document, unless otherwise indicated. 9.15. Governing Law. This Agreement shall be governed in all ------------- respects, including validity, interpretation and effect, by the laws of the State of Delaware applicable to contracts executed and to be performed wholly within such state. 9.16. Exclusive Jurisdiction; Venue. Any process against the Company ----------------------------- or the Purchaser in, or in connection with, any suit, action or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby, may be served personally or by certified mail pursuant to the notice provision set forth in Section 9.9 with the same effect as though served on it personally. Each of the Company and the Purchaser hereby irrevocably submits in any suit, action or proceeding arising out of or relating to this Agreement or any of the transactions contemplated hereby to the exclusive jurisdiction and venue of the federal and state courts of the State of Delaware and irrevocably waives any and all objections to exclusive jurisdiction and review of venue that any such party may have under the laws of the State of Delaware or the United States. Without limiting the other remedies, this Agreement shall be enforceable by specific performance. Each of the foregoing parties hereby irrevocably designates RL&F Service Corp. (the "Process Agent"), with offices at the date ------------- hereof at One Rodney Square, 920 King Street, Wilmington, Delaware, 19899, as its designee, appointee and agent to receive, for and on its behalf, service of process in the State of Delaware in any legal action or proceedings with respect to this Agreement and the transactions contemplated hereby, and such service shall be deemed complete upon delivery thereof to the Process Agent, provided that in the case of any such service upon the Process Agent, the party effecting such service shall also deliver a copy thereof to the other party in accordance with the notice provision set forth in Section 9.9. Each party shall take all such action as may be necessary to continue such appointment in full force and effect or to appoint another agent, who will thereafter be referred to herein as the "Process Agent," so that each such party shall at all times have an agent for service for the foregoing purposes in the State of Delaware. 9.17. Waiver of Jury Trial. The Company and the Purchaser hereby -------------------- waive any right they may have to a trial by jury in respect of any action, proceeding or litigation directly or indirectly arising out of, under or in connection with this Agreement or the Transaction Documents. 9.18. Severability. Whenever possible, each provision of this ------------ Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid or unenforceable in any respect, -39- such invalidity or unenforceability shall not render invalid or unenforceable any other provision of this Agreement. 9.19. Delivery by Facsimile. This Agreement, the agreements referred --------------------- to herein, and each other agreement or instrument entered into in connection herewith or therewith or contemplated hereby or thereby, and any amendments hereto or thereto, to the extent signed and delivered by means of a facsimile machine, shall be treated in all manner and respects as an original agreement or instrument and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. At the request of any party hereto or to any such agreement or instrument, each other party hereto or thereto shall reexecute original forms thereof and deliver them to all other parties. No party hereto or to any such agreement or instrument shall raise the use of a facsimile machine to deliver a signature or the fact that any signature or agreement or instrument was transmitted or communicated through the use of a facsimile machine as a defense to the formation or enforceability of a contract, and each such party forever waives any such defense. [Signature Page follows] -40- IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement as of the date first above written. Company: ITC/\DELTACOM, INC. By: /s/ Andrew M. Walker --------------------------- Name: Andrew M. Walker Title: Vice Chairman, CEO and President Purchaser: ITC HOLDING COMPANY, INC. By: /s/ Campbell B. Lanier, III ------------------------------- Name: Campbell B. Lanier, III Title: Chairman and CEO -41- TABLE OF DEFINED TERMS
Definition Term Location - ---- -------- Affiliate....................................................... Section 8.1 Agreement....................................................... Preamble Applicable Conversion Price..................................... Section 1.5 Balance Sheet Date.............................................. Section 2.5 beneficial owner and beneficially own........................... Section 9.1 Benefit Plans................................................... Section 9.1 Business Day.................................................... Section 9.1 Capital Stock................................................... Section 9.1 Change of Control Test.......................................... Section 9.1 Closing......................................................... Section 1.3(c) Closings........................................................ Section 1.3(c) Closing Date.................................................... Section 1.3(c) Commitment Amount............................................... Section 1.1(c) Commitment Period............................................... Section 9.1 Commitments..................................................... Section 2.10 Common Stock.................................................... Recitals Company......................................................... Preamble Company Board................................................... Section 9.1 Company Disclosure Schedule..................................... Article II Company Stockholder Approval.................................... Section 9.1 Confidential Information........................................ Section 9.1 Consents, Approvals and Filings................................. Section 2.8 Convertible Notes............................................... Section 9.1 Convertible Securities.......................................... Section 9.1 Conversion Shares............................................... Section 2.2 Delaware Secretary of State..................................... Section 2.8 DGCL............................................................ Section 9.1 Dispute Period.................................................. Section 8.3 Draw Down....................................................... Section 9.1 Draw Down Closing............................................... Section 1.3(c) Draw Down Closing Date.......................................... Section 1.3(c) Draw Down Notice................................................ Section 9.1 Encumbrances.................................................... Section 2.1(b) Exchange Act.................................................... Section 9.1 Existing Stockholder............................................ Section 9.1 Existing Stockholder Investment................................. Section 9.1 Fees and Expenses............................................... Section 9.3 GAAP............................................................ Section 2.5
Definition Term Location - ---- -------- Governmental Entity............................................. Section 9.1 Holding......................................................... Section 1.1(b) HSR Act......................................................... Section 9.1 Indemnity Notice................................................ Section 8.3 Indentures...................................................... Section 9.1 Initial Closing................................................. Section 1.2 Initial Closing Date............................................ Section 1.2 Initial Series B Conversion Price............................... Section 1.5 Investment Company.............................................. Section 2.14 Investment Company Act.......................................... Section 9.1 Knowledge....................................................... Section 9.1 Laws............................................................ Section 9.1 Licenses........................................................ Section 2.9(b) Litigation...................................................... Section 2.7(a) Losses.......................................................... Section 8.1(a) Market Prices................................................... Section 1.5 Material Adverse Effect......................................... Section 9.1 Maximum Draw Down Amount........................................ Section 9.1 Minimum Draw Down Amount........................................ Section 9.1 Nasdaq Stock Market............................................. Section 2.4(b) Net Proceeds.................................................... Section 8.1 NMS............................................................. Section 4.6 Options......................................................... Section 9.1 Order........................................................... Section 9.1 Outside Date.................................................... Section 7.1(b) Ownership Group................................................. Section 9.1 Permitted Assignee.............................................. Section 9.6 Person.......................................................... Section 9.1 Preferred Shares................................................ Section 1.1(a) Process Agent................................................... Section 9.16 Purchaser....................................................... Preamble Purchaser Disclosure Schedule................................... Article III Qualifying Debt Securities...................................... Section 9.1 Qualifying Equity Securities.................................... Section 9.1 Registration Rights Agreement................................... Section 4.13 Rights.......................................................... Section 2.3 SEC............................................................. Section 2.4(a) SEC Reports..................................................... Section 2.4(a) Securities...................................................... Section 2.13 Securities Act.................................................. Section 9.1
A-2
Definition Term Location - ---- -------- Senior Credit Agreement......................................... Section 9.1 Separation Date................................................. Section 5.3 Series A Preferred Stock........................................ Section 2.3 Series B Certificate of Designation............................. Section 1.1(a) Series B Preferred Stock........................................ Recitals Shelf Registration Statement.................................... Section 4.15 Subsidiary...................................................... Section 9.1 Terminating Company Breach...................................... Section 7.1(c) Terminating Purchaser Breach.................................... Section 7.1(b) Transaction Documents........................................... Section 8.1 Transfer........................................................ Section 5.1 Voting Stock.................................................... Section 9.1 Warrant Shares.................................................. Section 2.2 Warrants........................................................ Recitals
A-3 Execution Copy AMENDMENT NO. 1 TO INVESTMENT AGREEMENT AMENDMENT NO. 1 TO INVESTMENT AGREEMENT, dated as of May 29, 2001 (this "Amendment"), made by and among ITC/\DeltaCom, Inc., a Delaware --------- corporation (the "Company"), ITC Holding Company, Inc., a Delaware corporation ------- ("Holding"), SCANA Corporation, a South Carolina corporation ("SCANA"), and HBK ------- ----- Master Fund L.P., a Cayman Islands limited partnership ("HBK"). --- W I T N E S S E T H : - - - - - - - - - - WHEREAS, upon the terms and subject to the conditions set forth in the Investment Agreement, dated as of February 27, 2001, between the Company and Holding (the "Agreement"), the Company has agreed to sell to Holding and Holding --------- has agreed to purchase from the Company (i) up to 150,000 shares in multiple series of cumulative convertible preferred stock, par value $.01 per share, of the Company (the "Series B Preferred Stock") and (ii) warrants (the "Warrants") ------------------------ -------- to purchase shares of the Common Stock, par value $.01 per share, of the Company (the "Common Stock"); ------------ WHEREAS, pursuant and subject to Section 9.6 of the Agreement, Holding has assigned to SCANA the right of Holding under the Agreement to purchase up to 25,000 shares of Series B Preferred Stock for an aggregate purchase price of up to $25,000,000 and related Warrants having an aggregate exercise price of up to $7,500,000, together with the obligations of Holding under the Agreement with respect to the purchase of such Series B Preferred Stock and Warrants (the "Assignment to SCANA"); ------------------- WHEREAS, pursuant and subject to Section 9.6 of the Agreement, Holding has assigned to HBK the right of Holding under the Agreement to purchase up to 25,000 shares of Series B Preferred Stock for an aggregate purchase price of up to $25,000,000 and related Warrants having an aggregate exercise price of up to $7,500,000, together with the obligations of Holding under the Agreement with respect to the purchase of such Series B Preferred Stock and Warrants (the "Assignment to HBK"); and ----------------- WHEREAS, the Company, Holding, SCANA and HBK wish to enter into this Amendment to amend the Agreement in connection with the Assignment to SCANA and the Assignment to HBK and to provide for certain other amendments to the Agreement; NOW, THEREFORE, in consideration of the premises and the mutual representations, warranties, covenants and agreements set forth in this Amendment, the parties hereto agree as follows: 1. Defined Terms; Definitions. Capitalized terms that are used but -------------------------- not defined in this Amendment shall have the meanings ascribed to such terms in the Agreement. Capitalized terms that are used in this Amendment and defined herein shall have the same meanings in the Agreement, as amended by this Amendment. The following terms shall have the following meanings: "Draw Down Floor Price" shall mean, with respect to any Draw Down --------------------- Closing, the price per share of Common Stock which is equal to 80% of the Draw Down Notice Price. "Draw Down Notice Price" shall mean, with respect to any Draw Down ---------------------- Closing, the average of the daily Market Prices of the Common Stock for the 20 consecutive trading days ending on the Business Day immediately preceding the date of the Draw Down Notice delivered by the Company with respect to such Draw Down Closing. "Draw Down Reference Price" shall mean, with respect to any Draw Down ------------------------- Closing, the average of the daily Market Prices of the Common Stock for the 20 consecutive trading days ending on the second Business Day immediately preceding the scheduled Closing Date for such Draw Down Closing. "Litigation" shall mean the action entitled Osher v. ITC Holding ---------- Company, Inc., et al., Civil Action No. 18837, filed in the Court of Chancery of the State of Delaware, in and for New Castle County. "Market Price" shall have the meaning given to such term in the Series ------------ B Certificate of Designation. "PUHCA" shall mean the Public Utility Holding Company Act of 1935, as ----- amended, or any successor federal statute, in each case as the same shall be in effect at the time. "Securities Purchase Percentage" shall mean, with respect to any ------------------------------ Purchaser, the percentage of the aggregate purchase price of the Preferred Shares to be issued and sold by the Company at any Closing that such Purchaser shall be obligated to purchase at such Closing. Before any reduction of the Commitment Amount pursuant to Section 1.1(c) of the Agreement, as amended by this Amendment, such percentage shall equal: (i) with respect to Holding, 66.666%; (ii) with respect to SCANA, 16.667%; and 2 (iii) with respect to HBK, 16.667%. After any reduction of the Commitment Amount pursuant to Section 1.1(c) of the Agreement, as amended by this Amendment, the Securities Purchase Percentage for any Purchaser as of any date shall be the amount, expressed as a percentage, which is obtained by dividing (x) the aggregate purchase price of the Preferred Shares which may be issued and sold by the Company to such Purchaser under the Agreement from and after such date by (y) the aggregate purchase price of the Preferred Shares which may be issued and sold by the Company to all Purchasers under the Agreement from and after such date. "Special Committee" shall mean the special committee of the Company ----------------- Board which is composed of James V. Martin and Larry F. Williams as of the date of this Amendment and which thereafter shall include only such additional or replacement directors who are selected by a majority of the members of such special committee and who, with respect to any Draw Down Closing, are not affiliated with, and do not have a direct ownership interest in the capital stock of, any prospective purchaser of Securities pursuant to such Draw Down Closing at the time of the determination of the Special Committee with respect to such Draw Down Closing pursuant to Section 4.17 of the Agreement, as amended by this Amendment. 2. Assignments. (a) The Company hereby acknowledges the Assignment to ----------- SCANA and the Assignment to HBK. (b) By executing and delivering this Amendment, SCANA and HBK each shall be deemed a Purchaser and a Permitted Assignee under the Agreement and, except as expressly provided in the Agreement, as amended by this Amendment, SCANA and HBK each shall be bound by all of the terms, conditions and covenants of the Agreement that are applicable to the Purchaser and to Securities held by the Purchaser. Except as expressly provided in the Agreement, as amended by this Amendment, each reference in the Agreement to "Purchaser" shall be to each of Holding, SCANA and HBK and each reference in the Agreement, as amended by this Amendment, to "Purchasers" shall be to all of Holding, SCANA and HBK. (c) The obligations of each Purchaser under the Agreement are several and not joint with the obligations of any other Purchaser, and, subject to Holding's obligations pursuant to the third sentence of Section 9.6 of the Agreement, no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser. Nothing contained in this Amendment or the Agreement shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Agreement. Each Purchaser shall be entitled to independently protect and enforce its rights, and it shall not be 3 necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. 3. Representation and Warranty of the Company. The Company ------------------------------------------ represents and warrants to each Purchaser that it is an "exempt telecommuni- cations company" as defined in Section 34(a)(1) of PUHCA (an "ETC"). --- 4. Representations and Warranties of SCANA and HBK. (a) SCANA and ----------------------------------------------- HBK, severally and not jointly, hereby make to the Company as of the date of this Amendment and as of each Closing Date each of the representations and warranties set forth in Article III of the Agreement, excluding the representations and warranties set forth in the last sentence of Section 3.2 and in Sections 3.6 and 3.14 of the Agreement. The representations and warranties of SCANA set forth in the last sentence of Section 3.9 and in Section 3.10(ii)(a) of the Agreement and in the second sentence of Section 4(b)(iii) of this Amendment are made subject to the qualification that the representation and warranty of the Company set forth in Section 3 of this Amendment is true and correct. (b) SCANA further represents and warrants to the Company as of the date of this Amendment and as of each Closing Date as follows: (i) SCANA has total assets of at least $250,000,000. (ii) SCANA's principal offices and the offices in which it made its decision to purchase the Securities are located in the State of South Carolina. (iii) SCANA is registered with the SEC as a public utility holding company under PUHCA. Neither the execution, delivery or performance by SCANA of this Amendment nor the performance by SCANA of the Agreement, as amended by this Amendment, or any of the other Transaction Documents to which SCANA is a party, including the acquisition and ownership of the Securities by SCANA, shall result in the Company or any of its Subsidiaries becoming subject to regulation pursuant to PUHCA or the rules and regulations promulgated thereunder (the "PUHCA Regulations") other than such regulation which is ----------------- applicable to an ETC that is an affiliate of a public utility holding company registered under PUHCA. Neither the Company nor any of its Subsidiaries shall be required prior to, in connection with, or as a result of the acquisition and ownership of Securities by SCANA to make or obtain any Consents, Approvals and Filings with the SEC, the Federal Communications Commission or any other Governmental Entity pursuant to PUHCA or the PUHCA Regulations, other than a filing by the Company with, and a 4 determination by, the Federal Communications Commission with respect to the Company's status as an ETC. (c) HBK further represents and warrants to the Company as of the date of this Amendment and as of each Closing Date as follows: (i) HBK has total assets of at least $250,000,000 and is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act. (ii) The principal offices of HBK's discretionary investment manager and the offices in which such investment manager made its decision to purchase the Securities are located in the State of Texas. (iii) As of the date of this Amendment, HBK is the beneficial owner of less than 5% of the Common Stock outstanding as of such date. (iv) Neither HBK nor any Affiliate of HBK shall be required to make or obtain any Consents, Approvals and Filings under the HSR Act in order to purchase Preferred Shares and Warrants at the Initial Closing. 5. Amendment of Section 1.1. (a) Section 1.1(a) of the Agreement ------------------------ is hereby amended by deleting clause (ii) of the first sentence thereof and substituting in lieu thereof the following: (ii) Warrants having an initial exercise price per share of Common Stock that is equal to the Applicable Conversion Price (as defined in Section 1.5) of the Preferred Shares issued and sold at such Closing. (b) The second paragraph of Section 1.1(b) of the Agreement is hereby amended by adding the following sentence to the end of such paragraph: For purposes of this paragraph, the references to the Purchaser shall mean Holding. (c) Section 1.1(c) of the Agreement is hereby amended by adding the following sentence to the end of Section 1.1(c): Any reduction in the Commitment Amount pursuant to the immediately preceding sentence shall first reduce the aggregate purchase price of the Preferred Shares and Warrants which Holding is obligated to purchase during the Commitment Period until such obligation of Holding is reduced to $0, and shall then 5 reduce, on a pro rata basis in accordance with their respective Securities Purchase Percentages, the purchase price of the Preferred Shares and Warrants which the other Purchasers are obligated to purchase during the Commitment Period. (d) Section 1.1 is hereby amended by adding the following paragraph (d): (d) References in this Section 1.1 to the sale of Preferred Shares and Warrants to the Purchaser at any Closing shall mean, as to each Purchaser, the Securities Purchase Percentage of such Purchaser. The obligations of each Purchaser to purchase Preferred Shares and Warrants pursuant to Section 1.1 shall be several and not joint. 6. Amendment of Section 1.3. Section 1.3(a) of the Agreement is ------------------------ hereby amended by adding the following provisions to the end of Section 1.3(a): Notwithstanding any other provision of this Agreement, the Company shall have the right, but shall not be obligated, to withdraw any Draw Down Notice and to terminate its obligation under this Agreement to issue the Preferred Shares and Warrants specified in such Draw Down Notice if, with respect to the Draw Down Closing specified in such Draw Down Notice, (i) the Draw Down Reference Price is less than the Draw Down Floor Price and (ii) the Applicable Conversion Price (as calculated in accordance with Section 1.5) of such Preferred Shares would be less than the Initial Series B Conversion Price (as defined in Section 1.5). To exercise such right of withdrawal with respect to any scheduled Draw Down Closing Date, the Company shall provide each Purchaser with written notice of exercise of such withdrawal not later than the second Business Day immediately preceding such scheduled Draw Down Closing Date. 7. Amendment of Section 1.5. Section 1.5 of the Agreement is ------------------------ hereby amended by deleting the second sentence thereof and substituting in lieu thereof the following sentence: The Applicable Conversion Price of the Preferred Shares that shall be issued and sold to the Purchaser on each Draw Down Closing Date shall be equal to the lower of (a) the Initial Series B Conversion Price or (b) the sum of (A) the average of the daily Market Prices of the Common Stock for the 20 consecutive trading days ending on the second Business Day immediately 6 preceding such Draw Down Closing Date plus (B) 15% of the amount specified in clause (A). 8. Amendment of Article II. (a) Section 2.8 of the Agreement is ----------------------- hereby amended by adding the following after "securities laws" in clause (iii)(c): or under PUHCA in connection with a determination by the Federal Communications Commission with respect to the Company's status as an ETC, (b) Section 2.11 of the Agreement is hereby amended by inserting "Robert W. Baird & Co. Incorporated," immediately before "Banc of America Securities LLC." 9. Amendment of Section 4.5. Section 4.5 of the Agreement is ------------------------ hereby amended by deleting "May 31, 2001" and substituting in lieu thereof "June 30, 2001." 10. Amendment of Section 4.11. Section 4.11(a) of the Agreement ------------------------- is hereby amended by adding the following sentences to the end of Section 4.11(a): Notwithstanding the preceding sentence, if the Purchaser or any of its authorized representatives becomes legally required pursuant to applicable law or regulation (including securities laws or regulations or the regulations of the NMS or any applicable stock exchange) or regulatory, legal or judicial process (including by deposition, interrogatory, request for documents, subpoena or similar process) to disclose any of the Confidential Information, the Purchaser shall provide the Company with prompt prior written notice of such requirement so that the Company may seek a protective order or other appropriate remedy or waive in writing compliance with the provisions of this Agreement. If such protective order or other remedy is not obtained and such a written waiver has not been received from the Company that would permit such required disclosure, the Purchaser and its authorized representatives shall disclose only that portion of the Confidential Information which the Purchaser is advised in the opinion of its counsel is legally required to be disclosed and shall take all reasonable steps to preserve the confidentiality of the Confidential Information by cooperating with the Company to obtain an appropriate protective order or other reliable assurance that confidential treatment will be accorded the Confidential Information. 11. Amendment of Article IV. Article IV of the Agreement is ----------------------- hereby amended by adding a new Section 4.17, which shall read in its entirety as follows: 7 4.17 Special Committee Approval. The Company shall not issue -------------------------- and sell any Preferred Shares or Warrants at any Draw Down Closing unless the Special Committee shall have authorized and approved such issuance and sale by the Company at such Draw Down Closing before the Company's delivery of the Draw Down Notice with respect to such Draw Down Closing. Before the Special Committee acts to grant or withhold such authorization and approval, the Special Committee shall engage a nationally recognized investment bank to undertake and present to the Special Committee a review of alternative financing options then available to the Company. Such review shall include an assessment by such investment bank of the following matters: (i) the state of public debt, public equity and public convertible securities markets and the Company's ability to participate in such markets; (ii) potential private market alternative financing arrangements; and (iii) prospects for financing from strategic investors. In determining whether to authorize and approve the issuance and sale of Preferred Shares and Warrants at any Draw Down Closing, the Special Committee shall consider the foregoing matters in the context of timing requirements, execution risk and other factors which the Special Committee shall deem appropriate. 12. Amendment of Section 5.2. Section 5.2 of the Agreement is hereby ------------------------ amended by adding the following paragraph (c): (c) SCANA shall not Transfer any of the Securities held by SCANA to any Affiliate of SCANA whose acquisition or ownership of such Securities would reasonably be likely to result in the Company or any of its Subsidiaries becoming subject to regulation pursuant to PUHCA or the PUHCA Regulations other than such regulation which is applicable to an ETC that is an affiliate of a public utility holding company registered under PUHCA. 13. Amendment of Section 5.4. Section 5.4 of the Agreement is ------------------------ hereby amended and restated in its entirety as follows: 8 5.4 No Short Sales. (a) From the date of this Agreement -------------- through the expiration of the Commitment Period, except as provided in Section 5.4(b) with respect to HBK and HBK's Affiliates, the Purchaser shall comply, and shall use its commercially reasonable efforts to cause its Affiliates to comply, with Section 16(c) of the Exchange Act with respect to transactions in the Common Stock to the same extent as if Section 16(c) of the Exchange Act applied by its terms to the Purchaser and such Affiliates. (b) Section 5.4(a) shall not apply to HBK or its Affiliates, which shall instead be subject to this Section 5.4(b). From the date of this Agreement until such date as HBK no longer owns any Securities, HBK shall not engage in any Short Sales and shall use its commercially reasonable efforts to cause its Affiliates not to engage in any Short Sales. For purposes of this Section 5.4(b), "Short Sale" shall mean, ---------- with respect to HBK or any Affiliate thereof, a sale of Common Stock executed at a time when HBK or such Affiliate, as the case may be, has no equivalent offsetting long position in the Common Stock. For purposes of determining whether HBK or any Affiliate thereof has an equivalent offsetting long position in the Common Stock, the following shares of Common Stock shall be included as if held long by HBK or such Affiliate as of any date: (i) shares of Common Stock issuable within 60 days after such date upon conversion or exercise of convertible securities, including Preferred Shares and Warrants, but excluding Convertible Notes acquired by HBK or such Affiliate after May 1, 2001, which are issued and outstanding and owned by HBK or such Affiliate as of such date; (ii) shares of Common Stock issuable upon conversion or exercise of Preferred Shares and Warrants to be issued and sold to HBK at (A) the Initial Closing and (B) any Draw Down Closing as set forth in the Draw Down Notice relating to such Draw Down Closing, from and after the date the Company shall deliver such Draw Down Notice to HBK; and (iii) shares of Common Stock which HBK or such Affiliate shall be obligated to purchase pursuant to any contract other than this Agreement within 60 days after such date. 9 For the avoidance of doubt, a call option shall not be deemed to be a contract of the type referred to in clause (iii) above. In engaging in transactions in the Common Stock, HBK shall comply, and shall use its commercially reasonable efforts to cause its Affiliates to comply, with Sections 9 and 10 of the Exchange Act and the regulations thereunder. 14. Amendment of Article VI. Holding, SCANA and HBK hereby ----------------------- agree with the Company that the pendency of the Litigation shall not constitute a failure of any condition to the obligations of Holding, SCANA or HBK to consummate the transactions contemplated by the Agreement to be consummated at any Closing if there is filed with the Court of Chancery of the State of Delaware, in and for New Castle County, before the Initial Closing a Stipulation of Settlement on substantially the same terms and conditions which are set forth in the Memorandum of Understanding dated May 29, 2001 with respect to the Litigation. 15. Amendment of Section 7.1. Section 7.1(b) is hereby ------------------------ amended by deleting "June 30, 2001" and substituting in lieu thereof "July 31, 2001." 16. Amendment of Section 7.2. Section 7.2 of the Agreement is ------------------------ hereby amended by deleting therefrom the reference to Sections "4.1, 4.11, 9.2, 9.3, 9.4, 9.8, 9.9, 9.15, 9.16 and 9.17" and substituting in lieu thereof the reference to Sections "4.1, 4.6, 4.8, 4.11, 9.1, 9.2, 9.3, 9.4, 9.8, 9.9, 9.13, 9.14, 9.15, 9.16, 9.17 and 9.18." 17. Amendment of Section 9.1. Section 9.1 of the Agreement is ------------------------ hereby amended by deleting clause (ii) of the definition of "Maximum Draw Down Amount" set forth in Section 9.1 and substituting in lieu thereof the following: (ii) for the initial Draw Down, $40,000,000, and for any subsequent Draw Down, $30,000,000. 18. Amendment of Section 9.11. Section 9.11 of the Agreement is ------------------------- hereby amended by deleting the first sentence thereof and substituting in lieu thereof the following sentence: The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, without the written consent thereto of the Company, Holding, SCANA and HBK; provided that the consent of SCANA and HBK shall not be required to amend this Agreement solely in connection with the assignment by Holding of its right to purchase Preferred Shares and Warrants under the Agreement in accordance with Section 9.6 of the Agreement unless such amendment adversely affects the rights of SCANA 10 or HBK hereunder, in which event SCANA or HBK, as the case may be, shall be required to consent to such amendment before it shall become effective. 19. Amendment of Section 9.9. Section 9.9 of the Agreement is ------------------------ hereby amended by deleting the last sentence thereof and substituting in lieu thereof the following sentence: Notices, demands, requests, consents or other communications required or desired to be delivered to any Permitted Assignee or any permitted transferee of the Purchaser having rights or obligations pursuant to this Agreement shall be addressed to such Person at the address and/or to the attention of such person as such Person shall designate by written notice to the Company. 20. Amendment of Registration Rights Agreement in the Form of ---------------------------------------------------------- Exhibit 4.13. (a) Section 4(a)(1) of the Registration Rights Agreement is - ------------ hereby amended by deleting the first sentence thereof and substituting in lieu thereof the following sentence: The Company shall file the Initial Shelf Registration Statement with the SEC not later than (x) 180 days following the Initial Closing Date or (y) such later date not later than December 31, 2001 as the Initial Purchaser shall designate in a written notice to the Company delivered within 150 days following the Initial Closing Date. (b) Section 6(b) of the Registration Rights Agreement is hereby amended by adding "use commercially reasonable efforts to" immediately before "ensure" in each of the first and second sentences of Section 6(b). (c) Section 15 of the Registration Rights Agreement is hereby amended by adding the following at the end of the first sentence of Section 15: ; provided, that if any such amendment, modification, supplement, waiver or consent would adversely affect any Holder of Registrable Securities relative to any Holder or Holders of Registrable Securities voting in favor of such amendment, modification, supplement, waiver or consent, such amendment, modification, supplement, waiver or consent shall also require the written consent of such Holder or Holders, as the case may be, of a majority of the outstanding Registrable Securities held by all Holders so adversely affected. 11 21. Binding Effect. This Amendment shall be binding upon and inure -------------- to the benefit of the parties hereto and their heirs, executors, administrators, successors and permitted assigns. 22. Assignment by SCANA. From and after the date of this Amendment, ------------------- SCANA shall have the right, without the prior written consent of the Company or the other Purchasers, to assign all of its rights, obligations and liabilities under the Agreement, as amended by this Amendment, to a single direct or indirect wholly owned subsidiary of SCANA, provided that, unless (i) such assignee subsidiary shall have, and shall have furnished Holding and the Company with information that establishes that it has, total assets of at least $250,000,000, or (ii) SCANA or a direct or indirect wholly owned subsidiary of SCANA with total assets of at least $250,000,000 shall have executed a guarantee, in form and scope satisfactory to Holding and the Company, of the performance of such assignee subsidiary's obligations and liabilities under the Agreement, as amended by this Amendment, no such assignment shall relieve SCANA of its obligations or liabilities under the Agreement, as amended by this Amendment. As a condition of any such assignment, such assignee subsidiary shall be deemed to have made all of the representations and warranties of SCANA set forth in the Agreement, as amended by this Amendment (excluding the representations and warranties set forth in Sections 4(b)(i) and (b)(ii) of this Amendment, to the extent not applicable to such assignee subsidiary, and in the first sentence of Section 4(b)(iii) of this Amendment). From and after the effective date of any such assignment, all references in the Agreement, as amended by this Amendment, to SCANA shall be to such assignee subsidiary unless the context requires otherwise. 23. Enforceability and Interpretation. It is the intention of the --------------------------------- parties to this Amendment that the terms and provisions contained in this Amendment shall be enforceable to the fullest extent permitted by law. If any term or provision of this Amendment or the application thereof to any Person or circumstance is construed to be illegal, invalid or unenforceable, in whole or in part, then such term or provision shall be construed in such a manner as to permit its enforceability under applicable law to the fullest extent permitted by such law. In any case, the remaining terms and provisions of this Amendment or the application thereof to any Person or circumstance, except those terms and provisions which have been held illegal, invalid or unenforceable, shall remain in full force and effect. 24. Counterparts. This Amendment may be executed simultaneously in ------------ two or more counterparts, any one of which need not contain the signatures of more than one party, but all of such counterparts taken together shall constitute one and the same Amendment. 25. Captions. Captions to the Sections in this Amendment are for the -------- convenience of the parties only and shall not affect the meaning or interpretation of this Amendment. 12 26. Additional Documents. At any time or from time to time after the -------------------- date of this Amendment, the Company, on the one hand, and each Purchaser, on the other hand, agree to cooperate with each other, and at the request of any party, to execute and deliver any further instruments or documents and to take all such further action as such other party may reasonably request in order to evidence or effectuate the consummation of the transactions contemplated by this Amendment and to otherwise carry out the intent of the parties hereunder. 27. Governing Law. This Amendment shall be governed in all respects, ------------- including validity, interpretation and effect, by the laws of the State of Delaware applicable to contracts executed and to be performed wholly within such state. [signature page follows] 13 IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Amendment as of the date first written above. COMPANY: ITC/\DELTACOM, INC. By: /s/ Douglas A. Shumate --------------------------- Name: Douglas A. Shumate Title: Senior Vice President PURCHASERS: ITC HOLDING COMPANY, INC. By: /s/ Kimberley E. Thompson ------------------------------ Name: Kimberley E. Thompson Title: Senior Vice President SCANA CORPORATION By: /s/ Mark R. Cannon ---------------------------- Name: Mark R. Cannon Title: Controller HBK MASTER FUND, L.P. By: HBK Investments L.P., Investment Manager By: /s/ Kevin A. O'Neal ---------------------------- Authorized Signatory 14 EX-2 3 dex2.txt EXHIBIT 2 Exhibit 2 Execution Copy REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of June 20, --------- 2001, is made among ITC/\DeltaCom, Inc., a Delaware corporation (the "Company"), ------- ITC Holding Company, Inc., a Delaware corporation (the "Initial Purchaser"), ----------------- SCANA Corporation, a South Carolina corporation ("SCANA"), HBK Master Fund L.P., ----- a Cayman Islands limited partnership ("HBK"), and the other Holders from time to --- time hereunder. W I T N E S S E T H: - - - - - - - - - - WHEREAS, in connection with the Investment Agreement, dated as of February 27, 2001, as amended as of May 29, 2001, by and among the Company, the Initial Purchaser, SCANA and HBK (as amended from time to time, the "Investment ---------- Agreement"), the Company has agreed, upon the terms and subject to the - --------- conditions contained therein, to issue and sell (i) shares of multiple series of the Company's Series B cumulative convertible preferred stock and (ii) warrants to purchase shares of the Company's common stock; and WHEREAS, to induce the Initial Purchaser, SCANA, HBK and the other Purchasers party from time to time to the Investment Agreement to execute and deliver the Investment Agreement, the Company has agreed to provide the Initial Purchaser, SCANA, HBK, such other Purchasers and their respective transferees under the Investment Agreement with certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, and applicable state securities laws; NOW, THEREFORE, in consideration of the premises and the mutual covenants and conditions hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Definitions. For purposes of this Agreement, the following terms ----------- shall have the following meanings: "Affiliate" has the meaning specified in Rule 12b-2 under the Exchange --------- Act. "Blackout Period" has the meaning specified in Section 6(a). --------------- "Business Day" means a day on which the principal offices of the SEC ------------ in Washington, D.C. are open to accept filings or, in the case of determining a date on which any payment is due, any day which shall not be a legal holiday or a day on which banking institutions in New York City, New York or the State of Georgia generally are authorized or required by law or other governmental actions to close. "Common Stock" means the Company's common stock, par value $.01 per ------------ share. "Company" has the meaning specified in the first paragraph of this ------- Agreement. "Conversion Shares" means, collectively, (i) the shares of Common ----------------- Stock issued or issuable upon conversion of the Preferred Shares and (ii) any securities paid, issued or distributed in respect of any shares of Common Stock referred to in clause (i) by way of stock dividend or distribution or stock split or in connection with a combination of shares, recapitalization, reorganization, merger, consolidation or otherwise. "Draw Down Closing" means the closing of the issuance and sale of the ----------------- Series B Preferred Stock and the Warrants by the Company on any Draw Down Closing Date pursuant to the Investment Agreement. "Draw-Down Shelf Registrable Securities" has the meaning specified in -------------------------------------- Section 4(a)(2). "Draw-Down Shelf Registration Statement" means a Shelf Registration --------------------------------------- Statement relating to Draw-Down Shelf Registrable Securities. "Exchange Act" means the Securities Exchange Act of 1934, as amended, ------------ or any successor federal statute, as the same shall be in effect from time to time. Reference to a particular section of the Securities Exchange Act of 1934, as amended, shall include reference to the comparable section, if any, of any such successor federal statute. "Excluded Registration" means a registration of Common Stock under the --------------------- Securities Act pursuant to a registration statement filed (i) on Form S-4 or Form S-8 or any successor forms, (ii) in connection with an exchange offer or an offering of securities solely to existing stockholders of the Company or employees of the Company or its subsidiaries or (iii) in connection with an offering of Common Stock issuable upon the conversion or exercise of other securities. "Holder" means each Purchaser and, subject to Section 13, any other ------ Person to which a Purchaser has transferred Registrable Securities and which has agreed to become bound by the provisions of this Agreement in accordance with Section 13, but only so long as such Purchaser or other Person holds Registrable Securities. "Initial Closing Date" means the date on which the Series B Preferred -------------------- Stock and the Warrants are first issued and sold by the Company pursuant to the Investment Agreement. -2- "Initial Purchaser" has the meaning specified in the first paragraph ----------------- of this Agreement. "Initial Shelf Registrable Securities" has the meaning specified in ------------------------------------ Section 4(a)(1). "Initial Shelf Registration Statement" means a Shelf Registration ------------------------------------ Statement relating to the Initial Shelf Registrable Securities. "Initiating Holder" has the meaning specified in Section 3(a). ----------------- "Investment Agreement" has the meaning specified in the recitals to -------------------- this Agreement. "Losses" has the meaning specified in Section 10(a). ------ "Majority of the Registrable Securities" means, as of any date of -------------------------------------- determination with respect to the designated Holders, a majority of the shares of Common Stock held by such Holders on an as-converted basis, with the Holders of Preferred Shares and Warrants deemed to be the Holders of the number of shares of Common Stock into which the Preferred Shares are or would be convertible or for which the Warrants are or would be exercisable as of such date of determination. "NASD" means the National Association of Securities Dealers, Inc. ---- "Person" means any individual, corporation, partnership, limited ------ liability company, association, trust or other entity or organization, including a government or a political subdivision or an agency or instrumentality thereof. "PIK Dividends" means any shares of the Series B Preferred Stock that ------------- have been issued as dividends on shares of the Series B Preferred Stock. "Preferred Shares" means the outstanding Series B Preferred Stock, ---------------- including the outstanding PIK Dividends. "Prospectus" means the prospectus included in any Registration ---------- Statement, as amended or supplemented by any prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by any Registration Statement, and by all other amendments and supplements to the prospectus, including post-effective amendments and all material incorporated by reference in such prospectus. "Purchaser" means each of the Initial Purchaser, SCANA and HBK and --------- each other Person that becomes a party to the Investment Agreement as a "Purchaser" thereunder and that agrees in writing to become a Holder under this Agreement and to be bound by the provisions hereof in accordance with Section 13. -3- "Registrable Securities" means, collectively, (i) the Preferred ---------------------- Shares, (ii) the Warrants, (iii) the Conversion Shares and (iv) the Warrant Shares. Securities shall cease to be Registrable Securities in accordance with Section 2. "Registration Expenses" means any and all out-of-pocket expenses --------------------- incident to the Company's performance of or compliance with this Agreement, including, without limitation, (i) all SEC, NASD and securities exchange or automated quotation system registration and filing fees, (ii) all fees and expenses of complying with state securities or blue sky laws (including reasonable fees and disbursements of counsel for any underwriters in connection with blue sky qualifications of the Registrable Securities), (iii) all printing, messenger and delivery expenses, (iv) all fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange or automated quotation system pursuant to Section 7(h), (v) the fees and disbursements of counsel for the Company and of its independent public accountants, (vi) the reasonable fees and expenses of any special experts retained by the Company in connection with the requested registration, (vii) the reasonable fees and expenses of a single counsel for the Holders designated by the Holders of a Majority of the Registrable Securities covered by a Registration Statement which are incurred in connection with the preparation and review of such Registration Statement, and (viii) out-of-pocket expenses for underwriters customarily paid by the issuer to the extent provided for in any underwriting agreement, but excluding (x) underwriting discounts and commissions, transfer taxes, if any, and documentary stamp taxes, if any, and (y) any fees or expenses of counsel to the Holders or any Holder, other than the fees and expenses set forth in clause (vii) above. "Registration Statement" means any registration statement of the ---------------------- Company referred to in Section 3 or 4, including any Prospectus, amendments and supplements to any such registration statement, including post-effective amendments, and all exhibits and all material incorporated by reference in any such registration statement. "Registration Hold Period" means a Section 7(e) Period or a Section ------------------------ 7(m) Period. "Related Securities" means any securities of the Company similar or ------------------ identical to any of the Registrable Securities, including, without limitation, the Common Stock and all other options, warrants, rights and other securities convertible into, or exchangeable or exercisable for, Common Stock. "Requesting Holder" has the meaning specified in Section 3(a). ----------------- "SEC" means the Securities and Exchange Commission. --- "Section 7(e) Period" has the meaning specified in Section 7(e). ------------------- -4- "Section 7(m) Period" has the meaning specified in Section 7(m). ------------------- "Securities Act" means the Securities Act of 1933, as amended, or any -------------- successor federal statute, as the same shall be in effect from time to time. Reference to a particular section of the Securities Act of 1933, as amended, shall include reference to the comparable section, if any, of any such successor federal statute. "Series B Preferred Stock" means, collectively, each series of ------------------------ preferred stock, par value $.01 per share, of the Company designated by the Company's Board of Directors as "Series B-[ ] Cumulative Convertible Preferred Stock" which is issued pursuant to the Investment Agreement and the certificate of designation for each such series of preferred stock. "Shelf Registration" means the registration of Registrable Securities ------------------ effected pursuant to Section 4. "Shelf Registration Statement" means a shelf registration statement of ---------------------------- the Company filed pursuant to the provisions of Section 4 which covers the Initial Shelf Registrable Securities, the Draw-Down Shelf Registrable Securities or the Top-up Shelf Registrable Securities on an appropriate form under Rule 415 of the Securities Act, or any similar rule that may be adopted by the SEC, and all amendments and supplements to such registration statement, including post- effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Shelf Registration Statement" shall include the Initial Shelf Registration Statement, each Draw-Down Shelf Registration Statement and each Top-up Shelf Registration Statement. "Top-up Shelf Registrable Securities" means, as of any determination ----------------------------------- date, (i) the outstanding PIK Dividends which are then Registrable Securities and (ii) the Conversion Shares issued or issuable thereon. "Top-up Shelf Registration Statement" means a Shelf Registration ----------------------------------- Statement relating to Top-up Shelf Registrable Securities. "Underwritten Offering" means an underwritten offering in which --------------------- securities of the Company are sold to an underwriter for reoffering to the public. "Warrant Shares" means, collectively, (i) the shares of Common Stock -------------- issued or issuable upon exercise of the Warrants and (ii) any securities paid, issued or distributed in respect of any such shares of Common Stock referred to in clause (i) by way of stock dividend or distribution or stock split or in connection with a combination of shares, recapitalization, reorganization, merger, consolidation or otherwise. -5- "Warrants" means the warrants to purchase Common Stock issued and sold -------- pursuant to the Investment Agreement and any warrants issued in exchange, substitution or replacement thereof. 2. Securities Subject to this Agreement. The securities entitled to the ------------------------------------ benefits of this Agreement are the Registrable Securities. For the purposes of this Agreement, any particular Registrable Securities shall cease to be Registrable Securities on the date and to the extent that (i) a Registration Statement covering such Registrable Securities has been declared effective under the Securities Act and such Registrable Securities have been disposed of pursuant to such effective Registration Statement, (ii) such Registrable Securities have been distributed to the public pursuant to Rule 144 (or any similar provision then in force) under the Securities Act, (iii) such Registrable Securities have been otherwise issued, transferred or disposed of, certificates therefor not bearing a legend restricting further transfer shall have been delivered by the Company and, at such time, subsequent transfer or disposition of such securities shall not require registration or qualification of such securities under the Securities Act, (iv) all such Registrable Securities held by any Holder may be sold by such Holder without any time, volume or manner limitations pursuant to Rule 144(k) (or any similar provision then in force) under the Securities Act, or (v) such Registrable Securities have ceased to be outstanding. Without limiting the generality of the foregoing, (a) Conversion Shares issued or issuable upon conversion of Preferred Shares shall cease to be Registrable Securities at the same time as such Preferred Shares cease to be Registrable Securities (other than solely because such Preferred Shares have ceased to be outstanding), so long as such Conversion Shares may then or upon issuance be transferred or disposed of by the holders thereof without restriction under the Securities Act, and (b) Warrant Shares shall cease to be Registrable Securities if the offering of the related Warrants has been registered on a Registration Statement and such Warrant Shares are issued pursuant to the cashless exercise provisions of such Warrants or the issuance of such Warrant Shares is effected upon exercise of the related Warrants pursuant to such Registration Statement, so long as such Warrant Shares may then be transferred or disposed of by the holders thereof without restriction under the Securities Act. 3. Piggy-Back Registration Rights. ------------------------------ (a) Whenever the Company shall propose to file a registration statement under the Securities Act relating to the public offering of Common Stock (other than in connection with an Excluded Registration) for the Company's own account or for the account of any holder of Common Stock who holds registration rights as of the date hereof (the "Initiating Holder") and on a ----------------- form and in a manner that would permit registration of Registrable Securities for sale to the public under the Securities Act, the Company shall (i) give written notice at least 15 Business Days prior to the filing thereof to each Holder of Registrable Securities then -6- outstanding, specifying the approximate date on which the Company proposes to file such registration statement and advising such Holder of its right to have any or all of the Registrable Securities then held by such Holder included among the securities to be covered thereby and (ii) at the written request of any such Holder given to the Company within 15 days after such Holder's receipt of written notice from the Company, include among the securities covered by such registration statement the number of Registrable Securities which such Holder (a "Requesting Holder") shall have requested be so included (subject, however, to ----------------- reduction in accordance with paragraph (b) of this Section 3). (b) Each Holder of Registrable Securities wishing to participate in an offering pursuant to Section 3(a) may include Registrable Securities in any Registration Statement relating to such offering to the extent that the inclusion of such Registrable Securities shall not reduce the number of shares of Common Stock to be offered and sold by the Company or any Initiating Holder pursuant thereto. If the lead managing underwriter for an Underwritten Offering pursuant to Section 3(a) determines that marketing factors require a limitation on the number of Registrable Securities to be offered and sold by Requesting Holders in such offering, there shall be included in such offering only that number of Registrable Securities, if any, that such lead managing underwriter reasonably believes will not jeopardize the success of the offering of all of the shares of Common Stock that the Company wishes to sell for its own account or that the Initiating Holder desires to sell for its own account, as the case may be. In such event, the securities to be included in such offering shall consist of (i) first, the securities the Company or the Initiating Holder, as the case may be, proposes to sell, and (ii) second, the number, if any, of Registrable Securities requested to be included in such registration that, in the opinion of such lead managing underwriter can be sold without jeopardizing the success of the offering of all of the securities that the Company or the Initiating Holder, as the case may be, wishes to sell for its own account, such amount to be allocated on a pro rata basis among the Holders of Registrable Securities who have requested that their securities be so included based on the number of Registrable Securities that each Holder thereof has requested to be so included. (c) Nothing in this Section 3 shall create any liability on the part of the Company to the Holders of Registrable Securities if the Company for any reason should decide not to file a registration statement proposed to be filed under Section 3(a) or to withdraw such registration statement subsequent to its filing, regardless of any action whatsoever that a Holder may have taken, whether as a result of the issuance by the Company of any notice hereunder or otherwise. -7- 4. Shelf Registration Statements. ----------------------------- (a) Initial and Draw-Down Shelf Registration Statements. --------------------------------------------------- (1) The Company shall file the Initial Shelf Registration Statement with the SEC not later than (x) 180 days following the Initial Closing Date or (y) such later date not later than December 31, 2001 as the Initial Purchaser shall designate in a written notice to the Company delivered within 150 days following the Initial Closing Date. The Company shall use its reasonable best efforts to cause the Initial Shelf Registration Statement to be declared effective by the SEC as soon as reasonably practicable after the filing date of the Initial Shelf Registration Statement. The Initial Shelf Registration Statement shall register the offering of the Registrable Securities that are outstanding immediately prior to the filing date of the Initial Shelf Registration Statement (collectively, the "Initial Shelf Registrable ------------------------- Securities"). The Company shall promptly notify the applicable Holders of the - ---------- date and time of declaration of effectiveness of the Initial Shelf Registration Statement. (2) The Company shall file a Draw-Down Shelf Registration Statement with the SEC not later than 30 days following each Draw Down Closing that takes place after the effective date of the Initial Shelf Registration Statement, and shall use its reasonable best efforts to cause such Draw-Down Shelf Registration Statement to be declared effective by the SEC as soon as reasonably practicable thereafter. Each Draw-Down Shelf Registration Statement shall register the offering of the Registrable Securities that are outstanding immediately prior to the filing date of such Draw-Down Shelf Registration Statement and that have not been registered pursuant to any previous Registration Statement (collectively, the "Draw-Down Shelf Registrable Securities"). The Company shall promptly -------------------------------------- notify the applicable Holders of the date and time of declaration of effectiveness of each Draw-Down Shelf Registration Statement. (b) Top-up Shelf Registration Statements. ------------------------------------ (1) On or before March 31 of each year, beginning on March 31, 2003, the Company shall file a Top-up Shelf Registration Statement with the SEC registering the offering of all Top-up Shelf Registrable Securities that are outstanding immediately prior to such filing date and that have not been registered pursuant to any previous Registration Statement, and shall use its reasonable best efforts to cause such Top-up Shelf Registration Statement to be declared effective by the SEC as soon as reasonably practicable thereafter. The Company shall promptly notify the applicable Holders of the date and time of declaration of effectiveness of each Top-up Shelf Registration Statement. (2) The holders of a majority of the then outstanding Top-up Shelf Registrable Securities that have not been registered pursuant to any previous -8- Registration Statement shall have the right to make one request, in writing, at any date beginning after January 1, 2002, for the Company to file a Top-up Shelf Registration Statement with the SEC registering the offering of some or all of the then outstanding Top-up Shelf Registrable Securities that have not been registered pursuant to any previous Registration Statement. The Company shall file such Top-up Shelf Registration Statement with the SEC not later than 30 Business Days following its receipt of such request and shall use its reasonable best efforts to cause such Top-up Registration Statement to be declared effective by the SEC as soon as reasonably practicable thereafter. Within ten Business Days following receipt of such request, the Company shall give written notice to each Holder of such Top-up Shelf Registrable Securities then outstanding, specifying the approximate date on which the Company proposes to file such Top-up Shelf Registration Statement and advising such Holder of its right to have any or all of such Top-up Shelf Registrable Securities then held by such Holder included among the securities to be covered thereby. At the written request of any such Holder given to the Company within 15 Business Days after such Holder's receipt of written notice from the Company, the Company shall include among the securities covered by such registration statement the number of such Top-up Shelf Registrable Securities which such Holder shall have requested be so included. 5. Selection of Underwriters. In connection with any Underwritten ------------------------- Offering pursuant to a Shelf Registration Statement, the Company shall have the right to select a lead managing underwriter or underwriters to administer such offering, which lead managing underwriter or underwriters shall be reasonably satisfactory to the Holders holding a Majority of the Registrable Securities to be included in such Registration Statement; provided, however, that the Holders holding a Majority of the Registrable Securities to be included in such Registration Statement shall have the right to select a co-managing underwriter or underwriters for such offering, which co-managing underwriter or underwriters shall be reasonably satisfactory to the Company. 6. Blackout Periods; Holdback. -------------------------- (a) If the Company determines that the registration and distribution of Registrable Securities (i) would materially impede, delay, interfere with or otherwise adversely affect any pending financing, registration of securities, acquisition, corporate reorganization or other significant transaction involving the Company or (ii) would require disclosure of non-public material information that the Company has a bona fide business purpose for preserving as confidential, as determined by the Company's Board of Directors in good faith, the Company shall promptly give the Holders notice of such determination and shall be entitled to postpone the filing or effectiveness of a Registration Statement, or to suspend the use of an effective Registration Statement, for the shortest period of time reasonably required, but in any event not to exceed 90 days with respect to matters -9- covered by clause (i) above, and not to exceed 30 days with respect to matters covered by clause (ii) above (each such period, a "Blackout Period"); provided --------------- that a Blackout Period pursuant to clause (i) above with respect to a registration of securities proposed by the Company may, at the election of the Company, commence on the date that is up to 30 days prior to the date the Company in good faith estimates will be the date of filing of such registration and end no later than the earlier of (x) the date (following the effective date) specified in the form of underwriting agreement relating to such registration during which the Company shall be prohibited from selling, offering or otherwise disposing of Common Stock and (y) the 90th day after the commencement of such Blackout Period; provided further, that the Company shall not be entitled to obtain deferrals under this Section 6(a) for more than an aggregate of 90 days in any 12-month period. The Company shall promptly notify each Holder of the expiration or earlier termination of a Blackout Period. (b) If requested by the managing underwriter of any offering of securities of the Company registered under the Securities Act, each Holder shall not, and shall use commercially reasonable efforts to ensure that its Affiliates do not, directly or indirectly, sell, offer, pledge, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, warrant or right to purchase, or otherwise dispose of or transfer, or enter into any swap or other agreement or any arrangement that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership in, any Registrable Securities or Related Securities held by such Holder or such Holder's Affiliates during the 90 days following the effective date of a registration statement of the Company filed under the Securities Act, except for Registrable Securities included in such registration. If requested, each Holder shall enter, and shall use commercially reasonable efforts to ensure that all Affiliates of such Holder holding Registrable Securities or Related Securities enter, into a lock-up agreement with the applicable underwriters that is consistent with the agreement in the preceding sentence. (c) Notwithstanding any provision of Section 6(a) or 6(b), the cumulative period of any deferrals pursuant to Section 6(a) and of any holdback pursuant to Section 6(b) shall not exceed, in the aggregate, 90 days in any 12- month period. 7. Registration Procedures. In connection with the registration ----------------------- obligations of the Company under Sections 3 and 4, the Company shall: (a) prepare and file with the SEC a Registration Statement with respect to such Registrable Securities on any form for which the Company then qualifies or which counsel for the Company shall deem appropriate, and which form shall be available for the sale of the Registrable Securities in accordance with the -10- intended methods of distribution thereof, and use reasonable best efforts to cause such Registration Statement to become and remain effective; (b) prepare and file with the SEC amendments and post-effective amendments to such Registration Statement and such amendments and supplements to the Prospectus used in connection therewith as may be necessary to maintain the effectiveness of such registration or as may be required by the rules, regulations or instructions applicable to the registration form utilized by the Company or by the Securities Act or rules and regulations thereunder necessary to keep such Registration Statement effective (i) in the case of an Underwritten Offering, until each underwriter has completed the distribution of all securities purchased by it, and (ii) in the case of any other registration, until the Registrable Securities covered thereby cease to be Registrable Securities, and cause the Prospectus as so amended and supplemented to be filed pursuant to Rule 424 under the Securities Act, and otherwise use reasonable best efforts to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement until such time as is specified in clause (i) or (ii) above, as the case may be; (c) furnish to each Holder of such Registrable Securities such number of copies of such Registration Statement and of each amendment and post- effective amendment thereto, any Prospectus or Prospectus supplement and such other documents as such Holder may reasonably request in order to facilitate the disposition of the Registrable Securities by such Holder (the Company hereby consenting to the use (subject to the limitations set forth in Section 8(b)) of the Prospectus or any amendment or supplement thereto in connection with such disposition); (d) use reasonable best efforts to register or qualify such Registrable Securities covered by such Registration Statement under such other securities or blue sky laws of such jurisdictions as each Holder shall reasonably request, and to do any and all other acts and things which may be reasonably necessary to enable such Holder to consummate the disposition in such jurisdictions of the Registrable Securities owned by such Holder, except that the Company shall not be required for any such purpose to qualify generally to do business as a foreign corporation in any jurisdiction where, but for the requirements of this Section 7(d), it would not be obligated to be so qualified, to subject itself to taxation in any such jurisdiction, or to consent to general service of process in any such jurisdiction; (e) notify each Holder of any such Registrable Securities covered by such Registration Statement, at any time when a Prospectus relating thereto is required to be delivered under the Securities Act within the applicable period referred to in Section 7(b), that the Company has become aware that the Prospectus included in such Registration Statement, as then in effect, includes an untrue -11- statement of the material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing (the period during which the Holders are required in such case pursuant to Section 8(b) to refrain from effecting public sales or distributions of Registrable Securities being referred to as a "Section 7(e) Period"), and prepare and furnish to such Holder, as soon as ------------------- reasonably practicable, a reasonable number of copies of an amendment to such Registration Statement or supplement to such related Prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Securities, such Prospectus shall not include an untrue statement of 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 the light of the circumstances then existing; (f) notify each Holder of Registrable Securities covered by such Registration Statement at any time, (i) when the Prospectus or any Prospectus supplement or post- effective amendment has been filed and, with respect to the Registration Statement or any post-effective amendment, when the Registration Statement or such post-effective amendment has become effective; (ii) of the issuance by the SEC of any stop order of which the Company is aware suspending the effectiveness of the Registration Statement or any order preventing the use of a related Prospectus, or the initiation of any proceedings for such purposes; and (iii) of the receipt of the Company of any written notification of the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation of any proceeding for such purpose; (g) make available to its stockholders an earnings statement which shall satisfy the provisions of Section 11(a) of the Securities Act, provided that the Company shall be deemed to have complied with this Section 7(g) if it has complied with Rule 158 under the Securities Act; (h) use reasonable best efforts (i) to cause all Conversion Shares and Warrant Shares covered by such Registration Statement to be listed on any securities exchange or automated quotation system on which the Common Stock is then listed, if such Conversion Shares and Warrant Shares are not already so listed and if such listing is then permitted under the rules of such exchange or automated quotation system, (ii) to provide a transfer agent and registrar for Registrable Securities covered by such Registration Statement no later than the effective date of such Registration Statement and (iii) prepare and file with the SEC, within the time period specified by Section 12(g) of the Exchange Act, a Registration -12- Statement on Form 8-A registering the Preferred Shares and the Warrants if such filing is required pursuant to Section 12(g) of the Exchange Act; (i) if the registration involves an Underwritten Offering, enter into a customary underwriting agreement and in connection therewith: (i) make such representations and warranties to the underwriters in form, substance and scope as are customarily made by issuers to underwriters in comparable Underwritten Offerings; (ii) use reasonable best efforts to obtain opinions of counsel to the Company (in form, scope and substance reasonably satisfactory to the managing underwriters), addressed to the underwriters, and covering the matters customarily covered in opinions requested in comparable Underwritten Offerings; (iii) use reasonable best efforts to obtain "cold comfort" letters and bring-downs thereof from the Company's independent certified public accountants addressed to the underwriters, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters by independent accountants in connection with Underwritten Offerings; and (iv) deliver such documents and certificates as may be reasonably requested by the managing underwriters to evidence compliance with any customary conditions contained in the underwriting agreement; (j) cooperate with the Holders of Registrable Securities covered by such Registration Statement and the managing underwriter or underwriters or agents, if any, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legends) representing the securities to be sold under such Registration Statement, and enable such securities to be in such denominations and registered in such names as the managing underwriter or underwriters or agents, if any, or such Holders may request; (k) if reasonably requested by the managing underwriter or underwriters or a Holder of Registrable Securities being sold in connection with an Underwritten Offering, incorporate in a Prospectus supplement or post- effective amendment to the Registration Statement such information as the managing underwriters and the Holders of a Majority of the Registrable Securities being sold agree should be included therein relating to the plan of distribution with respect to such Registrable Securities, including, without limitation, information with respect to the principal amount of Registrable Securities being sold to such underwriters, the purchase price being paid therefor by such underwriters and any other terms of the Underwritten Offering of the Registrable Securities to be sold in such offering -13- and make all required filings of such Prospectus supplement or post-effective amendment as promptly as practicable upon being notified of the matters to be incorporated in such Prospectus supplement or post-effective amendment; (l) if reasonably requested by the managing underwriter or underwriters or a Holder of Registrable Securities being sold in an Underwritten Offering, cause appropriate representatives of the Company to participate in any "road shows" or similar marketing activities; (m) in the event of the issuance of any stop order of which the Company is aware suspending the effectiveness of the Registration Statement, or of any order suspending or preventing the use of any related Prospectus or suspending the qualification of any Registrable Securities included in the Registration Statement for sale in any jurisdiction, use reasonable best efforts promptly to obtain the withdrawal of such stop order or other order, and the period for which the Registration Statement shall be kept effective shall be extended by a number of days equal to the number of days between the issuance and withdrawal of any stop order or other order (a "Section 7(m) Period"); and ------------------- (n) disclose in each Registration Statement that, pursuant to Rule 416 under the Securities Act, such Registration Statement shall register the offering of an indeterminate number of shares of Common Stock which may become issuable pursuant to the antidilution provisions of the Preferred Shares and the Warrants. 8. Agreements of Holders. --------------------- (a) As a condition to the Company's obligation under this Agreement to cause Registrable Securities of any Holder to be included in a Registration Statement, such Holder shall timely provide the Company with all of the information required to be provided in the Registration Statement with respect to such Holder pursuant to Items 507 and 508 of Regulation S-K under the Securities Act or as otherwise may reasonably be required by the Company in connection with the Registration Statement. (b) Each Holder shall comply with the prospectus delivery requirements of the Securities Act in connection with the offer and sale of Registrable Securities made by such Holder pursuant to any Registration Statement. Upon receipt of any notice from the Company of the happening of any event of the kind described in Section 7(e) or Section 7(m), each Holder of Registrable Securities shall forthwith discontinue the disposition of Registrable Securities pursuant to the Prospectus or Registration Statement covering such Registrable Securities until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 7(e) or the withdrawal of any stop order or other order referred to in Section 7(m), and, if so directed by the Company, -14- shall deliver to the Company all copies, other than permanent files copies then in such Holder's possession, of the Prospectus covering such Registrable Securities at the time of receipt of such notice. (c) To the extent required by the Securities Act or rules or regulations thereunder, as reasonably determined by the Company, a Holder shall consent to disclosure in any Registration Statement to the effect that such Holder is or may be deemed to be an underwriter for purposes of the Securities Act in connection with the offering of Registrable Securities of such Holder included in such Registration Statement. (d) Each Holder shall comply, and shall cause its Affiliates to comply, with Regulation M under the Exchange Act in connection with the offer and sale of Registrable Securities made by such Holder pursuant to any Registration Statement. Each Holder shall use its commercially reasonable efforts to provide the Company with such information about such Holder's offer and sale of Registrable Securities pursuant to any Registration Statement as the Company shall reasonably require to enable the Company and its Affiliates to comply with Regulation M under the Exchange Act in connection with any such offer and sale. 9. Registration Expenses. The Company shall pay all Registration Expenses --------------------- in connection with all registrations pursuant to this Agreement. In connection with all such registrations, each Holder shall pay all underwriting discounts and commissions, all transfer taxes, if any, all documentary stamp taxes, if any, relating to the sale or disposition of such Holder's Registrable Securities pursuant to the Registration Statement, and all fees and expenses of counsel to such Holder except as provided in clause (vii) of the definition of Registration Expenses. 10. Indemnification; Contribution. ----------------------------- (a) The Company shall indemnify and hold harmless each Holder of Registrable Securities and each Person, if any, who controls such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) against all losses, claims, damages, liabilities and expenses (including reasonable attorneys' fees, disbursements and expenses, as incurred) (collectively, "Losses") incurred by such party pursuant to any actual or ------ threatened action, suit, proceeding or investigation arising out of or based upon any untrue or alleged untrue statement of a material fact contained in, or any omission or alleged omission of a material fact required to be stated in, the Registration Statement, Prospectus or preliminary Prospectus or any amendment or supplement to any of the foregoing or necessary to make the statements therein (in the case of a Prospectus or a preliminary Prospectus, in the light of the circumstances then existing) not misleading, except in each case insofar as such statements or omissions arise out of -15- or are based upon (i) any such untrue statement or alleged untrue statement or omission or alleged omission made in reliance on and in conformity with information with respect to such Holder furnished in writing to the Company by such Holder or its counsel expressly for use therein, (ii) the use of any Prospectus after such time as the obligation of the Company to keep effective the Registration Statement of which such Prospectus forms a part has expired or (iii) the use of any Prospectus after such time as the Company has advised the Holders that the filing of an amendment or supplement thereto is required, except such Prospectus as so amended or supplemented. Notwithstanding the foregoing provisions of this Section 10(a), the Company shall not be liable to any Holder or to any Person who controls such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) under the indemnity agreement in this Section 10(a) for any Losses that arise out of or are based upon any of the matters specified in clause (ii) or (iii) of the immediately preceding sentence or that arise out of or are based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any Prospectus if either (i) (A) such Holder failed to send or deliver a copy of the Prospectus with or prior to the delivery of written confirmation of the sale of Registrable Securities by such Holder to the Person asserting the claim from which such Losses arise and (B) the Prospectus would have corrected such untrue statement or alleged untrue statement or such omission or alleged omission, or (ii) (x) such untrue statement or alleged untrue statement or omission or alleged omission is corrected in an amendment or supplement to the Prospectus and (y) having previously been furnished by or on behalf of the Company with copies of the Prospectus as so amended or supplemented, such Holder thereafter fails to deliver such Prospectus, as so amended or supplemented, with or prior to the delivery of written confirmation of the sale of Registrable Securities by such Holder to the Person asserting the claim from which such Losses arise. (b) In connection with any Registration Statement filed pursuant hereto, each Holder of Registrable Securities to be covered thereby shall, jointly and severally with all other Holders that are Affiliates of such Holder (and, otherwise, severally and not jointly with any other Holders), indemnify and hold harmless the Company, its directors and officers, and each Person, if any, who controls the Company (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and all other Holders against all Losses incurred by such party pursuant to any actual or threatened action, suit, proceeding or investigation arising out of or based upon any untrue or alleged untrue statement of a material fact contained in, or any omission or alleged omission of a material fact required to be stated in, the Registration Statement, Prospectus or preliminary Prospectus or any amendment or supplement to any of the foregoing or necessary to make the statements therein (in case of a Prospectus or preliminary Prospectus, in the light of the circumstances then existing) not misleading, but only to the extent that any such untrue statement or omission is made in reliance on and in conformity with information with respect to such Holder furnished in writing to the Company by -16- such Holder or its counsel specifically for use therein; provided, however, that the liability of each Holder hereunder shall be limited to the proportion of any such Losses that is equal to the proportion that the net proceeds from the sale of Registrable Securities sold by such Holder under such Registration Statement bears to the total net proceeds from the sale of all securities sold thereunder, but not in any event to exceed the net proceeds received by such Holder from the sale of Registrable Securities covered by such Registration Statement. (c) Any Person entitled to indemnification hereunder agrees to give prompt written notice to the indemnifying party after the receipt by such indemnified party of any written notice of the commencement of any action, suit, proceeding or investigation or threat thereof made in writing for which such indemnified party may claim indemnification or contribution pursuant to this Agreement, provided that failure to give such notification shall not affect the obligations of the indemnifying party pursuant to this Section 10 except to the extent the indemnifying party shall have been actually prejudiced as a result of such failure. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation, unless in the reasonable judgment of any indemnified party, based on the written opinion of counsel, a conflict of interest is likely to exist between the indemnifying party and such indemnified party and any other of such indemnified parties with respect to such claim, in which event the indemnifying party shall not be liable for the fees and expenses of (i) more than one counsel for all Holders of Registrable Securities who are indemnified parties, selected by the Holders of a Majority of the Registrable Securities who are indemnified parties (which selection shall be reasonably satisfactory to the Company), (ii) more than one counsel for the underwriters or (iii) more than one counsel for the Company, in each case in connection with any one action or separate but similar or related actions. An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim shall not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party, based on the written opinion of counsel, a conflict of interest is likely to exist between an indemnified party and any other of such indemnified parties with respect to such claim, in which event the indemnifying party shall be obligated to pay the fees and expenses of such additional counsel, provided that the indemnifying party shall not be liable for the -17- fees and expenses of (i) more than one counsel for all Holders of Registrable Securities who are indemnified parties, selected by the Holders of a Majority of the Registrable Securities who are indemnified parties (which selection shall be reasonably satisfactory to the Company), (ii) more than one counsel for the underwriters or (iii) more than one counsel for the Company, in each case in connection with any one action or separate but similar or related actions. No indemnifying party, in defense of any such action, suit, proceeding or investigation, shall, except with the consent of each indemnified party, consent to the entry of any judgment or entry 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 action, suit, proceeding or investigation to the extent such liability is covered by the indemnity obligations set forth in this Section 10. No indemnified party shall consent to entry of any judgment or entry into any settlement without the consent of each indemnifying party. (d) If the indemnification from the indemnifying party provided for in this Section 10 is unavailable to an indemnified party hereunder in respect to any Losses, 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 in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified party in connection with the actions which resulted in such Losses, as well as any other relevant equitable considerations; provided, however, that the liability of each Holder hereunder shall be limited to the proportion of any such Losses that is equal to the proportion that the net proceeds from the sale of Registrable Securities sold by such Holder under a Registration Statement bears to the total net proceeds from the sale of all securities sold thereunder, but not in any event to exceed the net proceeds received by such Holder from the sale of Registrable Securities covered by such Registration Statement. The relative fault of such indemnifying party and indemnified party shall be determined by reference to, among other things, whether any action in question, including any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such indemnifying party or indemnified party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the Losses referred to above shall be deemed to include, subject to the limitations set forth in Section 10(c), any legal or other fees and expenses reasonably incurred by such indemnified party in connection with any investigation or proceeding. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The parties agree that it would not be just and equitable if contribution pursuant to this Section 10(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the consideration referred to in this Section 10(d). If indemnification is -18- available under this Section 10, the indemnifying parties shall indemnify each indemnified party to the full extent provided in Section 10(a) or 10(b), as the case may be, without regard to the relative fault of such indemnifying parties or indemnified party or any other equitable consideration provided for in this Section 10(d). (e) The provisions of this Section 10 shall be in addition to any liability which any indemnifying party may have to any indemnified party and shall survive the termination of this Agreement. 11. Participation in Underwritten Offerings. No Holder of Registrable --------------------------------------- Securities may participate in any Underwritten Offering pursuant to this Agreement unless such Holder (i) agrees to sell such Holder's Registrable Securities on the basis provided in any underwriting arrangements approved by the Company and (ii) completes and executes all questionnaires, powers of attorney, custody agreements, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 12. Reports Under the Exchange Act. For so long as any Registrable ------------------------------ Securities remain outstanding, the Company shall use reasonable best efforts to file with the SEC in a timely manner all reports required to be filed by the Company pursuant to Section 13 or 15(d) of the Exchange Act and shall furnish to any Holder, promptly upon request by such Holder, a written statement by the Company as to whether it has complied with the current public information requirements of Rule 144(c) under the Securities Act. 13. Assignment of Registration Rights. The right to cause the Company to --------------------------------- register Registrable Securities pursuant to Section 3 may be assigned (but only with all related obligations hereunder) by any Purchaser in connection with a transfer to any transferee of the Registrable Securities permitted under the Investment Agreement and the terms of the Preferred Shares and the Warrants who, after such transfer, holds at least 5% of the then-outstanding Registrable Securities, provided that such assignment of rights under this Agreement shall be effective only if (i) immediately thereafter the further disposition of such securities by such transferee is restricted under the Securities Act and (ii) such transferee agrees in writing to become a Holder under this Agreement and to be bound by the provisions hereof. The right to cause the Company to register Registrable Securities pursuant to Section 4 may be assigned (but only with all related obligations hereunder) by any Purchaser in connection with a transfer to any transferee of the Registrable Securities permitted under the Investment Agreement and the terms of the Preferred Shares and the Warrants, provided that such assignment of rights under this Agreement shall be effective only if (i) immediately thereafter the further disposition of such securities by such transferee is restricted under the Securities Act and (ii) such transferee agrees in writing to become a Holder under this -19- Agreement and to be bound by the provisions hereof. If a Holder transfers Registrable Securities in connection with the immediately preceding sentence, the Company agrees promptly to amend any Shelf Registration Statement or to file a supplement to the Prospectus included therein to disclose that any transferee referred to in such sentence is a Holder of Registrable Securities. 14. Binding Effect; Benefit. This Agreement shall inure to the benefit of ----------------------- and be binding upon the parties hereto, any Holder and any successor, permitted assign, heir and legal representative thereof; provided, however, that, except as provided in Section 13, this Agreement and the provisions of this Agreement that are for the benefit of the Holders shall not be assignable by any Holder, and any such purported assignment shall be null and void. Except to the extent provided in Section 10, nothing in this Agreement, expressed or implied, is intended to confer on any Person other than the parties hereto, the Holders and their respective successors, permitted assigns, heirs and legal representatives any rights, remedies, obligations or liabilities under or by reason of this Agreement. 15. Amendments and Waivers. The provisions of this Agreement, including ---------------------- the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company has obtained the written consent thereto of Holders of a Majority of the Registrable Securities; provided that if any such amendment, modification, supplement, waiver or consent would adversely affect any Holder of Registrable Securities relative to any Holder or Holders of Registrable Securities voting in favor of such amendment, modification, supplement, waiver or consent, such amendment, modification, supplement, waiver or consent shall also require the written consent of such Holder or Holders, as the case may be, of a Majority of the Registrable Securities held by all Holders so adversely affected. Notwithstanding the foregoing, a waiver or consent to departure from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders of Registrable Securities whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect the rights of other Holders of Registrable Securities may be given by Holders of at least a Majority of the Registrable Securities being sold by such Holders pursuant to such Registration Statement; provided that the provisions of this sentence may not be amended, modified or supplemented except in accordance with the provisions of the immediately preceding sentence. Each Holder of Registrable Securities outstanding at the time of any such amendment, modification, supplement, waiver or consent or thereafter shall be bound by any such amendment, modification, supplement, waiver or consent effected pursuant to this Section 15, whether or not any notice, writing or marking indicating such amendment, modification, supplement, waiver or consent appears on the Registrable Securities or is delivered to such Holder. -20- 16. Notices. All notices and other communications given or made pursuant ------- hereto, unless otherwise specified, shall be in writing and shall be deemed to be effectively given as follows: (i) upon personal delivery to the party to be notified; (ii) when sent by facsimile, if sent during normal business hours of the recipient and if not, then on the next Business Day; (iii) five days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (iv) two days after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the parties hereto at the respective addresses set forth below, or as notified by such party from time to time at least ten days prior to the effectiveness of such notice: If to the Company: ITC/\DeltaCom, Inc. 4092 South Memorial Parkway Huntsville, Alabama 35802 Attn: General Counsel Fax: (256) 382-3932 If to the Initial Purchaser: ITC Holding Company, Inc. 3300 20/th/ Avenue Valley, Alabama 36854 Attn: General Counsel Fax: (334) 768-5067 If to SCANA: SCANA Corporation 1426 Main Street Columbia, South Carolina 29201 Attn: Mark R. Cannon Fax: (803) 933-7037 If to HBK: HBK Master Fund L.P. c/c HBK Investments L.P. 300 Crescent Court Suite 700 Dallas, Texas 75201 Attn: General Counsel Fax: (214) 758-1207 -21- Any other Person who becomes a Holder shall provide its address and facsimile transmission number to the Company, which shall promptly provide such information to each other Holder. 17. Headings. The headings contained in this Agreement are for -------- convenience only and shall not affect the meaning or interpretation of this Agreement. 18. Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. 19. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ------------- ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT GIVING EFFECT TO ITS PRINCIPLES OR RULES OF CONFLICT OF LAWS TO THE EXTENT SUCH PRINCIPLES OR RULES WOULD REQUIRE OR PERMIT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION. 20. Termination. This Agreement shall terminate with respect to any ----------- Holder when such Holder no longer holds any Registrable Securities, except for any liabilities or obligations under Sections 9 and 10, which shall remain in effect in accordance with their terms. No termination of any provision of this Agreement shall relieve any party of any liability for any breach of such provision occurring prior to such termination. 21. Entire Agreement. This Agreement is intended by the parties to be a ---------------- complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and the registration rights granted by the Company with respect to the Registrable Securities. Except as provided in the Investment Agreement and in the instruments authorizing or evidencing the Preferred Shares and the Warrants, there are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein, with respect to the registration rights granted by the Company with respect to the Registrable Securities. This Agreement supersedes all prior agreements and undertakings among the parties with respect to such registration rights. No party hereto shall have any rights, duties or obligations other than those specifically set forth in this Agreement. 22. Specific Performance. Without limiting the rights of each party -------------------- hereto to pursue all other legal and equitable rights available to such party for any other parties' failure to perform their obligations under this Agreement, the parties hereto acknowledge and agree that the remedy at law for any failure to perform their obligations hereunder would be inadequate and that each of them, -22- respectively, to the extent permitted by applicable law, shall be entitled to specific performance, injunctive relief or other equitable remedies in the event of any such failure. 23. Severability. In the event that any one or more of the provisions ------------ contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the parties shall negotiate in good faith with a view to the substitution therefor of a suitable and equitable solution in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid provision, provided, however, that the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be in any way impaired thereby, it being intended that all of the rights and privileges of the parties hereto shall be enforceable to the fullest extent permitted by law. [Signature page follows] -23- IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set forth in the first paragraph hereof. ITC/\DELTACOM, INC. By: /s/ Douglas A. Shumate -------------------------------- Douglas A. Shumate Senior Vice President- Chief Financial Officer ITC HOLDING COMPANY, INC. By: /s/ Bryan W. Adams -------------------------------- Bryan W. Adams Senior Vice President- Chief Financial Officer SCANA CORPORATION By: /s/ Mark R. Cannon -------------------------------- Mark R. Cannon Controller HBK MASTER FUND L.P. By: HBK Investments L.P., Investment Manager By: /s/ William E. Rose ---------------------------- Name: William E. Rose --------------------------- Title: Authorized Signatory -24- EX-3 4 dex3.txt EXHIBIT 3 Exhibit 3 ITC/\DELTACOM, INC. CERTIFICATE OF DESIGNATION OF THE POWERS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTS OF SERIES B-1 CUMULATIVE CONVERTIBLE PREFERRED STOCK AND QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS THEREOF Pursuant to Section 151 of the General Corporation Law of the State of Delaware ITC/\DeltaCom, Inc. (the "Corporation"), a corporation organized and ----------- existing under the General Corporation Law of the State of Delaware, does hereby certify that, pursuant to authority conferred upon the board of directors of the Corporation (the "Board of Directors") by the Corporation's Restated Certificate ------------------ of Incorporation, as amended (the "Certificate of Incorporation"), and pursuant ---------------------------- to the provisions of Section 151 of the General Corporation Law of the State of Delaware, the Board of Directors is authorized to issue preferred stock of the Corporation in one or more series, and the Board of Directors has duly approved and adopted the following resolution on June 15, 2001 (the "Resolution"), as ---------- supplemented by a resolution adopted by the Transaction Committee of the Board of Directors: RESOLVED that, pursuant to the authority vested in the Board of Directors by its Certificate of Incorporation, the Board of Directors hereby creates, authorizes and provides for the issuance of a series of the preferred stock of the Corporation, par value $.01 per share (such preferred stock designated as the "Series B-1 Cumulative Convertible --------------------------------- Preferred Stock"), consisting of 67,000 shares and having the powers, --------------- preferences and relative, participating, optional and other special rights and the qualifications, limitations and restrictions thereof that are set forth in the Certificate of Incorporation and in this Resolution as follows: 1. Number and Designation. 67,000 shares of the preferred stock of the ---------------------- Corporation shall constitute a series designated as "Series B-1 Cumulative Convertible Preferred Stock" (the "Series B-1 Preferred Stock"). -------------------------- 2. Definitions. Unless the context otherwise requires, when used herein ----------- the following terms shall have the meaning indicated. "Affiliate" with respect to a Person shall have the meaning set forth --------- in Rule 12b-2 under the Exchange Act, and shall include an officer or director of such Person. "Applicable Conversion Price" means $5.70, subject to adjustment from --------------------------- time to time pursuant to Section 8(g). "beneficial ownership" of securities of any Person shall have the -------------------- meaning set forth in Rule 13d-3 under the Exchange Act. "Benefit Plans" means the ITC/\DeltaCom, Inc. 1997 Stock Option Plan, ------------- the ITC/\DeltaCom, Inc. Director Stock Option Plan, the ITC Holding Company, Inc. Amended and Restated Stock Option Plan, the ITC Holding Company, Inc. NonEmployee Director Stock Option Plan and the ITC/\DeltaCom, Inc. Employee Profit Sharing & 401(k) Plan. "Board of Directors" means the board of directors of the Corporation. ------------------ "Business Day" means any day except Saturday, Sunday and any legal ------------ holiday or a day on which banking institutions in New York City, New York or the State of Georgia generally are authorized or required by law or other governmental actions to close. "Capital Stock" means, with respect to any Person, any and all shares, ------------- interests, participations, rights in, or other equivalents (however designated and whether voting or non-voting) of such Person's capital stock, whether outstanding on the Issue Date or issued after the Issue Date, and any and all rights (other than any evidence of indebtedness), warrants or options exchangeable for or convertible into such capital stock. "Change of Control Event" means any of the following events: (i) the ----------------------- event specified in clause (i)(b) of the definition of "Change of Control" contained in the Indenture, dated as of June 3, 1997, as amended from time to time, between the Corporation and United States Trust Company of New York, as Trustee; (ii) the event specified in clause (i) of the definition of "Change of Control" contained in the Indenture, dated as of March 3, 1998, as amended from time to time, between the Corporation and United States Trust Company of New York, as Trustee; (iii) the event specified in clause (i) of the definition of "Change of Control" contained in the Indenture, dated as of November 5, 1998, as amended from time to time, between the Corporation and United States Trust Company of New York, as Trustee; and (iv) the event specified in clause (a) of the definition of "Change of Control" contained in the Senior Credit Agreement. "Common Stock" means any shares of the common stock, par value $.01 ------------ per share, of the Corporation now or hereafter authorized to be issued, and any and all securities of any kind whatsoever of the Corporation which may be exchanged for or reclassified or converted into Common Stock, any and all securities of any kind whatsoever of the Corporation which may be issued on or after the date hereof in respect of, in exchange for, or upon reclassification or conversion of shares 2 of Common Stock pursuant to a merger, consolidation, stock split, reclassification, stock dividend, recapitalization of the Corporation or otherwise. "Common Stock Deemed Outstanding" means the number of shares of Common ------------------------------- Stock actually outstanding, plus the maximum total number of shares of Common Stock issuable upon the exercise of any then outstanding Warrants or issuable upon conversion of any then outstanding Series A Preferred Stock or Series B Preferred Stock, whether or not such Warrants, Series A Preferred Stock or Series B Preferred Stock are actually exercisable, convertible or exchangeable at such time, without duplication. "Convertible Notes" means the 4 1/2% Convertible Subordinated Notes ----------------- due 2006 of the Corporation. "Corporation" means ITC/\DeltaCom, Inc., a corporation organized and ----------- existing under the General Corporation Law of the State of Delaware. "Exchange Act" means the Securities Exchange Act of 1934, as amended, ------------ or any successor statute, and the rules and regulations promulgated thereunder. "Initial Holder" means ITC Holding Company, Inc. -------------- "Initial Issue Date" means the first date on which the Series B-1 ------------------ Preferred Stock is issued and sold pursuant to the Investment Agreement. "Investment Agreement" means the Investment Agreement, dated as of -------------------- February 27, 2001, between the Corporation and the Initial Holder, as amended as of May 29, 2001, as amended from time to time. "Issue Date" means the first date on which the Series B-1 Preferred ---------- Stock is issued and sold pursuant to the Investment Agreement. "Liquidation Preference" with respect to a share of Series B-1 ---------------------- Preferred Stock means, as at any date, the sum of (x) $1,000.00 plus (y) any Special Amount with respect to such share plus (z) an amount equal to any accrued and unpaid Preferred Dividends with respect to such share from the last Dividend Payment Date through such date. "Market Price" means, with respect to the Common Stock, on any given ------------ day, (i) the price of the last trade, as reported on the Nasdaq National Market, not identified as having been reported late to such system, or (ii) if the Common Stock is so traded, but not so reported, the average of the last bid and ask prices, as those prices are reported on the Nasdaq National Market, or (iii) if the Common Stock is not listed or authorized for trading on the Nasdaq National Market or any comparable system, the average of the closing bid and ask prices as furnished by 3 two members of the National Association of Securities Dealers, Inc. selected from time to time in good faith by the Board of Directors for that purpose. If the Common Stock is not listed and traded in a manner that the quotations referred to above are available for the period required hereunder, the Market Price per share of Common Stock shall be deemed to be the fair value per share of such security as determined in good faith by the Board of Directors. "Nasdaq Marketplace Rules" means the rules, regulations and ------------------------ interpretations of the National Association of Securities Dealers, Inc. and The Nasdaq Stock Market, Inc. in effect from time to time and applicable to the Corporation. "Original Purchase Price" means, with respect to a share of Series B-1 ----------------------- Preferred Stock, $1,000.00. "outstanding," when used with reference to shares of Common Stock, ----------- means issued shares, excluding shares held by a subsidiary of the Corporation. "Person" means any corporation, limited liability company, ------ partnership, trust, organization, association, other entity or individual. "Senior Credit Agreement" means the Credit Agreement, dated as of ----------------------- April 5, 2000, among the Corporation, as Parent, Interstate FiberNet, Inc., as Borrower, the Subsidiary Guarantors named therein, the Initial Lenders named therein, Morgan Stanley Senior Funding, Inc., as Administrative Agent, Morgan Stanley & Co. Incorporated, as Collateral Agent, Bank of America, N.A., as Syndication Agent, and Goldman Sachs Credit Partners L.P., as Documentation Agent, as amended as of June 1, 2001, as amended from time to time. "Series A Designation" means the Restated Certificate of Designations -------------------- of the Powers, Preferences and Relative, Participating or Other Rights, and the Qualifications, Limitations or Restrictions Thereof, of the Series A Preferred Stock. "Series A Preferred Stock" means the Series A Convertible Preferred ------------------------ Stock, par value $.01 per share, of the Corporation. "Series B Certificates of Designation" means, collectively, this ------------------------------------ Certificate of Designation and the certificates of designation with respect to each other series of the Series B Preferred Stock. "Series B Preferred Stock" means, collectively, the Series B-1 ------------------------ Preferred Stock created hereby and each other series of preferred stock, par value $.01 per share, of the Corporation designated by the Board of Directors as "Series B-__ Cumulative Convertible Preferred Stock" which is issued pursuant to the Investment Agreement and the certificate of designation for each such series of preferred stock. 4 "Special Amount" with respect to a share of Series B-1 Preferred Stock -------------- means an amount equal to all dividends and other amounts which have become payable in respect of such share under Section 4(a) but which have not been paid. The Special Amount with respect to any such share shall be reduced by the amount of any such dividends and other amounts actually paid in respect of such share under Section 4(c). "Warrants" means the common stock purchase warrants issued by the -------- Corporation pursuant to the Investment Agreement. 3. Rank. The Series B-1 Preferred Stock shall, with respect to dividend ---- rights and rights on liquidation, dissolution and winding-up, rank (i) senior to the Common Stock and to each other class of Capital Stock of the Corporation or series of preferred stock of the Corporation established hereafter by the Board of Directors, the terms of which do not expressly provide that such class or series ranks senior to, or on a parity with, the Series B Preferred Stock as to dividend rights and rights on liquidation, dissolution and winding-up of the Corporation, and senior to the Series A Preferred Stock with respect to dividend rights (collectively referred to, together with all classes of Common Stock of the Corporation and with the Series A Preferred Stock (solely in respect of dividend rights), as "Junior Securities"); (ii) on a parity with the Series A ----------------- Preferred Stock (solely with respect to rights on liquidation, dissolution and winding-up of the Corporation), each other series of Series B Preferred Stock and each class of Capital Stock of the Corporation or series of preferred stock of the Corporation established hereafter by the Board of Directors in accordance with Section 9(d), the terms of which expressly provide that such class or series shall rank on a parity with the Series B Preferred Stock as to dividend rights or rights on liquidation, dissolution and winding-up (collectively referred to as "Parity Securities"); and (iii) junior to each class of Capital ----------------- Stock of the Corporation or series of preferred stock of the Corporation established hereafter by the Board of Directors in accordance with Section 9(d), the terms of which expressly provide that such class or series shall rank senior to the Series B Preferred Stock as to dividend rights and rights on liquidation, dissolution and winding-up of the Corporation (collectively referred to as "Senior Securities"). ----------------- 4. Dividends. --------- (a) The holders of shares of Series B-1 Preferred Stock shall be entitled to receive with respect to each share of Series B-1 Preferred Stock, when, as and if declared by the Board of Directors, out of funds legally available for the payment of dividends, dividends at the rate of 8% per annum of the sum of the Original Purchase Price plus any Special Amount with respect to such share (the "Preferred Dividend"). Preferred Dividends on a share of Series ------------------ B-1 Preferred Stock shall accrue and shall be cumulative whether or not declared from the date of issue of such share of Series B-1 Preferred Stock and shall be payable quarterly in arrears on April 15, July 15, October 15 and January 15 of each year (unless such 5 day is not a Business Day, in which event such dividends shall be payable on the next succeeding Business Day) (each such date being a "Dividend Payment Date" --------------------- and each such quarterly period being a "Dividend Period"), commencing on the --------------- Dividend Payment Date for the first full Dividend Period occurring after the Issue Date. Each such dividend shall be payable to the holders of record of shares of the Series B-1 Preferred Stock as they appear on the stock register of the Corporation at the close of business on the corresponding Record Date. As used herein, the term "Record Date" means, with respect to the dividend payable ----------- on April 15, July 15, October 15 and January 15, respectively, of each year, the preceding March 31, June 30, September 30 and December 31, or such other date, not more than 60 days or less than 10 days preceding the payment dates thereof, as shall be fixed as the record date by the Board of Directors. Notwithstanding the foregoing provisions of this Section 4(a), so long as any shares of Series B-1 Preferred Stock and any shares of any other series of Series B Preferred Stock are outstanding, no dividends shall be declared or paid or set aside for payment upon any shares of any series of Series B Preferred Stock for any current Dividend Period pursuant to Section 4(a) of the Series B Certificates of Designation unless such dividends are (i) declared and paid in full, or declared and a sum sufficient for such payment is set aside for payment in full, of all such dividends on all series of Series B Preferred Stock, or (ii) declared and paid ratably, or declared and a sum sufficient for such payment is set aside for payment ratably, on all series of Series B Preferred Stock in proportion to the respective amounts of dividends accumulated and unpaid with respect to all series of Series B Preferred Stock for such current Dividend Period. (b) The amount of Preferred Dividends payable on the initial Dividend Payment Date, or in respect of any period shorter or longer than a full Dividend Period, on the Series B-1 Preferred Stock shall be computed on the basis of twelve 30-day months and a 360-day year. No interest, or sum or money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Series B-1 Preferred Stock that may be in arrears. (c) Accrued Special Amounts for any past Dividend Periods may be declared and paid on any subsequent Dividend Payment Date to holders of record on the corresponding Record Date. (d) In the sole discretion of the Corporation, any Preferred Dividend may be paid (i) in cash, (ii) in shares of Series B-1 Preferred Stock or (iii) in a combination of cash and shares of Series B-1 Preferred Stock. Each share of Series B-1 Preferred Stock issued in payment of a Preferred Dividend shall be valued at, solely for purposes of determining the number of shares of Series B-1 Preferred Stock to be issued as a dividend, the Original Purchase Price and shall, upon issuance, be duly and validly issued, fully paid and non- assessable and not subject to preemptive rights. If any such Preferred Dividend would result in a fractional share of Series B-1 Preferred Stock, the Corporation, in its sole discretion, may either pay such fractional share or round such fractional share up to the nearest 6 whole share of Series B-1 Preferred Stock. Payment of a Preferred Dividend in shares of Series B-1 Preferred Stock shall be made by delivering certificates evidencing such shares to the holders of the Series B-1 Preferred Stock in such denominations as each such holder may request at such holder's address as it shall appear on the stock register of the Corporation. (e) So long as any shares of Series B-1 Preferred Stock are outstanding, no dividend, except as described in the last sentence of Section 4(f) and except as described in the next succeeding sentence, shall be declared or paid or set apart for payment on any Parity Securities, nor shall any Parity Securities be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any Parity Securities) by the Corporation (except by conversion into or exchange for Parity Securities or Junior Securities), unless in each case all Special Amounts have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for such payment on the Series B-1 Preferred Stock for all Dividend Periods terminating on or prior to the date of payment of the dividend on, or the date of redemption, purchase, or acquisition for consideration of, such Parity Securities. When Special Amounts are not paid in full or a sum sufficient for such payment is not set apart, as aforesaid, all Special Amounts and additional amounts declared upon shares of the Series B-1 Preferred Stock and all dividends and additional amounts declared upon any other Parity Securities shall be declared ratably in proportion to the respective amounts of Special Amounts and additional amounts accumulated and unpaid on the Series B-1 Preferred Stock and dividends and additional amounts accumulated and unpaid on such Parity Securities. (f) So long as any shares of the Series B-1 Preferred Stock are outstanding, no dividends shall be declared or paid or set apart for payment and no other distribution shall be declared or made upon Junior Securities, nor shall any Junior Securities be redeemed, purchased or otherwise acquired (any such dividend, distribution, redemption, purchase or acquisition being hereinafter referred to as a "Junior Securities Distribution") for any ------------------------------ consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any Junior Securities) by the Corporation, directly or indirectly (except by conversion into or exchange for Junior Securities), unless in each case (i) all Special Amounts and additional amounts on all outstanding shares of the Series B-1 Preferred Stock and accrued and unpaid dividends and additional amounts on any other Parity Securities shall have been paid or set apart for payment for all past Dividend Periods with respect to the Series B-1 Preferred Stock and all past dividend periods with respect to such Parity Securities and (ii) sufficient funds shall have been paid or set apart for the payment of the dividend for the current Dividend Period with respect to the Series B-1 Preferred Stock and the current dividend period with respect to such Parity Securities. Notwithstanding anything in this Certificate of Designation to the contrary, the Corporation may declare and pay dividends on Parity Securities which are payable solely in additional shares of, or by the increase in the liquidation value 7 of, Parity Securities or on Junior Securities which are payable in additional shares of, or by the increase in the liquidation value of, Junior Securities, as applicable, or redeem, purchase or otherwise acquire Junior Securities in exchange for Junior Securities, and Parity Securities in exchange for Parity Securities or Junior Securities. (g) So long as any shares of Series B-1 Preferred Stock are outstanding, if the Corporation pays a dividend in cash or other property on the Common Stock, other than a dividend in shares of Capital Stock, then at the same time the Corporation shall declare and pay a dividend on each share of Series B- 1 Preferred Stock in an amount equal to the dividend which would otherwise have been declared and paid with respect to the Common Stock issuable upon conversion of Series B-1 Preferred Stock if all of the outstanding Series B-1 Preferred Stock had been converted immediately prior to the record date for such dividend, or, if no record date is fixed, the date as of which the record holders of Common Stock entitled to such dividend are to be determined. 5. Liquidation Preference. ---------------------- (a) In the event of any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, after payment or distribution of the assets of the Corporation (whether capital or surplus) shall be made to or set apart for the holders of Senior Securities, and before any payment or distribution of the assets of the Corporation (whether capital or surplus) shall be made to or set apart for the holders of Junior Securities, the holders of shares of Series B-1 Preferred Stock shall be entitled to receive an amount in cash equal to the greater of (x) the aggregate Liquidation Preferences of the shares of Series B-1 Preferred Stock as of the date of liquidation, or (y) the aggregate amount that would have been received with respect to the shares of Common Stock if the Series B-1 Preferred Stock had been converted into Common Stock immediately prior to such liquidation, dissolution or winding-up. If, upon any liquidation, dissolution or winding-up of the Corporation, the assets of the Corporation, or proceeds thereof, shall be insufficient to pay in full the aforesaid amounts under clause (x) of the preceding sentence and liquidating payments on all Parity Securities, then such assets, or proceeds thereof, shall be distributed among the shares of Series B-1 Preferred Stock and all such other Parity Securities ratably in accordance with the respective amounts that would be payable on such shares of Series B-1 Preferred Stock and any such other Parity Securities if all amounts payable thereon were paid in full. Any amounts distributed with respect to the Series B-1 Preferred Stock pursuant to this Section 5(a) shall be allocated pro rata among the shares of Series B-1 Preferred Stock. For the purposes of Section 5, neither the sale, conveyance, exchange or transfer (for cash, shares of capital stock, securities or other consideration) of all or substantially all of the property or assets of the Corporation nor the consolidation or merger of the Corporation with or into one or more other entities shall be deemed to be a liquidation, dissolution or winding-up of the Corporation. 8 (b) Subject to the rights of the holders of any Parity Securities, after payment shall have been made in full to the holders of Series B-1 Preferred Stock, as provided in Section 5(a), any other series or class or classes of Junior Securities shall, subject to the respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Series B-1 Preferred Stock and any Parity Securities (other than the Series A Preferred Stock, to the extent provided in the Series A Designation) shall not be entitled to share therein. 6. Redemption. ---------- (a) Other than redemption of outstanding shares of capital stock of the Corporation pursuant to Section 4.4 of the Certificate of Incorporation, no shares of Series B-1 Preferred Stock shall be redeemable by the Corporation prior to the fifth anniversary of the Issue Date. On and after the fifth anniversary of the Issue Date, to the extent the Corporation shall have funds legally available for such payment, and subject to the rights of the holders pursuant to Section 8, the Corporation may redeem at its option shares of Series B-1 Preferred Stock, at any time in whole or from time to time in part, at a redemption price per share in cash equal to the Liquidation Preference as of the date fixed for redemption, without interest. (b) On the tenth anniversary of the Issue Date, the Corporation shall redeem all outstanding shares of Series B-1 Preferred Stock, if any, at a redemption price per share in cash equal to the Liquidation Preference as of the date fixed for redemption, without interest. (c) Shares of Series B-1 Preferred Stock which have been issued and reacquired by the Corporation in any manner, including shares purchased or redeemed, shall (upon compliance with any applicable provisions of the laws of the State of Delaware) be retired and have the status of authorized and unissued shares of the class of preferred stock of the Corporation undesignated as to series and may be redesignated and reissued as part of any series of the preferred stock of the Corporation; provided that no such issued and reacquired shares of Series B-1 Preferred Stock shall be reissued or sold as Series B Preferred Stock. (d) If the Corporation is unable or shall fail to discharge its obligation to redeem outstanding shares of Series B-1 Preferred Stock pursuant to Section 6(b) (the "Scheduled Redemption Obligation"), the Scheduled ------------------------------- Redemption Obligation shall be discharged as soon as the Corporation is able to discharge such Scheduled Redemption Obligation. If and so long as any Scheduled Redemption Obligation with respect to any shares of outstanding Series B-1 Preferred Stock shall not be fully discharged, the Corporation shall not (i) redeem, purchase or otherwise acquire any Parity Securities or discharge any mandatory or optional redemption, sinking fund or other similar obligation in respect of any Parity 9 Securities or (ii) declare or make any Junior Securities Distribution or, directly or indirectly, discharge any mandatory or optional redemption, sinking fund or other similar obligation in respect of any Junior Securities. 7. Procedure for Redemption. ------------------------ (a) In the event that fewer than all the outstanding shares of Series B-1 Preferred Stock eligible to be redeemed are to be redeemed, in the case of Section 6(a), the number of shares to be redeemed shall be determined by the Board of Directors and the shares to be redeemed shall be selected pro rata (with any fractional shares being rounded up to the nearest whole share). (b) In the event the Corporation shall redeem shares of Series B-1 Preferred Stock pursuant to Section 6(a), notice of such redemption shall be given by first class mail, postage prepaid, mailed not less than 30 days nor more than 60 days prior to the redemption date, to each holder of record of the shares to be redeemed at such holder's address as such address appears on the stock register of the Corporation; provided that neither the failure to give such notice nor any defect therein shall affect the validity of the giving of notice for the redemption of any share of Series B-1 Preferred Stock to be redeemed except as to the holder to whom the Corporation has failed to give such notice or except as to the holder whose notice was defective. Each such notice shall state: (i) the date fixed for redemption; (ii) the number of shares of Series B-1 Preferred Stock to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of shares to be redeemed from such holder; (iii) the redemption price; (iv) the place or places where certificates representing such shares are to be surrendered for payment of the redemption price; and (v) that dividends on the shares to be redeemed shall cease to accrue on the date fixed for redemption. (c) Notice having been mailed as aforesaid, if applicable, from and after the date fixed for redemption, dividends on the shares of Series B-1 Preferred Stock so called for redemption shall cease to accrue, and all rights of the holders thereof as stockholders of the Corporation (except the right to receive from the Corporation the redemption price and except the right to convert shares so called for redemption prior to the close of business on the last Business Day immediately preceding the date fixed for such redemption) shall cease. Upon surrender in accordance with such notice, if applicable, of the certificates representing any shares so redeemed (properly endorsed or assigned for transfer, if the Board of Directors shall so require and the notice shall so state), such shares shall be redeemed by the Corporation at the redemption price aforesaid. In case fewer than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without cost to the holder thereof. 10 8. Conversion. ---------- (a) The following conversion rights of the Series B-1 Preferred Stock shall be subject in all respects to the provisions of this Section 8, including Section 8(h). The holders of shares of Series B-1 Preferred Stock shall have the right, at any time in whole and from time to time in part, at such holders' option, to convert any or all outstanding shares (and fractional shares) of Series B-1 Preferred Stock held by such holders into fully paid and non-assessable shares of Common Stock. At any time and from time to time, each outstanding share of Series B-1 Preferred Stock shall be convertible into a number of shares of Common Stock equal to the Liquidation Preference of such share of Series B-1 Preferred as of the date of conversion divided by the Applicable Conversion Price for such share of Series B-1 Preferred Stock. Upon issuance as a Preferred Dividend pursuant to Section 4(d), each share of Series B-1 Preferred Stock so issued shall have the same Applicable Conversion Price as each then outstanding share of Series B-1 Preferred Stock. Notwithstanding any call for redemption pursuant to Section 6(a), the right to convert shares so called for redemption shall terminate at the close of business on the last Business Day immediately preceding the date fixed for such redemption unless the Corporation shall default in making payment of the amount payable upon such redemption. (b) (i) In order to exercise the conversion right, the holder of the shares of Series B-1 Preferred Stock to be converted shall surrender the certificate representing such shares at the principal executive offices of the Corporation, with a written notice of election to convert completed and signed, specifying the number of shares to be converted. Unless the shares issuable on conversion are to be issued in the same name as the name in which such shares of Series B-1 Preferred Stock are registered, each share surrendered for conversion shall be accompanied by instruments of transfer, in form satisfactory to the Corporation, duly executed by the holder or the holder's duly authorized attorney, and an amount sufficient to pay any transfer or similar tax. (ii) As promptly as practicable after the surrender by the holder of the certificates for shares of Series B-1 Preferred Stock as aforesaid, the Corporation shall issue and shall deliver to such holder, or on the holder's written order to the holder's transferee, (x) a certificate or certificates for the whole number of shares of Common Stock issuable upon the conversion of such shares in accordance with the provisions of this Section 8, (y) any cash adjustment pursuant to Section 8(f), and (z) in the event of a conversion in part, a certificate or certificates for the whole number of shares of Series B-1 Preferred Stock not being so converted. (iii) Each conversion of shares of Series B-1 Preferred Stock pursuant to Section 8(a) shall be deemed to have been effected immediately 11 prior to the close of business on the date on which the certificates for shares of Series B-1 Preferred Stock shall have been surrendered and such notice received by the Corporation as aforesaid, and the Person 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 of record of the shares of Common Stock represented thereby at such time on such date and such conversion shall be into a number of whole shares of Common Stock in respect of the shares of Series B-1 Preferred Stock being converted as determined in accordance with this Section 8 at such time on such date. All shares of Common Stock delivered upon conversion of the Series B-1 Preferred Stock shall upon delivery be duly and validly issued, fully paid and non-assessable and not subject to any preemptive rights. Upon the surrender of certificates representing the shares of Series B-1 Preferred Stock to be converted, the shares to be so converted shall no longer be deemed to be outstanding and all rights of a holder with respect to such shares surrendered for conversion shall immediately terminate except the right to receive the Common Stock and other amounts payable pursuant to this Section 8 and a certificate or certificates representing the shares of Series B-1 Preferred Stock not converted. (c) (i) Upon delivery to the Corporation by a holder of shares of Series B-1 Preferred Stock of a notice of election to convert, the right of the Corporation to redeem such shares of Series B-1 Preferred Stock shall terminate, regardless of whether a notice of redemption has been mailed as aforesaid. (ii) If a holder of Series B-1 Preferred Stock delivers to the Corporation a certificate therefor and a notice of election to convert, the Series B-1 Preferred Stock to be converted shall cease to accrue dividends pursuant to Section 4 but shall continue to be entitled to receive pro rata dividends for the period from the last Dividend Payment Date to the date of delivery of the notice of election to convert in preference to and in priority over any dividends on any Junior Securities. (iii) Except as provided above and in Section 8(g), the Corporation shall make no payment or adjustment for accrued and unpaid dividends on shares of Series B-1 Preferred Stock, whether or not in arrears, on conversion of such shares or for dividends theretofore paid on the shares of Common Stock. (d) (i) The Corporation covenants that it shall at all times reserve and keep available, free from preemptive rights, such number of its authorized but unissued shares of Common Stock as shall be required for the purpose of effecting conversions of the Series B-1 Preferred Stock. 12 (ii) Prior to the delivery of any securities which the Corporation shall be obligated to deliver upon conversion of the Series B-1 Preferred Stock, the Corporation shall comply with all applicable federal and state laws and regulations which require action to be taken by the Corporation. (e) The Corporation shall 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 B-1 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 Series B-1 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. (f) No fractional shares of Common Stock shall be issued upon the conversion of the Series B-1 Preferred Stock. If the conversion of any shares of Series B-1 Preferred Stock would result in a fractional share of Common Stock, the Corporation, in its sole discretion, may (i) round such fractional share up to the nearest whole share of Common Stock, or (ii) in lieu thereof pay a cash adjustment in respect of such fractional share in an amount equal to such fractional share multiplied by the Market Price per share of Common Stock on the Business Day next preceding the date on which such shares of Series B-1 Preferred Stock are deemed to have been converted. (g) In order to prevent dilution of the conversion rights granted under this Section 8, the Applicable Conversion Price shall be subject to adjustment from time to time pursuant to this Section 8(g). In the event that any adjustment of the Applicable Conversion Price as required herein results in a fraction of a cent, such Applicable Conversion Price shall be rounded up to the nearest cent. (i) Adjustment of Applicable Conversion Price and Number of ------------------------------------------------------- Shares Upon Issuance of Common Stock. Except as otherwise provided in ------------------------------------ Sections 8(g)(iii), 8(g)(iv) and 8(g)(v), if and whenever on or after the Issue Date the Corporation issues or sells, or in accordance with Section 8(g)(ii) is deemed to have issued or sold, any shares of Common Stock for no consideration or for a consideration per share (calculated as set forth in Section 8(g)(ii)) less than the then Applicable Conversion Price in effect on the date of issuance or sale (or deemed issuance or sale) of such Common Stock (a "Dilutive Issuance"), then immediately upon the Dilutive ----------------- Issuance, the Applicable Conversion Price shall be reduced to a price determined by multiplying the Applicable Conversion Price in effect immediately prior to the Dilutive Issuance by a fraction, (A) the numerator of which is an amount 13 equal to the sum of (x) the total number of shares of Common Stock Deemed Outstanding immediately prior to the Dilutive Issuance, plus (y) the quotient of the aggregate consideration, calculated as set forth in Section 8(g)(ii), received or receivable by the Corporation upon such Dilutive Issuance divided by the then Applicable Conversion Price in effect immediately prior to the Dilutive Issuance, and (B) the denominator of which is the total number of shares of Common Stock Deemed Outstanding immediately after the Dilutive Issuance. (ii) Effect on Applicable Conversion Price of Certain Events. ------------------------------------------------------- For purposes of determining the adjusted Applicable Conversion Price under Section 8(g)(i), the following provisions shall be applicable: (A) Issuance of Rights or Options. If the Corporation in ----------------------------- any manner issues or grants any warrants, rights or options, whether or not immediately exercisable, to subscribe for or to purchase Common Stock, or other securities convertible into or exchangeable for Common Stock ("Convertible Securities") (such warrants, rights and options to purchase ---------------------- Common Stock or Convertible Securities are hereinafter referred to as "Options"), and the price per share for which Common Stock is issuable upon ------- the exercise of such Options is less than the then Applicable Conversion Price in effect on the date of issuance or grant of such Options, then the maximum total number of shares of Common Stock issuable upon the exercise of all such Options shall, as of the date of the issuance or grant of such Options, be deemed to be outstanding and to have been issued and sold by the Corporation for such price per share. For purposes of the preceding sentence, the "price per share for which Common Stock is issuable upon the exercise of such Options" is determined by dividing (i) the total amount, if any, received or receivable by the Corporation as consideration for the issuance or granting of all such Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the exercise of all such Options, plus, in the case of Convertible Securities issuable upon the exercise of such Options, the minimum aggregate amount of additional consideration payable upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise of all such Options (assuming full conversion of Convertible Securities, if applicable). No further adjustment to the Applicable Conversion Price shall be made upon the actual issuance of such Common Stock upon the exercise of such Options or upon the conversion or exchange of Convertible Securities issuable upon exercise of such Options. (B) Issuance of Convertible Securities. If the Corporation in ---------------------------------- any manner issues or sells any Convertible Securities, whether or not immediately convertible (other than where such Convertible 14 Securities are issuable upon the exercise of Options for which an adjustment of the Applicable Conversion Price is made pursuant to Section 8(g)(ii)(A)) and the price per share for which Common Stock is issuable upon such conversion or exchange is less than the then Applicable Conversion Price in effect on the date of issuance of such Convertible Securities, then the maximum total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities shall, as of the date of the issuance of such Convertible Securities, be deemed to be outstanding and to have been issued and sold by the Corporation for such price per share. For the purposes of the preceding sentence, the "price per share for which Common Stock is issuable upon such conversion or exchange" is determined by dividing (i) the total amount, if any, received or receivable by the Corporation as consideration for the issuance or sale of all such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment of the Applicable Conversion Price shall be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities, and if any such issuance or sale of such Convertible Securities is made upon exercise of any Options for which adjustments of the Applicable Conversion Price had been or are to be made pursuant to other provisions of this Section 8(g), no further adjustment of the Applicable Conversion Price shall be made by reason of such issuance or sale. (C) Change in Option Price or Conversion Rate. If there is a ----------------------------------------- change at any time in (i) the amount of additional consideration payable to the Corporation upon the exercise of any Options; (ii) the amount of additional consideration, if any, payable to the Corporation upon the conversion or exchange of any Convertible Securities; or (iii) the rate at which any Convertible Securities are convertible into or exchangeable for Common Stock (other than under or by reason of provisions designed to protect against dilution), the Applicable Conversion Price in effect at the time of such change shall be readjusted to the Applicable Conversion Price which would have been in effect at such time if such Options or Convertible Securities still outstanding had provided for such changed additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold. (D) Treatment of Expired Options and Unexercised Convertible -------------------------------------------------------- Securities. If, in any case, the total number of shares of Common Stock ---------- issuable upon exercise of any Option or upon conversion or exchange of any Convertible Securities is not, in fact, issued and the rights to exercise such Option or to convert or exchange such Convertible Securities shall have 15 expired or terminated, the Applicable Conversion Price then in effect shall be readjusted to the Applicable Conversion Price which would have been in effect at the time of such expiration or termination if such Option or Convertible Securities, to the extent outstanding immediately prior to such expiration or termination (other than in respect of the actual number of shares of Common Stock issued upon exercise or conversion thereof), had never been issued. (E) Calculation of Consideration Received. If any Common Stock, ------------------------------------- Options or Convertible Securities are issued, granted or sold for cash, the consideration received therefor for purposes of this Section 8(g) shall be the amount received by the Corporation therefor before deduction of commissions, underwriting discounts or allowances or other expenses paid or incurred by the Corporation in connection with such issuance, grant or sale. In case any Common Stock, Options or Convertible Securities are issued or sold for a consideration part or all of which shall be other than cash, the amount of the consideration other than cash received by the Corporation shall be the fair value of such consideration. If any Common Stock, Options or Convertible Securities are issued in connection with any acquisition, merger or consolidation in which the Corporation is the surviving corporation, the amount of consideration therefor shall be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity which is attributable to such Common Stock, Options or Convertible Securities, as the case may be. Except as set forth below, the fair value of any consideration other than cash shall be determined in good faith by the mutual agreement of the Board of Directors and the holders of a majority of the outstanding Series B Preferred Stock. If the Board of Directors and the holders of a majority of the outstanding Series B Preferred Stock are unable to reach such agreement within a reasonable period, the fair value of such consideration shall be determined by an independent investment bank or a "Big Five" independent public accounting firm, in either case of nationally recognized standing in the valuation of businesses similar to the business of the Corporation, which shall be mutually acceptable to the Corporation and such holders. The determination of such investment bank or public accounting firm shall be final and binding upon the Corporation and the holders of the Series B Preferred Stock. Notwithstanding the foregoing, from and after the date on which the Initial Holder has ceased to have beneficial ownership of a majority of the outstanding Series B Preferred Stock, in lieu of obtaining the agreement by the holders of a majority of the outstanding Series B Preferred Stock to the fair value of any consideration other than cash as aforesaid, the Corporation may elect to have the fair value of such consideration determined by an independent investment bank or a "Big Five" independent public accounting firm, in either case of nationally recognized standing in the valuation of businesses similar to the business of the Corporation. The determination of such investment bank or public 16 accounting firm shall be final and binding upon the Corporation and the holders of the Series B Preferred Stock. (F) Exceptions to Adjustment of Applicable Conversion ------------------------------------------------- Price. No adjustment to the Applicable Conversion Price shall be made (i) ----- upon the issuance, sale, grant, conversion or exercise of any Options or Convertible Securities issued and outstanding, or committed to be issued, as of the Issue Date, or issuable pursuant to the Investment Agreement (including, without limitation, the Warrants, the Series A Preferred Stock, the Series B Preferred Stock, the Convertible Notes and any Options or Convertible Securities issued and outstanding, or committed to be issued, as of the Issue Date under the Benefit Plans or otherwise); (ii) upon the issuance, sale, grant, conversion or exercise of any Capital Stock, Options or Convertible Securities which may be issued or granted after the Issue Date under any stock option, stock incentive or other employee benefit plan of the Corporation or any subsidiary thereof in effect as of the Issue Date (including, without limitation, the Benefit Plans) or which becomes effective after the Issue Date, so long as such stock option, stock incentive or other employee benefit plan is approved by the Board of Directors (including the director designees, if any, of the holders of the Series B Preferred Stock); (iii) upon the issuance, sale or exercise of the Warrants; (iv) upon the issuance, sale, conversion or redemption of shares of Series B Preferred Stock in accordance with the Series B Certificates of Designation; or (v) upon any dividend or distribution on the Series B Preferred Stock in accordance with the Series B Certificates of Designation. (iii) Distribution of Assets. If the Corporation shall declare ---------------------- or make any distribution of its assets (including cash) to holders of Common Stock as a partial liquidating dividend, by way of return of capital or otherwise, then, after the date of record for determining stockholders entitled to such distribution, but prior to the date of such distribution, the holders of the Series B-1 Preferred Stock shall be entitled to receive the amount of such assets which, if the Series B-1 Preferred Stock had been converted into shares of Common Stock immediately prior to such time, would have been payable to the holder of such shares of Common Stock on the record date for the determination of stockholders entitled to such distribution. Notwithstanding anything in this Certificate of Designation, no adjustment in the Applicable Conversion Price shall be made under Section 8(g)(ii) to the extent the holders of Series B-1 Preferred Stock participate in any such distribution of assets in accordance with this Section 8(g)(iii) and Section 4(g). (iv) Subdivision or Combination of Common Stock. If the ------------------------------------------ Corporation at any time subdivides (by any stock split, stock dividend, recapitalization, reorganization, reclassification or otherwise) the shares of Common Stock acquirable hereunder into a greater number of shares, then, 17 after the date of record for effecting such subdivision, the Applicable Conversion Price in effect immediately prior to such subdivision shall be proportionately reduced. If the Corporation at any time combines (by reverse stock split, recapitalization, reorganization, reclassification or otherwise) the shares of Common Stock acquirable hereunder into a smaller number of shares, then, after the date of record for effecting such combination, the Applicable Conversion Price in effect immediately prior to such combination shall be proportionately increased. (v) Consolidation, Merger or Sale. In case of any ----------------------------- consolidation of the Corporation with, or merger of the Corporation into, any other corporation, or in case of any sale or conveyance of all or substantially all of the assets of the Corporation other than in connection with a plan of complete liquidation of the Corporation, then as a condition of such consolidation, merger, sale or conveyance, adequate provision shall be made whereby each holder of the Series B-1 Preferred Stock shall have the right to acquire and receive upon conversion of such Series B-1 Preferred Stock in lieu of or in addition to (as the case may be) the shares of Common Stock immediately theretofore acquirable upon the conversion of such Series B-1 Preferred Stock, such shares of capital stock, securities or assets as may be issued or payable with respect to or in exchange for the number of shares of Common Stock immediately theretofore acquirable and receivable upon conversion of such Series B-1 Preferred Stock if such consolidation, merger, sale or conveyance had not taken place. (vi) Notice of Adjustment. Within 20 Business Days after the -------------------- occurrence of any event which requires any adjustment of the Applicable Conversion Price, the Corporation shall give written notice thereof to the holders of Series B-1 Preferred Stock. Such notice shall state the Applicable Conversion Price resulting from such adjustment and shall set forth in reasonable detail the method of calculation and the facts upon which such calculation is based. Such calculation shall be certified by the chief financial officer of the Corporation. (vii) Minimum Adjustment of Applicable Conversion Price. No ------------------------------------------------- adjustment of the Applicable Conversion Price shall be made in an amount of less than 1% of the Applicable Conversion Price in effect at the time such adjustment is otherwise required to be made, but any such lesser adjustment shall be carried forward and shall be made at the time and together with the next subsequent adjustment which, together with any adjustments so carried forward, shall amount to not less than 1% of such Applicable Conversion Price. (h) Notwithstanding Section 8(a) and any other provision of this Certificate of Designation, the Series B-1 Preferred Stock shall be convertible by 18 any holder thereof into shares of Common Stock pursuant to Section 8 from time to time, and such holder shall be entitled to exercise such conversion right, only to the extent that such convertibility or the exercise of such conversion right would not result in a Change of Control Event, as determined by the Board of Directors in good faith in accordance with the Investment Agreement. The operation of the preceding sentence shall not limit any adjustment of the Applicable Conversion Price pursuant to Section 8(g). 9. Voting Rights. ------------- (a) The holders of record of shares of Series B-1 Preferred Stock shall be entitled to vote on an as-converted basis (calculated in accordance with Section 8(a) as of the close of trading on the record date for such vote and subject to the following sentence) with the holders of the Common Stock and each other series of Series B Preferred Stock as a single class on all matters presented to the holders of the Common Stock for vote, except in each case (i) as hereinafter provided in Section 9, (ii) as otherwise and to the extent provided by law, or (iii) as otherwise and to the extent provided by the Nasdaq Marketplace Rules or the rules, regulations and interpretations of any securities exchange on which the Common Stock is traded, as determined by the Board of Directors in good faith. Any holder of record of shares of Series B-1 Preferred Stock shall be entitled to vote on an as-converted basis as provided in this Certificate of Designation only to the extent that the exercise of such as-converted voting rights by such holder would not result in a Change of Control Event, as determined by the Board of Directors in good faith in accordance with the Investment Agreement. So long as the provisions of Section 9(b) or 9(c) of the Series B Certificates of Designation entitle any holder of the Series B Preferred Stock to designate for nomination a director or directors of the Corporation, the holders of the Series B Preferred Stock shall have the exclusive right, voting together as a single class either at a meeting of stockholders or by written consent, to vote with respect to such designee or designees to the Board of Directors. (b) Effective as of the Initial Issue Date, any holder of record of at least 50,000 shares of Series B Preferred Stock shall be entitled to designate for nomination for election, and the holders of the Series B Preferred Stock, voting together as a single class, shall be entitled to elect, one director to the Board of Directors in accordance with Section 9 of the Series B Certificates of Designation. Effective as of the Initial Issue Date, any holder of record of at least 100,000 shares of Series B Preferred Stock shall be entitled to designate for nomination for election, and the holders of the Series B Preferred Stock, voting together as a single class, shall be entitled to elect, two directors to the Board of Directors in accordance with Section 9 of the Series B Certificates of Designation. At such time as any holder of Series B Preferred Stock owns of record at least 50,000 shares or 100,000 shares of Series B Preferred Stock and such holder of record notifies the Corporation in writing that it wishes to designate for nomination for election one or two directors, 19 as applicable, the Board of Directors shall cause the total number of directors then constituting the whole Board of Directors to be increased by one director or two directors, as the case may be. Notwithstanding the preceding sentence, for so long as a holder of Series B Preferred Stock that is otherwise entitled to nominate a director pursuant to Section 9(b) of the Series B Certificates of Designation has an Affiliate who is serving on the Board of Directors and who has not been designated pursuant to Section 9 of the Series B Certificates of Designation, such holder shall not be entitled to designate for nomination, nor shall the holders of the Series B Preferred Stock, voting together as a single class, be entitled to elect, an additional director or directors to the Board of Directors. Notwithstanding anything in Section 9(b) of the Series B Certificates of Designation to the contrary, (i) effective as of the date on which a holder's record ownership of the Series B Preferred Stock shall be reduced to a number of outstanding shares (calculated without giving effect to any Preferred Dividends paid to such holder in shares of Series B Preferred Stock pursuant to Section 4(d) of the Series B Certificates of Designation) which is less than 100,000 shares but at least 50,000 shares, such holder shall be entitled to designate for nomination only one director for election to the Board of Directors, and the holders of the outstanding shares of Series B Preferred Stock shall have the exclusive right to vote, together as a single class, for the election of only one director to the Board of Directors, and the directorship of the latter of the two directors shall immediately terminate, and (ii) effective as of the date on which a holder's record ownership of the Series B Preferred Stock is reduced to less than 50,000 outstanding shares (calculated without giving effect to any Preferred Dividends paid to such holder in shares of Series B Preferred Stock pursuant to Section 4(d) of the Series B Certificates of Designation), the entitlement of such holder to designate for nomination one director for election to the Board of Directors, and the exclusive right of the holders of the outstanding shares of Series B Preferred Stock to vote, together as a single class, for the election of a director to the Board of Directors shall cease, and such directorship shall immediately terminate. Directors elected by the holders of the Series B Preferred Stock shall not serve a classified term with the directors elected by the holders of Common Stock together with the holders of any other class or series of capital stock entitled to vote thereon. In no event shall the holders of Series B Preferred Stock be entitled to elect more than two directors to the Board of Directors pursuant to Section 9(b) of the Series B Certificates of Designation. If more than two holders of Series B Preferred Stock would, but for the provisions of Section 9(b) of the Series B Certificates of Designation, be entitled to nominate for election more than two directors to the Board of Directors pursuant to Section 9(b) of the Series B Certificates of Designation, such holders shall mutually agree on the nomination for election of two such directors. (c) Any director elected by the holders of Series B Preferred Stock who serves as a member of the Board of Directors may be removed without cause only by the holders of a majority of the outstanding shares of Series B Preferred Stock. If a vacancy is created on the Board of Directors by reason of the death, removal or resignation of any director elected by the holders of the Series B 20 Preferred Stock, the holder of the Series B Preferred Stock who designated for nomination for election such director shall be entitled to designate for nomination for election, and the holders of the Series B Preferred Stock, voting together as a single class, may elect a replacement director to the Board of Directors. (d) Without the written consent of holders of a majority of the outstanding shares of Series B-1 Preferred Stock or the affirmative vote of holders of a majority of the outstanding shares of Series B-1 Preferred Stock at a meeting of the holders of Series B-1 Preferred Stock called for such purpose, the Corporation shall not amend, alter or repeal any provision of the Certificate of Incorporation or this Certificate of Designation so as to affect adversely the preferences, rights or powers of the Series B-1 Preferred Stock; provided that any such amendment that changes any dividend or other amount payable on or the liquidation preference of the Series B-1 Preferred Stock shall require the written consent of holders of two-thirds of the outstanding shares of Series B-1 Preferred Stock or the affirmative vote of holders of two-thirds of the outstanding shares of Series B-1 Preferred Stock at a meeting of the holders of Series B-1 Preferred Stock called for such purpose. Without the written consent of holders of a majority of the outstanding shares of Series B Preferred Stock or the affirmative vote of holders of a majority of the outstanding shares of Series B Preferred Stock at a meeting of the holders of Series B Preferred Stock called for such purpose, the Corporation shall not authorize the issuance of or issue any Parity Securities (other than any series of Series B Preferred Stock as contemplated hereby or in the Investment Agreement) or Senior Securities. (e) In any transaction in which the Series B Preferred Stock shall remain outstanding or be converted into capital stock of an entity other than the Corporation, the Corporation may, without the consent of the holders of the Series B Preferred Stock, consolidate with or merge with or into, or convey, transfer or lease all or substantially all its assets as an entirety to, any Person, provided that the successor, transferee or lessee (if not the Corporation) is organized and existing under the laws of the United States of America or any State thereof or the District of Columbia and the Series B Preferred Stock shall be converted into or exchanged for and shall become shares of, or interests in, such successor, transferee or lessee, having in respect of such successor, transferee or lessee substantially the same powers, preferences and relative, participating, optional or other special rights and the qualifications, limitations or restrictions thereof, that the Series B Preferred Stock has immediately prior to such transaction. In the event of any consolidation or merger or conveyance, transfer or lease of all or substantially all of the assets of the Corporation that is permitted pursuant to this Section 9(e), the successor resulting from such consolidation or into which the Corporation is merged or the transferee or lessee to which such conveyance, transfer or lease is made, shall succeed to, and be substituted for, and may exercise every right and power of, the Corporation with respect to the Series B Preferred Stock (or the shares or interests into, or for which, the Series B Preferred Stock is converted or exchanged), and 21 thereafter, except in the case of a lease, the predecessor (if still in existence) shall be released from its obligations and covenants with respect to the Series B Preferred Stock. Any consent required pursuant to this Section 9(e) shall be given by written consent of holders of a majority of the outstanding shares of Series B Preferred Stock or the affirmative vote of holders of a majority of the outstanding shares of Series B Preferred Stock at a meeting of the holders of Series B Preferred Stock called for such purpose. (f) In exercising the voting rights set forth in this Section 9, each share of Series B-1 Preferred Stock shall have one vote per share except as otherwise expressly provided for herein. Except as otherwise required by applicable law or as set forth herein, the shares of Series B-1 Preferred Stock shall not have any relative, participating, optional or other special voting rights and powers, and the consent of the holders of the Series B-1 Preferred Stock shall not be required for the taking of any corporate action. 10. Headings. The headings of the sections, paragraphs, subparagraphs, -------- clauses and subclauses of this Certificate of Designation are for convenience of reference only and shall not define, limit or affect any of the provisions hereof. 22 IN WITNESS WHEREOF, said ITC/\DeltaCom, Inc. has caused this Certificate of Designation to be signed by J. Thomas Mullis, its duly authorized Senior Vice President-Legal and Regulatory, this 20th day of June 2001. ITC/\DELTACOM, INC. By: /s/ J. Thomas Mullis --------------------------------- Name: J. Thomas Mullis Title: Senior Vice President-Legal and Regulatory 23 EX-4 5 dex4.txt EXHIBIT 4 Exhibit 4 THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS. EXCEPT AS OTHERWISE SET FORTH HEREIN OR IN THE INVESTMENT AGREEMENT, DATED AS OF FEBRUARY 27, 2001, BETWEEN ITC/\DELTACOM, INC. (THE "CORPORATION") AND ITC HOLDING COMPANY, INC., AS AMENDED AS OF MAY 29, 2001 (AS AMENDED FROM TIME TO TIME, THE "INVESTMENT AGREEMENT"), NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD, PLEDGED, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF (A) IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE ACT OR AN OPINION OF COUNSEL, IN FORM, SUBSTANCE AND SCOPE REASONABLY ACCEPTABLE TO THE CORPORATION, THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT OR SUCH LAWS, OR UNLESS SOLD PURSUANT TO RULE 144 UNDER THE ACT AND (B) EXCEPT IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH HEREIN AND SET FORTH IN THE INVESTMENT AGREEMENT. A COPY OF THE INVESTMENT AGREEMENT IS AVAILABLE UPON REQUEST TO THE SECRETARY OF THE CORPORATION FOR INSPECTION AT THE OFFICES OF THE CORPORATION. THIS WARRANT WAS INITIALLY ISSUED AS PART OF AN ISSUANCE OF SHARES OF SERIES B-1 CUMULATIVE CONVERTIBLE PREFERRED STOCK, PAR VALUE $.01 PER SHARE (THE "SERIES B PREFERRED STOCK"), OF THE CORPORATION. UNTIL JUNE 20, 2002, THIS WARRANT MAY NOT BE TRANSFERRED SEPARATELY FROM, BUT MAY BE TRANSFERRED ONLY TOGETHER WITH, SUCH SERIES B PREFERRED STOCK. ITC/\DELTACOM, INC. COMMON STOCK PURCHASE WARRANT No. W-1 June 20, 2001 THIS CERTIFIES THAT, for value received, ITC Telecom Ventures, Inc., a Delaware corporation, or its permitted assigns, is entitled to purchase from ITC/\DeltaCom, Inc., a Delaware corporation (the "Corporation"), at any time or ----------- from time to time as prescribed herein during the period specified in Section 2, 1,052,631.60 fully paid and non-assessable shares of the Common Stock, par value $.01 per share, of the Corporation (the "Common Stock"), at an exercise price of ------------ $5.70 per share (the "Exercise Price"). The term "Warrant Shares" as used -------------- -------------- herein refers to the shares of Common Stock purchasable hereunder. The Exercise Price and the number of Warrant Shares are subject to adjustment as provided in Section 4. The term "Warrants" as used herein means this Warrant and the other -------- warrants issued pursuant to the Investment Agreement, dated as of February 27, 2001, between the Corporation and ITC Holding Company, Inc., as amended as of May 29, 2001 (as amended from time to time, the "Investment Agreement"). -------------------- This Warrant is subject to the following terms, provisions and conditions. 1. Manner of Exercise; Issuance of Certificates; Payment for Shares. ----------------------------------------------------------------- Subject to the provisions hereof, this Warrant may be exercised by the holder hereof, in whole of in part, by the surrender of this Warrant, together with a completed exercise agreement in the form attached hereto (the "Exercise -------- Agreement"), to the Corporation during normal business hours on any Business Day - --------- at the Corporation's principal executive offices (or such other office or agency of the Corporation as it may designate by notice to the holder hereof), and upon (i) payment to the Corporation, in cash, by certified or official bank check or by wire transfer for the account of the Corporation, of the Exercise Price for the Warrant Shares specified in the Exercise Agreement or (ii) delivery to the Corporation of a written notice of an election to effect a "Cashless Exercise" ----------------- (as defined in Section 12(c)) for the Warrant Shares specified in the Exercise Agreement. The Warrant Shares so purchased shall be deemed to be issued to the holder hereof or such holder's designee, as the record owner of such shares, as of the close of business on the date on which this Warrant shall have been surrendered, the completed Exercise Agreement shall have been delivered, and payment shall have been made for such shares (or an election to effect a Cashless Exercise has been made) as set forth above. Certificates for the Warrant Shares so purchased, representing the aggregate number of shares specified in the Exercise Agreement, shall be delivered to the holder hereof within a reasonable time, not exceeding 10 Business Days, after this Warrant shall have been so exercised. The certificates so delivered shall be in such denominations as may be requested by the holder hereof and shall be registered in the name of such holder or such other name as shall be designated by such holder. If this Warrant shall have been exercised only in part, then, unless this Warrant has expired, the Corporation shall, at its expense, at the time of delivery of such certificates, deliver to the holder a new Warrant representing the number of shares with respect to which this Warrant shall not then have been exercised. 2. Period of Exercise; Limitation on Exercise. ------------------------------------------ (a) Subject to the terms and conditions herein, this Warrant is exercisable at any time or from time to time on or after the Issue Date and before 5:00 p.m., New York City time, on June 20, 2011 (the "Exercise Period"). --------------- (b) Notwithstanding Section 2(a) and any other provision of this Warrant, this Warrant shall be exercisable by any holder hereof from time to time, and such holder shall be entitled to exercise this Warrant in whole or in part, only to the extent that such exercise would not result in a Change of Control Event, as determined by the Board of Directors in good faith in accordance with the Investment Agreement. The operation of the preceding sentence shall not limit any adjustment of the Exercise Price and the number of Warrant Shares pursuant to Section 4. 2 3. Certain Agreements of the Corporation. The Corporation hereby ------------------------------------- covenants and agrees as follows: (a) Shares to be Fully Paid. All Warrant Shares shall, upon issuance ----------------------- in accordance with the terms of this Warrant, be duly and validly issued, fully paid and non-assessable and not subject to the preemptive or other similar rights of the stockholders of the Corporation. (b) Reservation of Shares. During the Exercise Period, the --------------------- Corporation at all times shall have authorized, and reserved for the purpose of issuance upon exercise of this Warrant, a sufficient number of shares of Common Stock to provide for the exercise of this Warrant. (c) Listing. The Corporation shall promptly secure the listing of the ------- shares of Common Stock issuable upon exercise of the Warrant upon each national securities exchange or automated quotation system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance upon exercise of this Warrant, if applicable) and shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all shares of Common Stock from time to time issuable upon the exercise of this Warrant; and the Corporation shall so list on each national securities exchange or automated quotation system, as the case may be, and shall maintain such listing of, any other shares of capital stock of the Corporation issuable upon the exercise of this Warrant if and so long as any shares of the same class shall be listed on such national securities exchange or automated quotation system. (d) Successors and Assigns. This Warrant shall be binding upon any ---------------------- entity succeeding to the Corporation by merger, consolidation, or acquisition of all or substantially all of the Corporation's assets. 4. Antidilution Provisions. During the Exercise Period, the Exercise ----------------------- Price and the number of Warrant Shares shall be subject to adjustment from time to time as provided in this Section 4. In the event that any adjustment of the Exercise Price as required herein results in a fraction of a cent, such Exercise Price shall be rounded up to the nearest cent. (a) Adjustment of Exercise Price and Number of Shares Upon Issuance of ------------------------------------------------------------------ Common Stock. Except as otherwise provided in Sections 4(c), 4(d) and 4(e), if - ------------ and whenever on or after the Issue Date the Corporation issues or sells, or in accordance with Section 4(b) is deemed to have issued or sold, any shares of Common Stock for no consideration or for a consideration per share (calculated as set forth in Section 4(b)) less than the then applicable Exercise Price in effect on the date of issuance or sale (or deemed issuance or sale) of such Common Stock (a "Dilutive Issuance"), then immediately upon the Dilutive ----------------- Issuance, the Exercise Price shall be reduced to a price determined by multiplying the Exercise Price in 3 effect immediately prior to the Dilutive Issuance by a fraction, (i) the numerator of which is an amount equal to the sum of (x) the total number of shares of Common Stock Deemed Outstanding immediately prior to the Dilutive Issuance, plus (y) the quotient of the aggregate consideration, calculated as set forth in Section 4(b), received or receivable by the Corporation upon such Dilutive Issuance divided by the then applicable Exercise Price in effect immediately prior to the Dilutive Issuance, and (ii) the denominator of which is the total number of shares of Common Stock Deemed Outstanding immediately after the Dilutive Issuance. (b) Effect on Exercise Price of Certain Events. For purposes of ------------------------------------------ determining the adjusted Exercise Price under Section 4(a), the following provisions shall be applicable: (i) Issuance of Rights or Options. If the Corporation in any ----------------------------- manner issues or grants any warrants, rights or options, whether or not immediately exercisable, to subscribe for or to purchase Common Stock, or other securities convertible into or exchangeable for Common Stock ("Convertible Securities") (such warrants, rights and options to purchase ---------------------- Common Stock or Convertible Securities are hereinafter referred to as "Options"), and the price per share for which Common Stock is issuable upon ------- the exercise of such Options is less than the then applicable Exercise Price in effect on the date of issuance or grant of such Options, then the maximum total number of shares of Common Stock issuable upon the exercise of all such Options shall, as of the date of the issuance or grant of such Options, be deemed to be outstanding and to have been issued and sold by the Corporation for such price per share. For purposes of the preceding sentence, the "price per share for which Common Stock is issuable upon the exercise of such Options" is determined by dividing (x) the total amount, if any, received or receivable by the Corporation as consideration for the issuance or granting of all such Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the exercise of all such Options, plus, in the case of Convertible Securities issuable upon the exercise of such Options, the minimum aggregate amount of additional consideration payable upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (y) the maximum total number of shares of Common Stock issuable upon the exercise of all such Options (assuming full conversion of Convertible Securities, if applicable). No further adjustment to the Exercise Price shall be made upon the actual issuance of such Common Stock upon the exercise of such Options or upon the conversion or exchange of Convertible Securities issuable upon exercise of such Options. (ii) Issuance of Convertible Securities. If the Corporation in ---------------------------------- any manner issues or sells any Convertible Securities, whether or not immediately convertible (other than where such Convertible Securities are 4 issuable upon the exercise of Options for which an adjustment of the applicable Exercise Price is made pursuant to Section 4(b)(i)) and the price per share for which Common Stock is issuable upon such conversion or exchange is less than the then applicable Exercise Price in effect on the date of issuance of such Convertible Securities, then the maximum total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities shall, as of the date of the issuance of such Convertible Securities, be deemed to be outstanding and to have been issued and sold by the Corporation for such price per share. For the purposes of the preceding sentence, the "price per share for which Common Stock is issuable upon such conversion or exchange" is determined by dividing (x) the total amount, if any, received or receivable by the Corporation as consideration for the issuance or sale of all such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (y) the maximum total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment of the Exercise Price shall be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities, and if any such issuance or sale of such Convertible Securities is made upon exercise of any Options for which adjustments of the Exercise Price had been or are to be made pursuant to other provisions of this Section 4(b), no further adjustment of the Exercise Price shall be made by reason of such issuance or sale. (iii) Change in Option Price or Conversion Rate. If there is a ----------------------------------------- change at any time in (A) the amount of additional consideration payable to the Corporation upon the exercise of any Options; (B) the amount of additional consideration, if any, payable to the Corporation upon the conversion or exchange of any Convertible Securities; or (C) the rate at which any Convertible Securities are convertible into or exchangeable for Common Stock (other than under or by reason of provisions designed to protect against dilution), the Exercise Price in effect at the time of such change shall be readjusted to the Exercise Price which would have been in effect at such time if such Options or Convertible Securities still outstanding had provided for such changed additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold. (iv) Treatment of Expired Options and Unexercised Convertible -------------------------------------------------------- Securities. If, in any case, the total number of shares of Common Stock ---------- issuable upon exercise of any Option or upon conversion or exchange of any Convertible Securities is not, in fact, issued and the rights to exercise such Option or to convert or exchange such Convertible Securities shall have expired or terminated, the Exercise Price then in effect shall be readjusted to 5 the Exercise Price which would have been in effect at the time of such expiration or termination if such Option or Convertible Securities, to the extent outstanding immediately prior to such expiration or termination (other than in respect of the actual number of shares of Common Stock issued upon exercise or conversion thereof), had never been issued. (v) Calculation of Consideration Received. If any Common Stock, ------------------------------------- Options or Convertible Securities are issued, granted or sold for cash, the consideration received therefor for purposes of this Section 4(b) shall be the amount received by the Corporation therefor before deduction of commissions, underwriting discounts or allowances or other expenses paid or incurred by the Corporation in connection with such issuance, grant or sale. In case any Common Stock, Options or Convertible Securities are issued or sold for a consideration part or all of which shall be other than cash, the amount of the consideration other than cash received by the Corporation shall be the fair value of such consideration. If any Common Stock, Options or Convertible Securities are issued in connection with any acquisition, merger or consolidation in which the Corporation is the surviving corporation, the amount of consideration therefor shall be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity which is attributable to such Common Stock, Options or Convertible Securities, as the case may be. Except as set forth below, the fair value of any consideration other than cash shall be determined in good faith by the mutual agreement of the Board of Directors and the Requisite Warrant Holders (as defined in Section 12(a)). If the Board of Directors and the Requisite Warrant Holders are unable to reach such agreement within a reasonable period, the fair value of such consideration shall be determined by an independent investment bank or a "Big Five" independent public accounting firm, in either case of nationally recognized standing in the valuation of businesses similar to the business of the Corporation, which shall be mutually acceptable to the Corporation and such holders. The determination of such investment bank or public accounting firm shall be final and binding upon the Corporation and the holders of the Warrants. Notwithstanding the foregoing, from and after the date on which ITC Holding Company, Inc. has ceased to be the "beneficial owner" (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of Warrants representing a majority of the aggregate value of then outstanding Warrants (as computed for purposes of the definition of "Requisite Warrant Holders" set forth in Section 12(a)), in lieu of obtaining the agreement by the holders of the Requisite Warrant Holders to the fair value of any consideration other than cash as aforesaid, the Corporation may elect to have the fair value of such consideration determined by an independent investment bank or a "Big Five" independent public accounting firm, in either case of nationally recognized standing in the valuation of businesses similar to the business of the Corporation. The determination of such investment 6 bank or public accounting firm shall be final and binding upon the Corporation and the holders of the Warrants. (vi) Exceptions to Adjustment of Exercise Price. No adjustment ------------------------------------------ to the Exercise Price shall be made (i) upon the issuance, sale, grant, conversion or exercise of any Options or Convertible Securities issued and outstanding, or committed to be issued, as of the Issue Date, or issuable pursuant to the Investment Agreement (including, without limitation, the Series A Preferred Stock, the Series B Preferred Stock, the Warrants and the Convertible Notes and any Options or Convertible Securities issued and outstanding, or committed to be issued, as of the Issue Date under the Benefit Plans or otherwise); (ii) upon the issuance, sale, grant, conversion or exercise of any Capital Stock, Options or Convertible Securities which may be issued or granted after the Issue Date under any stock option, stock incentive or other employee benefit plan of the Corporation or any subsidiary thereof in effect as of the Issue Date (including, without limitation, the Benefit Plans) or which becomes effective after the Issue Date, so long as such stock option, stock incentive or other employee benefit plan is approved by the Board of Directors (including the director designees, if any, of the holders of the Series B Preferred Stock); (iii) upon the issuance, sale or exercise of the Warrants; (iv) upon the issuance, sale, conversion or redemption of shares of Series B Preferred Stock in accordance with the Series B Certificates of Designation; or (v) upon any dividend or distribution on the Series B Preferred Stock in accordance with the Series B Certificates of Designation. (c) Distribution of Assets. If the Corporation shall declare or make ---------------------- any distribution of its assets (including cash) to holders of Common Stock as a partial liquidating dividend, by way of return of capital or otherwise, then, after the date of record for determining stockholders entitled to such distribution, the holder of this Warrant shall be entitled, upon exercise of this Warrant for the purchase of any or all of the shares of Common Stock subject hereto, to receive the amount of such assets which would have been payable to the holder if such holder had been the holder of such shares of Common Stock on the record date for the determination of stockholders entitled to such distribution. (d) Subdivision or Combination of Common Stock. If the Corporation at ------------------------------------------ any time subdivides (by any stock split, stock dividend, recapitalization, reorganization, reclassification or otherwise) the shares of Common Stock acquirable hereunder into a greater number of shares, then, after the date of record for effecting such subdivision, the Exercise Price in effect immediately prior to such subdivision shall be proportionately reduced. If the Corporation at any time combines (by reverse stock split, recapitalization, reorganization, reclassification or otherwise) the shares of Common Stock acquirable hereunder into a smaller number of shares, then, after the date of record 7 for effecting such combination, the Exercise Price in effect immediately prior to such combination shall be proportionately increased. (e) Consolidation, Merger or Sale. In case of any consolidation of ----------------------------- the Corporation with, or merger of the Corporation into any other corporation, or in case of any sale or conveyance of all or substantially all of the assets of the Corporation other than in connection with a plan of complete liquidation of the Corporation, then as a condition of such consolidation, merger, sale or conveyance, adequate provision shall be made whereby the holder of this Warrant shall have the right to acquire and receive upon exercise of this Warrant in lieu of or in addition to (as the case may be) the shares of Common Stock immediately theretofore acquirable upon the exercise of this Warrant, such shares of capital stock, securities or assets as may be issued or payable with respect to or in exchange for the number of shares of Common Stock immediately theretofore acquirable and receivable upon exercise of this Warrant if such consolidation, merger, sale or conveyance had not taken place. In any such case, the Corporation shall make appropriate provision to insure that the provisions of this Section 4 shall thereafter be applicable as nearly as may be in relation to any shares of capital stock or securities thereafter deliverable upon the exercise of this Warrant. (f) Adjustment in Number of Shares. Upon each change of the Exercise ------------------------------ Price pursuant to the provisions of this Section 4, the number of shares of Common Stock issuable upon exercise of this Warrant shall be adjusted by multiplying such number of shares of Common Stock issuable upon exercise of this Warrant immediately prior to such change by a fraction, the numerator of which is the Exercise Price immediately before such change and the denominator of which is the Exercise Price immediately after such change. (g) Notice of Adjustment. Within 20 Business Days after the -------------------- occurrence of any event which requires any adjustment of the Exercise Price, the Corporation shall give written notice thereof to the holder of this Warrant. Such notice shall state the Exercise Price resulting from such adjustment and the increase or decrease in the number of Warrant Shares purchasable at such price upon exercise, and shall set forth in reasonable detail the method of calculation and the facts upon which such calculation is based. Such calculation shall be certified by the chief financial officer of the Corporation. (h) Minimum Adjustment of Exercise Price. No adjustment of the ------------------------------------ Exercise Price shall be made in an amount of less than 1% of the Exercise Price in effect at the time such adjustment is otherwise required to be made, but any such lesser adjustment shall be carried forward and shall be made at the time and together with the next subsequent adjustment which, together with any adjustments so carried forward, shall amount to not less than 1% of such Exercise Price. 8 (i) No Fractional Shares. No fractional shares of Common Stock shall -------------------- be issued upon the exercise of this Warrant. If the exercise of this Warrant would result in a fractional share of Common Stock, such fractional share shall be disregarded and the number of shares of Common Stock issuable upon exercise of this Warrant shall be rounded up to the next higher number of whole shares. (j) Other Notices. In case at any time: ------------- (i) the Corporation shall declare any dividend upon the Common Stock payable in shares of stock of any class or make any other distribution (including dividends or distributions payable in cash out of retained earnings) to the holders of the Common Stock; (ii) the Corporation shall offer for subscription pro rata to the holders of the Common Stock any additional shares of stock of any class or other rights; (iii) there shall be any capital reorganization of the Corporation, or reclassification of the Common Stock, or consolidation or merger of the Corporation with or into, or sale of all or substantially all of the Corporation's assets to, another corporation or entity; or (iv) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Corporation; then, in each such case, the Corporation shall give to the holder of this Warrant notice of the date on which the books of the Corporation shall close or a record shall be taken for determining the holders of Common Stock entitled to receive any such dividend, distribution or subscription rights or for determining the holders of Common Stock entitled to vote in respect of any such reorganization, reclassification, merger, sale, dissolution, liquidation or winding-up. Such notice shall also specify the date on which the holders of Common Stock shall be entitled to receive such dividend, distribution or subscription rights or to exchange their Common Stock for stock or other securities or property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, as the case may be. Such notice shall be given at least 20 calendar days prior to the record date or the date on which the Corporation's books are closed in respect thereto. Failure to give any such notice or any defect therein shall not affect the validity of the proceedings referred to in clauses (i), (ii), (iii) and (iv) above. 5. Issue Tax. The issuance of certificates for Warrant Shares upon the --------- exercise of this Warrant shall be made without charge to the holder of this Warrant or such Warrant Shares for any issuance tax or other costs in respect thereof, provided that the Corporation shall not be required to pay any tax which may be 9 payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than the holder of this Warrant. 6. No Rights or Liabilities as a Stockholder. This Warrant shall not ----------------------------------------- entitle the holder hereof to any voting rights or other rights as a stockholder of the Corporation. No provision of this Warrant, in the absence of affirmative action by the holder hereof to purchase Warrant Shares, and no mere enumeration herein of the rights or privileges of the holder hereof, shall give rise to any liability of such holder for the Exercise Price or as a stockholder of the Corporation, whether such liability is asserted by the Corporation or by creditors of the Corporation. 7. Transfer, Exchange, and Replacement of Warrant; Issuance of Warrant ------------------------------------------------------------------- Shares. - ------ (a) Restriction on Transfer. This Warrant and the rights granted to ----------------------- the holder hereof are transferable, in whole or in part, upon surrender of this Warrant, together with a properly executed assignment in the form attached hereto, at the office or agency of the Corporation referred to in Section 7(e), provided, however, that any transfer or assignment shall be subject to the conditions set forth in Sections 7(f) and 7(g), to the restrictions on transfer set forth in Article V and Section 3.5 of the Investment Agreement, and to the other applicable provisions of the Investment Agreement. Until due presentment for registration of transfer on the books of the Corporation, the Corporation may treat the registered holder hereof as the owner and holder hereof for all purposes, and the Corporation shall not be affected by any notice to the contrary. Notwithstanding anything to the contrary contained herein, the registration rights described in Section 8 are assignable only in accordance with the provisions of the Registration Rights Agreement, dated as of June 20, 2001, by and among the Corporation and the Holders party thereto (as amended from time to time, the "Registration Rights Agreement"). ----------------------------- (b) Warrant Exchangeable for Different Denominations. This Warrant is ------------------------------------------------ exchangeable, upon the surrender hereof by the holder hereof at the office or agency of the Corporation referred to in Section 7(e), for new Warrants of like tenor representing in the aggregate the right to purchase the number of shares of Common Stock which may be purchased hereunder. Each such new Warrant shall represent the right to purchase such number of shares of Common Stock as shall be designated by the holder hereof at the time of such surrender. (c) Replacement of Warrant. Upon receipt of evidence reasonably ---------------------- satisfactory to the Corporation of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction, upon delivery of an indemnity agreement reasonably satisfactory in form and amount to the Corporation, or, in the case of any such mutilation, upon surrender and cancellation of this Warrant, the Corporation, at its expense, shall execute and deliver, in lieu thereof, a new Warrant of like tenor. 10 (d) Cancellation; Payment of Expenses. Upon the surrender of this --------------------------------- Warrant in connection with any transfer, exchange or replacement as provided in this Section 7, this Warrant shall be promptly canceled by the Corporation. The Corporation shall pay all taxes (other than securities transfer taxes) and all other expenses (other than legal expenses, if any, incurred by the holder or transferees) and charges payable in connection with the preparation, execution and delivery of Warrants pursuant to this Section 7. (e) Register. The Corporation shall maintain, at its principal -------- executive offices (or such other office or agency of the Corporation or of any other Person as it may designate by notice to the holder hereof), a register for this Warrant, in which the Corporation shall record the name and address of the person in whose name this Warrant has been issued, as well as the name and address of each transferee and each prior owner of this Warrant. (f) Exercise or Transfer Without Registration. If, at the time of the ----------------------------------------- surrender of this Warrant in connection with any exercise, transfer or exchange of this Warrant, this Warrant (or, in the case of any exercise, the Warrant Shares issuable hereunder) shall not be registered under the Securities Act of 1933, as amended (the "Securities Act"), and under applicable state securities -------------- or blue sky laws, the Corporation may require, as a condition of allowing such exercise, transfer or exchange, (i) that the holder or transferee of this Warrant, as the case may be, furnish to the Corporation a written opinion of counsel, which opinion and counsel are reasonably acceptable to the Corporation, to the effect that such exercise, transfer or exchange may be made without registration under the Securities Act and under applicable state securities or blue sky laws, (ii) that the holder or transferee execute and deliver to the Corporation an investment letter in form and substance acceptable to the Corporation and (iii) that the transferee be an "accredited investor" as defined in Rule 501(a) promulgated under the Securities Act; provided that no such opinion, letter or status as an "accredited investor" shall be required in connection with a transfer pursuant to Rule 144 under the Securities Act. The holder of this Warrant, by taking and holding this Warrant, represents to the Corporation that such holder is acquiring this Warrant for investment and not with a present view to the distribution thereof (it being understood that except as otherwise provided in this Warrant, such holder does not agree to hold the Warrant for any minimum or other specific term and reserves the right to dispose of the Warrant at any time in accordance with the Securities Act and state securities laws applicable to such disposition). (g) Restrictive Legend. The certificates representing the Warrant ------------------ Shares shall bear such restrictive legends as are provided for in the Investment Agreement. 8. Registration Rights. The initial holder of this Warrant and certain ------------------- transferees of such holder are entitled to the benefits of such registration rights in 11 respect of this Warrant and the Warrant Shares as are set forth in the Registration Rights Agreement. 9. Notices. All notices, requests and other communications required or ------- permitted to be given or delivered hereunder to the holder of this Warrant shall be in writing, and shall be personally delivered, or shall be sent by certified or registered mail or by recognized overnight mail courier, postage prepaid and addressed, to such holder at the address shown for such holder on the books of the Corporation, or at such other address as shall have been furnished to the Corporation by notice from such holder. All notices, requests and other communications required or permitted to be given or delivered hereunder to the Corporation shall be in writing, and shall be personally delivered, or shall be sent by certified or registered mail or by recognized overnight mail courier, postage prepaid and addressed, to the office of the Corporation at ITC/\DeltaCom, Inc., 4092 South Memorial Parkway, Huntsville, AL 35802, Attention: General Counsel, or at such other address as shall have been furnished to the holder of this Warrant by notice from the Corporation. Any such notice, request or other communication may be sent by facsimile, but shall in such case be subsequently confirmed by a writing personally delivered or sent by certified or registered mail or by recognized overnight mail courier as provided above. All notices, requests and other communications shall be deemed to have been given either at the time of the receipt thereof by the person entitled to receive such notice at the address of such person for purposes of this Section 9, or, if mailed by registered or certified mail or with a recognized overnight mail courier, upon deposit with the United States Post Office or such overnight mail courier, if postage is prepaid and the mailing is properly addressed, as the case may be. 10. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN ------------- ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN THE STATE OF DELAWARE (WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS). 11. Definitions. Unless the context otherwise requires, when used herein ----------- the following terms shall have the meaning indicated. "Benefit Plans" means the ITC/\DeltaCom, Inc. 1997 Stock Option Plan, ------------- the ITC/\DeltaCom, Inc. Director Stock Option Plan, the ITC Holding Company, Inc. Amended and Restated Stock Option Plan, the ITC Holding Company, Inc. NonEmployee Director Stock Option Plan and the ITC/\DeltaCom, Inc. Employee Profit Sharing & 401(k) Plan. "Board of Directors" means the Board of Directors of the Corporation. ------------------ 12 "Business Day" means any day except Saturday, Sunday and any legal ------------ holiday or a day on which banking institutions in New York City, New York or the State of Georgia generally are authorized or required by law or other governmental actions to close. "Change of Control Event" means any of the following events: (i) the ----------------------- event specified in clause (i)(b) of the definition of "Change of Control" contained in the Indenture, dated as of June 3, 1997, as amended from time to time, between the Corporation and United States Trust Company of New York, as Trustee; (ii) the event specified in clause (i) of the definition of "Change of Control" contained in the Indenture, dated as of March 3, 1998, as amended from time to time, between the Corporation and United States Trust Company of New York, as Trustee; (iii) the event specified in clause (i) of the definition of "Change of Control" contained in the Indenture, dated as of November 5, 1998, as amended from time to time, between the Corporation and United States Trust Company of New York, as Trustee; and (iv) the event specified in clause (a) of the definition of "Change of Control" contained in the Senior Credit Agreement. "Common Stock" means the Common Stock and any additional class of ------------ stock of the Corporation having no preference as to dividends or distributions on liquidation, provided that the shares purchasable pursuant to this Warrant shall include only shares of Common Stock in respect of which this Warrant is exercisable, or shares resulting from any subdivision or combination of such Common Sock, or in the case of any consolidation, merger, sale or conveyance of the character referred to in Section 4(e), the stock or other securities or property provided for in Section 4(e). "Common Stock Deemed Outstanding" means the number of shares of Common ------------------------------- Stock actually outstanding, plus the maximum total number of shares of Common Stock issuable upon the exercise of any then outstanding Warrants or issuable upon conversion of any then outstanding Series A Preferred Stock or Series B Preferred Stock, whether or not such Warrants, Series A Preferred Stock or Series B Preferred Stock are actually exercisable, convertible or exchangeable at such time, without duplication. "Convertible Notes" means the 4 1/2% Convertible Subordinated Notes ----------------- due 2006 of the Corporation. "Current Market Price" means the average of the daily Market Prices of -------------------- the Common Stock for the 20 consecutive trading days immediately preceding the date for which such value is to be computed. "Issue Date" means June 20, 2001. ---------- "Market Price" means, with respect to the Common Stock, on any given ------------ day, (i) the price of the last trade, as reported on the Nasdaq National Market, not 13 identified as having been reported late to such system, or (ii) if the Common Stock is so traded, but not so reported, the average of the last bid and ask prices, as those prices are reported on the Nasdaq National Market, or (iii) if the Common Stock is not listed or authorized for trading on the Nasdaq National Market or any comparable system, the average of the closing bid and ask prices as furnished by two members of the National Association of Securities Dealers, Inc. selected from time to time in good faith by the Board of Directors for that purpose. If the Common Stock is not listed and traded in a manner that the quotations referred to above are available for the period required hereunder, the Market Price per share of Common Stock shall be deemed to be the fair value per share of such security as determined in good faith by the Board of Directors. "Person" means any corporation, limited liability company, ------ partnership, trust, organization, association, other entity or individual. "Senior Credit Agreement" means the Credit Agreement, dated as of ----------------------- April 5, 2000, among the Corporation, as Parent, Interstate FiberNet, Inc., as Borrower, the Subsidiary Guarantors named therein, the Initial Lenders named therein, Morgan Stanley Senior Funding, Inc., as Administrative Agent, Morgan Stanley & Co. Incorporated, as Collateral Agent, Bank of America, N.A., as Syndication Agent, and Goldman Sachs Credit Partners L.P., as Documentation Agent, as amended as of June 1, 2001, as amended from time to time. "Series A Preferred Stock" means the Series A Convertible Preferred ------------------------ Stock, par value $.01 per share, of the Corporation. "Series B Certificates of Designation" means, collectively, the ------------------------------------ certificates of designation with respect to the various series of the Series B Preferred Stock. "Series B Preferred Stock" means, collectively, each series of ------------------------ preferred stock, par value $.01 per share, of the Corporation designated by the Board of Directors as "Series B-__ Cumulative Convertible Preferred Stock" which is issued pursuant to the Investment Agreement and the certificate of designation for each such series of preferred stock. 12. Miscellaneous. ------------- (a) Amendments; Waivers. Except as provided in the last sentence of ------------------- this Section 12(a), the provisions of this Warrant, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Corporation has obtained the written consent of the Requisite Warrant Holders (as defined below). Notwithstanding the foregoing, a waiver or consent to departure from the provisions hereof with respect to a matter that relates exclusively to the rights of this Warrant and that does not directly or indirectly affect the rights of other 14 holders of the Warrants may be given by the holder hereof; provided that the provisions of this sentence may not be amended, modified or supplemented except in accordance with the provisions of the immediately preceding sentence. Each holder of the Warrants outstanding at the time of any such amendment, modification, supplement, waiver or consent or thereafter shall be bound by any such amendment, modification, supplement, waiver or consent effected pursuant to this Section 12(a), whether or not any notice, writing or marking indicating such amendment, modification, supplement, waiver or consent appears on the Warrant or is delivered to such holder. "Requisite Warrant Holders" means, as of the date of determination, the holders of Warrants representing a majority of the aggregate value of then outstanding Warrants, where the value of each Warrant shall be equal to the product of the Exercise Price of such Warrant and the Warrant Shares purchasable under such Warrant as of such date of determination. The Corporation may amend or supplement this Warrant without the consent of the holder of this Warrant to (i) cure any ambiguity or to correct any defective or inconsistent provision or clerical omission or mistake or manifest error contained in this Warrant or (ii) provide for a financial or other qualified institution to act as warrant agent on behalf of the Corporation to register the transfer of Warrants and to assume and discharge such other duties as shall be customary for warrant agents with respect to warrants registered under the Securities Act; provided, that any amendment or supplement referred to in clause (i) or (ii) above does not, and shall not, in the good faith opinion of the Board of Directors, adversely affect, adversely alter or adversely change the rights, privileges or immunities of the holders of Warrants; and provided, further, that the Corporation shall provide each affected holder of Warrants with written notice of each such amendment or supplement. (b) Descriptive Headings. The descriptive headings of the several -------------------- Sections of this Warrant are inserted for purposes of reference only, and shall not affect the meaning or construction of any of the provisions hereof. (c) Cashless Exercise. Notwithstanding anything to the contrary ----------------- contained in this Warrant, other than the terms of the transfer restrictions set forth in Section 7, this Warrant may be exercised by presentation and surrender of this Warrant to the Corporation at its principal executive offices with a written notice of the holder's intention to effect a cashless exercise, including a calculation of the number of shares of Common Stock to be issued upon such exercise in accordance with the terms hereof (a "Cashless Exercise"). ----------------- In the event of a Cashless Exercise, in lieu of paying the Exercise Price in cash, the holder shall surrender this Warrant for that number of shares of Common Stock determined by multiplying the number of Warrant Shares to which such Holder would otherwise be entitled by a fraction, the numerator of which shall be the excess of the then Current Market Price per share of Common Stock over the Exercise Price, and the denominator of which shall be the then Current Market Price per share of Common Stock. 15 IN WITNESS WHEREOF, the Corporation has caused this Warrant to be signed by its duly authorized officer, this 20th day of June 2001. ITC/\DELTACOM, INC. By: /s/ Douglas A. Shumate ----------------------------------- Name: Douglas A. Shumate Title: Senior Vice President- Chief Financial Officer 16 FORM OF EXERCISE AGREEMENT Dated: __________________ TO: ITC/\DELTACOM, INC. The undersigned, pursuant to the provisions set forth in the within Warrant, hereby agrees to purchase ______________ shares of Common Stock covered by such Warrant, and makes payment herewith in full therefor at the price per share provided by such Warrant in cash or by certified or official bank check or wire transfer in the amount of $__________, or by surrender of securities issued by the Corporation (including a portion of the Warrant) having a market value (in the case of a portion of this Warrant, determined in accordance with Section 12(c) of the Warrant) equal to $_________. Please issue a certificate or certificates for such _______________ shares of Common Stock in the name of the undersigned and, if such number of shares of Common Stock shall not be all of the shares purchasable under the within Warrant, issue a new Warrant in the name of such undersigned covering the balance of the shares purchasable thereunder. Name:__________________________________ Signature: ____________________________ Address: ____________________________ ____________________________ ____________________________ Note: The above signature should correspond exactly with the name on the face of the within Warrant. 17 FORM OF ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers all the rights of the undersigned under the within Warrant, with respect to the number of shares of Common Stock covered thereby set forth hereinbelow, to: Name of Assignee Address No. of Shares - ---------------- ------- ------------- , and hereby irrevocably constitutes and appoints _____________________________ ______________________________________ as agent and attorney-in-fact to transfer such Warrant on the books of the within-named corporation, with full power of substitution in the premises. Dated: __________________ In the presence of: _________________________ Name:_____________________________________ Signature: _______________________________ Title of Signing Officer or Agent (if any): _______________________________ Address: _______________________________ _______________________________ _______________________________ Note: The above signature should correspond exactly with the name on the face of the within Warrant. -----END PRIVACY-ENHANCED MESSAGE-----