ITC DELTACOM INC
10-K, 1998-03-30
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)
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<PAGE>
 
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-K

                [X] Annual Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934
                   For the fiscal year ended December 31, 1997

                                       OR

              [ ] Transition Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934
                 For the transition period from ______ to ______

                         Commission File Number: 0-23252

                               ITC/\DELTACOM, INC.

                  (Exact name of registrant as specified in its
                                    charter)

                Delaware                                         58-2301135
    (State or other jurisdiction of                           (I.R.S. Employer
     incorporation or organization)                         Identification No.)

           ITC/\DeltaCom, Inc.
        1241 O.G. Skinner Drive
          West Point, Georgia                                      31833
(Address of principal executive offices)                         (Zip Code)

       Registrant's telephone number, including area code: (706) 645-3880

           Securities registered pursuant to Section 12(b) of the Act:

                                 Not Applicable

           Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $.01 per share

                                 Title of Class

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

     The aggregate market value of the voting stock held by non-affiliates of
the registrant, based upon the closing price of the registrant's common stock as
of March 16, 1998, is $766,393,944. */

     The number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date is:

     Common Stock, par value $.01 per share, outstanding as of March 16, 1998:
                                  25,335,337


                       DOCUMENTS INCORPORATED BY REFERENCE

     List hereunder the following documents incorporated by reference and the
Part of the Form 10-K into which the document is incorporated:

(1)  Portions of the definitive proxy statement for the Annual Meeting of
     Stockholders to be held on June 4, 1998, to be filed within 120 days after
     the end of the registrant's fiscal year, are incorporated by reference into
     Part III, Items 10 - 13 of this Form 10-K.

- ----------

*/   Solely for the purposes of this calculation, all directors and executive
     officers of the registrant and all stockholders beneficially owning more
     than 5% of the registrant's common stock are considered to be affiliates.
<PAGE>
 
                                TABLE OF CONTENTS
                                                                            Page

PART I
          Item 1.  Business..............................................     1
          Item 2.  Properties............................................    37
          Item 3.  Legal Proceedings.....................................    37
          Item 4.  Submission of Matters to a Vote of Security Holders...    37

PART II
          Item 5.  Market for Registrant's Common Equity and
                   Related Stockholder Matters...........................    38
          Item 6.  Selected Financial Data...............................    40
          Item 7.  Management's Discussion and Analysis of Financial
                   Condition and Results of Operations...................    42
          Item 8.  Financial Statements and Supplementary Data...........    55
          Item 9.  Changes in and Disagreements with Accountants on 
                   Accounting and Financial Disclosure...................    55

PART III
          Item 10. Directors and Executive Officers of the Registrant....    56
          Item 11. Executive Compensation................................    56
          Item 12. Security Ownership of Certain Beneficial Owners
                   and Management........................................    56
          Item 13. Certain Relationships and Related Transactions........    56

PART IV   Item 14. Exhibits, Financial Statement Schedules, and Reports
                   on Form 8-K ..........................................    57

GLOSSARY.................................................................    69

SIGNATURES...............................................................    73

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS...............................   F-1

<PAGE>
 
     THIS ANNUAL REPORT ON FORM 10-K CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS
THAT INVOLVE RISKS AND UNCERTAINTIES. IN ADDITION, MEMBERS OF THE COMPANY'S
SENIOR MANAGEMENT MAY, FROM TIME TO TIME, MAKE CERTAIN FORWARD-LOOKING
STATEMENTS CONCERNING THE COMPANY'S OPERATIONS, PERFORMANCE AND OTHER
DEVELOPMENTS. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS,
INCLUDING THOSE SET FORTH UNDER THE CAPTION "BUSINESS--RISK FACTORS" AND
ELSEWHERE IN THIS ANNUAL REPORT ON FORM 10-K, AS WELL AS FACTORS WHICH MAY BE
IDENTIFIED FROM TIME TO TIME IN THE COMPANY'S FILINGS WITH THE SECURITIES AND
EXCHANGE COMMISSION.

     UNLESS THE CONTEXT SUGGESTS OTHERWISE, REFERENCES IN THIS ANNUAL REPORT ON
FORM 10-K TO THE "COMPANY" MEAN ITC/\DELTACOM, INC. AND ITS SUBSIDIARIES AND
PREDECESSORS. UNLESS OTHERWISE INDICATED, DOLLAR AMOUNTS OVER $1 MILLION HAVE
BEEN ROUNDED TO ONE DECIMAL PLACE AND DOLLAR AMOUNTS LESS THAN $1 MILLION HAVE
BEEN ROUNDED TO THE NEAREST THOUSAND. SEE THE "GLOSSARY" APPEARING ELSEWHERE
HEREIN FOR DEFINITIONS OF CERTAIN TERMS USED IN THIS FORM 10-K.

                                     PART I

ITEM 1.  BUSINESS

OVERVIEW

     The Company provides retail long distance services to mid-sized and major
regional businesses in the southern United States and is a leading regional
provider of wholesale long-haul services to other telecommunications companies
using the Company's owned, operated and managed fiber optic network (the
"Carriers' Carrier Services"). The Company intends to become a leading regional
provider of integrated telecommunications services to mid-sized and major
regional businesses in the southern United States by offering such customers a
broad range of telecommunications services, including local exchange and long
distance data and voice, Internet and operator services, and the sale and
servicing of customer premise equipment (collectively, the "Retail Services") in
a single package tailored to the business customer's specific needs. The Company
had revenues of approximately $66.5 million for the year ended December 31, 1996
and revenues of approximately $114.6 million for the year ended December 31,
1997.

     The Company provides Carriers' Carrier Services to other telecommunications
carriers, including AT&T, MCI, Sprint, WorldCom, Cable & Wireless, LCI, Frontier
and IXC. The Company's fiber optic network reaches over 60 points of presence
("POPs") in ten southern states (Alabama, Arkansas, Florida, Georgia, Louisiana,
Mississippi, North Carolina, South Carolina, Tennessee and Texas) and extends
approximately 6,300 route miles, of which approximately 3,300 miles are
Company-owned and approximately 3,000 miles are owned and operated principally
by three public utilities (Duke Power Company, Florida Power & Light Company and
Entergy Technology Company) and managed and marketed by the Company. For the
year ended December 31, 1997, revenue for the Company's Carriers' Carrier
Services was $31.0 million and EBITDA as a percentage of revenue ("EBITDA
Margin") for the Company's Carriers' Carrier Services was 60%. As of December
31, 1997, the Company had remaining future long-term contract commitments for
Carriers' Carrier Services totaling approximately $77.9 million. These contracts
expire on various dates through 2006 and are expected to generate approximately
$58.2 million in revenues to the Company through 2001, of which approximately
$18.0 million are expected to be realized in 1998.


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<PAGE>
 
     The Company currently provides a variety of Retail Services, including
retail long distance services such as traditional switched and dedicated long
distance, 800/888 calling, calling card and operator services, Asynchronous
Transfer Mode ("ATM"), frame relay, high capacity broadband private line
services, as well as Internet, Intranet and Web page hosting and development
services, and customer premise equipment installation and repair. The Company
also offers local exchange services as part of its Retail Services in a majority
of its markets. As of December 31, 1997, the Company provided Retail Services to
over 7,700 business customers. The Company currently offers Retail Services in
15 metropolitan areas (including local exchange services in 11 markets) in
Alabama, Florida, Georgia, Louisiana, North Carolina and South Carolina. The
Company intends to provide a full range of Retail Services in a total of
approximately 35 metropolitan areas throughout the southern United States over
the next five years. For the year ended December 31, 1997, revenue for the
Company's Retail Services was $83.6 million and EBITDA Margin for the Company's
Retail Services was 4%.

     In connection with offering local exchange services, the Company has
entered into an Interconnection Agreement (the "Interconnection Agreement") with
BellSouth Telecommunications, Inc. ("BellSouth") to (i) resell BellSouth's local
exchange services and (ii) interconnect the Company's network with BellSouth's
network for the purpose of immediately gaining access to all of BellSouth's
unbundled network elements. This agreement allows the Company to enter new
markets with minimal capital expenditures and to offer local exchange services
to its current customer base. The Interconnection Agreement currently allows the
Company to provide local service on a resale basis or by purchasing all
unbundled network elements required to provide local service on a facilities
basis, without using Company-owned facilities. The terms of the Interconnection
Agreement, including interim pricing terms agreed to by the Company and
BellSouth, have been approved by state regulatory authorities in all states in
which BellSouth operates, although they remain subject to review and
modification by such authorities. In addition, the Interconnection Agreement
does not resolve all operational issues, which issues the Company and BellSouth
are continuing to negotiate to resolve. The Company believes that the
Interconnection Agreement provides a foundation for it to provide local services
on a reasonable commercial basis, but there can be no assurance in this regard
and important issues remain unsettled as a result of legal and regulatory
developments and related matters. The Interconnection Agreement expires in July
1999, and there can be no assurance that the Company will be able to renew it
under favorable terms, or at all.

         ITC/\DeltaCom was incorporated in Delaware. The Company's principal
executive offices are located at 1241 O.G. Skinner Drive, West Point, Georgia
31833, and its telephone number is (706) 645-3880.




                                       2
<PAGE>
 
HISTORY OF THE COMPANY

     ITC/\DeltaCom was incorporated in March 1997 as a wholly owned subsidiary
of ITC Holding Company, Inc. ("ITC Holding"), to acquire and operate ITC
Holding's Retail Services and Carriers' Carrier Services businesses. The Company
acquired such businesses on July 25, 1997 in the Reorganization described below.

     Background. ITC Holding began providing operator and directory assistance
services in March 1992 through its subsidiary, Eastern Telecom, Inc., which does
business as InterQuest ("InterQuest"). Carriers' Carrier Services have been
offered since April 1992 through Interstate FiberNet, a partnership originally
formed by ITC Holding (with a 49% interest) and SCANA Communications, Inc.
("SCANA") (with a 51% interest). In August 1994, ITC Holding acquired SCANA's
interest in Interstate FiberNet through ITC Transmission Systems II, Inc., a
wholly owned subsidiary of ITC Holding ("Transmission II"). Also in August 1994,
ITC Holding and SCANA formed a second partnership, Gulf States FiberNet, to
construct and operate a fiber optic route primarily between Atlanta, Georgia and
Shreveport, Louisiana with several supplemental spur routes. In a transaction
consummated in March 1997 (the "Gulf States Acquisition"), ITC Holding acquired
SCANA's 64% partnership interest in Gulf States FiberNet and certain fiber and
fiber-related assets, including a significant customer contract for network
services in Georgia (the "Georgia Fiber Assets"). Following the Gulf States
Acquisition, ITC Holding contributed the remaining 64% interest in Gulf States
FiberNet to Gulf States Transmission Systems, Inc., a wholly owned subsidiary of
ITC Holding ("Gulf States Transmission"), and the Georgia Fiber Assets to ITC
Transmission Systems, Inc., a wholly owned subsidiary of ITC Holding
("Transmission"). Members of the Company's management have been managing the
businesses of both Interstate FiberNet and Gulf States FiberNet since their
inception.

     In January 1996, through its acquisition (the "DeltaCom Acquisition") of
DeltaCom, Inc., which has been renamed ITC/\DeltaCom Communications, Inc.
("DeltaCom"), ITC Holding entered the retail long distance business and acquired
several fiber optic routes within the state of Alabama that complemented the
existing networks operated by Interstate FiberNet (including a fiber optic route
from Atlanta, Georgia to Columbus, Georgia) and Gulf States FiberNet. DeltaCom,
a provider of telecommunications services since its inception in 1982, provides
long distance services to mid-sized businesses primarily in Alabama. In July
1996, DeltaCom purchased substantially all of the assets of Viper Computer
Systems, Inc. ("ViperNet"), which provides Internet access, Web-hosting and Web
page development services to business customers.

     To finance the DeltaCom Acquisition and to refinance existing DeltaCom
debt, ITC Holding incurred approximately $74.0 million of indebtedness, which
was pushed down to the Company (the "DeltaCom Indebtedness"). The aggregate
consideration paid by ITC Holding in the Gulf States Acquisition was
approximately $27.9 million, of which $10.0 million consisted of an unsecured
note (the "SCANA Note") which was repaid in November 1997, and $17.9 million
consisted of ITC Holding preferred stock. In connection with the Gulf States
Acquisition, Gulf States Transmission borrowed $41.6 million under a credit
facility (the "Bridge Facility") with NationsBank, N.A., to refinance a project
loan incurred by Gulf States FiberNet.

     1997 Notes Offering; Planned Redemption. On June 3, 1997, the Company
completed the sale (the "1997 Notes Offering") of $200.0 million principal
amount of its 11% Senior Notes due 2007 (the "1997 Notes"). The net proceeds
from the sale of the 1997 Notes, other than the portion of such proceeds
invested in U.S. government securities pledged to secure and fund the first six
scheduled interest payments on the 1997 Notes, were released to the Company upon
consummation of the Reorganization described below. The Company has issued
notice that on April 2, 1998 it intends to redeem $70.0 million principal amount
of the 1997 Notes (the "Planned Redemption") with proceeds 



                                       3
<PAGE>
 
remaining from the Equity Offering described below, at an aggregate redemption
price of 111% of such principal amount, plus accrued and unpaid interest to
April 2, 1998.

     Reorganization. On July 25, 1997, ITC Holding contributed to the Company in
a series of transactions the businesses of Interstate FiberNet, Gulf States
FiberNet, DeltaCom and InterQuest. In connection with such transactions,
approximately $31.0 million of the $74.0 million of the DeltaCom Indebtedness
was forgiven by ITC Holding and contributed to the Company as additional equity.
Following the Reorganization, the Company repaid the remaining $43.0 million of
the DeltaCom Indebtedness, accrued interest on all $74.0 million of such
indebtedness and the $41.6 million of indebtedness outstanding under the Bridge
Facility and accrued interest thereon with a portion of the net proceeds from
the 1997 Notes Offering.  On October 20, 1997, as part of a reorganization of
the ITC Holding group of companies, ITC Holding transferred all of its assets
(other than its stock in the Company) and all of its liabilities to another
entity (which is now called ITC Holding Company, Inc.) and then merged with and
into the Company, which was the surviving corporation in the merger. On December
31, 1997, Gulf States Transmission merged with and into Interstate FiberNet,
Inc. a wholly owned subsidiary of the Company.  The foregoing transactions are
collectively referred to herein as the "Reorganization."

     Initial Public Offering. On October 29, 1997, the Company completed an
initial public offering of common stock, par value $.01 per share, in which it
issued 5,750,000 shares at a price of $16.50 per share (the "Equity Offering").
Up to $77.7 million of the net proceeds of the Equity Offering are to be used to
fund the Planned Redemption. See "--1997 Notes Offering; Planned Redemption."

     1998 Notes Offering; Modification of Credit Facility. On March 3, 1998, the
Company completed the sale (the "1998 Notes Offering") at a price of 99.9% of
$160.0 million principal amount of its 8-7/8% Senior Notes due 2008 (the "1998
Notes," together with the 1997 Notes, collectively, the "Notes"). Additionally,
the Company has modified its secured revolving credit facility (the "Credit
Facility") to, among other things, reduce available borrowings from $100.0
million to $50.0 million. See "--Description of Certain Indebtedness."

INDUSTRY OVERVIEW

     The long distance and local telecommunications markets are currently
undergoing substantial changes, including fundamental changes resulting from the
February 8, 1996 enactment of the Telecommunications Act of 1996 (the
"Telecommunications Act"), and the Company believes that it is well positioned
to take advantage of these developments.

     Long Distance Services. Until 1984, AT&T largely monopolized local and long
distance telephone services in the United States. Technological developments
gradually enabled others to compete with AT&T in the long distance market. In
1984, largely as the result of a court decree, AT&T was required to divest its
local telephone systems but was permitted to retain its long distance
operations. Since 1984, competition in the long distance market has increased,
service levels have improved, product offerings have increased and prices for
long distance services have generally declined, all of which has resulted in
increased consumer demand and significant market growth for long distance
services. The increase in competition among long distance providers has also
resulted in a growing trend toward industry consolidation.

     Local Services. The market for local exchange services consists of a number
of distinct service components. These service components are defined by specific
regulatory tariff classifications including: (i) local network services, which
generally include basic dial tone, enhanced calling features and data services
(dedicated point-to-point and frame relay service); (ii) network access


                                       4
<PAGE>
 
services, which consist of access provided by local exchange carriers to long
distance network carriers; (iii) short-haul long distance network services,
which include intraLATA long distance calls; and (iv) other varied services,
including the publication of "white page" and "yellow page" telephone
directories. Industry sources have estimated that the 1995 aggregate revenues of
all local exchange carriers approximated $95 billion. Until recently, there was
virtually no competition in the local exchange markets.

     Since 1984, several factors have served to promote competition in the local
exchange market, including: (i) rapidly growing customer demand for an
alternative to the local exchange carrier monopoly, spurred partly by the
development of competitive activities in the long distance market; (ii) advances
in the technology for transmission of data and video, which require significant
capacity and reliability levels; (iii) the development of fiber optics and
digital electronic technology, which reduced network construction costs while
increasing transmission speeds, capacity and reliability as compared to
copper-based networks; (iv) the significant access charges interexchange
carriers are required to pay to local exchange carriers to access the local
exchange carriers' networks; and (v) a willingness on the part of legislators to
enact and regulators to enforce legislation and regulations permitting and
promoting competition in the local exchange market. In particular, the
Telecommunications Act requires all local exchange carriers to "unbundle" their
local network offerings and allow other providers of telecommunications services
to interconnect with their facilities and equipment. Most significantly, the
incumbent local exchange carriers will be required to complete local calls
originated by the Company's customers and switched by the Company and to deliver
inbound local calls to the Company for termination to its customers, assuring
customers of unimpaired local calling ability. The Company expects to obtain
access to incumbent carrier local "loop" facilities (the transmission lines
connecting customers' premises to the public telephone network) on an unbundled
basis at reasonable rates. In addition, local exchange carriers are obligated to
provide local number portability and dialing parity upon request and make their
local services available for resale by competitors. Local exchange carriers also
are required to allow competitors non-discriminatory access to local exchange
carrier pole attachments, conduit space and other rights-of-way. Moreover,
states may not erect "barriers to entry" of local competition, although they may
regulate such competition. The Company believes that, as a result of continued
regulatory and technological changes and competitive trends, competitive local
telecommunications companies have substantial opportunities for growth.


                                       5
<PAGE>
 
BUSINESS STRATEGY

     The Company's objectives are to maintain its leadership position in the
provision of Carriers' Carrier Services and to become a leading provider of
Retail Services in the southern United States. The Company intends to increase
its market share in existing markets and expand into new markets. The principal
elements of the Company's business strategy include the following:

     Providing Integrated Telecommunications Services to Its Existing Base of
Mid-sized and Major Regional Business Customers. By providing additional
telecommunications services such as local telephone service to its existing,
well-established base of long distance customers, the Company expects to be able
to increase revenues at relatively low incremental cost. The Company believes
that bundling a variety of telecommunications services and presenting customers
with one fully integrated monthly billing statement for all of those services
will allow it to penetrate its target markets rapidly and build customer
loyalty. The Company believes that there is substantial demand in its target
markets among mid-sized and major regional business customers for an integrated
package of telecommunications services that meets all of their
telecommunications needs.

     Leveraging Its Extensive Fiber Optic Network. The Company intends to
leverage its extensive fiber optic network, which currently reaches over 60
POPs, by (i) continuing to provide switched and transport services to other
communications carriers throughout its region to enable such carriers to
diversify their routes and expand their networks; (ii) targeting customers that
need to transmit large amounts of data within the Company's service region, such
as banks and local and state governments; and (iii) offering local exchange
services to its business customers as part of its integrated package of
telecommunications services. The Company intends initially to provide local
exchange services by reselling the services of incumbent local exchange carriers
and, in some established markets, using its own local switching facilities. Over
time, the Company expects to provide local services primarily using the
Company's own switching facilities and existing regional fiber optic network,
supplemented by unbundled facilities of incumbent local exchange carriers or
other competitive local exchange carriers. The configuration of the Company's
network enables the Company to expand its network by installing additional
remote local switches, which operate in conjunction with the Company's DMS-500
switches to provide facilities-based local services. Because remote local
switches are less expensive to purchase and install than DMS-500 switches, and
can be installed more quickly than DMS-500 switches, the Company believes that
it will be able to enter new markets at less expense than many of its
competitors. At present, the Company does not plan to construct intra-city local
loop facilities.

     Focusing on the Southern United States. The Company intends to continue to
focus on the southern United States in order to leverage its extensive
telecommunications network in the region. The Company believes that its regional
focus will enable it to take advantage of economies of scale in management,
network operations and sales and marketing. The regional concentration of the
Company's network also provides an opportunity for improved margins because a
high portion of the Company's customers' telecommunications traffic originates
and terminates within the region. The Company also believes that its regional
focus will enable it to build on its long-standing customer and business
relationships in the region.

     Building Market Share Through Personalized Customer Service. The Company
believes that the key to revenue growth in its target markets is capturing and
retaining customers by emphasizing marketing, sales and customer service.
Management believes that customers prefer one company to be accountable for
their telecommunications services, and that a consultative, face-to-face sales
and service strategy is the most effective method of acquiring and maintaining a
high quality customer base. The Company seeks to obtain long-term commitments
from its business customers by responding rapidly and creatively to their
telecommunications needs. The Company 



                                       6
<PAGE>
 
currently operates 16 branch offices in 15 markets in Alabama, Florida, Georgia,
Louisiana, North Carolina and South Carolina. Each branch office is staffed by
personnel capable of marketing all of the Company's products and providing
comprehensive support to the Company's customers. In the future, the Company
expects to expand significantly its direct sales force and open branch offices
in additional major and secondary population centers in the southern United
States.

     Expanding Its Fiber Optic Network and Switching Facilities. The Company
expects to expand its fiber optic telecommunications network and switching
facilities to include additional markets within the southern United States. The
Company currently owns and operates approximately 3,300 route miles of fiber
optic network extending from Georgia to Texas. The Company also markets and
manages capacity on 3,000 additional network route miles through its strategic
relationships principally with public utilities. In addition, the Company has a
buy-sell agreement with Carolinas Fibernet, LLC, which manages fiber optic
facilities in North Carolina and South Carolina. This agreement enables the
parties to buy and sell capacity on each other's networks and allows the Company
to provide customers with access to POPs throughout those states. The Company
believes that, by continuing to combine its owned network with the networks of
public utilities and by adding switching facilities throughout its network, it
will be able to achieve capital efficiencies and rapidly expand its network in a
cost-effective manner.

     Leveraging Proven Management Team. The Company's management team consists
of experienced telecommunications managers who in the past have successfully
implemented a customer-focused long distance telecommunications strategy in the
southern United States. Members of the team include Andrew Walker, Chief
Executive Officer of the Company, Foster McDonald, President of the Company, and
Douglas Shumate, Chief Financial Officer of the Company.

SERVICES AND FACILITIES

     Services. The Company currently provides two basic services: (i) Retail
Services and (ii) Carriers' Carrier Services.

     Retail Services. Retail Services involve the provision of voice, data or
video telecommunications services to end users or resellers. The Company
currently provides several types of Retail Services, including basic long
distance services (switched, dedicated, and calling card), dedicated Internet
access, data network solutions (frame relay, ATM, point-to-point), local
exchange services and the sale and installation of customer premise equipment.
The Company intends to provide additional types of Retail Services in the future
and expand the markets in which it offers local services as part of a bundled
"one-stop" integrated telecommunications service which will offer customers a
wide range of switch-based value-added services. The Company's customer-focused
software and network architecture permits the Company to present its customers
with one fully integrated monthly billing statement for the entire package of
Retail Services.

     Set forth below are brief descriptions of the Company's Retail Services:

          Local Services. The Company currently provides local exchange services
     by reselling the services of incumbent local exchange carriers. Over time,
     the Company expects to provide local services primarily using the Company's
     own switching facilities and existing regional fiber optic network,
     supplemented by unbundled facilities of incumbent local exchange carriers
     or other competitive local exchange carriers. The Company offers local
     exchange services in 11 of the 15 markets in which it currently provides
     Retail Services and expects to offer local services in a total of 21
     markets by the end of 1998.


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<PAGE>
 
          In connection with offering local services, the Company has entered
     into the Interconnection Agreement with BellSouth to (i) resell BellSouth's
     local exchange services and (ii) interconnect the Company's network with
     BellSouth's network for the purpose of immediately gaining access to the
     unbundled network elements necessary to provide local exchange services.
     The Interconnection Agreement contains "most favored nation" provisions
     which grant the Company the right to obtain the benefit of any arrangements
     entered into during the term of the Interconnection Agreement between
     BellSouth and any other carrier that materially differ from the rates,
     terms or conditions of the Interconnection Agreement. Under the
     Interconnection Agreement, each party may resell one or more unbundled
     network elements of the other party at agreed upon prices set forth in the
     Interconnection Agreement. In addition, each party is required to pay for
     the interconnection trunks needed to terminate traffic into the other
     party's local network, with the costs of certain two-way interconnection
     trunks and ports to be shared by the Company and BellSouth.

          The Interconnection Agreement has a term of two years beginning July
     1, 1997, and requires the parties to begin to negotiate renewal terms by
     July 1, 1998 for interconnection commencing July 1, 1999. The Company and
     BellSouth have begun negotiations to renew the terms of the Interconnection
     Agreement. In the event the parties fail to agree on such renewal terms,
     they have agreed to operate under the existing terms, pending a
     determination of new terms by a state commission.

          Long Distance. The Company offers a full range of retail long distance
     services, including traditional switched and dedicated long distance,
     800/888 calling, international, calling card and operator services.

          Data Services. The Company provides high quality data services to its
     customers primarily using frame relay switches distributed strategically
     throughout the Company's network, which enables customers to use a single
     network connection to communicate with multiple sites throughout the
     Company's fiber optic network. The Company currently provides ATM services
     on a resale basis. Beginning in the third quarter of 1998, the Company
     intends to offer ATM services on its own network, providing data services
     to customers that need to transmit large amounts of data within the
     Company's service region, such as banks and local and state governments.
     The Company will continue to seek, through strategic business relationships
     with other providers, to interconnect its fiber optic network with the
     fiber optic networks of other companies. The Company anticipates increased
     demand for data services in the future, and expects that in the future a
     larger percentage of its revenues will be derived from the sale of
     dedicated data services.

          Internet Access, Intranet Services and Web Development. Since its
     acquisition in 1996 of substantially all of the assets of ViperNet, an
     Internet access provider and Web page developer for business customers, the
     Company has provided dedicated (frame relay) Internet access and Intranet
     services, electronic mail, Web page design and Web hosting services. The
     Company expects that mid-sized and larger businesses will require faster
     Internet access and larger bandwidth in the future, and intends to offer
     products that will meet that demand.

          Customer Premise Equipment. The Company sells and installs customer
     premise equipment such as telephones, office switchboard systems and, to a
     lesser extent, private branch exchanges (PBX) for customers in the
     Huntsville, Mobile, Birmingham, Dothan and Montgomery, Alabama and
     Greenville, South Carolina markets. The Company intends to offer customer
     premise equipment sales and installation in additional markets in the
     future, with the goals of (i) enhancing and supporting the Company's sale
     of local and long distance services and (ii) enhancing customer retention.
     The Company plans to form relationships with local customer premise
     equipment installation companies in all of its markets for the purpose of
     selling and installing customer premise equipment not otherwise provided by
     the Company.


                                       8
<PAGE>
 
     Carriers' Carrier Services. The Company's Carriers' Carrier Services are
used by customers, such as major telecommunications carriers and non-facilities
based carriers that have switches but do not own transmission facilities, to
transport their already-switched traffic between LATAs. Calls being transmitted
over a long-haul circuit for a customer are generally routed by the customer
through a switch to a receiving terminal in the Company's network. The Company
transmits the signals over a long-haul circuit to the terminal where the signals
are to exit the Company's network. The signals are then routed by the customer
through another switch and to the call recipient through a local exchange
carrier. The Company provides DS-1, DS-3 and OC-N services. OC-N services are
used by the Company's customers for very high capacity inter-city connectivity
and specialized high speed data networking. The interface between the Company's
network and the customer's facilities is by either local exchange carrier or a
direct connection between the Company's network and the facilities of the
customer. The Company typically bills the customers a fixed monthly rate
depending on the capacity and length of the circuit, regardless of the amount
the circuit is actually used.

     Facilities. The Company owns or manages approximately 6,300 route miles of
a high quality fiber optic network which covers portions of ten states in the
southern United States and extends to over 60 POPs. These POPs are located in
almost all major population centers in the areas covered by the fiber optic
network and in a significant number of smaller cities where the Company's only
competitor is the incumbent local exchange carrier.

     The Company owns approximately 3,300 route miles of its fiber optic
network, which the Company has built or acquired since 1992. In addition, the
Company has strategic relationships principally with three public utilities,
Duke Power Company, Florida Power & Light Company and Entergy Technology
Company, pursuant to which the Company markets, sells and manages capacity on
approximately 3,000 route miles of network owned and operated by the utilities.

     In addition, the Company is able to purchase network capacity to certain
cities not covered by the Company's owned and managed network in North Carolina
and South Carolina pursuant to a buy-sell agreement with Carolinas Fibernet,
LLC, which manages fiber optic facilities in North Carolina and South Carolina.
This agreement enables the parties to buy and sell capacity on each other's
networks at pre-established prices which are generally favorable to the prices
for such capacity available in the open market. Under this agreement, neither
party is responsible for network maintenance charges relating to the other
party's network.

     The Company expects to add approximately 800 owned and operated route miles
to its fiber optic network by the end of 1998 through long-term dark fiber
leases. In addition, as part of its strategy, the Company intends to continue to
evaluate the potential expansion of its network through a combination of new
construction, long-term dark fiber leases and fiber swap transactions, depending
on the extent of capital required over the economic life of the fiber assets to
be deployed.

     The Company's decision to further expand its fiber optic network will be
based on various factors, including: (i) the number of its customers in a
market; (ii) the anticipated operating cost savings associated with such
construction; and (iii) any strategic relationships with owners of existing
infrastructure (e.g., utilities and cable operators). Through its strategic
relationships with public utility companies, the Company believes that it will
be able to achieve capital efficiencies in constructing and expanding its fiber
optic network in a rapid and cost-effective manner. The Company also believes
that its fiber optic network, in combination with its personalized approach to
customer service, will create an attractive customer-focused platform for the
provision of local, long distance and enhanced services.


                                       9
<PAGE>
 
     The Company has implemented electronic redundancy throughout its network,
which enables traffic to be rerouted to another fiber in the same fiber sheath
in the event of a partial fiber cut or electronic failure. Approximately 50% of
the Company's owned and operated fiber optic network is also protected by
geographically diverse routing, a network design (also called a "self healing
ring") which enables traffic to be rerouted to an entirely different fiber optic
cable (assuming capacity is available) in the event of a total cable cut. The
Company is continuing to increase the geographic diversity of its fiber optic
network, and expects to have 80% of its network protected in this manner by the
first quarter of 1999.

     The Company's switching facilities currently consist of Nortel DMS 500
switches in Birmingham, Alabama and Columbia, South Carolina and a Nortel DMS
250 switch in Arab, Alabama. The Arab switch is capable of handling long
distance switching and the Birmingham and Columbia DMS 500 switches are capable
of handling both local and long distance switching. These installations enable
the Company to market its Retail Services, including local services, on a
switch-based facilities basis in, among other markets, Huntsville, Birmingham
and Montgomery, Alabama; Greenville, Columbia and Charleston, South Carolina;
Charlotte, North Carolina; and Atlanta, Georgia. The Company expects to place
Nortel DMS 500 switches into service in Ocala, Florida and Atlanta, Georgia by
the third quarter of 1998. The Company intends to place additional switches
strategically along its fiber optic network over the next five years. The
Company also intends to deploy a significant number of Nortel Access Nodes in
the majority of the markets which the Company intends to serve. The additional
switches and nodes will allow the Company to perform local and long distance
switching in its markets on a host/remote type relationship to the applicable
DMS 500 switch. The Nortel Access Nodes will be connected to the Company's DMS
500 switching platform, utilizing the Company's fiber optic network wherever
possible. This networking design, together with the Interconnection Agreement,
will enable the Company to be a facilities-based provider of local and long
distance services in all of the markets that it intends to enter. For those
markets in which the Company intends to resell the services of incumbent local
exchange carriers, the Company's platform will be BellSouth's Centrex product,
known as MultiServ, which provides full feature functionality, such as caller
identification, call waiting, remote call forwarding, call blocking, anonymous
call rejection and conference calling.

     The Company is a member of the Associated Communications Companies of
America (the "ACCA"), a 12-member trade association that negotiates with
carriers for wholesale telecommunications services for its members. The
collective buying power of its members enables the ACCA to negotiate as if it
were one of the larger long distance providers in the United States.

     The Company's data network currently consists of six Cascade 9000 frame
relay switches located in Atlanta and West Point, Georgia; Birmingham,
Montgomery and Arab, Alabama; and Columbia, South Carolina. The Company's data
network connects with BellSouth's and Intermedia Communications' frame relay
networks to provide nationwide connectivity for the Company's customers. The
data network currently serves over 105 customers connected to approximately
1,200 customer locations. The Company's Cascade frame relay switches have the
capability to provide ATM connectivity, and the Company has one ATM connection
to the Internet. The Company intends to strategically locate additional frame
relay and ATM switch sites over the next five years, with approximately 13 frame
relay switches and eight ATM switches being added in 1998. These frame relay and
ATM switches will be collocated with the Company's DMS-500 switches at strategic
network facility locations where possible, and will create a data backbone which
will support the Company's data services.


                                       10
<PAGE>
 
SALES AND MARKETING

     Retail Services. The Company focuses its sales efforts on mid-sized and
major regional businesses in the southern United States. The Company believes
that it can effectively compete for business customers based upon service,
product diversity, price and reliability. The Company's sales force, composed of
direct sales personnel, technical consultants and technicians, markets the
Company's long distance and local communications services. The Company's
management believes that high quality employee training is a prerequisite for
superior customer service, and as a result each member of the Company's sales
force is required to complete the Company's intensive training program. The
Company's marketing strategy is built upon the belief that customers prefer to
hold one company accountable for all of their telecommunications services. Each
branch office provides technical assistance for its voice, data, Internet and
customer premise equipment as required. Customers are assured a single point of
contact, 24 hours a day, seven days a week.

     Marketing to mid-sized and major regional businesses is currently conducted
by over 85 direct sales personnel (and over 120 other field personnel) located
in 16 branch offices in 15 markets in the southern United States. In the future,
the Company expects to expand significantly its direct sales force and open
branch offices in additional major and secondary population centers in the
southern United States. The Company's sales personnel make direct calls to
prospective and existing business customers, conduct analyses of business
customers' usage histories and service needs, and demonstrate how the Company's
service package will improve a customer's communications capabilities and costs.
Sales personnel locate potential business customers by several methods,
including customer referral, market research, telemarketing and other networking
alliances such as endorsement agreements with trade associations and local
chambers of commerce. The Company's sales personnel work closely with the
Company's network engineers and information systems consultants to design new
service products and applications. The Company's branch offices are also
primarily responsible for coordinating service and customer premise equipment
installation activities. Technicians survey customers' premises to assess power
and space requirements, and coordinate delivery, installation and testing of
equipment.

     A primary element of the Company's Retail Services marketing strategy is to
enter into contracts with its customers. Those agreements generally provide for
payment in arrears based on minutes of use for switched services and in advance
for private line services. The agreements generally also provide that the
customer may terminate the affected service without penalty in the event of
substantial and prolonged outages arising from causes within the Company's
control, and for certain other defined causes. Generally, the agreements 
provide that the customer must utilize at least a minimum dollar amount 
(measured by dollars or minutes of use) of switched long distance services per
month for the term of the agreement.

     In addition, the Company markets its business communication services
through advertisements, event sponsorships, trade journals, direct mail and
trade forums. Because the Company intends to distinguish its retail products
largely on the convenience of its single communications bundle and the benefits
of the Company's comprehensive, individualized and innovative customer support,
the Company believes that advertising will play a larger role in its marketing
strategy than it has in the past.

     Carriers' Carrier Services. The Company has long-haul circuit contracts
with major long distance carriers, including AT&T, MCI, Sprint, WorldCom, Cable
& Wireless, LCI, Frontier and IXC. As of December 31, 1997, the Company had
remaining future long term contract commitments totaling approximately $77.9
million. These contracts expire on various dates through 2006 and are expected
to generate approximately $58.2 million in revenues to the Company through 2001,
of which $18.0 million are expected to be realized in 1998. The Company also
provides long-haul 


                                       11
<PAGE>
 
transmission to customers after contract expiration on a month-to-month basis.
The Company's long-haul contracts provide for fixed monthly payments, generally
in advance. Although sales volumes from particular customers vary from year to
year, the Company has historically enjoyed high customer retention and circuit
renewal rates.

     The Company believes that it can continue to compete effectively in the
wholesale, carrier-to-carrier market on the basis of price, reliability,
state-of-the-art technology, route diversity, ease of ordering and customer
service. The Company believes that demand for its Carriers' Carrier Services
will increase as the incumbent local exchange carriers begin competing in the
long distance market.

COMPETITION

     The telecommunications industry is highly competitive. The Company competes
primarily on the basis of price, availability, transmission quality,
reliability, customer service and variety of product offerings. The ability of
the Company to compete effectively will depend on its ability to maintain high
quality services at prices generally equal to or below those charged by its
competitors. In particular, price competition in the retail and carrier's
carrier long distance markets has generally been intense and is expected to
increase. Many of the Company's competitors (such as AT&T, MCI, Sprint and
WorldCom on an interexchange basis and BellSouth on an intraLATA basis) have
substantially greater financial, personnel, technical, marketing and other
resources, larger numbers of established customers and more prominent name
recognition than the Company and utilize more extensive transmission networks
than the Company. In addition, IXC, Qwest Communications International Inc.
("Qwest") and Williams Communications are constructing nationwide fiber optic
systems, including routes through portions of the southern United States. The
Company will also increasingly face competition in the long distance market from
local exchange carriers, switchless resellers, and satellite carriers and may
eventually compete with public utilities and cable companies. The Company also
may increasingly face competition from firms offering long distance data and
voice services over the Internet. Such firms could enjoy a significant cost
advantage because at this time they do not pay carrier access charges or
universal service fees.

     Regional Bell Operating Companies such as BellSouth are now allowed to
provide interLATA long distance services outside their home regions, as well as
interLATA mobile services within their regions. Under the Telecommunications
Act, the Regional Bell Operating Companies will be allowed to provide interLATA
long distance services within their regions after meeting certain requirements
intended to foster opportunities for local telephone competition. The Regional
Bell Operating Companies already have extensive fiber optic cable, switching,
and other network facilities in their respective regions that can be used for
their long distance services. BellSouth and other Regional Bell Operating
Companies are already beginning to take steps toward obtaining approval to
provide in-region long distance services. The FCC forced the withdrawal of the
first Regional Bell Operating Company request for in-region long distance
authority, and rejected the next four applications, including applications by
BellSouth to provide interLATA service in South Carolina and Louisiana. However,
there can be no assurance that such approvals will be delayed until local
competition is established. Furthermore, on December 31, 1997, the U.S. District
Court for the Northern District of Texas ruled that the Telecommunications Act
provisions restricting interLATA service by the Regional Bell Operating
Companies were unconstitutional. Although that decision has been stayed pending
appeal, it would, if sustained, allow BellSouth to enter the interLATA market on
a region-wide basis irrespective of the progress towards local exchange service
competition.

     The Company's principal competitor for local exchange services will be the
incumbent local exchange carrier in the particular market, including BellSouth
in virtually all of the Company's initial market areas. The incumbent local
exchange carriers will enjoy substantial competitive advantages arising from
their historical monopoly position in the local telephone market, including
their preexisting customer relationship with all or virtually all end users.
Furthermore, the 



                                       12
<PAGE>
 
Company will be highly dependent on the competing incumbent local exchange
carrier for local network facilities and wholesale services required in order
for the Company to assemble its own local retail products. The Company will also
face competition from competitive local exchange carriers, some of whom have
already established local operations in the Company's target markets. See "Risk
Factors--Dependence on Incumbent Local Exchange Carriers."

     Large long distance carriers, such as AT&T, MCI, Sprint and WorldCom have
begun to offer local services together with their long distance
telecommunications services in certain markets, and are expected to expand that
activity as opportunities created by the Telecommunications Act develop. In
addition, incumbent local exchange carriers are expected to compete in each
other's markets in some cases. For example, BellSouth has recently announced
plans to provide local services within its geographic region in competition with
independent telephone companies. Wireless telecommunications providers may
develop into effective substitutes for wireline local telephone service. The
Company also competes with numerous direct marketers and telemarketers and
equipment vendors and installers with respect to certain portions of its
business.

     A continuing trend toward consolidation, mergers, acquisitions and
strategic alliances in the telecommunications industry could also increase the
level of competition faced by the Company or the Company's carrier customers.
For example, WorldCom has a pending agreement to merge with MCI. WorldCom also
has acquired competitive local exchange carriers, including MFS Communications
Company, Inc. and Brooks Fiber Properties, Inc. In March 1997, BellSouth and 
International Business Machines Corp. ("IBM") announced an alliance to
provide Internet and Intranet services to businesses in the South and, in
January 1998, AT&T announced plans to acquire another competitive local exchange
carrier, Teleport Communications Group Inc. ("TCG"). Additionally, in March
1998, Qwest announced its intention to acquire LCI, which combination would
result in the nation's fourth-largest long distance carrier. The
telecommunications market is very dynamic, and additional competitive changes
are likely in the future.

REGULATION

     Overview. The Company's services are subject to federal, state and local
regulation. The Company, through its wholly owned subsidiaries, holds various
federal and state regulatory authorizations. The FCC exercises jurisdiction over
telecommunications common carriers to the extent they provide, originate or
terminate interstate or international communications. The FCC also establishes
rules and has other authority over certain issues related to local telephone
competition. State regulatory commissions retain jurisdiction over
telecommunications carriers to the extent they provide, originate or terminate
intrastate communications. Local governments may require the Company to obtain
licenses, permits or franchises in order to use the public rights of way
necessary to install and operate its networks.

     Federal Regulation. The Company is categorized as a non-dominant carrier by
the FCC, and as a result is subject to relatively limited regulation of its
interstate and international services. Certain general policies and rules apply,
as well as certain reporting requirements, but the Company's rates are not
reviewed. The Company has all the operating authority required by the FCC to
conduct its long distance business. As a non-dominant carrier, the Company may
install and operate additional facilities for the transmission of domestic
interstate communications without prior FCC authorization, except to the extent
that radio licenses are required.

     The FCC also imposes prior approval requirements on transfers of control
and assignments of radio licenses and operating authorizations. The FCC has the
authority generally to condition, modify, cancel, terminate or revoke licenses
and operating authority for failure to comply with federal laws and/or the
rules, regulations and policies of the FCC. Fines or other penalties also may 


                                       13
<PAGE>
 
be imposed for such violations. There can be no assurance that the FCC or third
parties will not raise issues with regard to the Company's compliance with
applicable laws and regulations.

     The FCC also regulates the interstate access rates charged by incumbent
local exchange carriers for the origination and termination of interstate long
distance traffic. Those access rates make up a significant portion of the cost
of providing long distance service. The FCC has recently implemented changes to
its interstate access rules that result in restructuring of the access charge
system and changes in access charge rate levels. These changes reduce per-minute
access charges and substitute new per-line flat-rate monthly charges. These
actions, along with additional changes to occur later this year and in
subsequent years, are expected to reduce access rates, and hence the cost of
providing long distance service, especially to business customers. However, the
full impact of the FCC's new decisions will not be known until those decisions
are implemented over the next several years, during which time those decisions
may be revised. In a related proceeding, the FCC has adopted changes to the
methodology by which access has been used in part to subsidize universal
telephone service and other public policy goals. Telecommunications providers
like the Company will pay a fee calculated as a percentage of their revenues to
support these goals. The full implications of this decision also remain
uncertain and subject to change. In addition, the FCC and the courts are
considering related questions regarding the applicability of access charge and
universal service fees to Internet service providers. Currently such providers
are not subject to these expenses. However, the incumbent local exchange
carriers and other parties argue that this exemption unfairly advantages
Internet service providers, particularly when they provide data, voice or other
services in direct competition with conventional telecommunications. The Company
is not in a position to determine how these access and universal service matters
will be resolved, and whether or not such resolution will be harmful to its
competitive position.

     The Telecommunications Act also gives the FCC a role, working with the
state public utility commissions ("PUCs"), in establishing rules for the
implementation of local telephone competition. The Telecommunications Act
imposes a variety of new duties on incumbent local exchange carriers in order to
promote competition in local exchange and access services, and the FCC has
authority to develop rules to implement these duties. Some smaller independent
incumbent local exchange carriers may seek suspension or modification of these
obligations, and some companies serving rural areas are exempt from them.

     In that regard, on August 8, 1996, the FCC adopted the Interconnection
Decision (the "Decision") to implement the interconnection, resale and number
portability provisions of the Telecommunications Act. The Decision establishes
rules pursuant to which incumbent local exchange carriers interconnect their
networks with the networks of competitive local exchange carriers at rates that
are reasonable and non-discriminatory. The Decision also establishes rules
governing the rights of competitive local exchange carriers to obtain and use
elements of the incumbent local exchange carriers' networks at cost-based rates
either to supplement or substitute for alternative local network facilities that
the competitive local exchange carrier would otherwise be required to install.
The Decision sets rules governing competitive local exchange carrier access to
wholesale versions of the incumbent local exchange carriers' retail local
services for resale. The incumbent local exchange carriers are required to
establish administrative support systems so that these services and
functionalities can be made available to other carriers on a nondiscriminatory
basis. The Decision also created rules to deal with reciprocal compensation for
the transport and termination of local telecommunications, non-discriminatory
access to rights of way, and related matters. A related FCC order adopted the
same day established rules implementing the Telecommunications Act with respect
to local and toll dialing parity among competitors; nondiscriminatory access to
telephone numbers, operator services, directory assistance and listings, and
network information; and reform of numbering administration.

     The FCC's rules were challenged in the federal courts by GTE, the Regional
Bell Operating Companies, large independent incumbent local exchange carriers
and state regulatory commissions.



                                       14
<PAGE>
 
On October 15, 1996, the U.S. Court of Appeals for the Eighth Circuit ("Eighth
Circuit") issued a stay of the implementation of certain of the FCC's rules and
on July 18 and October 14, 1997, the same Court issued decisions finding that
the FCC lacked statutory authority under the Telecommunications Act for certain
of its rules. In particular, the Eighth Circuit found that the FCC was not
empowered to establish the pricing standards governing unbundled local network
elements or wholesale local services of the incumbent local exchange carriers,
or to require such carriers to provide network elements in a combined form. The
Eighth Circuit also struck down other FCC rules, including one that would have
enabled new entrants to "pick and choose" from provisions of established
interconnection agreements between the incumbent local exchange carriers and
other carriers. The Eighth Circuit, however, rejected certain other objections
to the FCC rules brought by the incumbent local exchange carriers or the states,
including challenges to the FCC's definition of unbundled elements, and to the
FCC's rules allowing new competitors to create their own networks by combining
incumbent local exchange carrier network elements together without adding
additional facilities of their own. The overall impact of the Eighth Circuit's
decisions are to limit the obligations of incumbent local exchange carriers as
originally interpreted by the FCC, materially reduce the role of the FCC in
fostering local competition, including its ability to take enforcement action if
the Telecommunications Act is violated, and increase the role of state utility
commissions. On January 26, 1998, the Supreme Court granted a request by the FCC
and other parties to review the Eighth Circuit decisions. The Supreme Court is
not expected to complete this process until late 1998 or early 1999. Meanwhile,
certain state commissions have asserted that they will be active in promoting
local telephone competition using the authority they have under the Eighth
Circuit decisions, which may lessen the significance of the reduced FCC role. At
this time the impact of the Eighth Circuit's decisions cannot be evaluated and
there can be no assurance that these decisions and related developments will not
have a material adverse effect on the Company. Furthermore, other FCC rules
related to local telephone competition remain the subject of legal challenges.
For example, on August 22, 1997, the Eighth Circuit issued a separate order
striking down certain FCC rules regarding dialing parity for new competitors.
There can be no assurance that these and other pending decisions affecting local
competition will not be adverse to companies seeking to enter the local
telephone market.

     There can be no assurance that the FCC's remaining rules (including such
rules that may be reinstated by the Supreme Court, if any), together with rules
adopted by state public utility commissions, will be implemented in a manner
that will permit local telephone competition to develop to a substantial extent
and without significant delays. For example, many new carriers, including the
Company, have experienced problems with respect to the operational support
systems used by new carriers to order and receive network elements and wholesale
services from the incumbent local exchange carriers. These systems are necessary
for new carriers like the Company to provide local service to customers on a
timely and competitive basis. The FCC has recently created a task force to
examine problems that have slowed the development of local telephone
competition.

     The Company has entered into the Interconnection Agreement with BellSouth.
The Interconnection Agreement currently allows the Company to provide local
service on a resale basis or by purchasing all unbundled network elements
required to provide local service on a facilities basis, without using
Company-owned facilities. The Company and BellSouth have agreed on interim
pricing terms for such resale and purchase of unbundled network elements. The
terms of the Interconnection Agreement, including the interim pricing terms, are
subject to the approval of the PUCs regulating the Company's markets. Such
approval has been received from the PUCs of Alabama, Florida, Georgia, Kentucky,
Louisiana, Mississippi, North Carolina, South Carolina and Tennessee. In
addition, the Interconnection Agreement does not resolve all operational issues,
particularly those relating to the collocation of the Company's equipment with
that of BellSouth. The Company and BellSouth are continuing to negotiate to
resolve such issues. The Company expects that the Interconnection Agreement will
provide a foundation for it to provide local service on a reasonable commercial
basis, but there can be no assurance in this regard and important


                                       15
<PAGE>
 
issues remain unsettled as a result of the Court decision and related matters.
See "Risk Factors--Dependence on Incumbent Local Exchange Carriers."

     The Company expects to negotiate similar interconnection agreements with
other incumbent local exchange carriers. However, other carriers who have
preceded the Company in the negotiation process with certain of these incumbent
local exchange carriers have expressed dissatisfaction with some of the terms of
their agreements, or with the operational support systems by which they obtain
the interconnection they require to provide local services to end users.

     As a general matter, no assurance is possible regarding how quickly or how
adequately the Company will be able to take advantage of the opportunities
created by the Telecommunications Act. The Company could be adversely affected
if the court decision reversing some of the new FCC rules, or problems in the
related arbitration and negotiation process, result in increasing the cost of
using incumbent local exchange carrier network elements or services, or if such
actions otherwise result in delays in the implementation of the
Telecommunications Act or impediments to the development of local telephone
competition.

     The Telecommunications Act also imposes certain duties on non-incumbent
local exchange carriers, such as the Company. These duties include the
obligation to complete calls originated by competing carriers under reciprocal
arrangements or through mutual exchange of traffic without explicit payment; the
obligation to permit resale of their telecommunications services without
unreasonable restrictions or conditions; and the duty to provide dialing parity,
number portability, and access to rights of way. The Company does not anticipate
that these obligations will impose a material burden on its operations. However,
in view of the fact that local telephone competition is still in its infancy and
implementation of the Telecommunications Act has just begun, there can be no
assurance in this regard.

     The Telecommunications Act also establishes the foundation for substantial
additional competition with the Company's long distance operations through
elimination or modification of previous prohibitions on the provision of
interLATA long distance services by the Regional Bell Operating Companies and
GTE. The Regional Bell Operating Companies are now permitted to provide
interLATA long distance service outside those states in which they provide local
exchange service ("out-of-region long distance service") upon receipt of any
necessary state and/or federal regulatory approvals that are otherwise
applicable to the provision of intrastate and/or interstate long distance
service. They also are allowed to provide long distance services for their
cellular and other mobile services within the regions in which they also provide
local exchange service ("in-region service"). Under the Telecommunications Act,
the Regional Bell Operating Companies will be allowed to provide wireline
in-region services upon specific approval of the FCC and satisfaction of other
conditions, including a checklist of interconnection requirements. GTE is
permitted to enter the long distance market without regard to limitations by
region. GTE is also subject to the provisions of the Telecommunications Act that
impose interconnection and other requirements on local exchange carriers.
BellSouth and other Regional Bell Operating Companies have begun to take actions
directed towards obtaining authority from the FCC to offer in-region long
distance services in certain of the states in their respective regions. The FCC
forced the withdrawal of the first Regional Bell Operating Company request for
in-region long distance authority, and rejected the next four applications,
including applications by BellSouth to provide interLATA service in South
Carolina and Louisiana. However, there can be no assurance that such approvals
will be delayed until local competition is established. There can be no
assurance that the Regional Bell Operating Companies will be prevented from
offering in-region long distance service until local competition is established.
The Eight Circuit recently rejected the FCC's attempt to condition interLATA
entry on compliance with certain pricing principles that the Court had
previously found were outside the jurisdiction of the FCC to mandate as a
general matter. Other court actions are now pending challenging the terms under
which the FCC has denied an in-region application. Furthermore, on December 31,
1997, the U.S. District Court for the Northern District of Texas 



                                       16
<PAGE>
 
ruled that the Telecommunications Act provisions restricting interLATA service
by the Regional Bell Operating Companies were unconstitutional. Although that
decision has been stayed pending appeal, it would, if sustained, allow BellSouth
to enter the interLATA market on a region-wide basis irrespective of the state
of local competition.

     The FCC has granted incumbent local exchange carriers certain flexibility
in pricing their interstate special and switched access services. Under this
pricing scheme, local exchange carriers may establish pricing zones based on
access traffic density and charge different prices for access provided in each
zone. The Company anticipates that the FCC will grant incumbent local exchange
carriers increasing pricing flexibility as the number of interconnection
agreements and competitors increases. In a pending rulemaking proceeding
scheduled for completion soon, the FCC is expected to announce new and more
specific policies regarding the conditions and timing under which incumbent
local exchange carriers will be eligible for such increased pricing flexibility.
There can be no assurance that such pricing flexibility will not place the
Company at a competitive disadvantage, either as a purchaser of access for its
long distance operations, or as a vendor of access to other carriers or end user
customers.

     State Regulation. The Company is also subject to various state laws and
regulations. Most public utility commissions require providers such as the
Company to obtain authority from the commission prior to the initiation of
service. In most states, including Alabama, Georgia and Florida, the Company
also is required to file tariffs setting forth the terms, conditions and prices
for services that are classified as intrastate. The Company also is required to
update or amend its tariffs when it adjusts its rates or adds new products, and
is subject to various reporting and record-keeping requirements.

     Many states also require prior approval for transfers of control of
certified carriers, corporate reorganizations, acquisitions of
telecommunications operations, assignment of carrier assets, carrier stock
offerings and incurrence by carriers of significant debt obligations.
Certificates of authority can generally be conditioned, modified, canceled,
terminated or revoked by state regulatory authorities for failure to comply with
state law and/or the rules, regulations and policies of state regulatory
authorities. Fines or other penalties also may be imposed for such violations.
There can be no assurance that state utilities commissions or third parties will
not raise issues with regard to the Company's compliance with applicable laws or
regulations.

     The Company has all necessary authority to offer intrastate long distance
services in Alabama, Arkansas, California, Colorado, Connecticut, Delaware,
District of Columbia, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas,
Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi,
Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New
York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Rhode Island, South
Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington,
West Virginia, Wisconsin and Wyoming. The Company is authorized to provide
intrastate long distance service in the states of Arizona and Pennsylvania while
certificates in those states are pending. An application for authority to
provide intrastate long distance service is also pending in Minnesota.
Applications will be filed, in the near future, in the states of Alaska and
Hawaii. The Company seeks authority to provide long distance service in states
outside of its target markets to enhance its ability to attract business
customers with offices, or whose employees travel, outside of the Company's
target markets.

     The Company now provides local exchange services in its region by reselling
the retail local services of the incumbent local exchange carrier in a given
territory and, in some established markets, using its own local switching
facilities. The Company has obtained competitive local exchange carrier
certification in Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi,
North Carolina, South Carolina and Tennessee.


                                       17
<PAGE>
 
     Many issues remain open regarding how new local telephone carriers will be
regulated at the state level. For example, although the Telecommunications Act
preempts the ability of states to forbid local service competition, the
Telecommunications Act preserves the ability of states to impose reasonable
terms and conditions of service and other regulatory requirements. However,
these statutes and related questions arising from the Telecommunications Act
will be elaborated further through rules and policy decisions made by PUCs in
the process of addressing local service competition issues.

     The Company also will be heavily affected by state PUC decisions related to
the incumbent local exchange carriers, particularly in view of the decisions of
the Eighth Circuit noted above which recognizes a larger role for state utility
commissions and a reduced role for the FCC. For example, PUCs have significant
responsibility under the Telecommunications Act to oversee relationships between
incumbent local exchange carriers and their new competitors with respect to such
competitors' use of the incumbent local exchange carriers' network elements and
wholesale local services. PUCs arbitrate interconnection agreements between the
incumbent local exchange carriers and new competitors such as the Company when
necessary. PUCs are considering incumbent local exchange carrier pricing issues
in major proceedings now underway. PUCs will also determine how competitors can
take advantage of the terms and conditions of interconnection agreements that
incumbent local exchange carriers reach with other carriers. It is too early to
evaluate how these matters will be resolved, or their impact on the ability of
the Company to pursue its business plan.

     States also regulate the intrastate carrier access services of the
incumbent local exchange carriers. The Company is required to pay such access
charges to originate and terminate its intrastate long distance traffic. The
Company could be adversely affected by high access charges, particularly to the
extent that the incumbent local exchange carriers do not incur the same level of
costs with respect to their own intrastate long distance services. In a related
development, states also will be developing intrastate universal service charges
parallel to the interstate charges created by the FCC. For example, incumbent
local exchange carriers such as BellSouth are proposing that states create funds
that would be supported by potentially large payments by firms such as the
Company based on their total intrastate revenues. Another issue is use by
certain incumbent local exchange carriers, with the approval of PUCs, of
extended local area calling that converts otherwise competitive intrastate toll
service to local service. States also are or will be addressing various
intraLATA dialing parity issues that may affect competition. The Company's
business could be adversely affected by these or other developments.

     The Company also will be affected by how states regulate the retail prices
of the incumbent local exchange carriers with which it competes. The Company
believes that, as the degree of intrastate competition increases, the states
will offer the incumbent local exchange carriers increasing pricing flexibility.
This flexibility may present the incumbent local exchange carriers with an
opportunity to subsidize services that compete with the Company's services with
revenues generated from non-competitive services, thereby allowing incumbent
local exchange carriers to offer competitive services at lower prices than they
otherwise could. In a related development, BellSouth is seeking authority to
create "CLEC" affiliates that would operate on a much less regulated basis and
therefore could provide significant competition in the business market whether
or not the traditional BellSouth local business receives more pricing
flexibility. The Company cannot predict the extent to which these developments
may occur or their impact on the Company's business.

     Local Government Authorizations and Related Rights of Way. The Company is
required to obtain street use and construction permits and licenses and/or
franchises to install and expand its fiber optic networks using municipal rights
of way. In some municipalities where the Company has 



                                       18
<PAGE>
 
installed or anticipates constructing networks, it will be required to pay
license or franchise fees based on a percentage of gross revenues or on a per
linear foot basis. There can be no assurance that, following the expiration of
existing franchises, fees will remain at their current levels. In many markets,
the incumbent local exchange carriers do not pay such franchise fees or pay fees
that are substantially less than those required to be paid by the Company,
although the Telecommunications Act requires that in the future such fees be
applied in a competitively neutral manner. To the extent that, notwithstanding
the Telecommunications Act, competitors do not pay the same level of fees as the
Company, the Company could be at a competitive disadvantage. Termination of the
existing franchise or license agreements prior to their expiration dates or a
failure to renew the franchise or license agreements and a requirement that the
Company remove its facilities or abandon its network in place could have a
material adverse effect on the Company. In addition, the Company would be
adversely affected if it is unable to obtain additional authorization for new
construction on reasonable terms. Furthermore, open issues exist regarding the
ability of new local service providers to gain access to commercial office
buildings to serve tenants.

     General. The telecommunications market is in a period of substantial change
and uncertainty. As the Telecommunications Act and related FCC and state actions
are implemented, new issues are likely to arise that can affect the Company and
its business plan. No assurance can be given that future regulatory developments
will not have a materially adverse impact on the Company.

DESCRIPTION OF CERTAIN INDEBTEDNESS

     Credit Facility. The Company's wholly owned subsidiary, Interstate
FiberNet, Inc. (the "Borrower"), has a credit agreement with NationsBank of
Texas, N.A. (the "Credit Agreement") for a credit facility that will mature on
February 24, 2003 (the "Credit Facility"). The Credit Agreement provides for a
$50.0 million revolving Credit Facility to be used for working capital and other
purposes, including refinancing indebtedness of the Borrower existing at the
closing of the Credit Facility, capital expenditures and permitted acquisitions.
The following summary of the material provisions of the Credit Agreement does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, the Credit Agreement. Certain capitalized terms used in this
description of the Credit Facility are defined at the end of this section.

     Amounts drawn under the Credit Facility will bear interest, at the
Borrower's option, at either the Base Rate or the LIBOR Rate, plus an Applicable
Margin. The Applicable Margin will be an annual rate which will fluctuate based
on the Borrower's Total Leverage Ratio and which will be between 1.125% and 0%
for Base Rate borrowings and between 2.125% and 1.0% for LIBOR Rate borrowings.

     The Credit Agreement requires the Borrower to repay indebtedness
outstanding under the Credit Facility with the net cash proceeds from sales of
assets by the Company, the Borrower or the Borrower's subsidiaries other than in
the ordinary course of business and from certain public or private issuances of
equity securities or debt securities by the Company, the Borrower or the
Borrower's subsidiaries.

     The Borrower's obligations under the Credit Facility are guaranteed by the
Company and the Borrower's subsidiaries and are secured by a first priority lien
on all current and future assets and properties of the Borrower and its
subsidiaries, except for certain contract rights and interests in real estate,
and by a first priority pledge of the stock of the Borrower and its
subsidiaries.

     The Credit Agreement contains negative covenants limiting the ability of
the Borrower, the Borrower's current and future subsidiaries and the Company to
incur debt, create liens, pay 



                                       19
<PAGE>
 
dividends, make distributions or stock repurchases, make investments or capital
expenditures, change their business, issue capital stock, engage in transactions
with affiliates, sell assets, engage in mergers and acquisitions and assume or
make guaranties. In addition, the Credit Agreement contains affirmative
covenants, including covenants requiring compliance with laws, maintenance of
corporate existence, licenses, properties and insurance, payment of taxes and
performance of other material obligations and the delivery of financial and
other information.

     The Credit Agreement restricts the Borrower from declaring and paying
dividends or other distributions to the Company. However, the Borrower is
permitted to pay dividends to the Company to pay scheduled interest on (i) the
1997 Notes beginning after the sixth scheduled interest payment and (ii) the
1998 Notes, unless at the time of such dividend or distribution an event of
default (other than an event of default resulting solely from the breach of a
representation or warranty) under the Credit Agreement exists or would be caused
by such dividend or distribution; provided that, with respect to any event of
default (other than a payment default, a bankruptcy event with respect to the
Company, the Borrower or (with respect to the Notes) any Significant Subsidiary
of the Company, or an event in which any portion of the assets of the Borrower
and its subsidiaries that has generated more than 5% of the Operating Cash Flow
for the most recently completed twelve-month period shall not be operating for a
period in excess of 30 days), the Borrower will not be prohibited for more than
180 days from paying dividends to the Company to pay scheduled cash interest due
and payable on the 1997 Notes and the 1998 Notes.

     The Credit Agreement also requires the Borrower to comply with certain
financial tests and to maintain certain financial ratios on a consolidated
basis. The Borrower must maintain (i) a Total Leverage Ratio no greater than
9.5:1.0 through June 30, 1999, 8.75 to 1.0 from July 1, 1999 to June 30, 2000,
7.5 to 1.0 from July 1, 2000 to June 30, 2001, 6.0 to 1.0 from July 1, 2001 to
June 30, 2002 and 4.5 to 1.0 from July 1, 2002 and thereafter; (ii) a Senior
Leverage Ratio no greater than 2.75:1.0 through June 30, 2000 and 2.25:1.0
thereafter; (iii) an Interest Coverage Ratio no less than 1.50:1.0 (or, in the
event the Borrower does not redeem 35% of the 1997 Notes within 60 days after
the closing date of the Credit Agreement, 1.75:1.0) through June 30, 2000 and
1.75:1.0 thereafter; and (iv) capital expenditures no greater than $105,000,000
for fiscal year 1998, $100,000,000 for fiscal year 1999, $50,000,000 for fiscal
year 2000, $45,000,000 for fiscal year 2001 and for each fiscal year thereafter;
provided, that (A) to the extent that less than such amount is used for any
fiscal year, the limitation on capital expenditures for succeeding fiscal years
may be increased by the amount of such unused amount and (B) the Borrower may
add $25,000,000 in the aggregate to the maximum amounts set forth above,
provided that at the time the Borrower elects to increase the maximum amount by
any portion of the $25,000,000, there exists no event of default.

     Failure to satisfy any of the financial covenants constitutes an event of
default under the Credit Facility, notwithstanding the ability of the Borrower
to meet its debt service obligations. The Credit Agreement also includes other
customary events of default, including, without limitation, a cross-default to
other indebtedness, material undischarged judgments, bankruptcy and a change of
control.

     As used in the foregoing description:

     "Annualized Operating Cash Flow" means Operating Cash Flow for the
six-month period most recently ended, multiplied by two.

     "Interest Coverage Ratio" means, for the Borrower on a consolidated basis
for any period, the ratio of Annualized Operating Cash Flow to the aggregate
amount of interest due and payable by the Company, the Borrower and the
Borrower's subsidiaries with respect to Total Debt, as described below, during
such period net of interest on the 1997 Notes funded by pledged securities,
interest income for such period, interest actually paid-in-kind, any one-time
facility fees paid in connection with the Credit Facility and in connection with
any pre-existing debt of the Company, the Borrower



                                       20
<PAGE>
 
or the Borrower's subsidiaries, up to $9.5 million of accrued interest paid by
the Borrower to ITC Holding prior to September 17, 1987, one-time prepayment
penalties incurred as a result of the extinguishment on the closing date of the
Credit Agreement of interest rate protection agreements of the Borrower in an
amount not in excess of $2,800,000 and any interest expense associated
exclusively with the mark to market on such closing date of interest rate
protection agreements of the Borrower in an amount not in excess of $2,800,000.

     "Operating Cash Flow" for any period means the consolidated net income
(loss) of the Company, the Borrower and the Borrower's subsidiaries for such
period plus the following amounts for such period, to the extent included in the
determination of such income (loss): depreciation expense, amortization expense
and other non-cash charges reducing income, net interest expense, and income tax
expense.

     "Senior Leverage Ratio" means, for the Borrower on a consolidated basis at
any date, the ratio of Senior Debt (Total Debt minus the aggregate outstanding
principal amount, and accrued and unpaid interest, on the Notes and the 1997
Notes plus aggregate cash balances in excess of $5,000,000) to Annualized
Operating Cash Flow.

     "Total Debt" means the aggregate indebtedness of the Borrower for borrowed
money on a consolidated basis.

     "Total Leverage Ratio" means at any date, for the Borrower on a
consolidated basis, the ratio of Total Debt (net of cash balances in excess of
$5,000,000 plus the balance of pledged securities securing the 1997 Notes) on
such date to Annualized Operating Cash Flow.

     1997 Notes. On June 3, 1997, the Company completed the 1997 Notes Offering.
See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources." Interest on the 1997
Notes is payable semiannually in cash, on each June 1 and December 1.

     The 1997 Notes are unsubordinated indebtedness of the Company, ranking pari
passu in right of payment with all existing and future unsubordinated
indebtedness of the Company, including the Notes. At December 31, 1997,
approximately $50.5 million of the net proceeds from the sale of the 1997 Notes
were being held in a pledged account as security for and to fund the remaining
five interest payments on the 1997 Notes.

     The 1997 Notes will mature on June 1, 2007. The 1997 Notes are redeemable
at the option of the Company, in whole or in part, at any time on or after June
1, 2002, initially at 105.5% of their principal amount, declining ratably to
100% of their principal amount, plus accrued interest, on or after June 1, 2004.
In addition, at any time prior to June 1, 2000, the Company may redeem up to 35%
of the aggregate principal amount of the 1997 Notes from the proceeds of one or
more public equity offerings at 111% of their principal amount, provided that
after any such redemption, at least $130.0 million principal amount of 1997
Notes remain outstanding. The Company plans to redeem $70.0 million principal
amount of the 1997 Notes on April 2, 1998.

     The indenture pursuant to which the 1997 Notes were issued (the "1997 Notes
Indenture") contains certain covenants that affect, and in certain cases
significantly limit or prohibit, among other things, the ability of the Company
to incur indebtedness, pay dividends, prepay subordinated indebtedness,
repurchase capital stock, make investments, engage in transactions with
stockholders and affiliates, create liens, sell assets and engage in mergers and
consolidations. If the Company fails to comply with these covenants, the
Company's obligation to repay the 1997 Notes may be accelerated. However, these
limitations are subject to a number of important qualifications and


                                       21
<PAGE>
 
exceptions. In particular, while the 1997 Notes Indenture restricts the
Company's ability to incur additional indebtedness by requiring compliance with
specified leverage ratios, it permits the Company and its subsidiaries to incur
an unlimited amount of additional indebtedness to finance the acquisition of
equipment, inventory and network assets and up to $100 million of additional
indebtedness.

     Upon a "Change of Control" of the Company (as defined in the 1997 Notes
Indenture), the Company will be required to make an offer to purchase the 1997
Notes at a purchase price equal to 101% of their principal amount, plus accrued
interest.

     1998 Notes. On March 3, 1998, the Company completed the 1998 Notes
Offering. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources." Interest
on the 1998 Notes is payable semiannually in cash, on each March 1 and September
1.

     The 1998 Notes are unsubordinated indebtedness of the Company, ranking pari
passu in right of payment with all existing and future unsubordinated
indebtedness of the Company, including the 1997 Notes.

     The 1998 Notes will mature on March 1, 2008. The 1998 Notes are redeemable
at the option of the Company, in whole or in part, at any time on or after March
1, 2003, initially at 104.4375% of their principal amount, declining ratably to
100% of their principal amount, plus accrued interest, on or after March 1,
2006. In addition, at any time prior to March 1, 2001, the Company may redeem up
to 35% of the aggregate principal amount of the 1998 Notes from the proceeds of
one or more public equity offerings at 108.875% of their principal amount;
provided that after any such redemption at least $104.0 million principal amount
of the 1998 Notes remain outstanding.

     The indenture pursuant to which the 1998 Notes were issued (the "1998 Notes
Indenture," together with the 1997 Notes Indenture, collectively, the
"Indentures") contains certain covenants that affect, and in certain cases
significantly limit or prohibit, among other things, the ability of the Company
to incur indebtedness, pay dividends, prepay subordinated indebtedness,
repurchase capital stock, make investments, engage in transactions with
stockholders and affiliates, create liens, sell assets and engage in mergers and
consolidations. If the Company fails to comply with these covenants, the
Company's obligation to repay the 1998 Notes may be accelerated. However, these
limitations are subject to a number of important qualifications and exceptions.
In particular, while the 1998 Notes Indenture restricts the Company's ability to
incur additional indebtedness by requiring compliance with specified leverage
ratios, it permits the Company and its subsidiaries to incur an unlimited amount
of additional indebtedness to finance the acquisition of equipment, inventory
and network assets and up to $100.0 million of additional indebtedness.

     Upon a "Change of Control" of the Company (as defined in the 1998 Notes
Indenture), the Company will be required to make an offer to purchase the 1998
Notes at a purchase price equal to 101% of their principal amount, plus accrued
interest.


                                       22
<PAGE>
 
RISK FACTORS

     In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, set forth below are cautionary statements
identifying important factors that could cause the Company's actual results to
differ materially from those projected in any forward-looking statements of the
Company made by or on behalf of the Company, whether oral or written. These
forward-looking statements can be identified by use of forward-looking
terminology such as "believes," "expects," "may," "will," "should," or
"anticipates" or the negative thereof or other variations thereon or comparable
terminology, or by discussions of strategy that involve risks and uncertainties.
The Company wishes to ensure that any forward-looking statements are accompanied
by meaningful cautionary statements in order to maximize to the fullest extent
possible the protections of the safe harbor established in the Private
Securities Litigation Reform Act of 1995. Accordingly, any such statements are
qualified in their entirety by reference to, and are accompanied by, the
following important factors, among others, that could cause the Company's actual
results to differ materially from those projected in forward-looking statements
of the Company.

Historical and Anticipated Future Operating Losses and Negative Cash Flow After
Capital Expenditures

     The Company expects to incur significant and increasing operating losses
and negative cash flow (after capital expenditures) during the next several
years as it implements its business strategy to expand its telecommunications
service offerings, expand its fiber optic network and enter new markets.
Although the Company expects that a majority of its revenue growth will come
from Retail Services, it does not expect its Retail Services to obtain a
significant share of the market for telecommunications services in the southern
United States, and there can be no assurance that the Company will achieve or
sustain profitability or positive net cash flow in the future. If the Company
cannot achieve or sustain operating profitability and positive net cash flow, it
may not be able to meet its working capital or debt service requirements, which
could have a material adverse effect on the Company's ability to meet its
obligations on the Notes. See "--Significant Capital Requirements; Uncertainty
of Additional Financing," "Item 6. Selected Financial Data," and "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations."

Significant Capital Requirements; Uncertainty of Additional Financing

     Expansion of the Company's network, operations and services will require
significant capital. The Company currently estimates that its aggregate capital
requirements will total approximately $105.0 million in 1998. The Company
anticipates making substantial capital expenditures thereafter. Capital
expenditures will be primarily for the following: (i) the addition of
facilities-based local telephone service to the Company's bundle of integrated
telecommunications services, including acquisition and installation of switches;
(ii) market expansion; (iii) continued development and construction of its fiber
optic network (including transmission equipment); and (iv) infrastructure
enhancements, principally for information systems. The Company believes that
cash on hand, cash flow from operations and borrowings expected to be available
under the Credit Facility will provide sufficient funds to enable the Company
to expand its business as currently planned through the maturity of the Credit
Facility in 2003, after which the Company will need to seek additional financing
to fund capital expenditures and working capital. Because the Credit Facility
will mature in 2003, the Company may not have a ready source of liquidity after
2003. See "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "--Description of Certain Indebtedness."


                                       23
<PAGE>
 
     The actual amount and timing of the Company's future capital requirements
may differ materially from the Company's estimate depending on the demand for
the Company's services and as a result of regulatory, technological and
competitive developments (including new market developments and new
opportunities) in the Company's industry. The Company may also require
additional capital in the future (or sooner than currently anticipated) for new
business activities related to its current and planned businesses, or in the
event it decides to make acquisitions or enter into joint ventures and 
strategic alliances. Sources of additional capital may include cash flow from
operations and public and private equity and debt financings. There can be no
assurance, however, that the Company will be successful in producing sufficient
cash flows or raising sufficient debt or equity capital to meet its strategic
objectives or that such funds, if available at all, will be available on a
timely basis or on terms that are acceptable to the Company. Failure to generate
or raise sufficient funds would require the Company to delay or abandon some or
all of its future expansion plans or expenditures, which could have a material
adverse effect on the Company. See "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations--Overview."

High Leverage; Ability to Service Debt; Restrictive Covenants

     At December 31, 1997, the Company had $203.9 million of indebtedness and 
its stockholders' equity was $148.3 million. The Company's earnings were 
insufficient to cover its fixed charges for the year ended December 31, 1997 by 
$13.7 million and its EBITDA less capital expenditures and interest expenses was
negative $43.5 million. In March 1998, the Company issued an additional $160 
million in senior notes and announced plans to redeem $70 million of its 1997 
Notes in April 1998. See "--Description of Certain Indebtedness." These 
transactions will have a further negative impact on the Company's ratio of 
earnings to fixed charges.

     The Indentures and the Credit Facility contain restrictions on the Company
and its subsidiaries that affect, and in certain cases significantly limit or
prohibit, among other things, the ability of the Company and its subsidiaries to
incur additional indebtedness, create liens, make investments, issue stock of
subsidiaries and sell assets. In addition, the Credit Facility requires the
Company to maintain certain financial ratios. See "--Description of Certain
Indebtedness--Credit Facility." There can be no assurance that the Company will
be able to maintain such ratios or that such covenants will not adversely affect
the Company's ability to finance its future operations or capital needs or to
engage in other business activities that may be in the interest of the Company.
The limitations in the Indentures are subject to a number of important
qualifications and exceptions. In particular, while the Indentures restrict the
Company's ability to incur indebtedness by requiring compliance with specified
leverage ratios, they permit the Company to incur an unlimited amount of
additional indebtedness to finance the acquisition of equipment, inventory or
network assets.

     There can be no assurance that the Company will be able to improve its
earnings before fixed charges or that the Company will be able to meet its debt
service obligations, including its obligations under the Notes. If the Company
is unable to generate sufficient cash flow or otherwise obtain funds necessary
to make required payments, or if the Company otherwise fails to comply with the
various covenants in its debt obligations, it would be in default under the
terms thereof, which would permit the holders of such indebtedness to accelerate
the maturity of such indebtedness and could cause defaults under other
indebtedness of the Company. Such defaults could result in a default on the
Notes and could delay or preclude payment of interest or principal on the Notes.
The ability of the Company to meet its obligations will be dependent upon the
future performance of the Company, which will be subject to prevailing economic
conditions and to financial, business and other factors. See "Description of
Certain Indebtedness."



                                       24
<PAGE>
 
     The level of the Company's indebtedness could adversely affect the Company
in a number of ways. For example, (i) the ability of the Company to obtain any
necessary financing in the future for working capital, capital expenditures,
debt service requirements or other purposes may be limited; (ii) the Company's
level of indebtedness could limit its flexibility in planning for, or reacting
to, changes in its business; (iii) the Company will be more highly leveraged
than some of its competitors, which may place it at a competitive disadvantage;
(iv) the Company's degree of indebtedness may make it more vulnerable to a
downturn in its business or the economy generally; (v) the debt service
requirements of any additional indebtedness could make it more difficult for the
Company to make payments on the Notes; and (vi) a substantial portion of the
Company's cash flow from operations must be dedicated to the payment of
principal and interest on its indebtedness and will not be available for other
purposes.

     The successful implementation of the Company's strategy, including
expansion of its network and obtaining and retaining a significant number of
customers, and significant and sustained growth in the Company's cash flow are
necessary for the Company to be able to meet its debt service requirements,
including its obligations under the Notes. There can be no assurance that the
Company will successfully implement its strategy or that the Company will be
able to generate sufficient cash flow from operating activities to meet its debt
service obligations and working capital requirements. In the event the
implementation of the Company's strategy is delayed or is unsuccessful or the
Company does not generate sufficient cash flow to meet its debt service and
working capital requirements, the Company may need to seek additional financing.
There can be no assurance that any such financing could be obtained on terms
that are acceptable to the Company, or at all. In the absence of such financing,
the Company could be forced to dispose of assets in order to make up for any
shortfall in the payments due on its indebtedness under circumstances that might
not be favorable to realizing the highest price for such assets. A substantial
portion of the Company's assets consists of intangible assets, the value of 
which will depend upon a variety of factors (including the success of the
Company's business). As a result, there can be no assurance that the Company's
assets could be sold quickly enough or for sufficient amounts to enable the
Company to meet its obligations, including its obligations with respect to the
Notes.

Ability to Manage Growth

     The expansion and development of the Company's business will depend on,
among other things, the Company's ability to implement successfully its sales
and marketing strategy, evaluate markets, design fiber routes, secure financing,
install facilities, acquire rights of way, obtain any required government
authorizations, implement interconnection to, and collocation with, facilities
owned by incumbent local exchange carriers and obtain appropriately priced
unbundled network elements and wholesale services from the incumbent local
exchange carriers, all in a timely manner, at reasonable cost and on
satisfactory terms and conditions. The Company's rapid growth, particularly in
the provision of Retail Services, has placed, and anticipated growth in other
services in the future may also place, a significant strain on its
administrative, operational and financial resources. The Company's ability to
continue to manage its growth successfully will require the Company to enhance
its operational, management, financial and information systems and controls and
to hire and retain qualified sales, marketing, administrative, operating and
technical personnel. There can be no assurance that the Company will be able to
do so. In addition, as the Company increases its service offerings and expands
its targeted markets, there will be additional demands on customer support,
sales and marketing, administrative resources and network infrastructure. The
Company's inability to manage its growth effectively could have a material
adverse effect on the Company's business, results of operations and financial
condition.


                                       25
<PAGE>
 
Business Development and Expansion Risks

     The successful implementation of the Company's business strategy to provide
an integrated bundle of telecommunications services and expand its operations
will be subject to a variety of risks, including competition and pricing, the
availability of capital on favorable terms, regulatory uncertainties, operating
and technical problems, the need to establish interconnection and collocation
arrangements with incumbent local exchange carriers in its target markets and
the potential difficulties in adding a local service offering. See "--Dependence
on Incumbent Local Exchange Carriers." In addition, the expansion of the
Company's business may involve acquisitions of other telecommunications
businesses and assets that, if made, could divert the resources and management
time of the Company and could require integration with the Company's operations.
There can be no assurance that any such acquisition could be successfully
integrated into the Company's operations or that any acquired business will
perform as expected. Failure of the Company to implement its expansion and
growth strategy successfully would have a material adverse effect on the
Company's business, results of operations and financial condition.

Risks Related to Local Services Strategy

     The Company has recently entered the newly created competitive local
telecommunications services industry. The local telephone services market has
been opened to competition through the passage of the Telecommunications Act and
subsequent state and federal regulatory actions designed to implement the
Telecommunications Act. Regulatory bodies have not completed all actions
expected to be needed to implement local service competition, and there is
little experience under those decisions that have been made to date. The Company
will have to make significant operating and capital investments in order to
implement its local exchange services strategy. There are numerous operating
complexities associated with providing these services. The Company will be
required to develop new products, services and systems and will need to develop
new marketing initiatives and train its sales force in connection with selling
these services. The Company will also need to implement the necessary billing
and collecting systems for these services. The Company will face significant
competition from the Regional Bell Operating Companies, whose core business is
providing local dial tone service. The Regional Bell Operating Companies, who
currently are the dominant providers of services in their markets, are expected
to mount a significant competitive response to new entrants in their markets
such as the Company. The Company also will face significant competitive product
and pricing pressures from other incumbent local exchange carriers and from
other firms seeking to compete in the local services market.

     The Company also expects that the addition of local service to its bundle
of telecommunications services will have an adverse impact on its gross margin
because the gross margin on the resale of local services through incumbent local
exchange carrier facilities is lower than the gross margin on the Company's
existing business. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview."

Pricing Pressures and Risks of Industry Over-Capacity

     The long distance transmission industry has generally been characterized by
over-capacity and declining prices since shortly after the AT&T divestiture in
1984. The Company believes that, in the last several years, increasing demand
has ameliorated the over-capacity and that pricing pressure has been reduced.
However, the Company anticipates that prices for its Carriers' Carrier Services
will continue to decline over the next several years. The Company is aware that
certain long distance carriers are expanding their capacity and believes that
other long distance carriers, as well as potential new entrants to the industry,
are constructing new fiber optic and other long distance 



                                       26
<PAGE>
 
transmission networks in the southern United States. Since the cost of the
actual fiber (as opposed to construction costs) is a relatively small portion of
the cost of building new transmission lines, persons building such lines are
likely to install fiber that provides substantially more transmission capacity
than will be needed over the short or medium term. Further, recent technological
advances may greatly expand the capacity of existing and new fiber optic cable.
Although such technological advances may enable the Company to increase its
capacity, an increase in the capacity of the Company's competitors could
adversely affect the Company's business. If industry capacity expansion results
in capacity that exceeds overall demand along any of the Company's routes,
severe additional pricing pressure could develop. In addition, strategic
alliances or similar transactions, such as the long distance capacity purchasing
alliance among certain Regional Bell Operating Companies announced in the spring
of 1996, could result in additional pricing pressure on long distance carriers.
Furthermore, the marginal cost of carrying an additional call over existing
fiber optic cable is extremely low. As a result, within a few years, there may
be dramatic and substantial price reductions. See "--Competition."

Dependence on Billing, Customer Service and Information Systems

     Sophisticated information and processing systems are vital to the Company's
growth and its ability to monitor costs, bill customers, provision customer
orders and achieve operating efficiencies. As the Company commences providing
dial tone and switched local access services, the need for enhanced billing and
information systems will increase significantly. The inability of the Company to
identify adequately all of its information and processing needs, or to upgrade
systems as necessary, could have a material adverse effect on the Company's
ability to reach its objectives and on its financial condition and results of
operations.

Risks Associated with the Year 2000 Issue

     The Year 2000 issue is the result of computer programs using two digits
rather than four to define the applicable year. Date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in system failures or miscalculations causing disruptions of
operations, including, among others, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.

     The Company has commenced an analysis, which it expects to complete during
the second quarter of 1998, to determine the extent to which its own
information, customer service and billing systems and the systems of its major
vendors and third party network service providers (insofar as they relate to the
Company's business) are vulnerable to the Year 2000 issue. The Company is
currently unable to predict the extent to which the Year 2000 issue will affect
its internal systems, or those of its vendors and third party network service
providers. Any failure by the Company, such vendors or third party network 
service providers to resolve any Year 2000 issues on a timely basis, or in a
manner that is compatible with the Company's systems, could have a material
adverse effect on the Company. Although the Company may incur substantial costs,
particularly costs resulting from charges by its vendors or third party network
service providers, in correcting Year 2000 issues, such costs cannot currently
be estimated. Additionally, such costs will be expensed as incurred, which will
have a negative effect on current operating results.

Dependence on Rights of Way and Other Third Party Agreements

     The Company has obtained easements, rights of way, franchises and licenses
from various private parties, including actual and potential competitors, and
local governments in order to 



                                       27
<PAGE>
 
construct and maintain its fiber optic network. There can be no assurance that
the Company will continue to have access to existing rights of way and
franchises after the expiration of such agreements, or that the Company will
obtain additional rights necessary to extend its network on reasonable terms. If
a franchise, license or lease agreement were terminated and the Company were
forced to remove or abandon a significant portion of its network, such
termination could have a material adverse effect on the Company. Similarly, the
Company's business plans could be adversely affected if its network expansion is
hindered through delays or denial of rights of way, easements or related
licenses on competitive terms.

Regulation

     The Company is required to obtain certain authorizations from the FCC and
PUCs to offer certain of its telecommunications services, as well as file
tariffs for many of its services. To date the Company has not experienced
significant difficulties in receiving certification, maintaining tariffs or
otherwise complying with its regulatory obligations. The Company will face new
regulatory obligations as it begins to enter the local telephone market. It also
is likely that state PUCs will regulate the local telephone services offered by
the Company and other competitive local exchange carriers more heavily than
competitive long distance services have been regulated in the past. Because the
FCC and the states have yet to adopt many of the rules and policies necessary to
implement local telephone competition, or to respond to other related issues, it
is uncertain how burdensome these requirements will be for the Company.

     In addition, the Company's plans to provide local telephone service are
heavily dependent upon implementation of provisions of the Telecommunications
Act. The Telecommunications Act preempted state and local laws to the extent
that they prohibited local telephone competition, and imposed a variety of new
duties on incumbent local exchange carriers intended to advance such
competition, including the duty to negotiate in good faith with competitors
requesting interconnection to the incumbent local exchange carrier's network.
However, negotiations with incumbent local exchange carriers have sometimes
involved considerable delays and the resulting negotiated agreements may not
necessarily be obtained on terms and conditions that are acceptable to the
Company. In such instances, the Company may petition the proper state regulatory
agency to arbitrate disputed issues. There can be no assurance that the Company
will be able to negotiate acceptable new interconnection agreements with
incumbent local exchange carriers or that if state regulatory authorities impose
terms and conditions on the parties in arbitration, such terms will be
acceptable to the Company. Although the Company entered into the Interconnection
Agreement pursuant to which it will obtain wholesale local services and access
to unbundled network elements from BellSouth, the terms of the Interconnection
Agreement are subject to the approval of the PUCs regulating the Company's
markets. Such approval has been received from the PUCs of Alabama, Florida,
Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South Carolina and
Tennessee. However, the Company continues to face issues related to
implementation of those interconnection agreements.

     On August 8, 1996, the FCC adopted rules and policies implementing the
local competition provisions of the Telecommunications Act, which rules, in
general, were considered favorable to new competitive entrants, but those rules
have not been fully implemented. The FCC's rules were challenged in the federal
courts by GTE, Regional Bell Operating Companies, large independent incumbent
local exchange carriers and state regulatory commissions. On October 15, 1996,
the Eighth Circuit issued a stay of the implementation of certain of the FCC's
rules, and on July 18 and October 14, 1997, the same Court issued decisions
finding that the FCC lacked statutory authority under the Telecommunications Act
for certain of its rules. In particular, the Eighth Circuit found that the FCC
was not empowered to establish the pricing standards governing unbundled local
network elements or wholesale local services of the incumbent local exchange
carriers, or to require 


                                       28
<PAGE>
 
such carriers to provide network elements in a combined form. The Eighth Circuit
also struck down other FCC rules, including one that would have enabled new
entrants to "pick and choose" from provisions of established interconnection
agreements between the incumbent local exchange carriers and other carriers. The
Eighth Circuit rejected certain other objections to the FCC rules brought by the
incumbent local exchange carriers or the states, including challenges to the
FCC's definition of unbundled elements, and to the FCC's rules allowing new
competitors to create their own networks by combining incumbent local exchange
carrier network elements together without adding additional facilities of their
own. The overall impact of the Eighth Circuit's decision is to limit the
obligations of incumbent local exchange carriers as originally interpreted by
the FCC, materially reduce the role of the FCC in fostering local competition,
including its ability to take enforcement action if the Telecommunications Act
is violated, and increase the role of state utility commissions. On January 26,
1998, the Supreme Court granted a request by the FCC and other parties to review
the Eighth Circuit decisions. The Supreme Court is not expected to complete this
process until late 1998 or early 1999. Meanwhile, certain state commissions have
asserted that they will be active in promoting local telephone competition using
the authority they have under the Eighth Circuit decisions, lessening the
significance of the reduced FCC role. At this time the impact of the Eighth
Circuit decisions cannot be evaluated and there can be no assurance that those
decisions and related developments will not have a material adverse effect on
the Company. Furthermore, other FCC rules related to local telephone competition
remain the subject of legal challenges, and there can be no assurance that
decisions affecting those rules will not be adverse to companies seeking to
enter the local telephone market.

     The Telecommunications Act also creates the foundation for increased
competition in the long distance market from the incumbent local exchange
carriers, which could affect the successful implementation of the Company's
business plans. For example, certain provisions eliminate previous prohibitions
on the provision of interLATA long distance services (both retail and carriers'
carrier) by the Regional Bell Operating Companies subject to compliance by such
companies with requirements set forth in the Telecommunications Act and
implemented by the FCC. On December 31, 1997, the U.S. District Court for the
Northern District of Texas ruled that the imposition of these preconditions on
the Regional Bell Operating Companies was unconstitutional, and that these
Companies must be allowed to provide interLATA services without meeting them.
The District Court has stayed its order pending appeal. The Company could be
adversely affected if the Regional Bell Operating Companies (and particularly
BellSouth) are allowed to provide wireline interLATA long distance services
within their own regions before local competition is established.

     In a related development, the FCC is considering proposed new policies and
rules that would grant the incumbent local exchange carriers additional
flexibility in the pricing of interstate access services, and states are
considering or are expected to consider incumbent local exchange carrier
requests for similar regulatory relief with respect to intrastate services. Such
flexibility is likely to come first for services offered in the business market.
Any pricing flexibility or other significant deregulation of the incumbent local
exchange carriers could have a material adverse effect on the Company. The
Company also could be adversely affected by FCC or state regulatory decisions
affecting access charges and universal service. See "Item 1.
Business--Regulation."

Competition

     The Company operates in a highly competitive environment, and the level of
competition, particularly with respect to pricing, is increasing. Local
telephone and intraLATA long distance services substantially similar to those
expected to be offered by the Company are also offered by the incumbent local
exchange carriers serving the markets that the Company plans to serve. BellSouth
is the incumbent local exchange carrier and a particularly strong competitor in
most of the markets to be served by the Company. BellSouth and other incumbent
local exchange carriers already have 



                                       29
<PAGE>
 
relationships with every customer and have the potential to subsidize services
of the type offered by the Company from service revenues not subject to
effective competition, which could result in even more intense price
competition. The Company competes with long distance carriers in the provision
of interLATA long distance Retail and Carriers' Carrier Services. The interLATA
long distance market consists of four major competitors (AT&T, MCI, Sprint and
WorldCom) but other companies operate or are building networks in the southern
United States and other geographic areas. Other competitors of the Company in
the Retail and Carriers' Carrier Services markets are likely to include Regional
Bell Operating Companies providing out-of-region (and, with the future removal
of regulatory barriers, in-region) long distance services, other competitive
local exchange carriers, microwave and satellite carriers, and private networks
owned by large end-users. The Company also may increasingly face competition
from firms offering long distance data and voice services over the Internet.
Such firms could enjoy a significant cost advantage because at this time they do
not pay carrier access charges or universal service fees. In addition, the
Company competes with direct marketers, equipment vendors and installers, and
telecommunications management companies with respect to certain portions of its
business. Many of the Company's existing and potential competitors have
financial, technical and other resources and customer bases and name recognition
far greater than those of the Company. The long distance business is extremely
competitive and prices have declined substantially in recent years and are
expected to continue to decline, which will adversely affect the Company's gross
margins as a percentage of revenues. See "--Dependence on Incumbent Local
Exchange Carriers" and "Item 1. Business--Regulation."

     The Telecommunications Act, other recent state legislative actions, and
current federal and state regulatory initiatives provide increased business
opportunities for the Company by removing or substantially reducing certain
barriers to local exchange competition. However, these new competitive
opportunities are expected to be accompanied by new competitive opportunities
for the incumbent local exchange carriers. It is also expected that increased
local competition will result in increased pricing flexibility for, and
relaxation of regulatory oversight of, the incumbent local exchange carriers. If
the incumbent local exchange carriers are permitted to engage in increased
volume and discount pricing practices or charge competitive local exchange
carriers increased fees for interconnection to their networks, or if the
incumbent local exchange carriers seek to delay implementation of
interconnection by competitors to their networks, the Company's results of
operations and financial condition could be adversely affected. There can be no
assurance that the Company will be able to achieve or maintain adequate market
share or revenues, or compete effectively in any of its markets.

     In addition, a continuing trend toward business combinations and strategic
alliances in the telecommunications industry may further enhance competition.
For example, the national long distance carrier WorldCom has a pending agreement
to merge with MCI. WorldCom also has acquired competitive local exchange
carriers, including MFS Communications Company, Inc. and Brooks Fiber
Properties, Inc. In March 1997, BellSouth and IBM announced an alliance to
provide Internet and Intranet services to businesses in the southern United
States. In January 1998, AT&T announced plans to acquire another competitive
local exchange carrier, TCG. Additionally, in March 1998, Qwest announced its
intention to acquire LCI, which combination would result in the nation's fourth-
largest long distance carrier. These types of strategic alliances could put the
Company at a significant competitive disadvantage.

     The Company will face competition in the markets in which it operates from
one or more competitive local exchange carriers operating fiber optic networks,
in some cases in conjunction with the local cable television operator. One of
the primary purposes of the Telecommunications Act is to promote competition,
particularly in the local telephone market. AT&T, MCI, Sprint and others have
begun to offer local telecommunications services, either directly or in
conjunction with other competitive local exchange carriers in certain locations,
and are expected to expand that activity as 



                                       30
<PAGE>
 
opportunities created by the Telecommunications Act develop. BellSouth has
announced plans to provide local service in areas of its region where it is not
the incumbent local exchange carrier.

     To complement its telecommunications services offerings, the Company offers
data transmission services. The data transmission business is extremely
competitive and prices have declined substantially in recent years and are
expected to continue to decline.

     The recent World Trade Organization ("WTO") agreement on basic
telecommunications services could increase the level of competition faced by the
Company. Under this agreement, the United States and other members of the WTO
committed themselves to opening their telecommunications markets to competition
and foreign ownership and to adopting regulatory measures to protect against
anticompetitive behavior by dominant telephone companies effective as early as
January 1, 1998.

     The Company also believes that providers of wireless services increasingly
will offer, in addition to products that supplement a customer's wireline
communications (similar to cellular telephone services in use today), wireline
replacement products that may result in wireless services becoming the
customer's primary mode of communication. Competition with providers of wireless
telecommunications services may be intense. Many of the Company's potential
wireless competitors have substantially greater financial, technical, marketing,
sales, manufacturing and distribution resources than those of the Company.
Furthermore, the FCC has made spectrum available through public auction over the
past several years for use in wireless communications and plans to offer
additional spectrum in this manner in 1998. This additional spectrum is intended
by the FCC to be used for broadband, data and video transmission but its use in
wireless local loop is also possible.

Dependence on Incumbent Local Exchange Carriers

     The Company is dependent on incumbent local exchange carriers to provide
access service for the origination and termination of its toll long distance
traffic and interexchange private lines. Historically charges for such access
service have made up a significant percentage of the overall cost of providing
long distance service. On May 7, 1997, the FCC adopted changes to its interstate
access rules that, among other things, will reduce per-minute access charges and
substitute new per-line flat rate monthly charges. The FCC also approved
reductions in overall access rates, and established new rules to recover
subsidies to support universal service and other public policies. The impact of
these changes on the Company or its competitors is not yet clear. The Company
could be adversely affected if it does not experience access cost reductions
proportionally equivalent to those of its competitors. Insofar as new
Internet-based competitors continue to be exempt from these charges, they could
enjoy a significant cost advantage in this area. See "Item 1.
Business--Regulation."

     The Company also generally will be dependent on incumbent local exchange
carriers for provision of local telephone service through access to local loops,
termination service and, in some markets, central office switches of such
carriers. In addition, the Company intends to obtain the local telephone
services of the incumbent local exchange carriers on a wholesale basis and
resell that service to end users, particularly in the early stages of its local
telephone service business.

     Any successful effort by the incumbent local exchange carriers to deny or
substantially limit the Company's access to the incumbent local exchange
carrier's network elements or wholesale services would have a material adverse
effect on the Company's ability to provide local telephone services. Although
the Telecommunications Act imposes interconnection obligations on incumbent
local exchange carriers, there can be no assurance that the Company will be able
to obtain access to such network elements or services at rates, and on terms and
conditions, that permit the Company to 



                                       31
<PAGE>
 
offer local services at rates that are both profitable and competitive. As noted
above, the Eighth Circuit recently struck down certain FCC rules intended to
govern such rates, terms and conditions. See "--Regulation." One result of this
decision is to give state utility commissions a significantly larger role in
implementing the Telecommunications Act. It is uncertain whether such
commissions will adopt and enforce rules or take other actions that will permit
new carriers to have economical use of incumbent local exchange carrier networks
and facilities. The Interconnection Agreement currently allows the Company to
provide local service on a resale basis or by purchasing all unbundled network
elements required to provide local service on a facilities basis, without using
Company-owned facilities. The terms of the Interconnection Agreement, including
interim pricing terms agreed to by the Company and BellSouth, have been approved
by state regulatory authorities in all states in which BellSouth operates,
although they remain subject to review and modification by such authorities. In
addition, the Interconnection Agreement does not resolve all operational issues,
which issues the Company and BellSouth are continuing to negotiate to resolve.
Also, many issues relevant to the terms and conditions by which competitors may
use the incumbent local exchange carrier network and wholesale services remain
to be resolved. For example, BellSouth and certain other incumbent local
exchange carriers have taken the position that when a carrier seeking to provide
local service obtains all necessary elements (loops and switches) from the
incumbent local exchange carrier, the incumbent local exchange carrier retains
the right to receive the access revenues associated with the service to the
customers served on that basis. Although the FCC has rejected this position,
further legal challenges are in progress and other important issues related to
this form of interconnection remain open. For example, many new carriers,
including the Company, have experienced problems with respect to the operational
support systems used by new carriers to order and receive network elements and
wholesale services from the incumbent local exchange carriers. These systems are
necessary for new carriers like the Company to provide local service to
customers on a timely and competitive basis. The FCC has created a task force to
examine problems that have slowed the development of local telephone
competition. The Telecommunications Act creates incentives for local exchange
carriers to permit access to their facilities by denying such carriers the
ability to provide long distance services until there is adequate competition at
the local level. However, the U.S. District Court for the Northern District of
Texas has found these provisions unconstitutional, but this order has been
stayed pending appeal. BellSouth is not yet permitted to offer long distance
services. There can be no assurance, however, that BellSouth or other local
exchange carriers will be accommodating to the Company once they are permitted
to offer long distance service. See "--Regulation" and "--Services and
Facilities."

Dependence on Certain Customers

     For the year ended December 31, 1997, the Company's two largest Carriers'
Carrier customers would together have accounted for approximately 12.5% of the
Company's consolidated revenues. For the year ended December 31, 1997, the
Company's five largest Retail Services customers would have represented an
aggregate of approximately 10% of the Company's consolidated revenues. The
Company's customers generally use more than one service provider and may reduce
their use of the Company's services and switch to other providers without
incurring significant expense. The Company's agreements with its customers
generally provide that the customer may terminate service without penalty in the
event of certain outages in service and for certain other defined causes.
Although as of December 31, 1997, the Company's Carriers' Carrier business had
remaining future long-term contract commitments totaling approximately $77.9
million, some of such contractual commitments provide that, if the customer is
offered lower pricing with respect to any circuit by another carrier, the
customer's commitment to the Company will be reduced to the extent the Company
does not match the price for such circuit and the customer purchases such
circuit from the other carrier. There can be no assurance that the Company will
be able to retain its customers. The loss of or a significant decrease of
business from any of its largest customers would 



                                       32
<PAGE>
 
have a material adverse effect on the Company's business, results of operations
and financial condition.

Risk of Rapid Technological Changes

     The telecommunications industry is subject to rapid and significant changes
in technology. Although the Company believes that, for the foreseeable future,
these changes will neither materially affect the continued use of its fiber
optic network, digital switches and transmission equipment, nor materially
hinder its ability to acquire necessary technologies, the effect of
technological changes on the business of the Company, such as changes relating
to emerging wireline (including fiber optic) and wireless (including broadband)
transmission technologies, and use of the Internet for traditional voice, data
or broadband communications, cannot be predicted. In addition, the Company may
be required to select in advance one technology over another, but it will be
impossible to predict with any certainty, at the time the Company is required to
make its investment, which technology will prove to be the most economic,
efficient or capable of attracting customer usage.

Dependence on Network Infrastructure

     The Company has entered into marketing and management agreements with three
southern public utility companies to sell long-haul private line services on a
commission basis on the fiber optic networks owned by these companies. Pursuant
to these agreements, which have remaining terms ranging from four to seven
years, the Company generally earns a commission based upon a percentage of the
gross revenues generated by the sale of capacity on the utility's networks. By
interconnecting the Company's owned network to these other networks owned by the
public utilities, and by marketing and selling capacity on such networks to the
Company's customers, the Company has effectively extended its network with
minimal capital expenditure. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview." The Company also has a
buy-sell agreement with Carolinas Fibernet, LLC, which manages fiber optic
facilities in North Carolina and South Carolina. Although the Company does not
believe that any of these agreements will be terminated in the near future,
cancellation or non-renewal of any of such agreements could materially adversely
affect the Company's business. In addition, two of the Company's three
agreements with public utility companies are nonexclusive, and the Company may
encounter competition for capacity on the utilities' networks from other service
providers that enter into comparable arrangements with the utilities. Any
reduction in the amount of capacity that is made available to the Company could
adversely affect the Company. To the extent the Company is unable to establish
similar arrangements in new markets, it may be required to make additional
capital expenditures to extend its fiber optic network.

     The Company's business also could be materially adversely affected by a
cable cut or equipment failure in the Company's fiber optic network. Although
the Company has implemented electronic redundancy throughout its network, which
enables traffic to be rerouted to another fiber in the same fiber sheath in the
event of a partial fiber cut or electronics failure, a substantial portion of
the Company's owned and managed fiber optic network is not protected in the
event of a total cable cut.

Dependence on Key Personnel

     The Company's business is currently managed by a small number of key
management and operating personnel. The Company does not have any employment
agreements with, nor does the 



                                       33
<PAGE>
 
Company maintain "key man" insurance on, these employees. The loss of the
services of key personnel, or the inability to attract, recruit and retain
sufficient or additional qualified personnel, could have a material adverse
effect on the Company. See "Item 10. Directors and Executive Officers of the
Registrant."

Potential Influence By and Relationship With Certain Stockholders

     As of December 31, 1997, Campbell B. Lanier, III beneficially owned
approximately 18% of the outstanding Common Stock. See "Item 12. Security
Ownership of Certain Beneficial Owners and Management." To the extent that Mr.
Lanier exercises his voting and investment rights in concert with other
stockholders, Mr. Lanier and such other stockholders may be able to exercise
control over the Company's business by virtue of their voting power with respect
to the election of directors and other actions requiring stockholder approval.

Dividend Policy

     The Company has never declared or paid any cash dividends on its capital
stock and does not anticipate paying cash dividends in the foreseeable future.
See "Item 5. Market for Registrant's Common Stock and Related Stockholder
Matters--Dividend Policy." Additionally, the Indentures and the Credit Facility
contain restrictions on the Company's ability to pay dividends. See "--
Description of Certain Indebtedness."

Certain Anti-Takeover Provisions

     Certain provisions of the Company's Certificate of Incorporation and
Amended and Restated Bylaws and the General Corporation Law of the State of
Delaware could delay or impede the removal of incumbent directors and could make
more difficult a merger, tender offer or proxy contest involving the Company, or
could discourage a third party from attempting to acquire control of the
Company, even if such events would be beneficial to the interests of the
stockholders. In particular, the classification of the Company's Board of
Directors could have the effect of delaying a change in control of the Company.
In addition, the Certificate of Incorporation authorizes the Board of Directors
to provide for the issuance of shares of preferred stock of the Company, in one
or more series, which the Board of Directors could issue without further
stockholder approval and upon such terms and conditions, and having such rights,
privileges and preferences, as the Board of Directors may determine.

Volatility of Stock Price

     Since the Common Stock has been publicly traded, the market price of the
Common Stock has fluctuated over a wide range and may continue to do so in the
future. See "Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters." The market price of the Common Stock could be subject to
significant fluctuations in response to various factors and events, including,
among other things, the depth and liquidity of the trading market of the Common
Stock, quarterly variations in actual or anticipated operating results, growth
rates, changes in estimates by analysts, market conditions in the industry,
announcements by competitors, regulatory actions and general economic
conditions. In addition, the stock market has from time to time experienced
significant price and volume fluctuations, which have particularly affected the
market prices of the stocks of telecommunications companies, and which may be
unrelated to the operating performance of particular companies. As a result of
the foregoing, the Company's operating results and prospects from time to time
may be below the expectations of public market analysts and investors. Any such
event would likely result in a material adverse effect on the price of the
Common Stock.


                                       34
<PAGE>
 
EMPLOYEES

     As of December 31, 1997, the Company had over 500 full-time employees, none
of whom was represented by a union or covered by a collective bargaining
agreement. The Company believes that its relationship with its employees is
good. In connection with the construction and maintenance of its fiber optic
network and the conduct of its other business operations, the Company uses third
party contractors, some of whose employees may be represented by unions or
covered by collective bargaining agreements.

EXECUTIVE OFFICERS

     The following is a list of the executive officers of the Company, together
with biographical summaries of their experience. The ages of persons set forth
below are as of December 31, 1997.


NAME                       AGE              POSITION(S) WITH COMPANY
- ----                       ---              ------------------------

Campbell B. Lanier, III    47               Chairman, Director
Andrew M. Walker           56               Chief Executive Officer, Director
Foster O. McDonald         35               President
Douglas A. Shumate         32               Senior Vice President,
                                            Chief Financial Officer
Steven D. Moses            48               Senior Vice President-
                                            Network Services
J. Thomas Mullis           54               Senior Vice President-
                                            General Counsel, Secretary
Roger F. Woodward          45               Senior Vice President, Sales,
                                            Marketing and Customer Support
Sara L. Plunkett           48               Vice President-Finance, Treasurer

     Campbell B. Lanier, III has been Chairman of the Company since March 1997.
Mr. Lanier served as Chairman of the Board and Chief Executive Officer of ITC
Holding prior to the Merger and served as a director of ITC Holding since its
inception in 1985 through a predecessor company. Mr. Lanier also is a director
of KNOLOGY Holdings, Inc. ("KNOLOGY") (a broadband telecommunications services
company) (formerly known as CyberNet Holding, Inc.), MindSpring Enterprises,
Inc. ("MindSpring") (a company that provides Internet services), National Vision
Associates, Ltd. (a full service optical retailer) and K&G Men's Centers (a
discount retailer of men's clothing), Vice Chairman of the Board of AvData
Systems, Inc. ("AvData") (a company providing data communications networks) and
Chairman of the Board of Powertel, Inc. (formerly InterCel, Inc.) ("Powertel")
(a wireless telecommunications services company). He served as Chairman of the
Board of AvData from 1988 to 1990 and has served as a Managing Director of South
Atlantic Private Equity Fund IV, Limited Partnership since 1997.

     Andrew M. Walker has been Chief Executive Officer of the Company since
March 1997. He served as President and Chief Executive Officer of the managing
partner of each of Interstate FiberNet and Gulf States FiberNet from November
1994 until March 1997. Mr. Walker has served as a director of KNOLOGY since July
1996, and he served as Chief Executive Officer and President of KNOLOGY from
July 1996 to February 1997. Mr. Walker worked for MCI from 1990 to 1994 as Vice
President Carrier Services. From 1986 to 1990, Mr. Walker served as a Division
President for Telecom*USA, Inc. Prior to 1986, Mr. Walker held different
positions with the Christian Broadcasting Network, M/A-Com and Comsat
Laboratories.


                                       35
<PAGE>
 
     Foster O. McDonald has been President of the Company since March 1997. He
served as President of DeltaCom from January 1991 until March 1997. From
February 1996 until March 1997, Mr. McDonald also served as Chief Executive
Officer of DeltaCom. From May 1984 through December 1990, Mr. McDonald served as
Vice President and General Manager of DeltaCom. He also serves as a director of
Brindlee Mountain Telephone Company.

     Douglas A. Shumate has been Senior Vice President and Chief Financial
Officer of the Company since March 1997. He served as Chief Financial Officer of
the Managing Partners of each of Interstate FiberNet and Gulf States FiberNet
from January 1995 until March 1997. From May 1991 to January 1995, he served as
Vice President-Finance and Chief Financial Officer of Interstate Telephone
Company ("Interstate Telephone"), a local telephone service provider and wholly
owned subsidiary of ITC Holding. From December 1986 through April 1991, Mr.
Shumate was employed as a C.P.A. at Arthur Andersen LLP.

     Steven D. Moses has been Senior Vice President-Network Services of the
Company since March 1997. He served as Vice President of Interstate FiberNet
from January 1992 until April 1995 and Chief Operating Officer of Interstate
FiberNet from April 1995 until March 1997. From May 1991 to January 1992, Mr.
Moses served as Director-Special Projects of Interstate Telephone and Valley
Telephone Company (a local telephone service provider and a wholly owned
subsidiary of ITC Holding).

     J. Thomas Mullis has been Senior Vice President, General Counsel and
Secretary of the Company since March 1997. Mr. Mullis served as General Counsel
and Secretary of DeltaCom from May 1985 to March 1997 and as Executive Vice
President of DeltaCom from January 1994 to November 1996. From November 1996 to
March 1997, he also served as Senior Vice President of DeltaCom. From January
1990 to December 1993, Mr. Mullis served as President, General Counsel and
Secretary of both Southern Interexchange Services, Inc. (a switched services
carrier) and Southern Interexchange Facilities, Inc. (a private line carriers'
carrier).

     Roger F. Woodward has been Senior Vice President-Sales, Marketing and
Customer Support of the Company since March 1997. Mr. Woodward served as Senior
Vice President-Sales of DeltaCom from October 1996 until March 1997. From March
1990 until July 1996, Mr. Woodward served in a variety of positions, including
Regional Sales Director and Vice President-Sales, with Allnet Communications,
Inc., which was acquired by Frontier in August 1995.

     Sara L. Plunkett has been Vice President-Finance and Treasurer for the
Company since March 1997. She served as Vice President-Finance of DeltaCom from
October 1996 until March 1997. From May 1989 through October 1996, she served as
Chief Financial Officer of DeltaCom.


                                       36
<PAGE>
 
ITEM 2.  PROPERTIES

     The Company leases its corporate headquarters space in West Point, Georgia
from KNOLOGY. See "Item 13. Certain Relationships and Related Transactions." The
Company also owns a switch site in Birmingham, Alabama and leases space for a
network operations center and a switch site in Arab, Alabama. In addition, the
Company is constructing a multi-service facility in Anniston, Alabama to
function as a centralized switching control center for the Company's network and
an operator services center. Construction of the Anniston facility is expected
to be completed in the third quarter of 1998. The Company also intends to begin
construction on an administrative office in Arab, Alabama in the second quarter
of 1998.

     The Company operates branch offices in Atlanta (two offices), Georgia;
Pensacola and Jacksonville, Florida; Columbia and Greenville, South Carolina;
Charlotte, North Carolina; New Orleans and Baton Rouge, Louisiana; and
Huntsville, Mobile, Auburn, Dothan, Florence, Montgomery and Birmingham,
Alabama. The leases for these offices expire between 1998 and 2001.

     As part of its fiber optic network and switched service system, the Company
owns or leases rights of way, land, office space and towers throughout the
southern United States.

     The Company owns land and microwave transmission towers at various
locations in Alabama.

     The Company expects to lease or purchase additional office space and
switching and other network facilities in connection with the planned expansion
of its telecommunications network system.

     The Company believes that all of its properties are well maintained.

ITEM 3.  LEGAL PROCEEDINGS

     The Company is a party to legal proceedings in the ordinary course of its
business, including disputes with contractors or vendors, which the Company
believes are not material to the Company or its business. The Company also is a
party to regulatory proceedings affecting the relevant segments of the
communications industry generally.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     On October 16, 1997, prior to the Equity Offering, ITC Holding (the
Company's sole stockholder on such date) consented in writing to resolutions
adopted by the Company's Board of Directors regarding the Reorganization and
related matters.



                                       37
<PAGE>
 
                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

Price Range of Common Stock

     The Company completed the Equity Offering on October 29, 1997, at a price
per share of Common Stock of $16.50. The Common Stock is traded on the Nasdaq
National Market under the symbol "ITCD." The following table sets forth for the
periods indicated the high and low sales prices per share of the Common Stock as
reported by the Nasdaq National Market.

1997                                                   High               Low
- ----                                                   ----               ---

Fourth Quarter (from October 23, 1997)               $ 20.375          $ 13.875

     On March 16, 1998, the last reported sale price of the Common Stock on the
Nasdaq National Market was $30.25 per share and there were 311 holders of record
of the Common Stock.

Dividend Policy

     The Company has never declared or paid any cash dividends on its capital
stock and does not anticipate paying cash dividends on its Common Stock in the
foreseeable future. It is the current policy of the Board of Directors to retain
earnings to finance the expansion of the Company's operations. Future
declaration and payment of dividends, if any, will be determined in light of the
then-current conditions, including the Company's earnings, operations, capital
requirements, financial condition, restrictions in financing agreements and
other factors deemed relevant by the Board of Directors. Additionally, the
Indentures and the Credit Facility contain restrictions on the Company's ability
to pay dividends. See "--Description of Certain Indebtedness."

Recent Sales of Unregistered Securities

     None.

Changes in Securities and Use of Proceeds

     The Company completed the Equity Offering on October 29, 1997. The
registration statement (the "Registration Statement") relating to the Equity
Offering (File No. 333-31361) was declared effective by the Securities and
Exchange Commission ("SEC") on October 22, 1997. The managing underwriters of
the Equity Offering were Morgan Stanley & Co, Incorporated, Merrill Lynch,
Pierce, Fenner & Smith Incorporated, J.C. Bradford & Co. and Wheat, First
Securities, Inc. The number of shares of Common Stock registered and sold in the
Equity Offering was 5,750,000 and the aggregate price of the offering amount
registered and sold was $94,875,000. All shares were sold by the Company.

     From the effective date of the Registration Statement through the date of
this report, the total amount of expenses incurred by the Company in connection
with the issuance and distribution of the shares in the Equity Offering was
approximately $7,375,000. Of such expenses, $6,641,250 consisted of underwriting
discounts and commissions.


                                       38
<PAGE>
 
     The following table sets forth the various expenses in connection with the
issuance and distribution of the securities registered in the Equity Offering,
other than underwriting discounts and commissions. All amounts except the SEC
Registration Fee and the National Association of Securities Dealers ("NASD")
Filing Fee are estimated. All of such expenses were borne by the Company.

<TABLE>
       <S>                                                         <C>     
       SEC Registration Fee                                        $  28,750.00
       NASD Filing Fee                                                 9,987.00
       Nasdaq National Market Listing Fee                             50,000.00
       Blue Sky Fees and Expenses                                     10,000.00
       Accounting Fees and Expenses                                  150,000.00
       Legal Fees and Expenses                                       250,000.00
       Printing and Engraving Expenses                               228,750.00
       Transfer Agent Fees and Expenses                                5,500.00
       Miscellaneous                                                     763.00
                                                                  -------------
                 Total                                            $  733,750.00
</TABLE>

     The amounts set forth in the preceding table were paid to persons other
than directors or officers of the Company or their associates, persons owning
ten percent or more of any class of equity of the Company, or affiliates of the
Company.

     The net proceeds of the Equity Offering to the Company, after deducting the
foregoing expenses, totaled approximately $87,500,000.

     From the effective date of the Registration Statement through the date of
this report, the Company has applied the following amounts of the net proceeds
of the Equity Offering to the uses set forth in the following table.

<TABLE>
<S>                                                                  <C>        
Construction of plant, building and facilities and
   purchase and installation of machinery and equipment              $   452,685
Purchases of real estate                                                     -0-
Acquisition of other businesses                                              -0-
Repayment of indebtedness                                              9,137,265
Working capital                                                              -0-
Temporary investments (consisting of short-term, interest-
   bearing, investment grade securities)                              77,910,050
                                                                     -----------
          Total                                                      $87,500,000
</TABLE>

     The amounts set forth in the preceding table were paid to persons other
than directors or officers of the Company or their associates, persons owning
ten percent or more of any class of equity of the Company, or affiliates of the
Company.

     Additionally, the Company intends to use up to $77.7 million of the net
proceeds of the Equity Offering to fund the Planned Redemption on April 2, 1998.
See "Item 1. Business--1997 Notes Offering; Planned Redemption."


                                       39
<PAGE>
 
ITEM 6. SELECTED FINANCIAL DATA

     The following table sets forth selected financial and operating data for
the Company. The selected historical statement of operations data for each of
the years ended December 31, 1994, 1995, 1996 and 1997 and the selected
historical balance sheet data for the years then ended, have been derived from
the consolidated financial statements that have been audited by Arthur Andersen
LLP, independent public accountants.

<TABLE>
<CAPTION>
                                                                              Year Ended December 31,
                                                  ---------------------------------------------------------------------------------
                                                      1993(a)        1994(a)(b)          1995            1996(c)         1997(d)(e)
                                                  -------------    -------------    -------------    -------------    -------------
                                                 (Unaudited)
<S>                                               <C>              <C>              <C>              <C>              <C>          
Income Statement Data:
Operating revenues                                $     636,913    $   4,945,902    $   5,750,587    $  66,518,585    $ 114,589,998
                                                  -------------    -------------    -------------    -------------    -------------
Operating expenses:
   Cost of services                                     578,206        2,484,744        3,149,231       38,756,287       54,550,348
   Selling, operations, and
     administration expense                             235,627          948,230        1,626,678       18,876,572       38,254,893
   Depreciation and amortization                         47,068          738,052        1,267,882        6,438,074       18,332,451
                                                  -------------    -------------    -------------    -------------    -------------
     Total operating expenses                           860,901        4,171,026        6,043,791       64,070,933      111,137,692
Operating income (loss)                                (223,988)         774,876         (293,204)       2,447,652        3,452,306
Equity in income (losses) of
   unconsolidated subsidiaries                          360,257          (96,920)        (258,242)      (1,589,812)               0
Interest expense                                              0         (273,759)        (297,228)      (6,172,421)     (21,367,351)
Interest and other income (other
   expense)                                                (826)          82,348           41,734          171,514        4,251,088
                                                  -------------    -------------    -------------    -------------    -------------
Income (loss) before taxes, preacquisition
   earnings (losses) and extraordinary
   item                                                 135,443          486,545         (806,940)      (5,143,067)     (13,663,957)
Income tax (provision) benefit                          (54,582)        (113,248)         302,567        1,233,318        3,324,466
Preacquisition earnings (losses)                              0         (236,300)               0                0           74,132
Extraordinary item (net of tax benefit)                       0                0                0                0         (507,515)
                                                  -------------    -------------    -------------    -------------    -------------
Net income (loss)                                 $      80,861    $     136,997    $    (504,373)   $  (3,909,749)   $ (10,772,874)
                                                  =============    =============    =============    =============    =============

Basic and diluted net income (loss) per
   common share: 
Before extraordinary loss                         $        0.00    $        0.01    $       (0.03)   $       (0.20)   $       (0.51)
Extraordinary loss                                         0.00             0.00             0.00             0.00            (0.03)
                                                  -------------    -------------    -------------    -------------    -------------
Net income (loss)                                 $        0.00    $        0.01    $       (0.03)   $       (0.20)   $       (0.54)
                                                  =============    =============    =============    =============    =============

Basic weighted average common shares
   outstanding(f)                                    19,053,675       19,053,675       19,053,675       19,053,675       20,124,908
Diluted weighted average common shares
   outstanding(f)                                    19,101,926       19,101,926       19,101,926       19,101,926       20,124,908

Balance Sheet Data:
Working capital (deficit)                         $    382,562    $     254,988     $   (242,136)   $   3,415,088    $ 116,445,515
Total assets                                         6,294,266       20,062,286       20,922,337      113,207,979      386,104,477
Long-term debt, advances from ITC
   Holding and capital lease obligations,
   including current portions                           797,288        4,013,977        3,143,977       75,442,971      203,889,536
Stockholders' equity                                  4,737,090       13,761,409       14,307,036       19,256,526      148,265,527

Other Financial Data:
Capital expenditures                                    531,187        3,703,835        1,805,742        6,172,660       43,873,990
Cash flows provided by
   operating activities                                  33,667          978,775        1,437,317        8,188,618        6,302,123
EBITDA (g)                                             (176,920)       1,512,928          974,678        8,885,726       21,784,757
Ratio of earnings to fixed charges(h)                       N/A            2.65x               --               --               --
</TABLE>


                                       40
<PAGE>
 
(a)  Through August 17, 1994, the Company owned a 49% interest in Interstate
     FiberNet and accounted for this investment under the equity method. On
     August 17, 1994, the Company purchased the remaining 51% interest in
     Interstate FiberNet from SCANA. Therefore, Interstate FiberNet's revenues
     and expenses have been included in the consolidated statement of operations
     data effective January 1, 1994, with the preacquisition earnings
     attributable to SCANA deducted to determine consolidated net income for
     1994.
(b)  On August 17, 1994, the Company entered into the Gulf States FiberNet
     partnership with SCANA. The Company obtained a 36% general partnership
     interest, and the investment was accounted for under the equity method. See
     Note 5 to the financial statements.
(c)  On January 29, 1996, ITC Holding purchased DeltaCom. DeltaCom's results of
     operations are included in the historical statement of operations data
     since the date of acquisition. See Note 13 to the financial statements.
(d)  On March 27, 1997, the Company purchased the Georgia Fiber Assets from
     SCANA. The results of operations for the Georgia Fiber Assets are included
     in the consolidated statements of operations beginning April 1, 1997. See
     Note 15 to the financial statements.
(e)  On March 27, 1997, the Company purchased the remaining 64% partnership
     interest in Gulf States FiberNet from SCANA. Therefore, Gulf States
     FiberNet's revenues and expenses have been included in the consolidated
     statement of operations data effective January 1, 1997 with the
     preacquisition losses attributable to SCANA deducted to determine the
     consolidated net loss for the year ended December 31, 1997. See Note 15 to
     the financial statements.
(f)  Pursuant to SAB 98, for periods prior to the completion of the Equity
     Offering, basic net loss per share is computed using the weighted average
     number of shares of Common Stock outstanding during the period. Diluted net
     loss per share is computed using the weighted average number of shares of
     Common Stock outstanding during the period and nominal issuances of Common
     Stock and Common Stock equivalents, regardless of whether they are
     anti-dilutive.
(g)  EBITDA represents earnings before extraordinary item, preacquisition
     (earnings) losses, equity in losses of unconsolidated subsidiaries, net
     interest, income taxes, depreciation and amortization. EBITDA is provided
     because it is a measure commonly used in the industry. EBITDA is not a
     measurement of financial performance under generally accepted accounting
     principles and should not be considered an alternative to net income as a
     measure of performance or to cash flow as a measure of liquidity. EBITDA is
     not necessarily comparable with similarly titled measures for other
     companies.
(h)  Earnings consist of income before income taxes, plus fixed charges. Fixed
     charges consist of interest charges and amortization of debt issuance costs
     and the portion of rent expense under operating leases representing
     interest (estimated to be one-third of such expense). Earnings were
     insufficient to cover fixed charges for the years ended December 31, 1995,
     1996 and 1997 by $.8 million, $5.1 million and $13.7 million, respectively.



                                       41
<PAGE>
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

     THIS ANNUAL REPORT ON FORM 10-K CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS
THAT INVOLVE RISKS AND UNCERTAINTIES. IN ADDITION, MEMBERS OF THE COMPANY'S
SENIOR MANAGEMENT MAY, FROM TIME TO TIME, MAKE CERTAIN FORWARD-LOOKING
STATEMENTS CONCERNING THE COMPANY'S OPERATIONS, PERFORMANCE AND OTHER
DEVELOPMENTS. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS,
INCLUDING THOSE SET FORTH UNDER THE CAPTION "BUSINESS--RISK FACTORS" AND
ELSEWHERE IN THIS ANNUAL REPORT ON FORM 10-K, AS WELL AS FACTORS WHICH MAY BE
IDENTIFIED FROM TIME TO TIME IN THE COMPANY'S FILINGS WITH THE SECURITIES AND
EXCHANGE COMMISSION.

     UNLESS THE CONTEXT SUGGESTS OTHERWISE, REFERENCES IN THIS ANNUAL REPORT ON
FORM 10-K TO THE "COMPANY" MEAN ITC/\DELTACOM, INC. AND ITS SUBSIDIARIES AND
PREDECESSORS. UNLESS OTHERWISE INDICATED, DOLLAR AMOUNTS OVER $1 MILLION HAVE
BEEN ROUNDED TO ONE DECIMAL PLACE AND DOLLAR AMOUNTS LESS THAN $1 MILLION HAVE
BEEN ROUNDED TO THE NEAREST THOUSAND. SEE THE "GLOSSARY" APPEARING ELSEWHERE
HEREIN FOR DEFINITIONS OF CERTAIN TERMS USED IN THIS FORM 10-K.

OVERVIEW

     Company Background. The Company was incorporated in March 1997 as a wholly
owned subsidiary of ITC Holding to acquire and operate ITC Holding's Retail
Services and Carriers' Carrier Services businesses. As discussed in Note 1 to
the financial statements, this reorganization has been accounted for in a manner
similar to a pooling of interests.

     The Company has provided operator and directory assistance services since
March 1992 through InterQuest. Carriers' Carrier Services have been offered
since late 1992 through Interstate FiberNet, a partnership originally formed by
ITC Holding (with a 49% interest) and SCANA (with a 51% interest). In August
1994, ITC Holding acquired SCANA's interest in Interstate FiberNet. Also in
August 1994, ITC Holding formed a second partnership with SCANA, Gulf States
FiberNet, to construct and operate a fiber optic route primarily between
Atlanta, Georgia and Shreveport, Louisiana with several supplemental spur
routes. In the Gulf States Acquisition, ITC Holding acquired SCANA's 64%
partnership interest in Gulf States FiberNet and the Georgia Fiber Assets, which
included one customer contract representing $3.5 million in annual revenues
through August 2001, the term of the contract. Members of the Company's
management have been managing the businesses of both Interstate FiberNet and
Gulf States FiberNet since their inception. In 1995, the Company began offering
Signaling System 7 Services ("SS7") to its Carriers' Carrier customers.

     In January 1996, as a result of the DeltaCom Acquisition, the Company
entered the retail long distance business and acquired several fiber optic
routes within Alabama that complemented the existing networks operated by
Interstate FiberNet and Gulf States FiberNet. DeltaCom, a provider of
telecommunications services since its inception in 1982, provides long distance
services to mid-sized businesses primarily in Alabama.

     Revenues. The Company derives revenues primarily from two business
segments: (i) Retail Services, which encompass the retail sale of local, long
distance, data, and Internet services and the sale and installation of customer
premise equipment to mid-sized and major regional business customers and certain
switched services telecommunications companies, and (ii) Carriers' Carrier


                                       42
<PAGE>
 
Services, which encompass the sale of long-haul private line services on a
wholesale basis to other telecommunications companies, using the Company's owned
and managed fiber optic network, and operator and directory assistance services.

     The Company currently offers a wide range of Retail Services, including
retail long distance services such as traditional switched and dedicated long
distance, 800/888 calling, calling card and operator services, ATM and frame
relay, high capacity broadband private line, as well as Internet, Intranet and
Web page hosting and development services, and customer premise equipment
installation and repair. Since January 1996, the Company has expanded its retail
long distance operations into the following markets: Pensacola and 
Jacksonville, Florida; Atlanta and Columbus, Georgia; Charlotte, North 
Carolina; Greenville and Columbia, South Carolina; and New Orleans and Baton 
Rouge, Louisiana. As of December 31, 1997, the Company provided Retail Services
to over 7,700 business customers and approximately 7,100 residential customers.
Such residential customers represented less than 5% of the Company's revenues 
during 1997.

     The Company offers local exchange services as part of its Retail Services
in a majority of its markets. Although the Company's local exchange services
offerings are in the very early stages, initial expressions of customer interest
in such services have been positive, consistent with management's expectations.
However, there can be no assurance that demand for the Company's local services
will match such preliminary indications of customer interest. The Company
currently offers local exchange services in 11 of the 15 markets to which it
provides Retail Services.

     In connection with offering local exchange services, the Company has
entered into the Interconnection Agreement with BellSouth to (i) resell
BellSouth's local exchange services and (ii) interconnect the Company's network
with BellSouth's network for the purpose of gaining immediate access to all of
BellSouth's unbundled network elements. This agreement allows the Company to
enter new markets with minimal capital expenditures and to offer local exchange
service to its current customer base. The Interconnection Agreement currently
allows the Company to provide local service on a resale basis or by purchasing
all unbundled network elements required to provide local service on a facilities
basis, without using Company-owned facilities. The terms of the Interconnection
Agreement, including interim pricing terms agreed to by the Company and
BellSouth, have been approved by state regulatory authorities in all states in
which BellSouth operates, although they remain subject to review and
modification by such authorities. In addition, the Interconnection Agreement
does not resolve all operational issues, which issues the Company and BellSouth
are continuing to negotiate to resolve. The Company believes that the
Interconnection Agreement provides a foundation for it to provide local service
on a reasonable commercial basis, but there can be no assurance in this regard
and important issues remain unsettled as a result of legal and regulatory
developments and related matters. The Interconnection Agreement expires in July
1999, and there can be no assurance that the Company will be able to renew it
under favorable terms or at all.

     The Company's strategy is ultimately to offer facilities-based local
service in certain established markets by collocating its equipment with that of
BellSouth which will enable the Company to purchase fewer unbundled network
elements. The Company expects that it will be able to begin providing local
service to such markets in the second quarter of 1998 by using its own
facilities and network, as supplemented by BellSouth's unbundled network
elements. The Company and BellSouth have finalized the terms of an agreement
with respect to the collocation of the Company's equipment with BellSouth in
certain markets in which the Company has an existing base of long distance
customers. BellSouth has been experiencing certain central office space
limitations, however, resulting in delays in completing arrangements for
physical collocation of Company equipment.

     The Company anticipates that an increasing portion of its revenue will be
derived from local services, primarily those provided pursuant to the
Interconnection Agreement with BellSouth and 



                                       43
<PAGE>
 
similar agreements with other local exchange carriers. Management expects that
gross margin associated with local Retail Services will be slightly better than
gross margin associated with long distance Retail Services, but that, in
general, gross margin associated with Retail Services will be lower than that
associated with Carriers' Carrier Services. There can be no assurance that the
Company will be able to enter into additional interconnection agreements on
terms acceptable to the Company or at all, or that the incumbent local exchange
carriers will provide the operational support required for the Company to
provide local services to end users.

     As the Company begins to offer local service on a facilities rather than
resale basis, it will begin to sell switched access and termination services to
carriers terminating calls to its local end user customers, and originating
switched access to long distance companies where the end users choose a carrier
other than the Company for that service. Certain incumbent local exchange
companies, including BellSouth, have taken the position that when a carrier
seeking to provide local service obtains all necessary elements (loops and
switches) from the incumbent local exchange carrier in a combined form, the
incumbent local exchange carrier retains the right to receive the access
revenues associated with service to the customers served on that basis. Although
a recent Eighth Circuit decision appears to reject this position, further legal
challenges are likely and important issues related to this form of
interconnection remain open.

     The Company provides Carriers' Carrier Services using its owned and managed
fiber optic network, which reaches over 60 POPs in ten southern states (Alabama,
Arkansas, Florida, Georgia, Louisiana, Mississippi, North Carolina, South
Carolina, Tennessee and Texas). Of the network's approximately 6,300 route
miles, approximately 3,300 are Company-owned and operated and approximately
3,000 are owned and operated principally by three public utilities (Duke Power
Company, Florida Power & Light Company and Entergy Technology Company) with
which the Company has marketing and management arrangements. The Company's
arrangement with Entergy is exclusive. In addition, the Company has a buy-sell
agreement with Carolinas Fibernet, LLC, which manages fiber optic facilities in
North Carolina and South Carolina. This agreement enables the parties to buy and
sell capacity on each other's networks and allows the Company to provide
customers with access to POPs throughout those states. In addition, as part of
its strategy, the Company intends to continue to evaluate the potential
expansion of its network through a combination of new construction, long-term
dark fiber leases and fiber swap transactions, depending on the extent of
capital required over the economic life of the fiber assets to be deployed. To
the extent that the Company elects to expand its network through long-term
leases in lieu of construction or fiber swap transactions, the Company expects
such leases to have a negative effect on EBITDA; however, the Company expects
any such expansion of its network would provide opportunities to generate
additional revenues, which would partly offset such negative effects.

     The Company derives commission revenues from the marketing, sale and
management of capacity on the utility-owned portions of the Company's network.
Negligible incremental costs are associated with these commissions, because the
Company uses the same marketing and sales force in servicing the utility-owned
portions of the network as it does for the portions owned by the Company. In
1996, the Company's commission revenues from these arrangements amounted to
approximately $170,000 because, although the utility-owned portions owned by
Duke Power Company began generating revenues in late 1995, the portions owned by
Florida Power & Light Company and Entergy Technology Company began generating
revenues in late 1996. For the year ended December 31, 1997, the Company's
commission revenues from these arrangements amounted to approximately
$1,533,000. The Company expects commissions associated with the utility-owned
portions of the network to continue to increase in 1998.

     The Company provides long-haul services to its carrier customers on a "take
or pay" long-term basis, on an individual circuit basis, or on a month-to-month
basis after the initial term of the "take or pay" or individual circuit
contract. As of December 31, 1997, the Company had remaining future long-term
contract commitments totaling approximately $77.9 million. These contracts
expire on 



                                       44
<PAGE>
 
various dates through 2006 and are expected to generate approximately $58.2
million in revenues to the Company through 2001. No single Carriers' Carrier
Services customer or Retail Services customer represented over 10% of the
Company's total revenues for the year ended December 31, 1997.

     Although the Company expects that a majority of its revenue growth will
come from its Retail Services business, the Company does not expect its Retail
Services to obtain a significant share of the market for telecommunications
services in the southern United States. The customer contracts for Retail
Services generally provide for payment in arrears based on minutes of use for
switched services and payment in advance for private line services. The
contracts generally also provide that the customer may terminate the affected
services without penalty in the event of certain outages in service, and for
certain other defined causes. The contracts also typically provide that the
customer must use at least a minimum dollar amount of switched long distance
services per month for the term of the contract. During the past several years,
market prices for many telecommunications services segments have been declining,
which the Company believes will likely continue. In response to these and other
competitive pressures, the Company recently modified certain of its retail
contracts to extend to certain customers lower rates over longer terms as a
means of maintaining and developing the Company's customer base. In the future,
in response to competitive considerations, the Company may decide to modify
certain other retail customer contracts in a similar manner, emphasizing lower
pricing and longer commitment periods. A substantial portion of the Company's
total revenues are from retail long distance services. Revenue per minute from
such services has been declining and is expected to continue to decline. This
decline will have a negative effect on the Company's gross margin which may not
be offset completely by savings from decreases in the Company's cost of
services.

     Operating Expenses. The Company's principal operating expenses consist of
cost of services, selling, operations and administration expenses, and
depreciation and amortization. Cost of services related to Retail Services
consists primarily of access charges and local facility charges paid to local
exchange carriers, as well as wholesale carrier origination, termination and
interexchange facility charges paid to other interexchange carriers. Cost of
services related to Carriers' Carrier Services are substantially all fixed costs
attributable to (i) the leasing of dark fiber under long-term operating leases,
(ii) the leasing of capacity outside the Company's owned or managed network
(off-net capacity) to meet customer requirements, (iii) labor associated with
operator services and (iv) network costs associated with the provision of SS7
Services. The Company purchases off-net capacity to provide Carriers' Carrier
Services in cases where the Company plans to construct its own network to
replace the off-net portion of certain fiber routes. The Company also purchases
off-net capacity in connection with an existing customer contract, pursuant to
which the Company is the exclusive provider of network capacity to such
customer. Although the Company is substantially able to meet the requirements of
such customer on the Company's network, the Company purchases off-net capacity
to fill such customer's requirements that cannot be met on the Company's
network. Selling, operations and administration expenses consist of expenses of
selling and marketing, field personnel engaged in direct network maintenance and
monitoring, customer service and corporate administration. Depreciation and
amortization include depreciation of the Company's telecommunications network
and equipment and amortization of goodwill and other intangible assets related
to acquisitions, primarily the DeltaCom Acquisition.

     As the Company continues to expand into new geographic markets, add new
branch offices and facilities and enlarge its current product offerings to
include local telephone and other services, cost of services and selling,
operations and administration expenses are expected to increase substantially.
Therefore, the Company expects to incur increasing operating losses over the
next few years. Although the Company anticipates that it will continue to
generate positive cash flow from operations, it expects that such cash flows
will be more than offset by capital expenditures during the next several years
as it implements its business plan. The Company also expects that the 



                                       45
<PAGE>
 
addition of local service to its bundle of telecommunications services will have
an adverse impact on its gross margin, because the gross margin on the resale of
local services through incumbent local exchange carrier facilities will be lower
than the gross margin on the Company's existing businesses. As the Company
increasingly uses incumbent local exchange carrier unbundled network elements
instead of resold services, the Company expects gross margin on local service to
improve. Such improvement is expected to result from reduced access charges and
from efficiencies realized through increased reliance on the Company's owned
network. Such improved margins, however, could be offset by competitive market
pressures to reduce prices for Retail Services, as discussed above. There can be
no assurance that growth in the Company's revenues or customer base will
continue or that the Company will be able to achieve or sustain profitability or
positive net cash flows. In addtion, the Company may from time to time engage 
in discussions involving potential acquisitions, joint venture or strategic 
alliances. Depending upon the circumstances, the Company may not disclose
material acquisitions until completion of a definitive agreement. Any
significant transaction, shortfalls in anticipated revenue, or increases in
expenses could have a material adverse effect on the Company's liquidity and
capital resources and on its ability to meet its strategic objectives, and could
require the Company to seek additional private or public equity or debt
financing. There can be no assurance that the Company will be able to raise any
such capital on terms acceptable to the Company or at all.

RESULTS OF OPERATIONS

     The following tables set forth certain historical financial data for the
years ended December 31, 1995, 1996 and 1997 for the Carriers' Carrier Services
business and for the year ended December 31, 1996 and 1997 for the Retail
Services business.

     The comparability of the historical financial data for the year ended
December 31, 1996 and 1997 has been affected by the DeltaCom Acquisition and the
Gulf States Acquisition. The historical financial statements for the year ended
December 31, 1996 include the results of operations for DeltaCom since its
acquisition on January 29, 1996. For the year ended December 31, 1996, the
Company's 36% interest in Gulf States FiberNet's results of operations is
reflected using the equity method. Due to the Gulf States Acquisition on March
27, 1997, the results of operations for the year ended December 31, 1997 reflect
the total revenues and expenses from January 1, 1997 attributable to Gulf States
FiberNet with the preacquisition losses attributable to the previous owner from
January 1, 1997 through March 27, 1997, deducted to determine the Company's 
consolidated net loss. The results of operations for the year ended 
December 31, 1997 also reflect the revenues and expenses of Georgia Fiber since
March 27, 1997.

                              Results of Operations

<TABLE>
<CAPTION>
                                                                        Carriers' Carrier Services
                                                                        --------------------------
                                                                          Year Ended December 31,
                                         -------------------------------------------------------------------------------------------
                                             1995               %             1996              %            1997              %
                                         -----------     -----------      -----------    -----------     -----------    -----------
<S>                                      <C>                 <C>          <C>                    <C>     <C>                    <C> 
Revenues                                 $ 5,750,587         100%         $ 6,598,709            100%    $31,024,054            100%
Cost of services                           3,149,231          55            2,363,073             36       3,908,202             13
                                         -----------                      -----------                    -----------               
Gross margin                               2,601,356          45            4,235,636             64      27,115,852             87
                                         -----------                      -----------                    -----------               
Selling, operations and                                                 
     administration                        1,626,678          28            1,826,420             28       8,401,158             27
Depreciation and amortization              1,267,882          22            1,656,685             25      12,077,349             39
                                         -----------                      -----------                    -----------               
Total operating expenses                   2,894,560          50            3,483,105             53      20,478,507             66
                                         -----------                      -----------                    -----------               
Operating income (loss)                  $  (293,204)         (5)         $   752,531             11     $ 6,637,345             21
                                         ===========                      ===========                    ===========               
</TABLE>


                                       46
<PAGE>
 
<TABLE>
<CAPTION>
                                                    Retail Services
                                ------------------------------------------------------------
                                                  Year Ended December 31,
                                ------------------------------------------------------------
                                    1996                 %         1997                  %
                                ------------           -----   -------------           -----
<S>                             <C>                     <C>    <C>                      <C> 
Revenues                        $ 59,919,876            100%   $ 83,565,944             100%
Cost of services                  36,393,214             61      50,642,146              61
                                ------------                   ------------
Gross margin                      23,526,662             39      32,923,798              39
                                ------------                   ------------
Selling, operations and
      administration              17,050,152             28      29,853,735              36

Depreciation and amortization      4,781,389              8       6,255,102               7
                                ------------                   ------------
Total operating expenses          21,831,541             36      36,108,837              43
                                ------------                   ------------
Operating income (loss)         $  1,695,121              3    $ (3,185,039)             (4)
                                ============                   ============
</TABLE>



                                       47
<PAGE>
 
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996

Revenues

     Total revenue increased $48.1 million (72.3%), from $66.5 million for the
year ended December 31, 1996 to $114.6 million for the year ended December 31,
1997. Revenues from Retail Services increased $23.7 million (39.6%), from $59.9
million for the year ended December 31, 1996 to $83.6 million for the year ended
December 31, 1997. Results for the year ended December 31, 1996 exclude revenue
of $5.3 million related to revenues earned before the acquisition of DeltaCom,
Inc. on January 29, 1996. The increase in the Retail Services segment revenue
was primarily attributable to continued geographic expansion through the opening
of branch sales offices, continued product expansion through sales of new
products to existing customers, and continuing low rates of customer revenue
turnover (churn). Revenues from Carriers' Carrier Services increased $24.4
million (370%), from $6.6 million for the year ended December 31, 1996 to $31.0
million for the year ended December 31, 1997. Results for the year ended
December 31, 1997 reflect $19.8 million of revenues related to revenues earned
by Gulf States FiberNet in 1997. Gulf States FiberNet was not consolidated in
the Company's 1996 financial statements. The increase in revenue for the
Carriers' Carrier segment was primarily attributable to continued increasing
demand for bandwidth, continued owned and operated route expansions and the
continued growth in the managed, monitored, and marketed routes.

Cost of Services

     Total cost of services increased $15.8 million, from $38.8 million for the
year ended December 31, 1996 to $54.6 million for the year ended December 31,
1997. Cost of services for Retail Services operations increased $14.2 million,
from $36.4 million for the year ended December 31, 1996 to $50.6 million for the
year ended December 31, 1997. Cost of services for the Carriers' Carrier
operations increased $1.5 million, from $2.4 million for the year ended December
31, 1996 to $3.9 million for the year ended December 31, 1997. The cost of
services as a percentage of revenue for Retail Services operations remained
consistent at a rate of approximately 61%. The cost of services as a percentage
of revenue for Carriers' Carrier operations, 13% in 1997 vs. 36% in 1996,
decreased significantly due to the acquisition of Gulf States FiberNet in March
1997 and the increased margins associated with this line of business.

Selling, Operations and Administration Expense

     Total selling, operations and administration expense increased $19.4
million, from $18.9 million (28% as a percentage of revenue) for the year ended
December 31, 1996 to $38.3 million (33% as a percentage of revenue) for the year
ended December 31, 1997. Selling, operations and administration expense
attributable to Retail Services increased $12.7 million, from $17.1 million (29%
as a percentage of revenue) for the year ended December 31, 1996 to $29.9
million (36% as a percentage of revenue) for the year ended December 31, 1997.
The increase in selling, operations and administration expense as a percentage
of revenue for the Retail Services segment is related to continued geographic
expansion and introduction of new services, primarily local services. Selling,
operations and administration expense attributable to the Carriers' Carrier
segment increased $6.6 million, from $1.8 million (28% as a percentage of
revenue) for the year ended December 31, 1996 to $8.4 million (27% as a
percentage of revenue) for the year ended December 31, 1997. The increase in
selling, operations, and administration expense for the Carrier's Carrier
segment relate specifically to an increase in personnel stemming from the
geographic expansion and various costs associated with those personnel. Selling,
operations, and administration expenses are expected to continue to increase as
a percentage of revenue during 1998 and early 1999, due to the continued
expansion of the Retail Services segment, both geographically and in terms of
products offered. By 



                                       48
<PAGE>
 
mid-1999, such expansion is expected to be substantially completed, and selling,
operations and administration expenses are expected to improve as a percentage 
of revenue.

Depreciation and Amortization

     Total depreciation and amortization increased $11.9 million, from $6.4
million for the year ended December 31, 1996 to $18.3 million for the year ended
December 31, 1997. Retail Services accounted for $1.5 million of the increase,
which was primarily related to installation of new central office equipment.
Carriers' Carrier Services' operations accounted for $10.4 million of the
increase, with $8.2 million related to the acquisition of Gulf States FiberNet.

Interest Expense

     Total interest expense increased $15.2 million, from $6.2 million for the
year ended December 31, 1996 to $21.4 million for the year ended December 31,
1997. The increase in interest expense was primarily due to interest expense
incurred on the 1997 Notes.

Income Taxes

     As a result of tax sharing arrangements with ITC Holding, the Company
received benefits for certain of its net operating losses. The benefit received
as a percentage of taxable income was 24.3% and 24.0% for the years ended
December 31, 1996 and 1997, respectively.

EBITDA

     EBITDA increased $12.9 million, from $8.9 million for the year ended
December 31, 1996 to $21.8 million for the year ended December 31, 1997.
Carriers' Carrier Services accounted for $16.3 million of the increase. EBITDA
attributable to Retail Services for the year ended December 31, 1997 was $3.1
million compared to $6.5 million for the year ended December 31, 1996. EBITDA
attributable to Retail Services decreased from 11% of revenues for the year
ended December 31, 1996 to 4% of revenues for the year ended December 31, 1997,
primarily due to increased costs associated with the opening of new branch
offices and the employment of additional support personnel to position the
Retail Services segment for expansion. The Company expects EBITDA for Retail
Services to continue to decline at least through 1998 as the Company opens
additional branch offices and expands its offerings of local service.


                                       49
<PAGE>
 
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995

Revenues

     Revenues increased from $5.8 million in 1995 to $66.5 million in 1996. The
$60.7 million increase was primarily attributable to revenues of $59.9 million
generated by DeltaCom since it was acquired on January 29, 1996. Revenues from
Carriers' Carrier Services increased approximately $800,000 in 1996 (15%),
primarily due to the growth in new SS7 Services and directory assistance
products and growth in demand for Carriers' Carrier Services.

Cost of Services

     Cost of services increased from $3.1 million in 1995 to $38.8 million in
1996. DeltaCom's operations accounted for $36.4 million of this increase.
Carriers' Carrier Services accounted for a decrease of $700,000 primarily due to
intersegment eliminations related to its utilization of DeltaCom's network
infrastructure.

Selling, Operations and Administration Expense

     Selling, operations and administration expense increased from $1.6 million
in 1995 to $18.9 million in 1996. DeltaCom's operations accounted for $17.1
million of the increase. Carriers' Carrier Services accounted for $200,000 of
the increase.

Depreciation and Amortization

     Depreciation and amortization expense increased from $1.3 million in 1995
to $6.4 million in 1996. Of this $5.1 million increase, $4.8 million was
attributable to DeltaCom, including $1.3 million of intangible amortization on
$54.6 million of intangibles pushed down to the Company. See "--Effects of
Accounting Standards." Carriers' Carrier Services accounted for $300,000 of the
increase as a result of additional capital expenditures made for the provision
of SS7 Services, capital expenditures associated with the Company's network
management systems required to support the various management and marketing
agreements with various utilities, and small electronic overbuilds on existing
network segments.

Other Income (Expense)

     Other expense increased from $200,000 in 1995 to $1.4 million in 1996. The
Company's share of Gulf States FiberNet's partnership losses accounted for $1.3
million of this increase, which was partially offset by a $100,000 increase in
other interest and miscellaneous income. Gulf States FiberNet began full
operations in late 1995 and, accordingly, the effect of a full year of
operations was not reflected until 1996. Gulf States FiberNet recorded a pretax
loss of $4.4 million in 1996, compared to a pretax loss of $700,000 in 1995. As
of December 31, 1995 and 1996, the Company owned 36% of Gulf States FiberNet and
recorded losses of $300,000 and $1.6 million, respectively, from such interest.


                                       50
<PAGE>
 
Interest Expense

     Interest expense increased from $300,000 in 1995 to $6.2 million in 1996.
The increase was primarily attributable to the increase in the Company's
aggregate indebtedness resulting from the $74.0 million of DeltaCom
Indebtedness. See "--Effects of Accounting Standards." The Company incurred
interest expense of $5.8 million related to such indebtedness in 1996.

EBITDA

     EBITDA increased from $1.0 million in 1995 to $8.9 million in 1996.
DeltaCom accounted for $6.5 million and Carriers' Carrier Services accounted for
$1.4 million of the increase. The increased EBITDA attributable to Carriers'
Carrier Services is a result of an increase in revenues with minimal increases
in associated variable costs.

LIQUIDITY AND CAPITAL RESOURCES

     The Company has historically generated positive cash flow from operations
from its existing lines of business, but has required equity infusions and
advances from ITC Holding to finance a significant portion of its investing and
financing activities. In addition, during 1997, the Company generated
approximately $192.1 million and $87.5 million in net proceeds from the 1997
Notes Offering and the Equity Offering, respectively, and in March 1998,
generated approximately $155.0 million in net proceeds from the 1998 Notes
Offering. The Company generated net cash from operating activities of $1.4
million, $8.2 million, and $6.3 million for 1995, 1996 and 1997, respectively.
The components of cash flow from operations (consisting of net loss adjusted for
depreciation, amortization, deferred income taxes, equity in losses of investee,
preacquisition losses, extraordinary item-loss on extinguishment of debt and
other) totaled $1.5 million, $4.7 million, and $11.3 million for 1995, 1996 and
1997, respectively. Changes in working capital were ($42,000) in 1995,
$3.5 million in 1996 and ($5.0 million) in 1997. The change in 1996 was 
primarily due to an increase in accrued interest, accounts payable and unearned
revenue, partially offset by an increase in accounts receivable resulting 
primarily from the DeltaCom Acquisition. For 1997, such changes were
primarily due to increases in unearned revenue and accrued liabilities, offset 
by increases in accounts receivable. Of this increase in accounts receivable 
and unearned revenue, $2.3 million and $1.3 million, respectively, resulted 
from the Gulf States Acquisition, with the remaining increase in accounts 
receivable attributable to increased earned and unearned revenue in the 
Carriers' Carrier Ser vices and Retail Services.

     Cash used for investing activities was $1.5 million, $72.7 million, and
$93.9 million for the years ended December 31, 1995, 1996 and 1997,
respectively. The cash used in 1996 was primarily attributable to the investment
of $63.5 million, net of cash received, in connection with the DeltaCom
Acquisition in January 1996. The cash used in 1997 was primarily attributable to
the purchase of restricted investments held by a trustee to fund the first six
interest payments on the 1997 Notes, as required by the 1997 Notes Indenture,
and to fund capital expenditures. The Company made capital expenditures of $1.8
million, $6.2 million, and $43.9 million for the years ended December 31, 1995,
1996 and 1997, respectively. Of the $6.2 million of capital expenditures in
1996, $4.1 million related to Retail Services and $2.1 million related to
Carriers' Carrier Services. In addition, the Company contributed an additional
$2.4 million to Gulf States FiberNet in 1996 to meet debt service requirements
and to fund additional capital requirements of that business. Of the $43.9
million of capital expenditures for the year ended December 31, 1997, $27.5
million related to Carriers' Carrier Services and $16.4 million related to
Retail Services.


                                       51
<PAGE>
 
     Cash provided by financing activities was $200,000, $65.1 million, and
$180.6 million for the years ended December 31, 1995, 1996 and 1997,
respectively. For 1996, cash provided by financing activities was primarily
attributable to the DeltaCom Indebtedness, which was advanced to the Company by
ITC Holding. See "--Effects of Accounting Standards." Net cash provided by
financing activities for the year ended December 31, 1997 consisted primarily of
net proceeds of $192.1 million from the sale of the 1997 Notes and $87.5 million
from the Equity Offering, less $43.2 million of repayment of advances from ITC
Holding, net repayments of other long-term debt and capital leases of $52.6
million and $3.3 million of other cash used in financing activities.

     ITC Holding partially financed the DeltaCom Acquisition and the Gulf States
Acquisition with debt, which consists of the following: (i) a $74.0 million term
loan under a bank facility incurred in connection with the DeltaCom Acquisition
and pushed down to the Company (the DeltaCom Indebtedness); (ii) a $41.6 million
Bridge Facility incurred in connection with the Gulf States Acquisition, which
required the refinancing of Gulf States FiberNet's existing project facility;
and (iii) a $10.0 million unsecured note issued in connection with the Gulf 
States Acquisition and assumed by a subsidiary of the Company. In November 
1997, this note was repaid in full (approximately $9.0 million) with a portion
of the net proceeds from the Equity Offering.

     On July 25, 1997, in connection with the Reorganization, approximately
$62.7 million of the $192.1 million of net proceeds from the sale of the 1997
Notes was used to purchase U.S. government securities. The U.S. government
securities are being held by the 1997 Notes trustee in a pledged account to fund
the first six scheduled interest payments on the 1997 Notes. The balance of the
net proceeds from the 1997 Notes Offering, approximately $129.4 million, was
released to the Company. A portion of the released proceeds was applied on July
25, 1997 as follows: (i) to repay approximately $57.8 million of indebtedness to
ITC Holding (including approximately $9.5 million of accrued interest)
associated with the DeltaCom Acquisition and advances used by the Company for
capital expenditures; and (ii) to repay approximately $41.6 million of
indebtedness incurred under the Bridge Facility (together with approximately
$200,000 of accrued interest). In connection with the Reorganization, $31.0
million of the DeltaCom Indebtedness was forgiven by ITC Holding and contributed
to the Company as additional equity.

     In September 1997, Interstate FiberNet, Inc., a wholly owned subsidiary of
the Company, entered into a credit agreement with NationsBank of Texas, N.A. for
a five-year $100.0 million term and revolving credit facility to be used for
working capital and other corporate purposes, including refinancing existing
indebtedness, capital expenditures and permitted acquisitions. In February 1998,
the Company amended the Credit Facility, among other things, to provide for a
$50.0 million revolving credit facility. See "Item 1. Business--Description of
Certain Indebtedness." The Company recorded a loss of approximately $2.5 million
in connection with the reclassification of the Company's interest rate swap
agreement converting a hedge of an anticipated transaction to a trading security
as a result of the 1998 Notes Offering described below. See Note 17 to the
Consolidated Financial Statements for further discussion of this interest rate
swap agreement. The Credit Facility contains restrictions on Interstate
FiberNet, Inc. and its subsidiaries and requires Interstate FiberNet, Inc. to
comply with certain financial tests and to maintain certain financial ratios.
The Credit Facility is guaranteed by the Company and DeltaCom and is secured by
a first priority lien on all current and future assets of Interstate FiberNet,
Inc. and its subsidiaries and a first priority pledge of the stock of Interstate
FiberNet, Inc. and its subsidiaries.

     On October 29, 1997, the Company completed the Equity Offering in which it
issued 5,575,000 shares of common stock, par value $.01 per share, at a price of
$16.50 per share. On March 3, 1998, the Company completed the 1998 Notes
Offering, generating net proceeds of approximately $155.0 million. On April 2,
1998, the Company intends to redeem $70.0 million principal amount of the 1997
Notes in the Planned Redemption, with proceeds remaining from the Equity
Offering, at a 



                                       52
<PAGE>
 
redemption price of 111% of such principal amount, plus accrued and unpaid
interest. The Company expects to record an extraordinary loss of approximately
$10.7 million related to the early redemption of this debt. In connection with
the Planned Redemption, the Company anticipates that the trustee for the 1997
Notes will release to the Company approximately $18.0 million held by the
trustee as security for the payment of remaining interest through June 1, 2000
on the 1997 Notes being redeemed. See "Item 1. Business--Description of Certain
Indebtedness--1997 Notes."

     To achieve its business plan, the Company will need significant financing
for capital expenditure and working capital requirements, including repayment of
indebtedness and operating losses. Expansion of the Company's network,
operations and services will require significant capital expenditures. At
December 31, 1997, the Company had entered into agreements with vendors to
purchase approximately $9.8 million of equipment and services, and, for the year
ended December 31, 1997, had made capital expenditures of $43.9 million. The
Company currently estimates that its aggregate capital requirements will total
approximately $155.0 million in 1998 and 1999, of which a total of approximately
$105.0 million is expected to be incurred in 1998 and approximately $50.0
million is expected to be incurred in 1999. The Company expects to make
substantial capital expenditures thereafter. Capital expenditures will be
primarily for the following: (i) addition of facilities-based local telephone
service to its bundle of integrated telecommunications services, including
acquisition and installation of switches and related equipment; (ii) market
expansion; (iii) continued development and construction of its fiber optic
network (including transmission equipment); and (iv) infrastructure
enhancements, principally for information systems. The actual amount and timing
of the Company's capital requirements may differ materially from the foregoing
estimate as a result of regulatory, technological and competitive developments
(including market developments and new opportunities), or in the event the 
Company decides to make acquisitions or enter into joint ventures and strategic
alliances in the Company's industry. See "Item 1. Business--Risk Factors--
Significant Capital Requirements; Uncertainty of Additional Financing."

     Although the Company's liquidity has improved, the Company's level of
indebtedness and debt service obligations significantly increased as a result of
the 1997 and 1998 Notes Offerings. The successful implementation of the
Company's strategy, including expansion of its network and obtaining and
retaining a significant number of customers, and significant and sustained
growth in the Company's cash flow are necessary for the Company to be able to
meet its debt service requirements. There can be no assurance that the Company
will successfully implement its strategy or that the Company will be able to
generate sufficient cash flow from operating activities to improve its earnings
before fixed charges, or to meet its debt service obligations and working
capital requirements. The ability of the Company to meet its obligations will be
dependent upon the future performance of the Company, which will be subject to
prevailing economic conditions and to financial, business and other factors.

     The Year 2000 Issue. The Year 2000 issue is the result of computer programs
using two digits rather than four to define the applicable year. Date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in system failures or miscalculations causing
disruptions of operations, including, among others, a temporary inability to
process transactions, send invoices, or engage in similar normal business
activities. The Company has commenced an analysis, which it expects to complete
during the second quarter of 1998, to determine the extent to which its own
information, customer service and billing systems and the systems of its major
vendors and third party network service providers (insofar as they relate to the
Company's business) are vulnerable to the Year 2000 issue. The Company is
currently unable to predict the extent to which the Year 2000 issue will affect
its internal systems, or those of its vendors and third party network service
providers. Any failure by the Company, such vendors or third party network 
service providers to resolve any Year 2000 issues on a timely basis, or in a 
manner that is compatible with the Company's systems, could have a material 
adverse effect on the Company. Although the Company may incur substantial 
costs, particularly costs resulting from charges by its


                                       53
<PAGE>
 
vendors or third party network service providers, in correcting Year 2000
issues, such costs cannot currently be estimated. Additionally, such costs will
be expensed as incurred, which will have a negative effect on current operating
results.

EFFECTS OF ACCOUNTING STANDARDS

     SFAS No. 121, SFAS No. 123 and SFAS No. 128. Statement of Financial
Accounting Standards ("SFAS") No. 121, Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to Be Disposed Of, issued by the
Financial Accounting Standards Board, requires the Company to review for
impairment, and potentially write down, the carrying values of long-lived assets
and certain identifiable intangibles (including goodwill) to be held and used by
the Company whenever events or changes in circumstances indicate that the
carrying amount of any such asset may not be recoverable. The Company adopted
SFAS No. 121, effective January 1, 1996, with no material impact on the 
consolidated financial statements.

     SFAS No. 123, Accounting for Stock-Based Compensation, establishes a fair
market value based method for financial accounting and reporting stock-based
employee compensation plans. Companies may elect to adopt the measurement
criteria of SFAS No. 123 for accounting purposes, thereby recognizing
compensation expense in results of operations on a prospective basis, or to
disclose the pro forma effects of the new measurement criteria. The Company has
elected to disclose the pro forma effects of the new measurement criteria. See
Note 9 to the consolidated financial statements.

     SFAS No. 128, Earnings Per Share, which was adopted on December 31, 1997
establishes new guidelines for the calculation and presentation of earnings per
share. In February 1998, the SEC issued SAB No. 98, on computations of earnings
per share in an initial public offering. SAB No. 98 revised prior SEC guidance
including earnings per share computations in periods prior to an initial public
offering, to reflect the requirements of SFAS No. 128. SAB No. 98 was effective
immediately upon issuance and the Company has restated its earnings per share
for periods prior to its initial public offering. This restatement increased
basic and diluted net loss per share by $.01 and $.02 for the years ended
December 31, 1995 and 1996, respectively.

     "Push Down" of Assets and Liabilities Related to the Acquisitions. ITC
Holding financed the cash purchase price for the DeltaCom Acquisition of
approximately $65.4 million and related debt refinancing of approximately $8.6
million principally with debt. The DeltaCom Acquisition was accounted for under
the purchase method of accounting. In accordance with applicable accounting
requirements of the Securities and Exchange Commission, purchase transactions
that result in one entity becoming substantially wholly owned by the acquiror
establish a new basis of accounting for the purchased assets and liabilities.
Thus, the purchase price for the DeltaCom Acquisition has been allocated to the
underlying assets purchased and liabilities assumed based on their estimated
fair market values at January 29, 1996, the acquisition date. Because the
DeltaCom Acquisition was recorded as a purchase, generally accepted accounting
principles require that the purchase price paid and the debt incurred by ITC
Holding for the DeltaCom Acquisition (and the related assets) be "pushed down"
to establish a new accounting basis in DeltaCom's financial statements so that
the basis of accounting for the purchased assets and liabilities is the same
between ITC Holding and DeltaCom. This accounting treatment is also required
because the Company used a portion of the proceeds of the 1997 Notes Offering to
repay a significant portion of the debt incurred by ITC Holding to finance the
DeltaCom Acquisition. Similarly, the purchase price and debt associated with the
Gulf States Acquisition was also "pushed down" to the financial statements of
Interstate FiberNet and Gulf States Transmission.


                                       54
<PAGE>
 
Inflation

     The Company does not believe that inflation has had a significant impact on
the Company's consolidated operations.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The consolidated financial statements of the Company, including the
Company's consolidated balance sheets as of December 31, 1997 and 1996, and
consolidated statements of operations, consolidated statements of cash flows,
and consolidated statements of changes in stockholders' equity for the years
ended December 31, 1997, 1996 and 1995, and notes to consolidated financial
statements, together with a report thereon of Arthur Andersen LLP, dated
February 23, 1998 (except with respect to Note 17, as to which the date is March
18, 1998), are attached hereto as pages F-1 through F-27.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

     None.



                                       55
<PAGE>
 
                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Reference is made to the information set forth under the captions "Election
of Directors--Information as to Nominees and Other Directors" and "Executive
Compensation and Other Information--Section 16(a) Beneficial Ownership Reporting
Compliance" appearing in the Company's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on June 4, 1998 (the "Proxy Statement"), to
be filed within 120 days after the end of the Company's fiscal year, which
information is incorporated herein by reference. Information required by this
item with respect to executive officers is provided in "Item 1
Business--Executive Officers." of this Form 10-K.

ITEM 11.  EXECUTIVE COMPENSATION

     Reference is made to the information set forth under the captions "Election
of Directors--Directors' Compensation" and "Executive Compensation and Other
Information" appearing in the Proxy Statement to be filed within 120 days after
the end of the Company's fiscal year, which information is incorporated herein
by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Reference is made to the information set forth under the caption "Stock
Owned by Management" and "Principal Holders of Voting Securities" appearing in
the Proxy Statement to be filed within 120 days after the end of the fiscal
year, which information is incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Reference is made to the information set forth under the caption "Executive
Compensation and Other Information--Certain Transactions" appearing in the Proxy
Statement to be filed within 120 days after the end of the Company's fiscal
year, which information is incorporated herein by reference.



                                       56
<PAGE>
                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)(1) The following Consolidated Financial Statements of the Company and report
of independent public accountants are included in Item 8 of this Form 10-K:

     Report of Independent Public Accountants.

     Consolidated Balance Sheets as of December 31, 1997 and 1996.

     Consolidated Statement of Operations for the years ended December 31, 1997,
     1996 and 1995.

     Consolidated Statement of Stockholders' Equity for the years ended December
     31, 1997, 1996 and 1995.

     Consolidated Statement of Cash Flows for the years ended December 31, 1997,
     1996 and 1995.

     Notes to Consolidated Financial Statements.

(a)(2) The following financial statement schedule is filed as part of this
report and is attached hereto as pages S-1 and S-2:

     Report of Independent Public Accountants on the Financial Statement
     Schedule.

     Schedule II--Valuation and Qualifying Accounts.

All other schedules for which provision is made in the applicable accounting
regulations of the Commission either have been included in the Consolidated
Financial Statements of the Company or the notes thereto, are not required under
the related instructions or are inapplicable, and therefore have been omitted.

(a)(3) The following exhibits are either provided with this Form 10-K or are
incorporated herein by reference:

                                      57
<PAGE>
 
EXHIBIT
NUMBER         EXHIBIT DESCRIPTION

3.1            Certificate of Incorporation of ITC/\DeltaCom, Inc. (filed as
               Exhibit 3.1 to Registration Statement on Form S-1, as amended,
               File No. 333-36683 ("Form S-1") and incorporated herein by
               reference).

3.2            Amended and Restated Bylaws of ITC/\DeltaCom, Inc. (filed as
               Exhibit 3.2 to Form S-1 and incorporated herein by reference).

4.1            Form of Common Stock Certificate of ITC/\DeltaCom, Inc. (filed as
               Exhibit 4.1 to Form S-1 and incorporated herein by reference).

4.2            Indenture dated March 3, 1998 between ITC/\DeltaCom, Inc. and
               United States Trust Company of New York, as Trustee, relating to
               the 8-7/8% Senior Notes Due 2008 of ITC/\DeltaCom, Inc.

4.3            Registration Rights Agreement, dated March 3, 1998, among
               ITC/\DeltaCom, Inc. and Morgan Stanley & Co. Incorporated,
               Salomon Brothers Inc and NationsBanc Montgomery Securities LLC.

4.4            Form of Initial Global 8-7/8% Note Due 2008.

10.1           Capacity Agreement dated as of February 1, 1997 between
               Interstate FiberNet and Entergy Technology Company (filed as
               Exhibit 10.1 to Registration Statement on Form S-4, as amended,
               File No. 333-31361 ("Form S-4") and incorporated herein by
               reference).

10.2           License Agreement dated February 1, 1997 between Interstate
               FiberNet and Metropolitan Atlanta Rapid Transit Authority (filed
               as Exhibit 10.2 to Form S-4 and incorporated herein by
               reference).

10.3           Supply Agreement for Transmission Equipment dated March 26, 1993
               between Interstate FiberNet and Northern Telecom, Inc. (filed as
               Exhibit 10.3 to Form S-4 and incorporated herein by reference).

10.3.1         Network Products Purchase Agreement, dated as of December 24,
               1997, by and between Interstate FiberNet, Inc. and Northern
               Telecom, Inc.

10.4           First Amendment to Supply Agreement for Transmission Equipment
               dated as of September 9, 1993 between Interstate FiberNet and
               Northern Telecom, Inc. (filed as Exhibit 10.4 to Form S-4 and
               incorporated herein by reference).

10.5           Second Amendment to Supply Agreement for Transmission Equipment
               dated as of January 19, 1994 between Interstate FiberNet and
               Northern Telecom, Inc. (filed as Exhibit 10.5 to Form S-4 and
               incorporated herein by reference).

10.6           Sixth Amendment to Supply Agreement for Transmission Equipment
               dated as of November 21, 1996 between Interstate FiberNet and
               Northern Telecom, Inc. (which supersedes the Third and the Fourth
               Amendment to this Agreement) (filed as Exhibit 10.6 to Form S-4
               and incorporated herein by reference).

10.7           Seventh Amendment to Supply Agreement for Transmission Equipment
               dated as of April 15, 1997 between Interstate FiberNet and
               Northern Telecom, Inc. (which supersedes the Fifth Amendment to
               this Agreement) (filed as Exhibit 10.7 to Form S-4 and
               incorporated herein by reference).

10.8           Master Capacity Lease dated July 22, 1996 between Interstate
               FiberNet and Intercel PCS Services, Inc. (filed as Exhibit 10.8
               to Form S-4 and incorporated herein by reference).

10.9           First Amendment to Master Capacity Lease dated as of August 22,
               1996 between Interstate FiberNet and InterCel PCS Services, Inc.
               (filed as Exhibit 10.9 to Form S-4 and incorporated herein by
               reference).

10.10          Amended and Restated Loan Agreement dated as of March 27, 1997 by
               and 


                                      58
<PAGE>
 
               among Gulf States Transmission Systems, Inc., the Lenders parties
               thereto and NationsBank, N.A. (filed as Exhibit 10.10 to Form S-4
               and incorporated herein by reference).
        
 10.11         Promissory Note dated March 27, 1997 between Gulf States
               Transmission Systems, Inc. and NationsBank, N.A. (filed as
               Exhibit 10.11 to Form S-4 and incorporated herein by reference).
        
 10.12         Amended and Restated Security Agreement dated as of March 27,
               1997 between Gulf States FiberNet and Gulf States Transmission
               Systems, Inc. and NationsBank, N.A. (filed as Exhibit 10.12 to
               Form S-4 and incorporated herein by reference).
        
 10.13         Assignment and Assumption Agreement dated as of March 27, 1997
               between Gulf States FiberNet and Gulf States Transmission
               Systems, Inc. (filed as Exhibit 10.13 to Form S-4 and
               incorporated herein by reference).
        
 10.14         Term Agreement dated as of August 11, 1994 between Gulf States
               FiberNet and Illinois Central Railroad Company (filed as Exhibit
               10.14 to Form S-4 and incorporated herein by reference).
        
 10.15         Revised and Restated Fiber Optic Facilities and Services
               Agreement dated as of June 9, 1995 among Southern Development and
               Investment Group, Inc., on behalf of itself and as agent for
               Alabama Power Company, Georgia Power Company, Gulf Power Company,
               Mississippi Power Company, Savannah Electric and Power Company,
               Southern Electric Generating Company and Southern Company
               Services, Inc. and MPX Systems, Inc., which was assigned in part
               by MPX Systems, Inc. to Gulf States FiberNet pursuant to an
               Assignment dated as of July 25, 1995 (filed as Exhibit 10.15 to
               Form S-4 and incorporated herein by reference).
        
 10.15.1       Release, Waiver, and Assumption Agreement, dated as of December
               31, 1997, between Southern Development Investment Group, Inc., on
               behalf of itself and as agent for Alabama Power Company, Georgia
               Power Company, Gulf Power Company, Mississippi Power Company,
               Savannah Electric and Power Company, Southern Electric Generating
               Company and Southern Company Services, Inc. and Interstate
               FiberNet, Inc. and Gulf States Transmission Systems, Inc.
        
 10.16         First Amendment to Revised and Restated Fiber Optic Facilities
               and Services Agreement dated as of July 24, 1995 between Southern
               Development and Investment Group, Inc. on behalf of itself and as
               agent for others and MPX Systems, Inc. (filed as Exhibit 10.16 to
               Form S-4 and incorporated herein by reference).
        
 10.17         Partial Assignment and Assumption of Revised and Restated Fiber
               Optic Facilities and Services Agreement dated July 25, 1995
               between MPX Systems, Inc. and Gulf States FiberNet (filed as
               Exhibit 10.17 to Form S-4 and incorporated herein by reference).
        
+10.17.1       Amendment to Revised and Restated Fiber Optic Facilities and
               Services Agreement, dated July 15, 1997, by and among Southern
               Development and Investment Group, Inc., on behalf of itself and
               its agent for Alabama Power Company, Georgia Power Company, Gulf
               Power Company, Mississippi Power Company, Savannah Electric and
               Power Company, Southern Electric Generating Company and Southern
               Company Services, Inc. (collectively "SES"), ITC Transmission
               Systems, Inc. (as managing partner of Interstate Fibernet) and
               Gulf States Transmission Systems, Inc. (filed as Exhibit 10.17.1
               to Form S-4 and incorporated herein by reference).
        
 10.18         Consent for Assignment of Interest dated February 20, 1997 among
               SCANA Communications, Inc., Gulf States FiberNet, Gulf States
               Transmission Systems, Inc. and Southern Development and
               Investment Groups, Inc. (filed as Exhibit 10.18 to Form S-4 and
               incorporated herein by reference).
        
 10.19         Second Partial Assignment and Assumption of Revised and Restated
               Fiber Optic 


                                      59
<PAGE>
 
               Facilities and Services Agreement dated March 27, 1997 between
               SCANA Communications, Inc. and ITC Holding Company, Inc. (filed
               as Exhibit 10.19 to Form S-4 and incorporated herein by
               reference).

10.20          Fiber System Lease Agreement dated January 30, 1996 between CSW
               Communications, Inc. and Gulf States FiberNet (filed as Exhibit
               10.20 to Form S-4 and incorporated herein by reference).

10.21          Consent for Acquisition and Assignment dated January 13, 1997
               between CSW Communications, Inc. and Gulf States FiberNet (filed
               as Exhibit 10.21 to Form S-4 and incorporated herein by
               reference).

10.22          Agreement for the Provision of Fiber Optic Services and
               Facilities dated April 21, 1986 between SouthernNet, Inc. and MPX
               Systems, Inc. (filed as Exhibit 10.22 to Form S-4 and
               incorporated herein by reference).

10.23          First Amendment to Agreement for the Provision of Fiber Optic
               Services and Facilities dated May 8, 1992 between MPX Systems,
               Inc. and MCI Telecommunications Corporation (filed as Exhibit
               10.23 to Form S-4 and incorporated herein by reference).

10.24          Second Amendment to Agreement for the Provision of Fiber Optic
               Services and Facilities dated January 30, 1996 between MPX
               Systems, Inc. and MCI Telecommunications Corporation (filed as
               Exhibit 10.24 to Form S-4 and incorporated herein by reference).

10.25          Network Operating Agreement dated March 25, 1996 among Gulf
               States FiberNet, TriNet, Inc., Hart Communications, Inc. and
               SCANA Communications, Inc. (f/k/a MPX Systems, Inc.) (filed as
               Exhibit 10.25 to Form S-4 and incorporated herein by reference).

10.26          Agreement for the Provision of Fiber Optic Facilities and
               Services dated March 29, 1990 between Alabama Power Company and
               Southern Interexchange Facilities, Inc. (filed as Exhibit 10.26
               to Form S-4 and incorporated herein by reference).

10.27          Amendment to the Agreement for Provision of Fiber Optic
               Facilities and Services dated March 29, 1990 between Alabama
               Power Company and Southern Interexchange Facilities, Inc. (filed
               as Exhibit 10.27 to Form S-4 and incorporated herein by
               reference).

10.28          First Amendment to the Agreement for the Provision of Fiber Optic
               Facilities and Services dated March 22, 1991 between Alabama
               Power Company and Southern Interexchange Facilities, Inc. (filed
               as Exhibit 10.28 to Form S-4 and incorporated herein by
               reference).

10.29          Second Amendment to the Agreement for the Provision of Fiber
               Optic Facilities and Services dated December 1, 1991 between
               Alabama Power Company and Southern Interexchange Facilities, Inc.
               (filed as Exhibit 10.29 to Form S-4 and incorporated herein by
               reference).

10.30          Third Amendment to the Agreement for the Provision of Fiber Optic
               Facilities and Services dated September 23, 1992 between Alabama
               Power Company and Southern Interexchange Facilities, Inc. (filed
               as Exhibit 10.30 to Form S-4 and incorporated herein by
               reference).

10.31          Fourth Amendment to the Agreement for the Provision of Fiber
               Optic Facilities and Services dated January 1, 1994 between
               Alabama Power Company and Southern Interexchange Facilities, Inc.
               (filed as Exhibit 10.31 to Form S-4 and incorporated herein by
               reference).

10.32          Agreement dated March 6, 1990 between Tennessee Valley Authority
               and Consolidated Communications Corporation (predecessor to
               DeltaCom, Inc.) (filed as Exhibit 10.32 to Form S-4 and
               incorporated herein by reference).

10.32.1        Supplement Agreement; Leased Fiber Pathways, dated as of
               September 26, 1997, by and between Tennessee Valley Authority and
               DeltaCom, Inc.

10.33          Interconnection Agreement signed March 12, 1997 between DeltaCom,
               Inc. and 


                                      60
<PAGE>
 
               BellSouth Telecommunications, Inc. (filed as Exhibit 10.33 to
               Form S-4 and incorporated herein by reference).

10.34          Amendment to Interconnection Agreement relating to BellSouth
               loops dated March 12, 1997 between DeltaCom, Inc. and BellSouth
               Telecommunications, Inc. (filed as Exhibit 10.34 to Form S-4 and
               incorporated herein by reference).

10.35          Amendment to Interconnection Agreement relating to resale of
               BellSouth services dated March 12, 1997 between DeltaCom, Inc.
               and BellSouth Telecommunications, Inc. (filed as Exhibit 10.35 to
               Form S-4 and incorporated herein by reference).

10.35.1        Third Amendment to Interconnection Agreement, dated March 12,
               1997, by and between DeltaCom, Inc. and BellSouth
               Telecommunications, Inc. (filed as Exhibit 10.35.1 to Form S-4
               and incorporated herein by reference).

10.35.2        Fourth Amendment to Interconnection Agreement, dated August 22,
               1997, by and between DeltaCom, Inc. and BellSouth
               Telecommunications, Inc. (filed as Exhibit 10.35.2 to Form S-4
               and incorporated herein by reference).

10.35.3        Amendment to Interconnection Agreement, dated October 3, 1997, by
               and between DeltaCom, Inc. and BellSouth Telecommunications, Inc.
               (filed as Exhibit 10.35.3 to Form S-1 and incorporated herein by
               reference).

10.36          Master Equipment Lease Agreement dated October 30, 1995 between
               AT&T Systems Leasing Co. and DeltaCom, Inc. (filed as Exhibit
               10.36 to Form S-4 and incorporated herein by reference).

10.37          Network Products Purchase Agreement dated January 24, 1996, as
               amended through March 4, 1997, between DeltaCom, Inc. and
               Northern Telecom, Inc. (filed as Exhibit 10.37 to Form S-4 and
               incorporated herein by reference).

10.38          First Amendment to Product Attachment Carrier Network Products,
               dated May 20, 1997 (filed as Exhibit 10.38 to Form S-4 and
               incorporated herein by reference).

10.39          Agreement for Use of Optical Fiber System, Microwave Radio Tower
               Site and Associated Facilities dated January 2, 1996 between
               DeltaCom, Inc. and SCI Systems, Inc. (filed as Exhibit 10.39 to
               Form S-4 and incorporated herein by reference).

10.40          Collocate Agreement dated January 7, 1991 between Williams
               Telecommunications Services, Inc., and Southern Interexchange
               Facilities, Inc. (including consent for change of control) (filed
               as Exhibit 10.40 to Form S-4 and incorporated herein by
               reference).

10.41          Agreement dated January 14, 1997 between DeltaCom, Inc. and SCANA
               Communications, Inc., for switch location in Columbia, South
               Carolina (filed as Exhibit 10.41 to Form S-4 and incorporated
               herein by reference).

10.42          Lease Agreement dated January 1, 1996 between Brindlee Mountain
               Telephone Company and DeltaCom, Inc. for, among other purposes,
               switch location in Arab, Alabama (filed as Exhibit 10.42 to Form
               S-4 and incorporated herein by reference).

10.43          Promissory Note dated March 27, 1997 between ITC Holding Company,
               Inc. and SCANA Communications, Inc. (filed as Exhibit 10.43 to
               Form S-4 and incorporated herein by reference).

+   10.44      Agreement for the Provision of Telecommunications Services and
               Facilities, dated January 27, 1996, by and between Interstate
               FiberNet, Inc. and Carolinas FiberNet, LLC (filed as Exhibit
               10.44 to Form S-4 and incorporated herein by reference).

++  10.44.1    First Amendment to the Agreement for the Provision of
               Telecommunications Services and Facilities, dated as of September
               1, 1997, by and between Interstate FiberNet, Inc. and Carolinas
               FiberNet, LLC.

+   10.45      Fiber Optic Facilities Agreement, dated November 15, 1996, by and
               between Interstate FiberNet and Florida Power Corporation (filed
               as Exhibit 10.45 to Form S-4 and incorporated herein by
               reference).

                                      61
                               

<PAGE>
 
+   10.46      Fiber Optic Capacity Marketing and Operating Agreement, dated
               March 21, 1996, by and between Interstate FiberNet and Florida
               Power & Light Company (filed as Exhibit 10.46 to Form S-4 and
               incorporated herein by reference).

+   10.47      Addendum to Fiber Optic Capacity Marketing and Operating
               Agreement, dated July 10, 1997, by and between Interstate
               FiberNet and Florida Power & Light Company (filed as Exhibit
               10.47 to Form S-4 and incorporated herein by reference).

+   10.48      Master Service Agreement, dated May 6, 1996, by and between
               Interstate FiberNet and MCI Telecommunications Corporation (filed
               as Exhibit 10.48 to Form S-4 and incorporated herein by
               reference).

+   10.49      Telecommunications System Maintenance Agreement, dated as of
               January 26, 1995, by and between Interstate FiberNet and Sprint
               Communications Company L.P. (filed as Exhibit 10.49 to Form S-4
               and incorporated herein by reference).

+   10.50      Sprint Communications Company Facilities and Services Agreement,
               dated January 26, 1995, by and between Interstate FiberNet and
               Sprint Communications Company L.P. (filed as Exhibit 10.50 to
               Form S-4 and incorporated herein by reference).

+   10.51      Fiber Optic Facility Lease Agreement, dated as of January 31,
               1997, by and between Interstate FiberNet and Southern Telecom 1,
               Inc. (filed as Exhibit 10.51 to Form S-4 and incorporated herein
               by reference).

10.52          First Assignment and Assumption of Fiber Optic Facility Lease
               Agreement, dated February 1, 1997, by and between Interstate
               FiberNet and Gulf States FiberNet (filed as Exhibit 10.52 to Form
               S-4 and incorporated herein by reference).

+   10.53      Telecommunications System Agreement, dated January 26, 1995, by
               and between Interstate FiberNet and Sprint Communications Company
               L.P. (filed as Exhibit 10.53 to Form S-4 and incorporated herein
               by reference).

10.54          Amendment to Telecommunications System Agreement, dated July 25,
               1995, by and between Gulf States FiberNet and Sprint
               Communications Company L.P. (filed as Exhibit 10.54 to Form S-4
               and incorporated herein by reference).

+   10.55      Amendment No. 2 to Telecommunications System Agreement, dated
               August 8, 1996, by and between Gulf States FiberNet and Sprint
               Communications Company L.P. (filed as Exhibit 10.55 to Form S-4
               and incorporated herein by reference).

+   10.56      Assignment of the Telecommunications System Agreement, dated July
               25, 1995, between Interstate FiberNet, Gulf States FiberNet and
               Sprint Communications Company L.P. (filed as Exhibit 10.56 to
               Form S-4 and incorporated herein by reference).

+   10.57      Assignment of the Telecommunications System Agreement, dated
               February 27, 1997, between Sprint Communications Company L.P.,
               Gulf States FiberNet and Gulf States Transmission Systems, Inc.
               (filed as Exhibit 10.57 to Form S-4 and incorporated herein by
               reference).

10.58          Fixed Fee Agreement for Exchange of Use and Maintenance of Six
               (6) Fiber Optic Fibers with an Option of Two (2) Additional Fiber
               Optic Fibers, dated July 25, 1997, by and between Interstate
               FiberNet, Gulf States Transmission Systems, Inc. and ALLTEL
               Telephone Services Corporation. (filed as Exhibit 10.58 to Form
               S-4 and incorporated herein by reference).

+   10.59      MCI Carrier Agreement, effective August 1, 1995, by and between
               MCI Telecommunications Corporation and Associated Communications
               Companies of America (ACCA) (filed as Exhibit 10.59 to Form S-4
               and incorporated herein by reference).

+   10.60      First Amendment to MCI Carrier Agreement, dated as of March 20,
               1996, by and between MCI Telecommunications Corporation and
               Associated Communications Companies of America (ACCA) (filed as
               Exhibit 10.60 to Form 

                                      62
<PAGE>
 
               S-4 and incorporated herein by reference).

+   10.61      Third Amendment to MCI Carrier Agreement, dated as of August 1,
               1996, by and between MCI Telecommunications Corporation and
               Associated Communications Companies of America (ACCA) (filed as
               Exhibit 10.61 to Form S-4 and incorporated herein by reference).

10.62          Fourth Amendment to MCI Carrier Agreement dated as of May 1,
               1996, by and between MCI Telecommunications Corporation and
               Associated Communications Companies of America (ACCA) (filed as
               Exhibit 10.62 to Form S-4 and incorporated herein by reference).

+   10.63      Fifth Amendment to MCI Carrier Agreement, dated as of April 10,
               1996, by and between MCI Telecommunications Corporation and
               Associated Communications Companies of America (ACCA) (filed as
               Exhibit 10.63 to Form S-4 and incorporated herein by reference).

+   10.64      Sixth Amendment to MCI Carrier Agreement, dated as of September
               11, 1996, by and between MCI Telecommunications Corporation and
               Associated Communications Companies of America (ACCA) (filed as
               Exhibit 10.64 to Form S-4 and incorporated herein by reference).

+   10.65      Seventh Amendment to MCI Carrier Agreement, dated as of August 1,
               1996, by and between MCI Telecommunications Corporation and
               Associated Communications Companies of America (ACCA) (filed as
               Exhibit 10.65 to Form S-4 and incorporated herein by reference).

+   10.66     Eighth Amendment to MCI Carrier Agreement, effective March 1,
               1997, by and between MCI Telecommunications Corporation and
               Associated Communications Companies of America (ACCA) (filed as
               Exhibit 10.66 to Form S-4 and incorporated herein by reference).

+   10.67      Ninth Amendment to MCI Carrier Agreement, dated as of May
               15, 1997, by and between MCI Telecommunications Corporation and
               Associated Communications Companies of America (ACCA) (filed as
               Exhibit 10.67 to Form S-4 and incorporated herein by reference).

10.68          Tenth Amendment to MCI Carrier Agreement, dated July 11, 1997, by
               and between MCI Telecommunications Corporation and Associated
               Communications Companies of America (ACCA) (filed as Exhibit
               10.68 to Form S-4 and incorporated herein by reference).

+   10.69      Switched Reseller Services Agreement, dated January 25,
               1994, by and between DeltaCom, Inc. and Allnet Communication
               Services, Inc. (filed as Exhibit 10.69 to Form S-4 and
               incorporated herein by reference). 

+   10.70      WilTel, Inc. Carrier Digital Services Agreement, dated
               September 1, 1995, by and between WorldCom Network Services, Inc.
               D/b/a WilTel, Associated Communications Companies of America
               (ACCA) and the individual members of ACCA referenced therein
               (filed as Exhibit 10.70 to Form S-4 and incorporated herein by
               reference).

+   10.71      Amendment to WilTel, Inc. Carrier Digital Services Agreement,
               dated April 1, 1996, by and between WorldCom Network Services,
               Inc. d/b/a/ WilTel, Associated Communications Companies of
               America (ACCA) and the individual members of ACCA referenced
               therein (filed as Exhibit 10.71 to Form S-4 and incorporated
               herein by reference).

+   10.72      Amendment No. 2 to WilTel, Inc. Carrier Digital Services
               Agreement, dated June 1, 1996, by and between WorldCom Network
               Services, Inc. d/b/a/ WilTel, Associated Communications Companies
               of America (ACCA) and the individual members of ACCA referenced
               therein (filed as Exhibit 10.72 to Form S-4 and incorporated
               herein by reference).

+   10.73      Amendment No. 3 to WilTel, Inc. Carrier Digital Services
               Agreement, dated May 1, 1997, by and between WorldCom Network
               Services, Inc. d/b/a/ WilTel, Associated Communications Companies
               of America (ACCA) and the individual

                                      63
<PAGE>
               members of ACCA referenced therein (filed as Exhibit 10.73 to 
               Form S-4 and incorporated herein by reference).

+   10.74      Marketing and Operating Agreement, dated as of October 6,
               1994, by and between Interstate FiberNet and DukeNet
               Communications, Inc. (filed as Exhibit 10.74 to Form S-4 and
               incorporated herein by reference).

+   10.75      Reseller Agreement, dated June 25, 1997, by and between
               DeltaCom, Inc. and Total Network Services, a division of Cable &
               Wireless, Inc. (filed as Exhibit 10.75 to Form S-4 and
               incorporated herein by reference).

10.76          Sublease Agreement, dated as of January 1, 1995, by and between
               ITC Holding Company, Inc. and ITC Transmission Systems, Inc.
               (filed as Exhibit 10.76 to Form S-4 and incorporated herein by
               reference).

10.77.1        $100,000,000 Credit Agreement, dated as of September 17, 1997,
               among Interstate FiberNet, Inc., NationsBank of Texas, N.A. as
               Administrative Lender, and certain other Lenders identified
               therein (the "IFN Credit Agreement") (filed as Exhibit 10.77 to
               Form S-4 and incorporated herein by reference).

10.77.2        First Amendment to Credit Agreement, dated as of October 20,
               1997, among Interstate FiberNet, Inc., NationsBank of Texas, N.A.
               as Administrative Lender, and certain other Lenders identified
               therein (filed as Exhibit 10.77.2 to Form S-1 and incorporated
               herein by reference).

10.77.3        First Amended and Restated Credit Agreement, dated as of February
               24, 1998, among Interstate FiberNet, Inc., NationsBank of Texas,
               N.A. as Administrative Lender, and certain other Lenders
               identified therein.

10.78.1        $8,750,000 Revolving Promissory Note, dated as of September 17,
               1997, made by Interstate FiberNet, Inc. payable to the order of
               NationsBank of Texas, N.A. (filed as Exhibit 10.78.1 to Form S-4
               and incorporated herein by reference).

10.78.2        $3,750,000 Revolving Promissory Note, dated as of September 17,
               1997, made by Interstate FiberNet, Inc. payable to the order of
               Amsouth Bank (filed as Exhibit 10.78.2 to Form S-4 and
               incorporated herein by reference).

10.78.3        $5,000,000 Revolving Promissory Note, dated as of September 17,
               1997, made by Interstate FiberNet, Inc. payable to the order of
               Creditanstalt-Bankverein (filed as Exhibit 10.78.3 to Form S-4
               and incorporated herein by reference).

10.78.4        $5,000,000 Revolving Promissory Note, dated as of September 17,
               1997, made by Interstate FiberNet, Inc. payable to the order of
               Meespierson Capital Corp. (filed as Exhibit 10.78.4 to Form S-4
               and incorporated herein by reference).

10.78.5        $5,000,000 Revolving Promissory Note, dated as of September 17,
               1997, made by Interstate FiberNet, Inc. payable to the order of
               State Street Bank and Trust Company (filed as Exhibit 10.78.5 to
               Form S-4 and incorporated herein by reference).

10.78.6        $7,500,000 Revolving Promissory Note, dated as of September 17,
               1997, made by Interstate FiberNet, Inc. payable to the order of
               Corestates Bank, N.A. (filed as Exhibit 10.78.6 to Form S-4 and
               incorporated herein by reference).

10.78.7        $2,500,000 Revolving Promissory Note, dated as of September 17,
               1997, made by Interstate FiberNet, Inc. payable to the order of
               First Union National Bank (filed as Exhibit 10.78.7 to Form S-4
               and incorporated herein by reference).

10.78.8        $5,000,000 Revolving Promissory Note, dated as of September 17,
               1997, made by Interstate FiberNet, Inc. payable to the order of
               Regions Bank (filed as Exhibit 10.78.8 to Form S-4 and
               incorporated herein by reference).

10.78.9        $7,500,000 Revolving Promissory Note, dated as of September 17,
               1997, made by Interstate FiberNet, Inc. payable to the order of
               Toronto Dominion (Texas), Inc. (filed as Exhibit 10.78.9 to Form
               S-4 and incorporated herein by reference).

10.79.1        $8,750,000 Term Promissory Note, dated as of September 17, 1997,
               made by Interstate FiberNet, Inc. payable to the order of
               NationsBank of Texas, N.A. (filed as Exhibit 10.79.1 to Form S-4
               and incorporated herein by reference).

10.79.2        $5,000,000 Term Promissory Note, dated as of September 17, 1997,
               made by Interstate FiberNet, Inc. payable to the order of
               Creditanstalt-Bankverein (filed as Exhibit 10.79.2 to Form S-4
               and incorporated herein by reference).

10.79.3        $5,000,000 Term Promissory Note, dated as of September 17, 1997,
               made by Interstate FiberNet, Inc. payable to the order of
               Meespierson Capital Corp. (filed

                                      64
<PAGE>
               as Exhibit 10.79.3 to Form S-4 and incorporated herein by
               reference).

10.79.4        $5,000,000 Term Promissory Note, dated as of September 17, 1997,
               made by Interstate FiberNet, Inc. payable to the order of State
               Street Bank and Trust Company (filed as Exhibit 10.79.4 to Form
               S-4 and incorporated herein by reference).

10.79.5        $7,500,000 Term Promissory Note, dated as of September 17, 1997,
               made by Interstate FiberNet, Inc. payable to the order of
               Corestates Bank, N.A. (filed as Exhibit 10.79.5 to Form S-4 and
               incorporated herein by reference).

10.79.6        $2,500,000 Term Promissory Note, dated as of September 17, 1997,
               made by Interstate FiberNet, Inc. payable to the order of First
               Union National Bank (filed as Exhibit 10.79.6 to Form S-4 and
               incorporated herein by reference)

10.79.7        $5,000,000 Term Promissory Note, dated as of September 17, 1997,
               made by Interstate FiberNet, Inc. payable to the order of Regions
               Bank (filed as Exhibit 10.79.7 to Form S-4 and incorporated
               herein by reference).

10.79.8        $7,500,000 Term Promissory Note, dated as of September 17, 1997,
               made by Interstate FiberNet, Inc. payable to the order of Toronto
               Dominion (Texas), Inc. (filed as Exhibit 10.79.8 to Form S-4 and
               incorporated herein by reference).

10.79.9        $3,750,000 Term Promissory Note, dated as of September 17, 1997,
               made by Interstate FiberNet, Inc. payable to the order of Amsouth
               Bank (filed as Exhibit 10.79.9 to Form S-4 and incorporated
               herein by reference).

10.80.1        Security Agreement, dated as of September 17, 1997, made by
               Interstate FiberNet, Inc. in favor of NationsBank of Texas, N.A.,
               as Administrative Lender, and each other lender party to the IFN
               Credit Agreement (filed as Exhibit 10.80.1 to Form S-4 and
               incorporated herein by reference).

10.80.2        Security Agreement, dated as of September 17, 1997, made by
               DeltaCom, Inc. in favor of NationsBank of Texas, N.A., as
               Administrative Lender, and each other lender party to the IFN
               Credit Agreement (filed as Exhibit 10.80.2 to Form S-4 and
               incorporated herein by reference).

10.80.3        Security Agreement, dated as of September 17, 1997, made by Gulf
               States Transmission Systems, Inc. in favor of NationsBank of
               Texas, N.A., as Administrative Lender, and each other lender
               party to the IFN Credit Agreement (filed as Exhibit 10.80.3 to
               Form S-4 and incorporated herein by reference).

10.81          Placement Agreement, dated as of May 29, 1997, among
               ITC/\DeltaCom, Inc. and Morgan Stanley & Co. Incorporated,
               Merrill Lynch, Pierce, Fenner & Smith Incorporated, First Union
               Capital Markets Corp. and NationsBanc Capital Markets, Inc.
               (filed as Exhibit 1.1 to Form S-4 and incorporated herein by
               reference).

10.82.1        Indenture, dated as of June 3, 1997, between ITC/\DeltaCom, Inc.
               and United States Trust Company of New York, as Trustee, relating
               to the 11% Senior Notes due 2007 of ITC/\DeltaCom, Inc. (filed as
               Exhibit 4.1 to Form S-4 and incorporated herein by reference).

10.82.2        Supplemental Indenture, dated as of October 17, 1997, between
               ITC/\DeltaCom, Inc. and United States Trust Company of New York,
               as Trustee (filed as Exhibit 82.2 to Form S-1 and incorporated
               herein by reference).

10.83          Registration Rights Agreement, dated June 3, 1997, among
               ITC/\DeltaCom, Inc. and Morgan Stanley & Co. Incorporated,
               Merrill Lynch & Co., First Union Capital Markets Corp. and
               NationsBanc Capital Markets, Inc. (filed as Exhibit 4.2 to Form
               S-4 and incorporated herein by reference).

10.84          Pledge and Security Agreement dated as of June 3, 1997 from
               ITC/\DeltaCom, Inc. as Pledgor to United States Trust Company of
               New York as Trustee (filed as Exhibit 4.3 to Form S-4 and
               incorporated herein by reference).

10.85          Form of Exchange Note (contained in Indenture filed as Exhibit
               10.82).

10.86          Assignment and Contribution Agreement Pursuant to Pledge and
               Security 

                                      65
<PAGE>
               Agreement dated as of July 25, 1997, by and among ITC/\DeltaCom, 
               Inc., Interstate FiberNet, Inc. and United States Trust Company 
               of New York, as Trustee filed herewith (filed as Exhibit 4.5 to 
               Form S-4 and incorporated herein by reference).

+   10.87      MCI Carrier Agreement, effective September 1, 1997, by and
               between MCI Telecommunications Corporation and Associated
               Communications Companies of America (ACCA) (filed as Exhibit
               10.87 to Form S-1 and incorporated herein by reference).

++  10.87.1    First Amendment to the MCI Carrier Agreement, dated as of
               November 21, 1997, by and between MCI Telecommunications
               Corporation and Associated Communication Companies of America
               (ACCA).

10.88          ITC/\DeltaCom, Inc. 1997 Stock Option Plan (filed as Exhibit
               10.88 to Form S-1 and incorporated herein by reference).

10.89          ITC/\DeltaCom, Inc. 1997 Director Stock Option Plan (filed as
               Exhibit 10.89 to Form S-1 and incorporated herein by reference).

10.90          ITC Holding Company, Inc. Amended and Restated Stock Option Plan
               (filed as Exhibit 10.90 to Form S-1 and incorporated herein by
               reference).

10.91          ITC Holding Company, Inc. Nonemployee Director Stock Option Plan
               (filed as Exhibit 10.91 to Form S-1 and incorporated herein by
               reference).

10.92          Description of ITC/\DeltaCom, Inc. Bonus Plan (filed as Exhibit
               10.92 to Form S-1 and incorporated herein by reference).

10.93          Form of Indemnity Agreement between ITC/\DeltaCom, Inc. and its
               Directors and Certain Officers (filed as Exhibit 10.93 to Form
               S-1 and incorporated herein by reference).

10.94          Sale and Purchase Agreement, dated as of March 11, 1997, by and
               between SCANA Corporation and ITC Holding Company, Inc. (filed as
               Exhibit 10.94 to Form S-1 and incorporated herein by reference).

10.95          First Amendment to Sale and Purchase Agreement. Among SCANA
               Corporation, SCANA Communications, Inc., and ITC Holding Company,
               Inc., dated as of October 16, 1997, among SCANA Corporation,
               SCANA Communications, Inc., ITC Holding Company, Inc. and
               ITC/\DeltaCom, Inc. (filed as Exhibit 10.95 to Form S-1 and
               incorporated herein by reference).

12.1           Statement regarding Computation of Ratios.

21.1           Subsidiaries of ITC/\DeltaCom, Inc.

23.1           Consent of Arthur Andersen LLP.

27.1           Financial Data Schedule for the year ended December 31, 1997.

- -----------------

+    Confidential treatment has been granted for this exhibit. The copy filed as
     an exhibit omits the information subject to the confidential treatment
     request.

++   Confidential treatment has been requested for this exhibit. The copy filed
     as an exhibit omits the information subject to the confidential treatment
     request.

                                      66
<PAGE>
 
(b)  Reports on Form 8-K.

     None.

(c)  Exhibits.

     The Company hereby files as part of this Form 10-K the Exhibits listed in
     the Index to Exhibits.

(d)  Financial Statement Schedule.

     The following financial statement schedule is filed herewith:


                                       67

<PAGE>
 
                Schedule II - Valuation and Qualifying Accounts.

     Schedules not listed above have been omitted because they are inapplicable
or the information required to be set forth therein is provided in the
Consolidated Financial Statements of the Company or notes thereto.


                                      68
<PAGE>
 
                                    GLOSSARY

     Access--Telecommunications services that permit long distance carriers to
use local exchange facilities to originate and/or terminate long distance
service.

     Access charges--The fees paid by long distance carriers to local exchange
carriers for originating and terminating long distance calls on their local
network.

     AT&T--AT&T Corp.

     Cable & Wireless--Cable & Wireless Communications Inc.

     Central offices--The switching centers or central switching facilities of
the local exchange companies.

     Collocation--The ability of a competitor carrier to connect its network to
the local exchange carriers' central offices. Physical collocation occurs when a
competitor carrier places its network connection equipment inside the local
exchange company's central offices. Virtual collocation is an alternative to
physical collocation pursuant to which the local exchange company permits a
competitor carrier to connect its network to the local exchange company's
central offices on comparable terms, even through the competitor carrier's
network connection equipment is not physically located inside the central
offices.

     Dedicated--Local telecommunications lines reserved for use by particular
customers, generally for connection between the customer's location and an
interexchange carrier POP.

     DeltaCom--DeltaCom, Inc., an Alabama corporation which provides long
distance telephone services in the southeastern United States. DeltaCom became a
wholly owned subsidiary of the Company as part of the Reorganization.

     Dialing Parity--The ability of a competing local or toll service provider
to provide telecommunications services in such a manner that customers have the
ability to route automatically, without the use of any access code, their
telecommunications to the service provider of the customer's designation.

     Digital--A method of storing, processing and transmitting information
through the use of distinct electronic or optical pulses that represent the
binary digits 0 and 1. Digital transmission and switching technologies employ a
sequence of these pulses to represent information as opposed to the continuously
variable analog signal. The precise digital numbers minimize distortion (such as
graininess or snow in the case of video transmission, or static or other
background distortion in the case of audio transmission).

     DS-1, DS-3--Standard telecommunications industry digital signal formats,
which are distinguishable by bit rate (the number of binary digits (0 and 1)
transmitted per second). DS-1 service has a bit rate of 1.544 megabits per
second and DS-3 service has a bit rate of 45 megabits per second.

     Frontier--Allnet Communications Services, Inc. d/b/a Frontier
Communications Services.

     GTE--GTE Corporation.

     Gulf States FiberNet--A Georgia general partnership, prior to the
Reorganization, that operates a fiber-optic telecommunications network between
Atlanta, Georgia and Longview, Texas.

                                      69
<PAGE>
 
Gulf States FiberNet's assets and operations now are 100% owned by Gulf States
Transmission Systems, Inc.

     Gulf States Transmission--Gulf States Transmission Systems, Inc., a
Delaware corporation, formed in 1994 by ITC Holding to be the 36% managing
general partner in Gulf States FiberNet and which now owns 100% of Gulf States
FiberNet's assets and its operations. Gulf States Transmission Systems, Inc.
became a wholly owned subsidiary of the Company as part of the Reorganization.

     Interconnection--Interconnection of facilities between or among local
exchange carriers, including potential physical collocation of one carrier's
equipment in the other carrier's premises to facilitate such interconnection.

     Interconnection Decision--The August 1996 order issued by the FCC
implementing the interconnection provisions of the Telecommunications Act.
Portions of this order have been stayed by the U.S. Eighth Circuit Court of
Appeals.

     InterLATA--Telecommunications services originating in a LATA and
terminating outside of that LATA.

     InterQuest--Eastern Telecom, Inc., a Georgia corporation, d/b/a InterQuest,
engaged solely in the provision of operator and other directory assistance
services. Eastern Telecom merged into Interstate FiberNet, Inc. as part of the
Reorganization.

     Interstate FiberNet--A Georgia general partnership which operates a
fiber-optic telecommunications network between Georgia and Alabama. Interstate
FiberNet became part of Interstate FiberNet, Inc. following the Reorganization.

     Interstate FiberNet, Inc.--The wholly owned subsidiary of the Company that
currently holds the businesses that were held by ITC Transmission Systems, Inc.,
ITC Transmission Systems II, Inc., InterQuest and Interstate FiberNet prior to
the Reorganization.

     IntraLATA--Telecommunications services originating and terminating in the
same LATA.

     ITC Holding--ITC Holding Company, Inc. was a diversified telecommunications
company based in West Point, Georgia, with substantial holdings in
telecommunications companies operating in the southern United States. ITC
Holding Company, Inc. merged with and into the Company on October 20, 1997, 
after transferring substantially all of its assets and liabilities (other than 
its stock in the Company) to another company, which has since been renamed ITC 
Holding Company, Inc.

     ITC Transmission Systems II, Inc.--A Delaware corporation formed by ITC
Holding to hold a 51 percent interest in InterState FiberNet. ITC Transmission
Systems II merged into Interstate FiberNet, Inc. as part of the Reorganization.

     IXC--IXC Communications Inc.

     LATA (local access and transport area)--A geographic area composed of
contiguous local exchanges, usually but not always within a single state. There
are approximately 200 LATAs in the United States.

     LCI--LCI International Telecom Corp.

     Local exchange--A geographic area determined by the local exchange carrier
in which calls generally are transmitted without toll charges to the calling or
called party.

                                      70
<PAGE>
 
     Local exchange carrier--A company providing local telephone services.

     Long distance carriers (interexchange carriers)--Long distance carriers
provide services between local exchanges on an interstate or intrastate basis. A
long distance carrier may offer services over its own or another carrier's
facilities.

     MCI--MCI Communications Corporation.

     Nortel Access Node--A remote multi-purpose vehicle for local switched
access transport services. Used to extend Nortel DMS-500 local access lines to
remote cities along the long-haul network.

     Number portability--The ability of an end user to change local exchange
carriers while retaining the same telephone number.

     OC-N--Standard telecommunications industry measurements for optical
transmission capacity distinguishable by bit rate transmitted per second and the
number of voice or data transmissions that can be simultaneously transmitted
through fiber optic cable. "N" represents the number of DS-3s involved. For
example, an OC-3 is generally equivalent to three DS-3s and has a bit rate of
155.52 megabits per second and can transmit 2,016 simultaneous voice or data
transmissions. An OC-12 has a bit rate of 622.08 megabits per second and can
transmit 8,064 simultaneous voice or data transmissions. An OC-48 has a bit rate
of 2488.32 megabits per second and can transmit 32,256 simultaneous voice or
data transmissions.

     POPs (points of presence)--Locations where a long distance carrier has
installed transmission equipment in a service area that serves as, or relays
calls to, a network switching center of that long distance carrier.

     Private line--A dedicated telecommunications connection between end user
locations.

     "PUC" or "Public utilities commission"--A state regulatory body,
established in most states, which regulates utilities, including telephone
companies providing intrastate services.

     Reciprocal compensation--The same compensation of a new competitive local
exchange carrier for termination of a local call by the local exchange carrier
on its network as the new competitor pays the local exchange carrier for
termination of local calls on the local exchange carrier network.

     Reorganization--The contribution to the Company by ITC Holding of the
businesses of Interstate FiberNet, Gulf States FiberNet, DeltaCom and
InterQuest.

     Resale--Resale by a provider of telecommunications services (such as a
local exchange carrier) of such services to other providers or carriers on a
wholesale or a retail basis.

     Route miles--The number of miles of the telecommunications path in which
fiber optic cables are installed.

     SCANA--SCANA Communications, Inc.

     Self-healing ring--A self-healing ring is a network design in which the
network backbone consists of a continuous ring connecting a central hub facility
with one or more network nodes. Traffic is routed between the hub and each of
the nodes simultaneously in both a clockwise and a counterclockwise direction.
In the event of a cable cut or component failure along one of these paths,
traffic will continue to flow along the alternate path so no traffic is lost. In
the event of a

                                      71
<PAGE>
 
catastrophic node failure, other nodes will be unaffected because traffic will
continue to flow along whichever path (primary or alternate) does not pass
through the affected node. The switch from the primary to the alternate path
will be imperceptible to most users.

     Sprint--Sprint Corporation.

     "SS7" or "Signaling System 7" services--Signaling System 7 network services
utilize common channel signaling, which reduces connect time delays and directs
calls.

     Switch--A device that opens or closes circuits or selects the paths or
circuits to be used for transmission of information. Switching is a process of
interconnecting circuits to form a transmission path between users.

     Switched access transport services--Transportation of switched traffic
along dedicated lines between the local exchange company central offices and
long distance carrier POPs.

     Switched traffic--Telecommunications traffic along the public switched
network. This traffic is generally switched at the local exchange company's
central offices.

     Transmission--ITC Transmission Systems, Inc., a Delaware corporation formed
by ITC Holding to hold a 49% managing interest in InterState FiberNet.
Transmission became a wholly owned subsidiary of the Company as part of the
Reorganization and changed its name to Interstate FiberNet, Inc.

     Unbundled Access--Access to unbundled elements of a telecommunications
services provider's network, including network facilities, equipment, features,
functions and capabilities, at any technically feasible point within such
network.

     WorldCom--WorldCom, Inc.

                                      72
<PAGE>
 
                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized as of the 30th day of
March, 1998.


                                                     ITC/\DELTACOM, INC.


                                                     By: /s/  Andrew M. Walker
                                                        ------------------------
                                                        Andrew M. Walker
                                                        Chief Executive Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated and on the dates indicated.



<TABLE>
<CAPTION>
Signature                          Title                                    Date
- ---------                          -----                                    ----
<S>                                <C>                                      <C> 
/s/ Campbell B. Lanier, III
- ----------------------------       Chairman, Director                       March 30, 1998
Campbell B. Lanier, III


/s/ Andrew M. Walker               Chief Executive Officer and Director     March 30, 1998
- ---------------------------        (Principal executive officer)
Andrew M. Walker                   


/s/ Douglas A. Shumate             Senior Vice President and Chief          March 30, 1998
- ---------------------------        Financial Officer (Principal     
Douglas A. Shumate                 financial officer and principal  
                                   accounting officer)              
                                   

/s/ Donald W. Burton
- ---------------------------        Director                                 March 30, 1998
Donald W. Burton

/s/ Malcolm C. Davenport, V
- ---------------------------        Director                                 March 30, 1998
Malcolm C. Davenport, V

/s/ Robert A. Dolson
- ---------------------------        Director                                 March 30, 1998
Robert A. Dolson

/s/ O. Gene Gabbard
- ---------------------------        Director                                 March 30, 1998
O. Gene Gabbard

/s/ William T. Parr
- ---------------------------        Director                                 March 30, 1998
William T. Parr
</TABLE>


                                      73
<PAGE>
 
<TABLE>
<S>                                <C>                                      <C> 
/s/ William H. Scott, III
- ---------------------------        Director                                 March 30, 1998
William H. Scott, III

/s/ William B. Timmerman
- ---------------------------        Director                                 March 30, 1998
William B. Timmerman
</TABLE>

                                      74
<PAGE>
 
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


ITC/\DELTACOM, INC. AND SUBSIDIARIES
         Report of Independent Public Accountants ........................   F-2
         Consolidated Balance Sheets as of December 31, 1997 and 1996 ....   F-3
         Consolidated Statements of Operations for the Years Ended
                December 31, 1997, 1996, and 1995 ........................   F-5
         Consolidated Statements of Stockholders' Equity for the Years 
                Ended December 31, 1997, 1996, and 1995 ..................   F-6
         Consolidated Statements of Cash Flows for the Years Ended
                December 31, 1997, 1996, and 1995 ........................   F-7
         Notes to Consolidated Financial Statements ......................   F-9




                                      F-1
<PAGE>
 
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To ITC/\DELTACOM, INC. AND SUBSIDIARIES:

     We have audited the accompanying consolidated balance sheets of
ITC/\DELTACOM, INC. (a Delaware corporation) AND SUBSIDIARIES as of December 31,
1997 and 1996 and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ITC/\DeltaCom, Inc. and
subsidiaries as of December 31, 1997 and 1996 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.


ARTHUR ANDERSEN LLP


Atlanta, Georgia
February 23, 1998
(except with respect to
Note 17, as to which
the date is March 18, 1998)





                                      F-2
<PAGE>
 
                                        ITC/\DELTACOM, INC. AND SUBSIDIARIES

                                            CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                              December 31,
                                                                     ---------------------------
                                                                          1997           1996
                                                                     ------------   ------------

<S>                                                                  <C>            <C>         
                                    ASSETS
CURRENT ASSETS:
  Cash and cash equivalents ......................................   $ 94,373,610   $  1,301,415
  Restricted assets ..............................................     22,000,000              0
  Accounts receivable:
     Customer, net of allowance for uncollectible accounts of
     $1,060,842 and $856,858 in 1997 and 1996, respectively ......     21,439,365     11,029,037
     Affiliate ...................................................      2,011,822      1,227,661
  Inventory ......................................................      1,018,212        543,447
  Prepaid expenses ...............................................        534,909      1,191,287
  Federal income tax receivables from ITC Holding (Note 8) .......      2,448,297      2,546,534
  Deferred income taxes (Note 8) .................................        589,799        525,660
                                                                     ------------   ------------
        Total current assets .....................................    144,416,014     18,365,041
                                                                     ------------   ------------
PROPERTY, PLANT AND EQUIPMENT, net (Note 3) ......................    141,534,626     31,880,556
OTHER LONG-TERM ASSETS:
  Intangible assets, net of accumulated amortization of $3,634,152
  and $1,431,753 in 1997 and 1996, respectively (Note 4) .........     61,347,786     55,517,575
  Restricted assets ..............................................     28,495,831              0
  Investments (Note 5) ...........................................              0      7,424,797
  Other long-term assets .........................................     10,310,220         20,010
                                                                     ------------   ------------
        Total assets .............................................   $386,104,477   $113,207,979
                                                                     ============   ============
</TABLE>


The accompanying notes are an integral part of these consolidated balance
sheets.



                                      F-3
<PAGE>
 
                       ITC/\DELTACOM, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                      December 31,
                                                                             ------------------------------
                                                                                  1997             1996
                                                                             -------------    -------------
<S>                                                                          <C>              <C>          
                      LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable:
    Trade ................................................................   $   7,714,878    $   4,192,927
    Construction .........................................................       6,770,923          972,215
    Affiliate (Note 12) ..................................................         534,461          658,990
  Accrued interest .......................................................       1,867,208        5,830,716
  Accrued compensation ...................................................       1,875,663        1,189,395
  Unearned revenue .......................................................       4,778,819          762,829
  Other accrued liabilities ..............................................       3,516,510          983,270
  Current portion of long-term debt and capital lease obligations (Note 6)         912,037          359,611
                                                                             -------------    -------------
        Total current liabilities ........................................      27,970,499       14,949,953
                                                                             -------------    -------------
LONG-TERM LIABILITIES:
  Advance from ITC Holding (Note 7) ......................................               0       74,227,827
  Deferred income taxes (Note 8) .........................................       6,890,952        3,918,140
  Long-term debt and capital lease obligations (Note 6) ..................     202,977,499          855,533
                                                                             -------------    -------------
        Total long-term liabilities ......................................     209,868,451       79,001,500
                                                                             -------------    -------------
COMMITMENTS AND CONTINGENCIES (Notes 6, 7, 10, and 17) STOCKHOLDERS'
EQUITY:
  Preferred stock, $.01 par value; $7.40 liquidation preference;
    5,000,000 shares authorized; 1,480,771 and 0 shares issued and
    outstanding in 1997 and 1996, respectively ...........................          14,808                0
  Common stock, $.01 par value; 90,000,000 shares authorized; 24,817,556
    and 15,000,000 shares issued and outstanding in 1997 and 1996,
    respectively .........................................................         248,176          150,000
  Additional paid-in capital .............................................     163,011,879       23,492,988
  Contributions receivable ...............................................               0         (150,000)
  Accumulated deficit ....................................................     (15,009,336)      (4,236,462)
                                                                             -------------    -------------
        Total stockholders' equity .......................................     148,265,527       19,256,526
                                                                             -------------    -------------
        Total liabilities and stockholders' equity .......................   $ 386,104,477    $ 113,207,979
                                                                             =============    =============
</TABLE>




   The accompanying notes are an integral part of these consolidated balance
                                    sheets.


                                      F-4
<PAGE>
 
                       ITC/\DELTACOM, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                                  Years ended December 31,
                                                     -----------------------------------------------
                                                          1997             1996             1995
                                                     -------------    -------------    -------------
<S>                                                  <C>              <C>              <C>          
OPERATING REVENUES ...............................   $ 114,589,998    $  66,518,585    $   5,750,587
COST OF SERVICES .................................      54,550,348       38,756,287        3,149,231
                                                     -------------    -------------    -------------
GROSS MARGIN .....................................      60,039,650       27,762,298        2,601,356
                                                     -------------    -------------    -------------
OPERATING EXPENSES:
     Selling, operations, and administration .....      38,254,893       18,876,572        1,626,678
     Depreciation and amortization ...............      18,332,451        6,438,074        1,267,882
                                                     -------------    -------------    -------------
          Total operating expenses ...............      56,587,344       25,314,646        2,894,560
                                                     -------------    -------------    -------------
OPERATING INCOME (LOSS) ..........................       3,452,306        2,447,652         (293,204)
                                                     -------------    -------------    -------------
OTHER INCOME (EXPENSE):
     Equity in losses of unconsolidated subsidiary
        (Note 5) .................................               0       (1,589,812)        (258,242)
     Interest expense ............................     (21,367,351)      (6,172,421)        (297,228)
     Interest and other income ...................       4,251,088          171,514           41,734
                                                     -------------    -------------    -------------
          Total other expense ....................     (17,116,263)      (7,590,719)        (513,736)
                                                     -------------    -------------    -------------
LOSS BEFORE INCOME TAXES,
   PREACQUISITION LOSSES
   AND EXTRAORDINARY ITEM ........................     (13,663,957)      (5,143,067)        (806,940)
INCOME TAX BENEFIT ...............................      (3,324,466)      (1,233,318)        (302,567)
                                                     -------------    -------------    -------------
LOSS BEFORE PREACQUISITION
   LOSSES AND EXTRAORDINARY ITEM .................     (10,339,491)      (3,909,749)        (504,373)
PREACQUISITION LOSSES (Note 1) ...................          74,132                0                0
                                                     -------------    -------------    -------------

LOSS BEFORE EXTRAORDINARY ITEM ...................     (10,265,359)      (3,909,749)        (504,373)
EXTRAORDINARY ITEM--LOSS ON
   EXTINGUISHMENT OF DEBT (LESS
   RELATED INCOME TAX BENEFITS OF $311,057) ......        (507,515)               0                0
                                                     -------------    -------------    -------------
NET  LOSS ........................................   $ (10,772,874)   $  (3,909,749)   $    (504,373)
                                                     =============    =============    =============
BASIC AND DILUTED NET  LOSS
   PER COMMON SHARE:
     Before extraordinary loss ...................   $       (0.51)   $       (0.20)   $       (0.03)
     Extraordinary loss ..........................           (0.03)             0.0              0.0
                                                     -------------    -------------    -------------
     Net loss ....................................   $       (0.54)   $       (0.20)   $       (0.03)
                                                     =============    =============    =============
     Basic weighted average common shares
        outstanding ..............................      20,124,908       19,053,675       19,053,675
                                                     =============    =============    =============
     Diluted weighted average common shares
        outstanding ..............................      20,124,908       19,101,926       19,101,926
                                                     =============    =============    =============
</TABLE>

 The accompanying notes are an integral part of these consolidated statements.


                                      F-5
<PAGE>
 
                       ITC/\DELTACOM, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


    
<TABLE>
<CAPTION>
                                                                                                                               
                                                                                                                               
                                    Preferred Stock                   Common Stock                              
                                    ---------------                   ------------                             Contributions  
                                Shares            Amount         Shares           Amount    Paid-in Capital    Receivable      
                             -------------   -------------   -------------   -------------  ---------------   -------------    
<S>                               <C>        <C>                <C>          <C>             <C>              <C>              
BALANCE, December 31, 1994               0   $           0      15,000,000   $     150,000   $  13,583,749    $    (150,000)   
Capital contributions
from ITC Holding, net ....               0               0               0               0       1,050,000                0    
Net loss .................               0               0               0               0               0                0    
                             -------------   -------------   -------------   -------------   -------------    -------------    
BALANCE, December 31, 1995               0               0      15,000,000         150,000      14,633,749         (150,000)   
Acquisition of DeltaCom,                 
Inc. (Note 13) ...........               0               0               0               0       6,000,000                0    
Capital contributions
from ITC Holding, net ....               0               0               0               0       2,859,239                0    
Net loss .................               0               0               0               0               0                0    
                             -------------   -------------   -------------   -------------   -------------    -------------    
BALANCE, December 31, 1996               0               0      15,000,000         150,000      23,492,988         (150,000)   
Initial capitalization of                0               0               0               0               0          150,000    
ITC/\DeltaCom
Capital contributions from
ITC Holding, net .........               0               0               0               0      52,070,363                0    
Issuance of stock in
connection with merger                
with ITC Holding .........       1,480,771          14,808       4,053,675          40,537         (55,345)               0
Sale of common stock, net
of offering expenses .....               0               0       5,750,000          57,500      87,442,500                0    
Issuance of stock options                0               0               0               0         579,494                0    
Deferred compensation ....               0               0               0               0        (555,348)               0    
Exercise of stock options                0               0          13,881             139          37,227                0    
Net loss .................               0               0               0               0               0                0    
                             -------------   -------------   -------------   -------------   -------------    -------------    
BALANCE, December 31, 1997       1,480,771   $      14,808      24,817,556   $     248,176   $ 163,011,879    $           0    
                             =============   =============   =============   =============   =============    =============    

<CAPTION>
                                                       Total                                  
                                    Retained           -----                
                                    Earnings        Stockholders' 
                                  (Accumulated      ------------ 
                                    Deficit)         Equity        
                                 -------------    -------------    
<S>                              <C>              <C>              
BALANCE, December 31, 1994       $     177,660    $  13,761,409    
Capital contributions                                              
from ITC Holding, net ....                   0        1,050,000    
Net loss .................            (504,373)        (504,373)   
                                 -------------    -------------    
BALANCE, December 31, 1995            (326,713)      14,307,036    
Acquisition of DeltaCom,             
Inc. (Note 13) ...........                   0        6,000,000                                                     
Capital contributions                                              
from ITC Holding, net ....                   0        2,859,239    
Net loss .................          (3,909,749)      (3,909,749)   
                                 -------------    -------------    
BALANCE, December 31, 1996          (4,236,462)      19,256,526    
Initial capitalization of                    0          150,000    
ITC/\DeltaCom                                                       
Capital contributions from                                         
ITC Holding, net .........                   0       52,070,363    
Issuance of stock in                                               
connection with merger               
with ITC Holding .........                   0                0                   
Sale of common stock, net                                          
of offering expenses .....                   0       87,500,000    
Issuance of stock options                    0          579,494    
Deferred compensation ....                   0         (555,348)   
Exercise of stock options                    0           37,366    
Net loss .................         (10,772,874)     (10,772,874)   
                                 -------------    -------------    
Balance, December 31, 1997       $ (15,009,336)   $ 148,265,527    
                                 =============    =============    
</TABLE>
                                                                   
                                 

 The accompanying notes are an integral part of these consolidated statements.



                                      F-6
<PAGE>
 
                       ITC/\DELTACOM, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                 Years ended December 31,
                                                      --------------------------------------------
                                                           1997            1996            1995
                                                      ------------    ------------    ------------
<S>                                                   <C>             <C>             <C>          
CASH FLOWS FROM OPERATING
   ACTIVITIES:
   Net loss .......................................   $(10,772,874)   $ (3,909,749)   $   (504,373)
                                                      ------------    ------------    ------------
   Adjustments to reconcile net loss to
     net cash provided by operating activities
     (excluding the effects of acquisitions):
     Depreciation and amortization ................     18,332,451       6,438,074       1,267,882
     Amortization of bond issue costs .............        720,796               0               0
     Deferred income taxes ........................      2,056,218         611,530         368,998
     Equity in losses of investee .................              0       1,589,812         258,242
     Extraordinary item--loss on extinguishment
        of debt ...................................        818,572               0               0
     Other ........................................        186,582          13,853          88,293
     Changes in current operating assets and
        liabilities:
        Accounts receivable .......................     (9,027,582)     (2,646,760)        471,988
        Other current assets ......................        335,648      (2,451,764)       (565,182)
        Accounts payable ..........................        552,253       1,506,728          15,083
        Accrued interest ..........................     (4,054,065)      5,830,716               0
        Unearned revenue ..........................      4,015,990         514,370           4,225
        Accrued compensation and other accrued
          liabilities .............................      3,138,134         691,808          32,161
                                                      ------------    ------------    ------------
          Total adjustments .......................     17,074,997      12,098,367       1,941,690
                                                      ------------    ------------    ------------
          Net cash provided by operating activities      6,302,123       8,188,618       1,437,317
                                                      ------------    ------------    ------------
CASH FLOWS FROM INVESTING
   ACTIVITIES:
   Capital expenditures ...........................    (48,692,156)     (6,003,971)     (2,526,646)
   Change in accrued construction costs ...........      4,818,166        (168,689)        720,904
   Investment in Gulf States FiberNet .............              0      (2,361,530)              0
   Purchase of DeltaCom, net of cash received
     (Note 13) ....................................              0     (63,534,092)              0
   Purchase of assets of Viper Computer Systems,
     Inc. (Note 14) ...............................              0        (625,000)              0
   Purchase of Gulf States FiberNet, net of cash
     received (Note 15) ...........................        574,600               0               0
</TABLE>

                                      F-7
<PAGE>
 
                       ITC/\DELTACOM, INC. AND SUBSIDIARIES

               CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)


<TABLE>
<CAPTION>
                                                                    Years ended December 31,
                                                         -----------------------------------------------
                                                             1997             1996             1995
                                                         -------------    -------------    -------------
<S>                                                      <C>              <C>              <C>          
   Purchase of restricted assets, net of investments
     released from restriction .......................   $ (50,495,831)   $           0    $           0
   Other .............................................         (59,615)               0          326,984
                                                         -------------    -------------    -------------
          Net cash used in investing activities ......     (93,854,836)     (72,693,282)      (1,478,758)
                                                         -------------    -------------    -------------
CASH FLOWS FROM FINANCING
   ACTIVITIES:
   Proceeds from Senior Notes, net of issuance costs .     192,112,875                0                0
   Proceeds from other long-term debt ................      41,290,000                0                0
   Payment of debt issuance costs ....................      (2,718,957)               0                0
   Repayment of other long-term debt and capital lease
     obligations .....................................     (93,894,088)     (10,619,682)        (675,000)
   Proceeds from advance from ITC Holding ............               0       74,005,598                0
   Repayment of advance from ITC Holding .............     (43,227,827)      (1,234,248)        (195,000)
   Capital contributions from ITC Holding, net .......        (624,461)       2,859,239        1,050,000
   Proceeds from issuance of common stock, net of
     offering expenses ...............................      87,650,000                0                0
   Other .............................................          37,366          139,076                0
                                                         -------------    -------------    -------------
   Net cash provided by financing activities .........     180,624,908       65,149,983          180,000
                                                         -------------    -------------    -------------
INCREASE IN CASH AND CASH EQUIVALENTS ................      93,072,195          645,319          138,559
                                                         -------------    -------------    -------------
CASH AND CASH EQUIVALENTS AT
   BEGINNING OF YEAR .................................       1,301,415          656,096          517,537
                                                         -------------    -------------    -------------
CASH AND CASH EQUIVALENTS AT END
   OF YEAR ...........................................   $  94,373,610    $   1,301,415    $     656,096
                                                         =============    =============    =============
SUPPLEMENTAL CASH FLOW
   DISCLOSURES:
   Cash paid for interest ............................   $  24,390,910    $     280,791    $     174,513
                                                         =============    =============    =============
   Cash paid (refunds received) for income taxes, net    $  (6,287,448)   $     546,501    $      11,558
                                                         =============    =============    =============
NONCASH TRANSACTIONS:
   Equity portion of acquisition of DeltaCom (Note 13)   $           0    $   6,000,000    $           0
                                                         =============    =============    =============
   Assumption of capital leases related to
     acquisition of assets of Viper Computer
     Systems, Inc. (Note 14) .........................   $           0    $     171,683    $           0
                                                         =============    =============    =============
   Equity portion of acquisition of 64% interest in
     Gulf State FiberNet and Georgia Fiber Assets ....   $  21,694,931    $           0    $           0
                                                         =============    =============    =============
   Assumption of long-term debt related to
     acquisition of Georgia Fiber Assets .............   $   9,964,091    $           0    $           0
                                                         =============    =============    =============
   Forgiveness of long-term advances by ITC Holding ..   $  31,000,000    $           0    $           0
                                                         =============    =============    =============
</TABLE>


The accompanying notes are an integral part of these consolidated statements.



                                      F-8
<PAGE>
 
                       ITC/\DELTACOM, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Organization, Basis of Presentation, and Nature of Business

     Organization

     InterState FiberNet, Inc. (formerly ITC Transmission Systems, Inc.)
("FiberNet"), ITC Transmission Systems II, Inc. ("Transmission II"), Gulf States
Transmission Systems, Inc. ("GSTS"), and Eastern Telecom, Inc. d.b.a. InterQuest
("InterQuest") (collectively, the "Fiber Companies"), as well as ITC/\DeltaCom
Communications, Inc. (formerly DeltaCom, Inc.) ("DeltaCom"), were wholly owned
subsidiaries of ITC Holding Company, Inc. ("ITC Holding"). ITC/\DeltaCom, Inc.
(the "Company") was incorporated on March 24, 1997 under the laws of the State
of Delaware, as a wholly owned subsidiary of ITC Holding, to acquire and operate
the Fiber Companies and DeltaCom. Upon receipt of certain regulatory approvals
and certain other consents on July 25, 1997, ITC Holding completed the
reorganization of such subsidiaries (the "Reorganization"), as follows:

     a.   InterQuest and Transmission II were merged with and into FiberNet.

     b.   ITC Holding contributed all of the outstanding capital stock of
          FiberNet, DeltaCom and GSTS to the Company.

     c.   The Company contributed all of the outstanding capital stock of
          DeltaCom and GSTS to FiberNet.

     At December 31, 1996, FiberNet and Transmission II together held 100% of
the ownership interests in Interstate FiberNet ("Interstate"), a Georgia general
partnership. Effective with the Reorganization, Interstate was absorbed by law
into FiberNet. GSTS held a 36% ownership in and was the managing partner of Gulf
States FiberNet ("Gulf States"), a Georgia general partnership (Note 5). On
March 27, 1997, ITC Holding purchased the remaining 64% interest in Gulf States
(Note 15) and contributed this interest to GSTS upon the Reorganization. On
December 29, 1997, GSTS merged with and into FiberNet.

     Effective October 20, 1997, as part of a further reorganization of ITC
Holding, ITC Holding transferred all of its assets, other than its stock in the
Company, and all of its liabilities to another entity and then merged with and
into the Company (the "Merger"). The Company was the surviving corporation in
the Merger.

     Basis of Accounting and Financial Statement Presentation

     The accompanying consolidated financial statements are prepared on the
accrual basis of accounting. The consolidated financial statements reflect the
Reorganization in a manner similar to a pooling of interests and include the
accounts of the Company and its wholly owned subsidiaries. Investments in
affiliated entities in which the Company has at least 20% ownership and does not
have management control are accounted for using the equity method. All material
intercompany accounts and transactions have been eliminated in consolidation.
Certain prior year amounts have been reclassified to conform to the current year
presentation.

     On January 29, 1996, ITC Holding acquired 100% of the common stock of
DeltaCom (Note 13). The acquisition was accounted for using the purchase method
of accounting. The results of 



                                      F-9
<PAGE>
 
operations of DeltaCom have been included in the accompanying consolidated
statements of operations since the date of acquisition.

     Prior to 1997, GSTS accounted for its 36% investment in Gulf States using
the equity method. To reflect the acquisition of the remaining 64% of Gulf
States, the revenues and expenses of Gulf States have been included in the
consolidated statement of operations for the year ended December 31, 1997, with
the preacquisition losses attributable to the previous owner deducted to
determine the consolidated net loss of the Company.

     Nature of Business

     The Company operates primarily in two business segments. DeltaCom is a
regional long-distance company operating primarily in the southern United
States. DeltaCom is engaged in the retail sale of long-distance services such as
traditional switched and dedicated long-distance; 800/888 calling; calling card
and operator services; ATM and frame relay; high-capacity broadband private line
services, as well as Intranet, Internet, and Web page hosting and development
services; and customer premises equipment installation and repair. DeltaCom
primarily serves midsized and major regional businesses in the southern United
States (the "Retail Services").

     The Fiber Companies are engaged in the sale of long-haul private-line
services on a wholesale basis to other telecommunications companies using their
owned and managed fiber optic network which extends throughout ten southern
states (Arkansas, Texas, Tennessee, Mississippi, Louisiana, Alabama, Georgia,
North Carolina, South Carolina, and Florida) (the "Carriers' Carrier Services").

     The Company has experienced operating losses as a result of efforts to
build its network infrastructure and internal staffing, develop its systems, and
expand into new markets. Assuming financing is available, the Company expects to
continue to focus on increasing its customer base and expanding its network
operations. Accordingly, the Company expects that its cost of services, selling,
operations, and administration expenses and capital expenditures will continue
to increase significantly, all of which will have a negative impact on
short-term operating results. In addition, the Company may change its pricing
policies to respond to a changing competitive environment. FiberNet has obtained
a five-year, secured credit facility with NationsBank of Texas, N.A. (Note 6),
and the Company has issued senior notes and equity (Notes 9 and 17). In the
opinion of management, the Company's current cash position and available line of
credit will be sufficient to meet the capital and operating needs of the Company
through at least 1998. However, there can be no assurance that growth in the
Company's revenue or customer base will continue or that the Company will be
able to achieve or sustain profitability and/or positive cash flow.

     Sources of Supplies

     The Company voluntarily uses a single vendor for transmission equipment
used in its network. However, if this vendor were unable to meet the Company's
needs, management believes that other sources for this equipment exist on
commensurate terms and that operating results would not be adversely affected.

     Credit Risk and Significant Customers

     The Company's accounts receivable potentially subject the Company to credit
risk, as collateral is generally not required. The Company's risk of loss is
limited due to advance billings to certain customers for services and the
ability to terminate access on delinquent accounts. The concentration of credit
risk is mitigated by the large number of customers comprising the customer base.
In 1997 and 1996, no customer represented more than 10% of the Company's
consolidated operating 



                                      F-10
<PAGE>
 
revenues. However, in 1995, one customer represented approximately 30% of the
Company's consolidated operating revenues.

     Regulation

     The Company is subject to certain regulations and requirements of the
Federal Communications Commission and various state public service commissions.

2.   Summary of Significant Accounting Policies

     Accounting Estimates

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

     Cash and Cash Equivalents

     The Company considers all short-term highly liquid investments with an
original maturity date of three months or less to be cash equivalents.

     Inventory

     Inventory consists primarily of customer premise equipment held for resale
and is valued at the lower of cost or market, using the first-in, first-out
method.

     Property and Equipment

     Property and equipment are recorded at cost. Depreciation of property and
equipment is provided using the composite or straight line method over the
following estimated useful lives:

<TABLE>
<CAPTION>
                                                                 Years
                                                               -------
     <S>                                                       <C>
     Buildings and towers.................................          30
     Office furniture, fixtures, and equipment............     3 to 15
     Vehicles.............................................           5
     Telecommunications equipment.........................     5 to 20
</TABLE>

     Intangible Assets

     Intangible assets include the excess of the purchase price of acquisitions
over the fair value of net assets acquired as well as various other acquired
intangibles. Intangible assets are amortized over the following estimated useful
lives:

<TABLE>
<CAPTION>
                                       Years
                                       -----
     <S>                              <C>
     Goodwill.......................       40
     Trademark......................       40
     Customer base..................  5 to 12
     Noncompete agreements..........        5
</TABLE>


                                      F-11
<PAGE>
 
     Restricted Assets

     Restricted assets include investments in U.S. government treasury notes
that are classified as held-to-maturity and are reported at amortized costs.
These investments represent a portion of the proceeds from the Company's 1997
senior notes offering (Note 6) that are held by a Trustee as security for and to
fund the next five interest payments on these notes.

     Other Long-Term Assets

     Other long-term assets primarily include debt issuance costs which are
amortized using the effective interest rate method over the life of the related
debt.

     Long-Lived Assets

     The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," on January 1, 1996. SFAS No. 121 establishes
accounting standards for the impairment of long lived assets and goodwill
related to those assets to be held and used and for long-lived assets and
certain identifiable intangible assets to be disposed of. The effect of adopting
SFAS No. 121 was not material to the Company's consolidated financial
statements.

     The Company reviews its intangible assets for impairment at each balance
sheet date or whenever events or changes in circumstances indicate that the
carrying amount of an asset should be assessed. Management evaluates the
intangible assets related to each acquisition individually to determine whether
an impairment has occurred. An impairment is recognized when the discounted
future cash flows estimated to be generated by the acquired business are
insufficient to recover the current unamortized balance of the intangible asset,
with the amount of any such deficiency charged to income in the current year.
Estimates of future cash flows are based on many factors, including current
operating results, expected market trends, and competitive influences.

     Unearned Revenue

     Unearned revenue represents the liability for advanced billings to
customers for use of the Company's fiber-optic network. Customers are billed in
advance for fixed monthly charges.

     Unbilled Revenue

     DeltaCom records unbilled revenue for long-distance services provided to
customers but not yet billed. Approximately $3.8 million and $3.4 million in
unbilled revenue are included in accounts receivable in the accompanying
consolidated balance sheets at December 31, 1997 and 1996, respectively.

     Income Taxes

     The Company utilizes the liability method of accounting for income taxes.
Under the liability method, deferred taxes are determined based on the
difference between the financial and tax bases of assets and liabilities using
enacted tax rates in effect in the years in which the differences are expected
to reverse.

     The Internal Revenue Code and applicable state statutes provide that the
income and expenses of a partnership are not separately taxable to the
partnership but rather accrue directly to the partners. Accordingly, the
accompanying financial statements include provisions for federal and state
income taxes related to partnership interests in Interstate and Gulf States held
by FiberNet, Transmission II, and GSTS prior to the Reorganization.


                                      F-12
<PAGE>
 
     The Company was included in the consolidated federal income tax return of
ITC Holding through 1996. As a result of the Merger (Note 1), ITC Holding's
consolidated results of operations through October 20, 1997 will be included in
the Company's 1997 consolidated federal income tax return. The Company and its
subsidiaries file separate state income tax returns. Under a tax-sharing
arrangement, the Company was paid for the utilization of net operating losses
included in the consolidated tax return, even if such losses could not have been
used if the Company were to have filed on a separate return basis.

     Revenue Recognition

     Revenues are recognized as services are provided and consist primarily of
charges for use of long-distance services and for use of the Company's
fiber-optic network.

     Fair Value of Financial Instruments

     The carrying values of the Company's financial instruments approximate
their fair values, except for the Company's $200 million Senior Notes (Note 6).
Based on their quoted market price, such notes have a fair value of $220 
million at December 31, 1997.

     Advertising Costs

     The Company expenses all advertising costs as incurred.

     Net Loss Per Share

     The Company adopted SFAS No. 128, "Earnings per Share," effective December
31, 1997. Basic net loss per common share was computed by dividing net loss by
the weighted average number of common shares outstanding for the year then
ended.

     Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 98, for periods prior to the Company's initial public offering (Note 9),
basic net loss per share is computed using the weighted average number of shares
of common stock outstanding during the period. Diluted net loss per share is
computed using the weighted average number of shares of common stock outstanding
during the period and, nominal issuances of common stock and common stock
equivalents, regardless of whether they are antidilutive. For periods prior to
1997, 48,251 stock options are included in the computation of diluted net loss
per share. For periods subsequent to the Company's initial public offering, the
effect of the Company's potential common stock equivalents was not included in
the computation of diluted net loss per share as their effect is antidilutive.




                                      F-13
<PAGE>
 
3.   Property and Equipment

     Balances of major classes of assets and the related accumulated
depreciation as of December 31, 1997 and 1996 are as follows:

<TABLE>
<CAPTION>
                                                         1997           1996
                                                     ------------   ------------
<S>                                                  <C>            <C>         
Land .............................................   $    143,195   $    140,695
Buildings and towers .............................      2,325,850      1,293,495
Furniture and fixtures ...........................      8,333,303      4,140,188
Vehicles .........................................      1,009,403        287,219
Telecommunications equipment .....................    143,460,560     32,321,553
                                                     ------------   ------------
                                                      155,272,311     38,183,150
Less accumulated depreciation ....................     25,825,447      6,569,908
                                                     ------------   ------------
Net property, plant, and equipment in service ....    129,446,864     31,613,242
Assets under construction ........................     12,087,762        267,314
                                                     ------------   ------------
Property, plant, and equipment, net ..............   $141,534,626   $ 31,880,556
                                                     ============   ============
</TABLE>

4.   Intangible Assets

     Goodwill and other intangible assets and the related amortization as of
December 31, 1997 and 1996 are as follows:

<TABLE>
<CAPTION>
                                                    1997                1996 
                                               ------------        ------------
<S>                                            <C>                 <C>         
Goodwill ...............................       $ 58,993,733        $ 50,961,123
Customer Base ..........................          5,846,371           5,846,371
Noncompete agreements ..................            102,000             102,000
Trademark ..............................             39,834              39,834
                                               ------------        ------------
                                                 64,981,938          56,949,328
Less accumulated amortization ..........         (3,634,152)         (1,431,753)
                                               ------------        ------------
Intangibles, net .......................       $ 61,347,786        $ 55,517,575
                                               ============        ============
</TABLE>

     See Note 15 for discussion of intangible assets recorded in 1997 related to
acquisition of the Gulf States and Notes 13 and 14 for a discussion of 
intangible assets recorded in 1996 related to the acquisitions of DeltaCom and
the assets of Viper Computer Systems, Inc. ("ViperNet"), respectively.



                                      F-14
<PAGE>
 
5.   Investments

     Gulf States

     At December 31, 1996, investments represent GSTS's 36% ownership interest
in Gulf States, which was formed as a partnership in 1994. Gulf States provides
digital communications transport services to communications common carriers in
the states of Georgia, Texas, Alabama, Mississippi, and Louisiana. GSTS was the
managing partner and was responsible for managing and operating Gulf States. On
March 27, 1997, ITC Holding purchased the remaining 64% interest in Gulf States
and contributed this interest to GSTS (Note 1).

     The following table summarizes various financial data of Gulf States for
the years ended December 31, 1996 and 1995:

<TABLE>
<CAPTION>
                                                  1996                 1995
                                              ------------         ------------
<S>                                           <C>                  <C>         
Operating revenues ...................        $ 10,056,544         $  7,587,713
Operating (loss) income ..............            (216,992)           1,214,409
Net loss .............................          (4,416,142)            (717,340)
Current assets .......................           2,751,101            6,557,741
Noncurrent assets ....................          63,820,143           64,206,522
Current liabilities ..................           9,432,588            9,831,768
Noncurrent liabilities ...............          35,625,000           41,562,500
</TABLE>

6.   Financing Obligations

     Long-Term Debt

     Long-term debt and capital lease obligations at December 31, 1997 and 1996
consists of the following:


<TABLE>
<CAPTION>
                                                     1997              1996
                                                -------------     -------------
<S>                                             <C>               <C>          
11% Senior Notes due 2007 ..................    $ 200,000,000     $           0
Other ......................................          640,112           930,252
                                                -------------     -------------
                                                  200,640,112           930,252
Less current maturities ....................         (306,882)         (290,140)
                                                -------------     -------------
Long-term debt, net of current portion .....    $ 200,333,230     $     640,112
                                                =============     =============
</TABLE>


<TABLE>
<CAPTION>
Maturities of long term debt at December 31, 1997 are as follows:
<S>                                                                 <C>         
1998 ............................................................   $    306,882
1999 ............................................................        333,230
2000 ............................................................              0
2001 ............................................................              0
2002 ............................................................              0
Thereafter ......................................................    200,000,000
                                                                    ------------
                                                                    $200,640,112
                                                                    ============
</TABLE>



                                      F-15
<PAGE>
 
     Lease Obligations

     The Company has entered into various operating and capital leases for
facilities and equipment used in its operations. Aggregate future minimum rental
commitments under noncancelable operating leases with original or remaining
periods in excess of one year and maturities of capital lease obligations as of
December 31, 1997 are as follows:

<TABLE>
<CAPTION>
                                                                    Operating           Capital
                                                                     Leases             Leases
                                                                   -----------        -----------
<S>                                                                <C>                <C>        
1998 ..........................................................    $ 4,327,156        $   942,974
1999 ..........................................................      4,043,070            927,984
2000 ..........................................................      3,331,535            919,994
2001 ..........................................................      3,109,796            369,004
2002 ..........................................................      2,698,768            318,014
Thereafter ....................................................     15,983,866          1,006,784
                                                                   -----------        -----------
                                                                   $33,494,191          4,484,754
                                                                   ===========
Less amounts representing interest ............................                        (1,235,330)
                                                                                      -----------
Present value of net minimum lease payments ...................                         3,249,424
Less current portion ..........................................                          (605,155)
                                                                                      -----------
Obligations under capital leases, net of current portion ......                       $ 2,644,269
                                                                                      ===========
</TABLE>
                                      
     Rental expense charged to operations for the years ended December 31, 1997,
1996, and 1995 was $6,160,579, $1,272,389, and $74,534, respectively.

     1997 Senior Notes Offering

     On June 3, 1997, the Company completed the issuance of $200 million
principal amount of 11% Senior Notes due 2007 (the "1997 Senior Notes
Offering"). Interest is payable semiannually on June 1 and December 1. The note
indenture contains certain restrictive covenants. See Note 17 where the
Company's planned redemption of up to $70 million of these notes is discussed.

     Proceeds from the 1997 Senior Notes Offering were held by the trustee until
all regulatory approvals related to the Reorganization described in Note 1 were
received. Upon their release, a portion of the proceeds was used to repay
approximately $48 million of the Company's advances from ITC Holding and
approximately $41.6 million under the GSTS Bridge Facility discussed below, as
well as accrued interest. At December 31, 1997, approximately $50.5 million of
such proceeds are held by the Trustee as security for and to fund the next five
interest payments on these notes.

     GSTS Bridge Facility

     In connection with the acquisition of the remaining 64% interest in Gulf
States (Note 15), GSTS refinanced Gulf States' outstanding indebtedness of
approximately $41.6 million with a bridge facility (the "GSTS Bridge Facility").
In connection with the refinancing, GSTS wrote off $818,572 ($507,515 net of tax
benefits) in unamortized debt issuance costs, which is reflected in the
accompanying statement of operations as an extraordinary loss on extinguishment
of debt. The GSTS Bridge Facility, which bore interest at LIBOR plus 2.25%,
matured on the date the proceeds from the Company's 1997 Senior Notes Offering
were released (July 25, 1997).

     GSTS did not retire a forward starting interest rate swap agreement, which
swapped the variable interest rate with a fixed rate of 8.25%, held by Gulf
States in connection with this refinancing. At December 31, 1997, the forward
starting interest rate swap agreement has a notional amount of approximately
$35.6 million. At December 31, 1997, the Company would be required to pay
approximately $2.4 million to terminate the interest rate swap. The Company made
payments totaling approximately $990,000 during 1997, in connection with this
interest rate swap which are included in interest expense in the accompanying
consolidated statements of operations. 



                                      F-16
<PAGE>
 
The Company planned to continue accounting for this agreement as a hedge of an
anticipated transaction, in connection with planned borrowings under a variable
rate credit agreement. The interest rate swap agreement expires in December
2002. (See " Debt Offering and Modification to Credit Agreement" in Note 17 
for further discussion of this interest rate swap.)

     Credit Agreement

     On September 17, 1997, FiberNet entered into a credit agreement with
NationsBank of Texas, N.A., as administrative lender (the "Credit Agreement").
The Credit Agreement provides for a term and revolving credit facility of up to
$100 million to be used for working capital and other purposes, including
refinancing existing indebtedness, capital expenditures, and permitted
acquisitions. The Credit Agreement matures on September 15, 2002 and includes a
$50 million multidraw term loan facility and a $50 million revolving credit
facility. Amounts may be drawn under the term loan facility until September 15,
1999. All $50 million of the term loan facility must be utilized before any
amount over $10 million may be drawn down under the revolving credit facility.
Amounts drawn under the Credit Agreement will bear interest, at FiberNet's
option, at either the Base Rate or the LIBOR Rate, plus an applicable margin.

     Borrowings under the Credit Agreement are guaranteed by the Company and are
secured by a first priority lien on substantially all current and future assets
and properties of FiberNet and its subsidiaries and a first priority pledge of
the stock of FiberNet and its subsidiaries. The Credit Agreement contains
covenants limiting the Company's ability to incur debt or make guaranties,
create liens, pay dividends, make distributions or stock repurchases, make
investments or capital expenditures, issue capital stock, engage in transactions
with affiliates, sell assets, and engage in mergers and acquisitions. The Credit
Agreement also requires the Company to comply with certain financial tests and
to maintain certain financial ratios on a consolidated basis. See Note 17 where
a modification to the Credit Agreement made subsequent to year-end is discussed.

7.   Advance From ITC Holding

     The advance from ITC Holding reflected on the Company's consolidated
balance sheets included the following at December 31, 1996.

<TABLE>
<CAPTION>
                                                                           1996
                                                                     --------------
<S>                                                                  <C>           
     Advance from ITC Holding related to the DeltaCom
     acquisition.................................................    $   74,005,598
     Other cash advances from ITC Holding, net...................           222,229
                                                                     --------------
     Total advance from ITC Holding..............................    $   74,227,827
                                                                     ==============
</TABLE>

     Advance From ITC Holding Related to DeltaCom Acquisition

     As discussed in Note 13, ITC Holding funded the acquisition of DeltaCom and
the related refinancing of DeltaCom's outstanding debt through borrowings of
$74,005,598 on its own credit facility (the "ITC Holding Credit Facility").
These borrowings were pushed down to the accounts of the Company through the
advance from ITC Holding account under terms substantially identical to those of
ITC Holding Credit Facility. The advance from ITC Holding accrued interest at a
rate of 8.595%. At December 31, 1996, the accompanying consolidated balance
sheet reflected approximately $5.8 million of accrued interest related to this
advance. Approximately $48 million of the advance from ITC Holding was repaid
with proceeds from the 1997 Senior Notes Offering (Note 6). The remaining $31
million was forgiven by ITC Holding and contributed to the Company as additional
equity.



                                      F-17
<PAGE>
 
     Cash Advances From (To) ITC Holding

     Amounts reflected as other cash advances from (to) ITC Holding represented
excess funds from operations which were borrowed from (loaned to) ITC Holding
prior to the Reorganization. All such advances from (to) ITC Holding were repaid
in connection with the Reorganization. During 1997 and 1996, the Company
recorded interest income of $7,423 and $77,868, respectively, and interest
expense of $51,126, $96,665, and $122,696 in 1997, 1996 and 1995, respectively,
related to these transactions.

8.   Income Taxes

     Details of the income tax benefit for the years ended December 31, 1997,
1996 and 1995 are as follows:

<TABLE>
<CAPTION>
                                                    1997             1996              1995
                                                ------------      -------------    -------------
<S>                                             <C>               <C>              <C>          
     Current:
          Federal .........................     $ (6,140,815)     $ (1,804,786)    $   (628,795)
          State   .........................           11,501           (48,829)         (42,770)
                                                ------------      -------------    -------------
               Total current...............       (6,129,314)       (1,853,615)        (671,565)
                                                -------------     -------------    -------------
     Deferred:
          Federal .........................        2,678,448           660,033          385,742
          State............................          126,400           (39,736)         (16,744)
                                                ------------      -------------    -------------
               Total deferred..............        2,804,848           620,297          368,998
                                                ------------      ------------     ------------
               Total benefit...............     $ (3,324,466)     $ (1,233,318)    $   (302,567)
                                                =============       ==========     ============
</TABLE>

     The tax effects of temporary differences between the carrying amounts of
assets and liabilities in the consolidated financial statements and their
respective tax bases, which give rise to deferred tax assets and liabilities, as
of December 31, 1997 and 1996 are as follows:

<TABLE>
<CAPTION>
                                                                       1997              1996
                                                                 --------------     ------------
<S>                                                              <C>                <C>          
     Noncurrent deferred tax (liabilities) assets:
          Property, plant, and equipment .....................   $   (7,038,071)    $ (3,903,605)
          Intangible assets...................................           55,446          (57,849)
          State net operating loss carryforwards..............          389,724                0
          Valuation allowance.................................         (389,724)               0
          Other...............................................           91,673           43,314
                                                                 --------------     ------------
                                                                     (6,890,952)      (3,918,140)
     Current deferred tax assets:
          Accrued expenses....................................          209,337           80,245
          Reserves for uncollectible accounts.................          380,462          314,503
          Other...............................................                0          130,912
                                                                 --------------     ------------
                                                                        589,799          525,660
                                                                 --------------     ------------
     Net deferred income tax liabilities......................   $   (6,301,153)    $ (3,392,480)
                                                                 ===============    =============
</TABLE>

     Prior to 1997, the Company received payment for net operating losses
generated for federal income tax purposes and used by ITC Holding in ITC
Holding's consolidated federal income tax return. Through the date of the
Merger, ITC Holding's results of operations will be included in the Company's
1997 consolidated federal income tax return. Amounts receivable from ITC Holding
under these tax-sharing agreement are $2,448,297 and $2,546,534 at December 31,
1997 and 1996, respectively. 

     The Company and its subsidiaries file individual State income tax returns.
The Company has generated state net operating loss carryforwards which will 
expire in 2012 unless utilized. Due to limitations on utilization, it is not 
more likely than not that these net operating loss carryforwards will be 
realized; therefore, management has provided a 100% valuation reserve against 
these assets.

     A reconciliation of the federal statutory income tax rate to the effective
income tax rate for the periods presented is as follows:


                                      F-18
<PAGE>
 
<TABLE>
<CAPTION>
                                                    1997       1996       1995
                                                  ------     ------     ------
<S>                                                <C>        <C>        <C>    
Federal statutory rate ........................    (34.0)%    (34.0)%    (34.0)%
Increase (reduction) in taxes resulting from:
     State income taxes, net of federal benefit     (3.3)      (2.0)      (5.2)
     Permanent differences ....................      5.8        9.0        0.0
     Increase in valuation allowance ..........      2.9        0.0        0.0
     Other ....................................      4.3        3.0        1.7
                                                  ------     ------     ------
Effective income tax rate .....................    (24.3)%    (24.0)%    (37.5)%
                                                  ======     ======     ======
</TABLE>

9.   Equity Interests

     Merger With ITC Holding

     In connection with the Merger (Note 1), holders of ITC Holding's common
stock and convertible preferred stock received 2.295225 shares of the Company's
Common Stock and Series A Convertible Preferred Stock. Fractional shares were
paid in cash.

     Initial Public Offering

     During October 1997, the Company completed the sale of 5,750,000 shares of
its Common Stock to the public at an offering price of $16.50 a share.

     Employee Stock Option Plan

     Upon the Reorganization, all employees of the Company became eligible to
receive stock options under the Company's 1997 Stock Option Plan, as amended
(the "Stock Option Plan"), which was adopted by the Company and approved by ITC
Holding on March 24, 1997.

     The Stock Option Plan provides for the grant of options that are intended
to qualify as "incentive stock options" under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code") to employees of the Company, its
subsidiaries, and ITC Holding, as well as the grant of non-qualifying options to
any other individual whose participation in the Stock Option Plan is determined
to be in the best interests of the Company. The Stock Option Plan authorizes the
issuance of up to 2,407,500 shares of the Company's Common Stock pursuant to
options granted under the Stock Option Plan (subject to antidilution adjustments
in the event of a stock split, recapitalization, or similar transaction). The
maximum number of shares subject to options that can be awarded under the Stock
Option Plan to any person is 802,500 shares. The Compensation Committee of the
Company's board of directors will administer the Stock Option Plan and will
grant options to purchase Common Stock.

     The option exercise price for incentive stock options granted under the
Stock Option Plan may not be less than 100% of the fair market value of the
Common Stock on the date of grant of the option (or 110% in the case of an
incentive stock option granted to an optionee beneficially owning more than 10%
of the outstanding Common Stock). The option exercise price for non-incentive
stock options granted under the Stock Option Plan may not be less than the par
value of the Common Stock on the date of grant of the option. The maximum option
term is 10 years (or five years in the case of an incentive stock option granted
to an optionee beneficially owning more than 10% of the outstanding Common
Stock). There is also a $100,000 limit on the value of Common Stock (determined
at the time of grant) covered by incentive stock options that become exercisable
by an optionee in any year. Options granted will become exercisable with respect
to 50% of the shares subject to the options on the second anniversary of the
date of grant and with respect to 25% of the shares subject to the options on
each of the third and fourth anniversaries of the date of grant.


                                      F-19
<PAGE>
 
     The Company's board of directors may amend or terminate the Stock Option
Plan with respect to shares of Common Stock as to which options have not been
granted.

     On March 24, 1997 and July 29, 1997, the Company granted options to
purchase 1,266,345 shares and 168,933 shares, respectively, of Common Stock
under the Stock Option Plan. All options were granted at a price at least equal
to the estimated fair value of the common stock on the date of grant ($4.49) as
determined by the Company's board of directors based on equity transactions and
other analyses. Options to purchase an additional 48,251 shares of Common Stock
at $4.49 per share were granted on October 1, 1997. At December 31, 1997,
unamortized compensation expense of $555,348 is recorded as an offset to equity
in the accompanying balance sheet related to this option grant since the price
of the options was below fair market value. Compensation expense will be
recognized over the vesting period.

     Following the Company's initial public offering, options to purchase an
additional 61,915 shares of Common Stock at $17.25 per share were granted on
October 28, 1997. The $17.25 per share represents the closing value of the
Company's stock on the date of grant.

     Director Stock Option Plan

     On March 24, 1997, the Company adopted and its stockholders approved the
Director Stock Option Plan (the "Director Plan"). The Director Plan provides for
the "formula" grant of options that are not intended to qualify as "incentive
stock options" under Section 422 of the Code to directors of the Company who are
not officers or employees of the Company or ITC Holding, (each an "Eligible
Director"). The Director Plan authorizes the issuance of up to 240,750 shares of
Common Stock pursuant to options granted under the Director Plan (subject to
antidilution adjustments in the event of a stock split, recapitalization, or
similar transaction). The option exercise price for options granted under the
Director Plan will be at least 100% of the fair market value of the shares of
Common Stock on the date of grant of the option. Under the Director Plan, each
Eligible Director will be granted an option to purchase 16,050 shares of Common
Stock upon such person's initial election or appointment to serve as director.
Options granted will become exercisable with respect to 50% of the shares
subject to the options on the second anniversary of the date of grant and with
respect to 25% of the shares subject to the options on each of the third and
fourth anniversaries of the date of grant. The options will expire ten years and
30 days after the date of grant.

     On March 24, 1997, the Company granted options to purchase 16,050 shares of
its Common Stock to each of its six nonemployee directors. All options were
granted at a price equal to the estimated fair value of the common stock on the
date of grant ($4.49) as determined by the Company's board of directors based on
equity transactions and other analyses.

     ITC Holding Stock Option Plan

     Prior to the Merger, ITC Holding sponsored a stock option plan which
provided for the granting of stock options to substantially all employees of ITC
Holding and its wholly owned and majority owned subsidiaries, including the
Company. Options were generally granted at a price (established by ITC Holding's
board of directors based on equity transactions and other analyses) equal to at
least 100% of the fair market value of ITC Holding's common stock on the option
grant date. Options granted generally became exercisable 40% after two years and
20% per annum for the next three years and remained exercisable for ten years
after the option grant date. At December 31, 1996, employees of the Company held
outstanding options for a total of 314,768 of ITC Holding's shares at option
prices ranging from $7.60 to $30.50 per share. In connection with the Merger and
the related spinoff of ITC Holding's other subsidiaries, stock options
outstanding under ITC Holding's stock option plan were adjusted. Each ITC
Holding option holder received an option in


                                      F-20
<PAGE>
 
the spinoff entity and 2.295225 options in the Company (the "Replacement
Options"). All Replacement Options were at exercise prices that preserved the
economic benefit of the ITC Holding options at the spinoff and merger date. As a
result, options for 3,540,088 shares of the Company's Common Stock were issued
under the Stock Option Plan at exercise prices ranging from $0.31 per share to
$8.87 per share.

     Statement of Financial Accounting Standards No. 123

     The Company accounts for its stock based compensation plans under APB
Opinion No. 25, under which no compensation cost is recognized for options
granted with a strike price equal to the fair market value of the Company's
common stock at the grant date. The Company has computed, for pro forma
disclosure purposes, the value of all options for shares of common stock granted
to employees of the Company using the Black-Scholes option pricing model and the
following weighted average assumptions:

<TABLE>
<CAPTION>
                                       1997          1996            1995
                                       ----          ----            ----

<S>                                 <C>           <C>             <C>
     Risk-free interest rate.....      6.0%         6.29%             5.33%
     Expected dividend yield.....       0%            0%                 0%
     Expected lives..............   Ten years     Ten years       Ten years
     Expected volatility.........      60%           50%                50%
</TABLE>

     The weighted average fair value of options and Replacement Options granted
to employees of the Company in 1995, 1996 and 1997 was $16.14, $19.65 and $14.67
per share, respectively. The total value of options and Replacement Options for
common stock granted to employees of the Company during 1995, 1996 and 1997 was
computed as approximately $257,000, $4,116,000 and $14,150,000 (including
approximately $7,700,000 related to the Replacement Options), respectively,
which would be amortized on a pro forma basis over the five-year vesting period
of the options. If the Company had accounted for these plans in accordance with
SFAS No. 123 ("Accounting for Stock Based Compensation"), the Company's net loss
for the years ended December 31, 1995, 1996 and 1997 would have increased as
follows:

<TABLE>
<CAPTION>
                                                                       1995             1996              1997
                                                                       ----             ----              ----
<S>                                         <C>                     <C>           <C>             <C>         
Net loss                                    As Reported              $(504,373)    $(3,909,749)    $(10,772,874)
                                            Pro Forma                $(595,987)    $(5,469,440)    $(20,414,911)

Basic and diluted net loss per share        As Reported              $   (0.03)    $     (0.20)    $      (0.54)
                                            Pro Forma                $   (0.03)    $     (0.29)    $      (1.01)
</TABLE>

A summary of the status of the Company's portion of ITC Holding's stock option
plan through the date of the Merger is as follows:

                                                                  
<TABLE>
<CAPTION>
                                                                       Weighted Average
                                                                            Price    
                                                           Shares         Per Share  
                                                           ------         ---------  
<S>                                                        <C>            <C>  
Outstanding at December 31, 1994                           94,925         $13.92
         Granted                                           14,252          21.17
         Forfeited                                           (750)         14.35
                                                          -------          
Outstanding at December 31, 1995                          108,427          14.87
         Granted                                          223,081          25.87
         Exercised                                           (840)         16.86
         Forfeited                                        (15,900)         24.55
                                                          -------          
Outstanding at December 31, 1996                          314,768          22.17
         Granted                                           43,840          31.75
         Exercised                                         (6,500)          9.49
         Forfeited                                        (18,178)         25.81
                                                          -------          
Outstanding at October 20, 1997                           333,930          23.48
                                                          =======               
</TABLE>



                                      F-21
<PAGE>
 
A summary of the status of the Company's stock option plans at December 31, 1997
and changes during the period from inception on March 24, 1997 through
December 31, 1997 is as follows:
                    
<TABLE>
<CAPTION>
                                                                      Weighted Average
                                                                           Price       
                                                          Shares         Per Share   
                                                          ------         ---------   
<S>                                                      <C>          <C> 
         Assumed in the Merger                           3,540,088         $4.36
         Granted                                         1,641,642          4.94
         Exercised                                         (13,881)         2.69
         Forfeited                                         (37,738)         4.82
                                                         ---------    
Outstanding at December 31, 1997                         5,130,111          4.66
                                                         =========
</TABLE>

     The following table sets forth the exercise price range, number of shares,
weighted average exercise price, and remaining contractual lives by groups of
similar price and grant date:

<TABLE>
<CAPTION>
                                           Weighted
                                            Average       Weighted                           Weighted
      Range of          Outstanding        Remaining       Average       Exercisable          Average
      Exercise             as of          Contractual     Exercise          as of            Exercise
       Prices          Dec. 31, 1997         Life           Price       Dec. 31, 1997          Price
       ------          -------------         ----           -----       -------------          -----
<S>                      <C>                 <C>        <C>                <C>               <C>     
$0.31 - $1.08              692,658           3.38       $   1.42           1,015,487         $   1.04
$1.84 - $2.78              416,112           5.10           2.09             351,896             2.05
$3.48 - $4.88            2,420,133           8.52           4.34             193,321             3.97
$6.02 - $6.65              642,238           8.11           6.06              18,863             6.04
$7.30 - $8.87              897,055           9.19           7.81                 -0-               --
   $17.25                   61,915           9.82          17.25                 -0-               --
</TABLE>                                            

     At December 31, 1997, 1,579,567 options for the Company's stock with a
weighted average price of $2.99 per share were exercisable by employees of the
Company. At December 31, 1996, 51,750 options for ITC Holding's stock with a
weighted average exercise price of $12.06 per share were exercisable by
employees of the Company. At December 31, 1995, 26,260 options for ITC Holding's
stock with a weighted average exercise price of $9.27 per share were exercisable
by employees of the Company.

10.  Commitments and Contingencies

     Purchase Commitments

     At December 31, 1997, the Company had entered into agreements with vendors
to purchase approximately $9.8 million of equipment related to the improvement
and installation of switches, other network expansion efforts and certain
services.

     Legal Proceedings

     In the normal course of business, the Company is subject to various
litigation; however, in management's opinion and the opinion of counsel, there
are no legal proceedings pending against the Company which would have a material
adverse effect on the financial position, results of operations, or liquidity of
the Company.

11.  Employee Benefit Plans

     Employees of the Fiber Companies participated in ITC Holding's 401(k)
defined contribution plan. This plan covered all employees of the participating
entities who had one year of service and were at least 18 years of age. ITC
Holding contributed a discretionary amount of the employees' 



                                      F-22
<PAGE>
 
earnings based on the plan's earnings. The discretionary contribution
percentages per employee for the years ended December 31, 1996 and 1995 were
2.66% and 2.53% (limited to a total for all participants of $150,000 and
$100,000 for 1996 and 1995, respectively), respectively, and were fully funded
by ITC Holding. No discretionary contributions were made for 1997. In addition,
the Fiber Companies offer a partial matching of employee contributions at a rate
of 1/2% for each 1% of the employee earnings contributed to a maximum match of
4% of employee earnings. Total matching contributions made to the plan and
charged to expense by the Fiber Companies for the years ended December 31, 1997,
1996 and 1995 were $84,014, $54,098, and $26,520, respectively.

     Employees of DeltaCom participated in a separately administered 401(k)
defined contribution plan. The plan covers substantially all DeltaCom employees
with at least one year of service. Participants may elect to defer 15% of
compensation up to a maximum amount determined annually pursuant to Internal
Revenue Service regulations. DeltaCom has elected to provide matching employer
contributions equal to the lesser of 3% of compensation or the maximum amount
annually for each participant. DeltaCom's policy is to fund contributions as
earned. Company contributions made to the plan and charged to expense by
DeltaCom for the year ended December 31, 1997 were $199,104 and for the 11
months ended December 31, 1996 were $123,854.

     Following the Merger, ITC Holding's 401(k) defined contribution plan became
the Company's plan. Effective January 1, 1998, the DeltaCom 401(k) plan was
merged into the Company's plan.

12.  Related Party Transactions

     Certain affiliates provide the Company with various services and/or receive
services provided by the Company. These entities include ITC Holding; Interstate
Telephone Company and Valley Telephone Company, which provide local and
long-distance telephone services; InterCall, Inc. ("InterCall"), which provides
conference calling services; and InterServ Services Corporation, which provides
operator services for "800" customer service numbers and full-service marketing
research in the telecommunications industry and other industries; Powertel,
Inc., formerly InterCel, Inc., which provides cellular services; KNOLOGY, which
provides cable television services; and MindSpring, which is a regional provider
of Internet access. In management's opinion, the Company's transactions with
these affiliated entities are generally representative of arm's-length
transactions.

     For the years ended December 31, 1997, 1996, and 1995, the Company received
services from these affiliated entities in the amounts of $206,000, $243,162,
and $470,437, respectively, which are reflected in selling, operations, and
administration expenses in the Company's consolidated statements of operations.
In addition, in 1997 and 1996, the Company received services from these
affiliated entities in the amount of $238,000 and $762,173, respectively, which
are reflected in cost of services in the Company's consolidated statements of
operations.

     The Fiber Companies provide operator and directory assistance services and
lease capacity on certain of their fiber routes to affiliated entities.
Beginning in 1996, DeltaCom also provided long-distance and related services to
ITC Holding and all of its wholly owned and majority-owned subsidiaries. Also
beginning in 1996, DeltaCom acted as an agent for InterCall and MindSpring in
contracting with major interexchange carriers to provide origination and
termination services. Under these agreements, DeltaCom contracts with the
interexchange carrier and rebills the appropriate access charges plus a margin
to InterCall and MindSpring, such that only the margin impacts the Company's
consolidated revenues. Total affiliated revenues included in the Company's
consolidated statements of operations for the years ended December 31, 1997,
1996, and 1995 were $7,995,000, $2,863,389, and $486,246, respectively.


                                      F-23
<PAGE>
 
     DeltaCom had a contract with a former stockholder to provide management
services to DeltaCom in 1997 for $300,000 annually. In addition, DeltaCom leases
real properties from a former stockholder and entities controlled by the former
stockholder. Total rental expense related to these leases was approximately
$174,000 and $235,000 in 1997 and 1996, respectively. DeltaCom is obligated to
pay rentals to a former stockholder totaling approximately $180,000 annually
from 1998 through 2005 under leases which are cancelable by either of the
parties with 24 months' notice. DeltaCom is also obligated through 1999 to pay
annual rentals ranging from approximately $74,000 to $81,000 to an officer of a
former stockholder.

13.  Acquisition of DeltaCom

     On January 29, 1996 (the "Acquisition Date"), DeltaCom was purchased by ITC
Holding for total consideration of $71,362,213, including cash acquired of
$1,828,121 (the "Acquisition"). The consideration included $65,362,213 in cash
and $6,000,000 in common stock of ITC Holding. Simultaneously, ITC Holding
refinanced $8,643,384 of DeltaCom's outstanding debt by borrowing against its
own line of credit and contributing the proceeds to DeltaCom, which then repaid
all of its outstanding debt. The Acquisition was accounted for under the
purchase method of accounting, and the purchase accounting entries have been
"pushed down" to the Company's financial statements. The purchase price was
allocated to the underlying assets purchased and liabilities assumed based on
their estimated fair values at the Acquisition Date. The acquisition costs
exceeded the fair market value of net tangible assets acquired by $54,645,063,
of which $5,464,506 has been allocated to identifiable intangible assets and the
remainder has been recorded as goodwill in the accompanying consolidated balance
sheets. Amounts recorded in connection with the "pushdown" include the
$49,180,557 in goodwill, $5,464,506 in customer base, $74,005,598 in debt
related to the Acquisition and debt refinancing, and $6,000,000 in paid-in
capital. The operating results of DeltaCom have been included in the Company's
financial statements since the Acquisition Date.

     The following table summarizes the net assets purchased in connection with
the Acquisition and the amount attributable to cost in excess of net assets
acquired:

<TABLE>
<S>                                                               <C>          
     Working capital, net of $1,828,121 cash acquired..........   $   5,155,221
     Property, plant, and equipment............................      21,357,357
     Other assets . ...........................................         198,920
     Noncurrent liabilities....................................     (11,822,469)
     Customer base.............................................       5,464,506
     Goodwill..................................................      49,180,557
                                                                     ----------
     Purchase price, net of cash acquired......................   $  69,534,092
                                                                  =============
</TABLE>

     The common stock portion of the Acquisition has been accounted for as a
noncash transaction for purposes of the consolidated statements of cash flows.

     The following pro forma information has been prepared assuming the
Acquisition occurred at the beginning of the respective periods. This
information includes pro forma adjustments related to the amortization of
goodwill resulting from the excess of the purchase price over the fair value of
the net assets acquired and interest expense related to the debt financing used
to acquire DeltaCom. The pro forma information is presented for informational
purposes only and may not be indicative of the results of operations as they
would have been had the Acquisition occurred at the beginning of the respective
periods, nor is the information necessarily indicative of the results of
operations which may occur in the future.

<TABLE>
<CAPTION>
                                                  1996              1995
                                             ------------       ------------
                                                         Unaudited
<S>                                          <C>              <C>           
     Consolidated operating revenues.......  $ 71,775,516     $   62,021,598
     Consolidated net loss.................    (4,024,866)        (1,826,756)
</TABLE>


                                      F-24
<PAGE>
 
14.  Acquisition of ViperNet

     In July 1996, the Company purchased certain assets of ViperNet, which
provides business Internet services, for cash of $625,000 and assumption of
capital lease obligations in the amount of $171,683.

     The following table summarizes the net assets purchased by the Company in
connection with its acquisition of ViperNet:

<TABLE>
<S>                                                 <C>        
     Working capital............................    $   121,500
     Property and equipment.....................        191,318
     Noncompete agreement.......................        102,000
     Customer base..............................        381,865
     Liabilities assumed........................       (171,683)
                                                    ----------- 
     Cash paid for ViperNet net assets..........    $   625,000
                                                    ===========
</TABLE>

     The assumption of the capital lease obligations has been treated as a
noncash transaction for purposes of the consolidated statements of cash flows.

15.  Acquisition of Gulf States

     On March 27, 1997, ITC Holding purchased the remaining 64% interest in Gulf
States not previously owned, along with certain other fiber and fiber-related
assets, including a significant long-term customer contract (the "Georgia Fiber
Assets") for approximately $28 million, plus certain contingent consideration.
The purchase price included 588,411 shares of ITC Holding's Series A Convertible
Preferred Stock valued at approximately $17.9 million and an unsecured purchase
money note for approximately $10 million. The purchase price was allocated as
follows: $17 million to the 64% interest in Gulf States and $10.9 million to the
Georgia Fiber Assets. The note, bearing interest at 11%, was payable in ten semi
annual principal payments of approximately $1 million plus accrued interest,
beginning September 30, 1997. The contingent consideration is due no later than
April 30, 1998, at which time the Company will be obligated to deliver
additional preferred stock equal to 35.7% of 64%, multiplied by 6, multiplied by
the amount, if any, by which the earnings before interest, taxes, depreciation,
and amortization of Gulf States for the year ended December 31, 1997 exceed
$11,265,696. In October 1997, ITC Holding issued 56,742 shares of its Series A
Convertible Preferred Stock in connection with this earn-out provision. In
connection with the Merger, these shares were converted into 130,236 shares of
the Company's Series A Convertible Preferred Stock. The Company recorded
goodwill totaling approximately $7.5 million in connection with this
acquisition. No further payments under the contingent consideration provision
are currently expected.

     Upon the closing of these acquisitions, ITC Holding contributed the 64%
ownership interest in Gulf States to GSTS and the Georgia Fiber Assets to
FiberNet. The Gulf States partnership has been dissolved. The note was repaid in
full in November 1997.


                                      F-25
<PAGE>
 
16.  Segment Reporting

     Upon the acquisition of DeltaCom in January 1996 (Note 13), the Company
began operating in two business segments: Carriers' Carrier Services and Retail
Services. Retail Services are provided by DeltaCom and include the retail sale
of long-distance, data, and Internet services, including the sale and
installation of customer premises equipment primarily to midsized and major
regional business customers. Carriers' Carrier Services are provided by the
Fiber Companies. Carriers' Carrier Services include the sale of long-haul
private line services on a wholesale basis using the Fiber Companies' owned and
managed fiber-optic network. Summarized financial data by business segment for
the years ended December 31, 1997 and 1996 and as of December 31, 1997 and 1996
are as follows:

<TABLE>
<CAPTION>
                                                                                      1997
                                                   --------------------------------------------------------------------------------
                                                       Carriers'
                                                       Carrier         Retail       Corporate
                                                       Segment          Segment      Segment          Eliminations     Consolidated
                                                   -------------    -------------   -------------    -------------    -------------
<S>                                                <C>              <C>             <C>              <C>              <C>          
Sales to external customers .....................  $  31,024,054    $  83,565,944   $           0    $           0    $ 114,589,998
Intersegment sales ..............................      3,673,008        2,727,894               0       (6,400,902)               0
                                                   -------------    -------------   -------------    -------------    -------------
     Total operating revenues ...................     34,697,062       86,293,838               0       (6,400,902)     114,589,998
                                                   -------------    -------------   -------------    -------------    -------------
Gross margin ....................................     28,060,966       32,303,617               0         (324,933)      60,039,650
Selling, operations, and administration expense .      8,401,158       30,178,668               0         (324,933)      38,254,893
Depreciation and amortization ...................     12,077,349        6,255,102               0                0       18,332,451
Other income (expense), net .....................                                                                         4,251,088
Interest expense ................................                                                                       (21,367,351)
                                                                                                                      -------------
Loss before income taxes, preacquisition
losses and extraordinary item ...................                                                                     $ (13,663,957)
                                                                                                                      =============
Identifiable assets .............................  $ 192,820,282    $ 106,674,319   $  87,062,726    $    (452,850)   $ 386,104,477
                                                   =============    =============   =============    =============    =============
Capital expenditures ............................  $  27,463,550    $  16,410,440   $           0    $           0    $  43,873,990
                                                   =============    =============   =============    =============    =============
</TABLE>


<TABLE>
<CAPTION>
                                                                                              1996
                                                              ---------------------------------------------------------------------
                                                                  Carriers'
                                                                   Carrier           Retail
                                                                   Segment           Segment        Eliminations       Consolidated
                                                              -------------      -------------     -------------      -------------
<S>                                                           <C>                <C>               <C>                <C>          
Sales to external customers .............................     $   6,598,709      $  59,919,876     $           0      $  66,518,585
Intersegment sales ......................................           558,312          1,553,445        (2,111,757)                 0
                                                              -------------      -------------     -------------      -------------
     Total operating revenues ...........................         7,157,021         61,473,321        (2,111,757)        66,518,585
                                                              -------------      -------------     -------------      -------------
Gross margin ............................................         3,256,596         24,325,559           180,143         27,762,298
Selling, operations, and administration expense .........         1,646,277         17,050,152           180,143         18,876,572
Depreciation and amortization ...........................         1,656,685          4,781,389                 0          6,438,074
Equity in losses of Gulf States .........................        (1,589,812)                 0                 0         (1,589,812)
Other income (expense), net .............................                                                                   171,514
Interest expense ........................................                                                                (6,172,421)
                                                                                                                      -------------
Loss before income taxes ................................                                                             $  (5,143,067)
                                                                                                                      =============
Identifiable assets .....................................     $  14,597,073      $  91,592,697     $    (406,588)     $ 105,783,182
Investment in net assets of Gulf States .................         7,424,797                  0                 0          7,424,797
                                                              -------------      -------------     -------------      -------------
Total assets ............................................     $  22,021,870      $  91,592,697     $    (406,588)     $ 113,207,979
                                                              =============      =============     =============      =============
Capital expenditures ....................................     $   1,101,181      $   5,071,479     $           0      $   6,172,660
                                                              =============      =============     =============      =============
</TABLE>

17.  Subsequent Events

     Debt Offering and Modification to Credit Agreement

     The Company issued $160 million principal amount of senior notes due 2008
at 99.9% during the first quarter of 1998 (the "1998 Senior Notes Offering").
These notes have an interest rate of 8-7/8% and pay interest semiannually on
March 1 and September 1.

     Proceeds from the 1998 Senior Notes Offering will be used for additional
network facilities, and for other general corporate purposes.


                                      F-26
<PAGE>
 
     In connection with the 1998 Senior Notes Offering, the Company modified its
Credit Agreement to reduce the available credit to $50 million and to amend
and/or delete various covenants. Due to the proceeds to be received from the
1998 Senior Notes Offering, the Company's interest rate swap agreement (Note 6)
no longer may be accounted for as a hedge of an anticipated transaction, but
rather becomes a trading security. This change in classification required the
Company to record the payable related to the interest rate swap agreement on the
consolidated balance sheet at fair market value at the time of the receipt of
the proceeds from the 1998 Senior Notes Offering. The loss, charged against
earnings, was approximately $2.5 million. The interest rate swap agreement will
be marked to market at each subsequent balance sheet date, with periodic
payments (receipts) included in interest expense.

Planned Redemption

     On March 2, 1998, the Company announced its intention to redeem $70 million
principal amount of its 11% Senior Notes due 2007, at a redemption price of 111%
of the principal amount thereof, plus accrued and unpaid interest, with the
proceeds from the Company's initial public offering (Note 9). The Company
estimates that it will record an extraordinary loss of approximately $10.7
million related to the early redemption of this debt.

Acquisition

     On March 18, 1998, the Company announced the signing of a definitive
agreement to acquire certain assets and liabilities of IT Group, a Jackson,
Mississippi-based interexchange carrier. The Company will issue an estimated
110,000 shares of common stock and assume liabilities of approximately $1.0
million to consummate the transaction. Closing of the acquisition is subject to
customary conditions, including the receipt of required regulatory approvals,
and is expected by May 1998.


                                      F-27
<PAGE>
 
             REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULE

We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of ITC/\DELTACOM, INC. and SUBSIDIARIES
included in this Form 10-K and have issued our report thereon dated February 23,
1998 (except with respect to Note 17, as to which the date is March 18, 1998).
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.


ARTHUR ANDERSEN LLP


Atlanta, Georgia
February 23, 1998



 
                               ITC/\DELTACOM, INC.
                                AND SUBSIDIARIES
               SCHEDULE II - VALUATION AND QUALIFICATION ACCOUNTS
              FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997

<TABLE>
<CAPTION>
                                                                         ADDITIONS
                                             BALANCE AT        --------------------------------                          BALANCE AT
                                             BEGINNING         CHARGED TO       CHARGED TO                                END OF
DESCRIPTION                                  OF PERIOD         INCOME           OTHER ACCOUNTS        DEDUCTIONS          PERIOD
- -----------                                  ---------         ------           --------------        ----------          ------
Provision for uncollect-
  ible accounts
     <S>                                    <C>               <C>               <C>                  <C>                  <C>       
     1995 ..........................        $   81,411        $  377,116        $        0           $  422,740(3)        $   35,787
     1996 ..........................        $   35,787        $  458,210        $1,209,329(1)        $  846,468(3)        $  856,858
     1997 ..........................        $  856,858        $  801,339        $   24,006(2)        $  621,361(3)        $1,060,842
</TABLE>

- ----------

Notes:

(1)  Represents a purchased reserve related to the acquisition of DeltaCom, Inc.
(2)  Represents a purchased reserve related to the acquisition of the remaining
     interest in Gulf States FiberNet.
(3)  Represents write-off of accounts considered to be uncollectible, less
     recoveries of amounts previously written off.

                                      S-1
<PAGE>
 
                                  EXHIBIT INDEX



EXHIBIT
NUMBER         EXHIBIT DESCRIPTION

3.1            Certificate of Incorporation of ITC/\DeltaCom, Inc. (filed as
               Exhibit 3.1 to Registration Statement on Form S-1, as amended,
               File No. 333-36683 ("Form S-1") and incorporated herein by
               reference).

3.2            Amended and Restated Bylaws of ITC/\DeltaCom, Inc. (filed as
               Exhibit 3.2 to Form S-1 and incorporated herein by reference).

4.1            Form of Common Stock Certificate of ITC/\DeltaCom, Inc. (filed as
               Exhibit 4.1 to Form S-1 and incorporated herein by reference).

4.2            Indenture dated March 3, 1998 between ITC/\DeltaCom, Inc. and
               United States Trust Company of New York, as Trustee, relating to
               the 8-7/8% Senior Notes Due 2008 of ITC/\DeltaCom, Inc.

4.3            Registration Rights Agreement, dated March 3, 1998, among
               ITC/\DeltaCom, Inc. and Morgan Stanley & Co. Incorporated,
               Salomon Brothers Inc and NationsBanc Montgomery Securities LLC.

4.4            Form of Initial Global 8-7/8% Note Due 2008.

10.1           Capacity Agreement dated as of February 1, 1997 between
               Interstate FiberNet and Entergy Technology Company (filed as
               Exhibit 10.1 to Registration Statement on Form S-4, as amended,
               File No. 333-31361 ("Form S-4") and incorporated herein by
               reference).

10.2           License Agreement dated February 1, 1997 between Interstate
               FiberNet and Metropolitan Atlanta Rapid Transit Authority (filed
               as Exhibit 10.2 to Form S-4 and incorporated herein by
               reference).

10.3           Supply Agreement for Transmission Equipment dated March 26, 1993
               between Interstate FiberNet and Northern Telecom, Inc. (filed as
               Exhibit 10.3 to Form S-4 and incorporated herein by reference).

10.3.1         Network Products Purchase Agreement, dated as of December 24,
               1997, by and between Interstate FiberNet, Inc. and Northern
               Telecom, Inc.

10.4           First Amendment to Supply Agreement for Transmission Equipment
               dated as of September 9, 1993 between Interstate FiberNet and
               Northern Telecom, Inc. (filed as Exhibit 10.4 to Form S-4 and
               incorporated herein by reference).

10.5           Second Amendment to Supply Agreement for Transmission Equipment
               dated as of January 19, 1994 between Interstate FiberNet and
               Northern Telecom, Inc. (filed as Exhibit 10.5 to Form S-4 and
               incorporated herein by reference).

10.6           Sixth Amendment to Supply Agreement for Transmission Equipment
               dated as of November 21, 1996 between Interstate FiberNet and
               Northern Telecom, Inc. (which supersedes the Third and the Fourth
               Amendment to this Agreement) (filed as Exhibit 10.6 to Form S-4
               and incorporated herein by reference).

10.7           Seventh Amendment to Supply Agreement for Transmission Equipment
               dated as of April 15, 1997 between Interstate FiberNet and
               Northern Telecom, Inc. (which supersedes the Fifth Amendment to
               this Agreement) (filed as Exhibit 10.7 to Form S-4 and
               incorporated herein by reference).

10.8           Master Capacity Lease dated July 22, 1996 between Interstate
               FiberNet and Intercel PCS Services, Inc. (filed as Exhibit 10.8
               to Form S-4 and incorporated herein by reference).

10.9           First Amendment to Master Capacity Lease dated as of August 22,
               1996 between Interstate FiberNet and InterCel PCS Services, Inc.
               (filed as Exhibit 10.9 to Form S-4 and incorporated herein by
               reference).

10.10          Amended and Restated Loan Agreement dated as of March 27, 1997 by
               and 


                                        1

<PAGE>
 
               among Gulf States Transmission Systems, Inc., the Lenders parties
               thereto and NationsBank, N.A. (filed as Exhibit 10.10 to Form S-4
               and incorporated herein by reference).
        
 10.11         Promissory Note dated March 27, 1997 between Gulf States
               Transmission Systems, Inc. and NationsBank, N.A. (filed as
               Exhibit 10.11 to Form S-4 and incorporated herein by reference).
        
 10.12         Amended and Restated Security Agreement dated as of March 27,
               1997 between Gulf States FiberNet and Gulf States Transmission
               Systems, Inc. and NationsBank, N.A. (filed as Exhibit 10.12 to
               Form S-4 and incorporated herein by reference).
        
 10.13         Assignment and Assumption Agreement dated as of March 27, 1997
               between Gulf States FiberNet and Gulf States Transmission
               Systems, Inc. (filed as Exhibit 10.13 to Form S-4 and
               incorporated herein by reference).
        
 10.14         Term Agreement dated as of August 11, 1994 between Gulf States
               FiberNet and Illinois Central Railroad Company (filed as Exhibit
               10.14 to Form S-4 and incorporated herein by reference).
        
 10.15         Revised and Restated Fiber Optic Facilities and Services
               Agreement dated as of June 9, 1995 among Southern Development and
               Investment Group, Inc., on behalf of itself and as agent for
               Alabama Power Company, Georgia Power Company, Gulf Power Company,
               Mississippi Power Company, Savannah Electric and Power Company,
               Southern Electric Generating Company and Southern Company
               Services, Inc. and MPX Systems, Inc., which was assigned in part
               by MPX Systems, Inc. to Gulf States FiberNet pursuant to an
               Assignment dated as of July 25, 1995 (filed as Exhibit 10.15 to
               Form S-4 and incorporated herein by reference).
        
 10.15.1       Release, Waiver, and Assumption Agreement, dated as of December
               31, 1997, between Southern Development Investment Group, Inc., on
               behalf of itself and as agent for Alabama Power Company, Georgia
               Power Company, Gulf Power Company, Mississippi Power Company,
               Savannah Electric and Power Company, Southern Electric Generating
               Company and Southern Company Services, Inc. and Interstate
               FiberNet, Inc. and Gulf States Transmission Systems, Inc.
        
 10.16         First Amendment to Revised and Restated Fiber Optic Facilities
               and Services Agreement dated as of July 24, 1995 between Southern
               Development and Investment Group, Inc. on behalf of itself and as
               agent for others and MPX Systems, Inc. (filed as Exhibit 10.16 to
               Form S-4 and incorporated herein by reference).
        
 10.17         Partial Assignment and Assumption of Revised and Restated Fiber
               Optic Facilities and Services Agreement dated July 25, 1995
               between MPX Systems, Inc. and Gulf States FiberNet (filed as
               Exhibit 10.17 to Form S-4 and incorporated herein by reference).
        
+10.17.1       Amendment to Revised and Restated Fiber Optic Facilities and
               Services Agreement, dated July 15, 1997, by and among Southern
               Development and Investment Group, Inc., on behalf of itself and
               its agent for Alabama Power Company, Georgia Power Company, Gulf
               Power Company, Mississippi Power Company, Savannah Electric and
               Power Company, Southern Electric Generating Company and Southern
               Company Services, Inc. (collectively "SES"), ITC Transmission
               Systems, Inc. (as managing partner of Interstate Fibernet) and
               Gulf States Transmission Systems, Inc. (filed as Exhibit 10.17.1
               to Form S-4 and incorporated herein by reference).
        
 10.18         Consent for Assignment of Interest dated February 20, 1997 among
               SCANA Communications, Inc., Gulf States FiberNet, Gulf States
               Transmission Systems, Inc. and Southern Development and
               Investment Groups, Inc. (filed as Exhibit 10.18 to Form S-4 and
               incorporated herein by reference).
        
 10.19         Second Partial Assignment and Assumption of Revised and Restated
               Fiber Optic 

                                       2
<PAGE>
 
               Facilities and Services Agreement dated March 27, 1997 between
               SCANA Communications, Inc. and ITC Holding Company, Inc. (filed
               as Exhibit 10.19 to Form S-4 and incorporated herein by
               reference).

10.20          Fiber System Lease Agreement dated January 30, 1996 between CSW
               Communications, Inc. and Gulf States FiberNet (filed as Exhibit
               10.20 to Form S-4 and incorporated herein by reference).

10.21          Consent for Acquisition and Assignment dated January 13, 1997
               between CSW Communications, Inc. and Gulf States FiberNet (filed
               as Exhibit 10.21 to Form S-4 and incorporated herein by
               reference).

10.22          Agreement for the Provision of Fiber Optic Services and
               Facilities dated April 21, 1986 between SouthernNet, Inc. and MPX
               Systems, Inc. (filed as Exhibit 10.22 to Form S-4 and
               incorporated herein by reference).

10.23          First Amendment to Agreement for the Provision of Fiber Optic
               Services and Facilities dated May 8, 1992 between MPX Systems,
               Inc. and MCI Telecommunications Corporation (filed as Exhibit
               10.23 to Form S-4 and incorporated herein by reference).

10.24          Second Amendment to Agreement for the Provision of Fiber Optic
               Services and Facilities dated January 30, 1996 between MPX
               Systems, Inc. and MCI Telecommunications Corporation (filed as
               Exhibit 10.24 to Form S-4 and incorporated herein by reference).

10.25          Network Operating Agreement dated March 25, 1996 among Gulf
               States FiberNet, TriNet, Inc., Hart Communications, Inc. and
               SCANA Communications, Inc. (f/k/a MPX Systems, Inc.) (filed as
               Exhibit 10.25 to Form S-4 and incorporated herein by reference).

10.26          Agreement for the Provision of Fiber Optic Facilities and
               Services dated March 29, 1990 between Alabama Power Company and
               Southern Interexchange Facilities, Inc. (filed as Exhibit 10.26
               to Form S-4 and incorporated herein by reference).

10.27          Amendment to the Agreement for Provision of Fiber Optic
               Facilities and Services dated March 29, 1990 between Alabama
               Power Company and Southern Interexchange Facilities, Inc. (filed
               as Exhibit 10.27 to Form S-4 and incorporated herein by
               reference).

10.28          First Amendment to the Agreement for the Provision of Fiber Optic
               Facilities and Services dated March 22, 1991 between Alabama
               Power Company and Southern Interexchange Facilities, Inc. (filed
               as Exhibit 10.28 to Form S-4 and incorporated herein by
               reference).

10.29          Second Amendment to the Agreement for the Provision of Fiber
               Optic Facilities and Services dated December 1, 1991 between
               Alabama Power Company and Southern Interexchange Facilities, Inc.
               (filed as Exhibit 10.29 to Form S-4 and incorporated herein by
               reference).

10.30          Third Amendment to the Agreement for the Provision of Fiber Optic
               Facilities and Services dated September 23, 1992 between Alabama
               Power Company and Southern Interexchange Facilities, Inc. (filed
               as Exhibit 10.30 to Form S-4 and incorporated herein by
               reference).

10.31          Fourth Amendment to the Agreement for the Provision of Fiber
               Optic Facilities and Services dated January 1, 1994 between
               Alabama Power Company and Southern Interexchange Facilities, Inc.
               (filed as Exhibit 10.31 to Form S-4 and incorporated herein by
               reference).

10.32          Agreement dated March 6, 1990 between Tennessee Valley Authority
               and Consolidated Communications Corporation (predecessor to
               DeltaCom, Inc.) (filed as Exhibit 10.32 to Form S-4 and
               incorporated herein by reference).

10.32.1        Supplement Agreement; Leased Fiber Pathways, dated as of
               September 26, 1997, by and between Tennessee Valley Authority and
               DeltaCom, Inc.

10.33          Interconnection Agreement signed March 12, 1997 between DeltaCom,
               Inc. and 


                                       3
<PAGE>
 
               BellSouth Telecommunications, Inc. (filed as Exhibit 10.33 to
               Form S-4 and incorporated herein by reference).

10.34          Amendment to Interconnection Agreement relating to BellSouth
               loops dated March 12, 1997 between DeltaCom, Inc. and BellSouth
               Telecommunications, Inc. (filed as Exhibit 10.34 to Form S-4 and
               incorporated herein by reference).

10.35          Amendment to Interconnection Agreement relating to resale of
               BellSouth services dated March 12, 1997 between DeltaCom, Inc.
               and BellSouth Telecommunications, Inc. (filed as Exhibit 10.35 to
               Form S-4 and incorporated herein by reference).

10.35.1        Third Amendment to Interconnection Agreement, dated March 12,
               1997, by and between DeltaCom, Inc. and BellSouth
               Telecommunications, Inc. (filed as Exhibit 10.35.1 to Form S-4
               and incorporated herein by reference).

10.35.2        Fourth Amendment to Interconnection Agreement, dated August 22,
               1997, by and between DeltaCom, Inc. and BellSouth
               Telecommunications, Inc. (filed as Exhibit 10.35.2 to Form S-4
               and incorporated herein by reference).

10.35.3        Amendment to Interconnection Agreement, dated October 3, 1997, by
               and between DeltaCom, Inc. and BellSouth Telecommunications, Inc.
               (filed as Exhibit 10.35.3 to Form S-1 and incorporated herein by
               reference).

10.36          Master Equipment Lease Agreement dated October 30, 1995 between
               AT&T Systems Leasing Co. and DeltaCom, Inc. (filed as Exhibit
               10.36 to Form S-4 and incorporated herein by reference).

10.37          Network Products Purchase Agreement dated January 24, 1996, as
               amended through March 4, 1997, between DeltaCom, Inc. and
               Northern Telecom, Inc. (filed as Exhibit 10.37 to Form S-4 and
               incorporated herein by reference).

10.38          First Amendment to Product Attachment Carrier Network Products,
               dated May 20, 1997 (filed as Exhibit 10.38 to Form S-4 and
               incorporated herein by reference).

10.39          Agreement for Use of Optical Fiber System, Microwave Radio Tower
               Site and Associated Facilities dated January 2, 1996 between
               DeltaCom, Inc. and SCI Systems, Inc. (filed as Exhibit 10.39 to
               Form S-4 and incorporated herein by reference).

10.40          Collocate Agreement dated January 7, 1991 between Williams
               Telecommunications Services, Inc., and Southern Interexchange
               Facilities, Inc. (including consent for change of control) (filed
               as Exhibit 10.40 to Form S-4 and incorporated herein by
               reference).

10.41          Agreement dated January 14, 1997 between DeltaCom, Inc. and SCANA
               Communications, Inc., for switch location in Columbia, South
               Carolina (filed as Exhibit 10.41 to Form S-4 and incorporated
               herein by reference).

10.42          Lease Agreement dated January 1, 1996 between Brindlee Mountain
               Telephone Company and DeltaCom, Inc. for, among other purposes,
               switch location in Arab, Alabama (filed as Exhibit 10.42 to Form
               S-4 and incorporated herein by reference).

10.43          Promissory Note dated March 27, 1997 between ITC Holding Company,
               Inc. and SCANA Communications, Inc. (filed as Exhibit 10.43 to
               Form S-4 and incorporated herein by reference).

+   10.44      Agreement for the Provision of Telecommunications Services and
               Facilities, dated January 27, 1996, by and between Interstate
               FiberNet, Inc. and Carolinas FiberNet, LLC (filed as Exhibit
               10.44 to Form S-4 and incorporated herein by reference).

++  10.44.1    First Amendment to the Agreement for the Provision of
               Telecommunications Services and Facilities, dated as of September
               1, 1997, by and between Interstate FiberNet, Inc. and Carolinas
               FiberNet, LLC.

+   10.45      Fiber Optic Facilities Agreement, dated November 15, 1996, by and
               between Interstate FiberNet and Florida Power Corporation (filed
               as Exhibit 10.45 to Form S-4 and incorporated herein by
               reference).



                                       4
<PAGE>
 
+   10.46      Fiber Optic Capacity Marketing and Operating Agreement, dated
               March 21, 1996, by and between Interstate FiberNet and Florida
               Power & Light Company (filed as Exhibit 10.46 to Form S-4 and
               incorporated herein by reference).

+   10.47      Addendum to Fiber Optic Capacity Marketing and Operating
               Agreement, dated July 10, 1997, by and between Interstate
               FiberNet and Florida Power & Light Company (filed as Exhibit
               10.47 to Form S-4 and incorporated herein by reference).

+   10.48      Master Service Agreement, dated May 6, 1996, by and between
               Interstate FiberNet and MCI Telecommunications Corporation (filed
               as Exhibit 10.48 to Form S-4 and incorporated herein by
               reference).

+   10.49      Telecommunications System Maintenance Agreement, dated as of
               January 26, 1995, by and between Interstate FiberNet and Sprint
               Communications Company L.P. (filed as Exhibit 10.49 to Form S-4
               and incorporated herein by reference).

+   10.50      Sprint Communications Company Facilities and Services Agreement,
               dated January 26, 1995, by and between Interstate FiberNet and
               Sprint Communications Company L.P. (filed as Exhibit 10.50 to
               Form S-4 and incorporated herein by reference).

+   10.51      Fiber Optic Facility Lease Agreement, dated as of January 31,
               1997, by and between Interstate FiberNet and Southern Telecom 1,
               Inc. (filed as Exhibit 10.51 to Form S-4 and incorporated herein
               by reference).

10.52          First Assignment and Assumption of Fiber Optic Facility Lease
               Agreement, dated February 1, 1997, by and between Interstate
               FiberNet and Gulf States FiberNet (filed as Exhibit 10.52 to Form
               S-4 and incorporated herein by reference).

+   10.53      Telecommunications System Agreement, dated January 26, 1995, by
               and between Interstate FiberNet and Sprint Communications Company
               L.P. (filed as Exhibit 10.53 to Form S-4 and incorporated herein
               by reference).

10.54          Amendment to Telecommunications System Agreement, dated July 25,
               1995, by and between Gulf States FiberNet and Sprint
               Communications Company L.P. (filed as Exhibit 10.54 to Form S-4
               and incorporated herein by reference).

+   10.55      Amendment No. 2 to Telecommunications System Agreement, dated
               August 8, 1996, by and between Gulf States FiberNet and Sprint
               Communications Company L.P. (filed as Exhibit 10.55 to Form S-4
               and incorporated herein by reference).

+   10.56      Assignment of the Telecommunications System Agreement, dated July
               25, 1995, between Interstate FiberNet, Gulf States FiberNet and
               Sprint Communications Company L.P. (filed as Exhibit 10.56 to
               Form S-4 and incorporated herein by reference).

+   10.57      Assignment of the Telecommunications System Agreement, dated
               February 27, 1997, between Sprint Communications Company L.P.,
               Gulf States FiberNet and Gulf States Transmission Systems, Inc.
               (filed as Exhibit 10.57 to Form S-4 and incorporated herein by
               reference).

10.58          Fixed Fee Agreement for Exchange of Use and Maintenance of Six
               (6) Fiber Optic Fibers with an Option of Two (2) Additional Fiber
               Optic Fibers, dated July 25, 1997, by and between Interstate
               FiberNet, Gulf States Transmission Systems, Inc. and ALLTEL
               Telephone Services Corporation. (filed as Exhibit 10.58 to Form
               S-4 and incorporated herein by reference).

+   10.59      MCI Carrier Agreement, effective August 1, 1995, by and between
               MCI Telecommunications Corporation and Associated Communications
               Companies of America (ACCA) (filed as Exhibit 10.59 to Form S-4
               and incorporated herein by reference).

+   10.60      First Amendment to MCI Carrier Agreement, dated as of March 20,
               1996, by and between MCI Telecommunications Corporation and
               Associated Communications Companies of America (ACCA) (filed as
               Exhibit 10.60 to Form 




                                       5
<PAGE>
 
               S-4 and incorporated herein by reference).

+   10.61      Third Amendment to MCI Carrier Agreement, dated as of August 1,
               1996, by and between MCI Telecommunications Corporation and
               Associated Communications Companies of America (ACCA) (filed as
               Exhibit 10.61 to Form S-4 and incorporated herein by reference).

10.62          Fourth Amendment to MCI Carrier Agreement dated as of May 1,
               1996, by and between MCI Telecommunications Corporation and
               Associated Communications Companies of America (ACCA) (filed as
               Exhibit 10.62 to Form S-4 and incorporated herein by reference).

+   10.63      Fifth Amendment to MCI Carrier Agreement, dated as of April 10,
               1996, by and between MCI Telecommunications Corporation and
               Associated Communications Companies of America (ACCA) (filed as
               Exhibit 10.63 to Form S-4 and incorporated herein by reference).

+   10.64      Sixth Amendment to MCI Carrier Agreement, dated as of September
               11, 1996, by and between MCI Telecommunications Corporation and
               Associated Communications Companies of America (ACCA) (filed as
               Exhibit 10.64 to Form S-4 and incorporated herein by reference).

+   10.65      Seventh Amendment to MCI Carrier Agreement, dated as of August 1,
               1996, by and between MCI Telecommunications Corporation and
               Associated Communications Companies of America (ACCA) (filed as
               Exhibit 10.65 to Form S-4 and incorporated herein by reference).

+   10.66     Eighth Amendment to MCI Carrier Agreement, effective March 1,
               1997, by and between MCI Telecommunications Corporation and
               Associated Communications Companies of America (ACCA) (filed as
               Exhibit 10.66 to Form S-4 and incorporated herein by reference).

+   10.67      Ninth Amendment to MCI Carrier Agreement, dated as of May
               15, 1997, by and between MCI Telecommunications Corporation and
               Associated Communications Companies of America (ACCA) (filed as
               Exhibit 10.67 to Form S-4 and incorporated herein by reference).

10.68          Tenth Amendment to MCI Carrier Agreement, dated July 11, 1997, by
               and between MCI Telecommunications Corporation and Associated
               Communications Companies of America (ACCA) (filed as Exhibit
               10.68 to Form S-4 and incorporated herein by reference).

+   10.69      Switched Reseller Services Agreement, dated January 25,
               1994, by and between DeltaCom, Inc. and Allnet Communication
               Services, Inc. (filed as Exhibit 10.69 to Form S-4 and
               incorporated herein by reference). 

+   10.70      WilTel, Inc. Carrier Digital Services Agreement, dated
               September 1, 1995, by and between WorldCom Network Services, Inc.
               D/b/a WilTel, Associated Communications Companies of America
               (ACCA) and the individual members of ACCA referenced therein
               (filed as Exhibit 10.70 to Form S-4 and incorporated herein by
               reference).

+   10.71      Amendment to WilTel, Inc. Carrier Digital Services Agreement,
               dated April 1, 1996, by and between WorldCom Network Services,
               Inc. d/b/a/ WilTel, Associated Communications Companies of
               America (ACCA) and the individual members of ACCA referenced
               therein (filed as Exhibit 10.71 to Form S-4 and incorporated
               herein by reference).

+   10.72      Amendment No. 2 to WilTel, Inc. Carrier Digital Services
               Agreement, dated June 1, 1996, by and between WorldCom Network
               Services, Inc. d/b/a/ WilTel, Associated Communications Companies
               of America (ACCA) and the individual members of ACCA referenced
               therein (filed as Exhibit 10.72 to Form S-4 and incorporated
               herein by reference).

+   10.73      Amendment No. 3 to WilTel, Inc. Carrier Digital Services
               Agreement, dated May 1, 1997, by and between WorldCom Network
               Services, Inc. d/b/a/ WilTel, Associated Communications Companies
               of America (ACCA) and the individual


                                       6
<PAGE>
 
               members of ACCA referenced therein (filed as Exhibit 10.73 to 
               Form S-4 and incorporated herein by reference).

+   10.74      Marketing and Operating Agreement, dated as of October 6,
               1994, by and between Interstate FiberNet and DukeNet
               Communications, Inc. (filed as Exhibit 10.74 to Form S-4 and
               incorporated herein by reference).

+   10.75      Reseller Agreement, dated June 25, 1997, by and between
               DeltaCom, Inc. and Total Network Services, a division of Cable &
               Wireless, Inc. (filed as Exhibit 10.75 to Form S-4 and
               incorporated herein by reference).

10.76          Sublease Agreement, dated as of January 1, 1995, by and between
               ITC Holding Company, Inc. and ITC Transmission Systems, Inc.
               (filed as Exhibit 10.76 to Form S-4 and incorporated herein by
               reference).

10.77.1        $100,000,000 Credit Agreement, dated as of September 17, 1997,
               among Interstate FiberNet, Inc., NationsBank of Texas, N.A. as
               Administrative Lender, and certain other Lenders identified
               therein (the "IFN Credit Agreement") (filed as Exhibit 10.77 to
               Form S-4 and incorporated herein by reference).

10.77.2        First Amendment to Credit Agreement, dated as of October 20,
               1997, among Interstate FiberNet, Inc., NationsBank of Texas, N.A.
               as Administrative Lender, and certain other Lenders identified
               therein (filed as Exhibit 10.77.2 to Form S-1 and incorporated
               herein by reference).

10.77.3        First Amended and Restated Credit Agreement, dated as of February
               24, 1998, among Interstate FiberNet, Inc., NationsBank of Texas,
               N.A. as Administrative Lender, and certain other Lenders
               identified therein.

10.78.1        $8,750,000 Revolving Promissory Note, dated as of September 17,
               1997, made by Interstate FiberNet, Inc. payable to the order of
               NationsBank of Texas, N.A. (filed as Exhibit 10.78.1 to Form S-4
               and incorporated herein by reference).

10.78.2        $3,750,000 Revolving Promissory Note, dated as of September 17,
               1997, made by Interstate FiberNet, Inc. payable to the order of
               Amsouth Bank (filed as Exhibit 10.78.2 to Form S-4 and
               incorporated herein by reference).

10.78.3        $5,000,000 Revolving Promissory Note, dated as of September 17,
               1997, made by Interstate FiberNet, Inc. payable to the order of
               Creditanstalt-Bankverein (filed as Exhibit 10.78.3 to Form S-4
               and incorporated herein by reference).

10.78.4        $5,000,000 Revolving Promissory Note, dated as of September 17,
               1997, made by Interstate FiberNet, Inc. payable to the order of
               Meespierson Capital Corp. (filed as Exhibit 10.78.4 to Form S-4
               and incorporated herein by reference).

10.78.5        $5,000,000 Revolving Promissory Note, dated as of September 17,
               1997, made by Interstate FiberNet, Inc. payable to the order of
               State Street Bank and Trust Company (filed as Exhibit 10.78.5 to
               Form S-4 and incorporated herein by reference).

10.78.6        $7,500,000 Revolving Promissory Note, dated as of September 17,
               1997, made by Interstate FiberNet, Inc. payable to the order of
               Corestates Bank, N.A. (filed as Exhibit 10.78.6 to Form S-4 and
               incorporated herein by reference).

10.78.7        $2,500,000 Revolving Promissory Note, dated as of September 17,
               1997, made by Interstate FiberNet, Inc. payable to the order of
               First Union National Bank (filed as Exhibit 10.78.7 to Form S-4
               and incorporated herein by reference).

10.78.8        $5,000,000 Revolving Promissory Note, dated as of September 17,
               1997, made by Interstate FiberNet, Inc. payable to the order of
               Regions Bank (filed as Exhibit 10.78.8 to Form S-4 and
               incorporated herein by reference).

10.78.9        $7,500,000 Revolving Promissory Note, dated as of September 17,
               1997, made by Interstate FiberNet, Inc. payable to the order of
               Toronto Dominion (Texas), Inc. (filed as Exhibit 10.78.9 to Form
               S-4 and incorporated herein by reference).

10.79.1        $8,750,000 Term Promissory Note, dated as of September 17, 1997,
               made by Interstate FiberNet, Inc. payable to the order of
               NationsBank of Texas, N.A. (filed as Exhibit 10.79.1 to Form S-4
               and incorporated herein by reference).

10.79.2        $5,000,000 Term Promissory Note, dated as of September 17, 1997,
               made by Interstate FiberNet, Inc. payable to the order of
               Creditanstalt-Bankverein (filed as Exhibit 10.79.2 to Form S-4
               and incorporated herein by reference).

10.79.3        $5,000,000 Term Promissory Note, dated as of September 17, 1997,
               made by Interstate FiberNet, Inc. payable to the order of
               Meespierson Capital Corp. (filed

                                       7
<PAGE>
 
               as Exhibit 10.79.3 to Form S-4 and incorporated herein by
               reference).

10.79.4        $5,000,000 Term Promissory Note, dated as of September 17, 1997,
               made by Interstate FiberNet, Inc. payable to the order of State
               Street Bank and Trust Company (filed as Exhibit 10.79.4 to Form
               S-4 and incorporated herein by reference).

10.79.5        $7,500,000 Term Promissory Note, dated as of September 17, 1997,
               made by Interstate FiberNet, Inc. payable to the order of
               Corestates Bank, N.A. (filed as Exhibit 10.79.5 to Form S-4 and
               incorporated herein by reference).

10.79.6        $2,500,000 Term Promissory Note, dated as of September 17, 1997,
               made by Interstate FiberNet, Inc. payable to the order of First
               Union National Bank (filed as Exhibit 10.79.6 to Form S-4 and
               incorporated herein by reference)

10.79.7        $5,000,000 Term Promissory Note, dated as of September 17, 1997,
               made by Interstate FiberNet, Inc. payable to the order of Regions
               Bank (filed as Exhibit 10.79.7 to Form S-4 and incorporated
               herein by reference).

10.79.8        $7,500,000 Term Promissory Note, dated as of September 17, 1997,
               made by Interstate FiberNet, Inc. payable to the order of Toronto
               Dominion (Texas), Inc. (filed as Exhibit 10.79.8 to Form S-4 and
               incorporated herein by reference).

10.79.9        $3,750,000 Term Promissory Note, dated as of September 17, 1997,
               made by Interstate FiberNet, Inc. payable to the order of Amsouth
               Bank (filed as Exhibit 10.79.9 to Form S-4 and incorporated
               herein by reference).

10.80.1        Security Agreement, dated as of September 17, 1997, made by
               Interstate FiberNet, Inc. in favor of NationsBank of Texas, N.A.,
               as Administrative Lender, and each other lender party to the IFN
               Credit Agreement (filed as Exhibit 10.80.1 to Form S-4 and
               incorporated herein by reference).

10.80.2        Security Agreement, dated as of September 17, 1997, made by
               DeltaCom, Inc. in favor of NationsBank of Texas, N.A., as
               Administrative Lender, and each other lender party to the IFN
               Credit Agreement (filed as Exhibit 10.80.2 to Form S-4 and
               incorporated herein by reference).

10.80.3        Security Agreement, dated as of September 17, 1997, made by Gulf
               States Transmission Systems, Inc. in favor of NationsBank of
               Texas, N.A., as Administrative Lender, and each other lender
               party to the IFN Credit Agreement (filed as Exhibit 10.80.3 to
               Form S-4 and incorporated herein by reference).

10.81          Placement Agreement, dated as of May 29, 1997, among
               ITC/\DeltaCom, Inc. and Morgan Stanley & Co. Incorporated,
               Merrill Lynch, Pierce, Fenner & Smith Incorporated, First Union
               Capital Markets Corp. and NationsBanc Capital Markets, Inc.
               (filed as Exhibit 1.1 to Form S-4 and incorporated herein by
               reference).

10.82.1        Indenture, dated as of June 3, 1997, between ITC/\DeltaCom, Inc.
               and United States Trust Company of New York, as Trustee, relating
               to the 11% Senior Notes due 2007 of ITC/\DeltaCom, Inc. (filed as
               Exhibit 4.1 to Form S-4 and incorporated herein by reference).

10.82.2        Supplemental Indenture, dated as of October 17, 1997, between
               ITC/\DeltaCom, Inc. and United States Trust Company of New York,
               as Trustee (filed as Exhibit 82.2 to Form S-1 and incorporated
               herein by reference).

10.83          Registration Rights Agreement, dated June 3, 1997, among
               ITC/\DeltaCom, Inc. and Morgan Stanley & Co. Incorporated,
               Merrill Lynch & Co., First Union Capital Markets Corp. and
               NationsBanc Capital Markets, Inc. (filed as Exhibit 4.2 to Form
               S-4 and incorporated herein by reference).

10.84          Pledge and Security Agreement dated as of June 3, 1997 from
               ITC/\DeltaCom, Inc. as Pledgor to United States Trust Company of
               New York as Trustee (filed as Exhibit 4.3 to Form S-4 and
               incorporated herein by reference).

10.85          Form of Exchange Note (contained in Indenture filed as Exhibit
               10.82).

10.86          Assignment and Contribution Agreement Pursuant to Pledge and
               Security 


                                       8
<PAGE>
 
               Agreement dated as of July 25, 1997, by and among ITC/\DeltaCom, 
               Inc., Interstate FiberNet, Inc. and United States Trust Company 
               of New York, as Trustee filed herewith (filed as Exhibit 4.5 to 
               Form S-4 and incorporated herein by reference).

+   10.87      MCI Carrier Agreement, effective September 1, 1997, by and
               between MCI Telecommunications Corporation and Associated
               Communications Companies of America (ACCA) (filed as Exhibit
               10.87 to Form S-1 and incorporated herein by reference).

++  10.87.1    First Amendment to the MCI Carrier Agreement, dated as of
               November 21, 1997, by and between MCI Telecommunications
               Corporation and Associated Communication Companies of America
               (ACCA).

10.88          ITC/\DeltaCom, Inc. 1997 Stock Option Plan (filed as Exhibit
               10.88 to Form S-1 and incorporated herein by reference).

10.89          ITC/\DeltaCom, Inc. 1997 Director Stock Option Plan (filed as
               Exhibit 10.89 to Form S-1 and incorporated herein by reference).

10.90          ITC Holding Company, Inc. Amended and Restated Stock Option Plan
               (filed as Exhibit 10.90 to Form S-1 and incorporated herein by
               reference).

10.91          ITC Holding Company, Inc. Nonemployee Director Stock Option Plan
               (filed as Exhibit 10.91 to Form S-1 and incorporated herein by
               reference).

10.92          Description of ITC/\DeltaCom, Inc. Bonus Plan (filed as Exhibit
               10.92 to Form S-1 and incorporated herein by reference).

10.93          Form of Indemnity Agreement between ITC/\DeltaCom, Inc. and its
               Directors and Certain Officers (filed as Exhibit 10.93 to Form
               S-1 and incorporated herein by reference).

10.94          Sale and Purchase Agreement, dated as of March 11, 1997, by and
               between SCANA Corporation and ITC Holding Company, Inc. (filed as
               Exhibit 10.94 to Form S-1 and incorporated herein by reference).

10.95          First Amendment to Sale and Purchase Agreement. Among SCANA
               Corporation, SCANA Communications, Inc., and ITC Holding Company,
               Inc., dated as of October 16, 1997, among SCANA Corporation,
               SCANA Communications, Inc., ITC Holding Company, Inc. and
               ITC/\DeltaCom, Inc. (filed as Exhibit 10.95 to Form S-1 and
               incorporated herein by reference).

12.1           Statement regarding Computation of Ratios.

21.1           Subsidiaries of ITC/\DeltaCom, Inc.

23.1           Consent of Arthur Andersen LLP.

27.1           Financial Data Schedule for the year ended December 31, 1997.

- -----------------

+    Confidential treatment has been granted for this exhibit. The copy filed as
     an exhibit omits the information subject to the confidential treatment
     request.

++   Confidential treatment has been requested for this exhibit. The copy filed
     as an exhibit omits the information subject to the confidential treatment
     request.


                                       9

<PAGE>
 
================================================================================


                               ITC/\DELTACOM, INC.,
                                                Issuer


                                       and


                    UNITED STATES TRUST COMPANY OF NEW YORK,
                                                Trustee






                                    Indenture

                            Dated as of March 3, 1998




                          8 7/8% Senior Notes due 2008




================================================================================
<PAGE>
 
                              CROSS-REFERENCE TABLE


<TABLE>
<CAPTION>
TIA Sections                                       Indenture Sections
- ------------                                       ------------------
<S>                                                       <C> 
ss. 310(a)(1).....................................        7.10
     (a)(2).......................................        7.10
     (b)..........................................        7.08
ss. 313(c)........................................        7.06; 10.02
ss. 314(a)........................................        4.17; 10.02
     (a)(4).......................................        4.16; 10.02
     (c)(1).......................................        10.03
     (c)(2).......................................        10.03
     (e)..........................................        10.04
ss. 315(b)........................................        7.05; 10.02
ss. 316(a)(1)(A)..................................        6.05
     (a)(1)(B)....................................        6.04
     (b)..........................................        6.07
ss. 317(a)(1).....................................        6.08
     (a)(2).......................................        6.09
ss. 318(a)........................................        10.01
     (c)..........................................        10.01
</TABLE>

Note: The Cross-Reference Table shall not for any purpose be deemed to be a
      part of the Indenture.
<PAGE>
 
                                TABLE OF CONTENTS
                                                                            Page


                                   ARTICLE ONE
                   DEFINITIONS AND INCORPORATION BY REFERENCE

SECTION 1.01.      Definitions .............................................   1
SECTION 1.02.      Incorporation by Reference of Trust Indenture Act .......  21
SECTION 1.03.      Rules of Construction ...................................  22

                                   ARTICLE TWO
                                    THE NOTES
                
SECTION 2.01.      Form and Dating .........................................  22
SECTION 2.02.      Restrictive Legends .....................................  23
SECTION 2.03.      Execution, Authentication and Denominations .............  25
SECTION 2.04.      Registrar and Paying Agent ..............................  26
SECTION 2.05.      Paying Agent to Hold Money in Trust .....................  27
SECTION 2.06.      Transfer and Exchange ...................................  27
SECTION 2.07.      Book-Entry Provisions for Global Notes ..................  28
SECTION 2.08.      Special Transfer Provisions .............................  30
SECTION 2.09.      Replacement Notes .......................................  33
SECTION 2.10.      Outstanding Notes .......................................  33
SECTION 2.11.      Temporary Notes .........................................  34
SECTION 2.12.      Cancellation ............................................  34
SECTION 2.13.      CUSIP Numbers ...........................................  34
SECTION 2.14.      Defaulted Interest ......................................  35
SECTION 2.15.      Issuance of Additional Notes ............................  35

                                  ARTICLE THREE
                                   REDEMPTION
                
SECTION 3.01.      Right of Redemption; Mandatory Redemption ...............  35
SECTION 3.02.      Notices to Trustee ......................................  36
SECTION 3.03.      Selection of Notes to Be Redeemed .......................  36
SECTION 3.04.      Notice of Redemption ....................................  36
SECTION 3.05.      Effect of Notice of Redemption ..........................  37
SECTION 3.06.      Deposit of Redemption Price .............................  37
SECTION 3.07.      Payment of Notes Called for Redemption ..................  38
SECTION 3.08.      Notes Redeemed in Part ..................................  38

                                  ARTICLE FOUR
                                    COVENANTS
                
SECTION 4.01.      Payment of Notes ........................................  38
SECTION 4.02.      Maintenance of Office or Agency .........................  39

- ----------
Note: The Table of Contents shall not for any purpose be deemed to be a
      part of the Indenture.
<PAGE>
 
                                       ii


SECTION 4.03.      Limitation on Indebtedness ..............................  39
SECTION 4.04.      Limitation on Restricted Payments .......................  41
SECTION 4.05.      Limitation on Dividend and Other Payment Restrictions
                   Affecting Restricted Subsidiaries.......................   44
SECTION 4.06.      Limitation on the Issuance and Sale of Capital Stock of
                   Restricted Subsidiaries.................................   45
SECTION 4.07.      Limitation on Issuances of Guarantees by Restricted
                   Subsidiaries............................................   46
SECTION 4.08.      Limitation on Transactions with Stockholders and
                   Affiliates..............................................   46
SECTION 4.09.      Limitation on Liens .....................................  47
SECTION 4.10.      Limitation on Asset Sales ...............................  48
SECTION 4.11.      Repurchase of Notes upon a Change of Control ............  48
SECTION 4.12.      Existence ...............................................  49
SECTION 4.13.      Payment of Taxes and Other Claims .......................  49
SECTION 4.14.      Maintenance of Properties and Insurance .................  49
SECTION 4.15.      Notice of Defaults ......................................  50
SECTION 4.16.      Compliance Certificates .................................  50
SECTION 4.17.      Commission Reports and Reports to Holders ...............  50
SECTION 4.18.      Waiver of Stay, Extension or Usury Laws .................  51
SECTION 4.19.      Limitation on Sale-Leaseback Transactions ...............  51

                                  ARTICLE FIVE
                              SUCCESSOR CORPORATION
                
SECTION 5.01.      When Company May Merge, Etc .............................  52
SECTION 5.02.      Successor Substituted ...................................  52

                                   ARTICLE SIX
                              DEFAULT AND REMEDIES
                
SECTION 6.01.      Events of Default .......................................  53
SECTION 6.02.      Acceleration ............................................  54
SECTION 6.03.      Other Remedies ..........................................  55
SECTION 6.04.      Waiver of Past Defaults .................................  55
SECTION 6.05.      Control by Majority .....................................  55
SECTION 6.06.      Limitation on Suits .....................................  55
SECTION 6.07.      Rights of Holders to Receive Payment ....................  56
SECTION 6.08.      Collection Suit by Trustee ..............................  56
SECTION 6.09.      Trustee May File Proofs of Claim ........................  57
SECTION 6.10.      Priorities ..............................................  57
SECTION 6.11.      Undertaking for Costs ...................................  58
SECTION 6.12.      Restoration of Rights and Remedies ......................  58
SECTION 6.13.      Rights and Remedies Cumulative ..........................  58
SECTION 6.14.      Delay or Omission Not Waiver ............................  58

                                  ARTICLE SEVEN
                                     TRUSTEE
SECTION 7.01.      General .................................................  58
SECTION 7.02.      Certain Rights of Trustee ...............................  59
SECTION 7.03.      Individual Rights of Trustee ............................  60
<PAGE>
 
                                      iii


SECTION 7.04.      Trustee's Disclaimer ....................................  60
SECTION 7.05.      Notice of Default .......................................  60
SECTION 7.06.      Reports by Trustee to Holders ...........................  60
SECTION 7.07.      Compensation and Indemnity ..............................  60
SECTION 7.08.      Replacement of Trustee ..................................  61
SECTION 7.09.      Successor Trustee by Merger, Etc ........................  62
SECTION 7.10.      Eligibility .............................................  62
SECTION 7.11.      Money Held in Trust .....................................  62
SECTION 7.12.      Withholding Taxes .......................................  63

                                  ARTICLE EIGHT
                             DISCHARGE OF INDENTURE
                
SECTION 8.01.      Termination of Company's Obligations ....................  63
SECTION 8.02.      Defeasance and Discharge of Indenture ...................  64
SECTION 8.03.      Defeasance of Certain Obligations .......................  66
SECTION 8.04.      Application of Trust Money ..............................  68
SECTION 8.05.      Repayment to Company ....................................  68
SECTION 8.06.      Reinstatement ...........................................  68

                                  ARTICLE NINE
                       AMENDMENTS, SUPPLEMENTS AND WAIVERS
                
SECTION 9.01.      Without Consent of Holders ..............................  69
SECTION 9.02.      With Consent of Holders .................................  69
SECTION 9.03.      Revocation and Effect of Consent ........................  70
SECTION 9.04.      Notation on or Exchange of Notes ........................  71
SECTION 9.05.      Trustee to Sign Amendments, Etc .........................  71
SECTION 9.06.      Conformity with Trust Indenture Act .....................  71

                                   ARTICLE TEN
                                  MISCELLANEOUS
                
SECTION 10.01.     Trust Indenture Act of 1939 .............................  72
SECTION 10.02.     Notices .................................................  72
SECTION 10.03.     Certificate and Opinion as to Conditions Precedent ......  73
SECTION 10.04.     Statements Required in Certificate or Opinion ...........  73
SECTION 10.05.     Rules by Trustee, Paying Agent or Registrar .............  74
SECTION 10.06.     Payment Date Other Than a Business Day ..................  74
SECTION 10.07.     Governing Law ...........................................  74
SECTION 10.08.     No Adverse Interpretation of Other Agreements ...........  74
SECTION 10.09.     No Recourse Against Others ..............................  74
SECTION 10.10.     Successors ..............................................  74
SECTION 10.11.     Duplicate Originals .....................................  75
SECTION 10.12.     Separability ............................................  75
SECTION 10.13.     Table of Contents, Headings, Etc ........................  75

EXHIBIT A          Form of Note ............................................ A-1
<PAGE>
 
                                       iv


EXHIBIT B          Form of Certificate ..................................... B-1
EXHIBIT C          Form of Certificate to Be Delivered in Connection with
                   Transfers Pursuant to Non-QIB Accredited Investors ...... C-1
EXHIBIT D          Form of Certificate to Be Delivered in Connection with
                   Transfers Pursuant to Regulation S ...................... D-1
<PAGE>
 
     INDENTURE, dated as of March 3, 1998, between ITC/\DELTACOM, INC., a
Delaware corporation (the "Company"), and United States Trust Company of New
York, a bank and trust company organized under the New York banking law (the
"Trustee").

                                    RECITALS

     The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance initially of up to $160,000,000 aggregate
principal amount of the Company's 8-7/8% Senior Notes due 2008 (the "Notes")
issuable as provided in this Indenture. All things necessary to make this
Indenture a valid agreement of the Company, in accordance with its terms, have
been done, and the Company has done all things necessary to make the Notes, when
executed by the Company and authenticated and delivered by the Trustee hereunder
and duly issued by the Company, the valid obligations of the Company as
hereinafter provided.

     This Indenture is subject to, and shall be governed by, the provisions of
the Trust Indenture Act of 1939 that are required to be a part of and to govern
indentures qualified under the Trust Indenture Act of 1939.

                      AND THIS INDENTURE FURTHER WITNESSETH

     For and in consideration of the premises and the purchase of the Notes by
the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders, the Company and the Trustee, as follows.

                                   ARTICLE ONE
                   DEFINITIONS AND INCORPORATION BY REFERENCE

     SECTION 1.01. Definitions.

      "Acquired Assets" means (i) the Capital Stock of any Person that becomes a
Restricted Subsidiary after the Closing Date and (ii) the real or personal
property (including tangible and intangible assets) of any Person that becomes a
Restricted Subsidiary after the Closing Date.

     "Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Restricted Subsidiary or assumed in connection with an
Asset Acquisition by a Restricted Subsidiary; provided that Indebtedness of such
Person which is redeemed, defeased, retired or otherwise repaid at the time of
or immediately upon consummation of the transactions by which such Person
becomes a Restricted Subsidiary or such Asset Acquisition shall not be Acquired
Indebtedness.

     "Adjusted Consolidated Net Income" means, for any period, the aggregate net
income (or loss) of the Company and its Restricted Subsidiaries for such period
determined in conformity with GAAP; provided that the following items shall be
excluded in computing Adjusted Consolidated Net Income (without duplication):
(i) the net income (or loss) of any Person (other than a Restricted Subsidiary)
in which any Person (other than the Company or any of its Restricted
Subsidiaries) has a joint interest and the net income (or loss) of any
Unrestricted Subsidiary, except (x) with respect to net income, to the extent of
the amount of dividends or other distributions actually paid to the Company or
any of its Restricted Subsidiaries by such other Person or such Unrestricted
Subsidiary during such period and (y) with respect to net losses, to the extent
of the amount of cash contributed by the Company or any Restricted Subsidiary to
such Person during such period; (ii) solely for the purposes of calculating the
amount of 
<PAGE>
 
                                       2


Restricted Payments that may be made pursuant to clause (C) of the first
paragraph of Section 4.04 (and in such case, except to the extent includable
pursuant to clause (i) above), the net income (or loss) of any Person accrued
prior to the date it becomes a Restricted Subsidiary or is merged into or
consolidated with the Company or any of its Restricted Subsidiaries or all or
substantially all of the property and assets of such Person are acquired by the
Company or any of its Restricted Subsidiaries; (iii) the net income of any
Restricted Subsidiary to the extent that the declaration or payment of dividends
or similar distributions by such Restricted Subsidiary of such net income is not
at the time permitted by the operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to such Restricted Subsidiary; (iv) any gains or losses
(on an after-tax basis) attributable to Asset Sales; (v) except for purposes of
calculating the amount of Restricted Payments that may be made pursuant to
clause (C) of the first paragraph of Section 4.04, any amount paid or accrued as
dividends on Preferred Stock (other than accrued dividends which, pursuant to
the terms of the Preferred Stock, will not be payable prior to the first
anniversary after the Stated Maturity of the Notes) of the Company or any
Restricted Subsidiary owned by Persons other than the Company and any of its
Restricted Subsidiaries; and (vi) all extraordinary gains and extraordinary
losses.

     "Adjusted Consolidated Net Tangible Assets" means the total amount of
assets of the Company and its Restricted Subsidiaries (less applicable
depreciation, amortization and other valuation reserves), except to the extent
resulting from write-ups of capital assets (excluding write-ups in connection
with accounting for acquisitions in conformity with GAAP), after deducting
therefrom (i) all current liabilities of the Company and its Restricted
Subsidiaries (excluding intercompany items) and (ii) all goodwill, trade names,
trademarks, patents, unamortized debt discount and expense and other like
intangibles, all as set forth on the most recent quarterly or annual
consolidated balance sheet of the Company and its Restricted Subsidiaries,
prepared in conformity with GAAP and filed with the Commission or provided to
the Trustee pursuant to Section 4.17.

     "Affiliate" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.

     "Agent" means any Registrar, Co-Registrar, Paying Agent or authenticating
agent.

     "Agent Members" has the meaning provided in Section 2.07(a).

     "Asset Acquisition" means (i) an investment by the Company or any of its
Restricted Subsidiaries in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or shall be merged into or consolidated with the
Company or any of its Restricted Subsidiaries; provided that such Person's
primary business is related, ancillary or complementary to the businesses of the
Company and its Restricted Subsidiaries on the date of such investment or (ii)
an acquisition by the Company or any of its Restricted Subsidiaries of the
property and assets of any Person other than the Company or any of its
Restricted Subsidiaries that constitute substantially all of a division or line
of business of such Person; provided that the property and assets acquired are
related, ancillary or complementary to the businesses of the Company and its
Restricted Subsidiaries on the date of such acquisition.

     "Asset Disposition" means the sale or other disposition by the Company or
any of its Restricted Subsidiaries (other than to the Company or another
Restricted Subsidiary) of (i) all or substantially all of the Capital Stock of
any Restricted Subsidiary or (ii) all or substantially all of the assets that
constitute a division or line of business of the Company or any of its
Restricted Subsidiaries.
<PAGE>
 
                                       3


      "Asset Sale" means any sale, transfer or other disposition (including by
way of merger, consolidation or sale-leaseback transaction) in one transaction
or a series of related transactions by the Company or any of its Restricted
Subsidiaries to any Person other than the Company or any of its Restricted
Subsidiaries of (i) all or any of the Capital Stock of any Restricted
Subsidiary, (ii) all or substantially all of the property and assets of an
operating unit or business of the Company or any of its Restricted Subsidiaries
or (iii) any other property and assets (other than the Capital Stock or other
Investment in an Unrestricted Subsidiary) of the Company or any of its
Restricted Subsidiaries outside the ordinary course of business of the Company
or such Restricted Subsidiary and, in each case, that is not governed by Article
Five; provided that "Asset Sale" shall not include (a) sales, transfers or other
dispositions of inventory, receivables and other current assets, (b) sales,
transfers or other dispositions of assets with a fair market value (as certified
in an Officers' Certificate) not in excess of $500,000 in any transaction or
series of related transactions or (c) sales, transfers or other dispositions of
assets for consideration at least equal to the fair market value of the assets
sold, transferred or otherwise disposed of to the extent the consideration
received would satisfy clause (B) of the first paragraph of Section 4.10,
provided that after giving pro forma effect to such exchange, the Consolidated
Leverage Ratio shall be no greater than the Consolidated Leverage Ratio
immediately prior to such exchange.

      "Average Life" means, at any date of determination with respect to any
debt security, the quotient obtained by dividing (i) the sum of the products of
(a) the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.

      "Board of Directors" means the Board of Directors of the Company or any
committee of such Board of Directors duly authorized to act under this
Indenture.

      "Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.

      "Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in The City of New York, or in the city of the Corporate
Trust Office of the Trustee, are authorized by law to close.

      "Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in equity of such Person, whether outstanding on the
Closing Date or issued thereafter, including, without limitation, all Common
Stock and Preferred Stock.

      "Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person.

      "Capitalized Lease Obligations" means the discounted present value of the
rental obligations under a Capitalized Lease.

      "Change of Control" means such time as (i) a "person" or "group" (within
the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) becomes the
ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of
more than 35% of the total voting power of the Voting Stock of the Company on a
fully diluted basis and such ownership represents a greater percentage of the
total voting power of the Voting Stock of the Company, on a fully diluted basis,
than is held by the Existing Stockholders on such date; or (ii) individuals who
on the Closing Date constitute the Board of Directors (together with any new
directors whose election by the Board of Directors or whose nomination by the
Board of Directors for election by the Company's stockholders was approved 
<PAGE>
 
                                       4


by a vote of at least two-thirds of the members of the Board of Directors then
in office who either were members of the Board of Directors on the Closing Date
or whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the members of the Board of Directors
then in office.

      "Closing Date" means the date on which the Notes are originally issued
under this Indenture.

      "Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act or, if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the TIA, then the body performing such duties at
such time.

      "Common Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's equity, other than Preferred Stock of
such Person, whether outstanding on the Closing Date or issued thereafter,
including, without limitation, all series and classes of such common stock.

      "Company" means the party named as such in the first paragraph of this
Indenture until a successor replaces it pursuant to Article Five of this
Indenture and thereafter means the successor.

      "Company Order" means a written request or order signed in the name of the
Company (i) by its Chairman, a Vice Chairman, its President or a Vice President
and (ii) by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant
Secretary and delivered to the Trustee; provided, however, that such written
request or order may be signed by any two of the officers or directors listed in
clause (i) above in lieu of being signed by one of such officers or directors
listed in such clause (i) and one of the officers listed in clause (ii) above.

      "Consolidated EBITDA" means, for any period, the sum of the amounts for
such period of (i) Adjusted Consolidated Net Income, (ii) Consolidated Interest
Expense, to the extent such amount was deducted in calculating Adjusted
Consolidated Net Income, (iii) income taxes, to the extent such amount was
deducted in calculating Adjusted Consolidated Net Income (other than income
taxes (either positive or negative) attributable to extraordinary and
non-recurring gains or losses or sales of assets), (iv) depreciation expense, to
the extent such amount was deducted in calculating Adjusted Consolidated Net
Income, (v) amortization expense, to the extent such amount was deducted in
calculating Adjusted Consolidated Net Income, and (vi) all other non-cash items
reducing Adjusted Consolidated Net Income (other than items that will require
cash payments and for which an accrual or reserve is, or is required by GAAP to
be, made), less all non-cash items increasing Adjusted Consolidated Net Income,
all as determined on a consolidated basis for the Company and its Restricted
Subsidiaries in conformity with GAAP; provided that, if any Restricted
Subsidiary is not a Wholly Owned Restricted Subsidiary, Consolidated EBITDA
shall be reduced (to the extent not otherwise reduced in accordance with GAAP)
by an amount equal to (A) the amount of the Adjusted Consolidated Net Income
attributable to such Restricted Subsidiary multiplied by (B) the quotient of (1)
the number of shares of outstanding Common Stock of such Restricted Subsidiary
not owned on the last day of such period by the Company or any of its Restricted
Subsidiaries divided by (2) the total number of shares of outstanding Common
Stock of such Restricted Subsidiary on the last day of such period.

      "Consolidated Interest Expense" means, for any period, the aggregate
amount of interest in respect of Indebtedness (including, without limitation,
amortization of original issue discount on any Indebtedness and the interest
portion of any deferred payment obligation, calculated in accordance with the
effective interest method of accounting; all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing; the net costs associated with Interest Rate Agreements; and
Indebtedness that is Guaranteed or secured by the Company or any of its
Restricted Subsidiaries) and all but the principal component of rentals in
respect of Capitalized Lease Obligations paid, accrued or scheduled to be paid
or to be accrued by the Company and its Restricted Subsidiaries during such
period; excluding, however, (i) any amount of such interest of any Restricted
<PAGE>
 
                                       5

Subsidiary if the net income of such Restricted Subsidiary is excluded in the
calculation of Adjusted Consolidated Net Income pursuant to clause (iii) of the
definition thereof (but only in the same proportion as the net income of such
Restricted Subsidiary is excluded from the calculation of Adjusted Consolidated
Net Income pursuant to clause (iii) of the definition thereof) and (ii) any
premiums, fees and expenses (and any amortization thereof) payable in connection
with the offering of the Notes and the Reorganization, all as determined on a
consolidated basis (without taking into account Unrestricted Subsidiaries) in
conformity with GAAP.

      "Consolidated Leverage Ratio" means, on any Transaction Date, the ratio of
(i) the aggregate amount of Indebtedness of the Company and its Restricted
Subsidiaries on a consolidated basis outstanding on such Transaction Date to
(ii) the aggregate amount of Consolidated EBITDA for the Four Quarter Period;
provided that, in making the foregoing calculation, (A) pro forma effect shall
be given to any Indebtedness to be Incurred or repaid on the Transaction Date;
(B) pro forma effect shall be given to Asset Dispositions and Asset Acquisitions
(including giving pro forma effect to the application of proceeds of any Asset
Disposition) that occur during the Reference Period, as if they had occurred and
such proceeds had been applied on the first day of such Reference Period; (C)
pro forma effect shall be given to asset dispositions and asset acquisitions
(including giving pro forma effect to the application of proceeds of any asset
disposition) that have been made by any Person that has become a Restricted
Subsidiary or has been merged with or into the Company or any Restricted
Subsidiary during such Reference Period and that would have constituted Asset
Dispositions or Asset Acquisitions had such transactions occurred when such
Person was a Restricted Subsidiary as if such asset dispositions or asset
acquisitions were Asset Dispositions or Asset Acquisitions that occurred on the
first day of such Reference Period; provided that to the extent that clause (B)
or (C) of this sentence requires that pro forma effect be given to an Asset
Acquisition or Asset Disposition, such pro forma calculation shall be based upon
the four full fiscal quarters immediately preceding the Transaction Date of the
Person, or division or line of business of the Person, that is acquired or
disposed of for which financial information is available; and (D) the aggregate
amount of Indebtedness outstanding as of the end of such Reference Period will
be deemed to include the total amount of funds outstanding and/or available on
the Transaction Date under any revolving credit or similar facilities of the
Company or its Restricted Subsidiaries.

      "Consolidated Net Worth" means, at any date of determination,
stockholders' equity as set forth on the most recently available quarterly or
annual consolidated balance sheet of the Company and its Restricted Subsidiaries
(which shall be as of a date not more than 90 days prior to the date of such
computation and which shall not take into account Unrestricted Subsidiaries),
less any amounts attributable to Redeemable Stock or any equity security
convertible into or exchangeable for Indebtedness, the cost of treasury stock
and the principal amount of any promissory notes receivable from the sale of the
Capital Stock of the Company or any of its Restricted Subsidiaries, each item to
be determined in conformity with GAAP (excluding the effects of foreign currency
exchange adjustments under Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 52).

      "Consolidated Secured Indebtedness Leverage Ratio" means, on any
Transaction Date, the ratio of (i) the aggregate amount of Secured Indebtedness
of the Company and its Restricted Subsidiaries on a consolidated basis
outstanding on such Transaction Date to (ii) the aggregate amount of
Consolidated EBITDA for the Four Quarter Period; provided that, in making the
foregoing calculation, (A) pro forma effect shall be given to any Secured
Indebtedness to be Incurred or repaid on the Transaction Date; (B) pro forma
effect shall be given to Asset Dispositions and Asset Acquisitions (including
 giving pro forma effect to the application of proceeds of any Asset
Disposition) that occur during the Reference Period, as if they had occurred and
such proceeds had been applied on the first day of such Reference Period; (C)
pro forma effect shall be given to asset dispositions and asset acquisitions
(including giving pro forma effect to the application of proceeds of any asset
disposition) that have been made by any Person that has become a Restricted
Subsidiary or has been merged with or into the Company or any Restricted
Subsidiary during such Reference Period and that would have constituted Asset
Dispositions or Asset Acquisitions had such transactions occurred when such
Person was a Restricted Subsidiary as if such asset dispositions or asset
acquisitions were Asset Dispositions or Asset Acquisitions that occurred on the
first day of such Reference Period; 
<PAGE>
 
                                       6

provided that to the extent that clause (B) or (C) of this sentence requires
that pro forma effect be given to an Asset Acquisition or Asset Disposition,
such pro forma calculation shall be based upon the four full fiscal quarters
immediately preceding the Transaction Date of the Person, or division or line of
business of the Person, that is acquired or disposed of for which financial
information is available; and (D) the aggregate amount of Secured Indebtedness
outstanding as of the end of such Reference Period will be deemed to include the
total amount of funds outstanding and/or available on the Transaction Date under
any revolving credit or similar facilities of the Company or its Restricted
Subsidiaries to the extent that borrowings under such facilities would
constitute Secured Indebtedness.

      "Corporate  Trust  Office"  means the office of the Trustee at which the
corporate  trust  business of the Trustee shall,  at any  particular  time, be
principally  administered,  which  office  is, at the date of this  Indenture,
located at 114 West 47th  Street,  New York,  NY 10036,  Attention:  Corporate
Trust Department.

      "Credit Agreement" means the First Amended and Restated Credit Agreement
among Interstate FiberNet Inc., NationsBank of Texas, N.A., as administrative
lender, and the lenders party thereto, as such agreement may be amended,
supplemented or modified from time to time.

      "Credit Facilities" means revolving credit or working capital facilities
or similar facilities made available from time to time to the Company and its
Restricted Subsidiaries.

      "Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.

      "Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.

      "Depositary" means The Depository Trust Company, its nominees, and their
respective successors.

      "Event of Default" has the meaning provided in Section 6.01.

      "Excess Proceeds" has the meaning provided in Section 4.10.

      "Exchange Act" means the Securities Exchange Act of 1934.

      "Exchange Notes" means any securities of the Company containing terms
identical to the Notes (except that such Exchange Notes shall be registered
under the Securities Act) that are issued and exchanged for the Notes pursuant
to the Registration Rights Agreement and this Indenture.

      "Existing Stockholders" means Campbell B. Lanier, III and SCANA
Corporation and their Affiliates, and Campbell B. Lanier, III's spouse and any
one or more of his lineal descendants and their spouses; provided, however, that
any such person other than Campbell B. Lanier, III shall only be deemed to be an
"Existing Stockholder" to the extent such person's Capital Stock of the Company
was received, directly or indirectly, from Campbell B. Lanier, III.

      "fair market value" means the price that would be paid in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, as determined in
good faith by the Board of Directors, whose determination shall be conclusive if
evidenced by a Board Resolution; provided that for purposes of clause (viii) of
the second paragraph of Section 4.03(a), (x) the fair market value of any
security registered under the Exchange Act shall be the average of the closing
prices, regular way, of such security for the 20 consecutive trading days
immediately preceding the capital contribution or sale of Capital 
<PAGE>
 
                                       7

Stock and (y) in the event the aggregate fair market value of any other property
(other than cash or cash equivalents) received by the Company exceeds $10
million, the fair market value of such property shall be determined by a
nationally recognized investment banking firm and set forth in their written
opinion which shall be delivered to the Trustee.

      "Four Quarter Period" means, with respect to any Transaction Date, the
then most recent four fiscal quarter period for which financial statements of
the Company have been filed with the Commission or provided to the Trustee
pursuant to Section 4.17.

      "GAAP" means generally accepted accounting principles in the United States
of America as in effect from time to time, including, without limitation, those
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations contained or referred to in
this Indenture shall be computed in conformity with GAAP applied on a consistent
basis, except that computations made for purposes of determining compliance with
the terms of the covenants and with other provisions of this Indenture shall be
made without giving effect to (i) the amortization of any expenses incurred in
connection with the offering of the Notes or the Reorganization and (ii) except
as otherwise provided, the amortization of any amounts required or permitted by
Accounting Principles Board Opinion Nos. 16 and 17.

      "Global Notes" has the meaning provided in Section 2.01.

      "Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and,
without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness of
such other Person (whether arising by virtue of partnership arrangements, or by
agreements to keep-well, to purchase assets, goods, securities or services
(unless such purchase arrangements are on arm's-length and are entered into in
the ordinary course of business), to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness of the payment thereof or
to protect such obligee against loss in respect thereof (in whole or in part);
provided that the term "Guarantee" shall not include endorsements for collection
or deposit in the ordinary course of business. The term "Guarantee" used as a
verb has a corresponding meaning.

      "Guaranteed Indebtedness" has the meaning provided in Section 4.07.

      "Holder" means the registered holder of any Note.

      "Incur" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness,
including an Incurrence of Acquired Indebtedness; provided that neither the
accrual of interest nor the accretion of original issue discount shall be
considered an Incurrence of Indebtedness.

      "Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto), (iv) all obligations of such
Person to pay the deferred and unpaid purchase price of property or services,
which purchase price is due more than six months after the date of placing such
property in service or taking delivery and title thereto or the completion of
such services, except Trade Payables, (v) all Capitalized Lease Obligations of
such Person, (vi) all Indebtedness of other Persons 
<PAGE>
 
                                       8

secured by a Lien on any asset of such Person, whether or not such Indebtedness
is assumed by such Person; provided that the amount of such Indebtedness shall
be the lesser of (A) the fair market value of such asset at such date of
determination and (B) the amount of such Indebtedness, (vii) all Indebtedness of
other Persons Guaranteed by such Person to the extent such Indebtedness is
Guaranteed by such Person and (viii) to the extent not otherwise included in
this definition, obligations under Currency Agreements and Interest Rate
Agreements. The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date (or, in the case of a revolving credit or other
similar facility, the total amount of funds outstanding and/or available on the
date of determination) of all unconditional obligations as described above and,
with respect to contingent obligations, the maximum liability upon the
occurrence of the contingency giving rise to the obligation, provided (A) that
the amount outstanding at any time of any Indebtedness issued with original
issue discount is the face amount of such Indebtedness less the remaining
unamortized portion of the original issue discount of such Indebtedness at the
time of its issuance as determined in conformity with GAAP, (B) that money
borrowed and set aside at the time of the Incurrence of any Indebtedness in
order to prefund the payment of the interest on such Indebtedness shall not be
deemed to be "Indebtedness" and (C) that Indebtedness shall not include any
liability for federal, state, local or other taxes.

      "Indenture" means this Indenture as originally executed or as it may be
amended or supplemented from time to time by one or more indentures supplemental
to this Indenture entered into pursuant to the applicable provisions of this
Indenture.

      "Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act.

      "Interest Payment Date" means each semiannual interest payment date on
March 1 and September 1 of each year, commencing September 1, 1998.

      "Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, option or future contract or other similar
agreement or arrangement.

      "Investment" in any Person means any direct or indirect advance, loan or
other extension of credit (including, without limitation, by way of Guarantee or
similar arrangement; but excluding advances to customers in the ordinary course
of business that are, in conformity with GAAP, recorded as accounts receivable
on the balance sheet of the Company or its Restricted Subsidiaries) or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, bonds, notes, debentures or other
similar instruments issued by, such Person and shall include (i) the designation
of a Restricted Subsidiary as an Unrestricted Subsidiary and (ii) the fair
market value of the Capital Stock (or any other Investment), held by the Company
or any of its Restricted Subsidiaries, of (or in) any Person that has ceased to
be a Restricted Subsidiary, including, without limitation, by reason of any
transaction permitted by clause (iii) of Section 4.06. For purposes of the
definition of "Unrestricted Subsidiary" and Section 4.04, (i) "Investment" shall
include the fair market value of the assets (net of liabilities (other than
liabilities to the Company or any of its Subsidiaries)) of any Restricted
Subsidiary at the time that such Restricted Subsidiary is designated an
Unrestricted Subsidiary, (ii) the fair market value of the assets (net of
liabilities (other than liabilities to the Company or any of its Subsidiaries))
of any Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is
designated a Restricted Subsidiary shall be considered a reduction in
outstanding Investments and (iii) any property transferred to or from any Person
shall be valued at its fair market value at the time of such transfer.

      "Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including, without limitation, any conditional sale or other
title retention agreement or lease in the nature thereof or any agreement to
give any security interest).
<PAGE>
 
                                       9

      "Net Cash Proceeds" means, (a) with respect to any Asset Sale, the
proceeds of such Asset Sale in the form of cash or cash equivalents, including
payments in respect of deferred payment obligations (to the extent corresponding
to the principal, but not interest, component thereof) when received in the form
of cash or cash equivalents (except to the extent such obligations are financed
or sold with recourse to the Company or any Restricted Subsidiary) and proceeds
from the conversion of other property received when converted to cash or cash
equivalents, net of (i) brokerage commissions and other fees and expenses
(including fees and expenses of counsel and investment bankers) related to such
Asset Sale, (ii) provisions for all taxes (whether or not such taxes will
actually be paid or are payable) as a result of such Asset Sale without regard
to the consolidated results of operations of the Company and its Restricted
Subsidiaries, taken as a whole, (iii) payments made to repay Indebtedness or any
other obligation outstanding at the time of such Asset Sale that either (A) is
secured by a Lien on the property or assets sold or (B) is required to be paid
as a result of such sale and (iv) appropriate amounts to be provided by the
Company or any Restricted Subsidiary as a reserve against any liabilities
associated with such Asset Sale, including, without limitation, pension and
other post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as determined in conformity with GAAP, and (b) with respect
to any capital contribution or issuance or sale of Capital Stock, options,
warrants or other rights to acquire Capital Stock or Indebtedness, the proceeds
of such capital contribution or issuance or sale in the form of cash or cash
equivalents, including payments in respect of deferred payment obligations (to
the extent corresponding to the principal, but not interest, component thereof)
when received in the form of cash or cash equivalents (except to the extent such
obligations are financed or sold with recourse to the Company or any Restricted
Subsidiary) and proceeds from the conversion of other property received when
converted to cash or cash equivalents, net of attorney's fees, accountants'
fees, underwriters' or placement agents' fees, discounts or commissions and
brokerage, consultant and other fees incurred in connection with such issuance
or sale and net of taxes or payable as a result thereof.

      "Non-U.S.  Person" means a person who is not a "U.S. person" (as defined
in Regulation S).

      "Notes" means any of the securities, as defined in the first paragraph of
the recitals hereof, that are authenticated and delivered under this Indenture.
For all purposes of this Indenture, the term "Notes" shall include the Notes
initially issued on the Closing Date, any Exchange Notes to be issued and
exchanged for any Notes pursuant to the Registration Rights Agreement and this
Indenture and any other Notes issued after the Closing Date under this
Indenture. For purposes of this Indenture, all Notes shall vote together as one
series of Notes under this Indenture.

      "Offer to Purchase" means an offer by the Company to purchase Notes from
the Holders commenced by mailing a notice to the Trustee and each Holder
stating: (i) the covenant pursuant to which the offer is being made and that all
Notes validly tendered will be accepted for payment on a pro rata basis; (ii)
the purchase price and the date of purchase (which shall be a Business Day no
earlier than 30 days nor later than 60 days from the date such notice is mailed)
(the "Payment Date"); (iii) that any Note not tendered will continue to accrue
interest pursuant to its terms; (iv) that, unless the Company defaults in the
payment of the purchase price, any Note accepted for payment pursuant to the
Offer to Purchase shall cease to accrue interest on and after the Payment Date;
(v) that Holders electing to have a Note purchased pursuant to the Offer to
Purchase will be required to surrender the Note, together with the form entitled
"Option of the Holder to Elect Purchase" on the reverse side of the Note
completed, to the Paying Agent at the address specified in the notice prior to
the close of business on the Business Day immediately preceding the Payment
Date; (vi) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the Payment Date, a facsimile transmission or
letter setting forth the name of such Holder, the principal amount of Notes
delivered for purchase and a statement that such Holder is withdrawing his
election to have such Notes purchased; and (vii) that Holders whose Notes are
being purchased only in part will be issued new Notes equal in principal amount
to the unpurchased portion of the Notes surrendered; provided that each Note
purchased and each new Note issued shall be in a principal amount of $1,000 or
integral multiples thereof. On the Payment Date, the Company shall (i) accept
for payment on a pro rata basis Notes or portions thereof tendered pursuant to
an Offer to Purchase; (ii) deposit with the Paying Agent money sufficient to pay
the purchase price of all Notes or portions thereof so accepted; and (iii)
deliver, or cause to be delivered, to the Trustee all Notes or portions thereof
so accepted together with an Officers' Certificate specifying the Notes or
portions thereof accepted for payment by the Company. The Paying Agent shall
promptly mail to the Holders of Notes so accepted payment in an amount equal to
the purchase price, and the Trustee shall promptly authenticate and mail to such
Holders a new Note equal in principal amount to any unpurchased portion of the
Note surrendered; provided that each Note purchased and each new Note issued
shall be in a principal amount 
<PAGE>
 
                                       10

of $1,000 or integral multiples thereof. The Company will publicly announce the
results of an Offer to Purchase as soon as practicable after the Payment Date.
The Trustee shall act as the Paying Agent for an Offer to Purchase. The Company
will comply with Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable, in the event that the Company is required to repurchase Notes
pursuant to an Offer to Purchase.

      "Officer" means, with respect to the Company, (i) the Chairman of the
Board, the Chief Executive Officer, the President, any Vice President or the
Chief Financial Officer, and (ii) the Treasurer or any Assistant Treasurer, or
the Secretary or any Assistant Secretary.

      "Officers' Certificate" means a certificate signed by one Officer listed
in clause (i) of the definition thereof and one Officer listed in clause (ii) of
the definition thereof or two officers listed in clause (i) of the definition
thereof. Each Officers' Certificate (other than certificates provided pursuant
to TIA Section 314(a)(4)) shall include the statements provided for in TIA
Section 314(e).

      "Offshore Global Note" has the meaning provided in Section 2.01.

      "Offshore Physical Notes" has the meaning provided in Section 2.01.

      "Opinion of Counsel" means a written opinion signed by legal counsel, who
may be an employee of or counsel to the Company, that meets the requirements of
Section 10.04 hereof. Each such Opinion of Counsel shall include the statements
provided for in TIA Section 314(e).

      "Paying Agent" has the meaning provided in Section 2.04, except that, for
the purposes of Article Eight, the Paying Agent shall not be the Company or a
Subsidiary of the Company or an Affiliate of any of them. The term "Paying
Agent" includes any additional Paying Agent.

      "Permitted Investment" means (i) an Investment in the Company or a
Restricted Subsidiary or a Person which will, upon the making of such
Investment, become a Restricted Subsidiary or be merged or consolidated with or
into or transfer or convey all or substantially all its assets to the Company or
a Restricted Subsidiary; provided that such Person's primary business is
related, ancillary or complementary to the businesses of the Company and its
Restricted Subsidiaries on the date of such Investment; (ii) a Temporary Cash
Investment; (iii) commission, payroll, travel and similar advances to cover
matters that are expected at the time of such advances ultimately to be treated
as expenses in accordance with GAAP; (iv) stock, obligations or securities
received in satisfaction of judgments; (v) Investments in prepaid expenses,
negotiable instruments held for collection, and lease, utility and workers'
compensation, performance and other similar deposits; and (vi) Interest Rate
Agreements and Currency Agreements to the extent permitted under clause (iv) of
the second paragraph of Section 4.03(a).

      "Permitted Liens" means (i) Liens for taxes, assessments, governmental
charges or claims that are being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a reserve
or other appropriate provisions, if any, as shall be required in conformity with
GAAP shall have been made; 
<PAGE>
 
                                       11

(ii) statutory and common law Liens of landlords and carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen or other similar Liens arising in
the ordinary course of business and with respect to amounts not yet delinquent
or being contested in good faith by appropriate legal proceedings promptly
instituted and diligently conducted and for which a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have been
made; (iii) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other types
of social security; (iv) Liens incurred or deposits made to secure the
performance of tenders, bids, leases, statutory or regulatory obligations,
bankers' acceptances, surety and appeal bonds, government contracts, performance
and return-of-money bonds and other obligations of a similar nature incurred in
the ordinary course of business (exclusive of obligations for the payment of
borrowed money); (v) easements, rights-of-way, municipal and zoning ordinances
and similar charges, encumbrances, title defects or other irregularities that do
not materially interfere with the ordinary course of business of the Company or
any of its Restricted Subsidiaries; (vi) Liens (including extensions and
renewals thereof) upon real or personal property (including, without limitation,
tangible and intangible assets and Acquired Assets) acquired after the Closing
Date; provided that (a) such Lien is created solely for the purpose of securing
Indebtedness Incurred, in accordance with Section 4.03, to finance the cost
(including, without limitation, the cost of design, development, construction,
acquisition, installation, improvement, transportation or integration) of the
real or personal property (including tangible and intangible assets) subject
thereto and such Lien is created prior to, at the time of or within six months
after the latest of the acquisition, the completion of construction or the
commencement of full operation of such real or personal property; provided that
in the case of Acquired Assets, the Lien secures the Indebtedness Incurred to
purchase the Capital Stock of the Person to make such Person a Restricted
Subsidiary, (b) the principal amount of the Indebtedness secured by such Lien
does not exceed 100% of such cost and (c) any such Lien shall not extend to or
cover any real or personal property other than such real or personal property
and any improvements on such real or personal property and any proceeds thereof;
(vii) leases or subleases granted to others that do not materially interfere
with the ordinary course of business of the Company and its Restricted
Subsidiaries, taken as a whole; (viii) Liens encumbering property or assets
under construction arising from progress or partial payments by a customer of
the Company or its Restricted Subsidiaries relating to such property or assets;
(ix) any interest or title of a lessor in the property subject to any
Capitalized Lease or operating lease; (x) Liens arising from filing Uniform
Commercial Code financing statements regarding leases; (xi) Liens on property
of, or on shares of Capital Stock or Indebtedness of, any Person existing at the
time such Person becomes, or becomes a part of, any Restricted Subsidiary;
provided that such Liens do not extend to or cover any property or assets of the
Company or any Restricted Subsidiary other than the property or assets acquired
and any proceeds thereof; (xii) Liens in favor of the Company or any Restricted
Subsidiary; (xiii) Liens arising from the rendering of a final judgment or order
against the Company or any Restricted Subsidiary that does not give rise to an
Event of Default; (xiv) Liens securing reimbursement obligations with respect to
letters of credit that encumber documents and other property relating to such
letters of credit and the products and proceeds thereof; (xv) Liens in favor of
customs and revenue authorities arising as a matter of law to secure payment of
customs duties in connection with the importation of goods; (xvi) Liens
encumbering customary initial deposits and margin deposits, and other Liens that
are either within the general parameters customary in the industry and incurred
in the ordinary course of business, in each case securing Indebtedness under
Interest Rate Agreements and Currency Agreements and forward contracts, options,
future contracts, futures options or similar agreements or arrangements designed
solely to protect the Company or any of its Restricted Subsidiaries from
fluctuations in interest rates, currencies or the price of commodities; (xvii)
Liens arising out of conditional sale, title retention, consignment or similar
arrangements for the sale of goods entered into by the Company or any of its
Restricted Subsidiaries in the ordinary course of business in accordance with
the past practices of the Company and its Restricted Subsidiaries prior to the
Closing Date; (xviii) Liens on or sales of receivables, including related
intangible assets and proceeds thereof; and (xix) Liens that secure Indebtedness
with an aggregate principal amount not to exceed $5 million at any time
outstanding.
<PAGE>
 
                                       12

      "Person" means an individual, a corporation, a partnership, a limited
liability company, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.

      "Physical Notes" has the meaning provided in Section 2.01.

      "Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's preferred or preference equity, whether
outstanding on the Closing Date or issued thereafter, including, without
limitation, all series and classes of such preferred or preference stock.

      "principal" of a debt security, including the Notes, means the principal
amount due on the Stated Maturity as shown on such debt security.

      "Private Placement Legend" means the legend initially set forth on the
Notes in the form set forth in Section 2.02.

      "Public Equity Offering" means an underwritten primary offering of Common
Stock of the Company pursuant to an effective registration statement under the
Securities Act.

      "QIB" means a "qualified institutional buyer" as defined in Rule 144A.

      "Redeemable Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is (i) required to be redeemed prior to
the Stated Maturity of the Notes, (ii) redeemable at the option of the holder of
such class or series of Capital Stock at any time prior to the Stated Maturity
of the Notes or (iii) convertible into or exchangeable for Capital Stock
referred to in clause (i) or (ii) above or Indebtedness having a scheduled
maturity prior to the Stated Maturity of the Notes; provided that any Capital
Stock that would not constitute Redeemable Stock but for provisions thereof
giving holders thereof the right to require such Person to repurchase or redeem
such Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the Stated Maturity of the Notes shall not constitute
Redeemable Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are no more favorable in any material respect
to the holders of such Capital Stock than the provisions contained in Sections
4.10 and 4.11 are to the holders of the Notes and such Capital Stock
specifically provides that such Person will not repurchase or redeem any such
stock pursuant to such provision prior to the Company's repurchase of such Notes
as are required to be repurchased pursuant to Sections 4.10 and 4.11.

      "Redemption Date" means, when used with respect to any Note to be
redeemed, the date fixed for such redemption by or pursuant to this Indenture.

      "Redemption Price" means, when used with respect to any Note to be
redeemed, the price at which such Note is to be redeemed pursuant to this
Indenture.

      "Reference Period" means, with respect to any Transaction Date, the period
from the beginning of the Four Quarter Period with respect to such Transaction
Date through such Transaction Date.

      "Registrar" has the meaning provided in Section 2.04.

      "Registration Rights Agreement" means the Registration Rights Agreement,
dated as of the Closing Date, between the Company and Morgan Stanley & Co.
Incorporated, Salomon Brothers Inc and NationsBanc Montgomery Securities LLC and
certain permitted assigns specified therein.
<PAGE>
 
                                       13

      "Registration Statement" means the Registration Statement as defined and
described in the Registration Rights Agreement.

      "Regular Record Date" for the interest payable on any Interest Payment
Date means the February 15 or August 15 (whether or not a Business Day), as the
case may be, next preceding such Interest Payment Date.

      "Regulation S" means Regulation S under the Securities Act.

      "Reorganization" means the transaactions in which ITC Holding Company,
Inc., a Delaware corporation, contributed to the Company its investments in the
Reorganization Subsidiaries (or their successors in interest).

      "Reorganization Subsidiaries" means, collectively, (i) DeltaCom, Inc., an
Alabama corporation; (ii) Eastern Telecom, Inc., a Georgia corporation; (iii)
Gulf States Transmission Systems, Inc., a Delaware corporation, (iv) ITC
Transmission Systems, Inc., a Delaware corporation; (v) ITC Transmission Systems
II, Inc., a Delaware corporation; and (vi) Interstate FiberNet, a Georgia
general partnership.

      "Responsible Officer", when used with respect to the Trustee, means the
chairman or any vice chairman of the board of directors, the chairman or any
vice chairman of the executive committee of the board of directors, the chairman
of the trust committee, the president, any vice president, any assistant vice
president, the secretary, any assistant secretary, the treasurer, any assistant
treasurer, the cashier, any assistant cashier, any trust officer or assistant
trust officer, the controller or any assistant controller or any other officer
of the Trustee in its Corporate Trust Department customarily performing
functions similar to those performed by any of the above-designated officers and
in each case having direct responsibility for the administration of this
Indenture and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his or her
knowledge of and familiarity with the particular subject.

      "Restricted Payments" has the meaning provided in Section 4.04.

      "Restricted  Subsidiary"  means any Subsidiary of the Company other than
an Unrestricted Subsidiary.

      "Rule 144A" means Rule 144A under the Securities Act.

      "Secured Indebtedness" means Indebtedness of the Company or any of its
Restricted Subsidiaries that is secured by Liens on the property or assets of
the Company or any of its Restricted Subsidiaries.

      "Securities Act" means the Securities Act of 1933.

      "Security Register" has the meaning provided in Section 2.04.

      "Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary that, together with its Subsidiaries, (i) for the most
recent fiscal year of the Company, accounted for more than 10% of the
consolidated revenues of the Company and its Restricted Subsidiaries or (ii) as
of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of the Company and its Restricted Subsidiaries, all as set
forth on the most recently available consolidated financial statements of the
Company for such fiscal year.

      "Stated Maturity" means (i) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final installment
of principal of such debt security is due and payable and (ii) with respect to
<PAGE>
 
                                       14

any scheduled installment of principal of or interest on any debt security, the
date specified in such debt security as the fixed date on which such installment
is due and payable.

      "Strategic Subordinated Indebtedness" means Indebtedness of the Company
Incurred to finance the acquisition of a Person engaged in the
Telecommunications Business that by its terms, or by the terms of any agreement
or instrument pursuant to which such Indebtedness is Incurred, (i) is expressly
made subordinate in right of payment to the Notes and (ii) provides that no
payment of principal, premium or interest on, or any other payment with respect
to, such Indebtedness may be made prior to the payment in full of all of the
Company's obligations under the Notes; provided that such Indebtedness may
provide for and be repaid at any time from the proceeds of the sale of Capital
Stock (other than Redeemable Stock) of the Company after the Incurrence of such
Indebtedness.

      "Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the voting power
of the outstanding Voting Stock is owned, directly or indirectly, by such Person
and one or more other Subsidiaries of such Person.

      "Subsidiary Guarantee" has the meaning provided in Section 4.07.

      "Telecommunications Business" means the development, ownership or
operation of one or more telephone, telecommunications or information systems or
the provision of telephony, telecommunications or information services
(including, without limitation, any voice, video transmission, data or Internet
services) and any related, ancillary or complementary business.

      "Temporary Cash Investment" means any of the following: (i) direct
obligations of the United States of America or any agency thereof or obligations
fully and unconditionally guaranteed by the United States of America or any
agency thereof, (ii) time deposit accounts, certificates of deposit and money
market deposits maturing within one year of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States of America, and which bank or trust company has capital,
surplus and undivided profits aggregating in excess of $50 million (or the
foreign currency equivalent thereof) and has outstanding debt which is rated "A"
(or such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by a registered broker dealer
or mutual fund distributor, (iii) repurchase obligations with a term of not more
than 30 days for underlying securities of the types described in clause (i)
above entered into with a bank meeting the qualifications described in clause
(ii) above, (iv) commercial paper, maturing not more than one year after the
date of acquisition, issued by a corporation (other than an Affiliate of the
Company) organized and in existence under the laws of the United States of
America, any state thereof or any foreign country recognized by the United
States of America with a rating at the time as of which any investment therein
is made of "P-1" (or higher) according to Moody's Investors Service, Inc. or
"A-1" (or higher) according to Standard & Poor's Ratings Service, and (v)
securities with maturities of six months or less from the date of acquisition
issued or fully and unconditionally guaranteed by any state, commonwealth or
territory of the United States of America, or by any political subdivision or
taxing authority thereof, and rated at least "A" by Standard & Poor's Ratings
Service or Moody's Investors Service, Inc.

      "TIA" or "Trust Indenture Act" means the Trust Indenture Act of 1939 (15
U.S. Code ss.ss. 77aaa-77bbbb), as in effect on the date this Indenture was
executed, except as provided in Section 9.06.

      "Trade Payables" means, with respect to any Person, any accounts payable
or any other indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person or any of its Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods or
services.
<PAGE>
 
                                       15

      "Transaction Date" means, with respect to the Incurrence of any
Indebtedness by the Company or any of its Restricted Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment, the
date such Restricted Payment is to be made.

      "Trustee" means the party named as such in the first paragraph of this
Indenture until a successor replaces it in accordance with the provisions of
Article Seven of this Indenture and thereafter means such successor.

      "United States Bankruptcy Code" means the Bankruptcy Reform Act of 1978,
as amended and as codified in Title 11 of the United States Code, as amended
from time to time hereafter, or any successor federal bankruptcy law.

      "U.S. Global Notes" has the meaning provided in Section 2.01.

      "U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case, are
not callable or redeemable at the option of the issuer thereof at any time prior
to the Stated Maturity of the Notes, and shall also include a depository receipt
issued by a bank or trust company as custodian with respect to any such U.S.
Government Obligation or a specific payment of interest on or principal of any
such U.S. Government Obligation held by such custodian for the account of the
holder of a depository receipt; provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by the custodian in
respect of the U.S. Government Obligation or the specific payment of interest on
or principal of the U.S. Government Obligation evidenced by such depository
receipt.

      "U.S. Physical Notes" has the meaning provided in Section 2.01.

      "Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Restricted
Subsidiary (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary owns any
Capital Stock of, or owns or holds any Lien on any property of, the Company or
any Restricted Subsidiary; provided that either (A) the Subsidiary to be so
designated has total assets of $1,000 or less or (B) if such Subsidiary has
assets greater than $1,000, such designation would be permitted under Section
4.04. The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that (i) no Default or Event of Default shall
have occurred and be continuing at the time of or after giving effect to such
designation and (ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately after such designation would, if Incurred at such time,
have been permitted to be Incurred for all purposes of this Indenture. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the Board Resolution giving effect to
such designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.

      "Voting Stock" means, with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.

      "Wholly Owned" means, with respect to any Subsidiary of any Person, the
ownership of all of the outstanding Capital Stock of such Subsidiary (other than
any director's qualifying shares or Investments by foreign nationals mandated by
applicable law) by such Person or one or more Wholly Owned Subsidiaries of such
Person.
<PAGE>
 
                                       16

     SECTION 1.02. Incorporation by Reference of Trust Indenture Act. Whenever
this Indenture refers to a provision of the TIA, the provision is incorporated
by reference in and made a part of this Indenture. The following TIA terms used
in this Indenture have the following meanings:

          "indenture securities" means the Notes;

          "indenture security holder" means a Holder or a Noteholder;

          "indenture to be qualified" means this Indenture;

          "indenture trustee" or "institutional trustee" means the Trustee; and

          "obligor" on the indenture securities means the Company or any other
     obligor on the Notes.

     All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by a rule of the
Commission and not otherwise defined herein have the meanings assigned to them
therein.

     SECTION 1.03. Rules of Construction. Unless the context otherwise requires:

          (i) a term has the meaning assigned to it;

          (ii) an accounting term not otherwise defined has the meaning assigned
     to it in accordance with GAAP;

          (iii) "or" is not exclusive;

          (iv) words in the singular include the plural, and words in the plural
     include the singular;

          (v) provisions apply to successive events and transactions;

          (vi) "herein," "hereof" and other words of similar import refer to
     this Indenture as a whole and not to any particular Article, Section or
     other subdivision;

          (vii) all ratios and computations based on GAAP contained in this
     Indenture shall be computed in accordance with the definition of GAAP set
     forth in Section 1.01; and

          (viii) all references to Sections or Articles refer to Sections or
     Articles of this Indenture unless otherwise indicated.
<PAGE>
 
                                       17

                                   ARTICLE TWO
                                    THE NOTES

      SECTION 2.01. Form and Dating. The Notes and the Trustee's certificate of
authentication shall be substantially in the form annexed hereto as Exhibit A
with such appropriate insertions, omissions, substitutions and other variations
as are required or permitted by this Indenture. The Notes may have notations,
legends or endorsements required by law, stock exchange agreements to which the
Company is subject or usage. The Company shall approve the form of the Notes and
any notation, legend or endorsement on the Notes. Each Note shall be dated the
date of its authentication.

      The terms and provisions contained in the form of the Notes annexed hereto
as Exhibit A shall constitute, and are hereby expressly made, a part of this
Indenture. To the extent applicable, the Company and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby.

      Notes offered and sold in reliance on Rule 144A shall be issued initially
in the form of one or more permanent global Notes in registered form,
substantially in the form set forth in Exhibit A (the "U.S. Global Notes"),
registered in the name of the nominee of the Depositary, deposited with the
Trustee, as custodian for the Depositary, duly executed by the Company and
authenticated by the Trustee as hereinafter provided. The aggregate principal
amount of the U.S. Global Notes may from time to time be increased or decreased
by adjustments made on the records of the Trustee, as custodian for the
Depositary or its nominee, in accordance with the instructions given by the
Holder thereof, as hereinafter provided.

      Notes offered and sold in offshore transactions in reliance on Regulation
S shall be issued initially in the form of one or more permanent global Notes in
registered form, substantially in the form set forth in Exhibit A (the "Offshore
Global Notes"), registered in the name of the nominee of the Depositary,
deposited with the Trustee, as custodian for the Depositary, duly executed by
the Company and authenticated by the Trustee as hereinafter provided. The
aggregate principal amount of the Offshore Global Notes may from time to time be
increased or decreased by adjustments made on the records of the Trustee, as
custodian for the Depositary or its nominee, as hereinafter provided.

      Notes offered and sold in reliance on Regulation D under the Securities
Act shall be issued in the form of permanent certificated Notes in registered
form in substantially the form set forth in Exhibit A (the "U.S. Physical
Notes"). Notes issued pursuant to Section 2.07 in exchange for interests in the
Offshore Global Notes shall be in the form of permanent certificated Notes in
registered form substantially in the form set forth in Exhibit A (the "Offshore
Physical Notes").

      The  Offshore  Physical  Notes and U.S.  Physical  Notes  are  sometimes
collectively  herein  referred to as the  "Physical  Notes."  The U.S.  Global
Notes and the Offshore  Global Notes are  sometimes  referred to herein as the
"Global Notes."

      The definitive Notes shall be typed, printed, lithographed or engraved or
produced by any combination of these methods or may be produced in any other
manner permitted by the rules of any securities exchange on which the Notes may
be listed, all as determined by the Officers executing such Notes, as evidenced
by their execution of such Notes.

      SECTION 2.02. Restrictive Legends. Unless and until a Note is exchanged
for an Exchange Note in connection with an effective Registration Statement
pursuant to the Registration Rights Agreement, (i) each U.S. Global Note and
each U.S. Physical Note shall bear the legend set forth below on the face
thereof and (ii) each 
<PAGE>
 
                                       18

Offshore Physical Note and each Offshore Global Note shall bear the legend set
forth below on the face thereof until at least the 41st day after the Closing
Date and receipt by the Company and the Trustee of a certificate substantially
in the form of Exhibit B hereto.

      THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933,
      AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
      SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF,
      U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS
      ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED
      INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR
      (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
      501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN
      "INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS
      ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH
      REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT, WITHIN
      THE TIME PERIOD REFERRED TO UNDER RULE 144(k) UNDER THE SECURITIES ACT AS
      IN EFFECT ON THE DATE OF THE TRANSFER OF THIS NOTE, RESELL OR OTHERWISE
      TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF,
      (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER
      THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL
      ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE
      A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING
      TO THE RESTRICTIONS ON TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN
      BE OBTAINED FROM THE TRUSTEE) AND IF SUCH TRANSFER IS IN RESPECT OF AN
      AGGREGATE PRINCIPAL AMOUNT OF NOTES OF LESS THAN $100,000, AN OPINION OF
      COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH
      THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE
      TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E)
      PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
      SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION
      STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL DELIVER TO
      EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE
      EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE WITHIN
      THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE
      BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH
      TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. IF THE PROPOSED
      TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR
      TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH
      CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY
      REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO
      AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
      REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE
      TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO
      THEM BY REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A
      PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS
      NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS.

      Each Global Note, whether or not an Exchange Note, shall also bear the
following legend on the face thereof:
<PAGE>
 
                                       19

      UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
      THE DEPOSITORY TRUST COMPANY, TO THE COMPANY OR ITS AGENT FOR REGISTRATION
      OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED
      IN THE NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
      AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER
      REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER NAME AS IS
      REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY
      (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS
      IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
      COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE
      BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE &
      CO., HAS AN INTEREST HEREIN.

      TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT
      NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
      SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE
      LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
      SECTION 2.08 OF THE INDENTURE.

      SECTION 2.03. Execution, Authentication and Denominations. Subject to
Article Four, the aggregate principal amount of Notes which may be authenticated
and delivered under this Indenture is unlimited. The Notes shall be executed by
two Officers of the Company. The signature of these Officers on the Notes may be
by facsimile or manual signature in the name and on behalf of the Company.

      If an Officer whose signature is on a Note no longer holds that office at
the time the Trustee or authenticating agent authenticates the Note, the Note
shall be valid nevertheless.

      A Note shall not be valid until the Trustee or authenticating agent
manually signs the certificate of authentication on the Note. The signature
shall be conclusive evidence that the Note has been authenticated under this
Indenture.

      At any time and from time to time after the execution of this Indenture,
the Trustee or an authenticating agent shall upon receipt of a Company Order
authenticate for original issue Notes in the aggregate principal amount
specified in such Company Order; provided that the Trustee shall be entitled to
receive an Officers' Certificate and an Opinion of Counsel of the Company in
connection with such authentication of Notes. Such Company Order shall specify
the amount of Notes to be authenticated and the date on which the original issue
of Notes is to be authenticated and in case of an issuance of Notes pursuant to
Section 2.15, shall certify that such issuance is in compliance with Article
Four.

      The Trustee may appoint an authenticating agent to authenticate Notes. An
authenticating agent may authenticate Notes whenever the Trustee may do so. Each
reference in this Indenture to authentication by the Trustee includes
authentication by such authenticating agent. An authenticating agent has the
same rights as an Agent to deal with the Company or an Affiliate of the Company.
The Trustee shall not be liable for the misconduct or negligence of any
authenticating agent appointed with due care.

      The Notes shall be issuable only in registered form without coupons and
only in denominations of $1,000 in principal amount and any integral multiple of
$1,000 in excess thereof.
<PAGE>
 
                                       20

      SECTION 2.04. Registrar and Paying Agent. The Company shall maintain an
office or agency where Notes may be presented for registration of transfer or
for exchange (the "Registrar"), an office or agency where Notes may be presented
for payment (the "Paying Agent") and an office or agency where notices and
demands to or upon the Company in respect of the Notes and this Indenture may be
served, which shall be in the Borough of Manhattan, The City of New York. The
Company shall cause the Registrar to keep a register of the Notes and of their
transfer and exchange (the "Security Register"). The Company may have one or
more co-Registrars and one or more additional Paying Agents.

      The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture. The agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall give
prompt written notice to the Trustee of the name and address of any such Agent
and any change in the address of such Agent. If the Company fails to maintain a
Registrar, Paying Agent and/or agent for service of notices and demands, the
Trustee shall act as such Registrar, Paying Agent and/or agent for service of
notices and demands. The Company may remove any Agent upon written notice to
such Agent and the Trustee; provided that no such removal shall become effective
until (i) the acceptance of an appointment by a successor Agent to such Agent as
evidenced by an appropriate agency agreement entered into by the Company and
such successor Agent and delivered to the Trustee or (ii) notification to the
Trustee that the Trustee shall serve as such Agent until the appointment of a
successor Agent in accordance with clause (i) of this proviso. The Company, any
Subsidiary of the Company, or any Affiliate of any of them may act as Paying
Agent, Registrar or co-Registrar, and/or agent for service of notice and
demands.

      The Company initially appoints the Trustee as Registrar, Paying Agent,
authenticating agent and agent for service of notice and demands. The Trustee
shall preserve in as current a form as is reasonably practicable the most recent
list available to it of the names and addresses of Holders and shall otherwise
comply with TIA ss. 312(a). If the Trustee is not the Registrar, the Company
shall furnish to the Trustee as of each Regular Record Date and at such other
times as the Trustee may request in writing a list in such form and as of such
date as the Trustee may reasonably require of the names and addresses of
Holders, including the aggregate principal amount of Notes held by each Holder.

      SECTION 2.05. Paying Agent to Hold Money in Trust. Not later than 11:00
a.m. (New York City time) each due date of the principal, premium, if any, and
interest on any Notes, the Company shall deposit with the Paying Agent money in
immediately available funds sufficient to pay such principal, premium, if any,
and interest so becoming due. The Company shall require each Paying Agent other
than the Trustee to agree in writing that such Paying Agent shall hold in trust
for the benefit of the Holders or the Trustee all money held by the Paying Agent
for the payment of principal of, premium, if any, and interest on the Notes
(whether such money has been paid to it by the Company or any other obligor on
the Notes), and such Paying Agent shall promptly notify the Trustee of any
default by the Company (or any other obligor on the Notes) in making any such
payment. The Company at any time may require a Paying Agent to pay all money
held by it to the Trustee and account for any funds disbursed, and the Trustee
may at any time during the continuance of any payment default, upon written
request to a Paying Agent, require such Paying Agent to pay all money held by it
to the Trustee and to account for any funds disbursed. Upon doing so, the Paying
Agent shall have no further liability for the money so paid over to the Trustee.
If the Company or any Subsidiary of the Company or any Affiliate of any of them
acts as Paying Agent, it will, on or before each due date of any principal of,
premium, if any, or interest on the Notes, segregate and hold in a separate
trust fund for the benefit of the Holders a sum of money sufficient to pay such
principal, premium, if any, or interest so becoming due until such sum of money
shall be paid to such Holders or otherwise disposed of as provided in this
Indenture, and will promptly notify the Trustee of its action or failure to act.

      SECTION 2.06. Transfer and Exchange. The Notes are issuable only in
registered form. A Holder may transfer a Note only by written application to the
Registrar stating the name of the proposed transferee and otherwise complying
with the terms of this Indenture. No such transfer shall be effected until, and
such transferee shall succeed 
<PAGE>
 
                                       21

to the rights of a Holder only upon, final acceptance and registration of the
transfer by the Registrar in the Security Register. Prior to the registration of
any transfer by a Holder as provided herein, the Company, the Trustee, and any
agent of the Company shall treat the person in whose name the Note is registered
as the owner thereof for all purposes whether or not the Note shall be overdue,
and neither the Company, the Trustee, nor any such agent shall be affected by
notice to the contrary. Furthermore, any Holder of a Global Note shall, by
acceptance of such Global Note, agree that transfers of beneficial interests in
such Global Note may be effected only through a book entry system maintained by
the Holder of such Global Note (or its agent) and that ownership of a beneficial
interest in the Note shall be required to be reflected in a book entry. When
Notes are presented to the Registrar or a co-Registrar with a request to
register the transfer or to exchange them for an equal principal amount of Notes
of other authorized denominations (including an exchange of Notes for Exchange
Notes), the Registrar shall register the transfer or make the exchange as
requested if its requirements for such transactions are met (including that such
Notes are duly endorsed or accompanied by a written instrument of transfer in
form satisfactory to the Trustee and Registrar duly executed by the Holder
thereof or by an attorney who is authorized in writing to act on behalf of the
Holder); provided that no exchanges of Notes for Exchange Notes shall occur
until a Registration Statement shall have been declared effective by the
Commission and that any Notes that are exchanged for Exchange Notes shall be
cancelled by the Trustee. To permit registrations of transfers and exchanges,
the Company shall execute and the Trustee shall authenticate Notes at the
Registrar's request. No service charge shall be made for any registration of
transfer or exchange or redemption of the Notes, but the Company may require
payment of a sum sufficient to cover any transfer tax or similar governmental
charge payable in connection therewith (other than any such transfer taxes or
other similar governmental charge payable upon exchanges pursuant to Section
2.11, 3.08 or 9.04).

      The Registrar shall not be required (i) to issue, register the transfer of
or exchange any Note during a period beginning at the opening of business 15
days before the day of the mailing of a notice of redemption of Notes selected
for redemption under Section 3.03 and ending at the close of business on the day
of such mailing, or (ii) to register the transfer of or exchange any Note so
selected for redemption in whole or in part, except the unredeemed portion of
any Note being redeemed in part.

      SECTION 2.07. Book-Entry Provisions for Global Notes. (a) The U.S. Global
Notes and Offshore Global Notes initially shall (i) be registered in the name of
the Depositary for such Global Notes or the nominee of such Depositary, (ii) be
delivered to the Trustee as custodian for such Depositary and (iii) bear legends
as set forth in Section 2.02.

      Members of, or participants in, the Depositary ("Agent Members") shall
have no rights under this Indenture with respect to any Global Note held on
their behalf by the Depositary, or the Trustee as its custodian, or under the
Global Note, and the Depositary may be treated by the Company, the Trustee and
any agent of the Company or the Trustee as the absolute owner of such Global
Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein
shall prevent the Company, the Trustee or any agent of the Company or the
Trustee, from giving effect to any written certification, proxy or other
authorization furnished by the Depositary or impair, as between the Depositary
and its Agent Members, the operation of customary practices governing the
exercise of the rights of a holder of any Note. Neither the Company nor the
Trustee shall be liable for any delay by the Depositary in identifying the
beneficial owners of the Notes and the Company and the Trustee may conclusively
rely on, and shall be protected in relying on, instructions from the Depositary
for all purposes (including with respect to the registration and delivery, and
the respective principal amounts, of any Notes to be issued).

      (b) Transfers of a Global Note shall be limited to transfers of such
Global Note in whole, but not in part, to the Depositary, its successors or
their respective nominees. Interests of beneficial owners in a Global Note may
be transferred in accordance with the rules and procedures of the Depositary and
the provisions of Section 2.08. In addition, U.S. Physical Notes and Offshore
Physical Notes shall be transferred to all beneficial owners in exchange for
their beneficial interests in the U.S. Global Notes or the Offshore Global
Notes, respectively, if (i) the 
<PAGE>
 
                                       22

Depositary notifies the Company that it is unwilling or unable to continue as
Depositary for the U.S. Global Notes or the Offshore Global Notes, as the case
may be, and a successor depositary is not appointed by the Company within 90
days of such notice, (ii) an Event of Default has occurred and is continuing and
the Registrar has received a request from the Depositary or (iii) in accordance
with the rules and procedures of the Depositary and the provisions of Section
2.08.

      (c) Any beneficial interest in one of the Global Notes that is transferred
to a person who takes delivery in the form of an interest in the other Global
Note will, upon transfer, cease to be an interest in such Global Note and become
an interest in the other Global Note and, accordingly, will thereafter be
subject to all transfer restrictions, if any, and other procedures applicable to
beneficial interests in such other Global Note for as long as it remains such an
interest.

      (d) In connection with any transfer of a portion of the beneficial
interests in the U.S. Global Notes to beneficial owners pursuant to paragraph
(b) of this Section 2.07, the Registrar shall reflect on its books and records
the date and a decrease in the principal amount of the U.S. Global Notes in an
amount equal to the principal amount of the beneficial interest in the U.S.
Global Notes to be transferred, and the Company shall execute, and the Trustee
shall authenticate and deliver, one or more U.S. Physical Notes of like tenor
and amount.

      (e) In connection with the transfer of the entire U.S. Global Note or
Offshore Global Note to beneficial owners pursuant to paragraph (b) of this
Section 2.07, the U.S. Global Note or Offshore Global Note, as the case may be,
shall be deemed to be surrendered to the Trustee for cancellation, and the
Company shall execute, and the Trustee shall authenticate and deliver, to each
beneficial owner identified by the Depositary in exchange for its beneficial
interest in the U.S. Global Note or Offshore Global Note, as the case may be, an
equal aggregate principal amount of U.S. Physical Notes or Offshore Physical
Notes, as the case may be, of authorized denominations.

      (f) Any U.S. Physical Note delivered in exchange for an interest in the
U.S. Global Note pursuant to paragraph (b) or (d) of this Section 2.07 shall,
except as otherwise provided by paragraph (f) of Section 2.08, bear the legend
regarding transfer restrictions applicable to the U.S. Physical Note set forth
in Section 2.02.

      (g) Any Offshore Physical Note delivered in exchange for an interest in
the Offshore Global Note pursuant to paragraph (b) of this Section 2.07 shall,
except as otherwise provided by paragraph (f) of Section 2.08, bear the legend
regarding transfer restrictions applicable to the Offshore Physical Note set
forth in Section 2.02.

      (h) The registered holder of a Global Note may grant proxies and otherwise
authorize any person, including Agent Members and persons that may hold
interests through Agent Members, to take any action which a Holder is entitled
to take under this Indenture or the Notes.

      SECTION 2.08. Special Transfer Provisions. Unless and until a Note is
exchanged for an Exchange Note in connection with an effective Registration
Statement pursuant to the Registration Rights Agreement, the following
provisions shall apply:

      (a) Transfers to Non-QIB Institutional Accredited Investors. The following
provisions shall apply with respect to the registration of any proposed transfer
of a Note to any Institutional Accredited Investor which is not a QIB (excluding
Non-U.S. Persons):

            (i) The Registrar shall register the transfer of any Note, whether
      or not such Note bears the Private Placement Legend, if (x) the requested
      transfer is after the time period referred to in Rule 144(k) under the
      Securities Act or (y) the proposed transferee has delivered to the
      Registrar (A) a certificate substantially in the form of Exhibit C hereto
      and (B) if the aggregate principal amount of the Notes being 
<PAGE>
 
                                       23

     transferred is less than $100,000, an opinion of counsel acceptable to the
     Company that such transfer is in compliance with the Securities Act.

          (ii) If the proposed transferor is an Agent Member holding a
     beneficial interest in the U.S. Global Note, upon receipt by the Registrar
     of (x) the documents, if any, required by paragraph (i) and (y)
     instructions given in accordance with the Depositary's and the Registrar's
     procedures, the Registrar shall reflect on its books and records the date
     and a decrease in the principal amount of the U.S. Global Note in an amount
     equal to the principal amount of the beneficial interest in the U.S. Global
     Note to be transferred, and the Company shall execute, and the Trustee
     shall authenticate and deliver, one or more U.S. Physical Notes of like
     tenor and amount.

     (b) Transfers to QIBs. The following provisions shall apply with respect to
the registration of any proposed transfer of a U.S. Physical Note or an interest
in the U.S. Global Note to a QIB (excluding Non-U.S. Persons):

          (i) If the Note to be transferred consists of (x) U.S. Physical Notes,
     the Registrar shall register the transfer if such transfer is being made by
     a proposed transferor who has checked the box provided for on the form of
     Note stating, or has otherwise advised the Company and the Registrar in
     writing, that the sale has been made in compliance with the provisions of
     Rule 144A to a transferee who has signed the certification provided for on
     the form of Note stating, or has otherwise advised the Company and the
     Registrar in writing, that it is purchasing the Note for its own account or
     an account with respect to which it exercises sole investment discretion
     and that it and any such account is a QIB within the meaning of Rule 144A,
     and is aware that the sale to it is being made in reliance on Rule 144A and
     acknowledges that it has received such information regarding the Company as
     it has requested pursuant to Rule 144A or has determined not to request
     such information and that it is aware that the transferor is relying upon
     its foregoing representations in order to claim the exemption from
     registration provided by Rule 144A or (y) an interest in the U.S. Global
     Note, the transfer of such interest may be effected only through the book
     entry system maintained by the Depositary.

          (ii) If the proposed transferee is an Agent Member, and the Note to be
     transferred consists of U.S. Physical Notes, upon receipt by the Registrar
     of the documents referred to in clause (i) and instructions given in
     accordance with the Depositary's and the Registrar's procedures, the
     Registrar shall reflect on its books and records the date and an increase
     in the principal amount of the U.S. Global Note in an amount equal to the
     principal amount of the U.S. Physical Notes to be transferred, and the
     Trustee shall cancel the U.S. Physical Note so transferred.

     (c) Transfers of Interests in the Offshore Global Note or Offshore Physical
Notes to U.S. Persons. The following provisions shall apply with respect to any
transfer of interests in the Offshore Global Note or Offshore Physical Notes:

          (i) prior to the removal of the Private Placement Legend from an
     Offshore Global Note or Offshore Physical Note pursuant to Section 2.02,
     the Registrar shall refuse to register such transfer unless such transfer
     complies with Section 2.08(b) or Section 2.08(d), as the case may be; and

          (ii) after such removal, the Registrar shall register the transfer of
     any such Note without requiring any additional certification.

     (d) Transfers to Non-U.S. Persons at Any Time. The following provisions
shall apply with respect to any transfer of a Note to a Non-U.S. Person:
<PAGE>
 
                                       24

            (i) The Registrar shall register any proposed transfer to any
      Non-U.S. Person if the Note to be transferred is a U.S. Physical Note or
      an interest in the U.S. Global Note, upon receipt of a certificate
      substantially in the form of Exhibit D hereto from the proposed
      transferor.

            (ii) (a) If the proposed transferor is an Agent Member holding a
      beneficial interest in the U.S. Global Note, upon receipt by the Registrar
      of (x) the documents, if any, required by paragraph (ii) and (y)
      instructions in accordance with the Depositary's and the Registrar's
      procedures, the Registrar shall reflect on its books and records the date
      and a decrease in the principal amount of the U.S. Global Note in an
      amount equal to the principal amount of the beneficial interest in the
      U.S. Global Note to be transferred, and (b) if the proposed transferee is
      an Agent Member, upon receipt by the Registrar of instructions given in
      accordance with the Depositary's and the Registrar's procedures, the
      Registrar shall reflect on its books and records the date and an increase
      in the principal amount of the Offshore Global Note in an amount equal to
      the principal amount of the U.S. Physical Notes or the U.S. Global Note,
      as the case may be, to be transferred, and the Trustee shall cancel the
      Physical Note, if any, so transferred or decrease the amount of the U.S.
      Global Note.

      (e) Private Placement Legend. Upon the transfer, exchange or replacement
of Notes not bearing the Private Placement Legend, the Registrar shall deliver
Notes that do not bear the Private Placement Legend. Upon the transfer, exchange
or replacement of Notes bearing the Private Placement Legend, the Registrar
shall deliver only Notes that bear the Private Placement Legend unless either
(i) the circumstances contemplated by the fourth paragraph of Section 2.01 or
paragraph (a)(i)(x) or (d)(ii) of this Section 2.08 exist or (ii) there is
delivered to the Registrar an Opinion of Counsel reasonably satisfactory to the
Company and the Trustee to the effect that neither such legend nor the related
restrictions on transfer are required in order to maintain compliance with the
provisions of the Securities Act.

      (f) General. By its acceptance of any Note bearing the Private Placement
Legend, each Holder of such a Note acknowledges the restrictions on transfer of
such Note set forth in this Indenture and in the Private Placement Legend and
agrees that it will transfer such Note only as provided in this Indenture. The
Registrar shall not register a transfer of any Note unless such transfer
complies with the restrictions on transfer of such Note set forth in this
Indenture. In connection with any transfer of Notes, each Holder agrees by its
acceptance of the Notes to furnish the Registrar or the Company such
certifications, legal opinions or other information as either of them may
reasonably require to confirm that such transfer is being made pursuant to an
exemption from, or a transaction not subject to, the registration requirements
of the Securities Act; provided that the Registrar shall not be required to
determine (but may rely on a determination made by the Company with respect to)
the sufficiency of any such certifications, legal opinions or other information.

      The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.07 or this Section 2.08.
The Company shall have the right to inspect and make copies of all such letters,
notices or other written communications at any reasonable time upon the giving
of reasonable written notice to the Registrar.

      SECTION 2.09. Replacement Notes. If a mutilated Note is surrendered to the
Trustee or if the Holder claims that the Note has been lost, destroyed or
wrongfully taken, the Company shall issue and the Trustee shall authenticate a
replacement Note of like tenor and principal amount and bearing a number not
contemporaneously outstanding; provided that the requirements of the second
paragraph of Section 2.10 are met. If required by the Trustee or the Company, an
indemnity bond must be furnished that is sufficient in the judgment of both the
Trustee and the Company to protect the Company, the Trustee or any Agent from
any loss that any of them may suffer if a Note is replaced. The Company may
charge such Holder for its expenses and the expenses of the Trustee in 
<PAGE>
 
                                       25

replacing a Note. In case any such mutilated, lost, destroyed or wrongfully
taken Note has become or is about to become due and payable, the Company in its
discretion may pay such Note instead of issuing a new Note in replacement
thereof.

      Every replacement Note is an additional obligation of the Company and
shall be entitled to the benefits of this Indenture.

      SECTION 2.10. Outstanding Notes. Notes outstanding at any time are all
Notes that have been authenticated by the Trustee except for those cancelled by
it, those delivered to it for cancellation and those described in this Section
2.10 as not outstanding.

      If a Note is replaced pursuant to Section 2.09, it ceases to be
outstanding unless and until the Trustee and the Company receive proof
satisfactory to them that the replaced Note is held by a bona fide purchaser.

      If the Paying Agent (other than the Company or an Affiliate of the
Company) holds on the maturity date money sufficient to pay Notes payable on
that date, then on and after that date such Notes cease to be outstanding and
interest on them shall cease to accrue.

      A Note does not cease to be outstanding because the Company or one of its
Affiliates holds such Note, provided, however, that in determining whether the
Holders of the requisite principal amount of the outstanding Notes have given
any request, demand, authorization, direction, notice, consent or waiver
hereunder, Notes owned by the Company or any other obligor upon the Notes or any
Affiliate of the Company or of such other obligor shall be disregarded and
deemed not to be outstanding, except that, in determining whether the Trustee
shall be protected in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Notes which a Responsible Officer of
the Trustee knows to be so owned shall be so disregarded. Notes so owned which
have been pledged in good faith may be regarded as outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Notes and that the pledgee is not the Company or any other
obligor upon the Notes or any Affiliate of the Company or of such other obligor.

      SECTION 2.11. Temporary Notes. Until definitive Notes are ready for
delivery, the Company may prepare and the Trustee shall authenticate temporary
Notes. Temporary Notes shall be substantially in the form of definitive Notes
but may have insertions, substitutions, omissions and other variations
determined to be appropriate by the Officers executing the temporary Notes, as
evidenced by their execution of such temporary Notes. If temporary Notes are
issued, the Company will cause definitive Notes to be prepared without
unreasonable delay. After the preparation of definitive Notes, the temporary
Notes shall be exchangeable for definitive Notes upon surrender of the temporary
Notes at the office or agency of the Company designated for such purpose
pursuant to Section 4.02, without charge to the Holder. Upon surrender for
cancellation of any one or more temporary Notes, the Company shall execute and
the Trustee shall authenticate and deliver in exchange therefor a like principal
amount of definitive Notes of authorized denominations. Until so exchanged, the
temporary Notes shall be entitled to the same benefits under this Indenture as
definitive Notes.

      SECTION 2.12. Cancellation. The Company at any time may deliver to the
Trustee for cancellation any Notes previously authenticated and delivered
hereunder which the Company may have acquired in any manner whatsoever, and may
deliver to the Trustee for cancellation any Notes previously authenticated
hereunder which the Company has not issued and sold. The Registrar and the
Paying Agent shall forward to the Trustee any Notes surrendered to them for
transfer, exchange or payment. The Trustee shall cancel all Notes surrendered
for transfer, exchange, payment or cancellation and shall destroy them in
accordance with its normal procedure. Except as expressly permitted by this
Indenture, the Company may not issue new Notes to replace Notes it has paid in
full or delivered to the Trustee for cancellation.
<PAGE>
 
                                       26

      SECTION 2.13. CUSIP Numbers. The Company in issuing the Notes may use
"CUSIP", "CINS" or "ISIN" numbers (if then generally in use), and the Trustee
shall use CUSIP, CINS or ISIN numbers, as the case may be, in notices of
redemption or exchange as a convenience to Holders; provided that any such
notice shall state that no representation is made as to the correctness of such
numbers either as printed on the Notes or as contained in any notice of
redemption or exchange and that reliance may be placed only on the other
identification numbers printed on the Notes. The Company will promptly notify
the Trustee of any change in "CUSIP", "CINS" or "ISIN" numbers for the Notes.

      SECTION 2.14. Defaulted Interest. If the Company defaults in a payment of
interest on the Notes, it shall pay, or shall deposit with the Paying Agent
money in immediately available funds sufficient to pay, the defaulted interest,
plus (to the extent lawful) any interest payable on the defaulted interest, to
the Persons who are Holders on a subsequent special record date. A special
record date, as used in this Section 2.14 with respect to the payment of any
defaulted interest, shall mean the 15th day next preceding the date fixed by the
Company for the payment of defaulted interest, whether or not such day is a
Business Day. At least 15 days before the subsequent special record date, the
Company shall mail to each Holder and to the Trustee a notice that states the
subsequent special record date, the payment date and the amount of defaulted
interest to be paid.

      SECTION 2.15. Issuance of Additional Notes. The Company may, subject to
Article Four of this Indenture, issue additional Notes under this Indenture. The
Notes issued on the Closing Date and any additional Notes subsequently issued
shall be treated as a single class for all purposes under this Indenture.

                                  ARTICLE THREE
                                   REDEMPTION

      SECTION 3.01. Right of Redemption; Mandatory Redemption. (a) The Notes
will be redeemable, at the Company's option, in whole or in part, at any time or
from time to time, on or after March 1, 2003 and prior to maturity, upon not
less than 30 nor more than 60 days' prior notice mailed by first-class mail to
each Holder's last address, as it appears in the Security Register, at the
following Redemption Prices (expressed in percentages of principal amount), plus
accrued and unpaid interest to the Redemption Date (subject to the right of
Holders of record on the relevant Regular Record Date that is prior to the
Redemption Date to receive interest due on an Interest Payment Date), if
redeemed during the 12-month period commencing March 1 of the years set forth
below:

<TABLE>
<CAPTION>
                          Year                   Redemption Price
                          ----                   ----------------
                <S>                                <C>      
                2003 .....................         104.4375%

                2004 .....................         102.9583

                2005 .....................         101.4792

                2006 and thereafter ......         100.0000
</TABLE>

      (b) At any time prior to March 1, 2001, the Company may redeem up to 35%
of the principal amount of the Notes with the proceeds of one or more Public
Equity Offerings, at any time or from time to time in part, at a Redemption
Price (expressed as a percentage of principal amount) of 108.875%, plus accrued
and unpaid interest to the Redemption Date (subject to the rights of Holders of
record on the relevant Regular Record Date that is prior to the Redemption Date
to receive interest due on an Interest Payment Date); provided that at least
$104.0 million aggregate principal amount of Notes remains outstanding after
each such redemption.
<PAGE>
 
                                       27

      SECTION 3.02. Notices to Trustee. If the Company elects to redeem Notes
pursuant to Section 3.01, it shall notify the Trustee in writing of the
Redemption Date and the principal amount of Notes to be redeemed.

      The Company shall give each notice provided for in this Section 3.02 in an
Officers' Certificate at least 45 days before the Redemption Date (unless a
shorter period shall be satisfactory to the Trustee).

      SECTION 3.03. Selection of Notes to Be Redeemed. If less than all of the
Notes are to be redeemed at any time, the Trustee shall select the Notes to be
redeemed in compliance with the requirements, as certified to it by the Company,
of the principal national securities exchange, if any, on which the Notes are
listed or, if the Notes are not listed on a national securities exchange, on a
pro rata basis, by lot or by such other method as the Trustee in its sole
discretion shall deem fair and appropriate; provided that no Notes of $1,000 in
principal amount or less shall be redeemed in part.

      The Trustee shall make the selection from the Notes outstanding and not
previously called for redemption. Notes in denominations of $1,000 in principal
amount may only be redeemed in whole. The Trustee may select for redemption
portions (equal to $1,000 in principal amount or any integral multiple thereof)
of Notes that have denominations larger than $1,000 in principal amount.
Provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption. The Trustee shall notify the
Company and the Registrar promptly in writing of the Notes or portions of Notes
to be called for redemption.

      SECTION 3.04. Notice of Redemption. With respect to any redemption of
Notes pursuant to Section 3.01, at least 30 days but not more than 60 days
before a Redemption Date, the Company shall mail a notice of redemption by
first-class mail to each Holder whose Notes are to be redeemed.

      The notice shall identify the Notes to be redeemed and shall state:

            (i)   the Redemption Date;

            (ii)  the Redemption Price;

            (iii) the name and address of the Paying Agent;

            (iv)  that Notes called for redemption must be surrendered to the
      Paying Agent in order to collect the Redemption Price;

            (v)   that, unless the Company defaults in making the redemption
      payment, interest on Notes called for redemption ceases to accrue on and
      after the Redemption Date and the only remaining right of the Holders is
      to receive payment of the Redemption Price plus accrued interest to the
      Redemption Date upon surrender of the Notes to the Paying Agent;

            (vi)  that, if any Note is being redeemed in part, the portion of
      the principal amount (equal to $1,000 in principal amount or any integral
      multiple thereof) of such Note to be redeemed and that, on and after the
      Redemption Date, upon surrender of such Note, a new Note or Notes in
      principal amount equal to the unredeemed portion thereof will be reissued;
      and

            (vii) that, if any Note contains a CUSIP, CINS or ISIN number as
      provided in Section 2.13, no representation is being made as to the
      correctness of the CUSIP, CINS or ISIN number either as printed on 
<PAGE>
 
                                       28

     the Notes or as contained in the notice of redemption and that reliance may
     be placed only on the other identification numbers printed on the Notes.

     At the Company's request (which request may be revoked by the Company at
any time prior to the time at which the Trustee shall have given such notice to
the Holders), made in writing to the Trustee at least 45 days (or such shorter
period as shall be satisfactory to the Trustee) before a Redemption Date, the
Trustee shall give the notice of redemption pursuant to Section 3.01(a) or (b)
in the name and at the expense of the Company. If, however, the Company gives
such notice to the Holders, the Company shall concurrently deliver to the
Trustee an Officers' Certificate stating that such notice has been given.

     SECTION 3.05. Effect of Notice of Redemption. Once notice of redemption is
mailed, Notes called for redemption become due and payable on the Redemption
Date and at the Redemption Price. Upon surrender of any Notes to the Paying
Agent, such Notes shall be paid at the Redemption Price, plus accrued interest,
if any, to the Redemption Date.

     Notice of redemption shall be deemed to be given when mailed, whether or
not the Holder receives the notice. In any event, failure to give such notice,
or any defect therein, shall not affect the validity of the proceedings for the
redemption of Notes held by Holders to whom such notice was properly given.

     SECTION 3.06. Deposit of Redemption Price. On or prior to any Redemption
Date, the Company shall deposit with the Paying Agent (or, if the Company is
acting as its own Paying Agent, shall segregate and hold in trust as provided in
Section 2.05) money sufficient to pay the Redemption Price of and accrued
interest on all Notes to be redeemed on that date other than Notes or portions
thereof called for redemption on that date that have been delivered by the
Company to the Trustee for cancellation.

     SECTION 3.07. Payment of Notes Called for Redemption. If notice of
redemption has been given in the manner provided above, the Notes or portion of
Notes specified in such notice to be redeemed shall become due and payable on
the Redemption Date at the Redemption Price stated therein, together with
accrued interest to such Redemption Date, and on and after such date (unless the
Company shall default in the payment of such Notes at the Redemption Price and
accrued interest to the Redemption Date, in which case the principal, until
paid, shall bear interest from the Redemption Date at the rate prescribed in the
Notes), such Notes shall cease to accrue interest. Upon surrender of any Note
for redemption in accordance with a notice of redemption, such Note shall be
paid and redeemed by the Company at the Redemption Price, together with accrued
interest, if any, to the Redemption Date; provided that installments of interest
whose Stated Maturity is on or prior to the Redemption Date shall be payable to
the Holders registered as such at the close of business on the relevant Regular
Record Date.

     SECTION 3.08. Notes Redeemed in Part. Upon surrender of any Note that is
redeemed in part, the Company shall execute and the Trustee shall authenticate
and deliver to the Holder a new Note equal in principal amount to the unredeemed
portion of such surrendered Note.
<PAGE>
 
                                       29

                                  ARTICLE FOUR
                                    COVENANTS

      SECTION 4.01. Payment of Notes. The Company shall pay the principal of,
premium, if any, and interest on the Notes on the dates and in the manner
provided in the Notes and this Indenture. An installment of principal, premium,
if any, or interest shall be considered paid on the date due if the Trustee or
Paying Agent (other than the Company, a Subsidiary of the Company, or any
Affiliate of any of them) holds on that date money designated for and sufficient
to pay the installment. If the Company or any Subsidiary of the Company or any
Affiliate of any of them acts as Paying Agent, an installment of principal,
premium, if any, or interest shall be considered paid on the due date if the
entity acting as Paying Agent complies with the last sentence of Section 2.05.
As provided in Section 6.09, upon any bankruptcy or reorganization procedure
relative to the Company, the Trustee shall serve as the Paying Agent, if any,
for the Notes.

      The Company shall pay interest on overdue principal, premium, if any, and
interest on overdue installments of interest, to the extent lawful, at the rate
per annum specified in the Notes.

      SECTION 4.02. Maintenance of Office or Agency. The Company will maintain
in the Borough of Manhattan, The City of New York, an office or agency where
Notes may be surrendered for registration of transfer or exchange or for
presentation for payment and where notices and demands to or upon the Company in
respect of the Notes and this Indenture may be served. The Company will give
prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the address of the Trustee set forth in Section 10.02.

      The Company may also from time to time designate one or more other offices
or agencies where the Notes may be presented or surrendered for any or all such
purposes and may from time to time rescind such designations; provided that no
such designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in the Borough of Manhattan, The City
of New York for such purposes. The Company will give prompt written notice to
the Trustee of any such designation or rescission and of any change in the
location of any such other office or agency.

      The Company hereby initially designates the Corporate Trust Office of the
Trustee as such office of the Company in accordance with Section 2.04.

      SECTION 4.03. Limitation on Indebtedness. (a) The Company will not, and
will not permit any of its Restricted Subsidiaries to, Incur any Indebtedness
(other than the Notes and Indebtedness existing on the Closing Date); provided
that the Company may Incur Indebtedness if, after giving effect to the
Incurrence of such Indebtedness and the receipt and application of the proceeds
thereof, the Consolidated Leverage Ratio would be less than or equal to 7 to 1,
for Indebtedness Incurred on or prior to June 30, 1998, or less than or equal to
5 to 1, for Indebtedness Incurred thereafter.

      Notwithstanding the foregoing, the Company, and (except as specified
below) any Restricted Subsidiary, may Incur each and all of the following: (i)
Indebtedness in an aggregate principal amount outstanding or available at any
time not to exceed the sum of (A) $150 million, plus (B) $100 million, if after
giving effect to the Incurrence of such Indebtedness and application of the
proceeds thereof the Consolidated Secured Indebtedness Leverage Ratio would be
less than or equal to 2.25 to 1, less (C) any amount of such Indebtedness
permanently repaid as provided under Section 4.10; (ii) Indebtedness owed (A) to
the Company and evidenced by an unsubordinated promissory note or (B) to any
Restricted Subsidiaries; provided that any event which results in any such
Restricted Subsidiary ceasing 
<PAGE>
 
                                       30

to be a Restricted Subsidiary or any subsequent transfer of such Indebtedness
(other than to the Company or another Restricted Subsidiary) shall be deemed, in
each case, to constitute an Incurrence of such Indebtedness not permitted by
this clause (ii); (iii) Indebtedness issued in exchange for, or the net proceeds
of which are used to refinance or refund, then outstanding Indebtedness (other
than Indebtedness Incurred under clause (i), (ii), (iv), (vi) or (ix) of this
paragraph) and any refinancings of such new Indebtedness in an amount not to
exceed the amount so refinanced or refunded (plus premiums, accrued interest,
fees and expenses); provided that Indebtedness the proceeds of which are used to
refinance or refund the Notes or Indebtedness that is pari passu in right of
payment with, or subordinated in right of payment to, the Notes shall only be
permitted under this clause (iii) if (A) in case the Notes are refinanced in
part or the Indebtedness to be refinanced is pari passu in right of payment with
the Notes, such new Indebtedness, by its terms or by the terms of any agreement
or instrument pursuant to which such new Indebtedness is outstanding, is
expressly made pari passu in right of payment with, or subordinate in right of
payment to, the remaining Notes, (B) in case the Indebtedness to be refinanced
is subordinated in right of payment to the Notes, such new Indebtedness, by its
terms or by the terms of any agreement or instrument pursuant to which such new
Indebtedness is issued or remains outstanding, is expressly made subordinate in
right of payment to the Notes at least to the extent that the Indebtedness to be
refinanced is subordinated to the Notes and (C) such new Indebtedness,
determined as of the date of Incurrence of such new Indebtedness, does not
mature prior to the Stated Maturity of the Indebtedness to be refinanced or
refunded, and the Average Life of such new Indebtedness is at least equal to the
remaining Average Life of the Indebtedness to be refinanced or refunded; and
provided further that in no event may Indebtedness of the Company be refinanced
by means of any Indebtedness of any Restricted Subsidiary pursuant to this
clause (iii); (iv) Indebtedness (A) in respect of performance, surety or appeal
bonds provided in the ordinary course of business, (B) under Currency Agreements
and Interest Rate Agreements; provided that such agreements (a) are designed
solely to protect the Company or its Subsidiaries against fluctuations in
foreign currency exchange rates or interest rates and (b) do not increase the
Indebtedness of the obligor outstanding at any time other than as a result of
fluctuations in foreign currency exchange rates or interest rates or by reason
of fees, indemnities and compensation payable thereunder or (C) arising from
agreements providing for indemnification, adjustment of purchase price or
similar obligations, or from Guarantees or letters of credit, surety bonds or
performance bonds securing any obligations of the Company or any of its
Restricted Subsidiaries pursuant to such agreements, in each case Incurred in
connection with the disposition of any business, assets or Restricted Subsidiary
(other than Guarantees of Indebtedness Incurred by any Person acquiring all or
any portion of such business, assets or Restricted Subsidiary for the purpose of
financing such acquisition), in a principal amount not to exceed the gross
proceeds actually received by the Company or any Restricted Subsidiary in
connection with such disposition; (v) Indebtedness of the Company, to the extent
the net proceeds thereof are promptly (A) used to purchase Notes tendered in an
Offer to Purchase made as a result of a Change of Control or (B) deposited to
defease all of the Notes in accordance with Article Eight; (vi) Guarantees of
the Notes and Guarantees of Indebtedness of the Company by any Restricted
Subsidiary, provided the Guarantee of such Indebtedness is permitted by and made
in accordance with Section 4.07; (vii) Indebtedness (including Acquired
Indebtedness) Incurred to finance the cost (including the cost of design,
development, acquisition, construction, installation, improvement,
transportation or integration) for the Company or a Restricted Subsidiary to
acquire equipment, inventory or other assets (tangible or intangible) used or
useful in a Telecommunications Business after the Closing Date; (viii)
Indebtedness of the Company not to exceed, at any one time outstanding, two
times (A) the Net Cash Proceeds received by the Company after the Closing Date
as a capital contribution or from the issuance and sale of its Capital Stock
(other than Redeemable Stock) to a Person that is not a Subsidiary of the
Company, to the extent such Net Cash Proceeds have not been used pursuant to
clause (C)(2) of the first paragraph or clause (iii), (iv) or (vi) of the second
paragraph of Section 4.04 to make a Restricted Payment and (B) 80% of the fair
market value of property (other than cash and cash equivalents) received by the
Company after the Closing Date from a contribution of capital or the sale of its
Capital Stock (other than Redeemable Stock) to a Person that is not a Subsidiary
of the Company, to the extent such capital contribution or sale of Capital Stock
has not been used pursuant to clause (iii), (iv) or (ix) of the second paragraph
of Section 4.04 to make a Restricted Payment; provided that such Indebtedness
does not mature prior to the Stated Maturity of the Notes and has an Average
Life longer than the Notes; and (ix) Strategic Subordinated Indebtedness.
<PAGE>
 
                                       31

      (b) Notwithstanding any other provision of this Section 4.03, the maximum
amount of Indebtedness that the Company or a Restricted Subsidiary may Incur
pursuant to this Section 4.03 shall not be deemed to be exceeded due solely to
the result of fluctuations in the exchange rates of currencies.

      (c) For purposes of determining any particular amount of Indebtedness
under this Section 4.03, (1) Guarantees, Liens or obligations with respect to
letters of credit supporting Indebtedness otherwise included in the
determination of such particular amount shall not be included and (2) any Liens
granted pursuant to the equal and ratable provisions referred to in Section 4.09
shall not be treated as Indebtedness. For purposes of determining compliance
with this Section 4.03, in the event that an item of Indebtedness meets the
criteria of more than one of the types of Indebtedness described in the above
clauses, the Company, in its sole discretion, shall classify such item of
Indebtedness and only be required to include the amount and type of such
Indebtedness in one of such clauses.

      SECTION 4.04. Limitation on Restricted Payments. The Company will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, (i)
declare or pay any dividend or make any distribution on or with respect to its
Capital Stock (other than (x) dividends or distributions payable solely in
shares of its Capital Stock (other than Redeemable Stock) or in options,
warrants or other rights to acquire shares of such Capital Stock and (y) pro
rata dividends or distributions on Common Stock of Restricted Subsidiaries held
by minority stockholders, provided that such dividends do not in the aggregate
exceed the minority stockholders' pro rata share of such Restricted
Subsidiaries' net income from the first day of the fiscal quarter beginning
immediately following the Closing Date) held by Persons other than the Company
or any of its Restricted Subsidiaries, (ii) purchase, redeem, retire or
otherwise acquire for value any shares of Capital Stock of (A) the Company or an
Unrestricted Subsidiary (including options, warrants or other rights to acquire
such shares of Capital Stock) held by any Person or (B) a Restricted Subsidiary
(including options, warrants or other rights to acquire such shares of Capital
Stock) held by any Affiliate of the Company (other than a Wholly Owned
Restricted Subsidiary) or any holder (or any Affiliate of such holder) of 5% or
more of the Capital Stock of the Company, (iii) make any voluntary or optional
principal payment, or voluntary or optional redemption, repurchase, defeasance,
or other acquisition or retirement for value, of Indebtedness of the Company
that is subordinated in right of payment to the Notes (other than, in each case,
the purchase, repurchase or acquisition of Indebtedness in anticipation of
satisfying a sinking fund obligation, principal installment or final maturity,
in any case due within one year after the date of such purchase, repurchase or
acquisition) or (iv) make any Investment, other than a Permitted Investment, in
any Person (such payments or any other actions described in clauses (i) through
(iv) above being collectively "Restricted Payments") if, at the time of, and
after giving effect to, the proposed Restricted Payment: (A) a Default or Event
of Default shall have occurred and be continuing, (B) the Company could not
Incur at least $1.00 of Indebtedness under the first paragraph of Section
4.03(a) or (C) the aggregate amount of all Restricted Payments (the amount, if
other than in cash, to be determined in good faith by the Board of Directors,
whose determination shall be conclusive and evidenced by a Board Resolution)
made after the Closing Date shall exceed the sum of (1) 50% of the aggregate
amount of the Adjusted Consolidated Net Income (or, if the Adjusted Consolidated
Net Income is a loss, minus 100% of the amount of such loss) (excluding, for
purposes of such computation, income resulting from transfers of assets by the
Company or a Restricted Subsidiary to an Unrestricted Subsidiary) accrued on a
cumulative basis during the period (taken as one accounting period) beginning on
the first day of the fiscal quarter immediately following the Closing Date and
ending on the last day of the last fiscal quarter preceding the Transaction Date
for which reports have been filed with the Commission or provided to the Trustee
pursuant to Section 4.17 plus (2) the aggregate Net Cash Proceeds received by
the Company after the Closing Date from a capital contribution or the issuance
and sale permitted by this Indenture to a Person who is not a Subsidiary of the
Company of (a) its Capital Stock (other than Redeemable Stock), (b) any options,
warrants or other rights to acquire Capital Stock of the Company (in each case,
exclusive of any Redeemable Stock or any options, warrants or other rights that
are redeemable at the option of the holder, or are required to be redeemed,
prior to the Stated Maturity of the Notes) and (c) Indebtedness of the Company
that has been exchanged for or converted into Capital Stock of the Company
(other than Redeemable Stock), in each case 
<PAGE>
 
                                       32

except to the extent such Net Cash Proceeds are used to Incur Indebtedness
pursuant to clause (viii) of the second paragraph of Section 4.03(a), plus (3)
an amount equal to the net reduction in Investments (other than reductions in
Permitted Investments and reductions in Investments made pursuant to clause (vi)
of the second paragraph of this Section 4.04) in any Person resulting from
payments of interest on Indebtedness, dividends, repayments of loans or
advances, or other transfers of assets, in each case to the Company or any
Restricted Subsidiary or from the Net Cash Proceeds from the sale of any such
Investment (except, in each case, to the extent any such payment or proceeds is
included in the calculation of Adjusted Consolidated Net Income), or from
redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries (valued
in each case as provided in the definition of "Investments"), not to exceed, in
each case, the amount of Investments previously made by the Company or any
Restricted Subsidiary in such Person or Unrestricted Subsidiary.

      The foregoing provision shall not be violated by reason of: (i) the
payment of any dividend within 60 days after the date of declaration thereof if,
at such date of declaration, such payment would comply with the foregoing
paragraph; (ii) the redemption, repurchase, defeasance or other acquisition or
retirement for value of Indebtedness that is subordinated in right of payment to
the Notes, including premium, if any, and accrued and unpaid interest, with the
proceeds of, or in exchange for, Indebtedness Incurred under clause (iii) of the
second paragraph of Section 4.03(a); (iii) the repurchase, redemption or other
acquisition of Capital Stock of the Company (or options, warrants or other
rights to acquire such Capital Stock) in exchange for, or out of the proceeds of
a substantially concurrent offering of, shares of Capital Stock (other than
Redeemable Stock) of the Company (or options, warrants or other rights to
acquire such Capital Stock); (iv) the making of any principal payment or the
repurchase, redemption, retirement, defeasance or other acquisition for value of
Indebtedness of the Company which is subordinated in right of payment to the
Notes in exchange for, or out of the proceeds of, a substantially concurrent
offering of shares of the Capital Stock (other than Redeemable Stock) of the
Company (or options, warrants or other rights to acquire such Capital Stock);
(v) payments or distributions to dissenting stockholders pursuant to applicable
law in connection with a consolidation, merger or transfer of assets that
complies with the provisions of Article Five; (vi) Investments in any Person the
primary business of which is related, ancillary or complementary to the business
of the Company and its Restricted Subsidiaries on the date of such Investments;
provided that the aggregate amount of Investments made pursuant to this clause
(vi) does not exceed the sum of (x) $25 million plus (y) the amount of Net Cash
Proceeds received by the Company after the Closing Date as a capital
contribution or from the sale of its Capital Stock (other than Redeemable Stock)
to a Person who is not a Subsidiary of the Company, except to the extent such
Net Cash Proceeds are used to Incur Indebtedness pursuant to clause (viii) of
the second paragraph of Section 4.03(a) or to make Restricted Payments pursuant
to clause (C)(2) of the first paragraph, or clause (iii) or (iv) of this
paragraph, of this Section 4.04, plus (z) the net reduction in Investments made
pursuant to this clause (vi) resulting from distributions on or repayments of
such Investments or from the Net Cash Proceeds from the sale of any such
Investment (except in each case to the extent any such payment or proceeds is
included in the calculation of Adjusted Consolidated Net Income) or from such
Person becoming a Restricted Subsidiary (valued in each case as provided in the
definition of "Investments"), provided that the net reduction in any Investment
shall not exceed the amount of such Investment; (vii) the purchase, redemption,
acquisition, cancellation or other retirement for value of shares of Capital
Stock of the Company to the extent necessary, in the judgment of the Board of
Directors, to prevent the loss or secure the renewal or reinstatement of any
license or franchise held by the Company or any Restricted Subsidiary from any
governmental agency; (viii) the purchase, redemption, retirement or other
acquisition for value of shares of Capital Stock of the Company, or options to
purchase such shares, held by directors, employees, or former directors or
employees of the Company or any Restricted Subsidiary (or their estates or
beneficiaries under their estates) upon their death, disability, retirement,
termination of employment or pursuant to the terms of any agreement under which
such shares of Capital Stock or options were issued; provided that the aggregate
consideration paid for such purchase, redemption, retirement or other
acquisition for value of such shares of Capital Stock or options after the
Closing Date does not exceed $2 million in any calendar year, or $5 million in
the aggregate; or (ix) Investments acquired as a capital contribution to the
Company or in exchange for Capital Stock (other than Redeemable Stock) of the
Company; provided that, except in the case of clauses (i), (iii) and (iv), no
Default or 
<PAGE>
 
                                       33

Event of Default shall have occurred and be continuing, or occur as a
consequence of the actions or payments set forth therein.

      Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payment referred to in clause (ii) thereof, an
exchange of Capital Stock for Capital Stock or Indebtedness referred to in
clause (iii) or (iv) thereof and an Investment referred to in clause (ix)
thereof), and the Net Cash Proceeds from any issuance of Capital Stock referred
to in clauses (iii), (iv) and (vi) thereof, shall be included in calculating
whether the conditions of clause (C) of the first paragraph of this Section 4.04
have been met with respect to any subsequent Restricted Payments. In the event
the proceeds of an issuance of Capital Stock of the Company are used for the
redemption, repurchase or other acquisition of the Notes, or Indebtedness that
is pari passu in right of payment with the Notes, then the Net Cash Proceeds of
such issuance shall be included in clause (C) of the first paragraph of this
Section 4.04 only to the extent such proceeds are not used for such redemption,
repurchase or other acquisition of Indebtedness.

      SECTION 4.05. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries. The Company will not, and will not permit any
Restricted Subsidiary to, create or otherwise cause or suffer to exist or become
effective any consensual encumbrance or restriction of any kind on the ability
of any Restricted Subsidiary to (i) pay dividends or make any other
distributions permitted by applicable law on any Capital Stock of such
Restricted Subsidiary owned by the Company or any other Restricted Subsidiary,
(ii) pay any Indebtedness owed to the Company or any other Restricted
Subsidiary, (iii) make loans or advances to the Company or any other Restricted
Subsidiary or (iv) transfer any of its property or assets to the Company or any
other Restricted Subsidiary.

      The foregoing provisions shall not restrict any encumbrances or
restrictions: (i) existing on the Closing Date in this Indenture or any other
agreements in effect on the Closing Date, and any extensions, refinancings,
renewals or replacements of such agreements; provided that the encumbrances and
restrictions in any such extensions, refinancings, renewals or replacements are
no less favorable in any material respect to the Holders than those encumbrances
or restrictions that are then in effect and that are being extended, refinanced,
renewed or replaced; (ii) existing under or by reason of applicable law; (iii)
existing with respect to any Person or the property or assets of such Person
acquired by the Company or any Restricted Subsidiary and existing at the time of
such acquisition and not incurred in contemplation thereof, which encumbrances
or restrictions are not applicable to any Person or the property or assets of
any Person other than such Person or the property or assets of such Person so
acquired; (iv) in the case of clause (iv) of the first paragraph of this Section
4.05, (A) that restrict in a customary manner the subletting, assignment or
transfer of any property or asset that is a lease, license, conveyance or
contract or similar property or asset, (B) existing by virtue of any transfer
of, agreement to transfer, option or right with respect to, or Lien on, any
property or assets of the Company or any Restricted Subsidiary not otherwise
prohibited by this Indenture or (C) arising or agreed to in the ordinary course
of business, not relating to any Indebtedness, and that do not, individually or
in the aggregate, detract from the value of property or assets of the Company or
any Restricted Subsidiary in any manner material to the Company or any
Restricted Subsidiary; (v) with respect to a Restricted Subsidiary and imposed
pursuant to an agreement that has been entered into for the sale or disposition
of all or substantially all of the Capital Stock of, or property and assets of,
such Restricted Subsidiary; or (vi) contained in the terms of any Indebtedness
or any agreement pursuant to which such Indebtedness was issued if (A) the
encumbrance or restriction applies only in the event of a payment default or a
default with respect to a financial covenant contained in such Indebtedness or
agreement; provided that in the case of the Credit Agreement the encumbrance or
restriction may apply if an event of default (other than an event of default
resulting solely from the breach of a representation or warranty) occurs and is
continuing under the Credit Agreement; provided that, with respect to any event
of default (other than a payment default, a bankruptcy event with respect to the
Company, Interstate FiberNet, Inc. or any Significant Subsidiary or the loss of
a material license or fiber network) under the Credit Agreement, such
encumbrance or restriction may not prohibit dividends to the Company to pay
scheduled interest on the Notes for more than 180 days in any consecutive
360-day period, (B) the encumbrance or restriction is not materially more
<PAGE>
 
                                       34

disadvantageous to the Holders of the Notes than is customary in comparable
financings (as determined by the Company) and (C) the Company determines that
any such encumbrance or restriction will not materially affect the Company's
ability to make principal or interest payments on the Notes.

      Nothing contained in this Section 4.05 shall prevent the Company or any
Restricted Subsidiary from (1) creating, incurring, assuming or suffering to
exist any Liens otherwise permitted in Section 4.09 or (2) restricting the sale
or other disposition of property or assets of the Company or any of its
Restricted Subsidiaries that secure Indebtedness of the Company or any of its
Restricted Subsidiaries.

      SECTION 4.06. Limitation on the Issuance and Sale of Capital Stock of
Restricted Subsidiaries. The Company will not sell, and will not permit any
Restricted Subsidiary, directly or indirectly, to issue or sell, any shares of
Capital Stock of a Restricted Subsidiary (including options, warrants or other
rights to purchase shares of such Capital Stock) except (i) to the Company or a
Wholly Owned Restricted Subsidiary, (ii) issuances of director's qualifying
shares, or sales to foreign nationals of shares of Capital Stock of foreign
Restricted Subsidiaries, to the extent required by applicable law, (iii) if,
immediately after giving effect to such issuance or sale, such Restricted
Subsidiary would no longer constitute a Restricted Subsidiary and any Investment
in such Person remaining after giving effect to such issuance or sale would have
been permitted to be made under Section 4.04 if made on the date of such
issuance or sale or (iv) issuances or sales of Common Stock of a Restricted
Subsidiary, provided that the Company or such Restricted Subsidiary applies the
Net Cash Proceeds, if any, of any such sale in accordance with clause (A) or (B)
of the first paragraph of Section 4.10.

      SECTION 4.07. Limitation on Issuances of Guarantees by Restricted
Subsidiaries. The Company will not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee any Indebtedness of the Company which is pari passu in
right of payment with, or subordinate in right of payment to, the Notes
("Guaranteed Indebtedness"), unless (i) such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture to this Indenture
providing for a Guarantee (a "Subsidiary Guarantee") of payment of the Notes by
such Restricted Subsidiary and (ii) such Restricted Subsidiary waives, and will
not in any manner whatsoever claim or take the benefit or advantage of, any
rights of reimbursement, indemnity or subrogation or any other rights against
the Company or any other Restricted Subsidiary as a result of any payment by
such Restricted Subsidiary under its Subsidiary Guarantee; provided that this
paragraph shall not be applicable to (x) any Guarantee of any Restricted
Subsidiary that existed at the time such Person became a Restricted Subsidiary
and was not Incurred in connection with, or in contemplation of, such Person
becoming a Restricted Subsidiary or (y) any Guarantee of any Restricted
Subsidiary of Indebtedness Incurred (I) under Credit Facilities pursuant to
clause (i) of the second paragraph of Section 4.03(a) or (II) pursuant to clause
(vii) of the second paragraph of Section 4.03(a). If the Guaranteed Indebtedness
is (A) pari passu in right of payment with the Notes, then the Guarantee of such
Guaranteed Indebtedness shall be pari passu in right of payment with, or
subordinated in right of payment to, the Subsidiary Guarantee or (B)
subordinated in right of payment to the Notes, then the Guarantee of such
Guaranteed Indebtedness shall be subordinated in right of payment to the
Subsidiary Guarantee at least to the extent that the Guaranteed Indebtedness is
subordinated in right of payment to the Notes.

      Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary may provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or transfer,
to any Person not an Affiliate of the Company, of all of the Company's and each
Restricted Subsidiary's Capital Stock in, or all or substantially all the assets
of, such Restricted Subsidiary (which sale, exchange or transfer is not
prohibited by this Indenture) or (ii) the release or discharge of the Guarantee
which resulted in the creation of such Subsidiary Guarantee, except a discharge
or release by or as a result of payment under such Guarantee.

      SECTION 4.08. Limitation on Transactions with Stockholders and Affiliates.
The Company will not, and will not permit any Restricted Subsidiary to, directly
or indirectly, enter into, renew or extend any transaction 
<PAGE>
 
                                       35

(including, without limitation, the purchase, sale, lease or exchange of
property or assets, or the rendering of any service) with any holder (or any
Affiliate of such holder) of 5% or more of any class of Capital Stock of the
Company or with any Affiliate of the Company or any Restricted Subsidiary,
except upon fair and reasonable terms no less favorable in any material respect
to the Company or such Restricted Subsidiary than could be obtained, at the time
of such transaction or, if such transaction is pursuant to a written agreement,
at the time of the execution of the agreement providing therefor, in a
comparable arm's-length transaction with a Person that is not such a holder or
an Affiliate.

      The foregoing limitation does not limit, and shall not apply to: (i)
transactions (A) approved by a majority of the disinterested members of the
Board of Directors or (B) for which the Company or a Restricted Subsidiary
delivers to the Trustee a written opinion of a nationally recognized investment
banking firm stating that the transaction is fair to the Company or such
Restricted Subsidiary from a financial point of view; (ii) any transaction
solely between the Company and any of its Wholly Owned Restricted Subsidiaries
or solely between Wholly Owned Restricted Subsidiaries; (iii) the payment of
reasonable and customary regular fees to directors of the Company who are not
employees of the Company; (iv) any payments or other transactions pursuant to
any tax-sharing agreement between the Company and any other Person with which
the Company files a consolidated tax return or with which the Company is part of
a consolidated group for tax purposes; or (v) any Restricted Payments not
prohibited by Section 4.04. Notwithstanding the foregoing, any transaction
covered by the first paragraph of this Section 4.08 and not covered by clauses
(ii) through (v) of this paragraph, the aggregate amount of which exceeds $5
million in value, must be approved or determined to be fair in the manner
provided for in clause (i)(A) or (B) above.

      SECTION 4.09. Limitation on Liens. The Company will not, and will not
permit any Restricted Subsidiary to, create, incur, assume or suffer to exist
any Lien on any of its assets or properties of any character, or any shares of
Capital Stock or Indebtedness of any Restricted Subsidiary, without making
effective provision for all of the Notes and all other amounts due under this
Indenture to be directly secured equally and ratably with (or, if the obligation
or liability to be secured by such Lien is subordinated in right of payment to
the Notes, prior to) the obligation or liability secured by such Lien.

      The foregoing limitation does not apply to: (i) Liens existing on the
Closing Date; (ii) Liens granted after the Closing Date on any assets or Capital
Stock of the Company or its Restricted Subsidiaries created in favor of the
Holders; (iii) Liens with respect to the assets of a Restricted Subsidiary
granted by such Restricted Subsidiary to the Company or a Wholly Owned
Restricted Subsidiary to secure Indebtedness owing to the Company or such other
Restricted Subsidiary; (iv) Liens securing Indebtedness which is Incurred to
refinance secured Indebtedness which is permitted to be Incurred under clause
(iii) of the second paragraph of Section 4.03(a); provided that such Liens do
not extend to or cover any property or assets of the Company or any Restricted
Subsidiary other than the property or assets securing the Indebtedness being
refinanced; (v) Liens securing obligations under Credit Facilities Incurred
under clause (i) of the second paragraph of Section 4.03(a); or (vi) Permitted
Liens.

      SECTION 4.10. Limitation on Asset Sales. The Company will not, and will
not permit any Restricted Subsidiary to, consummate any Asset Sale, unless (i)
the consideration received by the Company or such Restricted Subsidiary is at
least equal to the fair market value of the assets sold or disposed of and (ii)
at least 75% of the consideration received consists of cash or Temporary Cash
Investments. In the event and to the extent that the Net Cash Proceeds received
by the Company or any of its Restricted Subsidiaries from one or more Asset
Sales occurring on or after the Closing Date in any period of 12 consecutive
months exceed 10% of Adjusted Consolidated Net Tangible Assets (determined as of
the date closest to the commencement of such 12-month period for which a
consolidated balance sheet of the Company and its Subsidiaries has been filed
with the Commission or provided to the Trustee pursuant to Section 4.17), then
the Company shall or shall cause the relevant Restricted Subsidiary to (i)
within 12 months after the date Net Cash Proceeds so received exceed 10% of
Adjusted Consolidated Net Tangible Assets (A) apply an amount equal to such
excess Net Cash Proceeds to permanently repay unsubordinated 
<PAGE>
 
                                       36

Indebtedness of the Company or any Restricted Subsidiary providing a Subsidiary
Guarantee pursuant to Section 4.07 or Indebtedness of any other Restricted
Subsidiary, in each case owing to a Person other than the Company or any of its
Subsidiaries, or (B) invest an amount equal to such excess Net Cash Proceeds, or
the amount of such Net Cash Proceeds not so applied pursuant to clause (A) (or
enter into a definitive agreement committing to so invest within 12 months after
the date of such agreement), in capital assets of a nature or type or that are
used in a business (or in a Person having capital assets of a nature or type, or
engaged in a business) similar or related to the nature or type of the property
and assets of, or the business of, the Company and its Restricted Subsidiaries
existing on the date of such investment (as determined in good faith by the
Board of Directors, whose determination shall be conclusive and evidenced by a
Board Resolution) and (ii) apply (no later than the end of the 12-month period
referred to in clause (i)) such excess Net Cash Proceeds (to the extent not
applied pursuant to clause (i)) as provided in the following paragraph of this
Section 4.10. The amount of such excess Net Cash Proceeds required to be applied
(or to be committed to be applied) during such 12-month period as set forth in
clause (i) of the preceding sentence and not applied as so required by the end
of such period shall constitute "Excess Proceeds."

      If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
Section 4.10 totals at least $5 million, the Company shall commence, not later
than the fifteenth Business Day of such month, and consummate an Offer to
Purchase from the Holders on a pro rata basis an aggregate principal amount of
Notes equal to the Excess Proceeds on such date, at a purchase price equal to
100% of the principal amount of the Notes plus, in each case, accrued interest
to the Payment Date.

      SECTION 4.11. Repurchase of Notes upon a Change of Control. The Company
shall commence, within 30 days after the occurrence of a Change of Control, and
consummate an Offer to Purchase for all Notes then outstanding, at a purchase
price equal to 101% of the principal amount thereof, plus accrued interest to
the Payment Date.

      SECTION 4.12. Existence. Subject to Articles Four and Five of this
Indenture, the Company will do or cause to be done all things necessary to
preserve and keep in full force and effect its existence and the existence of
each of its Restricted Subsidiaries in accordance with the respective
organizational documents of the Company and each such Subsidiary and the rights
(whether pursuant to charter, partnership certificate, agreement, statute or
otherwise), material licenses and franchises of the Company and each such
Subsidiary; provided that the Company shall not be required to preserve any such
right, license or franchise, or the existence of any Restricted Subsidiary, if
the maintenance or preservation thereof is no longer desirable in the conduct of
the business of the Company and its Restricted Subsidiaries taken as a whole.

      SECTION 4.13. Payment of Taxes and Other Claims. The Company will pay or
discharge and shall cause each of its Subsidiaries to pay or discharge, or cause
to be paid or discharged, before the same shall become delinquent (i) all
material taxes, assessments and governmental charges levied or imposed upon (a)
the Company or any such Subsidiary, (b) the income or profits of any such
Subsidiary which is a corporation or (c) the property of the Company or any such
Subsidiary and (ii) all material lawful claims for labor, materials and supplies
that, if unpaid, might by law become a lien upon the property of the Company or
any such Subsidiary; provided that the Company shall not be required to pay or
discharge, or cause to be paid or discharged, any such tax, assessment, charge
or claim the amount, applicability or validity of which is being contested in
good faith by appropriate proceedings and for which adequate reserves have been
established.

      SECTION 4.14. Maintenance of Properties and Insurance. The Company will
cause all properties used or useful in the conduct of its business or the
business of any of its Restricted Subsidiaries to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company may
be necessary so that the business carried on in connection therewith may be
properly and 
<PAGE>
 
                                       37

advantageously conducted at all times; provided that nothing in this Section
4.14 shall prevent the Company or any such Subsidiary from discontinuing the
use, operation or maintenance of any of such properties or disposing of any of
them, if such discontinuance or disposal is, in the judgment of the Company,
desirable in the conduct of the business of the Company or such Subsidiary.

      The Company will provide or cause to be provided, for itself and its
Restricted Subsidiaries, insurance (including appropriate self-insurance)
against loss or damage of the kinds customarily insured against by corporations
similarly situated and owning like properties, including, but not limited to,
products liability insurance and public liability insurance, with reputable
insurers or with the government of the United States of America, or an agency or
instrumentality thereof, in such amounts, with such deductibles and by such
methods as shall be customary for corporations similarly situated in the
industry in which the Company or any such Restricted Subsidiary, as the case may
be, is then conducting business.

      SECTION 4.15. Notice of Defaults. In the event that the Company becomes
aware of any Default or Event of Default, the Company, promptly after it becomes
aware thereof, will give written notice thereof to the Trustee.

      SECTION 4.16. Compliance Certificates. (a) The Company shall deliver to
the Trustee, within 45 days after the end of each fiscal quarter (90 days after
the end of the last fiscal quarter of each year), an Officers' Certificate
stating whether or not the signers know of any Default or Event of Default that
occurred during such fiscal quarter. In the case of the Officers' Certificate
delivered within 90 days after the end of the Company's fiscal year, such
certificate shall contain a certification from the principal executive officer,
principal financial officer or principal accounting officer of the Company that
a review has been conducted of the activities of the Company and its Restricted
Subsidiaries and the Company's and its Restricted Subsidiaries' performance
under this Indenture and that the Company has complied with all conditions and
covenants under this Indenture. For purposes of this Section 4.16, such
compliance shall be determined without regard to any period of grace or
requirement of notice provided under this Indenture. If the officers of the
Company signing such certificate do know of such a Default or Event of Default,
the certificate shall describe any such Default or Event of Default and its
status. The first certificate to be delivered pursuant to this Section 4.16(a)
shall be for the first fiscal quarter beginning after the execution of this
Indenture.

      (b) The Company shall deliver to the Trustee, within 90 days after the end
of the Company's fiscal year, beginning with the fiscal year in which this
Indenture was executed, a certificate signed by the Company's independent
certified public accountants stating (i) that their audit examination has
included a review of the terms of this Indenture and the Notes as they relate to
accounting matters, (ii) that they have read the most recent Officers'
Certificate delivered to the Trustee pursuant to paragraph (a) of this Section
4.16 and (iii) whether, in connection with their audit examination, anything
came to their attention that caused them to believe that the Company was not in
compliance with any of the terms, covenants, provisions or conditions of Article
Four and Section 5.01 of this Indenture as they pertain to accounting matters
and, if any Default or Event of Default has come to their attention, specifying
the nature and period of existence thereof; provided that such independent
certified public accountants shall not be liable in respect of such statement by
reason of any failure to obtain knowledge of any such Default or Event of
Default that would not be disclosed in the course of an audit examination
conducted in accordance with generally accepted auditing standards in effect at
the date of such examination.

      SECTION 4.17. Commission Reports and Reports to Holders. The Company shall
file with the Commission the annual, quarterly and other reports and other
information required by Section 13(a) or 15(d) of the Exchange Act, regardless
of whether such sections of the Exchange Act are applicable to the Company
(unless the Commission will not accept such a filing). The Company shall mail or
cause to be mailed copies of such reports and information to Holders and the
Trustee within 15 days after the date it files such reports and information with
the Commission or after the date it would have been required to file such
reports and information with the Commission had it been subject to such sections
of the Exchange Act; provided, however, that the copies of such reports and
<PAGE>
 
                                       38

information mailed to Holders may omit exhibits, which the Company will supply
to any Holder at such Holder's request.

      SECTION 4.18. Waiver of Stay, Extension or Usury Laws. The Company
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay or extension law or any usury law or other law
that would prohibit or forgive the Company from paying all or any portion of the
principal of, premium, if any, or interest on the Notes as contemplated herein,
wherever enacted, now or at any time hereafter in force, or that may affect the
covenants or the performance of this Indenture; and (to the extent that it may
lawfully do so) the Company hereby expressly waives all benefit or advantage of
any such law and covenants that it will not hinder, delay or impede the
execution of any power herein granted to the Trustee, but will suffer and permit
the execution of every such power as though no such law had been enacted.

      SECTION 4.19. Limitation on Sale-Leaseback Transactions. The Company will
not, and will not permit any Restricted Subsidiary to, enter into any
sale-leaseback transaction involving any of its assets or properties whether now
owned or hereafter acquired, whereby the Company or a Restricted Subsidiary
sells or transfers such assets or properties and then or thereafter leases such
assets or properties or any part thereof or any other assets or properties which
the Company or such Restricted Subsidiary, as the case may be, intends to use
for substantially the same purpose or purposes as the assets or properties sold
or transferred.

      The foregoing restriction does not apply to any sale-leaseback transaction
if (i) the lease is for a period, including renewal rights, of not in excess of
three years; (ii) the lease secures or relates to industrial revenue or
pollution control bonds; (iii) the transaction is solely between the Company and
any Wholly Owned Restricted Subsidiary or solely between Wholly Owned Restricted
Subsidiaries; or (iv) the Company or such Restricted Subsidiary, within 12
months after the sale or transfer of any assets or properties is completed,
applies an amount not less than the net proceeds received from such sale in
accordance with clause (A) or (B) of the first paragraph of Section 4.10.
<PAGE>
 
                                       39

                                  ARTICLE FIVE
                              SUCCESSOR CORPORATION

      SECTION 5.01. When Company May Merge, Etc. The Company shall not
consolidate with, merge with or into, or sell, convey, transfer, lease or
otherwise dispose of all or substantially all of its property and assets (as an
entirety or substantially an entirety in one transaction or a series of related
transactions) to, any Person or permit any Person to merge with or into the
Company unless: (i) the Company shall be the continuing Person, or the Person
(if other than the Company) formed by such consolidation or into which the
Company is merged or that acquired or leased such property and assets of the
Company shall be a corporation organized and validly existing under the laws of
the United States of America or any jurisdiction thereof, and shall expressly
assume, by a supplemental indenture, executed and delivered to the Trustee, all
of the obligations of the Company on all of the Notes and under this Indenture;
(ii) immediately after giving effect to such transaction, no Default or Event of
Default shall have occurred and be continuing; (iii) immediately after giving
effect to such transaction on a pro forma basis, the Company or any Person
becoming the successor obligor of the Notes shall have a Consolidated Net Worth
equal to or greater than the Consolidated Net Worth of the Company immediately
prior to such transaction; (iv) immediately after giving effect to such
transaction on a pro forma basis, the Company, or any Person becoming the
successor obligor of the Notes, as the case may be, could Incur at least $1.00
of Indebtedness under the first paragraph of Section 4.03(a); provided, however,
that this clause (iv) shall not apply to a consolidation or merger with or into
a Wholly Owned Restricted Subsidiary with a positive net worth, provided that in
connection with any such merger or consolidation, no consideration (except
Capital Stock (other than Redeemable Stock) in the surviving Person or the
Company (or a Person that owns directly or indirectly all of the Capital Stock
of the surviving Person or the Company immediately following such transaction))
shall be issued or distributed to the stockholders of the Company; and (v) the
Company delivers to the Trustee an Officers' Certificate (attaching the
arithmetic computations to demonstrate compliance with clauses (iii) and (iv)
above) and an Opinion of Counsel, in each case stating that such consolidation,
merger or transfer and such supplemental indenture comply with this provision
and that all conditions precedent provided for herein relating to such
transaction have been complied with; provided, however, that clauses (iii) and
(iv) above do not apply if, in the good faith determination of the Board of
Directors of the Company, whose determination shall be evidenced by a Board
Resolution, the principal purpose of such transaction is to change the state of
incorporation of the Company and any such transaction shall not have as one of
its purposes the evasion of the foregoing limitations.

      SECTION 5.02. Successor Substituted. Upon any consolidation or merger, or
any sale, conveyance, transfer, lease or other disposition of all or
substantially all of the property and assets of the Company in accordance with
Section 5.01 of this Indenture, the successor Person formed by such
consolidation or into which the Company is merged or to which such sale,
conveyance, transfer, lease or other disposition is made shall succeed to, and
be substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such successor Person had been named
as the Company herein; provided that the Company shall not be released from its
obligation to pay the principal of, premium, if any, or interest on the Notes in
the case of a lease of all or substantially all of its property and assets.

                                   ARTICLE SIX
                              DEFAULT AND REMEDIES

      SECTION  6.01.  Events of  Default.  An "Event of  Default"  shall occur
with respect to the Notes if:

            (a) the Company defaults in the payment of the principal of (or
      premium, if any, on) any Note when the same becomes due and payable at
      maturity, upon acceleration, redemption or otherwise;
<PAGE>
 
                                       40

            (b) the Company defaults in the payment of interest on any Note when
      the same becomes due and payable, and such default continues for a period
      of 30 days;

            (c) the Company defaults in the performance of, or breaches the
      provisions of, Article Five or fails to make or consummate an Offer to
      Purchase in accordance with Section 4.10 or 4.11;

            (d) the Company defaults in the performance of or breaches any
      covenant or agreement of the Company in this Indenture or under the Notes
      (other than a default specified in clause (a), (b) or (c) above), and such
      default or breach continues for a period of 30 consecutive days after
      written notice by the Trustee or the Holders of at least 25% in aggregate
      principal amount of the Notes then outstanding;

            (e) there occurs with respect to any issue or issues of Indebtedness
      of the Company or any Significant Subsidiary having an outstanding
      principal amount of $5 million or more in the aggregate for all such
      issues of all such Persons, whether such Indebtedness now exists or shall
      hereafter be created, (I) an event of default that has caused the holder
      thereof to declare such Indebtedness to be due and payable prior to its
      Stated Maturity and such Indebtedness has not been discharged in full or
      such acceleration has not been rescinded or annulled within 30 days of
      such acceleration and/or (II) the failure to make a principal payment at
      the final (but not any interim) fixed maturity and such defaulted payment
      shall not have been made, waived or extended within 30 days of such
      payment default;

            (f) any final judgment or order (not covered by insurance) for the
      payment of money in excess of $5 million in the aggregate for all such
      final judgments or orders against all such Persons (treating any
      deductibles, self-insurance or retention as not so covered) shall be
      rendered against the Company or any Significant Subsidiary and shall not
      be paid or discharged, and there shall be any period of 30 consecutive
      days following entry of the final judgment or order that causes the
      aggregate amount for all such final judgments or orders outstanding and
      not paid or discharged against all such Persons to exceed $5 million
      during which a stay of enforcement of such final judgment or order, by
      reason of a pending appeal or otherwise, shall not be in effect;

            (g) a court having jurisdiction in the premises enters a decree or
      order for (A) relief in respect of the Company or any Significant
      Subsidiary in an involuntary case under any applicable bankruptcy,
      insolvency or other similar law now or hereafter in effect, (B)
      appointment of a receiver, liquidator, assignee, custodian, trustee,
      sequestrator or similar official of the Company or any Significant
      Subsidiary or for all or substantially all of the property and assets of
      the Company or any Significant Subsidiary or (C) the winding up or
      liquidation of the affairs of the Company or any Significant Subsidiary
      and, in each case, such decree or order shall remain unstayed and in
      effect for a period of 60 consecutive days; or

            (h) the Company or any Significant Subsidiary (A) commences a
      voluntary case under any applicable bankruptcy, insolvency or other
      similar law now or hereafter in effect, or consents to the entry of an
      order for relief in an involuntary case under any such law, (B) consents
      to the appointment of or taking possession by a receiver, liquidator,
      assignee, custodian, trustee, sequestrator or similar official of the
      Company or any Significant Subsidiary or for all or substantially all of
      the property and assets of the Company or any Significant Subsidiary or
      (C) effects any general assignment for the benefit of creditors.

      SECTION 6.02. Acceleration. If an Event of Default (other than an Event of
Default specified in clause (g) or (h) of Section 6.01 that occurs with respect
to the Company) occurs and is continuing under this Indenture, the Trustee or
the Holders of at least 25% in aggregate principal amount of the Notes then
outstanding, by written notice to the Company (and to the Trustee if such notice
is given by the Holders), may, and the Trustee at the request of such Holders
shall, declare the principal of, premium, if any, and accrued interest on the
Notes to be immediately 
<PAGE>
 
                                       41

due and payable. Upon a declaration of acceleration, such principal, premium, if
any, and accrued interest shall be immediately due and payable. In the event of
a declaration of acceleration because an Event of Default set forth in clause
(e) of Section 6.01 has occurred and is continuing, such declaration of
acceleration shall be automatically rescinded and annulled if the event of
default triggering such Event of Default pursuant to clause (e) shall be
remedied or cured by the Company or the relevant Significant Subsidiary or
waived by the holders of the relevant Indebtedness within 60 days after the
declaration of acceleration with respect thereto. If an Event of Default
specified in clause (g) or (h) of Section 6.01 occurs with respect to the
Company, the principal of, premium, if any, and accrued interest on the Notes
then outstanding shall ipso facto become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any Holder.

      The Holders of at least a majority in principal amount of the outstanding
Notes, by written notice to the Company and to the Trustee, may waive all past
defaults and rescind and annul a declaration of acceleration and its
consequences if (i) all existing Events of Default, other than the nonpayment of
the principal of, premium, if any, and interest on the Notes that have become
due solely by such declaration of acceleration, have been cured or waived and
(ii) the rescission would not conflict with any judgment or decree of a court of
competent jurisdiction.

      SECTION 6.03. Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may, and at the direction of the Holders of at least a
majority in principal amount of the outstanding Notes shall, pursue any
available remedy by proceeding at law or in equity to collect the payment of
principal of, premium, if any, or interest on the Notes or to enforce the
performance of any provision of the Notes or this Indenture.

      The Trustee may maintain a proceeding even if it does not possess any of
the Notes or does not produce any of them in the proceeding.

      SECTION 6.04. Waiver of Past Defaults. Subject to Sections 6.02, 6.07 and
9.02, the Holders of at least a majority in principal amount of the outstanding
Notes, by notice to the Trustee, may waive an existing Default or Event of
Default and its consequences, except a Default in the payment of principal of,
premium, if any, or interest on any Note as specified in clause (a) or (b) of
Section 6.01 or in respect of a covenant or provision of this Indenture which
cannot be modified or amended without the consent of the Holder of each
outstanding Note affected. Upon any such waiver, such Default shall cease to
exist, and any Event of Default arising therefrom shall be deemed to have been
cured, for every purpose of this Indenture; but no such waiver shall extend to
any subsequent or other Default or Event of Default or impair any right
consequent thereto.

      SECTION 6.05. Control by Majority. The Holders of at least a majority in
aggregate principal amount of the outstanding Notes may direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee. However, the Trustee
may refuse to follow any direction that conflicts with law or this Indenture,
that may involve the Trustee in personal liability, or that the Trustee
determines in good faith may be unduly prejudicial to the rights of Holders of
Notes not joining in the giving of such direction and may take any other action
it deems proper that is not inconsistent with any such direction received from
Holders of Notes.

      SECTION 6.06.  Limitation  on Suits.  A Holder may not pursue any remedy
with respect to this Indenture or the Notes unless:

            (i)   the Holder gives the Trustee  written notice of a continuing
      Event of Default;

            (ii) the Holders of at least 25% in aggregate principal amount of
      outstanding Notes make a written request to the Trustee to pursue the
      remedy;
<PAGE>
 
                                       42

            (iii) such Holder or Holders offer (and if requested provide) the
      Trustee indemnity satisfactory to the Trustee against any costs, liability
      or expense;

            (iv) the Trustee does not comply with the request within 60 days
      after receipt of the request and the offer of indemnity; and

            (v) during such 60-day period, the Holders of a majority in
      aggregate principal amount of the outstanding Notes do not give the
      Trustee a direction that is inconsistent with the request.

      For purposes of Section 6.05 of this Indenture and this Section 6.06, the
Trustee shall comply with TIA Section 316(a) in making any determination of
whether the Holders of the required aggregate principal amount of outstanding
Notes have concurred in any request or direction of the Trustee to pursue any
remedy available to the Trustee or the Holders with respect to this Indenture or
the Notes or otherwise under the law.

      A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over such other Holder.

      The limitations set forth in this Section 6.06 shall not apply to the
right of any Holder of a Note to receive payment of the principal of, premium,
if any, or interest on, such Note or to bring suit for the enforcement of any
such payment, on or after the due date expressed in the Notes, which right shall
not be impaired or affected without the consent of the Holder.

      SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding any
other provision of this Indenture, the right of any Holder of a Note to receive
payment of the principal of, premium, if any, or interest on, such Note or to
bring suit for the enforcement of any such payment, on or after the due date
expressed in the Notes, shall not be impaired or affected without the consent of
such Holder.

      SECTION 6.08. Collection Suit by Trustee. If an Event of Default in
payment of principal, premium or interest specified in clause (a), (b) or (c) of
Section 6.01 occurs and is continuing, the Trustee may recover judgment in its
own name and as trustee of an express trust against the Company or any other
obligor of the Notes for the whole amount of principal, premium, if any, and
accrued interest remaining unpaid, together with interest on overdue principal,
premium, if any, and, to the extent that payment of such interest is lawful,
interest on overdue installments of interest, in each case at the rate specified
in the Notes, and such further amount as shall be sufficient to cover the costs
and expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.

      SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file such
proofs of claim and other papers or documents as may be necessary or advisable
in order to have the claims of the Trustee (including any claim for the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, and any other amounts due the Trustee under Section
7.07) and the Holders allowed in any judicial proceedings relative to the
Company (or any other obligor of the Notes), its creditors or its property and
shall be entitled and empowered to collect and receive any monies, securities or
other property payable or deliverable upon conversion or exchange of the Notes
or upon any such claims and to distribute the same, and any custodian, receiver,
assignee, trustee, liquidator, sequestrator or other similar official in any
such judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee and, in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the Trustee any
amount due to it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 7.07. Nothing herein contained shall be deemed to empower
the Trustee to authorize or consent to, or accept or adopt on behalf of any
Holder, any plan of reorganization, arrangement, adjustment or composition
affecting the 
<PAGE>
 
                                       43

Notes or the rights of any Holder thereof, or to authorize the Trustee to vote
in respect of the claim of any Holder in any such proceeding.

      SECTION 6.10.  Priorities.  If the Trustee  collects any money  pursuant
to this Article Six, it shall pay out the money in the following order:

            First:  to the Trustee for all amounts due under Section 7.07;

            Second: to Holders for amounts then due and unpaid for principal of,
      premium, if any, and interest on the Notes in respect of which or for the
      benefit of which such money has been collected, ratably, without
      preference or priority of any kind, according to the amounts due and
      payable on such Notes for principal, premium, if any, and interest,
      respectively; and

            Third:  to the  Company or any other  obligors  of the  Notes,  as
      their interests may appear, or as a court of competent  jurisdiction may
      direct.

      The Trustee, upon prior written notice to the Company, may fix a record
date and payment date for any payment to Holders pursuant to this Section 6.10.

      SECTION 6.11. Undertaking for Costs. In any suit for the enforcement of
any right or remedy under this Indenture or in any suit against the Trustee for
any action taken or omitted by it as Trustee, a court may require any party
litigant in such suit to file an undertaking to pay the costs of the suit, and
the court may assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in the suit having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This Section 6.11
does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section
6.07, or a suit by Holders of more than 10% in principal amount of the
outstanding Notes.

      SECTION 6.12. Restoration of Rights and Remedies. If the Trustee or any
Holder has instituted any proceeding to enforce any right or remedy under this
Indenture and such proceeding has been discontinued or abandoned for any reason,
or has been determined adversely to the Trustee or to such Holder, then, and in
every such case, subject to any determination in such proceeding, the Company,
the Trustee and the Holders shall be restored severally and respectively to
their former positions hereunder and thereafter all rights and remedies of the
Company, Trustee and the Holders shall continue as though no such proceeding had
been instituted.

      SECTION 6.13. Rights and Remedies Cumulative. Except as otherwise provided
with respect to the replacement or payment of mutilated, destroyed, lost or
wrongfully taken Notes in Section 2.09, no right or remedy herein conferred upon
or reserved to the Trustee or to the Holders is intended to be exclusive of any
other right or remedy, and every right and remedy shall, to the extent permitted
by law, be cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy.

      SECTION 6.14. Delay or Omission Not Waiver. No delay or omission of the
Trustee or of any Holder to exercise any right or remedy accruing upon any Event
of Default shall impair any such right or remedy or constitute a waiver of any
such Event of Default or an acquiescence therein. Every right and remedy given
by this Article Six or by law to the Trustee or to the Holders may be exercised
from time to time, and as often as may be deemed expedient, by the Trustee or by
the Holders, as the case may be.
<PAGE>
 
                                       44

                                  ARTICLE SEVEN
                                     TRUSTEE

      SECTION 7.01. General. The duties and responsibilities of the Trustee
shall be as provided by the TIA and as set forth herein. Notwithstanding the
foregoing, no provision of this Indenture shall require the Trustee to expend or
risk its own funds or otherwise incur any financial liability in the performance
of any of its duties hereunder, or in the exercise of any of its rights or
powers, if it shall have reasonable grounds for believing that repayment of such
funds or adequate indemnity against such risk or liability is not reasonably
assured to it. Whether or not herein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this
Article Seven.

      SECTION  7.02.  Certain  Rights  of  Trustee.  Subject  to TIA  Sections
315(a) through (d):

            (i) the Trustee may rely, and shall be protected in acting or
      refraining from acting, upon any resolution, certificate, statement,
      instrument, opinion, report, notice, request, direction, consent, order,
      bond, debenture, note, other evidence of indebtedness or other paper or
      document believed by it to be genuine and to have been signed or presented
      by the proper person. The Trustee need not investigate any fact or matter
      stated in any such document;

            (ii) before the Trustee acts or refrains from acting, it may require
      an Officers' Certificate or an Opinion of Counsel, which shall conform to
      Section 10.04. The Trustee shall not be liable for any action it takes or
      omits to take in good faith in reliance on such certificate or opinion;

            (iii) the Trustee may act through its attorneys and agents and shall
      not be responsible for the misconduct or negligence of any attorney or
      agent appointed with due care;

            (iv) the Trustee shall be under no obligation to exercise any of the
      rights or powers vested in it by this Indenture at the request or
      direction of any of the Holders, unless such Holders shall have offered to
      the Trustee reasonable security or indemnity against the costs, expenses
      and liabilities that might be incurred by it in compliance with such
      request or direction;

            (v) the Trustee shall not be liable for any action it takes or omits
      to take in good faith that it believes to be authorized or within its
      rights or powers or for any action it takes or omits to take in accordance
      with the written direction of the Holders of a majority in principal
      amount of the outstanding Notes relating to the time, method and place of
      conducting any proceeding for any remedy available to the Trustee, or
      exercising any trust or power conferred upon the Trustee, under this
      Indenture;

            (vi) whenever in the administration of this Indenture the Trustee
      shall deem it desirable that a matter be proved or established prior to
      taking, suffering or omitting any action hereunder, the Trustee (unless
      other evidence be herein specifically prescribed) may, in the absence of
      bad faith on its part, rely upon an Officers' Certificate; and

            (vii) the Trustee shall not be bound to make any investigation into
      the facts or matters stated in any resolution, certificate, statement,
      instrument, opinion, report, notice, request, direction, consent, order,
      bond, debenture, note, other evidence of indebtedness or other paper or
      document, but the Trustee, in its discretion, may make such further
      inquiry or investigation into such facts or matters as it may see fit,
      and, if the Trustee shall determine to make such further inquiry or
      investigation, it shall be entitled to examine the books, records and
      premises of the Company personally or by agent or attorney.
<PAGE>
 
                                       45

      SECTION 7.03. Individual Rights of Trustee. The Trustee, in its individual
or any other capacity, may become the owner or pledgee of Notes and may
otherwise deal with the Company or its Affiliates with the same rights it would
have if it were not the Trustee. Any Agent may do the same with like rights.
However, the Trustee is subject to TIA Sections 310(b) and 311.

      SECTION 7.04. Trustee's Disclaimer. The Trustee (i) makes no
representation as to the validity or adequacy of this Indenture or the Notes,
(ii) shall not be accountable for the Company's use or application of the
proceeds from the Notes and (iii) shall not be responsible for any statement in
the Notes other than its certificate of authentication.

      SECTION 7.05. Notice of Default. If any Default or any Event of Default
occurs and is continuing and if such Default or Event of Default is known to a
Responsible Officer of the Trustee, the Trustee shall mail to each Holder in the
manner and to the extent provided in TIA Section 313(c) notice of the Default or
Event of Default within 45 days after it occurs, unless such Default or Event of
Default has been cured; provided, however, that, except in the case of a default
in the payment of the principal of, premium, if any, or interest on any Note,
the Trustee shall be protected in withholding such notice if and so long as the
board of directors, the executive committee or a trust committee of directors
and/or Responsible Officers of the Trustee in good faith determine that the
withholding of such notice is in the interest of the Holders.

      SECTION 7.06. Reports by Trustee to Holders. Within 60 days after each May
15, beginning with May 15, 1998, the Trustee shall mail to each Holder as
provided in TIA Section 313(c) a brief report dated as of such May 15, if
required by TIA Section 313(a).

      SECTION 7.07. Compensation and Indemnity. The Company shall pay to the
Trustee such compensation as shall be agreed upon in writing for its services.
The compensation of the Trustee shall not be limited by any law on compensation
of a trustee of an express trust. The Company shall reimburse the Trustee upon
request for all reasonable out-of-pocket expenses and advances incurred or made
by the Trustee. Such expenses shall include the reasonable compensation and
expenses of the Trustee's agents and counsel.

      The Company shall indemnify the Trustee against any and all losses,
liabilities, obligations, damages, penalties, judgments, actions, suits,
proceedings, reasonable costs and expenses (including reasonable fees and
disbursements of counsel) of any kind whatsoever which may be incurred by the
Trustee in connection with any investigative, administrative or judicial
proceeding (whether or not such indemnified party is designated a party to such
proceeding) arising out of or in connection with the acceptance or
administration of its duties under this Indenture; provided, however, that the
Company need not reimburse any expense or indemnify against any loss,
obligation, damage, penalty, judgment, action, suit, proceeding, reasonable cost
or expense (including reasonable fees and disbursements of counsel) of any kind
whatsoever which may be incurred by the Trustee in connection with any
investigative, administrative or judicial proceeding (whether or not such
indemnified party is designated a party to such proceeding) in which it is
determined that the Trustee acted with negligence, bad faith or willful
misconduct. The Trustee shall notify the Company promptly of any claim for which
it may seek indemnity. Failure by the Trustee to so notify the Company shall not
relieve the Company of its obligations hereunder, unless the Company is
materially prejudiced thereby. The Company shall defend the claim and the
Trustee shall cooperate in the defense. Unless otherwise set forth herein, the
Trustee may have separate counsel and the Company shall pay the reasonable fees
and expenses of such counsel. The Company need not pay for any settlement made
without its consent, which consent shall not be unreasonably withheld.
<PAGE>
 
                                       46

      To secure the Company's payment obligations in this Section 7.07, the
Trustee shall have a lien prior to the Notes on all money or property held or
collected by the Trustee, in its capacity as Trustee, except money or property
held in trust to pay principal of, premium, if any, and interest on particular
Notes.

      If the Trustee incurs expenses or renders services after the occurrence of
an Event of Default specified in clause (g) or (h) of Section 6.01, the expenses
and the compensation for the services will be intended to constitute expenses of
administration under Title 11 of the United States Bankruptcy Code or any
applicable federal or state law for the relief of debtors.

      SECTION 7.08. Replacement of Trustee. A resignation or removal of the
Trustee and appointment of a successor Trustee shall become effective only upon
the successor Trustee's acceptance of appointment as provided in this Section
7.08.

      The Trustee may resign at any time by so notifying the Company in writing
at least 30 days prior to the date of the proposed resignation. The Holders of a
majority in principal amount of the outstanding Notes may remove the Trustee by
so notifying the Trustee in writing and may appoint a successor Trustee with the
consent of the Company. The Company may remove the Trustee if: (i) the Trustee
is no longer eligible under Section 7.10; (ii) the Trustee is adjudged a
bankrupt or an insolvent; (iii) a receiver or other public officer takes charge
of the Trustee or its property; or (iv) the Trustee becomes incapable of acting.

      If the Trustee resigns or is removed, or if a vacancy exists in the office
of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Company. If
the successor Trustee does not deliver its written acceptance required by the
next succeeding paragraph of this Section 7.08 within 30 days after the retiring
Trustee resigns or is removed, the retiring Trustee, the Company or the Holders
of a majority in principal amount of the outstanding Notes may petition any
court of competent jurisdiction for the appointment of a successor Trustee.

      A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company. Immediately after the delivery of
such written acceptance, subject to the lien provided in Section 7.07, (i) the
retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee, (ii) the resignation or removal of the retiring Trustee shall
become effective and (iii) the successor Trustee shall have all the rights,
powers and duties of the Trustee under this Indenture. A successor Trustee shall
mail notice of its succession to each Holder.

      If the Trustee is no longer eligible under Section 7.10, any Holder who
satisfies the requirements of TIA Section 310(b) may petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee.

      The Company shall give notice of any resignation and any removal of the
Trustee and each appointment of a successor Trustee to all Holders. Each notice
shall include the name of the successor Trustee and the address of its Corporate
Trust Office.

      Notwithstanding replacement of the Trustee pursuant to this Section 7.08,
the Company's obligation under Section 7.07 shall continue for the benefit of
the retiring Trustee.

      SECTION 7.09. Successor Trustee by Merger, Etc. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all of its corporate trust business to, another corporation or national banking
association, the resulting, surviving or transferee corporation or national
banking association without any further act shall be the successor Trustee with
the same effect as if the successor Trustee had been named as the Trustee
herein.
<PAGE>
 
                                       47

      SECTION 7.10. Eligibility. This Indenture shall always have a Trustee who
satisfies the requirements of TIA Section 310(a)(1). The Trustee shall have a
combined capital and surplus of at least $25 million as set forth in its most
recent published annual report of condition.

      SECTION 7.11. Money Held in Trust. The Trustee shall not be liable for
interest on any money received by it except as the Trustee may agree with the
Company. Money held in trust by the Trustee need not be segregated from other
funds except to the extent required by law and except for money held in trust
under Article Eight of this Indenture.

      SECTION 7.12. Withholding Taxes. The Trustee, as agent for the Company,
shall exclude and withhold from each payment of principal and interest and other
amounts due hereunder or under the Notes any and all withholding taxes
applicable thereto as required by law. The Trustee agrees to act as such
withholding agent and, in connection therewith, whenever any present or future
taxes or similar charges are required to be withheld with respect to any amounts
payable in respect of the Notes, to withhold such amounts and timely pay the
same to the appropriate authority in the name of and on behalf of the Holders of
the Notes, that it will file any necessary withholding tax returns or statements
when due, and that, as promptly as possible after the payment thereof, it will
deliver to each Holder of a Note appropriate documentation showing the payment
thereof, together with such additional documentary evidence as such Holders may
reasonably request from time to time.

                                  ARTICLE EIGHT
                             DISCHARGE OF INDENTURE

      SECTION  8.01.   Termination   of  Company's   Obligations.   Except  as
otherwise  provided  in this  Section  8.01,  the Company  may  terminate  its
obligations under the Notes and this Indenture if:

            (i) all Notes previously authenticated and delivered (other than
      destroyed, lost or stolen Notes that have been replaced or Notes that are
      paid pursuant to Section 4.01 or Notes for whose payment money or
      securities have theretofore been held in trust and thereafter repaid to
      the Company, as provided in Section 8.05) have been delivered to the
      Trustee for cancellation and the Company has paid all sums payable by it
      hereunder; or

            (ii) (A) the Notes mature within one year or all of them are to be
      called for redemption within one year under arrangements satisfactory to
      the Trustee for giving the notice of redemption, (B) the Company
      irrevocably deposits in trust with the Trustee during such one-year
      period, under the terms of an irrevocable trust agreement in form and
      substance satisfactory to the Trustee, as trust funds solely for the
      benefit of the Holders for that purpose, money or U.S. Government
      Obligations sufficient (in the opinion of a nationally recognized firm of
      independent public accountants expressed in a written certification
      thereof delivered to the Trustee), without consideration of any
      reinvestment of any interest thereon, to pay principal, premium, if, any,
      and interest on the Notes to maturity or redemption, as the case may be,
      and to pay all other sums payable by it hereunder, (C) no Default or Event
      of Default with respect to the Notes shall have occurred and be continuing
      on the date of such deposit, (D) such deposit will not result in a breach
      or violation of, or constitute a default under, this Indenture or any
      other agreement or instrument to which the Company is a party or by which
      it is bound and (E) the Company has delivered to the Trustee an Officers'
      Certificate and an Opinion of Counsel, in each case stating that all
      conditions precedent provided for herein relating to the satisfaction and
      discharge of this Indenture have been complied with.
<PAGE>
 
                                       48

      With respect to the foregoing clause (i), the Company's obligations under
Section 7.07 shall survive. With respect to the foregoing clause (ii), the
Company's obligations in Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.08,
2.09, 2.14, 4.01, 4.02, 7.07, 7.08, 8.04, 8.05 and 8.06 shall survive until the
Notes are no longer outstanding. Thereafter, only the Company's obligations in
Sections 7.07, 8.05 and 8.06 shall survive. After any such irrevocable deposit,
the Trustee upon request shall acknowledge in writing the discharge of the
Company's obligations under the Notes and this Indenture except for those
surviving obligations specified above.

      SECTION 8.02. Defeasance and Discharge of Indenture. The Company will be
deemed to have paid and will be discharged from any and all obligations in
respect of the Notes on the 123rd day after the date of the deposit referred to
in clause (A) of this Section 8.02, and the provisions of this Indenture will no
longer be in effect with respect to the Notes, and the Trustee, at the expense
of the Company, shall execute proper instruments acknowledging the same, except
as to (i) rights of registration of transfer and exchange, (ii) substitution of
apparently mutilated, defaced, destroyed, lost or stolen Notes, (iii) rights of
Holders to receive payments of principal thereof and interest thereon, (iv) the
Company's obligations under Section 4.02, (v) the rights, obligations and
immunities of the Trustee hereunder and (vi) the rights of the Holders as
beneficiaries of this Indenture with respect to the property so deposited with
the Trustee payable to all or any of them; provided that the following
conditions shall have been satisfied:

            (A) with reference to this Section 8.02, the Company has irrevocably
      deposited or caused to be irrevocably deposited with the Trustee (or
      another trustee satisfying the requirements of Section 7.10) and conveyed
      all right, title and interest for the benefit of the Holders, under the
      terms of an irrevocable trust agreement in form and substance satisfactory
      to the Trustee as trust funds in trust, specifically pledged to the
      Trustee for the benefit of the Holders as security for payment of the
      principal of, premium, if any, and interest, if any, on the Notes, and
      dedicated solely to, the benefit of the Holders, in and to (1) money in an
      amount, (2) U.S. Government Obligations that, through the payment of
      interest, premium, if any, and principal in respect thereof in accordance
      with their terms, will provide, not later than one day before the due date
      of any payment referred to in this clause (A), money in an amount or (3) a
      combination thereof in an amount sufficient, in the opinion of a
      nationally recognized firm of independent public accountants expressed in
      a written certification thereof delivered to the Trustee, to pay and
      discharge, without consideration of the reinvestment of such interest and
      after payment of all federal, state and local taxes or other charges and
      assessments in respect thereof payable by the Trustee, the principal of,
      premium, if any, and accrued interest on the outstanding Notes at the
      Stated Maturity of such principal or interest; provided that the Trustee
      shall have been irrevocably instructed to apply such money or the proceeds
      of such U.S. Government Obligations to the payment of such principal,
      premium, if any, and interest with respect to the Notes;

            (B) such deposit will not result in a breach or violation of, or
      constitute a default under, this Indenture or any other agreement or
      instrument to which the Company is a party or by which it is bound;

            (C) immediately after giving effect to such deposit on a pro forma
      basis, no Default or Event of Default shall have occurred and be
      continuing on the date of such deposit or during the period ending on the
      123rd day after such date of deposit;

            (D) the Company shall have delivered to the Trustee (1) either (x) a
      ruling directed to the Trustee received from the Internal Revenue Service
      to the effect that the Holders will not recognize income, gain or loss for
      federal income tax purposes as a result of the Company's exercise of its
      option under this Section 8.02 and will be subject to federal income tax
      on the same amount and in the same manner and at the same times as would
      have been the case if such option had not been exercised or (y) an Opinion
      of Counsel to the same effect as the ruling described in clause (x) above
      accompanied by a ruling to that effect 
<PAGE>
 
                                       49

     published by the Internal Revenue Service, unless there has been a change
     in the applicable federal income tax law since the date of this Indenture
     such that a ruling from the Internal Revenue Service is no longer required
     and (2) an Opinion of Counsel to the effect that (x) the creation of the
     defeasance trust does not violate the Investment Company Act of 1940 and
     (y) after the passage of 123 days following the deposit (except, with
     respect to any trust funds for the account of any Holder who may be deemed
     to be an "insider" for purposes of the United States Bankruptcy Code, after
     one year following the deposit), the trust funds will not be subject to the
     effect of Section 547 of the United States Bankruptcy Code or Section 15 of
     the New York Debtor and Creditor Law in a case commenced by or against the
     Company under either such statute, and either (I) the trust funds will no
     longer remain the property of the Company (and therefore will not be
     subject to the effect of any applicable bankruptcy, insolvency,
     reorganization or similar laws affecting creditors' rights generally) or
     (II) if a court were to rule under any such law in any case or proceeding
     that the trust funds remained property of the Company, (a) assuming such
     trust funds remained in the possession of the Trustee prior to such court
     ruling to the extent not paid to the Holders, the Trustee will hold, for
     the benefit of the Holders, a valid and perfected security interest in such
     trust funds that is not avoidable in bankruptcy or otherwise except for the
     effect of Section 552(b) of the United States Bankruptcy Code on interest
     on the trust funds accruing after the commencement of a case under such
     statute and (b) the Holders will be entitled to receive adequate protection
     of their interests in such trust funds if such trust funds are used in such
     case or proceeding;

          (E) if the Notes are then listed on a national securities exchange,
     the Company shall have delivered to the Trustee an Opinion of Counsel to
     the effect that such deposit, defeasance and discharge will not cause the
     Notes to be delisted; and

          (F) the Company has delivered to the Trustee an Officers' Certificate
     and an Opinion of Counsel, in each case stating that all conditions
     precedent provided for herein relating to the defeasance contemplated by
     this Section 8.02 have been complied with.

     Notwithstanding the foregoing, prior to the end of the 123-day (or one
year) period referred to in clause (D)(2)(y) of this Section 8.02, none of the
Company's obligations under this Indenture shall be discharged. Subsequent to
the end of such 123-day (or one year) period with respect to this Section 8.02,
the Company's obligations in Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.08,
2.09, 2.14, 4.01, 4.02, 7.07, 7.08, 8.05 and 8.06 shall survive until the Notes
are no longer outstanding. Thereafter, only the Company's obligations in
Sections 7.07, 8.05 and 8.06 shall survive. If and when a ruling from the
Internal Revenue Service or an Opinion of Counsel referred to in clause (D)(1)
of this Section 8.02 is able to be provided specifically without regard to, and
not in reliance upon, the continuance of the Company's obligations under Section
4.01, then the Company's obligations under such Section 4.01 shall cease upon
delivery to the Trustee of such ruling or Opinion of Counsel and compliance with
the other conditions precedent provided for herein relating to the defeasance
contemplated by this Section 8.02.

     After any such irrevocable deposit, the Trustee upon request shall
acknowledge in writing the discharge of the Company's obligations under the
Notes and this Indenture except for those surviving obligations in the
immediately preceding paragraph.

     SECTION 8.03. Defeasance of Certain Obligations. The Company may omit to
comply with any term, provision or condition set forth in clauses (iii) and (iv)
of Section 5.01 and Sections 4.03 through 4.17, Section 4.19 and clause (d) of
Section 6.01 with respect to clauses (iii) and (iv) of Section 5.01 and Sections
4.03 through 4.17, Section 4.19 and clauses (e) and (f) of Section 6.01 shall be
deemed not to be Events of Default, in each case with respect to the outstanding
Notes if:
<PAGE>
 
                                       50

            (i) with reference to this Section 8.03, the Company has irrevocably
      deposited or caused to be irrevocably deposited with the Trustee (or
      another trustee satisfying the requirements of Section 7.10) and conveyed
      all right, title and interest to the Trustee for the benefit of the
      Holders, under the terms of an irrevocable trust agreement in form and
      substance satisfactory to the Trustee as trust funds in trust,
      specifically pledged to the Trustee for the benefit of the Holders as
      security for payment of the principal of, premium, if any, and interest,
      if any, on the Notes, and dedicated solely to, the benefit of the Holders,
      in and to (A) money in an amount, (B) U.S. Government Obligations that,
      through the payment of interest and principal in respect thereof in
      accordance with their terms, will provide, not later than one day before
      the due date of any payment referred to in this clause (i), money in an
      amount or (C) a combination thereof in an amount sufficient, in the
      opinion of a nationally recognized firm of independent public accountants
      expressed in a written certification thereof delivered to the Trustee, to
      pay and discharge, without consideration of the reinvestment of such
      interest and after payment of all federal, state and local taxes or other
      charges and assessments in respect thereof payable by the Trustee, the
      principal of, premium, if any, and interest on the outstanding Notes on
      the Stated Maturity of such principal or interest; provided that the
      Trustee shall have been irrevocably instructed to apply such money or the
      proceeds of such U.S. Government Obligations to the payment of such
      principal, premium, if any, and interest with respect to the Notes;

            (ii) such deposit will not result in a breach or violation of, or
      constitute a default under, this Indenture or any other agreement or
      instrument to which the Company is a party or by which it is bound;

            (iii) immediately after giving effect to such deposit on a pro forma
      basis, no Default or Event of Default shall have occurred and be
      continuing on the date of such deposit or during the period ending on the
      123rd day after such date of deposit;

            (iv) the Company has delivered to the Trustee an Opinion of Counsel
      to the effect that (A) the creation of the defeasance trust does not
      violate the Investment Company Act of 1940, (B) the Trustee, for the
      benefit of the Holders, has a valid first-priority security interest in
      the trust funds, (C) the Holders will not recognize income, gain or loss
      for federal income tax purposes as a result of such deposit and defeasance
      of certain obligations and will be subject to federal income tax on the
      same amount and in the same manner and at the same times as would have
      been the case if such deposit and defeasance had not occurred and (D)
      after the passage of 123 days following the deposit (except, with respect
      to any trust funds for the account of any Holder who may be deemed to be
      an "insider" for purposes of the United States Bankruptcy Code, after one
      year following the deposit), the trust funds will not be subject to the
      effect of Section 547 of the United States Bankruptcy Code or Section 15
      of the New York Debtor and Creditor Law in a case commenced by or against
      the Company under either such statute, and either (1) the trust funds will
      no longer remain the property of the Company (and therefore will not be
      subject to the effect of any applicable bankruptcy, insolvency,
      reorganization or similar laws affecting creditors' rights generally) or
      (2) if a court were to rule under any such law in any case or proceeding
      that the trust funds remained property of the Company, (x) assuming such
      trust funds remained in the possession of the Trustee prior to such court
      ruling to the extent not paid to the Holders, the Trustee will hold, for
      the benefit of the Holders, a valid and perfected security interest in
      such trust funds that is not avoidable in bankruptcy or otherwise (except
      for the effect of Section 552(b) of the United States Bankruptcy Code on
      interest on the trust funds accruing after the commencement of a case
      under such statute) and (y) the Holders will be entitled to receive
      adequate protection of their interests in such trust funds if such trust
      funds are used in such case or proceeding;

            (v) if the Notes are then listed on a national securities exchange,
      the Company shall have delivered to the Trustee an Opinion of Counsel to
      the effect that such deposit defeasance and discharge will not cause the
      Notes to be delisted; and
<PAGE>
 
                                       51

            (vi) the Company has delivered to the Trustee an Officers'
      Certificate and an Opinion of Counsel, in each case stating that all
      conditions precedent provided for herein relating to the defeasance
      contemplated by this Section 8.03 have been complied with.

      SECTION 8.04. Application of Trust Money. Subject to Section 8.06, the
Trustee or Paying Agent shall hold in trust money or U.S. Government Obligations
deposited with it pursuant to Section 8.01, 8.02 or 8.03, as the case may be,
and shall apply the deposited money and the money from U.S. Government
Obligations in accordance with the Notes and this Indenture to the payment of
principal of, premium, if any, and interest on the Notes; but such money need
not be segregated from other funds except to the extent required by law.

      SECTION 8.05. Repayment to Company. Subject to Sections 7.07, 8.01, 8.02
and 8.03, the Trustee and the Paying Agent shall promptly pay to the Company
upon request set forth in an Officers' Certificate any excess money held by them
at any time and thereupon shall be relieved from all liability with respect to
such money. The Trustee and the Paying Agent shall pay to the Company upon
request any money held by them for the payment of principal, premium, if any, or
interest that remains unclaimed for two years. After payment to the Company,
Holders entitled to such money must look to the Company for payment as general
creditors unless an applicable law designates another Person, and all liability
of the Trustee and such Paying Agent with respect to such money shall cease.

      SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is unable to
apply any money or U.S. Government Obligations in accordance with Section 8.01,
8.02 or 8.03, as the case may be, by reason of any legal proceeding or by reason
of any order or judgment of any court or governmental authority enjoining,
restraining or otherwise prohibiting such application, the Company's obligations
under this Indenture and the Notes shall be revived and reinstated as though no
deposit had occurred pursuant to Section 8.01, 8.02 or 8.03, as the case may be,
until such time as the Trustee or Paying Agent is permitted to apply all such
money or U.S. Government Obligations in accordance with Section 8.01, 8.02 or
8.03, as the case may be; provided that, if the Company has made any payment of
principal of, premium, if any, or interest on any Notes because of the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Notes to receive such payment from the money or U.S.
Government Obligations held by the Trustee or Paying Agent.

                                  ARTICLE NINE
                       AMENDMENTS, SUPPLEMENTS AND WAIVERS

      SECTION 9.01. Without Consent of Holders. The Company, when authorized by
a resolution of its Board of Directors (as evidenced by a Board Resolution
delivered to the Trustee), and the Trustee may amend or supplement this
Indenture or the Notes without notice to or the consent of any Holder:

            (1) to cure any ambiguity, defect or inconsistency in this
      Indenture; provided that such amendments or supplements shall not, in the
      good faith opinion of the Board of Directors as evidenced by a Board
      Resolution, adversely affect the interests of the Holders in any material
      respect;

            (2)   to comply with Article Five;

            (3) to comply with any requirements of the Commission in connection
      with the qualification of this Indenture under the TIA;
<PAGE>
 
                                       52

            (4) to evidence and provide for the acceptance of appointment
      hereunder by a successor Trustee; or

            (5) to make any change that, in the good faith opinion of the Board
      of Directors as evidenced by a Board Resolution, does not materially and
      adversely affect the rights of any Holder.

      SECTION 9.02. With Consent of Holders. Subject to Sections 6.04 and 6.07
and without prior notice to the Holders, the Company, when authorized by its
Board of Directors (as evidenced by a Board Resolution delivered to the
Trustee), and the Trustee may amend this Indenture and the Notes with the
written consent of the Holders of a majority in principal amount of the Notes
then outstanding, and the Holders of a majority in principal amount of the Notes
then outstanding by written notice to the Trustee may waive future compliance by
the Company with any provision of this Indenture and the Notes.

      Notwithstanding the provisions of this Section 9.02, without the consent
of each Holder affected, an amendment or waiver, including a waiver pursuant to
Section 6.04, may not:

            (i) change the Stated Maturity of the principal of, or any
      installment of interest on, any Note, or reduce the principal amount
      thereof or the rate of interest thereon or any premium payable upon the
      redemption thereof, or adversely affect any right of repayment at the
      option of any Holder of any Note, or change any place of payment where, or
      the currency in which, any Note or any premium or the interest thereon is
      payable, or impair the right to institute suit for the enforcement of any
      such payment on or after the Stated Maturity thereof (or, in the case of
      redemption, on or after the Redemption Date);

            (ii) reduce the percentage in principal amount of outstanding Notes
      the consent of whose Holders is required for any such supplemental
      indenture, for any waiver of compliance with certain provisions of this
      Indenture or certain Defaults and their consequences provided for in this
      Indenture;

            (iii) waive a default in the payment of principal of, premium, if
      any, or interest on, any Note; or

            (iv) modify any of the provisions of this Section 9.02, except to
      increase any such percentage or to provide that certain other provisions
      of this Indenture cannot be modified or waived without the consent of the
      Holder of each outstanding Note affected thereby.

      It shall not be necessary for the consent of the Holders under this
Section 9.02 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.

      After an amendment, supplement or waiver under this Section 9.02 becomes
effective, the Company shall mail to the Holders affected thereby a notice
briefly describing the amendment, supplement or waiver. The Company will mail
supplemental indentures to Holders upon request. Any failure of the Company to
mail such notice, or any defect therein, shall not, however, in any way impair
or affect the validity of any such supplemental indenture or waiver.

      SECTION 9.03. Revocation and Effect of Consent. Until an amendment or
waiver becomes effective, a consent to it by a Holder is a continuing consent by
the Holder and every subsequent Holder of a Note or portion of a Note that
evidences the same debt as the Note of the consenting Holder, even if notation
of the consent is not made on any Note. However, any such Holder or subsequent
Holder may revoke the consent as to its Note or portion of its Note. Such
revocation shall be effective only if the Trustee receives the notice of
revocation before the time the 
<PAGE>
 
                                       53

amendment, supplement or waiver becomes effective. An amendment, supplement or
waiver shall become effective on receipt by the Trustee of written consents from
the Holders of the requisite percentage in principal amount of the outstanding
Notes.

      The Company may, but shall not be obligated to, fix a record date for the
purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver. If a record date is fixed, then, notwithstanding the last
two sentences of the immediately preceding paragraph, those persons who were
Holders at such record date (or their duly designated proxies) and only those
persons shall be entitled to consent to such amendment, supplement or waiver or
to revoke any consent previously given, whether or not such persons continue to
be Holders after such record date. No such consent shall be valid or effective
for more than 90 days after such record date.

      After an amendment, supplement or waiver becomes effective, it shall bind
every Holder unless it is of the type described in any of clauses (i) through
(v) of the second paragraph of Section 9.02. In case of an amendment or waiver
of the type described in clauses (i) through (v) of the second paragraph of
Section 9.02, the amendment or waiver shall bind each Holder who has consented
to it and every subsequent Holder of a Note that evidences the same indebtedness
as the Note of the consenting Holder.

      SECTION 9.04. Notation on or Exchange of Notes. If an amendment,
supplement or waiver changes the terms of a Note, the Trustee may require the
Holder to deliver it to the Trustee. At the Company's expense, the Trustee may
place an appropriate notation on the Note about the changed terms and return it
to the Holder and the Trustee may place an appropriate notation on any Note
thereafter authenticated. Alternatively, if the Company or the Trustee so
determines, the Company in exchange for the Note shall issue and the Trustee
shall authenticate a new Note that reflects the changed terms. Failure to make
the appropriate notation, or issue a new Note, shall not affect the validity and
effect of such amendment, supplement or waiver.

      SECTION 9.05. Trustee to Sign Amendments, Etc. The Trustee shall be
entitled to receive, and shall be fully protected in relying upon, an Opinion of
Counsel stating that the execution of any amendment, supplement or waiver
authorized pursuant to this Article Nine is authorized or permitted by this
Indenture and that it will be valid and binding upon the Company. Subject to the
preceding sentence, the Trustee shall sign such amendment, supplement or waiver
if the same does not adversely affect the rights, duties, liabilities or
immunities of the Trustee. The Trustee may, but shall not be obligated to,
execute any such amendment, supplement or waiver that affects the Trustee's own
rights, duties or immunities under this Indenture or otherwise.

      SECTION 9.06. Conformity with Trust Indenture Act. Every supplemental
indenture executed pursuant to this Article Nine shall conform to the
requirements of the TIA as then in effect.

                                   ARTICLE TEN
                                  MISCELLANEOUS

      SECTION 10.01. Trust Indenture Act of 1939. Prior to the effectiveness of
the Registration Statement, this Indenture shall incorporate and be governed by
the provisions of the TIA that are required to be part of and to govern
indentures qualified under the TIA. After the effectiveness of the Registration
Statement, this Indenture shall be subject to the provisions of the TIA that are
required to be a part of this Indenture and shall, to the extent applicable, be
governed by such provisions.

      SECTION  10.02.   Notices.   Any  notice  or   communication   shall  be
sufficiently  given  if  in  writing  and  delivered  in  person,   mailed  by
first-class mail or sent by telecopier transmission addressed as follows:
<PAGE>
 
                                       54

      if to the Company:

            ITC/\Deltacom, Inc.
            1241 O.G. Skinner Drive
            West Point, GA  31833
            Telecopier No.:  (706) 645-8989
            Attention:  Chief Financial Officer

      if to the Trustee:

            United States Trust Company of New York
            114 West 47th Street
            New York, NY  10036-1532
            Telecopier No.:  (212) 852-1626
            Attention:  Corporate Trust Department

      The Company or the Trustee by notice to the other may designate additional
or different addresses for subsequent notices or communications.

      Any notice or communication mailed to a Holder shall be mailed to it at
its address as it appears on the Security Register by first-class mail and shall
be sufficiently given to him if so mailed within the time prescribed. Copies of
any such communication or notice to a Holder shall also be mailed to the Trustee
and each Agent at the same time.

      Failure to transmit a notice or communication to a Holder as provided
herein or any defect in any such notice shall not affect its sufficiency with
respect to other Holders. Except for a notice to the Trustee, which is deemed
given only when received, and except as otherwise provided in this Indenture, if
a notice or communication is mailed in the manner provided in this Section
10.02, it is duly given, whether or not the addressee receives it.

      Where this Indenture provides for notice in any manner, such notice may be
waived in writing by the Person entitled to receive such notice, either before
or after the event, and such waiver shall be the equivalent of such notice.
Waivers of notice by Holders shall be filed with the Trustee, but such filing
shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.

      In case by reason of the suspension of regular mail service or by reason
of any other cause it shall be impracticable to give such notice by mail, then
such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.

      SECTION 10.03. Certificate and Opinion as to Conditions Precedent. Upon
any request or application by the Company to the Trustee to take any action
under this Indenture, the Company shall furnish to the Trustee:

            (i) an Officers' Certificate stating that, in the opinion of the
      signers, all conditions precedent, if any, provided for in this Indenture
      relating to the proposed action have been complied with; and

            (ii) an Opinion of Counsel stating that, in the opinion of such
      Counsel, all such conditions precedent have been complied with.

      SECTION 10.04. Statements Required in Certificate or Opinion. Each
certificate or opinion with respect to compliance with a condition or covenant
provided for in this Indenture shall include:
<PAGE>
 
                                       55

            (i) a statement that each person signing such certificate or opinion
      has read such covenant or condition and the definitions herein relating
      thereto;

            (ii) a brief statement as to the nature and scope of the examination
      or investigation upon which the statement or opinion contained in such
      certificate or opinion is based;

            (iii) a statement that, in the opinion of each such person, he has
      made such examination or investigation as is necessary to enable him to
      express an informed opinion as to whether or not such covenant or
      condition has been complied with; and

            (iv) a statement as to whether or not, in the opinion of each such
      person, such condition or covenant has been complied with; provided,
      however, that, with respect to matters of fact, an Opinion of Counsel may
      rely on an Officers' Certificate or certificates of public officials.

      SECTION 10.05. Rules by Trustee, Paying Agent or Registrar. The Trustee
may make reasonable rules for action by or at a meeting of Holders. The Paying
Agent or Registrar may make reasonable rules for its functions.

      SECTION 10.06. Payment Date Other Than a Business Day. If an Interest
Payment Date, Redemption Date, Payment Date, Stated Maturity or date of maturity
of any Note shall not be a Business Day, then payment of principal of, premium,
if any, or interest on such Note, as the case may be, need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the Interest Payment Date, Payment Date or Redemption
Date, or at the Stated Maturity or date of maturity of such Note; provided that
no interest shall accrue for the period from and after such Interest Payment
Date, Payment Date, Redemption Date, Stated Maturity or date of maturity, as the
case may be.

      SECTION 10.07. Governing Law. The laws of the State of New York shall
govern this Indenture and the Notes. The Trustee, the Company and the Holders
agree to submit to the jurisdiction of the courts of the State of New York in
any action or proceeding arising out of or relating to this Indenture or the
Notes.

      SECTION 10.08. No Adverse Interpretation of Other Agreements. This
Indenture may not be used to interpret another indenture, loan or debt agreement
of the Company or any Subsidiary of the Company. Any such indenture, loan or
debt agreement may not be used to interpret this Indenture.

      SECTION 10.09. No Recourse Against Others. No recourse for the payment of
the principal of, premium, if any, or interest on any of the Notes, or for any
claim based thereon or otherwise in respect thereof, and no recourse under or
upon any obligation, covenant or agreement of the Company contained in this
Indenture, or in any of the Notes, or because of the creation of any
Indebtedness represented thereby, shall be had against any incorporator or
against any past, present or future partner, shareholder, other equityholder,
officer, director, employee or controlling person, as such, of the Company or of
any successor Person, either directly or through the Company or any successor
Person, whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise; it being expressly
understood that all such liability is hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this Indenture and
the issue of the Notes.

      SECTION  10.10.  Successors.  All  agreements  of the  Company  in  this
Indenture  and the Notes  shall bind its  successors.  All  agreements  of the
Trustee in this Indenture shall bind its successor.
<PAGE>
 
                                       56

      SECTION  10.11.  Duplicate  Originals.  The  parties may sign any number
of copies of this  Indenture.  Each signed copy shall be an original,  but all
of them together represent the same agreement.

      SECTION 10.12. Separability. In case any provision in this Indenture or in
the Notes shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.

      SECTION 10.13. Table of Contents, Headings, Etc. The Table of Contents,
Cross-Reference Table and headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, are not to be
considered a part hereof and shall in no way modify or restrict any of the terms
and provisions hereof.
<PAGE>
 
                                   SIGNATURES

      IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, all as of the date first written above.


                                    ITC/\DELTACOM, INC.


                                    By: /s/ Andrew M. Walker
                                       ---------------------------
                                        Name: Andrew M. Walker
                                        Title: Chief Executive Officer



                                    UNITED STATES TRUST COMPANY
                                    OF NEW YORK


                                    By: /s/ Louis P. Young
                                       ---------------------------
                                        Name: Louis P. Young
                                        Title: Vice President

<PAGE>
 
                                                                       EXHIBIT A


                                [FACE OF NOTE]

                              ITC/\DELTACOM, INC.

                          8-7/8% Senior Note due 2008

                                                   [CUSIP] [CINS] [__________]


No.                                                                 $_________


      ITC/\DELTACOM, INC., a Delaware corporation (the "Company", which term
includes any successor under the Indenture hereinafter referred to), for value
received, promises to pay to _____________, or its registered assigns, the
principal sum of ____________ ($____) on March 1, 2008.

      Interest  Payment Dates:  March 1 and September 1, commencing  September
1, 1998.

      Regular Record Dates:   February 15 and  August 15.

      Reference is hereby made to the further provisions of this Note set forth
on the reverse hereof, which further provisions shall for all purposes have the
same effect as if set forth at this place.
<PAGE>
 
                                      A-2

      IN WITNESS WHEREOF, the Company has caused this Note to be signed manually
or by facsimile by its duly authorized officers.



Date:                               ITC/\DELTACOM, INC.


                                    By:
                                       ---------------------------
                                        Name:
                                        Title:

                                    By:
                                       ---------------------------
                                        Name:
                                        Title:



                    (Trustee's Certificate of Authentication)

This is one of the 8-7/8% Senior Notes due 2008 described in the within-
mentioned Indenture.


                                    UNITED STATES TRUST COMPANY OF
                                      NEW YORK
                                        as Trustee

                                    By:
                                       ---------------------------
                                        Authorized Signatory
<PAGE>
 
                                      A-3

                            [REVERSE SIDE OF NOTE]

                              ITC/\DELTACOM, INC.

                          8-7/8% Senior Note due 2008



1.  Principal and Interest.

      The Company will pay the principal of this Note on March 1, 2008.

      The Company promises to pay interest on the principal amount of this Note
on each Interest Payment Date, as set forth below, at the rate per annum shown
above.

      Interest will be payable semiannually (to the holders of record of the
Notes at the close of business on the February 15 or August 15 immediately
preceding the Interest Payment Date) on each Interest Payment Date, commencing
September 1, 1998.

      If an exchange offer (the "Exchange Offer") registered under the
Securities Act is not consummated and a shelf registration statement (the "Shelf
Registration Statement") under the Securities Act with respect to resales of the
Notes is not declared effective by the Commission, on or before September 3,
1998 in accordance with the terms of the Registration Rights Agreement dated as
of March 3, 1998 between the Company and Morgan Stanley & Co. Incorporated,
Salomon Brothers Inc and NationsBanc Montgomery Securities LLC, the annual
interest rate borne by the Notes shall be increased by 0.5% from the rate shown
above accruing from September 3, 1998, payable in cash semiannually, in arrears,
on each Interest Payment Date, commencing March 1, 1999 until the Exchange Offer
is consummated or the Shelf Registration Statement is declared effective. The
Holder of this Note is entitled to the benefits of such Registration Rights
Agreement.

      Interest on the Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from March 3, 1998;
provided that, if there is no existing default in the payment of interest and
this Note is authenticated between a Regular Record Date referred to on the face
hereof and the next succeeding Interest Payment Date, interest shall accrue from
such Interest Payment Date. Interest will be computed on the basis of a 360-day
year of twelve 30-day months.

      The Company shall pay interest on overdue principal and premium, if any,
and interest on overdue installments of interest, to the extent lawful, at a
rate per annum that is 2% in excess of the rate otherwise payable.

2.  Method of Payment.

      The Company will pay interest (except defaulted interest) on the principal
amount of the Notes as provided above on each March 1 and September 1 commencing
September 1, 1998 to the persons who are Holders (as reflected in the Security
Register at the close of business on the February 15 or August 15 immediately
preceding the Interest Payment Date), in each case, even if the Note is
cancelled on registration of transfer or registration of exchange after such
record date; provided that, with respect to the payment of principal, the
Company will make payment to the Holder that surrenders this Note to a Paying
Agent on or after March 1, 2008.

      The Company will pay principal, premium, if any, and as provided above,
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts. However, the Company 
<PAGE>
 
                                      A-4

may pay principal, premium, if any, and interest by its check payable in such
money. It may mail an interest check to a Holder's registered address (as
reflected in the Security Register). If a payment date is a date other than a
Business Day at a place of payment, payment may be made at that place on the
next succeeding day that is a Business Day and no interest shall accrue for the
intervening period.

3.  Paying Agent and Registrar.

      Initially, the Trustee will act as authenticating agent, Paying Agent and
Registrar. The Company may change any authenticating agent, Paying Agent or
Registrar without notice. The Company, any Subsidiary or any Affiliate of any of
them may act as Paying Agent, Registrar or co-Registrar.

4.  Indenture; Limitations.

      The Company issued the Notes under an Indenture dated as of March 3, 1998
(the "Indenture"), between the Company and United States Trust Company of New
York, trustee (the "Trustee"). Capitalized terms herein are used as defined in
the Indenture unless otherwise indicated. The terms of the Notes include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act. The Notes are subject to all such terms, and Holders are
referred to the Indenture and the Trust Indenture Act for a statement of all
such terms. To the extent permitted by applicable law, in the event of any
inconsistency between the terms of this Note and the terms of the Indenture, the
terms of the Indenture shall control.

      The Notes are general obligations of the Company.

5.  Optional Redemption.

      The Notes will be redeemable, at the Company's option, in whole or in
part, at any time or from time to time, on or after March 1, 2003 and prior to
maturity, upon not less than 30 nor more than 60 days' prior notice mailed by
first class mail to each Holder's last address, as it appears in the Security
Register, at the following Redemption Prices (expressed in percentages of
principal amount), plus accrued and unpaid interest to the Redemption Date
(subject to the right of Holders of record on the relevant Regular Record Date
that is prior to the Redemption Date to receive interest due on an Interest
Payment Date), if redeemed during the 12-month period commencing March 1 of the
years set forth below:

<TABLE>
<CAPTION>
                          Year                  Redemption Price
                          ----                  ----------------
                <S>                                <C>      
                2003 ......................        104.4375%

                2004 ......................        102.9583

                2005 ......................        101.4792

                2006 and thereafter .......        100.0000
</TABLE>

      At any time prior to March 1, 2001, the Company may redeem up to 35% of
the principal amount of the Notes with the proceeds of one or more Public Equity
Offerings, at any time or from time to time in part, at a Redemption Price
(expressed as a percentage of principal amount) of 108.875% plus accrued and
unpaid interest to the Redemption Date (subject to the rights of Holders of
record on the relevant Regular Record Date that is prior to the Redemption Date
to receive interest due on an Interest Payment Date); provided that at least
$104.0 million aggregate principal amount of Notes remains outstanding after
each such redemption.
<PAGE>
 
                                      A-5

      Notes in original denominations larger than $1,000 may be redeemed in
part. On and after the Redemption Date, interest ceases to accrue on Notes or
portions of Notes called for redemption, unless the Company defaults in the
payment of the Redemption Price.

6. Repurchase upon Change of Control.

      Upon the occurrence of any Change of Control, each Holder shall have the
right to require the repurchase of its Notes by the Company in cash pursuant to
the offer described in the Indenture at a purchase price equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase (the "Payment Date").

      A notice of such Change of Control will be mailed within 30 days after any
Change of Control occurs to each Holder at its last address as it appears in the
Security Register. Notes in original denominations larger than $1,000 may be
sold to the Company in part. On and after the Payment Date, interest ceases to
accrue on Notes or portions of Notes surrendered for purchase by the Company,
unless the Company defaults in the payment of the purchase price.
<PAGE>
 
                                      A-6

7.  Denominations; Transfer; Exchange.

      The Notes are in registered form without coupons in denominations of
$1,000 of principal amount and multiples of $1,000 in excess thereof. A Holder
may register the transfer or exchange of Notes in accordance with the Indenture.
The Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not register the transfer
or exchange of any Notes selected for redemption. Also, it need not register the
transfer or exchange of any Notes for a period of 15 days before the day of
mailing of a notice of redemption of Notes selected for redemption.

8.  Persons Deemed Owners.

      A Holder shall be treated as the owner of a Note for all purposes.

9.  Unclaimed Money.

      If money for the payment of principal, premium, if any, or interest
remains unclaimed for two years, the Trustee and the Paying Agent will pay the
money back to the Company at its request. After that, Holders entitled to the
money must look to the Company for payment, unless an abandoned property law
designates another Person, and all liability of the Trustee and such Paying
Agent with respect to such money shall cease.

10. Discharge Prior to Redemption or Maturity.

      If the Company deposits with the Trustee money or U.S. Government
Obligations sufficient to pay the then outstanding principal of, premium, if
any, and accrued interest on the Notes (a) to redemption or maturity, the
Company will be discharged from the Indenture and the Notes, except in certain
circumstances for certain sections thereof, and (b) to the Stated Maturity, the
Company will be discharged from certain covenants set forth in the Indenture.

11.  Amendment; Supplement; Waiver.

      Subject to certain exceptions, the Indenture or the Notes may be amended
or supplemented with the consent of the Holders of at least a majority in
principal amount of the Notes then outstanding, and any existing default or
compliance with any provision may be waived with the consent of the Holders of
at least a majority in principal amount of the Notes then outstanding. Without
notice to or the consent of any Holder, the parties thereto may amend or
supplement the Indenture or the Notes to, among other things, cure any
ambiguity, defect or inconsistency and make any change that does not materially
and adversely affect the rights of any Holder.

12.  Restrictive Covenants.

      The Indenture imposes certain limitations on the ability of the Company
and its Restricted Subsidiaries, among other things, to Incur additional
Indebtedness, make Restricted Payments, use the proceeds from Asset Sales,
engage in transactions with Affiliates or merge, consolidate or transfer
substantially all of its assets. Within 45 days after the end of each fiscal
quarter (90 days after the end of the last fiscal quarter of each year), the
Company must report to the Trustee on compliance with such limitations.
<PAGE>
 
                                      A-7

13.  Successor Persons.

      When a successor person or other entity assumes all the obligations of its
predecessor under the Notes and the Indenture, the predecessor person will be
released from those obligations.

14.  Defaults and Remedies.

      The following events constitute "Events of Default" under the Indenture:
(a) default in the payment of principal of (or premium, if any, on) any Note
when the same becomes due and payable at maturity, upon acceleration, redemption
or otherwise; (b) default in the payment of interest on any Note when the same
becomes due and payable, and such default continues for a period of 30 days; (c)
default in the performance or breach of Article Five of the Indenture or the
failure to make or consummate an Offer to Purchase in accordance with Section
4.10 or 4.11 of the Indenture; (d) default in the performance of or breach of
any covenant or agreement of the Company in the Indenture or under the Notes
(other than a default specified in clause (a), (b) or (c) above), and such
default or breach continues for a period of 30 consecutive days after written
notice by the Trustee or the Holders of at least 25% in aggregate principal
amount of the Notes then outstanding; (e) there occurs with respect to any issue
or issues of Indebtedness of the Company or any Significant Subsidiary having an
outstanding principal amount of $5 million or more in the aggregate for all such
issues of all such Persons, whether such Indebtedness now exists or shall
hereafter be created, (I) an event of default that has caused the holder thereof
to declare such Indebtedness to be due and payable prior to its Stated Maturity
and such Indebtedness has not been discharged in full or such acceleration has
not been rescinded or annulled within 30 days of such acceleration and/or (II)
the failure to make a principal payment at the final (but not any interim) fixed
maturity and such defaulted payment shall not have been made, waived or extended
within 30 days of such payment default; (f) any final judgment or order (not
covered by insurance) for the payment of money in excess of $5 million in the
aggregate for all such final judgments or orders against all such Persons
(treating any deductibles, self-insurance or retention as not so covered) shall
be rendered against the Company or any Significant Subsidiary and shall not be
paid or discharged, and there shall be any period of 30 consecutive days
following entry of the final judgment or order that causes the aggregate amount
for all such final judgments or orders outstanding and not paid or discharged
against all such Persons to exceed $5 million during which a stay of enforcement
of such final judgment or order, by reason of a pending appeal or otherwise,
shall not be in effect; (g) a court having jurisdiction in the premises enters a
decree or order for (A) relief in respect of the Company or any Significant
Subsidiary in an involuntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, (B) appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official of
the Company or any Significant Subsidiary or for all or substantially all of the
property and assets of the Company or any Significant Subsidiary or (C) the
winding up or liquidation of the affairs of the Company or any Significant
Subsidiary and, in each case, such decree or order shall remain unstayed and in
effect for a period of 60 consecutive days; or (h) the Company or any
Significant Subsidiary (A) commences a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
consents to the entry of an order for relief in an involuntary case under any
such law, (B) consents to the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official of
the Company or any Significant Subsidiary or for all or substantially all of the
property and assets of the Company or any Significant Subsidiary or (C) effects
any general assignment for the benefit of creditors.

      If an Event of Default, as defined in the Indenture, occurs and is
continuing, the Trustee may, and at the direction of the Holders of at least 25%
in aggregate principal amount of the Notes then outstanding shall, declare all
the Notes to be due and payable. If a bankruptcy or insolvency default with
respect to the Company occurs and is continuing, the Notes automatically become
due and payable. Holders may not enforce the Indenture or the Notes except as
provided in the Indenture. The Trustee may require indemnity satisfactory to it
before it enforces the 
<PAGE>
 
                                      A-8

Indenture or the Notes. Subject to certain limitations, Holders of at least a
majority in principal amount of the Notes then outstanding may direct the
Trustee in its exercise of any trust or power.

15.  Trustee Dealings with Company.

      The Trustee under the Indenture, in its individual or any other capacity,
may make loans to, accept deposits from and perform services for the Company or
its Affiliates and may otherwise deal with the Company or its Affiliates as if
it were not the Trustee.

16.  No Recourse Against Others.

      No incorporator or any past, present or future partner, stockholder, other
equity holder, officer, director, employee or controlling person as such, of the
Company or of any successor Person shall have any liability for any obligations
of the Company under the Notes or the Indenture or for any claim based on, in
respect of or by reason of, such obligations or their creation. Each Holder by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for the issuance of the Notes.

17.  Authentication.

      This Note shall not be valid until the Trustee or authenticating agent
signs the certificate of authentication on the other side of this Note.

18.  Abbreviations.

      Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).

      The  Company  will  furnish a copy of the  Indenture  to any Holder upon
written  request  and without  charge.  Requests  may be made to  ITC DELTACOM,
Inc.,  1241  O.G.  Skinner  Drive,  West  Point,  GA 31833;  Attention:  Chief
Financial Officer.
<PAGE>
 
                                      A-9

                            [FORM OF TRANSFER NOTICE]


      FOR VALUE RECEIVED the  undersigned  registered  holder hereby  sell(s),
assign(s) and transfer(s) unto

Insert Taxpayer Identification No.

_______________________________________________________________________________
Please print or typewrite name and address including zip code of assignee

_______________________________________________________________________________
the within Note and all rights  thereunder,  hereby  irrevocably  constituting
and appointing ________________________________________________________________
attorney to transfer said Note on the books of the Company with full power of
substitution in the premises.


                     [THE FOLLOWING PROVISION TO BE INCLUDED
                     ON ALL NOTES OTHER THAN EXCHANGE NOTES,
                      UNLEGENDED OFFSHORE GLOBAL NOTES AND
                       UNLEGENDED OFFSHORE PHYSICAL NOTES]

      In connection with any transfer of this Note occurring prior to the date
which is the earlier of (i) the date the Shelf Registration Statement is
declared effective or (ii) the end of the period referred to in Rule 144(k)
under the Securities Act, the undersigned confirms that without utilizing any
general solicitation or general advertising that:

                                   [Check One]

[_] (a) this Note is being transferred in compliance with the exemption
          from registration under the Securities Act of 1933 provided by Rule
          144A thereunder.

                                       or

[_] (b) this Note is being transferred other than in accordance with (a)
          above and documents are being furnished which comply with the
          conditions of transfer set forth in this Note and the Indenture.
<PAGE>
 
                                      A-10

If none of the foregoing boxes is checked, the Trustee or other Registrar shall
not be obligated to register this Note in the name of any Person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.08 of the Indenture shall have
been satisfied.

Date:__________________       _________________________________________________
                              NOTICE: The signature to this assignment must
                              correspond with the name as written upon the face
                              of the within-mentioned instrument in every
                              particular, without alteration or any change
                              whatsoever.



TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.

      The undersigned represents and warrants that it is purchasing this Note
for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933 and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.

Dated:__________________       _________________________________________________
                               NOTICE: To be executed by an executive officer
<PAGE>
 
                                      A-11

                       OPTION OF HOLDER TO ELECT PURCHASE


      If you wish to have this  Note  purchased  by the  Company  pursuant  to
Section 4.10 or 4.11 of the Indenture, check the Box:  |_|

      If you wish to have a portion of this Note purchased by the Company
pursuant to Section 4.10 or 4.11 of the Indenture, state the amount: $_________.


Date: _____________

Your Signature:_________________________________________________________________
              (Sign exactly as your name appears on the other side of this Note)

Signature Guarantee:______________________________
<PAGE>
 
                                                                       EXHIBIT B
                               Form of Certificate

                                                               _________, __

United States Trust Company
   of New York
114 W. 47th Street
New York, NY  10036-1532
Attention:  Corporate Trust Department

                    Re: ITC/\DELTACOM, Inc. (the "Company")
                    8-7/8% Senior Notes due 2008 (the "Notes")

Dear Sirs:

     This letter relates to U.S. $____________ principal amount of Notes
represented by a Note (the "Legended Note") which bears a legend outlining
restrictions upon transfer of such Legended Note. Pursuant to Section 2.01 of
the Indenture dated as of March 3, 1998 (the "Indenture") relating to the Notes,
we hereby certify that we are (or we will hold such securities on behalf of) a
person outside the United States to whom the Notes could be transferred in
accordance with Rule 904 of Regulation S promulgated under the U.S. Securities
Act of 1933. Accordingly, you are hereby requested to exchange the legended
certificate for an unlegended certificate representing an identical principal
amount of Notes, all in the manner provided for in the Indenture.

     You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.

                                    Very truly yours,

                                    [Name of Holder]


                                    By: _______________________________________
                                        Authorized Signature
<PAGE>
 
                                                                       EXHIBIT C

                            Form of Certificate to Be
                          Delivered in Connection with
                    Transfers to Non-QIB Accredited Investors

                                                               _________, __

United States Trust Company
   of New York
114 W. 47th Street
New York, NY  10036-1532
Attention:  Corporate Trust Department

                    Re: ITC/\DELTACOM, Inc. (the "Company")
                    8-7/8% Senior Notes due 2008 (the "Notes")

Dear Sirs:

     In connection with our proposed purchase of $_____________ aggregate
principal amount of the Notes, we confirm that:

     1. We understand that any subsequent transfer of the Notes is subject to
certain restrictions and conditions set forth in the Indenture dated as of March
3, 1998 (the "Indenture"), relating to the Notes, and the undersigned agrees to
be bound by, and not to resell, pledge or otherwise transfer the Notes except in
compliance with, such restrictions and conditions and the Securities Act of 1933
(the "Securities Act").

     2. We understand that the offer and sale of the Notes have not been
registered under the Securities Act, and that the Notes may not be offered or
sold except as permitted in the following sentence. We agree, on our own behalf
and on behalf of any accounts for which we are acting as hereinafter stated,
that if we should sell any Notes, we will do so only (A) to the Company or any
subsidiary thereof, (B) in accordance with Rule 144A under the Securities Act to
a "qualified institutional buyer" (as defined therein), (C) to an institutional
"accredited investor" (as defined below) that, prior to such transfer, furnishes
(or has furnished on its behalf by a U.S. broker-dealer) to you and to the
Company a signed letter substantially in the form of this letter, (D) outside
the United States in accordance with Rule 904 of Regulation S under the
Securities Act, (E) pursuant to the exemption from registration provided by Rule
144 under the Securities Act (if available), or (F) pursuant to an effective
registration statement under the Securities Act, and we further agree to provide
to any person purchasing any of the Notes from us a notice advising such
purchaser that resales of the Notes are restricted as stated herein.

     3. We understand that, on any proposed resale of any Notes, we will be
required to furnish to you and the Company such certifications, legal opinions
and other information as you and the Company may reasonably require to confirm
that the proposed sale complies with the foregoing restrictions. We further
understand that the Notes purchased by us will bear a legend to the foregoing
effect.

     4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Notes, and we and
any accounts for which we are acting are each able to bear the economic risk of
our or its investment.
<PAGE>
 
                                      C-2

     5. We are acquiring the Notes purchased by us for our own account or for
one or more accounts (each of which is an institutional "accredited investor")
as to each of which we exercise sole investment discretion.

     You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.

                                    Very truly yours,

                                    [Name of Transferee]


                                    By:_____________________
                                       Authorized Signature
<PAGE>
 
                                                                       EXHIBIT D
                     Form of Certificate to Be Delivered in
               Connection with Transfers Pursuant to Regulation S

                                                               _________, __

United States Trust Company
   of New York
114 W. 47th Street
New York, NY  10036-1532
Attention:  Corporate Trust Department

                    Re: ITC/\DELTACOM, Inc. (the "Company")
                    8-7/8% Senior Notes due 2008 (the "Notes")

Dear Sirs:

     In connection with our proposed sale of U.S.$____________ aggregate
principal amount of the Notes, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the Securities Act of 1933
and, accordingly, we represent that:

     (1) the offer of the Notes was not made to a person in the United States;

     (2) at the time the buy order was originated, the transferee was outside
the United States or we and any person acting on our behalf reasonably believed
that the transferee was outside the United States;

     (3) no directed selling efforts have been made by us in the United States
in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation
S, as applicable; and

     (4) the transaction is not part of a plan or scheme to evade the
registration requirements of the U.S. Securities Act of 1933.

     You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.

                                    Very truly yours,

                                    [Name of Transferor]


                                    By:_____________________
                                       Authorized Signature




<PAGE>
 
                                                                     Exhibit 4.3






                          REGISTRATION RIGHTS AGREEMENT





                               Dated March 3, 1998





                                     between




                                ITC/\DELTACOM, INC.



                                       and



                        MORGAN STANLEY & CO. INCORPORATED
                              SALOMON BROTHERS INC
                      NATIONSBANC MONTGOMERY SECURITIES LLC
<PAGE>
 
                          REGISTRATION RIGHTS AGREEMENT



     THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered
into March 3, 1998, between ITC/\DeltaCom, Inc., a Delaware corporation (the
"Company"), and MORGAN STANLEY & CO. INCORPORATED, SALOMON BROTHERS INC AND
NATIONSBANC MONTGOMERY SECURITIES LLC (the "Placement Agents").

     This Agreement is made pursuant to the Placement Agreement dated February
26, 1998 between the Company and the Placement Agents (the "Placement
Agreement"), which provides for the sale by the Company to the Placement Agents
of an aggregate of $160,000,000 principal amount of the Company's 8_% Senior
Notes due 2008 (the "Securities"). In order to induce the Placement Agents to
enter into the Placement Agreement, the Company has agreed to provide to the
Placement Agents and their direct and indirect transferees the registration
rights set forth in this Agreement. The execution of this Agreement is a
condition to the closing under the Placement Agreement.

     In consideration of the foregoing, the parties hereto agree as follows:

     1. Definitions.

     As used in this Agreement, the following capitalized defined terms shall
have the following meanings:

     "1933 Act" shall mean the Securities Act of 1933, as amended from time to
time.

     "1934 Act" shall mean the Securities Exchange Act of 1934, as amended from
time to time.

     "Closing Date" shall mean the Closing Date as defined in the Placement
Agreement.

     "Company" shall have the meaning set forth in the preamble to this
Agreement and shall also include the Company's successors.

     "Counsel for the Holders" shall mean, with respect to any Registration
Statement, one counsel selected by the Holders of a majority in principal amount
of Registrable Securities covered by such Registration Statement.

     "Exchange Offer" shall mean the exchange offer by the Company of Exchange
<PAGE>
 
Securities for Registrable Securities pursuant to Section 2(a) hereof.

     "Exchange Offer Registration" shall mean a registration under the 1933 Act
effected pursuant to Section 2(a) hereof.

     "Exchange Offer Registration Statement" shall mean an exchange offer
registration statement on Form S-4 (or, if applicable, on another appropriate
form) and all amendments and supplements to such registration statement, in each
case including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.

     "Exchange Securities" shall mean securities issued by the Company under the
Indenture containing terms identical to the Securities (except that the Exchange
Securities will not contain restrictions on transfer) and to be offered to
Holders of Securities in exchange for Securities pursuant to the Exchange Offer.

     "Holder" shall mean the Placement Agents, for so long as they own any
Registrable Securities, and each of their successors, assigns and direct and
indirect transferees who become registered owners of Registrable Securities
under the Indenture; provided that for purposes of Sections 4 and 5 hereof, the
term "Holder" shall include Participating Broker-Dealers (as defined in Section
4(a)).

     "Indenture" shall mean the Indenture relating to the Securities dated as of
the Closing Date between the Company and United States Trust Company of New
York, trustee, and as the same may be amended from time to time in accordance
with the terms thereof.

     "Majority Holders" shall mean the Holders of a majority of the aggregate
principal amount of outstanding Registrable Securities; provided that whenever
the consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
any of its affiliates (as such term is defined in Rule 405 under the 1933 Act)
(other than the Placement Agents or subsequent holders of Registrable Securities
if such subsequent holders are deemed to be such affiliates solely by reason of
their holding of such Registrable Securities) shall not be counted in
determining whether such consent or approval was given by the Holders of such
required percentage or amount.

     "Person" shall mean an individual, partnership, corporation, trust or
unincorporated organization or other entity, or a government or agency or
political subdivision thereof.


                                       2
<PAGE>
 
     "Placement Agents" shall have the meaning set forth in the preamble to this
Agreement.

     "Placement Agreement" shall have the meaning set forth in the preamble to
this Agreement.

     "Prospectus" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including a prospectus
supplement with respect to the terms of the offering of any portion of the
Registrable Securities covered by a Shelf Registration Statement, and by all
other amendments and supplements to such prospectus, and in each case including
all material incorporated by reference therein.

     "Registrable Securities" shall mean the Securities; provided, however, that
the Securities shall cease to be Registrable Securities (i) when a Registration
Statement with respect to such Securities shall have been declared effective
under the 1933 Act and such Securities shall have been disposed of pursuant to
such Registration Statement, (ii) when such Securities have been sold to the
public pursuant to Rule 144 (or any provision similar to Rule 144 then in force,
but not Rule 144A) under the 1933 Act or (iii) when such Securities shall have
ceased to be outstanding.

     "Registration Expenses" shall mean any and all expenses incident to
performance of or compliance by the Company with this Agreement, including
without limitation: (i) all SEC, stock exchange or National Association of
Securities Dealers, Inc. registration and filing fees, (ii) all fees and
expenses incurred in connection with compliance with state securities or blue
sky laws (including reasonable fees and disbursements of counsel for any
underwriters or Holders in connection with blue sky qualification of any of the
Exchange Securities or Registrable Securities), (iii) all expenses of any
Persons in preparing or assisting in preparing, word processing, printing and
distributing any Registration Statement, any Prospectus, any amendments or
supplements thereto, any underwriting agreements, securities sales agreements
and other documents relating to the performance of and compliance with this
Agreement, (iv) all rating agency fees, (v) all fees and disbursements relating
to the qualification of the Indenture under applicable securities laws, (vi) the
fees and disbursements of the Trustee and its counsel, (vii) the fees and
disbursements of counsel for the Company and, in the case of a Shelf
Registration Statement, the fees and disbursements of one counsel for the
Holders (which counsel shall be selected by the Majority Holders and which
counsel may also be counsel for the Placement Agents) and (viii) the fees and
disbursements of the independent public accountants of the Company, including
the expenses of any special audits or "cold comfort" letters required by or
incident to such 

                                       3
<PAGE>
 
performance and compliance, but excluding fees and expenses of
counsel to the underwriters (other than fees and expenses set forth in clause
(ii) above) or the Holders and underwriting discounts and commissions and
transfer taxes, if any, relating to the sale or disposition of Registrable
Securities by a Holder.

     "Registration Statement" shall mean any registration statement of the
Company that covers any of the Exchange Securities or Registrable Securities
pursuant to the provisions of this Agreement and all amendments and supplements
to any 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.

     "SEC" shall mean the Securities and Exchange Commission.

     "Shelf Registration" shall mean a registration effected pursuant to Section
2(b) hereof.

     "Shelf Registration Statement" shall mean a "shelf" registration statement
of the Company pursuant to the provisions of Section 2(b) of this Agreement
which covers all of the Registrable Securities (but no other securities unless
approved by the Holders whose Registrable Securities are covered by such Shelf
Registration Statement) on an appropriate form under Rule 415 under the 1933
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.

     "Trustee" shall mean the trustee with respect to the Securities under the
Indenture.

     "Underwritten Offering" shall mean a registration in which Registrable
Securities are sold to an Underwriter (as hereinafter defined) for reoffering to
the public.

     2. Registration Under the 1933 Act.

     (a) To the extent not prohibited by any applicable law or applicable
interpretation of the Staff of the SEC, the Company shall use its best efforts
to cause to be filed, no later than 60 days after the Closing Date, an Exchange
Offer Registration Statement covering the offer by the Company to the Holders to
exchange all of the Registrable Securities for Exchange Securities and to have
such Registration Statement remain effective until the


                                       4
<PAGE>
 
closing of the Exchange Offer. The Company shall commence the Exchange Offer
promptly after the Exchange Offer Registration Statement has been declared
effective by the SEC and use its best efforts to have the Exchange Offer
consummated not later than 60 days after such effective date. The Company shall
commence the Exchange Offer by mailing the Prospectus related to the Exchange
Offer and accompanying documents to each Holder stating, in addition to such
other disclosures as are required by applicable law:

          (i) that the Exchange Offer is being made pursuant to this
     Registration Rights Agreement and that all Registrable Securities validly
     tendered will be accepted for exchange;

          (ii) the dates of acceptance for exchange (which shall be a period of
     at least 20 business days from the date such notice is mailed) (the
     "Exchange Dates");

          (iii) that any Registrable Security not tendered will remain
     outstanding and continue to accrue interest in accordance with its terms,
     but will not retain any rights under this Registration Rights Agreement;

          (iv) that Holders electing to have a Registrable Security exchanged
     pursuant to the Exchange Offer will be required to surrender such
     Registrable Security, together with the enclosed letters of transmittal, to
     the institution and at the address (located in the Borough of Manhattan,
     The City of New York) specified in the notice prior to the close of
     business on the last Exchange Date; and

          (v) that Holders will be entitled to withdraw their election, not
     later than the close of business on the last Exchange Date, by sending to
     the institution and at the address (located in the Borough of Manhattan,
     The City of New York) specified in the notice a telegram, telex, facsimile
     transmission or letter setting forth the name of such Holder, the principal
     amount of Registrable Securities delivered for exchange and a statement
     that such Holder is withdrawing his election to have such Securities
     exchanged.

     As soon as practicable after the last Exchange Date, the Company shall:

          (i) accept for exchange Registrable Securities or portions thereof
     tendered and not validly withdrawn pursuant to the Exchange Offer; and

          (ii) deliver, or cause to be delivered, to the Trustee for
     cancellation all Registrable Securities or portions thereof so accepted for
     exchange by the Company and issue, and cause the Trustee to promptly
     authenticate and mail to each Holder, an


                                       5
<PAGE>
 
     Exchange Security equal in principal amount to the principal amount of the
     Registrable Securities surrendered by such Holder.

The Company shall use its best efforts to complete the Exchange Offer as
provided above and shall comply with the applicable requirements of the 1933
Act, the 1934 Act and other applicable laws and regulations in connection with
the Exchange Offer. The Exchange Offer shall not be subject to any conditions,
other than that the Exchange Offer does not violate applicable law or any
applicable interpretation of the Staff of the SEC. The Company shall inform the
Placement Agents of the names and addresses of the Holders to whom the Exchange
Offer is made, and the Placement Agents shall have the right, subject to
applicable law, to contact such Holders and otherwise facilitate the tender of
Registrable Securities in the Exchange Offer.

     (b) In the event that (i) the Company determines that the Exchange Offer
Registration provided for in Section 2(a) above is not available or may not be
consummated as soon as practicable after the last Exchange Date because it would
violate applicable law or the applicable interpretations of the Staff of the
SEC, (ii) the Exchange Offer is not for any other reason consummated by
September 3, 1998 or (iii) the Exchange Offer has been completed and in the
opinion of counsel for the Placement Agents a Registration Statement must be
filed and a Prospectus must be delivered by the Placement Agents in connection
with any offering or sale by them of Registrable Securities which they acquired
from the Company, the Company shall use its best efforts to cause to be filed as
soon as practicable after such determination, date or notice of such opinion of
counsel is given to the Company, as the case may be, a Shelf Registration
Statement providing for the sale by the Holders of all of the Registrable
Securities and to have such Shelf Registration Statement declared effective by
the SEC. In the event the Company is required to file a Shelf Registration
Statement solely as a result of the matters referred to in clause (iii) of the
preceding sentence, the Company shall file and use its best efforts have
declared effective by the SEC both an Exchange Offer Registration Statement
pursuant to Section 2(a) with respect to all Registrable Securities and a Shelf
Registration Statement (which may be a combined Registration Statement with the
Exchange Offer Registration Statement) with respect to offers and sales of
Registrable Securities held by the Placement Agents after completion of the
Exchange Offer. The Company agrees to use its best efforts to keep the Shelf
Registration Statement continuously effective until expiration of the period
referred to in Rule 144(k) under the 1933 Act with respect to all Registrable
Securities covered by the Shelf Registration Statement or such shorter period
that will terminate when all of the Registrable Securities covered by the Shelf
Registration Statement have been sold pursuant to the Shelf Registration
Statement. The Company further agrees to supplement or amend the Shelf
Registration Statement if required by the rules, regulations or instructions
applicable to the registration form used by the Company for such Shelf
Registration Statement or by the 1933 Act or by any other rules and regulations
thereunder for shelf registration or if reasonably requested by a Holder with
respect to information relating to


                                       6
<PAGE>
 
such Holder, and to use its best efforts to cause any such amendment to become
effective and such Shelf Registration Statement to become usable as soon as
thereafter practicable. The Company agrees to furnish to the Holders of
Registrable Securities copies of any such supplement or amendment promptly after
its being used or filed with the SEC.

     (c) The Company shall pay all Registration Expenses in connection with the
registration pursuant to Section 2(a) or Section 2(b). Each Holder shall pay all
underwriting discounts and commissions and transfer taxes, if any, relating to
the sale or disposition of such Holder's Registrable Securities pursuant to the
Shelf Registration Statement.

     (d) An Exchange Offer Registration Statement pursuant to Section 2(a)
hereof or a Shelf Registration Statement pursuant to Section 2(b) hereof will
not be deemed to have become effective unless it has been declared effective by
the SEC; provided, however, that, if, after it has been declared effective, the
offering of Registrable Securities pursuant to a Shelf Registration Statement is
interfered with by any stop order, injunction or other order or requirement of
the SEC or any other governmental agency or court, such Registration Statement
will be deemed not to have become effective during the period of such
interference until the offering of Registrable Securities pursuant to such
Registration Statement may legally resume. As provided for in the Indenture, in
the event that the Exchange Offer is not consummated and, if a Shelf
Registration Statement is required hereby, the Shelf Registration Statement is
not declared effective on or prior to September 3, 1998, the interest rate on
the Securities (and the Exchange Securities) will increase by .5% per annum
until the date the Exchange Offer is consummated or a Shelf Registration
Statement is declared effective.

     (e) Without limiting the remedies available to the Placement Agents and the
Holders, the Company acknowledges that any failure by the Company to comply with
its obligations under Section 2(a) and Section 2(b) hereof may result in
material irreparable injury to the Placement Agents or the Holders for which
there is no adequate remedy at law, that it will not be possible to measure
damages for such injuries precisely and that, in the event of any such failure,
the Placement Agents or any Holder may obtain such relief as may be required to
specifically enforce the Company's obligations under Section 2(a) and Section
2(b) hereof.

     3. Registration Procedures.

     In connection with the obligations of the Company with respect to the
Registration Statements pursuant to Section 2(a) and Section 2(b) hereof, the
Company shall as expeditiously as possible:

     (a) prepare and file with the SEC a Registration Statement on the
appropriate form under the 1933 Act, which form (x) shall be selected by the
Company 


                                       7
<PAGE>
 
and (y) shall, in the case of a Shelf Registration, be available for the
sale of the Registrable Securities by the selling Holders thereof and (z) shall
comply as to form in all material respects with the requirements of the
applicable form and include all financial statements required by the SEC to be
filed therewith, and use its best efforts to cause such Registration Statement
to become effective and remain effective in accordance with Section 2 hereof;

     (b) prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary to keep such
Registration Statement effective for the applicable period and cause each
Prospectus to be supplemented by any required prospectus supplement and, as so
supplemented, to be filed pursuant to Rule 424 under the 1933 Act; and keep each
Prospectus current during the period described under Section 4(3) and Rule 174
under the 1933 Act that is applicable to transactions by brokers or dealers with
respect to the Registrable Securities or Exchange Securities;

     (c) in the case of a Shelf Registration, furnish to each Holder of
Registrable Securities, to counsel for the Placement Agents, to counsel for the
Holders and to each Underwriter of an Underwritten Offering of Registrable
Securities, if any, without charge, as many copies of each Prospectus, including
each preliminary Prospectus, and any amendment or supplement thereto and such
other documents as such Holder or Underwriter may reasonably request, in order
to facilitate the public sale or other disposition of the Registrable
Securities; and (subject to the penultimate paragraph of this Section 3) the
Company consents to the use of such Prospectus and any amendment or supplement
thereto in accordance with applicable law by each of the selling Holders of
Registrable Securities and any such Underwriters in connection with the offering
and sale of the Registrable Securities covered by and in the manner described in
such Prospectus or any amendment or supplement thereto in accordance with
applicable law;

     (d) use its best efforts to register or qualify the Registrable Securities
under all applicable state securities or "blue sky" laws of such jurisdictions
as any Holder of Registrable Securities covered by a Registration Statement
shall reasonably request in writing by the time the applicable Registration
Statement is declared effective by the SEC, to cooperate with such Holder in
connection with any filings required to be made with the National Association of
Securities Dealers, Inc. and do any and all other acts and things which may be
reasonably necessary or advisable to enable such Holder to consummate the
disposition in each such jurisdiction of such Registrable Securities owned by
such Holder; provided, however, that the Company shall not be required to (i)
qualify as a foreign corporation or as a dealer in securities in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(d), (ii) file any


                                       8
<PAGE>
 
general consent to service of process or (iii) subject itself to taxation in any
such jurisdiction if it is not so subject;

     (e) in the case of a Shelf Registration, notify each Holder of Registrable
Securities, counsel for the Holders and counsel for the Placement Agents
promptly and, if requested by any such Holder or counsel, confirm such advice in
writing (i) when a Registration Statement has become effective and when any
post-effective amendment thereto has been filed and becomes effective, (ii) of
any request by the SEC or any state securities authority for amendments and
supplements to a Registration Statement and Prospectus or for additional
information after the Registration Statement has become effective, (iii) of the
issuance by the SEC or any state securities authority of any stop order
suspending the effectiveness of a Registration Statement or the initiation of
any proceedings for that purpose, (iv) if, between the effective date of a
Registration Statement and the closing of any sale of Registrable Securities
covered thereby, the representations and warranties of the Company contained in
any underwriting agreement, securities sales agreement or other similar
agreement, if any, relating to the offering cease to be true and correct in all
material respects or if the Company receives any notification with respect to
the suspension of the qualification of the Registrable Securities for sale in
any jurisdiction or the initiation of any proceeding for such purpose, (v) of
the happening of any event during the period a Shelf Registration Statement is
effective which makes any statement made in such Registration Statement or the
related Prospectus untrue in any material respect or which requires the making
of any changes in such Registration Statement or Prospectus in order to make the
statements therein not misleading in any material respect and (vi) of any
determination by the Company that a post-effective amendment to a Registration
Statement would be appropriate;

     (f) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement at the earliest
possible moment and provide prompt notice to each Holder of the withdrawal of
any such order;

     (g) in the case of a Shelf Registration, furnish to each Holder of
Registrable Securities, without charge, at least one conformed copy of each
Registration Statement and any post-effective amendment thereto (without
documents incorporated therein by reference or exhibits thereto, unless
requested);

     (h) in the case of a Shelf Registration, cooperate with the selling Holders
of Registrable Securities to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold and not bearing any
restrictive legends and enable such Registrable Securities to be in such
denominations (consistent with the provisions of the Indenture) and registered
in such names as the selling Holders may 


                                       9
<PAGE>
 
reasonably request at least one business day prior to the closing of any sale of
Registrable Securities;

     (i) in the case of a Shelf Registration, upon the occurrence of any event
contemplated by Section 3(e)(v) hereof, use its best efforts to prepare and file
with the SEC a supplement or post-effective amendment to a Registration
Statement or the related Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter delivered
to the purchasers of the Registrable Securities, such Prospectus will not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The Company agrees to notify the
Holders to suspend use of the Prospectus as promptly as practicable after the
occurrence of such an event, and the Holders hereby agree to suspend use of the
Prospectus until the Company has amended or supplemented the Prospectus to
correct such misstatement or omission;

     (j) a reasonable time prior to the filing of any Registration Statement,
any Prospectus, any amendment to a Registration Statement or amendment or
supplement to a Prospectus or any document which is to be incorporated by
reference into a Registration Statement or a Prospectus after initial filing of
a Registration Statement, provide copies of such document to the Placement
Agents and their counsel (and, in the case of a Shelf Registration Statement,
the Counsel for the Holders) and make such of the representatives of the Company
as shall be reasonably requested by the Placement Agents or their counsel (and,
in the case of a Shelf Registration Statement, Counsel for the Holders)
available for discussion of such document, and shall not at any time file or
make any amendment to the Registration Statement, any Prospectus or any
amendment of or supplement to a Registration Statement or a Prospectus or any
document which is to be incorporated by reference into a Registration Statement
or a Prospectus, of which the Placement Agents and their counsel (and, in the
case of a Shelf Registration Statement, Counsel for the Holders) shall not have
previously been advised and furnished a copy or to which the Placement Agents or
their counsel (and, in the case of a Shelf Registration Statement, Counsel for
the Holders) shall reasonably object;

     (k) obtain a CUSIP number for all Exchange Securities or Registrable
Securities, as the case may be, not later than the effective date of a
Registration Statement;

     (l) cause the Indenture to be qualified under the Trust Indenture Act of
1939, as amended (the "TIA"), in connection with the registration of the
Exchange Securities or Registrable Securities, as the case may be, cooperate
with the Trustee and the Holders to effect such changes to the Indenture as may
be required for the 


                                       10
<PAGE>
 
Indenture to be so qualified in accordance with the terms of the TIA and
execute, and use its best efforts to cause the Trustee to execute, all documents
as may be required to effect such changes and all other forms and documents
required to be filed with the SEC to enable the Indenture to be so qualified in
a timely manner;

     (m) in the case of a Shelf Registration, upon the execution of customary
confidentiality agreements reasonably satisfactory to the Company, make
available for inspection by a representative of the Holders of the Registrable
Securities, any Underwriter participating in any disposition pursuant to such
Shelf Registration Statement, and attorneys and accountants designated by the
Holders, at reasonable times and in a reasonable manner, all financial and other
records, pertinent documents and properties of the Company, and cause the
respective officers, directors and employees of the Company to supply all
information reasonably requested by and customarily given by an issuer to any
such representative, Underwriter, attorney or accountant in connection with a
Shelf Registration Statement;

     (n) in the case of a Shelf Registration, use its best efforts to cause all
Registrable Securities to be listed on any securities exchange or any automated
quotation system on which similar securities issued by the Company are then
listed if requested by the Majority Holders, to the extent such Registrable
Securities satisfy applicable listing requirements;

     (o) use its best efforts to cause the Exchange Securities or Registrable
Securities, as the case may be, to be rated by two nationally recognized
statistical rating organizations (as such term is defined in Rule 436(g)(2)
under the 1933 Act);

     (p) if reasonably requested by any Holder of Registrable Securities covered
by a Shelf Registration Statement, (i) promptly incorporate in a Prospectus
supplement or post-effective amendment such information with respect to such
Holder as such Holder reasonably requests to be included therein and (ii) make
all required filings of such Prospectus supplement or such post-effective
amendment as soon as the Company has received notification of the matters to be
incorporated in such filing; and

     (q) in the case of a Shelf Registration, enter into such customary
agreements and take all such other actions in connection therewith (including
those requested by the Holders of a majority in principal amount of the
Registrable Securities being sold) in order to expedite or facilitate the
disposition of such Registrable Securities, including but not limited to an
Underwritten Offering, and in such connection, (i) to the extent possible, make
such representations and warranties to the Holders and any Underwriters of such
Registrable Securities with respect to the business of the Company and its
subsidiaries, the Registration Statement, Prospectus and documents


                                       11
<PAGE>
 
incorporated by reference therein or deemed incorporated by reference therein,
if any, in each case, in form, substance and scope as are customarily made by
issuers to underwriters in underwritten offerings and confirm the same if and
when requested, (ii) use its best efforts to obtain opinions of counsel to the
Company (which counsel and opinions, in form, scope and substance, shall be
reasonably satisfactory to the Holders of a majority in principal amount of the
Registrable Securities being sold and such Underwriters and their respective
counsel) addressed to each selling Holder and Underwriter of Registrable
Securities, covering the matters customarily covered in opinions requested in
underwritten offerings, (iii) use its best efforts to obtain "cold comfort"
letters from the independent certified public accountants of the Company (and,
if necessary, any other certified public accountant of any subsidiary of the
Company, or of any business acquired by the Company for which financial
statements and financial data are or are required to be included in the
Registration Statement) addressed to each selling Holder and Underwriter of
Registrable Securities, such letters to be in customary form and covering
matters of the type customarily covered in "cold comfort" letters in connection
with underwritten offerings, and (iv) deliver such documents and certificates as
may be reasonably requested by the Holders of a majority in principal amount of
the Registrable Securities being sold or the Underwriters, and which are
customarily delivered in underwritten offerings, to evidence the continued
validity of the representations and warranties of the Company made pursuant to
clause (i) above and to evidence compliance with any customary conditions
contained in an underwriting agreement.

     In the case of a Shelf Registration Statement, the Company may require each
Holder of Registrable Securities to furnish to the Company such information
regarding the Holder and the proposed distribution by such Holder of such
Registrable Securities as the Company may from time to time reasonably request
in writing. No Holder of Registrable Securities may include its Registrable
Securities in such Shelf Registration Statement unless and until such Holder
furnishes such information to the Company. Each Holder including Registrable
Securities in a Shelf Registration shall agree promptly to furnish to the
Company any information regarding such Holder and the proposed distribution by
such Holder of such Registrable Securities required to make the information
previously furnished to the Company by such Holder not materially misleading.

     In the case of a Shelf Registration Statement, each Holder agrees that,
upon receipt of any notice from the Company of the happening of any event of the
kind described in Section 3(e)(v) hereof, such Holder will forthwith discontinue
disposition of Registrable Securities pursuant to a Registration Statement until
such Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 3(i) hereof, and, if so directed by the Company, such
Holder will deliver to the Company (at the Company's expense) all copies in such
Holder's possession, other than permanent file copies then in such Holder's


                                       12
<PAGE>
 
possession, of the Prospectus covering such Registrable Securities current at
the time of receipt of such notice. If the Company shall give any such notice to
suspend the disposition of Registrable Securities pursuant to a Registration
Statement, the Company shall extend the period during which the Registration
Statement shall be maintained effective pursuant to this Agreement by the number
of days during the period from and including the date of the giving of such
notice to and including the date when the Holders shall have received copies of
the supplemented or amended Prospectus necessary to resume such disposition. The
Company may give any such notice so long as there are no more than 90 days in
any 365 day period in which such suspensions are in effect.

     The Holders of Registrable Securities covered by a Shelf Registration
Statement who desire to do so may sell such Registrable Securities in an
Underwritten Offering. In any such Underwritten Offering, the investment banker
or investment bankers and manager or managers (the "Underwriters") that will
administer the offering will be selected by the Majority Holders of the
Registrable Securities included in such offering; provided that such investment
banker or investment bankers and manager or managers shall be reasonably
acceptable to the Company.

     4. Participation of Broker-Dealers in Exchange Offer.

     (a) The Company understands that the Staff of the SEC has taken the
position that any broker-dealer that receives Exchange Securities for its own
account in the Exchange Offer in exchange for Securities that were acquired by
such broker-dealer as a result of market-making or other trading activities (a
"Participating Broker-Dealer"), may be deemed to be an "underwriter" within the
meaning of the 1933 Act and must deliver a prospectus meeting the requirements
of the 1933 Act in connection with any resale of such Exchange Securities.

     The Company understands that it is the Staff's position that if the
Prospectus contained in the Exchange Offer Registration Statement includes a
plan of distribution containing a statement to the above effect and the means by
which Participating Broker-Dealers may resell the Exchange Securities, without
naming the Participating Broker-Dealers or specifying the amount of Exchange
Securities owned by them, such Prospectus may be delivered by Participating
Broker-Dealers to satisfy their prospectus delivery obligation under the 1933
Act in connection with resales of Exchange Securities for their own accounts, so
long as the Prospectus otherwise meets the requirements of the 1933 Act.

     (b) In light of the above, notwithstanding the other provisions of this
Agreement, the Company agrees that the provisions of this Agreement as they
relate to a Shelf Registration shall also apply to an Exchange Offer
Registration to the extent, and with such reasonable modifications thereto as
may be, reasonably requested by the Placement Agents or 


                                       13
<PAGE>
 
by one or more Participating Broker-Dealers, in each case as provided in clause
(ii) below, in order to expedite or facilitate the disposition of any Exchange
Securities by Participating Broker-Dealers consistent with the positions of the
Staff recited in Section 4(a) above; provided that:

          (i) the Company shall not be required to amend or supplement the
     Prospectus contained in the Exchange Offer Registration Statement, as would
     otherwise be contemplated by Section 3(i), for a period exceeding 180 days
     after the last Exchange Date (as such period may be extended pursuant to
     the penultimate paragraph of Section 3 of this Agreement) and Participating
     Broker-Dealers shall not be authorized by the Company to deliver and shall
     not deliver such Prospectus after such period in connection with the
     resales contemplated by this Section 4; and

          (ii) the application of the Shelf Registration procedures set forth in
     Section 3 of this Agreement to an Exchange Offer Registration, to the
     extent not required by the positions of the Staff of the SEC or the 1933
     Act and the rules and regulations thereunder, will be in conformity with
     the reasonable request to the Company by the Placement Agents or with the
     reasonable request in writing to the Company by one or more broker-dealers
     who certify to the Placement Agents and the Company in writing that they
     anticipate that they will be Participating Broker-Dealers; and provided
     further that, in connection with such application of the Shelf Registration
     procedures set forth in Section 3 to an Exchange Offer Registration, the
     Company shall be obligated (x) to deal only with one entity representing
     the Participating Broker-Dealers, which shall be Morgan Stanley & Co.
     Incorporated unless it elects not to act as such representative, (y) to pay
     the fees and expenses of only one counsel representing the Participating
     Broker-Dealers, which shall be counsel to the Placement Agents unless such
     counsel elects not to so act, and (z) to cause to be delivered only one, if
     any, "cold comfort" letter with respect to the Prospectus in the form
     existing on the last Exchange Date and with respect to each subsequent
     amendment or supplement, if any, effected during the period specified in
     clause (i) above.

     (c) The Placement Agents shall have no liability to the Company or any
Holder with respect to any request that it may make pursuant to Section 4(b)
above.

     5. Indemnification and Contribution.

     (a) The Company agrees to indemnify and hold harmless the Placement Agents,
each Holder and each Person, if any, who controls any Placement Agent or any
Holder within the meaning of either Section 15 of the 1933 Act or Section 20 of
the 1934 Act, or is under common control with, or is controlled by, any
Placement Agent or any Holder, from and against all losses, claims, damages and
liabilities (including, without limitation, any


                                       14
<PAGE>
 
legal or other expenses reasonably incurred by any Placement Agent, any Holder
or any such controlling or affiliated Person in connection with defending or
investigating any such action or claim) caused by any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement (or any amendment thereto) pursuant to which Exchange Securities or
Registrable Securities were registered under the 1933 Act, including all
documents incorporated therein by reference, or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or caused by any
untrue statement or alleged untrue statement of a material fact contained in any
Prospectus (as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto), or caused by any omission or alleged
omission to state therein a material fact necessary to make the statements
therein in the light of the circumstances under which they were made not
misleading, except (i) insofar as such losses, claims, damages or liabilities
are caused by any such untrue statement or omission or alleged untrue statement
or omission based upon information relating to the Placement Agents or any
Holder furnished to the Company in writing by the Placement Agents or any
selling Holder expressly for use therein and (ii) in the case of a Shelf
Registration, that the Company shall not be liable to any indemnified party
under the provisions of this Section 5 with respect to any preliminary
Prospectus to the extent that any such loss, claim, damage or liability results
from the fact that such indemnified party sold securities to a person to whom
there was not sent or given, at or prior to the written confirmation of such
sale, a final Prospectus (if the Company had previously furnished copies thereof
to the indemnified party), if the loss, claim, damage or liability of such
indemnified party results from an untrue statement or alleged untrue statement
or an omission or alleged omission contained in the preliminary Prospectus that
was corrected in the final Prospectus. In connection with any Underwritten
Offering permitted by Section 3, the Company will also indemnify the
Underwriters, if any, selling brokers, dealers and similar securities industry
professionals participating in the distribution, their officers and directors
and each Person who controls such Persons (within the meaning of either Section
15 of the 1933 Act or Section 20 of the 1934 Act) to the same extent as provided
above with respect to the indemnification of the Holders, if requested in
connection with any Registration Statement.

     (b) Each Holder (including a Placement Agent that is a Holder) agrees,
severally and not jointly, to indemnify and hold harmless the Company, the
Placement Agents and the other selling Holders, and each of their respective
directors, each officer of the Company who signed the Registration Statement and
each Person, if any, who controls the Company, any of the Placement Agents and
any other selling Holder within the meaning of either Section 15 of the 1933 Act
or Section 20 of the 1934 Act to the same extent as the foregoing indemnity from
the Company to the Placement Agents and the Holders, but only with reference to
information relating to such Holder furnished to the Company in writing by such
Holder expressly for use in any Registration Statement (or any amendment
thereto) or any Prospectus (or any amendment or supplement thereto).


                                       15
<PAGE>
 
     (c) In case any proceeding (including any governmental investigation) shall
be instituted involving any person in respect of which indemnity may be sought
pursuant to either paragraph (a) or paragraph (b) above, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for (a) the fees and expenses of more than one separate
firm (in addition to any local counsel) for the Placement Agents and all
Persons, if any, who control any Placement Agent within the meaning of either
Section 15 of the 1933 Act or Section 20 of the 1934 Act, (b) the fees and
expenses of more than one separate firm (in addition to any local counsel) for
the Company, its directors, its officers who signed the Registration Statement
and each Person, if any, who controls the Company within the meaning of either
such Section and (c) the fees and expenses of more than one separate firm (in
addition to any local counsel) for all Holders and all Persons, if any, who
control any Holders within the meaning of either such Section, and that all such
fees and expenses shall be reimbursed as they are incurred. In such case
involving the Placement Agents and Persons who control any Placement Agent, such
firm shall be designated in writing by Morgan Stanley & Co. Incorporated. In
such case involving the Holders and such Persons who control Holders, such firm
shall be designated in writing by the Majority Holders. In all other cases, such
firm shall be designated by the Company. The indemnifying party shall not be
liable for any settlement of any proceeding effected without its written consent
but, if settled with such consent or if there be a final judgment for the
plaintiff, the indemnifying party agrees to indemnify the indemnified party from
and against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel as contemplated by the second and third
sentences of this paragraph, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its written consent
if (i) such settlement is entered into more than 60 days after receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying party
shall not have reimbursed the indemnified party for such fees and expenses of
counsel in accordance with such request prior to the date of such settlement. No


                                       16
<PAGE>
 
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which such indemnified party is or could have been a party and indemnity
could have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such proceeding.

     (d) If the indemnification provided for in paragraph (a) or paragraph (b)
of this Section 5 is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages or liabilities, then each indemnifying
party under such paragraph, in lieu of indemnifying such indemnified party
thereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages or liabilities in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party or parties on the one hand and of the indemnified party or parties on the
other hand in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of the Company and the Holders shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or by the Holders
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Holders'
respective obligations to contribute pursuant to this Section 5(d) are several
in proportion to the respective number of Registrable Securities of such Holder
that were registered pursuant to a Registration Statement.

     (e) The Company and each Holder agree that it would not be just or
equitable if contribution pursuant to this Section 5 were determined by pro rata
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in paragraph (d) above. The amount paid
or payable by an indemnified party as a result of the losses, claims, damages
and liabilities referred to in paragraph (d) above shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 5, no Holder shall be required to indemnify or contribute any amount in
excess of the amount by which the total price at which Registrable Securities
were sold by such Holder exceeds the amount of any damages that such Holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Section 5 are not exclusive
and shall not limit any rights or remedies which may otherwise be available to
any indemnified party at law or in equity.


                                       17
<PAGE>
 
     The indemnity and contribution provisions contained in this Section 5 shall
remain operative and in full force and effect regardless of (i) any termination
of this Agreement, (ii) any investigation made by or on behalf of the Placement
Agents, any Holder or any Person controlling any Placement Agent or any Holder,
or by or on behalf of the Company, its officers or directors or any Person
controlling the Company, (iii) acceptance of any of the Exchange Securities and
(iv) any sale of Registrable Securities pursuant to a Shelf Registration
Statement.

     6. Miscellaneous.

     (a) No Inconsistent Agreements. The Company has not entered into, and on or
after the date of this Agreement will not enter into, any agreement which is
inconsistent with the rights granted to the Holders of Registrable Securities in
this Agreement or otherwise conflicts with the provisions hereof. The rights
granted to the Holders hereunder do not in any way conflict with and are not
inconsistent with the rights granted to the holders of the Company's other
issued and outstanding securities under any such agreements.

     (b) 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 of Holders of at least a
majority in aggregate principal amount of the outstanding Registrable Securities
affected by such amendment, modification, supplement, waiver or consent;
provided, however, that no amendment, modification, supplement, waiver or
consent to any departure from the provisions of Section 5 hereof shall be
effective as against any Holder of Registrable Securities unless consented to in
writing by such Holder.

     (c) Notices. All notices and other communications provided for or permitted
hereunder shall be made in writing by hand-delivery, registered first-class
mail, telex, telecopier, or any courier guaranteeing overnight delivery (i) if
to a Holder, at the most current address given by such Holder to the Company by
means of a notice given in accordance with the provisions of this Section 6(c),
which address initially is, with respect to the Placement Agents, the address
set forth in the Placement Agreement; and (ii) if to the Company, initially at
the Company's address set forth in the Placement Agreement and thereafter at
such other address, notice of which is given in accordance with the provisions
of this Section 6(c).

     All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt is acknowledged, if telecopied; and on
the next business day if timely delivered to an air courier guaranteeing
overnight delivery.


                                       18
<PAGE>
 
     Copies of all such notices, demands or other communications shall be
concurrently delivered by the person giving the same to the Trustee, at the
address specified in the Indenture.

     (d) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders; provided that nothing herein shall be deemed to
permit any assignment, transfer or other disposition of Registrable Securities
in violation of the terms of the Placement Agreement. If any transferee of any
Holder shall acquire Registrable Securities, in any manner, whether by operation
of law or otherwise, such Registrable Securities shall be held subject to all of
the terms of this Agreement, and by taking and holding such Registrable
Securities such person shall be conclusively deemed to have agreed to be bound
by and to perform all of the terms and provisions of this Agreement and such
person shall be entitled to receive the benefits hereof. The Placement Agents
(in their capacity as Placement Agents) shall have no liability or obligation to
the Company with respect to any failure by a Holder to comply with, or any
breach by any Holder of, any of the obligations of such Holder under this
Agreement.

     (e) Purchases and Sales of Securities. The Company shall not, and shall use
its best efforts to cause its affiliates (as defined in Rule 405 under the 1933
Act) not to, purchase and then resell or otherwise transfer any Securities.

     (f) Third Party Beneficiary. Each Holder shall be a third party beneficiary
to the agreements made hereunder between the Company, on the one hand, and the
Placement Agents, on the other hand, and shall have the right to enforce such
agreements directly to the extent it deems such enforcement necessary or
advisable to protect its rights or the rights of Holders hereunder.

     (g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.

     (h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.

     (i) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.


                                       19
<PAGE>
 
     (j) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.


                                       20
<PAGE>
 
     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.


                                           ITC/\DeltaCom, Inc.
                                         
                                         
                                           By /s/ Andrew M. Walker
                                             -----------------------------
                                              Name: Andrew M. Walker
                                              Title: Chief Executive Officer



Confirmed and accepted as of the date first above written:

MORGAN STANLEY & CO. INCORPORATED
SALOMON BROTHERS INC
NATIONSBANC MONTGOMERY SECURITIES LLC


By:    MORGAN STANLEY & CO. INCORPORATED


       By: /s/ Katina J. Dorton
          --------------------------------
             Name: Katina J. Dorton
             Title: Principal



                                       21

<PAGE>

                                                                     Exhibit 4.4


THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS
EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE
HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF
REGULATION D UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED INVESTOR")
OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES
THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k) UNDER THE
SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THIS NOTE, RESELL OR
OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY
THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A
UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL
ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A
SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED
FROM THE TRUSTEE) AND IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL
AMOUNT OF NOTES OF LESS THAN $100,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE
THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER
THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY
RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL
DELIVER TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY
TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE
WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE
BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND
SUBMIT THIS CERTIFICATE TO THE TRUSTEE. IF THE PROPOSED TRANSFEREE IS AN
INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER,
FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR
OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
TRANSFER IS BEING 
<PAGE>
 
                                       2

MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS
"OFFSHORE TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS
GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A
PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE
IN VIOLATION OF THE FOREGOING RESTRICTIONS.

UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN
PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S
NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO
TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.08 OF
THE INDENTURE.
<PAGE>
 
                                       3

                                ITC/\DELTACOM, INC.

                            8_% Senior Note due 2008

                                                                CINS ___________
                                                                ISIN ___________



No.  B-1                                                                $___,000

     ITC/\DELTACOM, INC., a Delaware corporation (the "Company", which term
includes any successor under the Indenture hereinafter referred to), for value
received, promises to pay to CEDE & CO., or its registered assigns, the
principal sum of ______________________ DOLLARS ($__,000) on March 1, 2008.

     Interest Payment Dates: March 1 and September 1, commencing September 1,
1998.

     Regular Record Dates: February 15 and August 15.

     Reference is hereby made to the further provisions of this Note set forth
on the reverse hereof, which further provisions shall for all purposes have the
same effect as if set forth at this place.
<PAGE>
 
                                       4


     IN WITNESS WHEREOF, the Company has caused this Note to be signed manually
or by facsimile by its duly authorized officers.


Date:  March 3, 1998                    ITC/\DELTACOM, INC.


                                        By:_____________________________________
                                             Name:
                                             Title:

                                        By:_____________________________________
                                             Name:
                                             Title:



                    (Trustee's Certificate of Authentication)

This is one of the 8-7/8% Senior Notes due 2008 described in the within-
mentioned Indenture.


                                         UNITED STATES TRUST COMPANY OF
                                          NEW YORK
                                            as Trustee

                                         By:____________________________________
                                            Authorized Signatory
<PAGE>
 
                                       5


                             [REVERSE SIDE OF NOTE]

                              ITC/\DELTACOM, INC.

                          8-7/8% Senior Note due 2008



1. Principal and Interest.

     The Company will pay the principal of this Note on March 1, 2008.

     The Company promises to pay interest on the principal amount of this Note
on each Interest Payment Date, as set forth below, at the rate per annum shown
above.

     Interest will be payable semiannually (to the holders of record of the
Notes at the close of business on the February 15 or August 15 immediately
preceding the Interest Payment Date) on each Interest Payment Date, commencing
September 1, 1998.

     If an exchange offer (the "Exchange Offer") registered under the Securities
Act is not consummated and a shelf registration statement (the "Shelf
Registration Statement") under the Securities Act with respect to resales of the
Notes is not declared effective by the Commission, on or before September 3,
1998 in accordance with the terms of the Registration Rights Agreement dated as
of March 3, 1998 between the Company and Morgan Stanley & Co. Incorporated,
Salomon Brothers Inc and NationsBanc Montgomery Securities LLC, the annual
interest rate borne by the Notes shall be increased by 0.5% from the rate shown
above accruing from September 3, 1998, payable in cash semiannually, in arrears,
on each Interest Payment Date, commencing March 1, 1999 until the Exchange Offer
is consummated or the Shelf Registration Statement is declared effective. The
Holder of this Note is entitled to the benefits of such Registration Rights
Agreement.

     Interest on the Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from March 3, 1998;
provided that, if there is no existing default in the payment of interest and
this Note is authenticated between a Regular Record Date referred to on the face
hereof and the next succeeding Interest Payment Date, interest shall accrue from
such Interest Payment Date. Interest will be computed on the basis of a 360-day
year of twelve 30-day months.

     The Company shall pay interest on overdue principal and premium, if any,
and interest on overdue installments of interest, to the extent lawful, at a
rate per annum that is 2% in excess of the rate otherwise payable.
<PAGE>
 
                                       6


2. Method of Payment.

     The Company will pay interest (except defaulted interest) on the principal
amount of the Notes as provided above on each March 1 and September 1 commencing
September 1, 1998 to the persons who are Holders (as reflected in the Security
Register at the close of business on the February 15 or August 15 immediately
preceding the Interest Payment Date), in each case, even if the Note is
cancelled on registration of transfer or registration of exchange after such
record date; provided that, with respect to the payment of principal, the
Company will make payment to the Holder that surrenders this Note to a Paying
Agent on or after March 1, 2008.

     The Company will pay principal, premium, if any, and as provided above,
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts. However, the Company may pay
principal, premium, if any, and interest by its check payable in such money. It
may mail an interest check to a Holder's registered address (as reflected in the
Security Register). If a payment date is a date other than a Business Day at a
place of payment, payment may be made at that place on the next succeeding day
that is a Business Day and no interest shall accrue for the intervening period.

3. Paying Agent and Registrar.

     Initially, the Trustee will act as authenticating agent, Paying Agent and
Registrar. The Company may change any authenticating agent, Paying Agent or
Registrar without notice. The Company, any Subsidiary or any Affiliate of any of
them may act as Paying Agent, Registrar or co-Registrar.

4. Indenture; Limitations.

     The Company issued the Notes under an Indenture dated as of March 3, 1998
(the "Indenture"), between the Company and United States Trust Company of New
York, trustee (the "Trustee"). Capitalized terms herein are used as defined in
the Indenture unless otherwise indicated. The terms of the Notes include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act. The Notes are subject to all such terms, and Holders are
referred to the Indenture and the Trust Indenture Act for a statement of all
such terms. To the extent permitted by applicable law, in the event of any
inconsistency between the terms of this Note and the terms of the Indenture, the
terms of the Indenture shall control.

     The Notes are general obligations of the Company.
<PAGE>
 
                                       7


5.  Optional Redemption.

        The Notes will be redeemable, at the Company's option, in whole or in
part, at any time or from time to time, on or after March 1, 2003 and prior to
maturity, upon not less than 30 nor more than 60 days' prior notice mailed by
first class mail to each Holder's last address, as it appears in the Security
Register, at the following Redemption Prices (expressed in percentages of
principal amount), plus accrued and unpaid interest to the Redemption Date
(subject to the right of Holders of record on the relevant Regular Record Date
that is prior to the Redemption Date to receive interest due on an Interest
Payment Date), if redeemed during the 12-month period commencing March 1 of the
years set forth below:

<TABLE>
<CAPTION>
                    Year                              Redemption Price
                    ----                              ----------------
<S> <C>                                                 <C>      
    2003 . . . . . . . . . . . . . .                    104.4375%
    2004 . . . . . . . . . . . . . .                    102.9583
    2005 . . . . . . . . . . . . . .                    101.4792
    2006 and thereafter. . . . . . .                    100.0000
</TABLE>


     At any time prior to March 1, 2001, the Company may redeem up to 35% of the
principal amount of the Notes with the proceeds of one or more Public Equity
Offerings, at any time or from time to time in part, at a Redemption Price
(expressed as a percentage of principal amount) of 108.875%, plus accrued and
unpaid interest to the Redemption Date (subject to the rights of Holders of
record on the relevant Regular Record Date that is prior to the Redemption Date
to receive interest due on an Interest Payment Date); provided that at least
$104.0 million aggregate principal amount of Notes remains outstanding after
each such redemption.

     Notes in original denominations larger than $1,000 may be redeemed in part.
On and after the Redemption Date, interest ceases to accrue on Notes or portions
of Notes called for redemption, unless the Company defaults in the payment of
the Redemption Price.

6. Repurchase upon Change of Control.

     Upon the occurrence of any Change of Control, each Holder shall have the
right to require the repurchase of its Notes by the Company in cash pursuant to
the offer described in the Indenture at a purchase price equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase (the "Payment Date").

     A notice of such Change of Control will be mailed within 30 days after any
Change of Control occurs to each Holder at its last address as it appears in the
Security Register. Notes 
<PAGE>
 
                                       8


in original denominations larger than $1,000 may be sold to the Company in part.
On and after the Payment Date, interest ceases to accrue on Notes or portions of
Notes surrendered for purchase by the Company, unless the Company defaults in
the payment of the purchase price.

7. Denominations; Transfer; Exchange.

     The Notes are in registered form without coupons in denominations of $1,000
of principal amount and multiples of $1,000 in excess thereof. A Holder may
register the transfer or exchange of Notes in accordance with the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not register the transfer
or exchange of any Notes selected for redemption. Also, it need not register the
transfer or exchange of any Notes for a period of 15 days before the day of
mailing of a notice of redemption of Notes selected for redemption.

8. Persons Deemed Owners.

     A Holder shall be treated as the owner of a Note for all purposes.

9. Unclaimed Money.

     If money for the payment of principal, premium, if any, or interest remains
unclaimed for two years, the Trustee and the Paying Agent will pay the money
back to the Company at its request. After that, Holders entitled to the money
must look to the Company for payment, unless an abandoned property law
designates another Person, and all liability of the Trustee and such Paying
Agent with respect to such money shall cease.

10. Discharge Prior to Redemption or Maturity.

     If the Company deposits with the Trustee money or U.S. Government
Obligations sufficient to pay the then outstanding principal of, premium, if
any, and accrued interest on the Notes (a) to redemption or maturity, the
Company will be discharged from the Indenture and the Notes, except in certain
circumstances for certain sections thereof, and (b) to the Stated Maturity, the
Company will be discharged from certain covenants set forth in the Indenture.

11. Amendment; Supplement; Waiver.

     Subject to certain exceptions, the Indenture or the Notes may be amended or
supplemented with the consent of the Holders of at least a majority in principal
amount of the Notes then outstanding, and any existing default or compliance
with any provision may be waived with the consent of the Holders of at least a
majority in principal amount of the Notes
<PAGE>
 
                                       9


then outstanding. Without notice to or the consent of any Holder, the parties
thereto may amend or supplement the Indenture or the Notes to, among other
things, cure any ambiguity, defect or inconsistency and make any change that
does not materially and adversely affect the rights of any Holder.

12. Restrictive Covenants.

     The Indenture imposes certain limitations on the ability of the Company and
its Restricted Subsidiaries, among other things, to Incur additional
Indebtedness, make Restricted Payments, use the proceeds from Asset Sales,
engage in transactions with Affiliates or merge, consolidate or transfer
substantially all of its assets. Within 45 days after the end of each fiscal
quarter (90 days after the end of the last fiscal quarter of each year), the
Company must report to the Trustee on compliance with such limitations.

13. Successor Persons.

     When a successor person or other entity assumes all the obligations of its
predecessor under the Notes and the Indenture, the predecessor person will be
released from those obligations.

14. Defaults and Remedies.

     The following events constitute "Events of Default" under the Indenture:
(a) default in the payment of principal of (or premium, if any, on) any Note
when the same becomes due and payable at maturity, upon acceleration, redemption
or otherwise; (b) default in the payment of interest on any Note when the same
becomes due and payable, and such default continues for a period of 30 days; (c)
default in the performance or breach of Article Five of the Indenture or the
failure to make or consummate an Offer to Purchase in accordance with Section
4.10 or 4.11 of the Indenture; (d) default in the performance of or breach of
any covenant or agreement of the Company in the Indenture or under the Notes
(other than a default specified in clause (a), (b) or (c) above), and such
default or breach continues for a period of 30 consecutive days after written
notice by the Trustee or the Holders of at least 25% in aggregate principal
amount of the Notes then outstanding; (e) there occurs with respect to any issue
or issues of Indebtedness of the Company or any Significant Subsidiary having an
outstanding principal amount of $5 million or more in the aggregate for all such
issues of all such Persons, whether such Indebtedness now exists or shall
hereafter be created, (I) an event of default that has caused the holder thereof
to declare such Indebtedness to be due and payable prior to its Stated Maturity
and such Indebtedness has not been discharged in full or such acceleration has
not been rescinded or annulled within 30 days of such acceleration and/or (II)
the failure to make a principal payment at the final (but not any interim) fixed
maturity and such defaulted payment shall not have been made, waived or extended
within 30 days of 
<PAGE>
 
                                       10


such payment default; (f) any final judgment or order (not covered by insurance)
for the payment of money in excess of $5 million in the aggregate for all such
final judgments or orders against all such Persons (treating any deductibles,
self-insurance or retention as not so covered) shall be rendered against the
Company or any Significant Subsidiary and shall not be paid or discharged, and
there shall be any period of 30 consecutive days following entry of the final
judgment or order that causes the aggregate amount for all such final judgments
or orders outstanding and not paid or discharged against all such Persons to
exceed $5 million during which a stay of enforcement of such final judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect; (g) a
court having jurisdiction in the premises enters a decree or order for (A)
relief in respect of the Company or any Significant Subsidiary in an involuntary
case under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, (B) appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company or any
Significant Subsidiary or for all or substantially all of the property and
assets of the Company or any Significant Subsidiary or (C) the winding up or
liquidation of the affairs of the Company or any Significant Subsidiary and, in
each case, such decree or order shall remain unstayed and in effect for a period
of 60 consecutive days; or (h) the Company or any Significant Subsidiary (A)
commences a voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or consents to the entry of an order for
relief in an involuntary case under any such law, (B) consents to the
appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company or any
Significant Subsidiary or for all or substantially all of the property and
assets of the Company or any Significant Subsidiary or (C) effects any general
assignment for the benefit of creditors.

     If an Event of Default, as defined in the Indenture, occurs and is
continuing, the Trustee may, and at the direction of the Holders of at least 25%
in aggregate principal amount of the Notes then outstanding shall, declare all
the Notes to be due and payable. If a bankruptcy or insolvency default with
respect to the Company occurs and is continuing, the Notes automatically become
due and payable. Holders may not enforce the Indenture or the Notes except as
provided in the Indenture. The Trustee may require indemnity satisfactory to it
before it enforces the Indenture or the Notes. Subject to certain limitations,
Holders of at least a majority in principal amount of the Notes then outstanding
may direct the Trustee in its exercise of any trust or power.

15. Trustee Dealings with Company.

     The Trustee under the Indenture, in its individual or any other capacity,
may make loans to, accept deposits from and perform services for the Company or
its Affiliates and may otherwise deal with the Company or its Affiliates as if
it were not the Trustee.
<PAGE>
 
                                       11


16. No Recourse Against Others.

     No incorporator or any past, present or future partner, stockholder, other
equity holder, officer, director, employee or controlling person as such, of the
Company or of any successor Person shall have any liability for any obligations
of the Company under the Notes or the Indenture or for any claim based on, in
respect of or by reason of, such obligations or their creation. Each Holder by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for the issuance of the Notes.

17. Authentication.

     This Note shall not be valid until the Trustee or authenticating agent
signs the certificate of authentication on the other side of this Note.

18. Abbreviations.

     Customary abbreviations may be used in the name of a Holder or an assignee,
such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties),
JT TEN (= joint tenants with right of survivorship and not as tenants in
common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors Act).

     The Company will furnish a copy of the Indenture to any Holder upon written
request and without charge. Requests may be made to ITC/\DeltaCom, Inc., 1241
O.G. Skinner Drive, West Point, GA 31833; Attention: Chief Financial Officer.
<PAGE>
 
                                       12


                                 TRANSFER NOTICE


     FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto

Insert Taxpayer Identification No.

- --------------------------------------------------------------------------------
Please print or typewrite name and address including zip code of assignee

- --------------------------------------------------------------------------------
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing______________________________________________________________________
attorney to transfer said Note on the books of the Company with full power of
substitution in the premises.

     In connection with any transfer of this Note occurring prior to the date
which is the earlier of (i) the date the Shelf Registration Statement is
declared effective or (ii) the end of the period referred to in Rule 144(k)
under the Securities Act, the undersigned confirms that without utilizing any
general solicitation or general advertising that:

                                   [Check One]

[  ] (a)   this Note is being transferred in compliance with the exemption from
         registration under the Securities Act of 1933 provided by Rule 144A
         thereunder.

                                       or

[  ] (b)   this Note is being transferred other than in accordance with (a)
         above and documents are being furnished which comply with the
         conditions of transfer set forth in this Note and the Indenture.
<PAGE>
 
                                       13


If none of the foregoing boxes is checked, the Trustee or other Registrar shall
not be obligated to register this Note in the name of any Person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.08 of the Indenture shall have
been satisfied.

Date:_______________                        ____________________________________
                                            NOTICE: The signature to this
                                            assignment must correspond with the
                                            name as written upon the face of the
                                            within-mentioned instrument in every
                                            particular, without alteration or
                                            any change whatsoever.



TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.

     The undersigned represents and warrants that it is purchasing this Note for
its own account or an account with respect to which it exercises sole investment
discretion and that it and any such account is a "qualified institutional buyer"
within the meaning of Rule 144A under the Securities Act of 1933 and is aware
that the sale to it is being made in reliance on Rule 144A and acknowledges that
it has received such information regarding the Company as the undersigned has
requested pursuant to Rule 144A or has determined not to request such
information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.

Dated:_______________             ______________________________________________
                                  NOTICE: To be executed by an executive officer
<PAGE>
 
                                       14


                       OPTION OF HOLDER TO ELECT PURCHASE


     If you wish to have this Note purchased by the Company pursuant to Section
4.10 or 4.11 of the Indenture, check the Box: |_|

     If you wish to have a portion of this Note purchased by the Company
pursuant to Section 4.10 or 4.11 of the Indenture, state the amount:
$___________________.

Date:____________

Your Signature:____________________________________________
              (Sign exactly as your name appears on the other side of this Note)

Signature Guarantee:(1)  ______________________________



- ----------
1    The Holder's signature must be guaranteed by a member firm of a registered
     national securities exchange or of the National Association of Securities
     Dealers, Inc., a commercial bank or trust company having an office or
     correspondent in the United States or an "eligible guarantor institution"
     as defined by Rule 17Ad-15 under the Exchange Act.

<PAGE>
 
                                                                  Exhibit 10.3.1

                      NETWORK PRODUCTS PURCHASE AGREEMENT

This Agreement is made by and between Northern Telecom Inc., a Delaware
corporation having offices at 5555 Windward Parkway, Alpharetta, Georgia 30201
("Nortel") and Interstate FiberNet, Inc. a Delaware corporation, having its
principal offices and place of business at 206 West 9th Street, West Point,
Georgia 31833 ("IFN") and IFN's subsidiary DeltaCom, Inc. ("DeltaCom"), IFN and
DeltaCom each considered a ("Buyer") agree as follows:

1.  SCOPE

    1.1  Certain terms used in this Agreement shall be defined as set
         forth in Exhibit A.
    
    1.2  The terms and conditions of this Agreement shall apply to the
         purchase by Buyer and as may be amended by mutual consent of the
         parties, such consent not to be unreasonably withheld, and the
         sale by Nortel of Equipment and Services and the licensing of
         Software furnished in connection with such Equipment.  The terms
         and conditions contained in a Product Attachment shall modify
         and/or supplement the other terms and conditions of this
         Agreement only with respect to the Product Line and Services
         described in the Product Attachment.
    
    1.3  All Products and Services obtained by Buyer pursuant to this
         Agreement shall be obtained by Buyer solely for initial use by
         Buyer in its internal business to provide services available
         through its networks, and not as stock in trade or inventory
         which is intended for resale by Buyer to any third party as new
         and unused material.  Except as set forth in a Product
         Attachment, IFN's Affiliates shall be entitled to purchase
         Products and Services pursuant to this Agreement subject to
         Nortel's determination of credit worthiness for such IFN
         Affiliate, such determination shall be made solely using Nortel's
         usual and customary criteria, provided however, such purchases
         shall not count toward Buyer's fulfillment of the Commitment
         Amount as described in Section 1.5.  IFN's Affiliates shall have
         the right to make independent volume commitments in applicable
         Product Attachments, provided, purchases counting towards
         fulfillment of such independent commitments shall not count
         toward Buyer's fulfillment of the Commitment Amount.
    
    1.4  All such Products shall be installed in the United States.
    
    1.5  Buyer shall order and/or license, as applicable, Products or
         Services for delivery during the Commitment Period, with a
    
<PAGE>
 

         minimum total dollar purchase price of One Hundred Million
         Dollars ($100,000,000) ("Commitment Amount").  As used herein,
         "Commitment Period" shall mean the period immediately following
         the execution of the Agreement and ending on December 31, 2001.
         Certain Product Attachments may constitute a separate commitment
         and shall not count toward Buyer's fulfillment of the Commitment
         Amount provided this Agreement and/or said certain Product
         Attachments clearly states that the Products/Services do not
         count towards Buyer's fulfillment of the Commitment Amount.  If
         during the Commitment Period, Buyer is unable to satisfy the
         Commitment Amount set forth herein, Nortel shall invoice IFN, at
         the end of the Term, an amount equal to three percent (3%) of the
         difference between the Commitment Amount and the actual amount of
         Products and/or Services purchased ("Invoice Value").

    1.6  Agreement No. IFN9301C effective March 26, 1993 between IFN and
         Nortel shall terminate upon execution of this Agreement, and any
         outstanding unfilled portion of IFN's Twenty Five Million Dollar
         ($25,000,000) commitment ("Previous Commitment") shall be
         considered fulfilled.  IFN hereby agrees to purchase all SONET
         OC-48 and higher bandwidth Equipment, including Dense WDM/Optical
         Amplifiers from Nortel, during the Commitment Period.  In
         consideration of IFN's Previous Commitment, certain terms and
         conditions of the Transmission Product Attachment shall apply
         only to IFN as described in such Product Attachment.

2.  TERM

    2.1  This Agreement shall be in effect during the period that any
         Product Attachment is in effect ("Term").  Each Product
         Attachment shall be in effect during its Product Attachment Term.
         This Agreement or any part thereof may be terminated in
         accordance with the express provisions of this Agreement
         concerning termination or by written agreement of the parties.
    
    2.2  The termination of this Agreement or any part thereof shall not
         affect the obligations of either party thereunder which have not
         been fully performed with respect to any accepted Order, unless
         such Order is expressly terminated in accordance with this
         Agreement or by written agreement of the parties.

<PAGE>
 

3.  ORDERING

    3.1  All purchases pursuant to this Agreement shall be made by means
         of Orders issued from time to time by Buyer and accepted by
         Nortel in writing within fifteen (15) days.  Otherwise, any such
         Order shall be deemed to be void.  An accepted Order shall then
         constitute a contract for sale of Products and/or Services
         between Buyer and Nortel or a Nortel Affiliate.  All Orders shall
         reference this Agreement and the applicable Product Attachment
         and shall be governed solely by the terms and conditions set
         forth herein as modified and/or supplemented pursuant to Section
         1.2 and Section 18.6 by the terms and conditions of any
         applicable Product Attachments.
    
    3.2  All Orders issued by an IFN Affiliate shall reference the
         Agreement and the applicable Product Attachment and shall state
         that the purchaser is an IFN Affiliate.  Notwithstanding the
         foregoing, Nortel reserves the right to reject an Order from an
         IFN Affiliate based on Nortel's determination of credit
         worthiness and other reasonable criteria.

4.  PRICES

    4.1  The prices, charges, and fees applicable to Orders shall be set
         forth in the appropriate Product Attachments and may be revised
         in accordance with the provisions stated therein.  Buyer shall
         pay transportation charges, including insurance, in accordance
         with the applicable Product Attachment.
    
    4.2  For Orders issued by all IFN Affiliates other than Knology
         Holding, Inc. and Interstate Telephone Company, until the total
         of all prices, charges and fees for Products and related Services
         furnished hereunder shall have been paid to Nortel, the IFN
         Affiliate shall cooperate with Nortel in perfecting Nortel's
         purchase money security interest in such Products and the IFN
         Affiliate shall promptly execute all documents and take all
         actions required by Nortel in connection therewith.  Buyer or an
         IFN Affiliate shall not sell, lease or otherwise transfer such
         Products or any portion thereof or allow any liens or
         encumbrances to attach to such Products or any portion thereof
         prior to payment in full to Nortel of the total of all such
         prices, charges, and fees.

<PAGE>
 
5.  TERMS OF PAYMENT

    5.1  The amounts payable for Products and/or Services may be invoiced
         by Nortel to Buyer in accordance with the applicable Product
         Attachments.  All amounts payable and properly invoiced pursuant
         to this Agreement shall be paid by Buyer to Nortel within thirty
         (30) days from the date of Nortel's invoice in accordance with
         the payment instructions contained in such invoice and shall be
         paid in United States dollars.
    
    5.2  Overdue payments, excluding those which are the subject of a good
         faith dispute, shall be subject to interest charges, calculated
         daily commencing on the 31st day after the date of the invoice,
         at one and one half percent (1 1/2%) per month or such lesser
         rate as may be the maximum permissible rate under applicable law.

6.  TAXES

    Buyer shall at Nortel's direction promptly reimburse Nortel or pay
    directly to the applicable government or taxing authority all taxes
    and charges arising hereunder, including, without limitation,
    penalties and interest, except for taxes computed upon the net income
    of Nortel.  Buyer's obligations pursuant to this Section 6 shall
    survive any termination of this Agreement.

7.  RISK OF LOSS, TITLE

    7.1  Risk of loss or damage to Products shall pass to Buyer upon
         delivery to the loading dock at the installation site or other
         delivery location specified by Buyer in its Order, and Buyer
         shall keep such Products fully insured for the total amount then
         due Nortel for such Products.

    7.2  Good title to Equipment furnished hereunder which shall be free
         and clear of all liens and encumbrances shall vest in Buyer upon
         full payment by Buyer of the total prices, charges and fees
         payable by Buyer for such Equipment and any related Software or
         Services furnished by Nortel in connection with such Equipment.

     7.3  Buyer shall receive a license to use Software subject to the
          terms set forth in Exhibit B.

<PAGE>
 

8.  TESTING, TURNOVER AND ACCEPTANCE

    8.1  If Nortel installs any Products furnished hereunder, the rights
         and obligations of the parties with respect to testing, turnover
         and acceptance of such Products shall be as set forth in the
         applicable Product Attachment.
    
    8.2  If Nortel does not install Products furnished hereunder, Nortel
         shall prior to delivery of the Products perform such factory
         tests as Nortel determines to be appropriate in order to confirm
         that such Products shall be in accordance with the applicable
         Specifications.  Buyer shall be deemed to have accepted the
         Products upon successful completion of such tests.
    
    8.3  In the event that Buyer places Products into revenue-generating
         service, such Products shall be deemed to have been accepted by
         Buyer without limitation or restriction.

9.  DISCLAIMERS OF WARRANTIES AND REMEDIES

    THE WARRANTIES AND REMEDIES SET FORTH IN EXHIBIT D AND IN ANY PRODUCT
    ---------------------------------------------------------------------
    ATTACHMENT CONSTITUTE THE ONLY WARRANTIES OF NORTEL WITH RESPECT TO
    -------------------------------------------------------------------
    THE PRODUCTS AND SERVICES AND BUYER'S EXCLUSIVE REMEDIES IN THE EVENT
    ---------------------------------------------------------------------
    SUCH WARRANTIES ARE BREACHED.  THEY ARE IN LIEU OF ALL OTHER
    ------------------------------------------------------------
    WARRANTIES, WRITTEN OR ORAL.  STATUTORY, EXPRESS OR IMPLIED, INCLUDING
    ----------------------------------------------------------------------
    WITHOUT LIMITATION ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
    -------------------------------------------------------------------
    PARTICULAR PURPOSE.  NORTEL SHALL NOT BE LIABLE FOR ANY INCIDENTAL OR
    ---------------------------------------------------------------------
    CONSEQUENTIAL DAMAGES OF ANY NATURE WHATSOEVER, BEFORE OR AFTER THE
    -------------------------------------------------------------------
    PLACING OF ANY PRODUCT INTO SERVICE.
          ------------------------------------

10. LIABILITY FOR PERSONAL INJURY, PROPERTY DAMAGE AND PATENT INFRINGEMENT

    10.1 A party hereto shall defend the other party against any suit,
         claim, or proceeding brought against the other party for direct
         damages due to bodily injuries (including death) or damage to
         tangible property which allegedly result from the negligence or
         willful misconduct of the defending party in the performance of
         this Agreement.  The defending party shall pay all litigation
         costs, reasonable attorney's fees, settlement payments and such
         direct damages awarded or resulting from any such suit, claim or
         proceeding.

<PAGE>
 
    
    10.2 Nortel shall defend Buyer against any suit, claim or proceeding brought
         against Buyer alleging that any Products, excluding Vendor Items,
         furnished hereunder infringe any United States patent. Nortel shall pay
         all litigation costs, reasonable attorney's fees, settlement payments
         and any damages awarded or resulting from any such suit, claim or
         proceeding. With respect to Vendor Items, Nortel shall assign any
         rights with respect to infringement of U.S. patents granted to Nortel
         by the supplier of such Vendor Items to the extent of Nortel's right to
         do so.
          
    10.3 The party entitled to defense pursuant to Section 10.1 or 10.2 shall
         promptly advise the party required to provide such defense of the
         applicable suit, claim, or proceeding and shall reasonably cooperate
         with such party in the defense or settlement thereof. The party
         required to provide such defense shall have sole control of the
         defense of the applicable suit, claim, or proceeding and of all
         negotiations for its settlement or compromise.

    10.4 Upon providing the Buyer with notice of a potential or actual
         infringement claim, Nortel may (or in the case of an injunction,
         shall), at Nortel's option, either procure a right to use, replace or
         modify, or require the return of the affected Product for a refund of
         its depreciation cost.

    10.5 The obligations of Nortel hereunder with respect to any suit, claim, or
         proceeding described in Section 10.2 shall not apply with respect to
         Products which are (a) manufactured or supplied by Nortel in
         accordance with any design or any special instruction furnished by
         Buyer, (b) used by Buyer in a manner or for a purpose not
         contemplated by this Agreement, (c) located by Buyer outside the
         United States, or (d) used by Buyer in combination with other
         products not provided by Nortel, including, without limitation, any
         software developed solely by Buyer through the permitted use of
         Products furnished hereunder, provided the infringement arises from
         such combination or the use thereof. Buyer shall indemnify and hold
         Nortel harmless against any loss, cost, expense, damage, settlement
         or other liability, including, but not limited to, attorneys' fees,
         which may be incurred by Nortel with respect to any suit, claim, or
         proceeding described in this Section 10.5.

    10.6 The provisions of Sections 10.2 through 10.5 state the entire
         liability of Nortel and its suppliers and the exclusive remedy of Buyer
         with respect to any suits, claims, or proceedings of the 

<PAGE>
 

         nature described in Section 10.2. Nortel's total cumulative liability,
         pursuant to Section 10.2 shall for each infringement claim not exceed
         one hundred percent (100%) of the purchase price of the Product giving
         rise to such claim.

    10.7 Each party's respective obligations pursuant to this Section shall
         survive any termination of this Agreement.

11. REMEDIES AND LIMITATION OF LIABILITY

    11.1 Nortel shall have the right to suspend its performance by written
         notice to Buyer and forthwith remove and take possession of all
         Products that shall have been delivered to Buyer, if, prior to payment
         to Nortel of any amounts due pursuant to this Agreement with respect to
         such Products, Buyer shall (a) become insolvent or bankrupt or cease,
         be unable, or admit in writing its inability, to pay all debts as they
         mature, or make a general assignment for the benefit of, or enter into
         any arrangement with, creditors, (b) authorize, apply for, or consent
         to the appointment of a receiver, trustee, or liquidator of all or a
         substantial part of its assets or have proceedings seeking such
         appointment commenced against it which are not terminated within ninety
         (90) days of such commencement, or (c) file a voluntary petition under
         any bankruptcy or insolvency law or under the reorganization or
         arrangement provisions of the United States Bankruptcy Code or any
         similar law of any jurisdiction or have proceedings under any such law
         instituted against it which are not terminated within ninety (90) days
         of such commencement.

    11.2 In the event of any material breach of this Agreement which shall
         continue for thirty (30) or more days after written notice of such
         breach (including a reasonably detailed statement of the nature of such
         breach) shall have been given to the breaching party by the aggrieved
         party, the aggrieved party shall be entitled at its option to avail
         itself of any and all remedies available at law or equity, except as
         otherwise provided in this Agreement.

    11.3 Except for Buyer's breach of the SOFTWARE LICENSE set forth in Exhibit
         B or any party's breach of Section 13, CONFIDENTIAL INFORMATION,
         nothing contained in Section 11.2 or elsewhere in this Agreement shall
         make any party liable for any incidental, indirect, consequential or
         special damages of any nature whatsoever for any breach of this

<PAGE>


         Agreement whether the claims for such damages arise in tort, contract,
         or otherwise, or shall increase the liability of any party under
         Section 9 or 10 or Exhibit D beyond that prescribed therein.         


   11.4  Nortel shall not be liable for any additional costs, expenses, losses
         or damages resulting from errors, acts or omissions of Buyer,
         including, but not limited to, inaccuracy, incompleteness or
         untimeliness in the provision of information by Buyer to Nortel or
         fulfillment by Buyer of any of its obligations under this Agreement.
         Buyer shall pay Nortel the reasonable amount of any such costs,
         expenses, losses or damage directly incurred by Nortel.

    11.5 The limitations on any party's liability and other obligations set
         forth in Sections 9, 10, and 11 shall survive any termination of this
         Agreement.

12. FORCE MAJEURE

    If the performance by a party of any of its obligations under this Agreement
    shall be interfered with by reason of any circumstances beyond the
    reasonable control of that party, including without limitation,
    unavailability of supplies or sources of energy, power failure, breakdown of
    machinery, or labor difficulties, including without limitation, strikes,
    slowdowns, picketing or boycotts, then that party shall be excused from such
    performance for a period equal to the delay resulting from the applicable
    circumstances and such additional period as may be reasonably necessary to
    allow that party to resume its performance. With respect to labor
    difficulties as described above, a party shall not be obligated to accede to
    any demands being made by employees or other personnel.

13. CONFIDENTIAL INFORMATION

    13.1 Each party which receives the other party's Confidential
         Information shall use reasonable care to hold such Confidential
         Information in confidence and not disclose such Confidential
         Information to anyone other than to its employees and employees
         of its affiliates with a need to know.  A party that receives the
         other party's Confidential Information shall not reproduce such
         Confidential Information, except to the extent reasonably
         required for the performance of its obligations pursuant to this
         Agreement and in connection with any permitted use of such
         Confidential Information.

<PAGE>
 

    13.2 Buyer shall take reasonable care to use Nortel's Confidential
         Information only for study, operating, or maintenance purposes in
         connection with Buyer's use of Products furnished by Nortel pursuant to
         this Agreement.

   13.3  Nortel shall take reasonable care to use Buyer's Confidential
         Information only to perform Nortel's obligations to provide Products
         and/or Services to Buyer, provided Nortel may use any of Buyer's
         Confidential Information for the development, manufacture, marketing
         and maintenance of new products and/or services and/or changes or
         modifications to the existing Products and/or Services, which Nortel
         may, in either case, provide to third parties without restriction as
         long as Buyer's name is not mentioned.
               
    13.4 The obligations of either party pursuant to this Section 13 shall not
         extend to any Confidential Information which recipient can demonstrate
         through written documentation was already known to the recipient prior
         to its disclosure to the recipient, was known or generally available to
         the public at the time of disclosure to the recipient, becomes known or
         generally available to the public (other than by act of the recipient)
         subsequent to its disclosure to the recipient, is disclosed or made
         available in writing to the recipient by a third party having a bona
         fide right to do so, is required to be disclosed by process of law or
         by applicable law, including state or federal securities laws, provided
         that the recipient shall notify the disclosing party promptly upon any
         request, demand or requirement for such disclosure.

    13.5 The parties' obligations pursuant to this Section 13 shall survive any
         termination of this Agreement.

14.  BUYER'S RESPONSIBILITIES

    14.1 All sites at which the Products shall be delivered or installed shall
         be prepared by Buyer in accordance with Nortel's published standards
         including, without limitation, environmental requirements.

    14.2 Buyer shall provide Nortel-designated personnel access to the Products
         during the times deemed necessary by Nortel to install, maintain and
         service the Products in accordance with Nortel's obligations. Nortel
         personnel shall comply with Buyer's reasonable site and security
         regulations, provided Nortel 

<PAGE>
 


         receives written notice of any such regulations reasonably in advance
         of the arrival of Nortel's personnel at the site.

    14.3 Buyer shall provide reasonable working space and facilities,
         including heat, light, ventilation, telephones, electrical
         current, trash removal and other necessary utilities for use by
         Nortel-designated maintenance personnel, and adequate secure
         storage space, if required by Nortel, for Products and materials.
         Buyer shall also provide reasonably adequate security for the
         Products while on Buyer's site.

    14.4 Buyer shall obtain all necessary governmental permits applicable to
         Buyer in connection with the installation, operation, and maintenance
         of Products furnished hereunder, excluding any applicable permits
         required in the normal course of Nortel's doing business.

    14.5 Any reasonably available information which Nortel reasonably requests
         from Buyer and which is necessary for Nortel to properly install or
         maintain the Products shall be provided by Buyer to Nortel in a timely
         fashion and in a form reasonably specified by Nortel.

15. HAZARDOUS MATERIALS

    15.1 Prior to issuing any Order for Services to be performed at Buyer's
         facilities, Buyer shall use its best efforts to identify and shall
         notify Nortel in writing of the existence of all Hazardous Materials
         which Nortel may encounter during the performance of such Services,
         including, without limitation, any Hazardous Materials contained within
         any equipment to be removed by Nortel.

    15.2 If Buyer breaches its obligations pursuant to Section 15.1 or Nortel
         otherwise discovers Hazardous Materials in the performance of
         appropriate Services, (a) Nortel may discontinue the performance of
         such Services until all the applicable Hazardous Materials have been
         removed or abated to Nortel's satisfaction by Buyer at Buyer's sole
         expense, and (b) Buyer shall defend, indemnify and hold Nortel harmless
         from any and all damages, claims, losses, liabilities and expenses,
         including, without limitation, attorneys' fees, which arise out of
         Buyer's breach of such obligations. Buyer's obligations pursuant to
         this Section 15.2 shall survive any termination of this Agreement.

<PAGE>
 

16. SUBCONTRACTING

    Nortel may subcontract any of its obligations under this Agreement, but no
    such subcontract shall relieve Nortel of primary responsibility for
    performance of its obligations. Nortel shall only utilize subcontractors
    that have been certified to work with Nortel Products and shall provide a
    regular full-time Nortel employee who is a certified technician to manage
    all installation Services provided to Buyer.

17. REGULATORY COMPLIANCE

    In the event of any change in the Specifications or Nortel's manufacturing
    or delivery processes for any Products as a result of the imposition of
    requirements by any government, Nortel may upon notice to Buyer, increase
    its prices, charges and fees to cover the added costs and expenses directly
    and indirectly incurred by Nortel as a result of such change.

18. GENERAL

    18.1 If any of the provisions of this Agreement shall be invalid or
         unenforceable under applicable law and a party deems such provisions to
         be material, that party may terminate this Agreement upon notice to the
         other party. Otherwise, such invalidity or unenforceability shall not
         invalidate or render this Agreement unenforceable, but this Agreement
         shall be construed as if not containing the particular invalid or
         unenforceable provision and the rights and obligations of the parties
         shall be construed and enforced accordingly.

    18.2 A party shall not release without the prior written approval of the
         other party any advertising or other publicity relating to this
         Agreement wherein such other party may reasonably be identified. In
         addition each party shall take reasonable precautions to keep the
         existence and the contents of this Agreement confidential so long as
         this Agreement remains in effect and for a period of three (3) years
         thereafter, except as may be reasonably required to enforce this
         Agreement or by law, including state and federal securities laws.

    18.3 The construction, interpretation and performance of this Agreement
         shall be governed by the laws of the State of Georgia, except for its
         rules with respect to the conflict of laws.

    18.4 Neither party may assign or transfer this Agreement or any of its
         rights hereunder without the prior written consent of the 

<PAGE>
 

         other party, such consent not to be unreasonably withheld except (a)
         Buyer's consent shall not be required for any assignment or transfer by
         Nortel to any Nortel Affiliate of all or any part of this Agreement or
         of Nortel's rights hereunder, or (b) Buyer's consent shall not be
         required for any assignment to any third party of Nortel's right to
         receive any monies which may become due to Nortel pursuant to this
         Agreement. (c) Nortel's consent shall not be required as security for
         indebtedness or for any assignment or transfer by Buyer to any entity
         listed in Exhibit F as long as Buyer furnishes Nortel with written
         notice of such assignment or transfer by Buyer, except Nortel reserves
         the right to reject such assignment or transfer, within thirty (30)
         days of such notice, based on the credit worthiness or other reasonable
         criteria for the entities listed in Exhibit F.

    18.5 Notices and other communications shall be transmitted in writing by
         certified United States Mail, postage prepaid, return receipt
         requested, by guaranteed overnight delivery, or by facsimile addressed
         to the parties as follows:

               To Buyer:  Interstate FiberNet, Inc.
                          206 West 9th Street
                          West Point, Georgia 31833
                          Attention:     Sr. Vice President, Network Services
                          Facsimile:     (706) 645-8989

               With Copy to (which shall not constitute notice):
                          Interstate FiberNet, Inc.
                          700 Boulevard South, Suite 101
                          Huntsville, Alabama 35802
                          Attention:     General Counsel
                          Facsimile:     (205) 650-3936

               To Nortel: Northern Telecom Inc.
                          5555 Windward Parkway
                          Alpharetta, Georgia 30201
                          Attention:     Vice President and General Manager
                                         Access Networks
                          Facsimile:     (770) 661-5272

               In addition, notices submitted by Buyer to Nortel or by Nortel to
               Buyer specific to any Product Attachment shall be delivered to
               the address stated in the applicable Product Attachment along
               with a copy submitted to Nortel at the address stated above.

<PAGE>
 

          Any notice or communication sent under this Agreement shall be deemed
          given upon receipt, as evidenced by the United States Postal Service
          return receipt Mail if given by certified United States Mail, on the
          following business day if sent by guaranteed overnight delivery, or on
          the transmission date if given by facsimile during the receiving
          party's normal business hours.
          
          The address information listed for a party in this Section or any
          Product Attachment may be changed from time to time by that party by
          giving notice to the other as provided above.
        
    18.6  In the event of a conflict between the provisions of this Agreement
          which are not contained in a Product Attachment and the provisions of
          a Product Attachment, the provisions of the Product Attachment shall
          prevail with respect to the Product Line and Services described in
          that Product Attachment.

    18.7 All headings used herein are for index and reference purposes only, and
          shall not be given any substantive effect. This Agreement has been
          created jointly by the parties, and no rule of construction requiring
          interpretation against the drafter of this Agreement shall apply in
          its interpretation.

    18.8  Buyer shall not export any technical data received from Nortel
          pursuant to this Agreement, or release any such technical data with
          the knowledge or intent that such technical data will be exported or
          transmitted to any country or to foreign nationals of any country,
          except in accordance with applicable U.S. law concerning the exporting
          of such technical data. Buyer shall obtain all authorizations from the
          U.S. government in accordance with applicable law prior to exporting
          or transmitting any such technical data as described above.

    18.9  Any changes to this Agreement may only be effected if agreed upon in
          writing by duly authorized representatives of the parties hereto. No
          agency, partnership, joint venture, or other similar business
          relationship shall be or is created by this Agreement.

    18.10 This Agreement, including all Product Attachments and Exhibits
          constitutes the entire agreement of the parties with respect to
          the subject matter hereof.

<PAGE>

NORTHERN TELECOM INC.         DELTACOM, INC.


By:  /s/  Brian D. White        By:  /s/ Steven D. Moses
     -------------------             -------------------
         (Signature)                      (Signature)

Name:  Brian D. White           Name:  Steven D. Moses
       --------------                  ---------------
          (Print)                          (Print)

Title:  V.P. BroadBand SALES    Title:  Sr. V.P., Network Services
        --------------------            --------------------------

Date:  12/24/97                 Date:  12/23/97
       --------                        --------


INTERSTATE FIBERNET, INC.


By:  /s/  Steven D. Moses
     --------------------
         (Signature)

Name:  Steven D. Moses
       ---------------
           (Print)
Title:  Sr. V.P., Network Services
        --------------------------

Date:  12/23/97
       --------


<PAGE>
 
                                                                 Exhibit 10.15.1

                   RELEASE, WAIVER, AND ASSUMPTION AGREEMENT
                   -----------------------------------------

     This Release, Waiver, and Assumption Agreement is made as of December 31,
1997 between Southern Development and Investment Group, Inc., a Georgia
corporation ("SDIG"), on behalf of and as agent for Alabama Power Company,
Georgia Power Company, Gulf Power Company, Mississippi Power Company, Savannah
Electric and Power Company, Southern Electric Generating Company and Southern
Company Services, Inc. (collectively "SES"), and Interstate FiberNet, Inc., a
Delaware Corporation, and Gulf States Transmission Systems, Inc., a Delaware
Corporation ("GSTS").

     WHEREAS, Interstate FiberNet, Inc. is successor in interest to the former
Interstate FiberNet partnership ("IFN"), who in turn was the successor in
interest to SCANA Communications, Inc.'s (formerly known as MPX Systems, Inc.)
interest in the Revised and Restated Fiber Optic Facilities and Services
Agreement, as amended from time to time ("Facilities and Services Agreement");
and

     WHEREAS, GSTS is successor in interest to Gulf States FiberNet's, a Georgia
general partnership ("GSF"), interest in the Revised and Restated Fiber Optic
Facilities and Services Agreement; and

     WHEREAS, SDIG, as SES's agent, is a party to the Facilities and Services
Agreement; and

     WHEREAS, pursuant to the Partial Assignment and Assumption of the
Facilities and Services Agreement (the "First Assignment"), dated as of July 25,
1995, between SCANA Communications, Inc. ("SCI") and GSF, SCI assigned to GSF
its interest under the Facilities and Services Agreement to the extent related
to the stated portion of the MPX Interest (as such term is defined in the
Facilities and Services Agreement), together with its right to use a certain
portion of the SES Interest (as such term is defined in the Facilities and
Services Agreement), including, without limitation, certain of SCI's rights as
an Exclusive User (as such term is defined in the Facilities and Services
Agreement), and also assigned to GSF in connection with such transaction certain
assets of SCI which are subject to the Facilities and Services Agreement; and

     WHEREAS, pursuant to the Second Partial Assignment and Assumption of the
Facilities and Services Agreement (the "Second Assignment"), dated as of March
27, 1997, between SCI and ITC Holding Company, Inc., a Delaware corporation
("ITC"), SCI assigned, effective on the date of closing of the transaction
contemplated thereby (the "Closing Date"), to ITC its remaining interest under
the Facilities and Services Agreement and also assigned in connection with such
transaction to ITC an ownership interest in certain assets of SCI which are
subject to the Facilities and Services Agreement; and
<PAGE>
 
     WHEREAS, pursuant to the Amended and Restated Loan Agreement dated March
27, 1997 GSTS became the successor in interest to GSF's rights, duties, and
interests in the Facilities and Services Agreement; and

     WHEREAS, pursuant to the Release and Assumption Agreement (the "Third
Assignment") dated as of March 29, 1997, between IFN, SDIG (as agent for SES),
and SCI, SES acknowledged the assignment of SCI's remaining interest under the
Facilities and Services Agreement to ITC, SCI was released and forever
discharged from its executory obligations under the Facilities and Services
Agreement and IFN assumed all obligations under the Facilities and Services
Agreement arising or requiring to be performed by SCI; and

     WHEREAS, pursuant to an Assignment and Assumption of Contracts between ITC
and ITC Transmission Systems, Inc. ("ITC Trans") dated as of March 27, 1997, ITC
assigned 49% of its interest in and obligations under the Facilities and
Services Agreement to ITC Trans (the "Fourth Assignment"); and

     WHEREAS, pursuant to an Assignment and Assumption of Contracts between ITC
and ITC Transmission Systems II, Inc. (ITC Trans II) dated as of March 27, 1997,
ITC assigned its remaining 51% interest in and obligations under the Facilities
and Services Agreement to ITC Trans II (the "Fifth Assignment"); and

     WHEREAS, pursuant to an Assignment and Assumption of Contracts between ITC
Trans and IFN, dated as of March 27, 1997, ITC Trans assigned its interest in
and obligations under the Facilities and Services Agreement to IFN (the "Sixth
Assignment"); and

     WHEREAS, pursuant to an Assignment and Assumption of Contracts between ITC
Trans II and IFN, dated as of March 27, 1997, ITC Trans II assigned its
interests in and obligations under the Facilities and Services Agreement to IFN
(the "Seventh Assignment"); and

     WHEREAS, pursuant to a general corporate reorganization (the
"Reorganization"), the partners of the IFN partnership, namely ITC Trans and ITC
Trans II merged, therefore dissolving IFN by operation of law and ITC Trans, as
the surviving entity, assumed to rights, duties and obligations of all IFN
contracts (the "Eighth Assignment"); and

     WHEREAS, pursuant to the same general corporate reorganization, ITC Trans
changed its corporate name to Interstate FiberNet, Inc.; and

     WHEREAS, pursuant to the same general corporate reorganization, Gulf States
became a wholly-owned subsidiary of Interstate FiberNet, Inc.; and

                                       2
<PAGE>
 
     WHEREAS, pursuant to a corporate reorganization scheduled for January 1,
1998, GSTS intends to merge up and into Interstate FiberNet, Inc. (the
"Merger"); and

     WHEREAS, SES is willing go consent to the Merger, thereby binding
Interstate FiberNet, Inc. to GSTS's obligations to SES under the Facilities and
Services Agreement arising after the Reorganization.  Further, SES is willing to
waive it Right of First Offer/First Refusal as defined in (S) 32.2 of the
Facilities and Services Agreement.

     NOW, THEREFORE, in consideration of the foregoing, the parties agree as
follows:

     1.  SES acknowledges and consents to the Merger of Gulf States up and into
Interstate FiberNet, Inc.

     2.  SES hereby waives its Right of First Offer/First Refusal (as defined in
(S) 32.2 of the Facilities and Services Agreement) with respect to the Merger.

     3.  As successor by merger to Gulf States, Interstate FiberNet, Inc. hereby
acknowledges that it is bound by, and agrees to perform and discharge all
obligations of GSTS under the Facilities and Services Agreement.

                             SIGNATURE PAGE FOLLOWS

                                       3
<PAGE>
 
     IN WITNESS WHEREOF, the parties execute this Assignment Agreement by its
duly authorized representatives effective the date first above written.

SOUTHERN DEVELOPMENT AND INVESTMENT GROUP, INC., on behalf of and as agent for
Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi
Power Company, Savannah Electric and Power Company, Southern Electric Generating
Company and Southern Company Services, Inc.

/s/ Daniel L. Blalock
- ---------------------

By:  Daniel L. Blalock
    ------------------

Its:  Comptroller
      -----------


INTERSTATE FIBERNET, INC.             GULF STATES TRANSMISSION
                                      SYSTEMS, INC.
 


By:  /s/ Douglas Shumate              By:  /s/ Douglas Shumate
     -------------------                   -------------------

Its:                                  Its:
     -------------------                   -------------------    

                                       4

<PAGE>
 
                                                                 Exhibit 10.32.1

                             SUPPLEMENT AGREEMENT

                             LEASED FIBER PATHWAYS

This Supplemental Agreement ("Agreement") dated this 26 day of September, 1997,
is made and entered into by and between TENNESSEE VALLEY AUTHORITY, a corporate
agency and instrumentality of the United States ("TVA"), and DELTACOM, INC.
(formerly CONSOLIDATED COMMUNICATIONS CORPORATION prior to merger into DeltaCom,
Inc., its wholly owned subsidiary, on December 31, 1993) ("DeltaCom"), having
its corporate headquarters at 700 Boulevard South, Suite 101, Huntsville,
Alabama 35802.

                                    RECITALS

WHEREAS TVA and Consolidated Communications Corporation ("CCC") have previously
entered into an agreement dated March 6, 1990, and identified as TV-79915T (the
"TV-79915T Agreement"), enabling TVA and CCC to construct, operate, maintain,
and replace a fiber optic cable system; and

WHEREAS CCC, an Alabama corporation, has merged into Delta Communications, Inc.,
an Alabama corporation and one of CCC's wholly owned subsidiaries, effective
December 31, 1993; and

WHEREAS Delta Communications, Inc., changed its name to "DeltaCom, Inc.,"
simultaneously with said merger effective December 31, 1993; and

WHEREAS TVA has reserve capacity within an interconnected fiber system.  Subject
to regulatory approval, TVA desires to lease to DeltaCom and DeltaCom desires to
lease from TVA a portion of the optical pathways through the adjoining fiber
system ("Leased Fiber Pathways") on the terms and conditions set forth in this
Agreement; and

WHEREAS DeltaCom has assumed all rights and obligations of CCC, effective
December 31, 1993.

NOW, THEREFORE, for and in consideration of the foregoing and of the mutual
covenants and agreements contained in this Agreement, the parties hereby agree
as follows:

Section 1.  ASSUMPTION BY DELTACOM.  DeltaCom hereby assumes all rights and
- ---------                                                                  
obligations of CCC provided for in the TV-79915T Agreement, effective December
31, 1993.  The foregoing notwithstanding, all payments made to or by CCC or
DeltaCom under the TV 79915T Agreement up to the effective date of this
Agreement reduce, to the extent actually made, TVA's obligation to pay CCC or
CCC's obligation to pay TVA, as appropriate, sums under the TV-79915T Agreement.
<PAGE>
 
Section 2.  CERTAIN DEFINITIONS.  As used in this Agreement:
- ---------                                                   

"Acceptance Date" means the date upon which the Leased Fiber Pathways are
accepted by DeltaCom in accordance with Section 6.

"Acceptance Test" has the meaning set forth in Section 5.

"Affiliate," with respect to any person, means any person that directly or
indirectly, through one or more intermediaries, controls or is controlled by or
is under common control with the person specified as a result of ownership of
more than 50 percent of the voting capital stock or other voting securities of
such person.

"Associate," with respect to any person, means any corporation or other business
organization of which such person is an officer or partner or is the beneficial
owner, directly or indirectly, of 10 percent or more of any class of equity
security, any trust or estate in which such person has a substantial beneficial
interest or as to which such person serves as a trustee or in a similar capacity
and any relative or spouse of such person or any relative of such spouse, who
has the same home as such person.

"Availability Date" means the date on which TVA provides DeltaCom access to the
Leased Fiber Pathways.

"Effective Date" has the meaning set forth in Section 3.

"Event of Default" has the meaning set forth in Section 18.

"Government Authority" means any court, tribunal, authority, agency, commission,
official or instrumentality of the United States (but not TVA), any foreign
country or any domestic or foreign state, county, city or other political
subdivision.

"Leased Fiber Pathways" has the meaning set forth in Section 4.

"Rent" has the meaning set forth in Section 8.

"Service Affecting Outage" means any interruption or reduction in use of Leased
Fiber Pathways in use by DeltaCom that materially affects DeltaCom's ability to
conduct its business on the Leased Fiber Pathways.

"Term" has the meaning set forth in Section 7.

Section 3.  CONDITION PRECEDENT.  All obligations of the parties hereto are
- ---------                                                                  
subject to and conditioned on the receipt of all governmental and regulatory
approvals required for the execution, delivery, and performance of this
Agreement.  Each party agrees to use its best efforts to obtain all such
approvals applicable to the execution, delivery, and performance of this
Agreement as promptly as practicable.  The date on which such condition is
satisfied (or waived, as the case may be) is referred to in this Agreement as
the "Effective Date."

                                       2
<PAGE>
 
Section 4.  LEASED FIBER PATHWAYS AND POLE ATTACHMENTS.
- ---------                                              

     a.  TVA hereby leases to DeltaCom TWO optical fiber cable pathways that
originate at TVA'S ARAB 161-KV SUBSTATION and terminate at TVA's HUNTSVILLE 161-
KV SUBSTATION, a distance of 27 V&H miles (the "Leased Fiber Pathways").
(Vertical and Horizontal grid coordinates are used to calculate the "airline
distance" between any two rate centers.)

     b.  For the purpose of this Agreement, TVA grants to DeltaCom the right to
attach, at its expense, an interconnecting fiber cable from DeltaCom's Arab, AL
Communication Hub, currently located at 113 South Main Street in Arab, Alabama,
along TVA's Arab-Arab District 46-kv Transmission Line to TVA's Arab 161kV
Substation along the route and in accordance with the standards described in
Exhibit A (the "Interconnecting Fiber Cable").  DeltaCom will supply the fiber
cable for the Interconnecting Fiber Cable.  Title to the optical fiber cable to
be installed along the Leased Fiber Pathways (except that portion of fiber cable
between 113 South Main Street in Arab, Alabama, and the substation located at
12th Avenue, N.E. in Arab, Alabama) shall pass to TVA upon delivery to and
acceptance by TVA.  TVA grants to DeltaCom an irrevocable right to use all but
two optical fibers in the fiber cable along the Interconnecting Fiber Cable.
The remaining two optical fibers shall be TVA Capacity.  All maintenance,
operation or restoral of the Interconnecting Fiber Cable shall be at DeltaCom's
expense.  Procedures for the maintenance, operation, and restoral for the fiber
cable along the Leased Fiber Pathways shall be those set out in the TV-79915T
Agreement.

Section 5.  ACCEPTANCE TEST.  TVA shall notify DeltaCom of the Availability
- ---------                                                                  
Date.  Promptly after receipt of such notice, but not later than 15 days after
                                              --------------------------------
the notice, TVA and DeltaCom shall jointly conduct a test ("Acceptance Test") of
- ----------                                                                      
the Leased Fiber Pathways to determine that the fiber pathways meet the
specifications described in Exhibit "A" of the TV-79915T Agreement.  Within 10
calendar days after completion of the Acceptance Test, DeltaCom shall give TVA
written notice of any failure of the Leased Fiber Pathways to satisfy the
Acceptance Test.  If the Leased Fiber Pathways fail to satisfy the Acceptance
Test, TVA shall use its best efforts to promptly correct such failure or provide
alternate fiber pathways originating and terminating at the same locations as
described in Section 4 above, whereupon DeltaCom and TVA shall jointly conduct
another Acceptance Test.  The procedure set forth in this section shall be
repeated until DeltaCom accepts the Leased Fiber Pathways pursuant to Section 6.
If, after the use of the best efforts of the parties, no fiber pathways pass the
Acceptance Test, this Agreement shall terminate with no liability of one party
to the other.

Section 6.  ACCEPTANCE BY DELTACOM.  DeltaCom shall be deemed to have accepted
- ---------                                                                     
that portion of the Leased Fiber Pathways upon which the first of the following
occur:

                                       3
<PAGE>
 
     (a) satisfaction of the Acceptance Test for some or all of the Leased Fiber
Pathways pursuant to Section 5;

     (b) DeltaCom uses some or all of the Leased Fiber Pathways for any of the
purposes described in or permitted by Section 9.

     (c) DeltaCom acknowledges acceptance of some or all of the Leased Fiber
Pathways in writing; or

     (d) DeltaCom fails to give TVA written notice of any failure of the Leased
Fiber Pathways to satisfy any Acceptance Test on or before the tenth (10th) day
after completion of such Acceptance Test.

For purposes of this Agreement, the first date on which any of the events
described in Sections 6(a), 6(b), 6(c), or 6(d) occurs shall be the Acceptance
Date.

Section 7.  TERM.  The original term of this Agreement (the "Original Term")
- ---------                                                                   
shall commence on the Acceptance Date and end on the date DeltaCom's original
term expires under the TV-79915T Agreement.  So long as no Event of Default
exists with respect to DeltaCom's obligations under this Agreement, DeltaCom
shall have the right and option to extend the term of this Agreement from the
date upon which it would otherwise expire for up to four (4) consecutive periods
of five (5) years each.  Such options to extend the Agreement shall be deemed to
have been exercised by DeltaCom upon written notice to TVA no later than six (6)
months or earlier than twelve (12) months prior to the expiration of the
Original Term or of any Renewal Period, as applicable.  TVA will give DeltaCom
notice that this Agreement is about to expire during the first ninety (90) days
of the twelve (12)-month period immediately preceding the expiration of the
initial term or of any Renewal Period; provided, however, that in the event TVA
fails to provide this notice and DeltaCom in turn fails to notify TVA with
respect to the Renewal Period, DeltaCom shall have sixty (60) days from learning
of its failure to provide the foregoing written notice to notify TVA with
respect to the Renewal Period.  The Original Term and any Renewal Terms are
collectively referred to herein as the "Term."

Section 8.  RENT
- ---------       

     (a) RENT.  Commencing on the Acceptance Date, DeltaCom shall pay to TVA
annual rent ("Rent") (i) during the Original Term equal to $75.00 per fiber
                                                           ------          
pathway per month, per V&H mile of the Leased Fiber Pathways, payable on the
                                                                            
Acceptance Date and upon the anniversary of the Acceptance Date each year of the
- --------------------------------------------------------------------------------
Original Term thereafter, at the address specified in Section 22 in lawful money
- ------------------------                                                        
of the United States by electronic fund transfer, provided; however, that no
Rent shall be due and payable until the Acceptance Date.  If the termination
date of this Agreement is other than the last day before the anniversary of the
Acceptance Date, the Rent to be paid for such partial year shall be prorated by
months.  Rent for 

                                       4
<PAGE>
 
Renewal Terms shall be negotiated to reflect the market value for the terms of
the renewal.

     (b) INTEREST.  Rent shall become overdue if not paid within 30 days after
the date on which it became due ("Overdue Rent").  Overdue Rent shall begin to
accrue interest daily beginning on the 31st day after it became due until paid
at an annual rate equal to the prime rate of interest published in the Wall
Street Journal, as the same shall be published on the day on which the Overdue
Rent begins to accrue interest (or, if the prime rate of interest is not
published on such date, the next business day thereafter on which the prime rate
of interest is published in the Wall Street Journal), plus three percent.

     (c) NO SETOFF. The obligation to pay Rent is independent of any other
covenant or obligation in this Agreement.  DeltaCom shall not be entitled to any
setoff or counterclaim against the payments owed hereunder for any act or
omission (excluding the failure to provide the Leased Fiber Pathways as herein
agreed) of or on account of any claim DeltaCom may have against TVA, unless
agreed to by TVA in writing.

     (d) RENEGOTIATION OF RENT  DeltaCom and TVA agree that the market for
leased fibers may increase or decrease such that the rental amount no longer
reflects the market value of the rent of the Leased Fiber Pathways.
Accordingly, after the expiration of the Original Term either party on 180 days
written notice to the other can request a renegotiation of the rental amounts in
Section 8(a).  The renegotiation would cover the rental amounts for the then
current Renewal Term and any remaining Renewal Terms.  The Rent for the fiber
pathways may also be renegotiated as part of a future fiber project between TVA
and DeltaCom.  In the event the parties are unable to agree on a reasonable
rental amount after ninety (90) days, the disagreement shall be resolved in
accordance with the procedure established in Section 19.

Section 9.  USE OF LEASED FIBER PATHWAYS.  DeltaCom shall be entitled to use the
- ---------                                                                       
Leased Fiber Pathways for any lawful purpose, including subleasing or providing
telecommunications services to other persons.

Section 10.  TITLE.  Title to the Leased Fiber Pathways shall at all times
- ----------                                                                
remain with TVA exclusively.

Section 11.  ACCESS TO LEASED FIBER PATHWAYS.  DeltaCom shall be permitted
- ----------                                                                
access to TVA's Arab 161-kV and Huntsville 161-kV substations with TVA's
oversight and prior approval for (a) connection and maintenance of DeltaCom's
use of the Leased Fiber Pathways, (b) conducting the Acceptance Test and the
correction of any failures to satisfy the Acceptance Test pursuant to Section 5,
(c) any inspection, test, repair, replacement, operation, or other activities
involving or affecting DeltaCom's use of the Leased Fiber Pathways, and (d) the
removal of 

                                       5
<PAGE>
 
DeltaCom's connecting fibers after the expiration of the Term or upon earlier
termination of this Agreement or DeltaCom's right of possession as provided in
Section 20, hereto.

Section 12.  OBLIGATIONS OF TVA
- ----------                     

     (a) MAINTENANCE.  TVA shall be responsible, at its sole cost and expense,
for the operation, maintenance, and repair of the physical components of the
Leased Fiber Pathways, including all necessary splicing.  Without limiting the
generality of the foregoing, TVA shall comply with the maintenance standards and
be responsible for the maintenance procedures set forth in Exhibit A of this
Agreement.

     (b) PROPERTY TAXES.  TVA shall be responsible for the cost of all
applicable property taxes or payments in lieu of taxes that are based upon the
installation cost, depreciated cost, or fair market value of the physical
property that comprise the fiber system in which the Leased Fiber Pathways are
placed.  DeltaCom shall be responsible for paying all taxes that are assessed or
in any way based upon the value, the amount, or the revenue derived from the
communications that occur along or within the Leased Fiber Pathways.

Section 13.  OBLIGATIONS OF DELTACOM
- ----------                          

     (a) EXPENSES.  DeltaCom shall be responsible for, and shall bear all costs
associated with the furnishing, installation, testing, operation, use,
maintenance, repair, replacement, and other aspects of all electronics,
communications and other equipment, facilities, and items required for
DeltaCom's interconnection with or use of the Leased Fiber Pathways.  DeltaCom
shall not be responsible for any costs and expenses incurred by TVA in
connection with the fiber system containing the Leased Fiber Pathways,
including, but not limited to, the rerouting of the fiber system (if in its
discretion, TVA ever deems rerouting the fiber system to be necessary or
appropriate), except as expressly provided in this Agreement or as otherwise
agreed to by and between TVA and DeltaCom.

     (b) REGULATORY COMPLIANCE.  DeltaCom shall, at its sole expense, make all
required filings and registrations with, and shall obtain all required permits,
licenses, approvals, certificates, franchises, consents, and authorizations
from, the Federal Communications Commission, the Alabama Public Service
Commission, and each other applicable Governmental Authority in connection with
its use of the Leased Fiber Pathways, and shall at all times hold, operate and
use the Leased Fiber Pathways in accordance with all applicable Federal, state,
local, and foreign laws, statutes, rules, regulations, ordinances, and orders.

                                       6
<PAGE>
 
Section 14.  INTERRUPTION OF USE.
- ----------                       

     (a) Except as provided in clause (b) herein, TVA shall not be liable to
DeltaCom for any interruption or reduction in the use of the Leased Fiber
Pathways by DeltaCom or any other person caused, in whole or in part, by:

          (i) acts of God or any other cause or force beyond the reasonable
     control of TVA, including but not limited to, flood, earthquake, storm,
     lightning, fire, strike, epidemic, war, riot, civil disturbance, labor
     disturbance, sabotage, power outages, accidents, explosions, shortages of
     equipment or supplies, or unavailability of transportation; or

          (ii) construction, maintenance, repairs, replacements, installation of
     equipment, investigations, and inspections of or on the fiber system
     performed (A) by or at the direction of DeltaCom or (B) to the extent
     reasonably necessary, by or on behalf of TVA; provided, however, that TVA
     or its agents shall inform its line crews periodically of the location of,
     and shall use its best efforts to cause such crews to avoid damage to, the
     Leased Fiber Pathways.

     (b) Notwithstanding clause (a), TVA shall use its reasonable best efforts
to restore or assist in restoring DeltaCom's use of the Leased Fiber Pathways as
promptly as practicable.  Without limiting the effect or generality of the
foregoing, if the interruption or reduction in use is a Service Affecting
Outage, TVA will use its reasonable best efforts to restore DeltaCom's use of
the Leased Fiber Pathways within six (6) hours after receipt of notice from
DeltaCom of the Service Affecting Outage.

     (c) In addition, each party shall use its best efforts to give the other
party advance notice of work that may cause an interruption or reduction in the
other party's use of its portion of the fiber system containing the Leased Fiber
Pathways and, in the event of such interruption or reduction, to restore the
other party's use of such portion of the fiber system containing the Leased
Fiber Pathways as promptly as practicable.  Except to the extent such action is
delayed by an event set forth in clause (a)(i) or (a)(ii) above, all
maintenance, repairs, replacement, installation of equipment, investigations
and/or inspections shall be performed in accordance with a mutually agreed upon
schedule, so as to minimize inconvenience to both parties hereto.

     (d) DeltaCom hereby agrees to provide (i) written or oral notice to TVA of
the number of Leased Fiber Pathways in use by DeltaCom within five (5) business
days after some or all of the Leased Fiber Pathways are first placed in use and
(ii) written or oral notice of any subsequent change in the number of Leased
Fiber Pathways in use by DeltaCom within five (5) business days after any such
change.

                                       7
<PAGE>
 
Section 15.  LIABILITY; INDEMNIFICATION.
- ----------                              

     (a) DeltaCom and TVA each hereby release the other and shall indemnify and
save harmless the other from any and all claims, demands, or causes of action
for personal injuries, property damage, or loss of life or property, including
the fiber optic ground wire in which the Leased Fiber Pathways are located, and
all reasonable costs and expenses, including reasonable legal fees, incurred in
connection with actions arising out of or in any way connected with their
respective activities regarding the use, operation, maintenance, repair, defect,
or failure of the fiber optic ground wire in which the Leased Fiber Pathways are
located, except for those personal injuries, property damage, or loss of life or
property caused or occasioned solely by the other's negligence.

     (b) DeltaCom shall indemnify and hold TVA harmless from and against any and
all liability, losses, damages, claims, or causes of action and expenses
connected therewith (including reasonable attorney's fees) asserted by them or
any of their customers by reason of any outage or interruption in the
telecommunication services provided to DeltaCom's customers via the Leased Fiber
Pathways, including any failure to transmit messages accurately, even if such
outage, interruption, or failure was occasioned in whole or in part by TVA, its
agents, or employees; provided, however, that such indemnity shall not extend to
willful misconduct or gross negligence.

     (c) Neither party shall be liable to the other party for consequential or
incidental damages, including lost profits.

     (d) The obligations of the respective parties under this Section 15 shall
survive the Expiration Date in respect to any occurrences within the term.

Section 16.  INSURANCE.  Promptly after the Effective Date, DeltaCom shall
- ----------                                                                
present to TVA certificates of insurance, reasonably acceptable to TVA,
evidencing the following insurance coverage:

     (a) worker's compensation insurance coverage complying with the laws of the
State of Alabama and employers liability insurance with limits of not less than
$500,000 per occurrence;

     (b) comprehensive, general liability insurance coverage, with broad form
endorsement attached, for a combined bodily injury and property damage limit of
not less than $1,000,000 per occurrence, which coverage shall include blanket
contractual, products and completed operations liability coverage;

     (c) comprehensive automobile liability insurance coverage, with a combined
bodily injury and property damage limit of not less than $1,000,000 per
occurrence, which coverage shall include all owned, non-owned, and hired
vehicles; and

                                       8
<PAGE>
 
     (d) umbrella liability insurance coverage applying in excess of the limits
set forth in clauses (b) and (c) above, subject to a limit of not less than
$1,000,000.

All such coverage shall provide for not less than thirty (30) days prior written
notice or cancellation or material change.  DeltaCom shall maintain such
coverage in force at all times during the term of this Agreement.  All such
policies of insurance (other than policies with respect to the insurance
coverage set forth in clause (a) above) shall include TVA, the United States, to
the extent and only to the extent that TVA holds real property in the name of
the United States, and their employees as additional insureds with respect to
the activities of DeltaCom.  Moreover, all such policies of insurance (other
than policies with respect to the insurance coverage set forth in clause (a)
above) shall include a waiver of subrogation of claims against TVA, the United
States, to the extent and only to the extent that TVA holds real property in the
name of the United States, and their employees.

Section 17.  TERMINATION.
- ----------               

     (a) EVENTS OF TERMINATION.  This Agreement and the lease created hereby may
be terminated and abandoned:

          (i) upon the mutual written agreement of DeltaCom and TVA;

          (ii) by either party, upon written notice to the other, in the event
     that an injunction or other final order or judgment is entered in any
     lawsuit or regulatory proceeding restraining TVA's performance under this
     Agreement declaring or otherwise rendering TVA's performance unlawful or
     compelling removal, discontinuation or divestiture of all or part or the
     fiber system and such injunction, order or judgment has not been vacated,
     reversed or stayed within thirty (30) days from the date of entry thereof;

          (iii)  by either party, if any of the transactions contemplated by
     this Agreement are finally disapproved of by any Government Authority whose
     approval is required to consummate such transactions.

     (b) NOTICE.  The power of termination provided for in this Section 17 may
be exercised only by written notice signed by the party exercising such power
and forwarded to the other party in accordance with the terms of Section 22.

     (c) EFFECT OF TERMINATION.  Upon the occurrence of an event of termination
set forth in Section 17(a), except as provided below, this Agreement shall be
terminated and neither party nor any of its directors, officers, stockholders,
Affiliates, general partners, or limited partners shall have any continuing
liability to the other party or its directors, officers, stockholders,
Affiliates, general partners, or limited partners under this Agreement;
provided, however, that obligations of the parties under Section 15 of this
Agreement, and the obligations of DeltaCom to pay Rent accrued through the
effective date of such termination, shall remain in full 

                                       9
<PAGE>
 
force and effect, and no termination pursuant to this Section 17 shall entitle
DeltaCom to the return of any Rent theretofore paid or afford to DeltaCom any
defense to the payment of Rent then due and payable.

     (d) TERMINATION OF THE TV-79915T AGREEMENT.  In the event the TV-79915T
Agreement terminates, this Agreement shall automatically terminate, except as
provided in Section 7.

Section 18.  DEFAULT.
- ----------           

     (a)  Default.

          (i) An event of default ("Event of Default") by DeltaCom shall exist
     if any one or more of the following events shall occur and be continuing:

               (A) DeltaCom shall admit in writing its inability to pay its
          debts as such debts become due;

               (B) DeltaCom shall (1) apply for or consent to the appointment
          of, or the taking of possession by, a receiver, custodian, trustee, or
          liquidator of itself or of all or a substantial part of its property,
          (2) make a general assignment for the benefit of its creditors,  (3)
          commence a voluntary case under the U.S. Bankruptcy Code, (4) file a
          petition seeking to take advantage of any other law relating to the
          bankruptcy, insolvency, reorganization, winding-up, or composition or
          readjustment of debts, (5) fail to controvert in a timely and
          appropriate manner, or acquiesce in writing to, any petition filed
          against it in an involuntary case under the U.S. Bankruptcy Code, or
          (6) take any action for the purpose of effecting any of the foregoing;

               (C) a proceeding or case shall be commenced, without the
          application or consent of DeltaCom, in any court of competent
          jurisdiction, seeking (1) its liquidation reorganization, dissolution
          or winding-up, or the composition or readjustment of its debts, (2)
          the appointment of a trustee, receiver, custodian, liquidator or the
          like of DeltaCom or of all or any substantial part of its assets, or
          (3) similar relief in respect of DeltaCom under any law relating to
          bankruptcy, insolvency, reorganization, winding-up, or composition or
          adjustment of debts, which is not dismissed within ninety (90) days
          thereafter;

               (D) DeltaCom shall fail to perform any material obligation under
          this Agreement (other than the obligation to pay Rent) and such
          failure shall continue for a period of thirty (30) days following
          written notice from TVA to DeltaCom specifying such nonperformance;
          provided that if such failure cannot be cured within such thirty (30)
          day period with the exercise of reasonable due diligence, TVA shall

                                       10
<PAGE>
 
          grant a reasonable additional period of time in which to cure such
          failure;

               (E) DeltaCom shall fail or refuse to remit to TVA within sixty
          (60) days following the due date thereof, any Rent then due and
          payable; or

               (F) except as provided in Section 9 hereof, DeltaCom shall cause
          or permit the encumbrance of all or any part of its interest in this
          Agreement or the Leased Fiber Pathways, without the prior written
          consent of TVA; PROVIDED, that nothing herein shall be construed to
          require TVA to give consent to such encumbrance or to prevent TVA from
          withholding its consent to such encumbrance for any or no reason
          relating to the Leased Files Pathways or for any or no reasonable
          reason relating to all or any part of DeltaCom's interest in this
          Agreement.

          (ii) (Currently, TVA is not a debtor entitled to seek protection under
     bankruptcy law.  Any reference to bankruptcy law as it relates to TVA in
     this section is a recognition that laws change over time.) An Event of
     Default by TVA shall exist if any one or more of the following events shall
     occur and be continuing:

               (A) TVA shall (1) apply for or consent to the appointment of, or
          the taking of, possession by a receiver, custodian, trustee, or
          liquidator of itself or of all or a substantial part of its property,
          (2) make a general assignment for the benefit of its creditors, (3)
          commence a voluntary case under the U.S. Bankruptcy Code, (4) file a
          petition seeking to take advantage of any other law relating to the
          bankruptcy, insolvency, reorganization, winding-up, or composition or
          readjustment of debts, (5) fail to controvert in a timely and
          appropriate manner, or acquiesce in writing to, any petition filed
          against it in an involuntary case under the U.S. Bankruptcy Code, or
          (6) take any action for the purpose of effecting any of the foregoing;

               (B) a proceeding or case shall be commenced, without the
          application or consent of, in any court of competent jurisdiction,
          seeking (1) its liquidation, reorganization, dissolution or winding-up
          or the composition or readjustment of its debts, (2) the appointment
          of a trustee, receiver, custodian, liquidator or the like of TVA or of
          all or any substantial part of its assets, or (3) similar relief in
          respect of TVA under any law relating to bankruptcy, insolvency,
          reorganization, winding-up, or composition or adjustment of debts,
          which is not dismissed within ninety (90) days thereafter;

                                       11
<PAGE>
 
               (C) TVA shall fail to perform any material obligation under this
          Agreement (other than restoring use by DeltaCom of the Leased Fiber
          Pathways as provided in Section 14 of this Agreement) and such failure
          shall continue for a period of thirty (30) days following written
          notice from DeltaCom specifying such nonperformance; provided, that if
          such failure cannot be cured within such thirty (30)-day period with
          the exercise of reasonable due diligence, DeltaCom shall grant a
          reasonable additional period of time in which to cure such failure; or

               (D) an interruption of the Leased Fiber Pathways by DeltaCom that
          continues for a period of thirty (30) days following written notice
          from DeltaCom to TVA of the interruption or reduction in use, provided
          that if use of the Leased Fiber Pathways is not restored within such
          thirty (30) day period with the exercise of reasonable due diligence,
          DeltaCom shall grant a reasonable additional period of time in which
          to restore use of the Leased Fiber Pathways.

     (b)  RIGHTS UPON DEFAULT.

          (i) Upon the occurrence of an Event of Default by DeltaCom, subject to
     the provisions of Section 21 below and Section 18 (a)(i)(A) through (F)
     above, TVA shall be entitled to immediate and exclusive possession, use,
     and control of the Leased Fiber Pathways and may forthwith terminate this
     Agreement by written notice to DeltaCom.  Upon the occurrence of an Event
     of Default, DeltaCom's right to possession and use of the Leased Fiber
     Pathways by any lawful means shall terminate, without demand or notice of
     any kind to DeltaCom, except as may be required by law, and without
     terminating this Agreement or the lease created hereby;

          (ii) Upon the occurrence of an Event of Default by TVA, subject to the
     provisions of Section 21 below and Section 18 (a)(ii)(A) through (D) above,
     DeltaCom shall be entitled to terminate this Agreement by written notice to
     TVA.

Section 19.  REMEDIES.  TVA and DeltaCom may sue from time to time to recover
- ----------                                                                   
any amounts due or enforce any rights under this Agreement, and no suit or
recovery shall bar any subsequent action brought for any amount not theretofore
reduced to judgment in favor of TVA or DeltaCom, as the case may be.  Except as
otherwise provided by law, no repossession of the Leased Fiber Pathways by TVA
shall be construed as an election by TVA to terminate this Agreement unless a
written notice of such intention is given by TVA to DeltaCom pursuant to Section
23; and no receipt of monies by TVA from DeltaCom shall reinstate this Agreement
or DeltaCom's right of possession.  All remedies provided in this Agreement are
cumulative and not exclusive and are in addition to any remedies available at
law 

                                       12
<PAGE>
 
or in equity.  All remedies may be exercised and enforced concurrently or
sequentially as often as occasion therefor may arise.

Section 20.  EXPIRATION-SURRENDER.  Within fifteen (15) calendar days after the
- ----------                                                                     
expiration of the Term as provided in Section 7 or within fifteen ( 15) calendar
days after earlier termination of this Agreement or DeltaCom's right of
possession, DeltaCom shall remove its personal property, equipment, and trade
fixtures, perform all restoration made necessary by the removal of such items,
and peacefully yield up the Leased Fiber Pathways to TVA in good order, repair,
and condition, except to the extent that the order, repair, and condition of the
Leased Fiber Pathways are not DeltaCom's obligation.  If DeltaCom fails or
refuses to remove any of its personal property, equipment and trade fixtures,
DeltaCom shall be conclusively presumed to have abandoned the same, and title
shall thereupon pass to TVA without setoff, credit, allowance or other cost to
TVA, and TVA may, at its sole option, accept title to such property by written
notice thereof to DeltaCom or, at DeltaCom's expense, may remove the same or any
part thereof in any manner TVA may choose, and store, destroy, or otherwise
dispose of the same without incurring any liability to DeltaCom or any other
person.  Except as specified in Section 7, no notice shall be required from
either party to terminate the lease created by this Agreement upon the
expiration of the Term as provided in Section 7.

Section 21.  SUBORDINATION.  DeltaCom acknowledges and agrees that the lease
- ----------                                                                  
created by this Agreement is and shall be subject and subordinate to all
mortgages which may now or hereafter affect the fiber system, all permits,
licenses, rights-of-way and easements covering the route of the fiber system,
and all leases and points of presence in the fiber system, and shall execute
such instruments as may reasonably be requested to confirm such subordination.
TVA hereby agrees to give written notice to DeltaCom of any claim to the fiber
system that affects the right or ability of DeltaCom to use the Leased Fiber
Pathways as contemplated herein.  If, as a result of any such claim, DeltaCom
must abandon use of the Leased Fiber Pathways within nine (9) months after
receipt of such notice, TVA hereby agrees to pay DeltaCom an amount equal to the
product of the Rent multiplied by the number of months by which the period of
notice of any such claim that was provided to DeltaCom by TVA is less than nine
(9) months.

Section 22.  NOTICES.  Any written notice, demand, or request required or
- ----------                                                               
authorized by this Agreement shall be deemed properly given if delivered by
certified mail, return receipt requested, or by hand or overnight courier, with
delivery acknowledged, as follows:

                                       13
<PAGE>
 
     if to TVA, to:

                              Vice President, Marketing - HR1 3K-NST
                              Tennessee Valley Authority
                              PO Box 292409
                              Nashville, TN 37229-2409
                              Fax:  (615-882-2066)

     with copy to:

                              General Counsel
                              Tennessee Valley Authority
                              400 West Summit Hill Drive - ET 10A
                              Knoxville, TN 37902
                              Fax:  (423-632-2422)

     (b) if to DeltaCom, to:

                              Vice President, Network Engineering
                                 and Support
                              DeltaCom, Inc.
                              206 West 9th Street
                              P.O. Box 510
                              West Point, GA 31833
                              Fax:  (706) 645-8989

     with copy to:

                              Assistant General Counsel
                              DeltaCom, Inc.
                              700 Boulevard South, Suite 101
                              Huntsville, AL 35802
                              Fax:  (205) 650-3936

provided, that emergency notices of impairments in service may be given by
telephone by TVA to the person designated by DeltaCom and by DeltaCom to the
person designated by TVA.  All such telephone notices shall be confirmed in
writing.  The designation of the person to be notified, or the address or
telephone number of such person, may be changed at any time and from time to
time, by notice in accordance with this Section 22.

Section 23.  ASSIGNMENT--PARTIES IN INTEREST.  This Agreement shall be binding
- ----------                                                                    
upon and inure solely to the benefit of the parties hereto and their successors,
legal representatives and assigns, but is not assignable in whole or in part by
either party without the prior written consent of the other party, which consent
shall not 

                                       14
<PAGE>
 
be unreasonably withheld. Except as expressly provided in Section 15, nothing in
this Agreement express or implied is intended to confer upon any person not a
party hereto any rights or remedies of any nature whatsoever under or by reason
of this Agreement. Notwithstanding the foregoing, either party may assign its
rights and obligations hereunder to any entity controlled by, controlling, or
under common control with such party or to any successor by merger or
consolidation, or to any purchasers of all or substantially all of the assets or
business of such party provided the assignee agrees in writing to the assumption
of all rights and obligations of the assignor of this Agreement. In addition,
either party may assign and pledge its interest under this Agreement as security
for indebtedness without the other party's written consent; provided, however,
that such an assignment or pledge shall not relieve the assignor from any of its
obligations under this Agreement or increase or decrease the rights and
obligations of the non-assigning party under this Agreement.

Section 24.  ENTIRE AGREEMENT--AMENDMENT.  This Agreement constitutes the entire
- ----------                                                                      
agreement between the parties hereto with respect to the use by DeltaCom of the
Leased Fiber Pathways and cancels and supersedes all prior agreements,
proposals, negotiations, representations, discussions, and correspondence,
either written or oral, with respect to the subject matter hereof.  No
alteration, changes, or amendments to this Agreement shall be effective unless
in writing and signed by both parties hereto.

Section 25.  WAVIER.  No waiver of a breach of any provision of this Agreement
- ----------                                                                    
shall constitute a waiver of any other breach or of the future performance of
such provision.

Section 26.  GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
- ----------                                                                    
IN ACCORDANCE WITH THE FEDERAL LAWS OF THE UNITED STATES OR, IF THE FEDERAL LAWS
OF THE UNITED STATES DOES NOT PROVIDE A RULE FOR DECISION, THE LAWS OF TENNESSEE
WITHOUT REGARD FOR THE PROVISIONS THEREOF REGARDING CHOICE OF LAW.  ANY ACTION
TO ENFORCE THIS AGREEMENT SHALL BE BROUGHT IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TENNESSEE OR THE NORTHERN DISTRICT OF ALABAMA.

Section 27.  SEVERABILITY.  If any one or more of the provisions contained in
- ----------                                                                   
this Agreement shall for any reason be held to be invalid, illegal, or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provision hereof, and this Agreement shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein unless any party would thereby be deprived of material benefit.

Section 28.  NO WARRANTIES.  TVA MAKES NO WARRANTY OF ANY KIND WHATSOEVER
- ----------                                                               
CONCERNING THE LEASED FIBER PATHWAYS. ALL 

                                       15
<PAGE>
 
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE
HEREBY DISCLAIMED BY TVA AND ARE EXCLUDED FROM THIS AGREEMENT.

Section 29.  NO BROKERS.  Each party represents and warrants to the other that
- ----------                                                                    
no broker or finder is entitled to any brokerage, finder's or other fee or
commission in connection with this Agreement and the transaction contemplated
hereby based upon arrangements made by or on behalf of such party.

Section 30.  INTERPRETATION.  Unless otherwise explicitly stated, all references
- ----------                                                                      
to sections or subsections refer to sections or subsections of this Agreement.
The terms "hereof," "hereto," "hereby," and terms of similar import refer to
this Agreement.  Whenever the words "include," "includes," or "including" are
used in this Agreement, they shall be deemed to be followed by the words
"without limitation."  Section, subsection, and other headings are for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.

 
TENNESSEE VALLEY AUTHORITY                DELTACOM, INC.
By       /s/ Mark O. Medford       By     /s/ Douglas A. Shumate
         ------------------------         --------------------------
Name     Mark O. Medford           Name   Douglas A. Shumate
         ------------------------         --------------------------
Title    Executive Vice President  Title  Sr. Vice President and CFO
         ------------------------         --------------------------
Date     September 26, 1997        Date   September 17, 1997
         ------------------------         --------------------------
 

                                       16

<PAGE>
 

***PORTIONS OF THIS EXHIBIT MARKED BY BRACKETS ("[     ]") OR OTHERWISE 
IDENTIFIED HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. 
THE OMITTED PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.***

                                                                 Exhibit 10.44.1


              FIRST AMENDMENT TO THE AGREEMENT FOR THE PROVISION
                 OF TELECOMMUNICATIONS SERVICES AND FACILITIES


          WHEREAS, Carolinas FiberNet, LLC ("CFN") and Interstate FiberNet, GP
have executed the Agreement for the Provision of Telecommunications Services and
Facilities, dated January 27, 1996 (the "Agreement") whereby CFN and Interstate
FiberNet, GP agreed to interconnect their respective networks and agreed to
cross-market internetwork telecommunications transport; and

          WHEREAS, pursuant to Section 10.12 of the Agreement, Interstate
FiberNet, GP has assigned its rights and obligations under the Agreement to ITC
Transmission Systems, Inc. ("ITC"); and

          WHEREAS, in connection with the reorganization of certain companies
affiliated with ITC, ITC has changed its name to Interstate FiberNet, Inc.
("IFN"); and

          WHEREAS, due to changes in the telecommunications environment, CFN and
IFN agree that certain amendments should be made to the Agreement; and

          WHEREAS, pursuant to Section 10.7 of the Agreement, the Agreement may
be amended by an instrument in writing duly executed by CFN and IFN.

          NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, CFN and IFN covenant and agree that the Agreement is amended
as follows:
<PAGE>
 
          1. Effective September 1, 1997, Section 3.3 of the Agreement shall be
amended by inserting the following sentence at the end of the section:

          CFN and IFN each agree to provide a total of at least [__] DS-3s of
          Capacity to the Meet Point as initial Capacity and additional Capacity
          under this Agreement.

          2. Effective September 1, 1997, Section 3.5 of the Agreement is
amended by adding the following three paragraphs to the end of the section:

                    As frequently as necessary, but not less than at annual
               intervals, both Parties agree to reassess the tier designations
               of each of its cities (to which a Party provides Capacity) and to
               redesignate each city in the appropriate tier based on the then
               current market conditions.

                    Upon
               [________________________________________________________________
               _____] CFN and IFN agree to renegotiate the Stated Compensation
               Rate applicable to such city pairs for all Capacity provided
               under this Agreement to the applicable CFN/IFN Tier I city pair.
               CFN and IFN intend that the renegotiated Stated Compensation Rate
               shall be equal to or greater than $[__] for Tier I DS-3s.

                    On a case-by-case basis which shall be evidenced by a
               written agreement signed by both Parties, CFN and IFN agree that
               the Parties may establish a separate Stated Compensation 

                                       2
<PAGE>
 
               Rate with respect to certain sales covering large amounts of
               Capacity.

          3.  Effective  September 1, 1997, Section 7.3 of the Agreement is
amended by adding the following paragraph to the end of the section:

                    In the case of sale of (1) available Capacity to a Tier I
               city pair (within the meaning of Section 3.2 of the Agreement) as
               of September 1, 1997; (2) additional Capacity to a Tier I city
               pair (within the meaning of Section 3.3 of the Agreement) which
               is added after September 1, 1997 (i.e., Capacity not utilized to
               provide Service sold to Customers on September 1, 1997); or (3)
               renewed Capacity to a Tier I city pair which is renewed after
               September 1, 1997 (i.e., Capacity covered by a contract executed
               prior to September 1, 1997 which is subsequently renewed after
               the expiration of the original contract's initial term), the
               Seller shall not be required to pay the Provider the Bonus
               Compensation Fee.

          4.  Effective for sales of (1) available Capacity (within the meaning
of Section 3.2 of the Agreement) as of September 1, 1997; (2) additional
Capacity (within the meaning of Section 3.3 of the Agreement) which is added
after September 1, 1997; or (3) renewed Capacity which is renewed after
September 1, 1997 (i.e., Capacity covered by a contract executed prior to
September 1, 1997 which is subsequently renewed after the expiration of the
original contract's initial term), Schedule 3.5 is amended by adding the
following to the end of the Schedule:

                                       3
<PAGE>
 
          Tier I Pricing Basic Schedule (no free months) [Post 9/1/97 sale]
                    DS-1   [_____]
                    DS-3   [_____]
                    OC-12  [_____]

          Tier I Pricing (one free month for each 11 months of service) [Post
9/1/97 sale]
                    DS-1   [_____]
                    DS-3   [_____]
                    OC-12  [_____]

          CFN and IFN reserve the right (pursuant to the procedures provided in
Section 10.7 of the Agreement) to amend at any time any of the terms or
provisions of this First Amendment.  This Amendment shall be subject to the non-
disclosure provisions contained in Article VIII of the Agreement.  Except as
expressly or by necessary implication amended hereby, the Agreement shall
continue in full force and effect.

          IN WITNESS WHEREOF, CFN and IFN have caused this Amendment to be
executed by its duly authorized officers.

                                       4
<PAGE>
 
CAROLINAS FIBERNET, LLC

By:  DUKENET COMMUNICATIONS, INC.      By:  PALMETTONET, INC.
   Member                                   Member


By:  /s/  Illegible                    By:  /s/  Illegible
     -----------------------------          -----------------------------     

Its: President                         Its:  
     -----------------------------          -----------------------------  


By: CARONET, LLC                       By:  ACCESS/ON INTER-
   Member                                   EXCHANGE SERVICES, INC.
                                            Member
                                       
                                       
By:  /s/  Illegible                    By:  /s/  Illegible
     -----------------------------          -----------------------------  
                                       
Its:  General Manager                  Its:  Treasurer
     -----------------------------           -----------------------------  

       
INTERSTATE FIBERNET, INC.


By:  /s/  Douglas Shumate
     -----------------------------  

Its: SNR VP CFO
     -----------------------------   

                                       5

<PAGE>

                                                                 Exhibit 10.77.3

- --------------------------------------------------------------------------------

                                  $100,000,000



                   FIRST AMENDED AND RESTATED CREDIT AGREEMENT


                                      Among


                            INTERSTATE FIBERNET, INC.


                                       And


                           NATIONSBANK OF TEXAS, N.A.
                            as Administrative Lender


                                       and


                                     LENDERS



                          Dated as of February 24, 1998



- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
<PAGE>
 
                                  $100,000,000

                            INTERSTATE FIBERNET, INC.

                                TABLE OF CONTENTS

                             ARTICLE I. DEFINITIONS

1.01.        Definitions ...................................................   2
1.02.        Accounting and Other Terms ....................................  21

                          ARTICLE II. THE LOAN FACILITY

2.01.        Revolving Loan ................................................  21
2.02.        Making Advances ...............................................  21
2.03.        Evidence of Debt for Borrowed Money ...........................  23
2.04.        Optional Prepayments ..........................................  23
2.05.        Mandatory Prepayments .........................................  24
2.06.        Repayment .....................................................  25
2.07.        Interest ......................................................  25
2.08.        Default Interest ..............................................  26
2.09.        Continuation and Conversion Elections .........................  26
2.10.        Fees ..........................................................  27
2.11.        Reduction of Commitment .......................................  28
2.12.        Funding Losses ................................................  29
2.13.        Computations and Manner of Payments ...........................  29
2.14.        Yield Protection; Changed Circumstances .......................  30
2.15.        Use of Proceeds ...............................................  33
2.16.        Collateral and Collateral Call ................................  33
2.17.        Conditions Precedent to the Increase of the Commitment ........  34

                         ARTICLE III. LETTERS OF CREDIT

3.01.        Issuance of Letters of Credit .................................  36
3.02.        Letters of Credit Fee .........................................  36
3.03.        Reimbursement Obligations .....................................  37
3.04.        Lenders' Obligations ..........................................  38
3.05.        Administrative Lender's Obligations ...........................  39

                        ARTICLE IV. CONDITIONS PRECEDENT


                                       i
<PAGE>
 
4.01.        Conditions Precedent to Closing ...............................  39
4.02.        Conditions Precedent to the Initial Advance and the
             Issuance of the Initial Letter of Credit ......................  39
4.03.        Conditions Precedent to All Revolving Advances and
             Letters of Credit .............................................  41

                    ARTICLE V. REPRESENTATIONS AND WARRANTIES

5.01.        Representations and Warranties ................................  42
5.02.        Survival of Representations and Warranties ....................  49



                          ARTICLE VI. GENERAL COVENANTS

6.01.        Preservation of Existence and Similar Matters .................  49
6.02.        Business; Compliance with Applicable Law ......................  50
6.03.        Maintenance of Properties .....................................  50
6.04.        Accounting Methods and Financial Records ......................  50
6.05.        Insurance .....................................................  50
6.06.        Payment of Taxes and Claims ...................................  50
6.07.        Visits and Inspections ........................................  51
6.08.        Payment of Debt for Borrowed Money ............................  51
6.09.        Use of Proceeds ...............................................  51
6.10.        Indemnity .....................................................  51
6.11.        Environmental Law Compliance ..................................  52
6.12.        Acquisitions, Generally .......................................  53
6.13.        Subsidiary Designation ........................................  53
6.14.        Subsidiary Creation or Acquisition ............................  53

                       ARTICLE VII. INFORMATION COVENANTS

7.01.        Quarterly Financial Statements and Information ................  54
7.02.        Annual Financial Statements and Information ...................  54
7.03.        Compliance Certificates .......................................  54
7.04.        Copies of Other Reports and Notices ...........................  54
7.05.        Notice of Litigation, Default and Other Matters ...............  55
7.06.        ERISA Reporting Requirements ..................................  56

                        ARTICLE VIII. NEGATIVE COVENANTS

8.01.        Financial Covenants ...........................................  57


                                       ii
<PAGE>
 
8.02.        Debt for Borrowed Money .......................................  59
8.03.        Liens .........................................................  59
8.04.        Investments ...................................................  60
8.05.        Liquidation, Disposition or Acquisition of Assets,
             Merger, New Subsidiaries ......................................  60
8.06.        Guaranties; Contingent Liabilities ............................  62
8.07.        Restricted Payments ...........................................  62
8.08.        Affiliate Transactions ........................................  64
8.09.        Compliance with ERISA .........................................  64
8.10.        Capital Stock .................................................  65
8.11.        Sale and Leaseback ............................................  65
8.12.        Sale or Discount of Receivables ...............................  65
8.13.        Limitation on Restrictive Agreements ..........................  65
8.14.        Amendment of 1997 Senior Notes and 1998 Senior Notes ..........  65
8.15.        The Interest Reserve Escrow Account ...........................  65
8.16.        Name Changes ..................................................  66

                          ARTICLE IX. EVENTS OF DEFAULT

9.01.        Events of Default .............................................  66
9.02.        Remedies upon Default .........................................  69
9.03.        Cumulative Rights .............................................  70
9.04.        Waivers .......................................................  70
9.05.        Performance by Administrative Lender or any Lender ............  70
9.06.        Expenditures ..................................................  71
9.07.        Control .......................................................  71

                      ARTICLE X. THE ADMINISTRATIVE LENDER

10.01.       Authorization and Action ......................................  71
10.02.       Administrative Lender's Reliance, Etc .........................  72
10.03.       NationsBank of Texas, N.A. and Affiliates .....................  72
10.04.       Lender Credit Decision ........................................  72
10.05.       Indemnification by Lenders ....................................  72
10.06.       Successor Administrative Lender ...............................  73

                            ARTICLE XI. MISCELLANEOUS

11.01.       Amendments and Waivers ........................................  74
11.02.       Notices .......................................................  74
11.03.       Parties in Interest ...........................................  76


                                      iii
<PAGE>
 
11.04.       Assignments and Participations ................................  77
11.05.       Sharing of Payments ...........................................  78
11.06.       Right of Set-off ..............................................  78
11.07.       Costs, Expenses, and Taxes ....................................  78
11.08.       Rate Provision ................................................  79
11.09.       Severability ..................................................  80
11.10.       Exceptions to Covenants .......................................  80
11.11.       Counterparts ..................................................  80
11.12.       GOVERNING LAW; WAIVER OF JURY TRIAL ...........................  80
11.13.       ENTIRE AGREEMENT ..............................................  81
11.14.       Amendment, Restatement, Extension and Renewal .................  81


                                       iv
<PAGE>
 
                         Table of Schedules and Exhibits


                                    Schedules


Schedule 2.16(a)  -        Certain Excluded Assets from Collateral
Schedule 5.01(a)  -        Jurisdictions of Qualification, Ownership and
                           Capital Structure - Borrower
Schedule 5.01(f)  -        Non-Compliance with FCC or any applicable PUC
Schedule 5.01(h)  -        Existing Litigation
Schedule 5.01(r)  -        Description of Pledged Stock
Schedule 8.02     -        Existing Debt and Liabilities
Schedule 8.03     -        Existing Liens
Schedule 8.04     -        Existing Investments
Schedule 8.08     -        Permitted Affiliate Non-Market Transactions



                                    Exhibits


Exhibit A                  -       Form of Revolving Note
Exhibit B                  -       Form of Increase Revolving Note
Exhibit C                  -       Form of Compliance Certificate
Exhibit D                  -       Form of Borrowing Notice
Exhibit E                  -       Form of Conversion/Continuation Notice
Exhibit F                  -       Form of Assignment and Acceptance
Exhibit G                  -       Form of Unlimited Guaranty
Exhibit H                  -       Form of Pledge Agreement
<PAGE>
 
- --------------------------------------------------------------------------------


                                  $100,000,000

                            INTERSTATE FIBERNET, INC.

                   FIRST AMENDED AND RESTATED CREDIT AGREEMENT


     THIS FIRST AMENDED AND RESTATED CREDIT AGREEMENT is dated as of February
24, 1998, among INTERSTATE FIBERNET, INC., a Delaware corporation (the
"Borrower"), the Lenders (as defined below) and NATIONSBANK OF TEXAS, N.A., as a
Lender and Administrative Lender.


                                   BACKGROUND.

     WHEREAS, Borrower, Administrative Lender and certain other lenders entered
into that certain Credit Agreement, dated as of September 17, 1997, as amended
by that certain First Amendment to Credit Agreement, dated as of October 20,
1997, and that certain Second Amendment to Credit Agreement, dated as of
February 2, 1998 (collectively referred to herein as the "Original Credit
Agreement"); and

     WHEREAS, the Borrower and the Administrative Lender have agreed to amend
and restate the Original Credit Agreement to delete the term loan, provide for
an uncommitted potential increase of the revolving loan up to an additional
$50,000,000, to extend the maturity date, change certain financial covenants and
to make certain other changes; and

     WHEREAS, the Borrower and the Administrative Lender hereby enter into a
First Amended and Restated Credit Agreement which provides for one revolving
loan facility in the amount of $50,000,000 (which such loan facility shall also
include a letter of credit availability of not more than $2,500,000), with the
uncommitted potential to increase up to an amount in the aggregate of
$100,000,000.

                                   AGREEMENT.

     NOW, THEREFORE, for valuable consideration hereby acknowledged, the parties
hereto agree as follows:
<PAGE>
 
                             ARTICLE I. DEFINITIONS

     1.01. Definitions. As used in this Agreement, the following terms have the
respective meanings indicated below (such meanings to be applicable equally to
both the singular and plural forms of such terms):

     "Administrative Lender" means NationsBank of Texas, N.A., in its capacity
as Administrative Lender hereunder, or any successor Administrative Lender
appointed pursuant to Section 10.06 hereof.

     "Advance" means an advance made by a Lender to the Borrower pursuant to
Section 2.01 hereof, which shall include Revolving Advances.

     "Affiliate" means a Person that directly, or indirectly through one or more
intermediaries, Controls or is Controlled By or is Under Common Control with
another Person.

     "Agreement" means this First Amended and Restated Credit Agreement, as
hereafter amended, modified, increased, extended, restated or supplemented from
time to time.

     "Annualized Operating Cash Flow" means the product of (a) Operating Cash
Flow for the most recently completed six month period, times (b) two.

     "Applicable Law" means (a) in respect of any Person, all provisions of Laws
of Tribunals applicable to such Person, and all orders and decrees of all courts
and arbitrators in proceedings or actions to which the Person in question is a
party and (b) in respect of contracts made or performed in the State of Texas,
"Applicable Law" also means the laws of the United States of America, including,
without limiting the foregoing, 12 USC Sections 85 and 86, as amended to the
date hereof and as the same may be amended at any time and from time to time
hereafter, and any other statute of the United States of America now or at any
time hereafter prescribing the maximum rates of interest on loans and extensions
of credit, and the laws of the State of Texas, including, without limitation,
Article 5069-1H, Title 79, Revised Civil Statutes of Texas, 1925, ("Art. 1H"),
as amended, if applicable, and if Art. 1H is not applicable, Article 5069-1D,
Title 79, Revised Civil Statutes of Texas, 1925, ("Art. 1D"), as amended, and
any other statute of the State of Texas now or at any time hereafter prescribing
maximum rates of interest on loans and extensions of credit; provided however,
that pursuant to Article 5069-15.10(b), Title 79, Revised Civil Statutes of
Texas, 1925, as amended, the Borrower agrees that the provisions of Chapter 15,
Title 79, Revised Civil Statutes of Texas, 1925, as amended, shall not apply to
Advances hereunder.



                                       2
<PAGE>
 
     "Applicable Margin" means, (a) with respect to LIBOR Advances, 2.125% per
annum, and (b) with respect to Base Advances, 1.125% per annum provided that, so
long as there exists no Event of Default, the Applicable Margin will be adjusted
as set forth in the last paragraph of this definition to the following per annum
percentages applicable in the following situations:

<TABLE>
<CAPTION>
                                       LIBOR Advance                Base Advance
      Applicability                      Percentage                  Percentage
      -------------                      ----------                  ----------
<S>                                         <C>                        <C>   
   (i)  If the Total                        2.125%                     1.125%
Leverage Ratio is
greater than or equal to
8.00 to 1.00

   (ii)  If the Total                       1.875%                     0.875%
Leverage Ratio is less
than 8.00 to 1.00 but
is greater than or equal to
7.00 to 1.00

   (iii)  If the Total                      1.750%                     0.750%
Leverage Ratio is less
than 7.00 to 1.00 but
is greater than or equal to
6.00 to 1.00

   (iv)  If the Total                       1.625%                     0.625%
Leverage Ratio is less
than 6.00 to 1.00
but is greater than or equal
to 5.00 to 1.00

   (v)  If the Total                        1.375%                     0.375%
Leverage Ratio is less
than 5.00 to 1.00
but is greater than or equal
to 4.50 to 1.00

   (vi)  If the Total                       1.125%                     0.125%
Leverage Ratio is less
than 4.50 to 1.00
but is greater than or equal
to 4.00 to 1.00
</TABLE>


                                       3
<PAGE>
 
<TABLE>
<CAPTION>
<S>                                         <C>                        <C>   
   (vii)  If the Total                      1.000%                     0.000%
Leverage Ratio is less
than 4.00 to 1.00
</TABLE>


The Applicable Margin payable by the Borrower shall be subject to reduction or
increase, as applicable and as set forth in the table above, on a quarterly
basis according to the performance of the Parent, the Borrower and the
Subsidiaries of Borrower as tested by the Total Leverage Ratio. Except as set
forth in the following sentence, any such increase or reduction in the
Applicable Margin provided for herein shall be effective three Business Days
after receipt by Administrative Lender of the applicable financial statements
and corresponding Compliance Certificate. If financial statements and a
Compliance Certificate of the Borrower setting forth the Total Leverage Ratio
are not received by the Administrative Lender by the date required pursuant to
Section 7.01 or 7.02 hereof, the Applicable Margin shall be determined as if the
Total Leverage Ratio exceeds 8.00 to 1.00 until such time as such financial
statements and Compliance Certificate are received. For the final quarter of any
fiscal year of the Borrower, the Borrower may provide the unaudited financial
statements of the Borrower, subject only to year-end adjustments, for the
purpose of adjusting the Applicable Margin.

     "Application" means any stand-by letter of credit application delivered to
Administrative Lender for or in connection with any stand-by Letter of Credit
pursuant to Article III hereof, in Administrative Lender's standard form for
stand-by letters of credit.

     "Art. 1D" has the meaning specified in the definition herein of "Applicable
Law".

     "Art. 1H" has the meaning specified in the definition herein of "Applicable
Law".

     "Assignment and Acceptance" means an assignment and acceptance entered into
by a Lender and an assignee in accordance with the terms and conditions of
Section 11.04 hereof, and accepted by Administrative Lender, in the form of
Exhibit F hereto.

     "Auditor" means Arthur Andersen, L.L.P., or other independent certified
public accountants selected by the Borrower and acceptable to Administrative
Lender.

     "Authorized Officer" means, with respect to the Parent, the Borrower and
its Subsidiaries respectively, any of the Chief Executive Officer, the
President, the Chief Financial Officer, the Vice President of Finance, the
General Counsel or the Treasurer of the Borrower.



                                       4
<PAGE>
 
     "Bank Affiliate" means the holding company of any Lender, or any wholly
owned direct or indirect subsidiary of such holding company or of such Lender.

     "Base Advance" means an Advance under the Revolving Loan bearing interest
at the Base Rate.

     "Base Rate" means a per annum interest rate equal to the lesser of (a) the
Highest Lawful Rate, and (b) the sum of the Applicable Margin plus the higher of
(i) a fluctuating rate per annum as shall be in effect from time to time
announced or published by NationsBank of Texas, N.A. as its prime rate, and
which may not necessarily be the lowest interest rate charged by NationsBank of
Texas, N.A., and (ii) the Federal Funds Rate in effect at such time plus .50%.

     "Borrowing" means a borrowing of the same Type made on the same day.

     "Borrowing Notice" has the meaning set forth in Section 2.02(a) hereof.

     "Business Day" means a day on which banks are open for the transaction of
business as required by this Agreement in Dallas, Texas and, with respect to any
LIBOR Advance, a domestic business day in London, England and a day on which
commercial banks are open for international business in London, England
(including dealings in United States dollar deposits), and as otherwise relevant
to the determination to be made or the action to be taken.

     "Capital Expenditures" means capital expenditures, as defined in accordance
with GAAP.

     "Capital Leases" means capital leases and subleases, as defined in
accordance with GAAP.

     "Capital Stock" means, as to any Person, the equity interests in such
Person, including, without limitation, the shares of each class of capital stock
of any Person that is a corporation, each class of partnership interests
(including without limitation, general, limited and preference units) in any
Person that is a partnership, and each membership interest in any Person that is
a limited liability company.

     "Closing Date" means the date hereof.

     "Code" means the Internal Revenue Code of 1986, as amended, and any
reference to any provision of the Code shall include all successor provisions
thereto.

     "Collateral" has the meaning ascribed thereto in Section 2.16(a) hereof.



                                       5
<PAGE>
 
     "Commitment" means, with respect to the Revolving Loan, $50,000,000 as
reduced pursuant to Section 2.11 hereof, and as increased pursuant to the terms
of Section 2.17 hereof.

     "Commitment Fee" means the fee described in Section 2.10(b) hereof.

     "Communications Act" means, collectively, the Communications Act of 1934,
as amended by the Telecommunications Act of 1996, and as further amended, and
the rules and regulations promulgated thereunder, as from time to time in
effect.

     "Compliance Certificate" means a certificate of an Authorized Officer in
the form of Exhibit C hereto, (a) certifying that such individual has no
knowledge that a Default or Event of Default has occurred and is continuing, or
if a Default or Event of Default has occurred and is continuing, a statement as
to the nature thereof and the action being taken or proposed to be taken with
respect thereto, (b) setting forth detailed calculations with respect to the
covenants described in Section 8.01 hereof and (c) certifying to the appropriate
Applicable Margin.

     "Consequential Loss" with respect to (a) the Borrower's payment of all or
any portion of the then-outstanding principal amount of a LIBOR Advance on a day
other than the last day of the related Interest Period, including, without
limitation, payments made as a result of the acceleration of the maturity of a
Note, (b) subject to Administrative Lenders' prior consent, a LIBOR Advance made
on a date other than the date on which the Advance is to be made according to
Section 2.02(a) or Section 2.09 hereof to the extent such Advance is made on
such other date at the request of the Borrower, or (c) any of the circumstances
specified in Section 2.04 hereof on which a Consequential Loss may be incurred,
means any loss, cost or expense incurred by any Lender as a result of the timing
of the payment or Advance or in liquidating, redepositing, redeploying or
reinvesting the principal amount so paid or affected by the timing of the
Advance or the circumstances described in Section 2.04 hereof, which amount
shall be the sum of (i) the interest that, but for the payment or timing of
Advance, such Lender would have earned in respect of that principal amount,
reduced, if such Lender is able to redeposit, redeploy, or reinvest the
principal amount, by the interest earned by such Lender as a result of
redepositing, redeploying or reinvesting the principal amount plus (ii) any
expense or penalty incurred by such Lender by reason of liquidating,
redepositing, redeploying or reinvesting the principal amount. Each
determination by each Lender of any Consequential Loss is, in the absence of
manifest error, presumptive evidence of the validity of such claim.

     "Contingent Liability" means, as to any Person, any obligation or Guaranty,
contingent or otherwise, of such Person guaranteeing or having the economic
effect of guaranteeing any Debt or obligation of any other Person in any manner,
whether directly or indirectly, including without limitation any obligation of
such Person, direct or indirect, (a) to purchase or pay (or advance or supply
funds for the purchase or payment of) such Debt or to purchase (or to advance or
supply funds for the purchase of) any security for the payment of such Debt, (b)
to purchase 



                                       6
<PAGE>
 
Property or services for the purpose of assuring the owner of such Debt of its
payment, or (c) to maintain the solvency, working capital, equity, cash flow,
fixed charge or other coverage ratio, or any other financial condition of the
primary obligor so as to enable the primary obligor to pay any Debt or to comply
with any agreement relating to any Debt or obligation, but excluding endorsement
of checks, drafts and other instruments in the ordinary course of business,
provided that this definition of "Contingent Liability" shall not include
Guaranties by the Borrower or any Subsidiary of the Borrower of any obligations
of the Borrower or any wholly owned Subsidiary of the Borrower that has executed
an Unlimited Guaranty.

     "Continue," "Continuation" and "Continued" each refer to the continuation
pursuant to Section 2.09 hereof of a LIBOR Advance from one Interest Period to
the next Interest Period.

     "Control" or "Controlled By" or "Under Common Control" mean possession,
direct or indirect, of power to direct or cause the direction of management or
policies (whether through ownership of voting securities, by contract or
otherwise); provided that, in any event (a) any Person which beneficially owns
(i) 10% or more (in number of votes) of the securities having ordinary voting
power for the election of directors of a corporation shall be conclusively
presumed to control such corporation and (ii) 10% or more of the interest in
capital or profits of a partnership shall be conclusively presumed to control
such partnership, and (b) no Person shall be deemed to be an Affiliate of a
corporation solely by reason of his being an officer or director of such
corporation.

     "Controlled Group" means, as to any Person, all members of a controlled
group of corporations and all trades or businesses (whether or not incorporated)
which are under common control with such Person and which, together with such
Person, are treated as a single employer under Section 414(b), (c), (m) or (o)
of the Code.

     "Conversion or Continuance Notice" has the meaning set forth in Section
2.09(b) hereof.

     "Debt" means all obligations, contingent or otherwise, which in accordance
with GAAP are required to be classified on the balance sheet as liabilities, and
in any event including (without duplication) (a) Capital Leases, (b) Contingent
Liabilities that are required to be disclosed and quantified in notes to
consolidated financial statements in accordance with GAAP, (c) liabilities
secured by any Lien on any Property, regardless of whether such secured
liability is with or without recourse, and (d) installment payment non-compete
agreements.

     "Debt for Borrowed Money" means, as to any Person, at any date, without
duplication, all Debt of such Person that constitutes (a) all obligations of
such Person for borrowed money, letters of credit (or applications for letters
of credit) or other similar instruments, (b) all obligations of such Person
evidenced by bonds, debentures, notes or other similar instruments, (c) all
obligations of such Person to pay the deferred purchase price of property or
services, 



                                       7
<PAGE>
 
except trade accounts payable arising in the ordinary course of business, (d)
all obligations under Capital Leases, (e) installment payment non-compete
agreements, and (f) all Contingent Liabilities relating to obligations of
another Person (other than a wholly owned Subsidiary of the Borrower that has
executed an Unlimited Guaranty) of the type described in (a) through (e) above.

     "Debtor Relief Laws" means applicable bankruptcy, reorganization,
moratorium, or similar Laws, or principles of equity affecting the enforcement
of creditors' rights generally.

     "Default" means any event specified in Section 9.01 hereof, whether or not
any requirement in connection with such event for the giving of notice, lapse of
time, or happening of any further condition has been satisfied.

     "Distribution" means, as to any Person, (a) any declaration or payment of
any distribution or dividend (other than a stock dividend) on, or the making of
any pro rata distribution, loan, advance, or investment to or in any holder of,
any partnership interest or shares of Capital Stock or other equity interest of
such Person (or the establishment of a sinking fund or otherwise setting aside
of funds for any such purpose), or (b) any purchase, redemption, or other
acquisition or retirement for value of any shares of partnership interest or
Capital Stock or other equity interest of such Person (or the establishment of a
sinking fund or otherwise setting aside of funds for any such purpose).

     "Effective Date" means the date that each of the conditions set forth in
Section 4.02 hereof have been satisfied.

     "Environmental Claim" means any written notice by any Tribunal alleging
liability for damage to the environment, or by any Person alleging liability for
personal injury (including sickness, disease or death), resulting from or based
upon (a) the presence or release (including sudden or non-sudden, accidental or
non-accidental, leaks or spills) of any Hazardous Material at, in or from
property, whether or not owned by the Borrower or any of its Subsidiaries, or
(b) circumstances forming the basis of any violation, or alleged violation, of
any Environmental Law.

     "Environmental Laws" means the Comprehensive Environmental Response,
Compensation, and Liability Act (42 U.S.C. ss.9601 et seq.) ("CERCLA"), the
Hazardous Material Transportation Act (49 U.S.C. ss.1801 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C ss.6901 et seq.), the Federal Water
Pollution Control Act (33 U.S.C. ss.1251 et seq.), the Clean Air Act (42 U.S.C.
ss.7401 et seq.), the Toxic Substances Control Act (15 U.S.C. ss.2601 et seq.),
and the Occupational Safety and Health Act (29 U.S.C. ss.651 et seq.) ("OSHA"),
as such laws have been or hereafter may be amended or supplemented, and any and
all analogous future federal, or present or future state or local, Laws.



                                       8
<PAGE>
 
     "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rulings and regulations issued thereunder, as from time to time
in effect.

     "ERISA Affiliate" means any Person that for purposes of Title IV of ERISA
is a member of the controlled group of the Borrower or any Obligor, or is under
common control with Borrower or any Obligor, within the meaning of Section
414(c) of the Code, and the regulations and rulings issued thereunder.

     "ERISA Event" means (a) a reportable event, within the meaning of Section
4043 of ERISA, unless the 30-day notice requirement with respect thereto has
been waived by the PBGC, (b) the issuance by the administrator of any Plan of a
notice of intent to terminate such Plan, pursuant to Section 4041(a)(2) of ERISA
(including any such notice with respect to a plan amendment referred to in
Section 4041(e) of ERISA), (c) the withdrawal by the Parent, the Borrower, any
Subsidiary of the Borrower, or an ERISA Affiliate from a Multiple Employer Plan
during a Plan year for which it was a substantial employer, as defined in
Section 4001(a)(2) of ERISA, (d) the failure by the Parent, the Borrower, any
Subsidiary of the Borrower, or any ERISA Affiliate to make a payment to a Plan
required under Section 302 of ERISA, (e) the adoption of an amendment to a Plan
requiring the provision of security to such Plan, pursuant to Section 307 of
ERISA, or (f) the institution by the PBGC of proceedings to terminate a Plan,
pursuant to Section 4042 of ERISA, or the occurrence of any event or condition
that constitutes grounds under Section 4042 of ERISA for the termination of, or
the appointment of a trustee to administer, a Plan.

     "Event of Default" means any of the events specified in Section 9.01 of
this Agreement, provided there has been satisfied any requirement in connection
therewith for the giving of notice, lapse of time, or happening of any further
condition.

     "Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time.

     "FCC" means the Federal Communications Commission, or any governmental
agency succeeding to the functions thereof.

     "Federal Funds Rate" means, for any period, a fluctuating interest rate per
annum equal for each day during such period to the weighted average of the rates
on overnight federal funds transactions with members of the Federal Reserve
System arranged by federal funds brokers, as published for such day (or, if such
day is not a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of Dallas, or, if such rate is not so published for any day which
is a Business Day, the average of the quotations for such date on such
transactions 



                                       9
<PAGE>
 
received by Administrative Lender from three federal funds brokers of recognized
standing selected by it.

     "Fee Letter" means that certain Fee Letter, dated September 17, 1997,
between the Borrower and the Administrative Lender, and all other fee letters
executed among the Borrower or any Lender[s], as such letters may be amended,
modified, substituted, replaced, or increased from time to time.

     "GAAP" means generally accepted accounting principles applied on a
consistent basis. Application on a consistent basis shall mean that the
accounting principles observed in a current period are comparable in all
material respects to those applied in a preceding period, except for new
developments or statements promulgated by the Financial Accounting Standards
Board and other changes in accounting methods permitted by generally accepted
accounting principles.

     "Guarantors" means the Parent and each Subsidiary of the Borrower existing
on the Closing Date or formed or acquired by the Borrower or any direct or
indirect Subsidiary of the Borrower from time to time thereafter.

     "Guaranty" means a guaranty executed by any Person of the obligations of
another Person, or any agreement by which such Person assumes, guarantees,
endorses, contingently agrees to purchase or provide funds for the payment of,
or otherwise becomes liable upon, the obligation of any other Person, or agrees
to maintain the net worth or working capital or other financial condition of any
other Person, or otherwise assures any creditor or such other Person against
loss, including, without limitation, any comfort letter, or take-or-pay contract
and shall include without limitation, the contingent liability of such Person in
connection with any application for a letter of credit.

     "Hazardous Materials" means all materials subject to any Environmental Law,
including without limitation materials listed in 49 C.F.R. ss. 172.101,
Hazardous Substances, explosive or radioactive materials, hazardous or toxic
wastes or substances, petroleum or petroleum distillates, asbestos, or material
containing asbestos.

     "Hazardous Substances" means hazardous waste as defined in the Clean Water
Act, 33 U.S.C. ss. 1251 et seq., the Comprehensive Environmental Response
Compensation and Liability Act as amended by the Superfund Amendments and
Reauthorization Act, 42 U.S.C. ss. 9601 et seq., the Resource Conservation
Recovery Act, 42 U.S.C. ss. 6901 et seq., and the Toxic Substances Control Act,
15 U.S.C. ss. 2601 et seq.

     "Highest Lawful Rate" means at the particular time in question the maximum
rate of interest which, under Applicable Law, any Lender is then permitted to
charge on the Obligations. If the maximum rate of interest which, under
Applicable Law, any Lender is 



                                       10
<PAGE>
 
permitted to charge on the Obligations shall change after the date hereof, the
Highest Lawful Rate shall be automatically increased or decreased, as the case
may be, from time to time as of the effective time of each change in the Highest
Lawful Rate without notice to the Borrower. For purposes of determining the
Highest Lawful Rate under Applicable Law, the indicated rate ceiling shall be
(a) the weekly ceiling described in and computed in accordance with the
provisions of Art. 1H, or (b) either the annualized ceiling or quarterly ceiling
computed pursuant to Section .008 of Art. 1D; provided, however, that at any
time the weekly ceiling, the annualized ceiling or the quarterly ceiling, as
applicable, shall be less than 18% per annum or more than 24% per annum, the
provisions of Sections .009(a), .009(b) or .009(c) of said Art. 1D shall control
for purposes of such determination, as applicable.

     "Income Tax Expense" means the aggregate Taxes accrued by the Parent, the
Borrower and its Subsidiaries for the relevant period of determination.

     "Insufficiency" means, with respect to any Plan, the amount, if any, of its
unfunded benefit liabilities within the meaning of Section 4001(a)(18) of ERISA.

     "Interest Coverage Ratio" means, on any date of determination for the
Parent, the Borrower and its consolidated Subsidiaries, the ratio of (i)
Annualized Operating Cash Flow to (b) Interest Expense actually paid during the
most recently completed twelve month period minus the sum of (i) one-time
prepayment penalties incurred as a result of the extinguishment on the Effective
Date of interest rate protection agreements of the Borrower in an amount not in
excess of $2,800,000 and (ii) any interest expense associated exclusively with
the mark to market on the Effective Date of interest rate protection agreements
of the Borrower in an amount not in excess of $2,800,000, but in each case
specifically excluding any interest paid out of the Interest Reserve Escrow
Account.

     "Interest Expense" means, for the Parent, the Borrower and its Subsidiaries
on a consolidated basis, the gross interest expense for any period on Total
Debt, determined in accordance with GAAP, and including commitment fees
incurred, whether accrued or paid and all fees and expenses with respect to
letters of credit, minus the sum of (a) interest income for such period, (b)
interest actually paid-in-kind, (c) any one-time facility fees paid in
connection with this Agreement and in connection with any pre-existing Debt of
the Parent, the Borrower and its Subsidiaries and (d) an amount not to exceed
$9,500,000 in accrued interest paid by the Borrower to ITC Holding prior to
September 17, 1997.

     "Interest Period" means, with respect to any LIBOR Advance, the period
beginning on the date the Advance is made or continued as a LIBOR Advance and
ending one, two, three, six or, to the extent available as determined by
Administrative Lender, twelve months thereafter (as the Borrower shall select),
provided, however, that:



                                       11
<PAGE>
 
          (a) the Borrower may not select any Interest Period that ends after
     any principal repayment date unless, after giving effect to such selection,
     the aggregate principal amount of LIBOR Advances having Interest Periods
     that end on or prior to such principal repayment date, shall be at least
     equal to the principal amount of Advances due and payable on and prior to
     such date;

          (b) whenever the last day of any Interest Period would otherwise occur
     on a day other than a Business Day, the last day of such Interest Period
     shall be extended to occur on the next succeeding Business Day, provided,
     however, that if such extension would cause the last day of such Interest
     Period to occur in the next following calendar month, the last day of such
     Interest Period shall occur on the next preceding Business Day; and

          (c) whenever the first day of any Interest Period occurs on a day of
     an initial calendar month for which there is no numerically corresponding
     day in the calendar month that succeeds such initial calendar month by the
     number of months equal to the number of months in such Interest Period,
     such Interest Period shall end on the last Business Day of such succeeding
     calendar month.

     "Interest Rate Protection Agreement" means an interest rate swap, cap,
collar or similar interest rate protection agreement between the Borrower and
any Lender.

     "Interest Reserve Escrow Account" means the account of the Borrower (as
assignee of the Parent) pursuant to the terms of the 1997 Senior Notes, into
which a deposit was made from the proceeds of the 1997 Senior Notes to pay the
first three years of interest expense due and payable on the 1997 Senior Notes.

     "Investment" means any acquisition of all or substantially all of the
assets of any Person, or any direct or indirect purchase or other acquisition
of, or a beneficial interest in, any Capital Stock or other securities of any
other Person, or any direct or indirect loan, advance, or capital contribution
to or investment in any other Person, including without limitation the
incurrence or sufferance of Debt or accounts receivable of any other Person that
are not current assets or do not arise from sales to that other Person in the
ordinary course of business.

     "ITC Holding" means ITC Holding Company, Inc., a Delaware corporation.

     "Law" means any constitution, statute, law, ordinance, regulation, rule,
order, writ, injunction, or decree of any Tribunal.

     "Lenders" means the lenders listed on the signature pages of this
Agreement, and each transferee which hereafter becomes a party to this Agreement
pursuant to Section 11.04 hereof or 



                                       12
<PAGE>
 
pursuant to an amendment to this Agreement, so long as each is owed any portion
of the Obligation or is obligated to make any Advance hereunder.

     "Lending Office" means, with respect to each Lender, its branch or
affiliate, (a) initially, the office of each Lender, branch or affiliate
identified on each Lender's signature page hereto, and (b) subsequently, such
other office of each Lender, branch or affiliate as each Lender may designate to
the Borrower and Administrative Lender as the office from which the Advances of
each Lender will be made and maintained and for the account of which all
payments of principal and interest on the Advances and the Commitment Fee and
the Unused Fee will thereafter be made. Lenders may have more than one Lending
Office for the purpose of making Base Advances and LIBOR Advances.

     "Letter of Credit Commitment" means, on any date of determination, an
amount equal to the lesser of (a) $2,500,000 and (b) the Commitment minus all
outstanding Advances under the Revolving Loan.

     "Letters of Credit" means the irrevocable standby letters of credit issued
by Administrative Lender under and pursuant to Article III hereof, as each may
be amended, modified, substituted, increased, replaced, renewed or extended from
time to time.

     "LIBOR Advance" means an Advance under the Revolving Loan bearing interest
at the LIBOR Rate.

     "LIBOR Lending Office" means, with respect to each Lender, the office
designated as its "LIBOR Lending Office" on each Lender's signature page hereto,
or such other office of Lender or any of its affiliates hereafter designated by
notice to the Borrower and Administrative Lender.

     "LIBOR Rate" means, for any LIBOR Advance for any Interest Period
therefore, a rate per annum equal to the lesser of (a) the Highest Lawful Rate
and (b) the sum of (i) the Applicable Margin, plus (ii) the rate per annum
(rounded upwards, if necessary, to the nearest one-one hundredth (1/100th) of
one percent (1%)) appearing on Telerate Page 3750 (or any successor page) as the
London interbank offered rate for deposits in United States dollars at
approximately 11:00 a.m. (London time) two Business Days prior to the first day
of such Interest Period. If for any reason such rate is not available, the term
"LIBOR Rate" shall mean, for any LIBOR Advance for any Interest Period therefor,
the rate per annum (rounded upwards, if necessary, to the nearest one-one
hundredth (1/100th) of one percent (1%)) appearing on Reuters Screen LIBO page
as the London interbank offered rate for deposits in United States dollars at
approximately 11:00 a.m. (London time) two Business Days prior to the first day
of such Interest Period for a term comparable to such Interest Period; provided,
however, if more than one rate 



                                       13
<PAGE>
 
is specified on Reuters Screen LIBO Page, the applicable rate shall be the
arithmetic mean of all such rates.

     "License" means, as to the Parent, the Borrower, or any Subsidiary of the
Borrower, any license, permit, consent, certificate of need, authorization,
certification, accreditation, franchise, approval, or grant of rights by, or any
filing or registration with, any Tribunal or third Person (including without
limitation, the FCC or any applicable PUC) necessary for such Person to own,
build, maintain, or operate its business or Property.

     "Lien" means any mortgage, pledge, security interest, encumbrance, lien, or
charge of any kind, including without limitation any agreement to give or not to
give any of the foregoing, any conditional sale or other title retention
agreement, any lease in the nature thereof, and the filing of or agreement to
give any financing statement or other similar form of public notice under the
Laws of any jurisdiction (except for the filing of a financing statement or
notice in connection with an (a) operating lease or (b) the true consignment of
goods to the Borrower or any Subsidiary of the Borrower as consignee).

     "Litigation" means any proceeding, claim, lawsuit, arbitration, and/or
investigation conducted by or before any Tribunal or arbitrator, including
without limitation proceedings, claims, lawsuits, and/or investigations under or
pursuant to any environmental, occupational, safety and health, antitrust,
unfair competition, securities, Tax, or other Law, or under or pursuant to any
contract, agreement, or other instrument.

     "Loan Papers" means this Agreement, the Notes, the Pledge Agreement, the
Unlimited Guaranties, the Fee Letter[s], financing statements, any Interest Rate
Protection Agreement and related documents entered into by the Borrower with any
Lender or any Bank Affiliate, all Letters of Credit, all Applications and all
other agreements between the Borrower or any Subsidiary of the Borrower and the
Administrative Lender related to any Letter of Credit, other fee letters,
Assignment and Acceptances, post-closing letters, all security agreements,
pledges, mortgages, deeds of trust, assignments, leasehold mortgages, leasehold
deeds of trust, collateral assignments and other agreements and documentation
relating to the Liens securing the Obligations, and all other documents,
instruments, agreements, or certificates executed or delivered from time to time
by any Person in connection with this Agreement or as security for the
Obligations hereunder, granting Collateral or otherwise, as each such agreement
may be amended, modified, substituted, replaced or extended from time to time.

     "Majority Lenders" means any combination of Lenders having at least 51.00%
of the aggregate amount of outstanding Advances hereunder, provided, however,
that if no Advances are outstanding, such term means any combination of one or
more Lenders having Specified Percentages equal to at least 51.00%.



                                       14
<PAGE>
 
     "Material Adverse Change" means any circumstance or event that is or could
reasonably be expected to (a) be material and adverse to the financial
condition, business operations, prospects, or Properties of the Parent, the
Borrower and its Subsidiaries on a consolidated basis, (b) materially and
adversely affect the validity or enforceability of any Loan Paper or (c) cause a
Default or Event of Default.

     "Maturity Date" means the earlier of February 24, 2003, or such earlier
date on which the total amount of outstanding Obligations are due and payable
(including, without limitation, whether by acceleration, scheduled reduction of
the Commitment to zero, mandatory or voluntary commitment reduction of the
Commitment to zero, installment payments or otherwise).

     "Maximum Amount" means the maximum amount of interest which, under
Applicable Law, a Lender is permitted to charge on the Obligations.

     "Multiemployer Plan" means a multiemployer plan, as defined in Section
4001(a)(3) of ERISA, to which the Borrower, any Subsidiary of the Borrower, or
any ERISA Affiliate is making or accruing an obligation to make contributions,
or has within any of the preceding five plan years made or accrued an obligation
to make contributions, such plan being maintained pursuant to one or more
collective bargaining agreements.

     "Multiple Employer Plan" means a single employer plan, as defined in
Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the
Parent, the Borrower, any Subsidiary of the Borrower, or any ERISA Affiliate and
at least one Person other than the Parent, the Borrower, any Subsidiary of the
Borrower, and any ERISA Affiliate, or (b) was so maintained and in respect of
which the Parent, the Borrower, any Subsidiary of the Borrower, or any ERISA
Affiliate could have liability under Section 4064 or 4069 of ERISA in the event
such plan has been or were to be terminated.

     "Net Proceeds" means the gross cash proceeds received by the Parent, the
Borrower or any Subsidiary of the Borrower in connection with or as a result of
any asset sale not in the ordinary course of business, minus (so long as each of
the following are estimated in good faith by the management of the Borrower and
certified to the Lenders in reasonable detail by an Authorized Officer) (a)
actual taxes estimated in good faith by the Borrower's board of directors
incurred as a result of such sale (after giving effect to all tax benefits
available to the Borrower or such Subsidiary), and (b) reasonable and customary
transaction costs payable by the Parent, the Borrower or any Subsidiary of the
Borrower that are related to such sale and payable to a Person other than an
Affiliate of the Borrower and its Subsidiaries.

     "1998 Senior Note Indenture" means the indenture dated as of March , 1998
between the Parent, as issuer, and United States Trust Company of New York, as
Trustee.



                                       15
<PAGE>
 
     "1998 Senior Notes" means those certain senior notes due 2008 evidencing
unsecured indebtedness issued by the Parent in March of 1998, in accordance with
the terms of Section 8.02(c) hereof.

     "1997 Senior Notes" means those certain $200,000,000 11% Senior Notes due
2007, evidencing unsecured indebtedness issued by the Parent as more fully
described in that certain Offering Memorandum of the Parent dated May 29, 1997,
as exchanged pursuant to that Offer to Exchange all outstanding 11% Senior Notes
due June 1, 2007 for registered 11% Senior Notes Due June 1, 2007.

     "Note" means each Note of the Borrower evidencing Advances hereunder,
substantially in the form of Exhibit A hereto with respect to Advances made
under the Revolving Loan, and substantially in the form of Exhibit B hereto with
respect to Advances made under any increase of the Revolving Loan, together in
each case, with any extension, renewal or amendment thereof, or substitution
therefor.

     "Obligations" means all present and future obligations, indebtedness and
liabilities, and all renewals and extensions of all or any part thereof, of the
Borrower and each Obligor to Lenders and Administrative Lender arising from, by
virtue of, or pursuant to this Agreement, any of the other Loan Papers and any
and all renewals and extensions thereof or any part thereof, or future
amendments thereto, all interest accruing on all or any part thereof and
reasonable attorneys' fees incurred by the Administrative Lender for the
preparation of this Agreement and consummation of this credit facility,
execution of waivers, amendments and consents, and in connection with the
enforcement or the collection of all or any part thereof, and reasonable
attorneys' fees incurred by the Lenders in connection with the enforcement or
the collection of all or any part of the Obligations during the continuance of
an Event of Default, in each case whether such obligations, indebtedness and
liabilities are direct, indirect, fixed, contingent, joint, several or joint and
several. Without limiting the generality of the foregoing, "Obligations"
includes all amounts which would be owed by the Borrower, each other Obligor and
any other Person (other than Administrative Lender or Lenders) to Administrative
Lender or Lenders under any Loan Paper, but for the fact that they are
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving the Borrower, any other Obligor
or any other Person (including all such amounts which would become due or would
be secured but for the filing of any petition in bankruptcy, or the commencement
of any insolvency, reorganization or like proceeding of the Borrower, any other
Obligor or any other Person under any Debtor Relief Law).

     "Obligor" means (a) the Parent, (b) the Borrower, (c) each Subsidiary of
the Borrower, (d) each other Person liable for performance of any of the
Obligations and (e) each other Person the Property of which secures the
performance of any of the Obligations.



                                       16
<PAGE>
 
     "Operating Cash Flow" means, for the Parent, the Borrower and the
Subsidiaries of the Borrower, for any period, the consolidated net income (loss)
for such period taken as a single accounting period, plus the sum of the
following amounts for such period to the extent included in the determination of
such consolidated net income or loss, without duplication: (a) depreciation
expense, (b) amortization expense and other non-cash charges reducing income,
(c) net Interest Expense, and (d) Income Tax Expense.

     "Optional Redemption Rights" means the option of the Parent to redeem not
more than 35% of the outstanding 1997 Senior Notes for an amount not to exceed
111% of the principal amount being redeemed, as permitted only if in accordance
with the terms of Section 8.07(g) hereof.

     "Original Credit Agreement" shall have the meaning ascribed thereto in the
BACKGROUND section of this Agreement.

     "Parent" means ITC_DeltaCom, Inc., a Delaware corporation.

     "PBGC" means the Pension Benefit Guaranty Corporation, or any successor
agency or entity performing substantially the same functions.

     "Permitted Acquisition" means acquisitions made by the Parent, the Borrower
or any Subsidiary of the Borrower in comparable telecommunications businesses to
that of the Borrower; provided that the Borrower has complied with all
applicable provisions of this Agreement.

     "Permitted Liens" means, as applied to any Person:

          (a) any Lien in favor of the Lenders to secure the Obligations
     hereunder;

          (b) (i) Liens on real estate for real estate Taxes not yet delinquent,
     (ii) Liens created by lease agreements, statute or common law to secure the
     payments of rental amounts and other sums not yet due thereunder, (iii)
     Liens on leasehold interests created by the lessor in favor of any
     mortgagee of the leased premises, and (iv) Liens for Taxes, assessments,
     governmental charges, levies or claims that are being diligently contested
     in good faith by appropriate proceedings and for which adequate reserves
     shall have been set aside on such Person's books, but only so long as no
     foreclosure, restraint, sale or similar proceedings have been commenced
     with respect thereto;

          (c) Liens of carriers, warehousemen, mechanics, laborers and
     materialmen and other similar Liens incurred in the ordinary course of
     business for sums not yet due or being contested 



                                       17
<PAGE>
 
     in good faith, if such reserve or appropriate provision, if any, as shall
     be required by GAAP shall have been made therefor;

          (d) Liens incurred in the ordinary course of business in connection
     with worker's compensation, unemployment insurance or similar legislation;

          (e) Easements, right-of-way, restrictions and other similar
     encumbrances on the use of real property which do not interfere with the
     ordinary conduct of the business of such Person;

          (f) Liens in respect of judgments or awards for which appeals or
     proceedings for review are being prosecuted and in respect of which a stay
     of execution upon any such appeal or proceeding for review shall have been
     secured, provided that (i) such Person shall have established adequate
     reserves for such judgments or awards, (ii) such judgments or awards shall
     be fully insured and the insurer shall not have denied coverage, or (iii)
     such judgments or awards shall have been bonded to the satisfaction of the
     Majority Lenders; and

          (g) Any Liens existing on September 17, 1997 which are described on
     Schedule 8.03 hereto and not otherwise described elsewhere in the
     definition of Permitted Liens, and Liens resulting from the refinancing of
     the related Debt for Borrowed Money, provided that the Debt for Borrowed
     Money secured thereby shall not be increased and the Liens shall not cover
     additional assets of the Parent, the Borrower, or any such Subsidiary.

     "Person" means an individual, partnership, joint venture, corporation,
limited liability company, trust, Tribunal, unincorporated organization, and
government, or any department, agency, or political subdivision thereof.

     "Plan" means a Single Employer Plan or a Multiple Employer Plan.

     "Pledge Agreement" means the Pledge Agreement of even date herewith,
executed by the Parent, the Borrower and any Subsidiary of the Borrower,
granting a Lien on Capital Stock of the Borrower and each of the Borrower's
Subsidiaries as security for the Obligations, substantially in the form of
Exhibit H hereto, as such agreement may be amended, modified, renewed or
extended from time to time, and "Pledge Agreement" shall also include each such
pledge agreement pledging the Capital Stock of all other Subsidiaries of the
Borrower created or acquired from time to time, and all amendments,
modifications, renewals and extensions to any thereof.

     "Pledged Stock" means all of the Capital Stock of the Borrower and of each
of the Subsidiaries of the Borrower.



                                       18
<PAGE>
 
     "Prohibited Transaction" has the meaning specified in Section 4975 of the
Code or Section 406 of Title I of ERISA.

     "Property" means all types of real, personal, tangible, intangible, or
mixed property, whether owned or hereafter acquired in fee simple or leased by
the Parent, the Borrower and its Subsidiaries.

     "Pro Rata" means, as to any Lender, in accordance with its percentage of
the aggregate amount of outstanding Advances; provided, however, that if no
Advances are outstanding, such term means in accordance with such Lender's
Specified Percentage.

     "PUC" means any state regulatory agency or body that exercises jurisdiction
over the rates or services or the ownership, construction or operation of any
Network Facility or long distance telecommunications systems or over Persons who
own, construct or operate a network facility or long distance telecommunications
systems, in each case by reason of the nature or type of the business subject to
regulation and not pursuant to laws and regulations of general applicability to
Persons conducting business in such state.

     "Quarterly Date" means the last Business Day of each March, June, September
and December during the term of this Agreement.

     "Ratable" means, as to any Lender, in accordance with its Specified
Percentage.

     "Refinancing Advance" means any Advance which is used to pay the principal
amount (or any portion thereof) of an Advance at the end of its Interest Period
and which, after giving effect to such application, does not result in an
increase in the aggregate amount of outstanding Advances.

     "Release Date" means the date on which the Notes have been paid, all other
Obligations due and owing have been paid and performed in full, and the
Commitment has been terminated.

     "Restricted Payments" means, for the Parent, the Borrower and the
Subsidiaries of the Borrower, (a) any direct or indirect Distribution, dividend
or other payment on account of any equity interest in, or shares of Capital
Stock or other securities of, the Parent, the Borrower and its Subsidiaries (or
the establishment of any sinking fund or otherwise the setting aside of any
funds with respect thereto); (b) any management, consulting or other similar
fees, or any interest thereon, payable by the Parent, the Borrower or any of its
Subsidiaries to any Affiliate of the Parent or the Borrower (or the
establishment of any sinking fund or otherwise the setting aside of any funds
with respect thereto), but specifically excluding any consulting fees payable by
the Parent, the Borrower or any Subsidiary of the Borrower to a Person that is
not an Affiliate of the Borrower or the Parent; (c) loans or advances to
employees and/or shareholders of the Parent, 



                                       19
<PAGE>
 
the Borrower and its Subsidiaries, except advances to such employees for moving
and travel expenses in the ordinary course of business; and (d) payments of
principal and/or interest, or the setting aside of funds with respect thereto
(except for the Interest Reserve Escrow Account) on any Total Debt except the
Obligations.

     "Restricted Subsidiary" means a Subsidiary which is a "Restricted
Subsidiary" within the meaning of the 1998 Senior Note Indenture as of the
Effective Date.

     "Revolving Advance" means any Advance made under the Revolving Loan.

     "Revolving Loan" means the loan made by a Lender pursuant to Section 2.01
of this Agreement.

     "Rights" means rights, remedies, powers, and privileges.

     "Senior Debt" means, on any date of determination, Total Debt on such date
minus the sum of (a) the aggregate outstanding principal amount of the 1997
Senior Notes and the 1998 Senior Notes, (b) to the extent included in Total
Debt, accrued and unpaid interest on the 1997 Senior Notes and the 1998 Senior
Notes, plus (c) cash balances of the Parent, the Borrower and the Subsidiaries
of the Borrower which in the aggregate exceed $5,000,000, provided that, for
purposes of this subsection (c), amounts in the Interest Reserve Escrow Account
may not be included in the calculation of "cash balances".

     "Senior Leverage Ratio" means on any date of determination, the ratio of
Senior Debt on such date to Annualized Operating Cash Flow on such date.

     "Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary that, together with its Subsidiaries, (i) for the most
recent fiscal year of the Parent, accounted for more than 10% of the
consolidated revenues of the Parent and its Restricted Subsidiaries or (ii) as
of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of the Parent and its Restricted Subsidiaries, all as set
forth on the most recently available consolidated financial statements of the
Parent for such fiscal year.

     "Single Employer Plan" means a single employer plan, as defined in Section
4001(a)(15) of ERISA, other than a Multiple Employer Plan of the Parent or the
Borrower.

     "Solvent" means, with respect to any Person, that on such date (a) the fair
value of the Property of such Person is greater than the total amount of
liabilities, including without limitation Contingent Liabilities of such Person,
(b) the present fair salable value of the assets of such Person on a going
concern basis is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such 



                                       20
<PAGE>
 
Person does not intend to, and does not believe that it will, incur debts or
liabilities beyond such Person's ability to pay as such debts and liabilities
mature, and (d) such Person is not engaged in business or a transaction, and is
not about to engage in business or a transaction, for which such Person's
Property would constitute an unreasonably small capital.

     "Special Counsel" means the law firm of Donohoe, Jameson & Carroll, P.C.,
Dallas, Texas, or such other individual or firm acting as special counsel to
Administrative Lender, as designated by Administrative Lender from time to time.

     "Specified Percentage" means, as to any Lender, the percentage indicated
beside its name on the signature pages hereof, or as adjusted or specified (i)
in accordance with Section 2.17 hereof, (ii) in any Assignment and Acceptance or
(iii) in any amendment to this Agreement.

     "Subsidiary" of any Person means any corporation, limited liability
company, partnership, joint venture, trust or estate of which (or in which) 50%
or more of:

          (a) the outstanding Capital Stock having voting power to elect a
     majority of the Board of Directors of such corporation (irrespective of
     whether at the time Capital Stock of any other class or classes of such
     corporation shall or might have voting power upon the occurrence of any
     contingency),

          (b) the interest in the capital or profits of such partnership or
     joint venture, or

          (c) the beneficial interest of such trust or estate, 

is at the time directly or indirectly owned by such Person, by such Person and
one or more of its Subsidiaries or by one or more of such Person's Subsidiaries.

     "Taxes" means all taxes, assessments, imposts, fees, or other charges at
any time imposed by any Laws or Tribunal.

     "Total Debt" means all Debt for Borrowed Money of the Parent, the Borrower
and the Subsidiaries of the Borrower, which would be shown on a consolidated
balance sheet in accordance with GAAP, including, without limitation, (a)
Capital Lease obligations, (b) Debt of any other Person secured by a Lien on the
property of the Borrower or any Subsidiary of the Borrower in an amount equal to
the lesser of (i) such Debt of such Person and (ii) the value of such pledged
property, (c) Contingent Liabilities, (d) Withdrawal Liability and (e) overdue
interest on any Debt for Borrowed Money (but not accrued interest that is not
overdue).

     "Total Leverage Ratio" means, on any date of determination, the ratio of
(a) Total Debt on such date to (b) Annualized Operating Cash Flow, provided that
(i) the calculation of Total 



                                       21
<PAGE>
 
Debt for purposes of the Total Leverage Ratio will be net of the sum of (A) any
cash balances in excess of $5,000,000 plus (B) the balance of the Interest
Reserve Escrow Account, and (ii) for purposes of this calculation, Operating
Cash Flow shall be calculated as if all assets acquired on any date during the
period of determination were acquired on the first day in such period of
determination, and all assets sold on any date during the period of
determination were sold on the first day in such period of determination.

     "Tribunal" means any state, commonwealth, federal, foreign, territorial, or
other court or government body, subdivision, agency, department, commission,
board, bureau, or instrumentality of a governmental body.

     "Type" refers to the distinction between Advances bearing interest at the
Base Rate and LIBOR Rate.

     "UCC" means the Uniform Commercial Code as adopted in the State of Texas on
the Closing Date.

     "Unlimited Guaranty" means the Guaranty, executed in substantially similar
form by the Parent and by each Subsidiary of the Borrower, guarantying payment
and performance of the Obligations, substantially in the form of Exhibit G
attached hereto, as such agreement may be amended, modified, renewed or extended
from time to time, and each subsequent Guaranty in the form of Exhibit G hereto
executed by any newly acquired or created Subsidiary of the Borrower, as each
such agreement may be amended, modified, renewed or extended from time to time.

     "Unused Fee" means the fee described in Section 2.10(b) hereof.

     "Withdrawal Liability" has the meaning given such term under Part I of
Subtitle E of Title IV of ERISA.

     1.02. Accounting and Other Terms. All accounting terms used in this
Agreement which are not otherwise defined herein shall be construed in
accordance with GAAP on a consolidated basis for the Borrower and its
Subsidiaries, unless otherwise expressly stated herein. References herein to one
gender shall be deemed to include all other genders. Except where the context
otherwise requires, (a) definitions imparting the singular shall include the
plural and vice versa and (b) all references to time are deemed to refer to
Dallas time.



                                       22
<PAGE>
 
                          ARTICLE II. THE LOAN FACILITY

     2.01. Revolving Loan. Each Lender severally agrees, on the terms and
subject to the conditions hereinafter set forth, to make Advances to the
Borrower on a Business Day during the period from the Effective Date to the
Maturity Date, in an aggregate principal amount not to exceed at any time
outstanding such Lender's Specified Percentage of the difference between the
Commitment and the sum of the undrawn face amount of all outstanding Letters of
Credit, plus reimbursement obligations under Article III hereof. Subject to the
terms and conditions of this Agreement, the Borrower may borrow, repay and
reborrow the Advances; provided, however, that at no time shall the sum of (i)
all outstanding Revolving Advances, plus (ii) the undrawn face amount of all
outstanding Letters of Credit, plus (iii) reimbursement obligations under
Article III hereof exceed the Commitment.

     2.02. Making Advances.

     (a) Each Borrowing of Advances shall be made upon the written notice of the
Borrower, received by Administrative Lender not later than (i) 10:00 a.m. three
Business Days prior to the date of the proposed Borrowing, in the case of
Revolving Advances which are LIBOR Advances and (ii) 10:00 a.m. on the date of
such Borrowing, in the case of Revolving Advances which are Base Advances. Each
such notice of a Borrowing (a "Borrowing Notice") shall be by telecopy or
telephone, promptly confirmed by letter, in substantially the form of Exhibit D
hereto specifying therein:

          (i) the date of such proposed Borrowing, which shall be a Business
     Day;

          (ii) the Type of Advances of which the Borrowing is to be comprised;

          (iii) the amount of such proposed Borrowing which, (A) shall not
     exceed the unused portion of the Commitment less outstanding Letters of
     Credit and (B) shall (I) in the case of a Borrowing of Base Advances under
     the Revolving Loan, be in an amount of not less than $2,000,000 or an
     integral multiple of $1,000,000 in excess thereof (or any lesser amount if
     such amount is the remaining undrawn portion under the Commitment), and
     (II) in the case of a Borrowing of LIBOR Advances under the Revolving Loan,
     be in an amount of not less than $5,000,000 or an integral multiple of
     $1,000,000 in excess thereof; and

          (iv) if the Borrowing is to be comprised of LIBOR Advances, the
     duration of the initial Interest Period applicable to such Advances.



                                       23
<PAGE>
 
     If the Borrowing Notice fails to specify the duration of the initial
Interest Period for any Borrowing or Refinancing Advance, as applicable,
comprised of LIBOR Advances, such Interest Period shall be three months.
Administrative Lender shall promptly notify Lenders of each such notice. Each
Lender shall, before 1:00 p.m. on the date of each Advance under the Revolving
Loan hereunder (other than a Refinancing Advance), make available to
Administrative Lender, at its office at NationsBank Plaza, 901 Main Street,
Dallas, Texas 75202, such Lender's Specified Percentage of the aggregate
Advances under the Revolving Loan to be made on that day in immediately
available funds.

     (b) Unless any applicable condition specified in Article IV has not been
satisfied, Administrative Lender will make the funds promptly available to the
Borrower (other than with respect to a Refinancing Advance) by either (i) wiring
such amounts pursuant to any wiring instructions, or (ii) depositing such amount
in the account of the Borrower at the Administrative Lender, in each case as
specified by the Borrower to the Administrative Lender in writing.

     (c) After giving effect to any Borrowing, (i) there shall not be more than
seven different Interest Periods in effect and (ii) the aggregate principal
amount of outstanding Advances under the Revolving Loan, Letters of Credit, and
reimbursement obligations under Article III shall not exceed the Commitment.

     (d) No Interest Period applicable to any Advance shall extend beyond the
Maturity Date.

     (e) Unless a Lender shall have notified Administrative Lender prior to the
date of any Revolving Advance that it will not make available its Specified
Percentage of any Revolving Advance, Administrative Lender may assume that such
Lender has made the appropriate amount available in accordance with Section
2.02(a) hereof, and Administrative Lender may, in reliance upon such assumption,
make available to the Borrower a corresponding amount. If and to the extent any
Lender shall not have made such amount available to Administrative Lender, such
Lender and the Borrower severally agree to repay to Administrative Lender
immediately on demand such corresponding amount together with interest thereon,
from the date such amount is made available to the Borrower until the date such
amount is repaid to Administrative Lender, at (i) in the case of the Borrower,
the Base Rate, and (ii) in the case of such Lender, the Federal Funds Rate.

     (f) The failure by any Lender to make available its Specified Percentage of
any Revolving Advance hereunder shall not relieve any other Lender of its
obligation, if any, to make available its Specified Percentage of any Revolving
Advance. In no event, however, shall any Lender be responsible for the failure
of any other Lender to make available any portion of any Revolving Advance.



                                       24
<PAGE>
 
     (g) The Borrower shall indemnify each Lender against any Consequential Loss
incurred by each Lender as a result of (i) any failure to fulfill, on or before
the date specified for the Advance, the conditions to the Advance set forth
herein (including a Refinancing Advance) or (ii) the Borrower's requesting that
an Advance (including a Refinancing Advance) not be made on the date specified
in the Borrowing Notice.

     2.03. Evidence of Debt for Borrowed Money.

     (a) The Advances made by each Lender under the Revolving Loan shall be
evidenced by a Note in the amount of such Lender's Specified Percentage of the
Commitment in effect on the Effective Date, or the amount of any increase in the
Commitment as determined in accordance with the terms of Section 2.17 hereof.

     (b) Administrative Lender's and each Lender's records shall be presumptive
evidence as to amounts owed Administrative Lender and such Lender under the
Notes and this Agreement.

     2.04. Optional Prepayments.

     (a) The Borrower may, upon at least two Business Days prior written notice
to Administrative Lender stating the proposed date and aggregate principal
amount of the prepayment, prepay the outstanding principal amount of any
Advances in whole or in part, together with accrued interest to the date of such
prepayment on the principal amount prepaid without premium or penalty other than
any Consequential Loss; provided, however, that in the case of a prepayment of a
Base Advance, the notice of prepayment may be given by telephone by 10:00 a.m.
on the date of prepayment. Each partial prepayment shall, in the case of Base
Advances under the Revolving Loan, be in an aggregate principal amount of not
less than $100,000 or a larger integral multiple of $50,000 in excess thereof
and, in the case of LIBOR Advances under the Revolving Loan, be in an aggregate
principal amount of not less than $500,000 or a larger integral multiple of
$100,000 in excess thereof. If any notice of prepayment is given, the principal
amount stated therein, together with accrued interest on the amount prepaid and
the amount, if any, due under Section 2.12 and Section 2.14 hereof, shall be due
and payable on the date specified in such notice unless the Borrower revokes its
notice, provided that, if the Borrower revokes its notice of prepayment prior to
such date specified, the Borrower shall reimburse the Administrative Lender for
the account of all Lenders for all Consequential Losses suffered by each Lender
as a result of the Borrower's failure to prepay. A certificate of each Lender
claiming compensation under this Section 2.04(a), setting forth in reasonable
detail the calculation of the additional amount or amounts to be paid to it
hereunder shall be presumptive evidence of the validity of such claim.



                                       25
<PAGE>
 
     (b) No prepayments of Advances made solely pursuant to this Section 2.04
and applied to the Revolving Loan shall cause the Commitment to be reduced. All
prepayments made pursuant to this Section 2.04 shall be first applied to Base
Advances then to LIBOR Advances, all without premium or penalty, except the
Borrower must pay together with any such prepayments, any Consequential Losses.

     2.05. Mandatory Prepayments.

     (a) Asset Sales. To the extent that the Parent, the Borrower or any of its
Subsidiaries consummates any sale of any asset or any of its Properties other
than in the ordinary course of business, then the Parent, the Borrower and its
Subsidiaries shall immediately use 100% of the Net Proceeds of any such
transaction to repay the Obligations under the Revolving Loan; provided,
however, so long as there exists no Default or Event of Default, none of the
Parent, the Borrower or any of its Subsidiaries shall be required to use the
first $5,000,000 in the aggregate over the term of this Agreement from all such
asset sales collectively to prepay the Obligations.

     (b) Public or Private Issuance of Equity. To the extent that the Parent,
the Borrower or any of its Subsidiaries consummates any public or private
issuance of equity (this provision in and of itself not constituting permission
to do so), then the Parent, the Borrower and its Subsidiaries shall, (i) to the
extent that any net proceeds from any such transaction are received within 12
months after September 17, 1997 and such net proceeds are in excess of
$125,000,000, immediately use 50% of such net proceeds in excess of $125,000,000
to repay the Obligations under the Revolving Loan, or (ii) to the extent that
clause (i) above is not applicable but the net proceeds from any such
transaction are in excess of $50,000,000, immediately use 50% of such net
proceeds in excess of $50,000,000 to repay the Obligations under the Revolving
Loan.

     (c) Public or Private Issuance of Debt. To the extent that the Parent, the
Borrower or any of its Subsidiaries consummates any public or private issuance
of Debt (this provision in and of itself not constituting permission to do so),
then the Parent, the Borrower and its Subsidiaries shall immediately use 50% of
the net proceeds of any such transaction in excess of $210,000,000 (excluding
the 1997 Senior Notes but including the 1998 Senior Notes) to repay the
Obligations under the Revolving Loan.

     (d) Mandatory Prepayments, Generally. Any prepayments made pursuant to this
Section 2.05 shall be first applied to Base Advances then to LIBOR Advances, all
without premium or penalty, except the Borrower must pay together with any such
prepayments, any Consequential Losses.



                                       26
<PAGE>
 
     2.06. Repayment.

     (a) LIBOR Advances. The principal amount of each LIBOR Advance is due and
payable on the last day of the applicable Interest Period, which principal
payment may be made by means of a Refinancing Advance in accordance with the
terms of Section 2.09 hereof (and subject to the other provisions of this
Agreement).

     (b) Commitment Reduction. On the date of a reduction of the Commitment
pursuant to Section 2.11 hereof, the aggregate amount of outstanding Revolving
Advances in excess of such Commitment as reduced shall be immediately due and
payable (which such principal repayments may not be made by means of Refinancing
Advances).

     (c) Repayments, Generally. All outstanding Advances and other Obligations
shall be due and payable in full on the Maturity Date. Any repayments made
pursuant to this Section shall be without premium or penalty, except the
Borrower must pay together with any such prepayments, any Consequential Losses.
Advances shall be applied to Base Advances first, and then to LIBOR Advances.

     2.07. Interest. Subject to Section 2.08 and Section 11.08 hereof, the
Borrower shall pay interest on the unpaid principal amount of each Advance from
the date of such Advance until such principal shall be paid in full, at either
the Base Rate or the LIBOR Rate, as set forth in subsection (i) or (ii) below,
as selected by the Borrower in accordance with Section 2.02 hereof and as
follows:

          (i) Base Advances. Base Advances shall bear interest at a rate per
     annum equal to the Base Rate as in effect from time to time. If the amount
     of interest payable in respect of any interest computation period is
     reduced to the Highest Lawful Rate and the amount of interest payable in
     respect of any subsequent interest computation period would be less than
     the Maximum Amount, then the amount of interest payable in respect of such
     subsequent interest computation period shall be automatically increased to
     the Maximum Amount; provided that at no time shall the aggregate amount by
     which interest paid has been increased pursuant to this sentence exceed the
     aggregate amount by which interest has been reduced pursuant to this
     sentence.

          (ii) LIBOR Advances. LIBOR Advances shall bear interest at the rate
     per annum equal to the LIBOR Rate applicable to such Advance.

          (iii) Payment Dates. Accrued and unpaid interest on Base Advances
     shall be paid quarterly in arrears on each Quarterly Date and on the
     Maturity Date. Accrued and unpaid interest in respect of each LIBOR Advance
     shall be paid on the last day of the appropriate Interest Period, on the
     Maturity Date and on the date of any prepayment or 



                                       27
<PAGE>
 
     repayment of such Advance; provided, however, that if any Interest Period
     for a LIBOR Advance exceeds three months, interest shall also be paid on
     the date which falls three months after the beginning of such Interest
     Period.

     2.08. Default Interest. During the continuation of any Event of Default,
the Borrower shall pay, on demand, interest (after as well as before judgment to
the extent permitted by Law) on the principal amount of all Advances outstanding
and on all other Obligations due and unpaid hereunder at a per annum rate equal
to the lesser of the (a) the Highest Lawful Rate and (b) the Base Rate plus 2%.
LIBOR Advances shall not be available for selection by the Borrower during the
continuance of an Event of Default.

     2.09. Continuation and Conversion Elections.

     (a) The Borrower may upon irrevocable written notice to Administrative
Lender and subject to the terms of this Agreement:

          (i) elect to convert, on any Business Day, all or any portion of
     outstanding Revolving Advances which are Base Advances (in an aggregate
     amount not less than $500,000 or an integral multiple of $100,000 in excess
     thereof) into LIBOR Advances; or

          (ii) elect to convert at the end of any Interest Period therefor, all
     or any portion of outstanding Revolving Advances which are LIBOR Advances
     comprised in the same Borrowing (in an aggregate amount not less than
     $100,000 or an integral multiple of $50,000 in excess thereof) into Base
     Advances; or

          (iii) elect to continue, at the end of any Interest Period therefor,
     any Revolving Advances which are LIBOR Advances;

     provided, however, that if the aggregate amount of outstanding LIBOR
Advances comprised in the same Borrowing shall have been reduced as a result of
any payment, prepayment or conversion of part thereof to an amount less than
$500,000, the LIBOR Advances comprised in such Borrowing shall automatically
convert into Base Advances at the end of each respective Interest Period.

     (b) The Borrower shall deliver a notice of conversion or continuation (a
"Conversion or Continuation Notice"), in substantially the form of Exhibit E
hereto, to Administrative Lender not later than (i) 10:00 a.m. three Business
Days prior to the proposed date of conversion or continuation, if the Revolving
Advances (or any portion of either thereof) are to be converted into or
continued as LIBOR Advances; and (ii) 10:00 a.m. on the Business Day of the
proposed 



                                       28
<PAGE>
 
conversion, if the Revolving Advances (or any portion thereof) are to be
converted into Base Advances.

     Each such Conversion or Continuation Notice shall be by telecopy or
telephone, promptly confirmed by letter, specifying therein:

          (i) the proposed date of conversion or continuation;

          (ii) the aggregate amount of Revolving Advances to be converted or
     continued;

          (iii) the nature of the proposed conversion or continuation; and

          (iv) the duration of the applicable Interest Period.

     (c) If, upon the expiration of any Interest Period applicable to LIBOR
Advances, the Borrower shall have failed to select a new Interest Period to be
applicable to such LIBOR Advances or if an Event of Default shall then have
occurred and be continuing, the Borrower shall be deemed to have elected to
convert such LIBOR Advances into Base Advances effective as of the expiration
date of such current Interest Period.

     (d) Notwithstanding any other provision contained in this Agreement, after
giving effect to any conversion or continuation of any Advances, there shall not
be outstanding Advances with more than seven different Interest Periods.

     2.10. Fees.

     (a) Facility Fee. Subject to Section 11.08 hereof, the Borrower shall pay
to Administrative Lender (for the sole account of Administrative Lender) an
origination and facility fee as set forth in any Fee Letters.

     (b) Commitment Fee. Subject to Section 11.08 hereof, the Borrower shall pay
to Administrative Lender for the Ratable account of Lenders a commitment fee
(the "Commitment Fee") on the average daily amount of the difference between (i)
the Commitment and (ii) the sum of (A) all outstanding Revolving Advances and
(B) the face amount of all outstanding Letters of Credit, payable in arrears on
each Quarterly Date commencing with the first Quarterly Date after the Closing
Date, and continuing until the Maturity Date, accordance with the per annum rate
described in the following situations:



                                       29
<PAGE>
 
<TABLE>
<CAPTION>
                 Applicability                    Percentage
                 -------------                    ----------
<S>         <C>                                     <C>   
           (I) If the Total                         0.500%
                 Leverage Ratio is
                 greater than or equal to
                 7.00 to 1.00

           (II)  If the Total                       0.375% 
                 Leverage Ratio is less 
                 than 7.00 to 1.00 but 
                 is greater than or equal to
                 6.00 to 1.00

           (III) If the Total                       0.300%
                 Leverage Ratio is less
                 than 6.00 to 1.00
</TABLE>

     (c) Other Fees. Borrower shall pay to Administrative Lender and the Lenders
such other fees as set forth in any Fee Letter addressed to the Administrative
Lender or any Lender.

     2.11. Reduction of Commitment.

     (a) Mandatory Termination of the Commitment. The Commitment shall be
reduced to zero and terminate on the Maturity Date.

     (b) Mandatory Reduction Due to Asset Sales. The Commitment shall be reduced
immediately and automatically in an amount equal to any amount required by
Section 2.05(a) hereof to prepay the Revolving Loan as a result of any asset
sales.

     (c) Mandatory Reduction Due to Issuances of Public or Private Equity. The
Commitment shall be reduced immediately and automatically in an amount equal to
any amount required by Section 2.05(b) hereof to prepay outstanding Advances
under the Revolving Loan (regardless of whether there are actually any
outstanding Revolving Advances) as a result of any issuances of public or
private equity.

     (d) Mandatory Reduction Due to Issuances of Public or Private Debt. The
Commitment shall be reduced immediately and automatically in an amount equal to
any amount required by Section 2.05(c) hereof to prepay outstanding Advances
under the Revolving Loan (regardless of whether there are actually any
outstanding Revolving Advances) as a result of any issuances of public or
private Debt.

     (e) Voluntary Commitment Reductions. The Borrower may from time to time,
upon notice to Administrative Lender not later than 1:00 p.m., three Business
Days in advance, 



                                       30
<PAGE>
 
terminate in whole or reduce in part the Commitment, as designated by the
Borrower; provided, however, that the Borrower shall pay the accrued interest
and the applicable accrued Commitment Fee on the amount of such reduction and
all amounts due, and any partial reduction shall be in an aggregate amount which
is an integral multiple of $5,000,000.

     (f) Commitment Reductions, Generally. To the extent outstanding Revolving
Advances exceed the Commitment after any reduction thereof, the Borrower shall
repay, on the date of such reduction, any such excess amount and all accrued
interest thereon, the applicable Commitment Fee on the amount of such reduction
and all amounts due. Once reduced or terminated, the Commitment may not be
increased or reinstated. No reduction of the Commitment, either voluntary or
mandatory under Sections 2.11(b), 2.11(c), 2.11(d) or 2.11(e) hereof, shall
relieve or alter the mandatory reduction and termination of the Commitment
pursuant to Section 2.11(a) hereof.

     2.12. Funding Losses. The Borrower may prepay the outstanding principal
balance of any Advance, in full at any time or in part from time to time in
accordance with the terms of Section 2.04 hereof, provided, that as a condition
precedent to the Borrower's right to make, and any Lender's obligation to
accept, any such prepayment, each such prepayment shall be in the amount of 100%
of the principal amount to be prepaid, plus accrued unpaid interest thereon to
the date of prepayment, plus any other sums which have become due to
Administrative Lender and Lenders under the Loan Papers on or before the
prepayment date but have not been paid, plus (subject to Section 11.08 hereof)
any Consequential Loss.

     The Borrower agrees that each Lender is not obligated to actually reinvest
the amount prepaid in any specific obligation as a condition to receiving any
Consequential Loss, or otherwise.

     2.13. Computations and Manner of Payments.

     (a) The Borrower shall make each payment hereunder and under the other Loan
Papers not later than 1:00 p.m. on the day when due in same day funds (by wire
transfer or otherwise) to Administrative Lender, for the account of Lenders
unless otherwise specifically provided herein, at Administrative Lender's office
at NationsBank Plaza, 901 Main Street, Dallas, Texas 75202, for further credit
to the account of Interstate FiberNet, Inc. No later than the end of each day
when each payment hereunder is made, the Borrower shall notify Loan Operations
at (214) 508-9192 or such other Person as Administrative Lender may from time to
time specify.

     (b) Unless Administrative Lender shall have received notice from the
Borrower prior to the date on which any payment is due hereunder that the
Borrower will not make payment in full, Administrative Lender may assume that
such payment is so made on such date and may, in 



                                       31
<PAGE>
 
reliance upon such assumption, make distributions to Lenders. If and to the
extent the Borrower shall not have made such payment in full, each Lender shall
repay to Administrative Lender forthwith on demand the applicable amount
distributed, together with interest thereon at the Federal Funds Rate, from the
date of distribution until the date of repayment. The Borrower hereby authorizes
each Lender, if and to the extent payment is not made when due hereunder, to
charge the amount so due against any account of the Borrower with such Lender.

     (c) Subject to Section 11.08 hereof, interest on LIBOR Advances under the
Loan Papers shall be calculated on the basis of actual days elapsed but computed
as if each year consisted of 360 days. Subject to Section 11.08 hereof, interest
on Base Advances, the Commitment Fee, the Unused Fee and other amounts due under
the Loan Papers shall be calculated on the basis of actual days elapsed but
computed as if each year consisted of 365 or 366 days, as applicable. Such
computations shall be made including the first day but excluding the last day
occurring in the period for which such interest, payment, Commitment Fee or
Unused Fee is payable. Each determination by Administrative Lender or a Lender
of an interest rate, fee or commission hereunder shall be presumptive evidence
of the validity of such claim. All payments under the Loan Papers shall be made
in United States dollars, and without setoff, counterclaim, or other defense.

     (d) Whenever any payment to be made hereunder or under any other Loan
Papers shall be stated to be due on a day other than a Business Day, such
payment shall be made on the next succeeding Business Day, and such extension of
time shall be included in the computation of interest or fees, if applicable;
provided, however, if such extension would cause payment of interest on or
principal of LIBOR Advances to be made in the next following calendar month,
such payment shall be made on the next preceding Business Day.

     (e) Reference to any particular index or reference rate for determining any
applicable interest rate under this Agreement is for purposes of calculating the
interest due and is not intended as and shall not be construed as requiring any
Lender to actually obtain funds for any Advance at any particular index or
reference rate.



                                       32
<PAGE>
 
     2.14. Yield Protection; Changed Circumstances.

     (a) If any Lender determines that either (i) the adoption of any Applicable
Law, rule, regulation or guideline regarding capital adequacy and applicable to
commercial banks or financial institutions generally or any change therein, or
any change, after the date hereof, in the interpretation or administration
thereof by any Tribunal, central bank or comparable agency charged with the
interpretation or administration thereof, or (ii) compliance by any Lender (or
Lending Office of any Lender) with any request or directive applicable to
commercial banks or financial institutions generally regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency has the effect of reducing the rate of return on such Lender's
capital as a consequence of its obligations hereunder to a level below that
which such Lender could have achieved but for such adoption, change or
compliance (taking into consideration such Lender's policies with respect to
capital adequacy) by an amount reasonably deemed by such Lender to be material,
then from time to time, within fifteen days after demand by such Lender, the
Borrower shall pay to such Lender such additional amount or amounts as will
adequately compensate such Lender for such reduction. Each Lender will notify
the Borrower of any event occurring after the date of this Agreement which will
entitle such Lender to compensation pursuant to this Section 2.14(a) as promptly
as practicable after such Lender obtains actual knowledge of such event;
provided, no Lender shall be liable for its failure or the failure of any other
Lender to provide such notification. A certificate of such Lender claiming
compensation under this Section 2.14(a), setting forth in reasonable detail the
calculation of the additional amount or amounts to be paid to it hereunder shall
be presumptive evidence of the validity of such claim. If such Lender demands
compensation under this Section 2.14(a), the Borrower may at any time, on at
least five Business Days' prior notice to such Lender (i) repay in full the then
outstanding principal amount of LIBOR Advances, of such Lender, together with
accrued interest thereon, or (ii) convert the LIBOR Advances to Base Advances in
accordance with the provisions of this Agreement; provided, however, that the
Borrower shall be liable for the Consequential Loss arising pursuant to those
actions.

     (b) If, after the date hereof, any Tribunal, central bank or other
comparable authority, at any time imposes, modifies or deems applicable any
reserve (including, without limitation, any imposed by the Board of Governors of
the Federal Reserve System), special deposit or similar requirement against
assets of, deposits with or for the amount of, or credit extended by, any
Lender, or imposes on any Lender any other condition affecting a LIBOR Advance,
the Notes, or its obligation to make a LIBOR Advance, or imposes on any Lender
any other condition affecting a Letter of Credit; and the result of any of the
foregoing is to increase the cost to such Lender of making or maintaining its
Letter of Credit, LIBOR Advances, or to reduce the amount of any sum received or
receivable by such Lender under this Agreement or under the Notes, the Letters
of Credit or reimbursement obligations by an amount deemed by such Lender, to be
material, then, within five days after demand by such Lender, the Borrower shall
pay to such Lender such additional amount or amounts as will compensate such
Lender for 



                                       33
<PAGE>
 
such increased cost or reduction. Each Lender will (i) notify the Borrower of
any event occurring after the date of this Agreement that entitles such Lender
to compensation pursuant to this Section 2.14(b), as promptly as practicable
after such Lender obtains actual knowledge of the event; provided, no Lender
shall be liable for its failure or the failure of any other Lender to provide
such notification and (ii) use good faith and reasonable efforts to designate a
different Lending Office for LIBOR Advances, of such Lender if the designation
will avoid the need for, or reduce the amount of, the compensation and will not,
in the sole opinion of such Lender, be disadvantageous to such Lender. A
certificate of such Lender claiming compensation under this Section 2.14(b),
setting forth in reasonable detail the computation of the additional amount or
amounts to be paid to it hereunder shall be presumptive evidence of the validity
of such claim. If such Lender demands compensation under this Section 2.14(b),
the Borrower may at any time, on at least five Business Days' prior notice to
such Lender (i) repay in full the then outstanding principal amount of LIBOR
Advances, of such Lender, together with accrued interest thereon, or (ii)
convert the LIBOR Advances to Base Advances in accordance with the provisions of
this Agreement; provided, however, that the Borrower shall be liable for the
Consequential Loss arising pursuant to those actions.

     (c) Notwithstanding any other provision of this Agreement, if the
introduction of or any change in or in the interpretation or administration of
any Law shall make it unlawful, or any central bank or other Tribunal shall
assert that it is unlawful, for a Lender to perform its obligations hereunder to
issue or maintain Letters of Credit, make LIBOR Advances or to continue to fund
or maintain LIBOR Advances hereunder, then, on notice thereof and demand
therefor by such Lender to the Borrower, (i) each LIBOR Advance will
automatically, upon such demand, convert into a Base Advance, (ii) the
obligation of such Lender to make, or to convert Advances into, LIBOR Advances
shall be suspended until such Lender notifies Administrative Lender and the
Borrower that such Lender has determined that the circumstances causing such
suspension no longer exist, and (iii) the obligation of such Lender to make or
maintain Letters of Credit shall be suspended until such Lender notifies
Administrative Lender and the Borrower that such Lender has determined that the
circumstances causing such suspension no longer exist.

     (d) Upon the occurrence and during the continuance of any Default or Event
of Default, (i) each LIBOR Advance will automatically, on the last day of the
then existing Interest Period therefor, convert into a Base Advance and (ii) the
obligation of each Lender to make, or to convert Advances into, LIBOR Advances
shall be suspended.

     (e) If any Lender notifies Administrative Lender that the LIBOR Rate for
any Interest Period for any LIBOR Advances will not adequately reflect the cost
to such Lender of making, funding or maintaining LIBOR Advances for such
Interest Period, Administrative Lender shall promptly so notify the Borrower,
whereupon (i) each such LIBOR Advance will automatically, on the last day of the
then existing Interest Period therefor, convert into a Base Advance and (ii) the
obligation of such Lender to make, or to convert Advances into, LIBOR Advances
shall be 



                                       34
<PAGE>
 
suspended until such Lender notifies Administrative Lender that such Lender has
determined that the circumstances causing such suspension no longer exist and
Administrative Lender notifies the Borrower of such fact.

     (f) Failure on the part of any Lender to demand compensation for any
increased costs, increased capital or reduction in amounts received or
receivable or reduction in return on capital pursuant to this Section 2.14 with
respect to any period shall not constitute a waiver of any Lender's right to
demand compensation with respect to such period or any other period, subject,
however, to the limitations set forth in this Section 2.14.

     (g) The obligations of the Borrower under this Section 2.14 shall survive
any termination of this Agreement, provided that, in no event shall the Borrower
be required to make a payment under this Section 2.14 with respect to any event
of which the Lender making such claim had knowledge more than 12 months prior to
demand for such payment.

     (h) Determinations by Lenders for purposes of this Section 2.14 shall be
presumptively correct. Any certificate delivered to the Borrower by a Lender
pursuant to this Section 2.14 shall include in reasonable detail the basis for
such Lender's demand for additional compensation and a certification that the
claim for compensation is consistent with such Lender's treatment of similar
customers having similar provisions generally in their agreements with such
Lender.

     (i) Notwithstanding any other provision of this Agreement, no Lender not
organized under the Laws of the United States or any State (or which has a Bank
Affiliate not organized under the Laws of the United States or any State) shall
be entitled to compensation pursuant to this Section 2.14 with respect to any
amount which would otherwise be due under this Section 2.14 but which is the
result of an act of a Tribunal of the country in which such Lender or Bank
Affiliate is organized.

     2.15. Use of Proceeds. The proceeds of the Advances shall be available (and
the Borrower shall use such proceeds) solely (a) on the Effective Date, to
refinance existing indebtedness of the Borrower, (b) for Permitted Acquisitions,
(c) for Capital Expenditures permitted under the terms of this Agreement, (d)
for working capital and (e) for other lawful corporate purposes.

     2.16. Collateral and Collateral Call.

     (a) Collateral. Payment of the Obligations will be secured by (i) a first
perfected security interest in 100% of the Capital Stock of the Borrower and
each of the Subsidiaries of the Borrower, (ii) Guaranties of the Obligations by
each Guarantor, (iii) a first perfected security interest (except for Permitted
Liens) in all tangible and intangible assets and Properties of the 



                                       35
<PAGE>
 
Borrower and each of the Subsidiaries of the Borrower that can be perfected by
filing a UCC-1 financing statement centrally in the States of Georgia, Florida,
Alabama, Mississippi, Louisiana, Texas, North Carolina and South Carolina, (iv)
certain licenses (recognizing that in connection with the exercise by
Administrative Lender of its rights hereunder with respect to such licenses that
it may be necessary to obtain the prior consent or approval of Tribunals and
other Persons to a transfer or assignment, including, without limitation, the
approval of the FCC), contract rights with respect to contracts between the
Borrower and (A) the Southern Development and Investment Group, Inc., (B) the
Kansas City Southern Railway Company, and (C) the Illinois Central Railroad
Company, and (v) certain real estate switch sites (collectively, together with
all other Properties or assets of the Borrower, Subsidiaries and other Persons
securing the Obligations from time to time, the "Collateral", but "Collateral"
shall specifically exclude (unless any Lien is granted in accordance with the
terms of Section 2.16(b) below), (A) amounts deposited in the Interest Reserve
Escrow Account in accordance with the terms of Section 8.15 hereof, (B) motor
vehicles, patents, trademarks and fixtures and real property (both leasehold and
fee owned, but none of which is a switch location) and (C) certain agreed to
licenses, contract rights and agreements which require consent from a third
party (such licenses, contract rights and agreements being described on Schedule
2.16(a) hereto)). The Borrower agrees that it will, and will cause its
Subsidiaries to execute and deliver, or cause to be executed and delivered, such
documents as the Administrative Lender may from time to time reasonably request
to create and perfect a first Lien (subject to Permitted Liens) for the benefit
of the Administrative Lender and the Lenders in the Collateral. The Borrower
agrees to use its best efforts to obtain a landlord's consent to assignment and
leasehold mortgage in connection with switch sites located in Columbia, South
Carolina and Arab, Alabama.

     (b) Collateral Call. The Borrower agrees upon the creation, formation or
acquisition of any direct or indirect Subsidiary of the Borrower, to immediately
pledge 100% of the Capital Stock of any such Subsidiary to secure the
Obligations, pursuant to a pledge agreement substantially in the form of Exhibit
H hereto, and to promptly deliver to the Administrative Lender all certificates
or other documentation evidencing 100% of such Capital Stock and, if such
Capital Stock is stock of a corporation, together with stock powers executed in
blank. The Borrower agrees, upon the acquisition of any assets (whether through
Capital Stock or otherwise) to immediately pledge/mortgage or grant a first
priority security interest in (subject to Permitted Liens), as applicable, such
assets of the type as are included in the definition of Collateral as set forth
above to the Administrative Lender on behalf of the Lenders to secure the
Obligations (and pursuant to agreements similar to those executed in connection
with the Original Credit Agreement). The Borrower agrees to use its best efforts
to (and cause its Subsidiaries to use their best efforts to), upon the request
of the Majority Lenders, grant the Administrative Lender on behalf of Lenders a
first priority Lien or security interest (subject to Permitted Liens) in any
asset of the Borrower or any of its Subsidiaries having a fair market value in
excess of $1,000,000 and not constituting motor vehicles.



                                       36
<PAGE>
 
     2.17. Conditions Precedent to the Increase of the Commitment.

     Upon written request by the Borrower to Lenders of its choice (including,
as set forth below, other lenders not initially party to this Agreement or the
other Loan Papers), and only so long as each Lender determines in its sole
discretion in writing to make such increase available to the Borrower, the
Commitment shall, subject to the further terms and conditions set forth below,
increase to a maximum of $100,000,000 in the manner set forth below:

          (a) On any date of proposed increase, the representations and
     warranties contained in Article V hereof are true and correct on such date,
     as though made on and as of such date, except to the extent expressly made
     only as of a prior date; and

          (b) On any date of proposed increase, no Default or Event of Default
     shall exist on any such date, and no Default or Event of Default would
     result from such increase in the Commitment; and

          (c) On any date of proposed increase, there shall have occurred no
     material adverse change in the Borrower's business, assets or financial
     condition since December 31, 1997; and

          (d) On any date of proposed increase, the sum of (i) all Advances
     outstanding, plus (ii) the aggregate undrawn face amount of all outstanding
     Letters of Credit (after giving effect to any proposed Letter of Credit to
     be made on such date), plus (iii) (without duplication) the sum of the
     aggregate reimbursement obligations, shall not exceed the Commitment; and

          (e) Upon satisfaction of each of the conditions precedent in this
     Section 2.17, the Borrower shall be entitled to increase the Commitment not
     more than twice, in each case by not less than $10,000,000 (or $5,000,000
     multiples thereof). Each Lender specified by the Borrower shall have
     received not less than thirty days' prior written notice from the Borrower
     requesting such Commitment increase. Each such Lender electing to
     participate in such Commitment increase shall commit to an amount not less
     than $5,000,000, but shall accept any allocation amount designated by the
     Borrower and the Administrative Lender that is equal to or less than its
     proposed portion of the Commitment increase; and

          (f) Notwithstanding anything herein or in any other Loan Paper to the
     contrary, the Borrower and the Administrative Lender may agree to add other
     creditors in connection with any such proposed increase; and



                                       37
<PAGE>
 
          (g) Each of the two proposed increases shall be in a minimum amount of
     $10,000,000 and $5,000,000 multiples thereof; and

          (h) The Administrative Lender shall have received a pro-forma
     Compliance Certificate in form and substance acceptable to the Lenders and
     demonstrating compliance with the terms of this Agreement and the Loan
     Papers for one full year after the date of such proposed increase; and

          (i) The Administrative Lender shall have received financial
     projections in form and substance acceptable to the Lenders and
     demonstrating compliance with the financial covenants set forth in Section
     8.01 hereof throughout the term of this Agreement; and

          (j) The Administrative Lender shall have received a certificate from
     the Borrower to the effect that (i) such increase has received all required
     regulatory approvals, if necessary, and is in compliance with all
     applicable Laws, and (ii) no other approvals or consents from any Person
     are required by any such Person except to the extent they have been
     received; and

          (k) The Administrative Lender and each Lender (including any new
     Lenders party hereto) shall have received new promissory notes evidencing
     the increase in the Commitment, and the Borrower and each new Lender agrees
     to execute any and all such documents deemed necessary by the
     Administrative Lender in order to effectuate this Section 2.17 (whether
     UCC-1s, new documentation relating to any Collateral, Guaranty or
     otherwise); and

          (l) On the date of increase, the Administrative Lender shall deliver
     to each Lender evidence of new Specified Percentages adjusted to give
     effect to the increase in the Commitment; and

          (m) On or prior to the date of increase, each new lender being added
     to the credit facility shall deliver to the Borrower and the Administrative
     Lender documentation acceptable to the Administrative Lender evidencing
     such new Lender's acceptance of this Agreement and all the other Loan
     Papers in form and substance reasonably acceptable to the Administrative
     Lender (and making such lender a party to this Agreement and the other Loan
     Papers).

     In connection with any increase to the Commitment in accordance with the
terms of this Section 2.17, each existing Lender (regardless of whether such
Lender is participating in such increase) agrees to execute any and all
agreements requested by the Administrative Lender to effectuate the intent of
this Section 2.17.



                                       38
<PAGE>
 
                         ARTICLE III. LETTERS OF CREDIT

     3.01. Issuance of Letters of Credit. The Borrower shall give the
Administrative Lender not less than five Business Days prior written notice of a
request for the issuance of a Letter of Credit, and the Administrative Lender
shall promptly notify each Lender of such request. Upon receipt of the
Borrower's properly completed and duly executed Applications, and subject to the
terms of such Applications and to the terms of this Agreement, the
Administrative Lender agrees to issue Letters of Credit on behalf of the
Borrower in an aggregate face amount not in excess of the lesser of (a) Letter
of Credit Commitment and (b) the remainder of the Commitment minus the sum of
all outstanding Revolving Advances plus the aggregate face amount of all
outstanding Letters of Credit. No Letter of Credit shall have a maturity
extending beyond the earliest of (i) the Maturity Date, or (ii) one year from
the date of its issuance, or (iii) such earlier date as may be required to
enable the Borrower to satisfy its repayment obligations under Section 2.06
hereof. Subject to such maturity limitations and so long as no Default or Event
of Default has occurred and is continuing or would result from the renewal of a
Letter of Credit, the Letters of Credit may be renewed by the Administrative
Lender in its discretion. The Lenders shall participate ratably in any liability
under the Letters of Credit and in any unpaid reimbursement obligations of the
Borrower with respect to any Letter of Credit in their Specified Percentages.
The amount of the Letters of Credit issued and outstanding and the unpaid
reimbursement obligations of the Borrower for such Letters of Credit shall
reduce the amount of Commitment available, so that at no time shall the sum of
(i) all outstanding Revolving Advances in the aggregate, plus (ii) the aggregate
face amount of all outstanding Letters of Credit, plus (iii) (without
duplication) all outstanding reimbursement obligations related to Letters of
Credit, exceed the Commitment, and at no time shall the sum of all Revolving
Advances by any Lender made plus its ratable share of amounts available to be
drawn under the Letters of Credit and the unpaid reimbursement obligations of
the Borrower in respect of such Letters of Credit exceed its Specified
Percentage of the Commitment.

     3.02. Letters of Credit Fee. In consideration for the issuance of each
Letter of Credit, the Borrower shall pay to (a) the Administrative Lender for
its sole account, an application and processing fee in the amount of the higher
of (i) $350.00 and (ii) the product of 1/8th of 1% multiplied by the face amount
of such Letter of Credit on each Letter of Credit, due and payable on the date
of issuance of each Letter of Credit, and (b) the Administrative Lender for the
account of the Administrative Lender and the Lenders in accordance with their
Specified Percentages, a per annum fee for each Letter of Credit equal to the
higher of (i) $350.00 and (ii) the product of 1.00% multiplied by the face
amount of each such Letter of Credit. Each fee for each Letter of Credit under
subsection (b) above shall be due and payable to the Administrative Lender
quarterly as it accrues, on each Quarterly Date during the term of the Letter of
Credit and on the expiration or renewal and/or extension of each such Letter of
Credit, beginning with 



                                       39
<PAGE>
 
the first such Quarterly Date after the issuance of each Letter of Credit and
ending on the expiration date of each such Letter of Credit.

     3.03. Reimbursement Obligations.

     (a) The Borrower hereby agrees to reimburse Administrative Lender
immediately upon demand by Administrative Lender, and in immediately available
funds, for any payment or disbursement made by Administrative Lender under any
Letter of Credit. Payment shall be made by the Borrower with interest on the
amount so paid or disbursed by Administrative Lender from and including the date
payment is made under any Letter of Credit to and including the date of payment,
at the lesser of (i) the Highest Lawful Rate, and (ii) the sum of the Base Rate
in effect from time to time plus 2% per annum; provided, however, that if the
Borrower would be permitted under the terms of Section 2.01, Section 2.02 and
Section 4.03 to borrow Revolving Advances in amounts at least equal to their
reimbursement obligation for a drawing under any Letter of Credit, a Base
Advance by each Lender, in an amount equal to such Lender's Specified
Percentage, shall automatically be deemed made on the date of any such payment
or disbursement made by Administrative Lender in the amount of such obligation
and subject to the terms of this Agreement.

     (b) The Borrower hereby also agrees to pay to Administrative Lender
immediately upon demand by Administrative Lender and in immediately available
funds, as security for their reimbursement obligations in respect of the Letters
of Credit under Section 3.03(a) hereof and any other amounts payable hereunder
and under the Notes, an amount equal to the aggregate amount available to be
drawn under Letters of Credit then outstanding, irrespective of whether the
Letters of Credit have been drawn upon, upon an Event of Default. Any such
payments shall be deposited in a separate account designated "Interstate
FiberNet Special Account" or such other designation as Administrative Lender
shall elect. All such amounts deposited with Administrative Lender shall be and
shall remain funds of the Borrower on deposit with Administrative Lender and may
be invested by Administrative Lender as Administrative Lender shall determine.
Such amounts may not be used by Administrative Lender to pay the drawings under
the Letters of Credit; however, such amounts may be used by Administrative
Lender as reimbursement for Letter of Credit drawings which Administrative
Lender has paid. During the existence of an Event of Default but after the
expiration of any Letter of Credit that was not drawn upon, the Borrower may
direct the Administrative Lender to use any cash collateral for any such expired
Letter of Credit, if any, to reduce the amount of the Obligations. Any amounts
remaining in the Interstate FiberNet Special Account, after the date of the
expiration of all Letters of Credit and after all Obligations have been paid in
full, shall be repaid to the Borrower promptly after such expiration and such
payment in full.



                                       40
<PAGE>
 
     (c) The obligations of the Borrower under this Section 3.03 will continue
until all Letters of Credit have expired and all reimbursement obligations with
respect thereto have been paid in full by the Borrower and until all other
Obligations shall have been paid in full.

     (d) The Borrower shall be obligated to reimburse Administrative Lender upon
demand for all amounts paid under the Letters of Credit as set forth in Section
3.03(a) hereof; provided, however, if the Borrower for any reason fails to
reimburse Administrative Lender in full upon demand, whether by borrowing
Revolving Advances to pay such reimbursement obligations or otherwise, the
Lenders shall reimburse Administrative Lender in accordance with each Lender's
Specified Percentage for amounts due and unpaid from the Borrower as set forth
in Section 3.04 hereof; provided, however, that no such reimbursement made by
the Lenders shall discharge the Borrower's obligations to reimburse
Administrative Lender.

     (e) The Borrower shall indemnify and hold Administrative Lender or any
Lender, its officers, directors, representatives and employees harmless from
loss for any claim, demand or liability which may be asserted against
Administrative Lender or such indemnified party in connection with actions taken
under the Letters of Credit or in connection therewith (including losses
resulting from the negligence of Administrative Lender or such indemnified
party), and shall pay Administrative Lender for reasonable fees of attorneys
(who may be employees of Administrative Lender) and legal costs paid or incurred
by Administrative Lender in connection with any matter related to the Letters of
Credit, except for losses and liabilities incurred as a direct result of the
gross negligence or wilful misconduct of Administrative Lender or such
indemnified party. If the Borrower for any reason fails to indemnify or pay
Administrative Lender or such indemnified party as set forth herein in full, the
Lenders shall indemnify and pay Administrative Lender upon demand, in accordance
with each Lender's Specified Percentage of such amounts due and unpaid from the
Borrower. The provisions of this Section 3.03(e) shall survive the termination
of this Agreement.

     3.04. Lenders' Obligations. Each Lender agrees, unconditionally and
irrevocably to reimburse Administrative Lender (to the extent Administrative
Lender is not otherwise reimbursed by the Borrower in accordance with Section
3.03(a) hereof) on demand for such Lender's Specified Percentage of each draw
paid by Administrative Lender under any Letter of Credit. All amounts payable by
any Lender under this subsection shall include interest thereon at the Federal
Funds Rate, from the date of the applicable draw to the date of reimbursement by
such Lender. No Lender shall be liable for the performance or nonperformance of
the obligations of any other Lender under this Section. The obligations of the
Lenders under this Section shall continue after the Maturity Date and shall
survive termination of any Loan Papers.



                                       41
<PAGE>
 
     3.05. Administrative Lender's Obligations.

     (a) Administrative Lender makes no representation or warranty, and assumes
no responsibility with respect to the validity, legality, sufficiency or
enforceability of any Application or any document relative thereto or to the
collectibility thereunder. Administrative Lender assumes no responsibility for
the financial condition of the Borrower and its Subsidiaries or for the
performance of any obligation of the Borrower. Administrative Lender may use its
discretion with respect to exercising or refraining from exercising any rights,
or taking or refraining from taking any action which may be vested in it or
which it may be entitled to take or assert with respect to any Letter of Credit
or any Application.

     (b) Administrative Lender shall be under no liability to any Lender, with
respect to anything the Administrative Lender may do or refrain from doing in
the exercise of its judgment, the sole liability and responsibility of
Administrative Lender being to handle each Lender's share on as favorable a
basis as Administrative Lender handles its own share and to promptly remit to
each Lender its share of any sums received by Administrative Lender under any
Application. Administrative Lender shall have no duties or responsibilities
except those expressly set forth herein and those duties and liabilities shall
be subject to the limitations and qualifications set forth herein.

     (c) Neither Administrative Lender nor any of its directors, officers, or
employees shall be liable for any action taken or omitted (whether or not such
action taken or omitted is expressly set forth herein) under or in connection
herewith or any other instrument or document in connection herewith, except for
gross negligence or willful misconduct, and no Lender waives its right to
institute legal action against Administrative Lender for wrongful payment of any
Letter of Credit due to Administrative Lender's gross negligence or willful
misconduct. Administrative Lender shall incur no liability to any Lender, the
Borrower or any Affiliate of the Borrower or Lender in acting upon any notice,
document, order, consent, certificate, warrant or other instrument reasonably
believed by Administrative Lender to be genuine or authentic and to be signed by
the proper party.


                        ARTICLE IV. CONDITIONS PRECEDENT

     4.01. Conditions Precedent to Closing. The obligation of each Lender to
sign this Agreement is subject to receipt by the Administrative Lender of each
of an executed letter effectively terminating the Term Loan (as defined in the
Original Credit Agreement) and executed signature pages of this Agreement.

     4.02. Conditions Precedent to the Initial Advance and the Issuance of the
Initial Letter of Credit. The obligation of each Lender to make the initial
Advance under the Revolving Loan, 



                                       42
<PAGE>
 
or issue the initial Letter of Credit, is subject to receipt by the
Administrative Lender of each of the following, in form and substance
satisfactory to the Administrative Lender, with a copy (except for the Notes)
for each Lender:

          (a) A loan certificate of the Borrower certifying as to the accuracy
     of its representations and warranties in the Loan Papers, certifying that
     no Default or Event of Default (as defined in the Original Credit
     Agreement) has occurred under the Original Credit Agreement and/or under
     this Agreement, and including a certificate of incumbency with respect to
     each Authorized Officer, and including a representation that the following
     items delivered in connection with the Original Credit Agreement are
     unchanged and remain valid: (i) copies of the Articles of Incorporation of
     the Parent, the Borrower and each of its Subsidiaries, which were certified
     to be true, complete and correct by the secretary of state of each such
     Person's respective state of incorporation, (ii) copies of the By-Laws of
     the Parent, the Borrower and each of its Subsidiaries, (iii) copies of
     certain contracts identified to the Administrative Lender, each certified
     to be true, complete and correct by an Authorized Officer, and (v) copies
     of a certificate of good standing and a certificate of existence for the
     Parent, the Borrower and each of its Subsidiaries state of incorporation
     and the States of Georgia, Florida, Alabama, Mississippi, Louisiana, Texas,
     North Carolina and South Carolina, as applicable;

          (b) duly executed Notes, payable to the order of each Lender, one in
     an amount for each Lender equal to its Specified Percentage of the
     Commitment;

          (c) a loan certificate of the Borrower certifying that a copy of the
     resolutions of the Parent, the Borrower and each of its Subsidiaries
     authorizing them to execute, deliver and perform this Agreement, the Notes
     and the other Loan Papers to which each of them is a party is attached and
     is a true and accurate copy;

          (d) duly executed and completed affirmations, in form and substance
     acceptable to the Administrative Lender of: (i) pledge agreement by Parent,
     the Borrower and, to the extent applicable, each Subsidiary of the
     Borrower, (ii) Unlimited Guaranty of the Obligations by the Parent and each
     of the Subsidiaries of the Borrower and (iii) all security agreements,
     mortgages, deeds of trust, assignment agreements, and other collateral
     agreements by the Parent, the Borrower and any Subsidiary of the Borrower,
     executed in connection with the Original Credit Agreement;

          (e) all other Loan Papers to be delivered on the Effective Date duly
     executed and completed, dated after the Closing Date but on or before the
     Effective Date;

          (f) opinions addressed to Administrative Lender on behalf of the
     Lenders of corporate counsel to the Parent, the Borrower and each
     Subsidiary of the Borrower, addressed to 



                                       43
<PAGE>
 
     the Administrative Lender on behalf of the Lenders and in form and
     substance satisfactory to the Lenders, dated after the Closing Date but on
     or before the Effective Date;

          (g) reimbursement for Administrative Lender of its reasonable fees and
     expenses and for Special Counsel's reasonable fees and expenses rendered
     through the Effective Date;

          (h) evidence that all corporate proceedings of the Parent, the
     Borrower and each Subsidiary of the Borrower taken in connection with the
     transactions contemplated by this Agreement and the other Loan Papers,
     shall be reasonably satisfactory in form and substance to the Lenders and
     Special Counsel; and the Lenders shall have received copies of all
     documents or other evidence which the Administrative Lender, Special
     Counsel or any Lender may reasonably request in connection with such
     transactions;

          (i) a duly completed Compliance Certificate evidencing no Default or
     Event of Default dated as of the Effective Date;

          (j) The 1998 Senior Notes shall have been issued by the Parent in form
     and substance acceptable to the Administrative Lender, and cash proceeds of
     not less than $95,000,000 shall have been received by the Parent. The
     Borrower shall have received an equity contribution from the Parent in an
     amount not less than the greater of (i) the net proceeds of the 1998 Senior
     notes issuance and (ii) $95,000,000.; and

          (k) in form and substance satisfactory to the Lenders and Special
     Counsel, such other documents, instruments and certificates as the
     Administrative Lender or any Lender may reasonably require in connection
     with the transactions contemplated hereby, including without limitation the
     status, organization or authority of the Parent, the Borrower or any
     Subsidiary of the Borrower, and the enforceability of and security for the
     Obligations.

     4.03. Conditions Precedent to All Revolving Advances and Letters of Credit.
The obligation of each Lender to make each Revolving Advance hereunder
(excluding each Refinancing Advance), and the obligation of the Administrative
Lender to issue any Letter of Credit shall be subject to the further conditions
precedent that on the date of such Revolving Advance or such issuance of such
Letter of Credit:

          (a) All of the representations and warranties of the Borrower under
     this Agreement shall be true and correct at such time in all material
     respects, both before and after giving effect to the application of the
     proceeds of the Revolving Advance or the issuance of the Letter of Credit,
     except those representations and warranties that specifically speak as of a
     particular date;

          (b) The incumbency of the Authorized Officers shall be as stated in
     the certificate of incumbency delivered in the Borrower's loan certificate
     pursuant to Section 4.02(a) or as 



                                       44
<PAGE>
 
     subsequently modified and reflected in a certificate of incumbency
     delivered to the Administrative Lender. The Lenders may, without waiving
     this condition, consider it fulfilled and a representation by the Borrower
     made to such effect if no written notice to the contrary, dated on or
     before the date of such Revolving Advance or the issuance of such Letter of
     Credit, is received by the Administrative Lender from the Borrower prior to
     the making of such Revolving Advance or such Letter of Credit;

          (c) There shall not exist a Default or an Event of Default hereunder
     and none shall exist as a result of making any such Revolving Advance or
     such Letter of Credit, and the Administrative Lender shall have received
     written or telephonic certification thereof by an Authorized Officer (which
     certification, if telephonic, shall be followed promptly by written
     certification);

          (d) No event shall have occurred that could reasonably be expected to
     cause a Material Adverse Change since December 31, 1997;

          (e) In the case of each Letter of Credit, Borrower shall have
     delivered to the Administrative Lender a duly executed and complete
     Application acceptable to Administrative Lender; and

          (f) In the case of any Revolving Advance, the aggregate outstanding
     Revolving Advances after giving effect to such proposed Revolving Advance,
     plus the sum of the face amount of all outstanding Letters of Credit plus
     all reimbursement obligations under Article III hereof, shall not exceed
     the Commitment.


                    ARTICLE V. REPRESENTATIONS AND WARRANTIES

     5.01. Representations and Warranties. The Borrower hereby represents and
warrants to each Lender as follows:

          (a) The respective jurisdictions of incorporation and percentage
     ownership of the Subsidiaries of the Borrower on the Closing Date and
     listed on Schedule 5.01(a) hereto are true and correct. Each of the Parent,
     the Borrower and its Subsidiaries is a corporation duly organized, validly
     existing and in good standing under the laws of its state of organization.
     Each of the Parent, the Borrower and its Subsidiaries has the corporate
     power and corporate authority to own its properties and to carry on its
     business as now being conducted. Each of the Parent, the Borrower and its
     Subsidiaries is duly qualified, in good standing and authorized to do
     business in each jurisdiction in which the character of its Properties or
     the nature of its business requires such qualification or authorization,
     except where the failure to so qualify could not reasonably be expected to
     cause a Material Adverse Change.



                                       45
<PAGE>
 
          (b) The Borrower has corporate power and has taken all necessary
     corporate action to authorize it to borrow hereunder. Each of the Parent,
     the Borrower and its Subsidiaries has corporate power and has taken all
     necessary corporate action to execute, deliver and perform the Loan Papers
     to which it is party in accordance with the terms thereof, and to
     consummate the transactions contemplated thereby. Each Loan Paper has been
     duly executed and delivered by the Parent, the Borrower or such Subsidiary
     executing it. Each of the Loan Papers to which the Parent, the Borrower,
     and its Subsidiaries are party is a legal, valid and binding obligation of
     the Parent, the Borrower or such Subsidiary, as applicable, enforceable in
     accordance with its terms, subject, to enforcement of remedies, to the
     following qualifications: (i) equitable principles generally, and (ii)
     bankruptcy, insolvency, liquidation, reorganization, reconstruction and
     other similar laws affecting enforcement of creditors' rights generally
     (insofar as any such law relates to the bankruptcy, insolvency or similar
     event of the Parent, the Borrower or any Subsidiary of the Borrower).

          (c) The execution, delivery and performance by the Parent, the
     Borrower and its Subsidiaries of the other Loan Papers to which they are
     respectively a party, and the consummation of the transactions contemplated
     thereby, do not and will not (i) require any consent or approval not
     already obtained, (ii) violate any Applicable Law, (iii) conflict with,
     result in a breach of, or constitute a default under the articles of
     incorporation or by-laws of the Parent, the Borrower or any Subsidiary of
     the Borrower, or under any material License, indenture, agreement or other
     instrument, to which the Parent, the Borrower or any Subsidiary of the
     Borrower is a party or beneficiary of, or by which they or their respective
     Properties may be bound, or (iv) result in or require the creation or
     imposition of any Lien upon or with respect to any property now owned or
     hereafter acquired by the Parent, the Borrower or any Subsidiary of the
     Borrower, except Permitted Liens.

          (d) The Parent, the Borrower and its Subsidiaries are primarily
     engaged in the operation of telecommunications and pursuing activities
     related thereto.



                                       46
<PAGE>
 
          (e) On the Closing Date, all material Licenses of the Parent, the
     Borrower and its Subsidiaries have been duly authorized and obtained, and
     are in full force and effect. The Parent, the Borrower and its Subsidiaries
     are in compliance in all material respects with all provisions thereof. On
     the Closing Date, no material License is the subject of any pending or, to
     the best of the Borrower's knowledge, threatened challenge or revocation.
     On each date after the Closing Date on which this representation is deemed
     to be made, no material License is the subject of any pending or, to the
     best of the Borrower's knowledge, threatened challenge or revocation, which
     such event could reasonably be expected to cause a Material Adverse Change.
     The Parent, the Borrower and its Subsidiaries are not required to obtain
     any material License that has not already been obtained from, or effect any
     material filing or registration that has not already been effected with,
     the FCC, any applicable PUC or any other federal, state or local regulatory
     authority in connection with the execution and delivery of this Agreement
     or any other Loan Paper, or the performance thereof (other than any
     enforcement of remedies by the Administrative Lender on behalf of the
     Lenders), in accordance with their respective terms, including any
     borrowings hereunder.

          (f) The Parent, the Borrower and its Subsidiaries are in compliance in
     all material respects with all material Applicable Laws. The Parent, the
     Borrower and its Subsidiaries have duly and timely filed all reports,
     statements and filings that are required to be filed by any of them under
     the Communications Act, and are in all material respects in compliance
     therewith, including without limitation the rules and regulations of the
     FCC and each applicable PUC. Except as set forth on Schedule 5.01(f)
     hereto, as of the Closing Date, the Borrower is not aware of any event or
     circumstance constituting noncompliance (or any Person alleging
     noncompliance) with any rule or regulation of the FCC or any applicable
     PUC. On each date after the Closing Date on which this representation is
     deemed to be made, the Borrower is not aware of any event or circumstance
     constituting noncompliance (or any Person alleging noncompliance) with any
     rule or regulation of the FCC or any applicable PUC, which such event or
     circumstance could reasonably be expected to cause a Material Adverse
     Change.

          (g) On the Closing Date, the Parent, the Borrower and its Subsidiaries
     have good and indefeasible title to, or a valid leasehold interest in, all
     of their material assets and Properties. On each date after the Closing
     Date on which this representation is deemed to be made, the Parent, the
     Borrower and its Subsidiaries have good and indefeasible title to, or a
     valid leasehold interest in, all of their material assets and Properties,
     in which any such failure could reasonably be expected to cause a Material
     Adverse Change. None of the assets of the Parent, the Borrower and its
     Subsidiaries is subject to any Liens, except Permitted Liens. No financing
     statement or other Lien filing authorized by the Parent, the Borrower or
     any Subsidiary of the Borrower (except relating to Permitted Liens) is on
     file in any state or jurisdiction that names the Parent, the Borrower or
     any of its Subsidiaries as debtor or covers (or purports to cover) any
     assets of the Parent, the Borrower or any of its Subsidiaries. The Parent,
     the Borrower and its 



                                       47
<PAGE>
 
     Subsidiaries have not signed any such financing statement or filing, nor
     any security agreement authorizing any Person to file any such financing
     statement or filing.

          (h) On the Closing Date, except as reflected on Schedule 5.01(h)
     hereto, there is no action, suit, proceeding or any other Litigation
     pending against, or, to the best of the Borrower's knowledge, threatened
     against the Parent, the Borrower or any of its Subsidiaries, or in any
     other manner relating directly and materially adversely to the Parent, the
     Borrower, any of its Subsidiaries, or any of their material Properties, in
     any court or before any arbitrator of any kind or before or by any
     governmental body. On each date after the Closing Date on which this
     representation is deemed to be made, there is no action, suit, proceeding
     or any other Litigation pending against, or, to the best of the Borrower's
     knowledge, threatened against the Parent, the Borrower or any of its
     Subsidiaries, or in any other manner relating to the Borrower, any of its
     Subsidiaries, or any of their Properties, in any court or before any
     arbitrator of any kind or before or by any governmental body, which could
     reasonably be expected to cause a Material Adverse Change.

          (i) All federal, state and other Tax returns of the Parent, the
     Borrower and its Subsidiaries required by law to be filed have been duly
     filed and all federal, state and other Taxes, assessments and other
     governmental charges or levies upon the Parent, the Borrower, its
     Subsidiaries or any of their Properties, income, profits and assets, which
     are due and payable, have been paid, except those that are diligently
     contested in good faith by the Borrower and for which a reserve has been
     established in accordance with GAAP, and no Lien (other than a Permitted
     Lien) has attached and no foreclosure, distraint, sale or similar
     proceedings have been commenced.

          (j) The Borrower has furnished or caused to be furnished to the
     Lenders copies of its financial statements at September 30, 1997, which are
     prepared in good faith and complete in all material respects. Each such
     statement presents fairly in all material respects and in accordance with
     GAAP, the financial position of the Parent, the Borrower and its
     Subsidiaries as at such dates, and the results of operations for the
     periods then ended. The Parent, the Borrower and its Subsidiaries have no
     material liabilities, contingent or otherwise, nor material losses, except
     as disclosed in writing to the Lenders prior to the Closing Date or as
     disclosed on any subsequent financial statements. On the Effective Date
     after giving effect to the Advances made on such date, the Parent, the
     Borrower and each of its Subsidiaries is Solvent.

          (k) On the Closing Date, since the date of the most recent financial
     statements delivered to the Lenders, no event or circumstances have
     occurred or arisen that could reasonably be expected to cause a Material
     Adverse Change.

          (l) None of the Parent, the Borrower or its Controlled Group maintains
     or contributes to any Plan other than those disclosed to the Administrative
     Lender in writing. Each 



                                       48
<PAGE>
 
     such Plan is in compliance in all material respects with the applicable
     provisions of ERISA, the Code, and any other applicable Federal or state
     law, rule or regulation. With respect to each Plan of the Parent, the
     Borrower and each member of its Controlled Group (other than a
     Multiemployer Plan), all reports required under ERISA or any other
     Applicable Law to be filed with any governmental authority, the failure of
     which to file could reasonably result in liability of the Parent, the
     Borrower or any member of its Controlled Group in excess of $100,000, have
     been duly filed. All such reports are true and correct in all material
     respects as of the date given. No such Plan of the Parent, the Borrower or
     any member of its Controlled Group has any accumulated funding deficiency
     (as defined in Section 412(a) of the Code) (without regard to any waiver
     granted under Section 412 of the Code), nor has any funding waiver from the
     Internal Revenue Service been received or requested. None of the Parent,
     the Borrower or any member of its Controlled Group has failed to make any
     contribution or pay any amount due or owing as required by Section 412 of
     the Code or Section 302 of ERISA or the terms of any such Plan prior to the
     due date under Section 412 of the Code and Section 302 of ERISA. There has
     been no ERISA Event or any event requiring disclosure under Section
     4041(c)(3)(C), 4068(f), 4063(a) or 4043(b) of ERISA with respect to any
     Plan or trust of the Borrower or any member of its Controlled Group since
     the effective date of ERISA. The value of the assets of each Plan (other
     than a Multiemployer Plan) of the Parent, Borrower and each member of its
     Controlled Group equaled or exceeded the present value of the benefit
     liabilities, as defined in Title IV of ERISA, of each such Plan as of the
     most recent valuation date using Plan actuarial assumptions at such date.
     There are no pending or, to the best of the Borrower's knowledge,
     threatened claims, lawsuits or actions (other than routine claims for
     benefits in the ordinary course) asserted or instituted against, and
     neither the Parent, the Borrower, nor any member of its Controlled Group
     has knowledge of any threatened Litigation or claims against, (i) the
     assets of any Plan or trust or against any fiduciary of a Plan with respect
     to the operation of such Plan, or (ii) the assets of any employee welfare
     benefit plan within the meaning of Section 3(1) or ERISA, or against any
     fiduciary thereof with respect to the operation of any such plan. None of
     the Parent, the Borrower or any member of its Controlled Group has engaged
     in any non-exempt prohibited transactions, within the meaning of Section
     406 or Section 4.08 of ERISA or Section 4975 of the Code, in connection
     with any Plan. None of the Parent, the Borrower or any member of its
     Controlled Group has incurred or reasonably expects to incur (A) any
     liability under Title IV of ERISA (other than premiums due under Section
     4007 of ERISA to the PBGC), (B) any withdrawal liability (and no event has
     occurred which with the giving of notice under Section 4219 of ERISA would
     result in such liability) under Section 4201 of ERISA as a result of a
     complete or partial withdrawal (within the meaning of Section 4203 or 4205
     of ERISA) from a Multiemployer Plan, or (C) any liability under Section
     4062 of ERISA to the PBGC or to a trustee appointed under Section 4042 of
     ERISA. None of the Parent, the Borrower, any member of its Controlled
     Group, or any organization to which the Borrower or any member of its
     Controlled Group is a successor or parent corporation within the meaning of
     ERISA Section 4069(b), has engaged in a transaction within the meaning of
     ERISA Section 4069. None of the Borrower or any member of its Controlled
     Group maintains or has established any welfare 



                                       49
<PAGE>
 
     benefit plan within the meaning of Section 3(1) of ERISA which provides for
     continuing benefits or coverage for any participant or any beneficiary of
     any participant after such participant's termination of employment except
     as may be required by the Consolidated Omnibus Budget Reconciliation Act of
     1985, as amended ("COBRA") and the regulations thereunder, and at the
     expense of the participant or the beneficiary of the participant, or
     retiree medical liabilities. Each of the Borrower and its Controlled Group
     which maintains a welfare benefit plan within the meaning of Section 3(1)
     of ERISA has complied in all material respects with any applicable notice
     and continuation requirements of COBRA and the regulations thereunder.

          (m) The Borrower is not engaged principally or as one of its important
     activities in the business of extending credit for the purpose of
     purchasing or carrying any margin stock within the meaning of Regulations
     G, T, U and X of the Board of Governors of the Federal Reserve System, and
     no part of the proceeds of the Advances will be used to purchase or carry
     any margin stock (as defined by Regulation U) or to extend credit to others
     for the purpose of purchasing or carrying any margin stock. Not more than
     25% of the assets of any of the Parent, the Borrower or any of its
     Subsidiaries are margin stock (as defined by Regulation U), and none of the
     Pledged Stock or other Capital Stock of the Parent, the Borrower and the
     Subsidiaries of the Borrower is margin stock. None of the Borrower and its
     Subsidiaries, nor any agent acting on their behalf, have taken or will
     knowingly take any action which might cause this Agreement or any Loan
     Papers to violate any regulation of the Board of Governors of the Federal
     Reserve System or to violate the Exchange Act, in each case as in effect
     now or as the same may hereafter be in effect.

          (n) The Parent, the Borrower and its Subsidiaries are in compliance
     with all of the provisions of their articles of incorporation and by-laws.
     As of the Closing Date, no event has occurred or failed to occur, which has
     not been remedied or waived, the occurrence or non-occurrence of which
     constitutes, or which with the passage of time or giving of notice or both
     would constitute, (i) an Event of Default or (ii) a default by the Parent,
     the Borrower or any of its Subsidiaries under any material contract, or
     other material indenture, agreement or other instrument, or any judgment,
     decree or order to which the Borrower or any of its Subsidiaries is a party
     or by which they or any of their material Properties is bound. On each date
     after the Closing Date on which this representation is deemed to be made,
     no event has occurred or failed to occur, which has not been remedied or
     waived, the occurrence or non-occurrence of which constitutes, or which
     with the passage of time or giving of notice or both would constitute, (i)
     an Event of Default or (ii) a default by the Parent, the Borrower or any of
     its Subsidiaries under any material contract or other material indenture,
     agreement or other instrument, or any judgment, decree or order to which
     the Parent, the Borrower or any of its Subsidiaries is a party or by which
     they or any of their material Properties is bound, that could reasonably be
     expected to cause a Material Adverse Change.



                                       50
<PAGE>
 
          (o) The Borrower is not required to register under the provisions of
     the Investment Company Act of 1940, as amended. Neither the entering into
     or performance by the Borrower of this Agreement nor the issuance of the
     Notes violates any provision of such act or requires any consent, approval,
     or authorization of, or registration with, the Securities and Exchange
     Commission or any other governmental or public body of authority pursuant
     to any provisions of such act.

          (p) On the Closing Date, none of the Parent, the Borrower nor any
     Subsidiary of the Borrower has any actual knowledge or reason to believe
     that any substance deemed hazardous by any applicable Environmental Law,
     has been installed on any real property now owned by the Parent, the
     Borrower or any of its Subsidiaries, except (i) for hazardous substances
     the presence of which is not in violation of law and (ii) as disclosed to
     the Lenders. On each date after the Closing Date on which this
     representation is deemed to be made, none of the Parent, the Borrower nor
     any Subsidiary of the Borrower has any actual knowledge or reason to
     believe that any substance deemed hazardous by any applicable Environmental
     Law, has been installed in violation of law on any real property now owned
     by the Parent, the Borrower or any of its Subsidiaries except as disclosed
     to the Lenders and which could not, in the reasonable judgment of the
     Borrower, cause a Material Adverse Change. As of the Closing Date, the
     Parent, the Borrower and its Subsidiaries are not in violation of or
     subject to any existing, pending or, to the best of the Borrower's
     knowledge, threatened investigation or inquiry by any governmental
     authority or to any material remedial obligations under any applicable
     Environmental Laws, and this representation and warranty would continue to
     be true and correct following disclosure to the applicable governmental
     authorities of all relevant facts, conditions and circumstances, if any,
     pertaining to any real property of the Parent, the Borrower and its
     Subsidiaries. On each date after the Closing Date on which this
     representation is deemed to be made, the Parent, the Borrower and its
     Subsidiaries are not in violation of or subject to any existing, pending
     or, to the best of the Borrower's knowledge, threatened investigation or
     inquiry by any governmental authority or to any material remedial
     obligations under any applicable Environmental Laws which could cause a
     Material Adverse Change, and this representation and warranty would
     continue to be true and correct following disclosure to the applicable
     governmental authorities of all relevant facts, conditions and
     circumstances, if any, pertaining to any real property of the Parent, the
     Borrower and its Subsidiaries. The Parent, the Borrower and its
     Subsidiaries are not required to obtain any permits, Licenses or similar
     authorizations to construct, occupy, operate or use any buildings,
     improvements, fixtures, and equipment forming a part of any real property
     of the Parent, the Borrower or any Subsidiary of the Borrower by reason of
     any applicable Environmental Laws, except those that have been obtained. As
     of the Closing Date, the Parent, Borrower and its Subsidiaries have no
     actual knowledge or reason to believe, after reasonable investigation, that
     any hazardous substances or solid wastes have been disposed of or otherwise
     released on or to the real property of the Borrower or any of its
     Subsidiaries in violation of any applicable Environmental Law. On each date
     after the Closing Date on which this representation is deemed to be made,
     the Borrower and its Subsidiaries have no actual knowledge or reason to



                                       51
<PAGE>
 
     believe, that any hazardous substances or solid wastes have been disposed
     of or otherwise released on or to the real property of the Parent, the
     Borrower or any of its Subsidiaries, within the meaning of the applicable
     Environmental Laws, except as disclosed to the Lenders and which such
     disposal or release could not cause a Material Adverse Change.

          (q) On the Closing Date, there is no Litigation, or, to the best of
     the Borrower's knowledge, threatened Litigation or pending or threatened
     claim of breach or default, with respect to any material contract, or any
     loan agreement or document evidencing any Debt for Borrowed Money of the
     Parent, the Borrower, or its Subsidiaries that has not been disclosed in
     writing to the Lenders.

          (r) All Pledged Stock has been duly authorized and validly issued, and
     is fully paid and nonassessable. The Capital Stock described on Schedule
     5.01(r) hereto constitutes all the issued and outstanding Capital Stock of
     the Borrower and the Subsidiaries of the Borrower or the Subsidiaries of
     another Subsidiary of the Borrower, except such shares that have been
     issued after the Closing Date, pledged to the Administrative Lender to
     secure the Obligations and delivered to the Administrative Lender together
     with stock powers executed in blank. No Person has conversion rights with
     respect to, or any subscription rights, calls, commitments or claims of any
     character for, or any repurchase or redemption options relating to, the
     Pledged Stock, other than those that have been waived. The Pledged Stock
     when issued or sold, was either (i) registered or qualified under
     applicable federal or state securities laws, or (ii) exempt therefrom.

          (s) No broker's, finder's or other fee or commission will be payable
     by the Borrower (other than to the Lenders hereunder) with respect to the
     making of the Commitment or the Advances hereunder. The Borrower agrees to
     indemnify and hold harmless the Administrative Lender and each Lender from
     and against any claims, demand, liability, proceedings, costs or expenses
     asserted with respect to or arising in connection with any such fees or
     commissions.

          (t) No event has occurred which permits (or with the passage of time
     would permit) the revocation or termination of any material License, which
     could result in the imposition of any restriction thereon of such a nature
     that could reasonably be expected to cause a Material Adverse Change.

          (u) To the best knowledge of the Borrower, as of the Closing Date, the
     Parent, the Borrower and its Subsidiaries have obtained all material
     patents, trademarks, service-marks, trade names, copyrights, Licenses and
     other rights, free from burdensome restrictions, that are necessary for the
     operation of their business as presently conducted and as proposed to be
     conducted. On each date after the Closing Date on which this representation
     is deemed to be made, the Parent, the Borrower and its Subsidiaries have
     obtained all patents, trademarks, service-marks, trade names, copyrights,
     Licenses and other rights, free from burdensome restrictions, that are
     necessary for the operation of their business as presently conducted and as



                                       52
<PAGE>
 
     proposed to be conducted, except those, the failure of which to obtain
     could not be reasonably expected to cause a Material Adverse Change.
     Nothing has come to the attention of the Parent, the Borrower or any of its
     Subsidiaries to the effect that (i) any process, method, part or other
     material presently contemplated to be employed by the Parent, the Borrower
     or any Subsidiary of the Borrower may infringe any patent, trademark,
     service-mark, trade name, copyright, License or other right owned by any
     other Person, or (ii) there is pending or overtly threatened any claim or
     Litigation against or affecting the Parent, the Borrower or any Subsidiary
     of the Borrower contesting its right to sell or use any such process,
     method, part or other material, which could reasonably be expected to cause
     a Material Adverse Change.

          (v) Neither this Agreement nor any other document, certificate or
     statement which has been furnished to any Lender by or on behalf of the
     Parent, the Borrower or any Subsidiary of the Borrower in connection
     herewith contained any untrue statement of a material fact or omitted to
     state a material fact necessary in order to make the statement contained
     herein and therein not misleading at the time it was furnished. On the
     Closing Date, there is no fact known to the Parent or the Borrower and not
     known to the public generally that could reasonably be expected to cause a
     Material Adverse Change, which has not been set forth in this Agreement or
     in the documents, certificates and statements furnished to the Lenders by
     or on behalf of the Borrower prior to the date hereof in connection with
     the transaction contemplated hereby. On each date after the Closing Date on
     which this representation is deemed to be made, there is no fact known to
     the Parent or the Borrower and not known to the public generally that could
     reasonably be expected to cause a Material Adverse Change, which has not
     been disclosed to the Lenders in writing.

          (w) The Parent is not, the Borrower is not, nor is any Subsidiary of
     the Borrower, a party to any contractual relationship which is breached or
     in default solely as a result of any change in the ownership, management or
     Board of Directors of the Parent or the Borrower, unless the Borrower has
     agreed to a substantially similar provision in this Agreement.

     5.02. Survival of Representations and Warranties. All representations and
warranties made under this Agreement and the other Loan Papers shall be deemed
to be made at and as of the Closing Date and at and as of the date of each
Advance, and each shall be true and correct in all material respects when made.
All such representations and warranties shall survive, and not be waived by, the
execution hereof by any Lender, any investigation or inquiry by any Lender, or
by the making of any Advance under this Agreement.



                                       53
<PAGE>
 
                          ARTICLE VI. GENERAL COVENANTS

     So long as any of the Obligations are outstanding and unpaid or the
Commitment or any Letter of Credit is outstanding (whether or not the conditions
to borrowing have been or can be fulfilled):

     6.01. Preservation of Existence and Similar Matters.

     (a) The Borrower shall, and shall cause the Parent and each Subsidiary of
the Borrower to, preserve and maintain, or timely obtain and thereafter preserve
and maintain (i) material rights, franchises, authorizations, consents,
privileges and all other material Licenses from federal, state and local
governmental bodies and any Tribunal (regulatory or otherwise) which the Parent
or the Borrower or such Subsidiary deems reasonably necessary or advisable to
conduct its business in the ordinary course, and (ii) its existence (except as
permitted by Section 8.05 hereof); and

     (b) The Borrower shall, and shall cause the Parent and each Subsidiary of
the Borrower to, qualify and remain qualified and authorized to do business in
each jurisdiction in which the character of its Properties or the nature of its
business requires such qualification or authorization, except where the failure
to do so could not cause a Material Adverse Change.

     6.02. Business; Compliance with Applicable Law. The Parent, the Borrower
and its Subsidiaries shall (a) engage primarily in the business of
telecommunications, and activities related thereto, and (b) comply in all
material respects with the requirements of all Applicable Law.

     6.03. Maintenance of Properties. The Borrower shall, and shall cause the
Parent and each Subsidiary of the Borrower to, maintain or cause to be
maintained all their material Properties necessary to the conduct of their
business (whether owned or held under lease) in reasonably good repair, working
order and condition, taken as a whole, and from time to time make or cause to be
made all appropriate repairs, renewals, replacements, additions, betterments and
improvements thereto.

     6.04. Accounting Methods and Financial Records. The Borrower shall, and
shall cause the Parent and each Subsidiary of the Borrower to, maintain a system
of accounting established and administered in accordance with GAAP, keep
adequate records and books of account in which complete entries will be made and
all transactions reflected in accordance with GAAP, and keep accurate and
complete records of its respective assets. The Parent, the Borrower and each of
its Subsidiaries shall maintain a fiscal year ending on December 31.



                                       54
<PAGE>
 
     6.05. Insurance. The Borrower shall, and shall cause the Parent and each
Subsidiary of the Borrower to, maintain insurance from responsible companies in
such amounts and against such risks as shall be customary and usual in the
industry for companies of similar size and capability, but in no event less than
the amount and types insured as of the Closing Date; provided, however, the
Borrower, the Parent and each Subsidiary may self-insure its outside plant
physical facilities, consisting of the fiber optic cable network. Each insurance
policy shall name the Administrative Lender as additional insured and provide
for at least 30 days' prior notice to the Administrative Lender of any proposed
termination or cancellation of such policy, whether on account of default or
otherwise.

     6.06. Payment of Taxes and Claims. The Borrower shall, and shall cause the
Parent and each Subsidiary of the Borrower to, pay and discharge all Taxes,
assessments and governmental charges or levies imposed upon it or its income or
Properties prior to the date on which penalties attach thereto, and all lawful
material claims for labor, materials and supplies which, if unpaid, might become
a Lien upon any of their Properties, except those Taxes, assessments and charges
contested by the Borrower diligently in good faith, and for which adequate
reserves have been established in accordance with GAAP. The Borrower shall, and
shall cause each Subsidiary of the Borrower to, timely file all information
returns required by federal, state or local Tax authorities.

     6.07. Visits and Inspections. The Borrower shall, and shall cause the
Parent and each Subsidiary of the Borrower to, promptly, permit representatives
of the Administrative Lender or any Lender from time to time, upon prior notice
reasonable under the circumstances, to (a) visit and inspect the Properties of
the Parent, the Borrower and each Subsidiary of the Borrower as often as the
Administrative Lender or any Lender shall deem advisable, (b) inspect and make
extracts from and copies of the Parent's, Borrower's and each Subsidiary of the
Borrower's books and records, and (c) discuss with the Parent's, the Borrower's
and each Subsidiary of the Borrower's directors, officers, employees and, after
notice to the Borrower, the auditors of the Parent and the Borrower, its
business, assets, liabilities, financial positions, results of operations and
business prospects.

     6.08. Payment of Debt for Borrowed Money. The Borrower shall, and shall
cause the Parent and each Subsidiary of the Borrower to, pay its Debt for
Borrowed Money when and as the same becomes due.

     6.09. Use of Proceeds. The Borrower shall use the proceeds of Advances
solely (a) for Permitted Acquisitions, (b) for Capital Expenditures permitted
under the terms of this Agreement, (c) for working capital and (d) for other
lawful corporate purposes.



                                       55
<PAGE>
 
     6.10. Indemnity.

     (a) The Borrower agrees to defend, protect, indemnify and hold harmless the
Administrative Lender, each Lender, each of their respective Affiliates, and
each of their respective (including such Affiliates') officers, directors,
employees, agents, attorneys, shareholders and consultants (including, without
limitation, those retained in connection with the satisfaction or attempted
satisfaction of any of the conditions set forth herein) of each of the foregoing
(collectively, "Indemnitees") from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, expenses and disbursements of any kind or nature whatsoever (including,
without limitation, the reasonable fees and disbursements of counsel for such
Indemnitees in connection with any investigative, administrative or judicial
proceeding, whether or not such Indemnitees shall be designated a party
thereto), imposed on, incurred by, or asserted against such Indemnitees (whether
direct, indirect or consequential and whether based on any federal, state, or
local laws and regulations), under common law or at equitable cause, or on
contract, tort or otherwise, arising from or connected with the past, present or
future operations of the Borrower or its predecessors in interest, in any manner
relating to or arising out of this Agreement, the Loan Papers, or any act, event
or transaction or alleged act, event or transaction relating or attendant
thereto, the making of any participations in the Advances and the management of
the Advances, including in connection with, or as a result, in whole or in part,
of any negligence of Administrative Lender or any Lender (other than those
matters raised exclusively by a participant against the Administrative Lender or
any Lender and not the Borrower), or the use or intended use of the proceeds of
the Advances hereunder, or in connection with any investigation of any potential
matter covered hereby, but excluding any claim or liability that arises as the
result of the gross negligence or willful misconduct of any Indemnitee, as
finally judicially determined by a court of competent jurisdiction
(collectively, the "Indemnified Matters").

     (b) In addition, the Borrower shall periodically, upon request, reimburse
each Indemnitee for its reasonable legal and other actual expenses (including
the cost of any investigation and preparation) incurred in connection with any
Indemnified Matter. If for any reason the foregoing indemnification is
unavailable to any Indemnitee or insufficient to hold any Indemnitee harmless
with respect to Indemnified Matters, then the Borrower shall contribute to the
amount paid or payable by such Indemnitee as a result of such loss, claim,
damage or liability in such proportion as is appropriate to reflect not only the
relative benefits received by the Borrower and the Borrower's stockholders on
the one hand and such Indemnitee on the other hand but also the relative fault
of the Borrower and such Indemnitee, as well as any other relevant equitable
considerations. The reimbursement, indemnity and contribution obligations under
this Section shall be in addition to any liability which the Borrower may
otherwise have, shall extend upon the same terms and conditions to each
Indemnitee, and shall be binding upon and inure to the benefit of any
successors, assigns, heirs and personal representatives of the 



                                       56
<PAGE>
 
Borrower, the Administrative Lender, the Lenders and all other Indemnitees. This
Section shall survive any termination of this Agreement and payment of the
Obligations.

     6.11. Environmental Law Compliance. The use which the Parent, the Borrower
or any Subsidiary of the Borrower intends to make of any real Property owned by
it will not result in the disposal or other release of any hazardous substance
or solid waste on or to such real Property in violation of any Environmental
Law. As used herein, the terms "hazardous substance" and "release" as used in
this Section shall have the meanings specified in CERCLA (as defined in the
definition of applicable Environmental Laws), and the terms "solid waste" and
"disposal" shall have the meanings specified in RCRA (as defined in the
definition of applicable Environmental Laws); provided, however, that if CERCLA
or RCRA is amended so as to broaden the meaning of any term defined thereby,
such broader meaning shall apply subsequent to the effective date of such
amendment; and provided further, to the extent that any other law applicable to
the Parent, the Borrower, any Subsidiary of the Borrower or any of their
Properties establishes a meaning for "hazardous substance," "release," "solid
waste," or "disposal" which is broader than that specified in either CERCLA or
RCRA, such broader meaning shall apply. The Borrower agrees to indemnify and
hold the Administrative Lender and each Lender harmless from and against, and to
reimburse them with respect to, any and all claims, demands, causes of action,
loss, damage, liabilities, costs and expenses (including reasonable attorneys'
fees and courts costs) of any kind or character, known or unknown, fixed or
contingent, asserted against or incurred by any of them at any time and from
time to time by reason of or arising out of (a) the failure of the Parent, the
Borrower or any Subsidiary of the Borrower to perform any obligation hereunder
regarding asbestos or applicable Environmental Laws, (b) any violation on or
before the Release Date of any applicable Environmental Law in effect on or
before the Release Date, and (c) any act, omission, event or circumstance
existing or occurring on or prior to the Release Date (including without
limitation the presence on such real Property or release from such real Property
of hazardous substances or solid wastes disposed of or otherwise released on or
prior to the Release Date), resulting from or in connection with the ownership
of the real Property, regardless of whether the act, omission, event or
circumstance constituted a violation of any applicable Environmental Law at the
time of its existence or occurrence, or whether the act, omission, event or
circumstance is caused by or relates to the negligence of any indemnified
Person; provided, that the Borrower shall not be under any obligation to
indemnify the Administrative Lender or any Lender to the extent that any such
liability arises as the result of the gross negligence or willful misconduct of
such Person, as finally judicially determined by a court of competent
jurisdiction. The provisions of this paragraph shall survive the Release Date
and shall continue thereafter in full force and effect.

     6.12. Acquisitions, Generally. In connection with any Permitted Acquisition
made by the Parent, the Borrower or any Subsidiary of the Borrower during the
term of this Agreement, the Borrower shall or shall cause the Parent or such
Subsidiary to, (a) not less than ten Business Days prior to the proposed
acquisition date, deliver to Administrative Lender a detailed written



                                       57
<PAGE>
 
description of the proposed Permitted Acquisition in form reasonably acceptable
to the Administrative Lender, and (b) prior to the consummation of the
acquisition a statement certified by an Authorized Officer that (i) the proposed
transaction complies with the definition of Permitted Acquisition set forth in
Article I hereof and with the terms and conditions set forth in Section 8.05(b)
and/or, to the extent applicable, Section 8.05(d) hereof, and (ii) no Default or
Event of Default exists prior to or after giving effect to any requested Advance
or the consummation of such acquisition, or will exist upon consummation of the
proposed acquisition and related borrowings and transactions, together with a
Compliance Certificate computed after giving effect to such acquisition and
borrowings.

     6.13. Subsidiary Designation. The Borrower agrees that a Subsidiary will be
a Restricted Subsidiary if such Subsidiary, together with its Subsidiaries, (i)
for the most recent fiscal year of the Parent, accounted for more than 10% of
the consolidated revenues of the Parent and its Restricted Subsidiaries or (ii)
as of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of the Parent and its Restricted Subsidiaries, all as set
forth on the most recently available consolidated financial statements of the
Parent for such fiscal year.

     6.14. Subsidiary Creation or Acquisition. If and for so long as any of the
1997 Senior Notes are outstanding, none of the Parent, the Borrower or any
Subsidiary may create or acquire any Subsidiary without the prior written
consent of the Administrative Agent.

                       ARTICLE VII. INFORMATION COVENANTS

     So long as any of the Obligations are outstanding and unpaid or the
Commitment or any Letter of Credit is outstanding (whether or not the conditions
to borrowing have been or can be fulfilled), the Borrower shall furnish or cause
to be furnished to each Lender:

     7.01. Quarterly Financial Statements and Information. Within 45 days after
the end of each fiscal quarter, consolidated and consolidating balance sheets of
the Parent, the Borrower and its Subsidiaries as at the end of such quarter and
the related consolidated and consolidating statements of income and consolidated
statements of changes in cash for such quarter and for the elapsed portion of
the year ended with the last day of such quarter, all of which shall be
certified by an Authorized Officer, to, in his or her opinion, present fairly in
all material respects, in accordance with GAAP, the financial position and
results of operations of the Parent, the Borrower and its Subsidiaries as at the
end of and for such period, and for the elapsed portion of the year ended with
the last day of such period.



                                       58
<PAGE>
 
     7.02. Annual Financial Statements and Information.

     (a) Within 120 days after the end of each fiscal year, a copy of (i) the
consolidated balance sheet of the Parent, the Borrower and its Subsidiaries, as
of the end of the current and prior fiscal years and (ii) consolidated
statements of earnings, statements of changes in shareholders' equity, and
statements of changes in cash as of and through the end of such fiscal year, all
of which are prepared in accordance with GAAP, and certified by independent
certified public accountants acceptable to the Lenders, whose opinion shall be
in scope and substance in accordance with generally accepted auditing standards
and shall be unqualified.

     (b) As soon as available, but in any event within 60 days following the end
of each fiscal year, a copy of the annual consolidated operating budget of the
Parent, the Borrower and its Subsidiaries for the succeeding fiscal year.

     7.03. Compliance Certificates. At the time financial statements are
furnished pursuant to Section 7.01 and Section 7.02 hereof, a duly completed
Compliance Certificate evidencing no Default or Event of Default.

     7.04. Copies of Other Reports and Notices.

     (a) Promptly upon their becoming available, a copy of (i) all material
reports or letters submitted to the Parent, the Borrower or any Subsidiary of
the Borrower by accountants in connection with any annual, interim or special
audit, including without limitation any report prepared in connection with the
annual audit referred to in Section 7.02 hereof, and any other comment letter
submitted to management in connection with any such audit, (ii) each financial
statement, report, notice or proxy statement sent by the Parent, the Borrower or
any Subsidiary of the Borrower to stockholders generally, (iii) each regular or
periodic report and any registration statement or prospectus (or material
written communication in respect of any thereof) filed by the Parent, the
Borrower or any Subsidiary of the Borrower with any securities exchange, with
the Securities and Exchange Commission or any successor agency, and (iv) all
press releases concerning material financial aspects of the Parent, the Borrower
or any Subsidiary of the Borrower;

     (b) Promptly upon becoming aware that (i) the holder(s) of any note(s) or
other evidence of indebtedness or other security of the Parent, the Borrower or
any Subsidiary of the Borrower in excess of $250,000 in the aggregate has given
notice or taken any action with respect to a breach, failure to perform, claimed
default or event of default thereunder, (ii) any occurrence or non-occurrence of
any event which constitutes or which with the passage of time or giving of
notice or both could constitute a material breach by the Parent, the Borrower or
any Subsidiary of the Borrower under any material agreement or instrument other
than this Agreement to which the Parent, the Borrower or any Subsidiary of the
Borrower is a party or by 



                                       59
<PAGE>
 
which any of their Properties may be bound, or (iii) any event, circumstance or
condition which could reasonably be expected to cause a Material Adverse Change,
a written notice specifying the details thereof (or the nature of any claimed
default or event of default) and what action is being taken or is proposed to be
taken with respect thereto;

     (c) Promptly upon receipt thereof, information with respect to and copies
of any notices received from the FCC, any applicable PUC or any other federal,
state or local regulatory agencies or any tribunal relating to any order,
ruling, law, information or policy that relates to a breach of or noncompliance
with the Communications Act or any law, rule or regulation of any applicable
PUC, or might result in the payment of money by the Parent, the Borrower or any
Subsidiary of the Borrower in an amount of $250,000 or more in the aggregate, or
otherwise cause a Material Adverse Change, or result in the loss or suspension
of any material License or any material contract;

     (d) Promptly upon the knowledge of an Authorized Officer of receipt by the
Parent, the Borrower or any Subsidiary of the Borrower from any governmental
agency, or any government, political subdivision or other entity, of any
material notice, correspondence, hearing, proceeding or order regarding or
affecting the Parent, the Borrower, any Subsidiary of the Borrower, or any of
their Properties or businesses not in the ordinary course of business, a copy of
such notice, correspondence, hearing, proceeding or order; and

     (e) From time to time and promptly upon each request, such data,
certificates, reports, statements, documents or further information regarding
the assets, business, liabilities, financial position, projections, results of
operations or business prospects of the Parent, the Borrower and its
Subsidiaries that is within the Borrower's control, as the Administrative Lender
or any Lender may reasonably request.

     7.05. Notice of Litigation, Default and Other Matters. Prompt notice of the
following events after the Borrower has knowledge or notice thereof:

          (a) The commencement of all proceedings and investigations by or
     before the FCC, any applicable PUC, or any other governmental body, and all
     other actions and proceedings in any court or before any arbitrator
     involving claims for damages (including punitive damages) in excess of
     either $1,000,000 for any one proceeding or investigation, or $5,000,000 in
     the aggregate for all such proceedings and investigations (after deducting
     the amount with respect to the Parent, the Borrower or any Subsidiary of
     the Borrower is insured), against or in any other way relating directly to
     the Parent, the Borrower, any Subsidiary of the Borrower, or any of their
     Properties or businesses;



                                       60
<PAGE>
 
          (b) Promptly upon the happening of any condition or event which
     constitutes a Default or Event of Default, a written notice specifying the
     nature and period of existence thereof and what action is being taken or is
     proposed to be taken with respect thereto; and

          (c) Any event which could cause a Material Adverse Change with respect
     to the business, assets, liabilities, financial position, results of
     operations or prospective business of the Parent, the Borrower or any
     Subsidiary of the Borrower.

     7.06. ERISA Reporting Requirements.

     (a) Promptly and in any event (i) within 30 days after the Parent, the
Borrower or any member of its Controlled Group knows or has reason to know that
any ERISA Event described in clause (a) of the definition of ERISA Event or any
event described in Section 4063(a) of ERISA with respect to any Plan of the
Parent, the Borrower or any member of its Controlled Group has occurred, and
(ii) within 10 days after the Parent, the Borrower or any member of its
Controlled Group knows or has reason to know that any other ERISA Event with
respect to any Plan of the Parent, the Borrower or any member of its Controlled
Group has occurred or a request for a minimum funding waiver under Section 412
of the Code with respect to any Plan of the Parent, the Borrower or any member
of its Controlled Group, a written notice describing such event and describing
what action is being taken or is proposed to be taken with respect thereto,
together with a copy of any notice of event that is given to the PBGC;

     (b) Promptly and in any event within two Business Days after receipt
thereof by the Parent, the Borrower or any member of its Controlled Group from
the PBGC, copies of each notice received by the Parent, the Borrower or any
member of its Controlled Group of the PBGC's intention to terminate any Plan or
to have a trustee appointed to administer any Plan;

     (c) Promptly and in any event within 30 days after the filing thereof by
the Parent, the Borrower or any member of its Controlled Group with the United
States Department of Labor, the Internal Revenue Service or the PBGC, copies of
each annual and other report (including Schedule B thereto) with respect to each
Plan;

     (d) Promptly and in any event within 30 days after receipt thereof, a copy
of any notice, determination letter, ruling or opinion the Parent, the Borrower
or any member of its Controlled Group receives from the PBGC, the United States
Department of Labor or the Internal Revenue Service with respect to any Plan;

     (e) Promptly, and in any event within 10 Business Days after receipt
thereof, a copy of any correspondence the Parent, the Borrower or any member of
its Controlled Group receives from the Plan Sponsor (as defined by Section
4001(a)(10) of ERISA) of any Plan concerning potential withdrawal liability
pursuant to Section 4219 or 4202 of ERISA, and a statement from 



                                       61
<PAGE>
 
the chief financial officer of the Parent, the Borrower or such member of its
Controlled Group setting forth details as to the events giving rise to such
potential withdrawal liability and the action which the Parent, the Borrower or
such member of its Controlled Group is taking or proposes to take with respect
thereto;

     (f) Notification within 30 days of any material increases in the benefits
of any existing Plan which is not a Multiemployer Plan, or the establishment of
any new Plans, or the commencement of contributions to any Plan to which the
Parent, the Borrower or any member of its Controlled Group was not previously
contributing;

     (g) Notification within three Business Days after the Parent, the Borrower
or any member of its Controlled Group knows or has reason to know that the
Parent, the Borrower or any such member of its Controlled Group has or intends
to file a notice of intent to terminate any Plan under a distress termination
within the meaning of Section 4041(c) of ERISA and a copy of such notice; and

     (h) Promptly after receipt of written notice of commencement thereof,
notice of all actions, suits and proceedings before any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, affecting the Parent, the Borrower or any member of its Controlled
Group with respect to any Plan.


                        ARTICLE VIII. NEGATIVE COVENANTS

     So long as any of the Obligations are outstanding and unpaid or the
Commitment or any Letter of Credit is outstanding (whether or not the conditions
to borrowing have been or can be fulfilled):

     8.01. Financial Covenants.

     (a) Total Leverage Ratio. The Borrower shall not permit the Total Leverage
Ratio at any time during the term of this Agreement to be more than the
following ratios during the following time periods:

<TABLE>
<CAPTION>
                    Period                                         Ratio
                    ------                                         -----
<S>                                                             <C>
     From the Closing Date through June 30, 1999                9.50 to 1.00
     From July 1, 1999 through June 30, 2000                    8.75 to 1.00
     From July 1, 2000 through June 30, 2001                    7.50 to 1.00
     From July 1, 2001 through June 30, 2002                    6.00 to 1.00
     From July 1, 2002 and thereafter                           4.50 to 1.00
</TABLE>



                                       62
<PAGE>
 
     (b) Senior Leverage Ratio. The Borrower shall not permit the Senior
Leverage Ratio at any time during the term of this Agreement to be more than the
following ratios during the following time periods:

<TABLE>
<CAPTION>
                    Period                                         Ratio
                    ------                                         -----
<S>                                                             <C>
     From the Closing Date through June 30, 2000                2.75 to 1.00
     From July 1, 2000 and thereafter                           2.25 to 1.00
</TABLE>

     (c) Interest Coverage Ratio. The Borrower shall not permit the Interest
Coverage Ratio at any time during the term of this Agreement to be less than the
following ratios during the following time periods:

<TABLE>
<CAPTION>
                    Period                                         Ratio
                    ------                                         -----
<S>                                                             <C>
     From the Closing Date through June 30, 2000                1.50 to 1.00
     From July 1, 2000 and thereafter                           1.75 to 1.00
</TABLE>

Notwithstanding the foregoing, in the event that the Parent does not exercise
its Optional Redemption Rights to redeem 35% of the outstanding 1997 Senior
Notes within 60 days after the Effective Date hereof, then the Borrower shall
not permit the Interest Coverage Ratio at any time during the term of this
Agreement to be less than 1.75 to 1.00.

     (d) Capital Expenditures. The Borrower shall not permit Capital
Expenditures made by the Parent, the Borrower and its Subsidiaries for each
fiscal year of the Borrower to exceed the amounts set forth below for each
fiscal year; provided, that (i) to the extent that less than such amount set
forth below was used by the Parent, the Borrower and its Subsidiaries for
Capital Expenditures for any fiscal year, the Parent, the Borrower or its
Subsidiaries may increase the limitation on Capital Expenditures for any
succeeding fiscal year or years provided that such increases in the aggregate do
not exceed the amount of such unused amount and (ii) over the term of this
Agreement, the Parent, the Borrower and its Subsidiaries may add $25,000,000 in
the aggregate to the maximum amounts set forth below, provided that at the time
that the Parent, the Borrower or any Subsidiary of the Borrower elects to
increase such maximum amounts by any portion of such $25,000,000, there must
exist no Default or Event of Default and the Borrower must note such increase on
the first Compliance Certificate it delivers thereafter in accordance with the
terms of Section 7.03 hereof.

<TABLE>
<CAPTION>
                    Period                                         Amount
                    ------                                         ------
<S>                                                             <C>
     For the Fiscal Year 1998                                   $105,000,000
</TABLE>



                                       63
<PAGE>
 
<TABLE>
<CAPTION>
<S>                                                             <C>
     For the Fiscal Year 1999                                   $100,000,000
     For the Fiscal Year 2000                                   $ 50,000,000
     For the Fiscal Year 2001 and each year thereafter          $ 45,000,000
</TABLE>

     8.02. Debt for Borrowed Money. The Borrower shall not, and shall not permit
the Parent or any Subsidiary of the Borrower to, create, assume, incur or
otherwise become or remain obligated in respect of, or permit to be outstanding,
or suffer to exist any Debt for Borrowed Money, except:

          (a) with respect to the Parent, the Borrower and its Subsidiaries,
     Debt for Borrowed Money under the Loan Papers;

          (b) with respect to the Parent, the Borrower and its Subsidiaries,
     Debt for Borrowed Money in existence on the Closing Date described on
     Schedule 8.02 hereto and not otherwise permitted pursuant to this Section
     8.02 in the principal amounts and as such Debt for Borrowed Money exists as
     of the Closing Date;

          (c) with respect to the Parent (i) the 1998 Senior Notes in an amount
     not more than $160,000,000 and due in 2008, on other terms and conditions
     acceptable to the Administrative Agent and (ii) the 1997 Senior Notes;

          (d) provided that no Default or Event of Default exists or would
     result from the incurrence thereof, with respect to the Borrower and the
     wholly owned Subsidiaries of the Borrower, Debt owed to each other;

          (e) provided that no Default or Event of Default exists or would
     result from the incurrence thereof, Debt constituting Capital Leases or
     purchase money Debt in an aggregate amount over the term of this Agreement
     not to exceed $5,000,000, incurred by the Borrower or any Subsidiary in
     connection with any acquisition permitted to be made in accordance with the
     terms of Section 8.05(b) hereof.

     8.03. Liens. The Borrower shall not, and shall not permit the Parent or any
Subsidiary of the Borrower to, create, assume, incur, permit or suffer to exist,
directly or indirectly, any Lien on any of its assets or Properties, whether now
owned or hereafter acquired, except (a) Permitted Liens and (b) so long as no
Default or Event of Default exists or would result from the incurrence of such
Lien, Liens securing Debt permitted to be incurred by Section 8.02(e) hereof,
but only so long as such Debt secured thereby shall not be increased and the
Liens shall not cover additional assets of the Borrower, the Parent or any such
Subsidiary. The Borrower shall not, and shall not permit the Parent or any
Subsidiary of the Borrower to, agree with any other Person that it shall not
create, assume, incur, permit or suffer to exist or to be created, assumed,
incurred or permitted to exist, directly or indirectly, any Lien on any of its
assets or Properties.



                                       64
<PAGE>
 
     8.04. Investments. The Borrower shall not, and shall not permit the Parent
or any Subsidiary of the Borrower to, make any Investment, except that the
Borrower may purchase or otherwise acquire and own:

          (a) Marketable, direct obligations of, or guaranteed by, the United
     States of America and maturing within 365 days of the date of purchase;

          (b) Commercial paper issued by U.S. corporations that have a rating of
     A-1/P-1 or better by Standard & Poor's Ratings Group, a Division of
     McGraw-Hill, Inc. or Moody's Investors Service, Inc.;

          (c) Certificates of deposit of domestic banks maturing within 365 days
     of the date of purchase, which banks' debt obligations have one of the two
     highest ratings obtainable from Standard & Poor's Ratings Group, a Division
     of McGraw-Hill, Inc. or Moody's Investors Service, Inc.;

          (d) Securities issued by U.S. corporations that have one of the two
     highest ratings obtainable from Standard & Poor's Ratings Group, a Division
     of McGraw-Hill, Inc. or Moody's Investors Service, Inc.;

          (e) Investments in acquisitions permitted by Section 8.05(b) hereof,
     so long as (i) the Capital Stock of each new Subsidiary is pledged to the
     Lenders to secure the Obligations pursuant to a pledge agreement
     substantially identical in form and substance to the Pledge Agreement, and
     (ii) each new Subsidiary of the Borrower (A) is subject to the provisions
     hereof, (B) immediately becomes a party to an Unlimited Guaranty and (C)
     grants a Lien and security interest in all such assets and Properties of
     such new Subsidiary of the type already constituting Collateral hereunder
     and as requested by the Majority Lenders, pursuant to security documents
     required by the Administrative Lender substantially in the form of those
     already constituting Loan Papers;

          (f) Accounts receivable that arise in the ordinary course of business
     and are payable on standard terms; and

          (g) Investments in existence on the Closing Date described on Schedule
     8.04 hereto.

     8.05. Liquidation, Disposition or Acquisition of Assets, Merger, New
Subsidiaries. The Borrower shall not, and shall not permit the Parent or any
Subsidiary of the Borrower to, at any time:



                                       65
<PAGE>
 
          (a) liquidate or dissolve itself (or suffer any liquidation or
     dissolution) or otherwise wind up; or sell, lease, abandon, transfer or
     otherwise dispose of all or any part of its assets, Properties or business
     (other than in the ordinary course of business and other than assets that
     are damaged or obsolete), provided that, (i) after delivery of prior
     written notice to the Administrative Lender, any Subsidiary of the Borrower
     can be dissolved so long as a wholly owned Subsidiary of the Borrower that
     has executed an Unlimited Guaranty or the Borrower acquires all such
     Subsidiary's assets, and (ii) after delivery of prior written notice to the
     Administrative Lender, any wholly owned direct or indirect Subsidiary of
     the Borrower that has executed an Unlimited Guaranty of the Obligations
     hereunder may sell or transfer assets, Property or business to the Borrower
     or any other wholly owned indirect or indirect Subsidiary of the Borrower
     that has executed an Unlimited Guaranty of the Obligations hereunder;

          (b) acquire any assets, Property or business of any other Person, or
     participate in any joint venture, except (i) the Borrower and the
     Subsidiaries of the Borrower may acquire assets and Property acquired in
     the ordinary course of business, (ii) provided that no Default or Event of
     Default exists both before and after giving effect to such acquisition, and
     Borrower complies fully with Sections 6.12, 8.04(e) and 8.05(d) hereof,
     Permitted Acquisitions may be consummated if either (I) (A) the total
     purchase price for any one such acquisition is less than $10,000,000, and
     (B) the aggregate purchase price for all such Permitted Acquisitions over
     the term of the Agreement is less than $25,000,000, or (II) the Majority
     Lenders give their prior written approval to such acquisition, and (iii)
     after delivery of prior written notice to the Administrative Lender, the
     Borrower or any wholly owned direct or indirect Subsidiary of the Borrower
     that has executed an Unlimited Guaranty of the Obligations hereunder may
     acquire assets, Property or business from any other wholly owned direct or
     indirect Subsidiary of the Borrower that has executed an Unlimited Guaranty
     of the Obligations hereunder;

          (c) enter into any merger or consolidation, except that, so long as
     there exists no Default or Event of Default and none is caused thereby (i)
     after delivery of prior written notice to the Administrative Lender, any
     wholly owned Subsidiary of the Borrower can merge or consolidate into any
     other wholly owned Subsidiary of the Borrower, or so long as such
     transaction is in connection with a Permitted Acquisition, into another
     Person, so long as a wholly owned Subsidiary of the Borrower which has
     executed an Unlimited Guaranty is a survivor, or into the Borrower so long
     as the Borrower is the surviving corporation or (ii) after delivery of
     prior written notice to the Administrative Lender, another Person may be
     merged into the Borrower or any wholly owned Subsidiary of the Borrower
     that has executed an Unlimited Guaranty in connection with a Permitted
     Acquisition, so long as the Borrower or such wholly owned Subsidiary is the
     surviving corporation;

          (d) create or acquire any Subsidiary, except (a) as permitted by
     Section 8.04(e) hereof and Section 8.05(b) above, and (b) so long as (i)
     there exists no Default or Event of Default both before and after giving
     effect to the creation of any new wholly owned Subsidiary and the 



                                       66
<PAGE>
 
     transfer of any assets to such wholly owned Subsidiary, (ii) immediately
     upon the creation of any new wholly owned Subsidiary, such Subsidiary shall
     become a signatory to an Unlimited Guaranty of the Obligations delivered to
     the Administrative Lender, (iii) the Borrower immediately delivers all
     shares of Capital Stock of the new wholly owned Subsidiary to the
     Administrative Lender together with stock powers executed in blank, and
     (iv) the Borrower or any Subsidiary of the Borrower owning any portion of
     the Capital Stock of any such new wholly owned Subsidiary executes and
     delivers to the Administrative Lender a pledge agreement pledging all such
     Capital Stock to secure the Obligations in form substantially similar to
     the pledge agreement executed by the Borrower in connection with the
     Original Credit Agreement, the Borrower may create a new wholly owned
     Subsidiary of the Borrower. Nothing in this Section 8.05(d) shall permit
     the Borrower or any Subsidiary of the Borrower to create any Subsidiary
     that is not wholly owned.

In connection with any asset sale permitted by this Section 8.05 or otherwise
consented to by the Lenders in accordance with the terms of this Agreement, the
Administrative Lender is hereby authorized by each Lender to (i) execute any and
all releases deemed appropriate by it to release such assets of the Borrower and
the Subsidiaries of the Borrower (including, without limitation, Capital Stock
owned by the Borrower and its Subsidiaries) constituting Collateral from all
Liens and security interests securing all or any portion of the Obligations,
(ii) return to the Borrower any such Collateral in the possession of the
Administrative Lender, and (iii) take such other action as the Administrative
Lender deems necessary or appropriate in connection with such transaction and in
furtherance of the effectuation thereof.

     8.06. Guaranties; Contingent Liabilities. The Borrower shall not, and shall
not permit the Parent or any Subsidiary of the Borrower to, at any time make or
issue any Guaranty, or assume, be obligated with respect to, or permit to be
outstanding any Contingent Liabilities, except pursuant to the Loan Papers;

     8.07. Restricted Payments. The Borrower shall not, and shall not permit the
Parent or any Subsidiary of the Borrower to, directly or indirectly declare,
make or pay any Restricted Payment; provided, however

          (a) any wholly owned Subsidiary of the Borrower that has executed an
     Unlimited Guaranty of the Obligations hereunder may declare, make and pay
     Restricted Payments to the Borrower or any other wholly owned Subsidiary
     that has executed an Unlimited Guaranty of the Obligations hereunder, and

          (b) so long as



                                       67
<PAGE>
 
               (i) there exists no Default or Event of Default both before and
          after giving effect to any such Restricted Payment (except an Event of
          Default under Section 9.01(b) hereof), and

               (ii) with respect to any such distribution relating to the 1997
          Senior Notes, the date any such Distribution is made is the later of
          (A) June 30, 2000 and (B) such time as the balance of the Interest
          Reserve Escrow Account is zero,

     then the Borrower may declare, make and pay Restricted Payments
     constituting Dividends to the Parent in an amount not to exceed the
     scheduled cash interest due and payable on the outstanding 1997 Senior
     Notes and the 1998 Senior Notes, and

          (c) So long as each of the following is true: (i) the Borrower has
     been unable to make a Restricted Payment constituting a dividend to the
     Parent pursuant to Section 8.07(b)(i) above for more than 180 consecutive
     days, and (ii) there exists at such time no Default or Event of Default
     under any of Section 9.01(a), Section 9.01(f) with respect to the Parent,
     the Borrower or any Significant Subsidiary, or Section 9.01(u) hereof, and
     (iii) the Lenders or the Administrative Lender have not exercised their
     rights under Section 9.02(a) hereof, and (iv) the date of such Restricted
     Payment is prior to the Maturity Date,

     then the Borrower may declare, make and pay Restricted Payments
     constituting Dividends to the Parent in an amount not to exceed the
     scheduled cash interest due and payable on the outstanding 1998 Senior
     Notes, and

          (d) So long as each of the following is true: (i) the Borrower has
     been unable to make a Restricted Payment constituting a dividend to the
     Parent pursuant to Section 8.07(b)(i) above for more than 180 consecutive
     days, and (ii) there exists at such time no Default or Event of Default
     under any of Section 9.01(a), Section 9.01(f) with respect to the Parent or
     the Borrower, or Section 9.01(u) hereof, and (iii) the Lenders or the
     Administrative Lender have not exercised their rights under Section 9.02(a)
     hereof, and (iv) the date of such Restricted Payment is prior to the
     Maturity Date,

     then the Borrower may declare, make and pay Restricted Payments
     constituting Dividends to the Parent in an amount not to exceed the
     scheduled cash interest due and payable on the outstanding 1997 Senior
     Notes, and

          (e) The Borrower may make Distributions to the Parent in the amount of
     scheduled cash interest payments due and payable by the Parent on the
     outstanding 1997 Senior Notes from funds that are in the Interest Reserve
     Escrow Account, and



                                       68
<PAGE>
 
          (f) The Parent may make payments of scheduled cash interest on (i) the
     outstanding 1997 Senior Notes (A) to the extent such payments are made from
     funds in the Interest Reserve Escrow Account, (B) to the extent the Parent
     receives permitted Distributions from the Borrower for such purpose in
     accordance with the terms of Sections 8.07(b), (c) and (d) hereof, and (C)
     to the extent it receives funds from sources other than the Borrower and
     its Subsidiaries, and (ii) the outstanding 1998 Senior Notes to the extent
     the Parent (A) receives permitted Distributions from the Borrower for such
     purpose in accordance with the terms of Sections 8.07(b) and (c) hereof,
     and (B) receives funds from sources other than the Borrower and its
     Subsidiaries, and

          (g) So long as there exists no Default or Event of Default both before
     and after giving effect to any such Restricted Payments, the Borrower may

          (i) make scheduled and non-scheduled payments of interest and
          principal in compliance with the terms and provisions existing on the
          Closing Date on Debt described on Schedule 8.02 hereto, provided that
          (A) no such payments shall include any premium or penalty for any
          reason, and (B) the Borrower provides Administrative Lender with a pro
          forma Compliance Certificate demonstrating that any non-scheduled
          payment will not cause a Default or Event of Default during the
          following twelve consecutive months; and

          (ii) the Borrower may purchase shares of the Borrower's or Parent's
          Capital Stock from any Person, provided that the aggregate purchase
          price for all such purchases over the term of this Agreement shall not
          exceed $5,000,000, and

          (h) So long as there exists no Default or Event of Default both before
     and after giving effect to any such Restricted Payment, the Parent may
     exercise its Optional Redemption Rights for a redemption price (including
     charges, accrued interest, expenses and penalties) in the aggregate not in
     excess of $85,000,000, and

          (i) So long as there exists no Default or Event of Default both before
     and after giving effect to any such Restricted Payment, the Borrower may
     make the Restricted Payments set forth on Schedule 8.08 hereto.

     8.08. Affiliate Transactions. The Borrower shall not, and shall not permit
the Parent or any Subsidiary of the Borrower to, at any time engage in any
transaction with an Affiliate, nor make an assignment or other transfer of any
of its assets or Properties to any Affiliate, on terms materially less
advantageous to the Borrower or any Subsidiary of the Borrower than would be the
case if such transaction had been effected with a non-Affiliate, except (a)
those transactions described on Schedule 8.08 hereof, and (b) those immaterial
transactions in amounts less than $10,000 for any one transaction or series of
comparable transactions.



                                       69
<PAGE>
 
     8.09. Compliance with ERISA. The Borrower shall not, and shall not permit
the Parent or any Subsidiary of the Borrower to, directly or indirectly, or
permit any member of its Controlled Group to directly or indirectly, (a)
terminate any Plan so as to result in any material (in the opinion of the
Majority Lenders) liability to the Borrower or any member of its Controlled
Group, (b) permit to exist any ERISA Event, or any other event or condition
which presents the risk of liability of the Borrower or any member of its
Controlled Group, (c) make a complete or partial withdrawal (within the meaning
of Section 4201 of ERISA) from any Multiemployer Plan so as to result in any
liability to the Borrower or any member of its Controlled Group, (d) enter into
any new Plan or modify any existing Plan so as to increase its obligations
thereunder except in the ordinary course of business consistent with past
practice which could result in any liability to the Borrower or any member of
its Controlled Group, or (e) permit the present value of all benefit
liabilities, as defined in Title IV of ERISA, under each Plan of the Borrower or
any member of its Controlled Group (using the actuarial assumptions utilized by
the PBGC upon termination of a plan) to exceed the fair market value of Plan
assets allocable to such benefits all determined as of the most recent valuation
date for each such Plan.

     8.10. Capital Stock. The Borrower shall not, and shall not permit the
Parent or any Subsidiary of the Borrower to (a) make or permit any transfer,
assignment, distribution, mortgage, pledge or gift of any shares of Pledged
Stock, except to the Borrower or another wholly owned direct or indirect
Subsidiary of the Borrower that has executed an Unlimited Guaranty of the
Obligations and (b) issue any Capital Stock other than (i) up to $125,000,000 in
common stock of the Parent, (ii) stock options and common stock (issued pursuant
to the exercise of any such stock options) pursuant to the 1997 Directors Stock
Option Plan and the 1997 Stock Option Plan of the Parent, (iii) common stock of
the Parent upon the exercise of outstanding options issued by ITC Holding, and
(iv) preferred stock of the Parent (and the common stock into which such
preferred stock will be convertible pursuant to the terms thereof) to SCANA
Communications, Inc. pursuant to an earn-out agreement described in the Offering
Memorandum of the Parent dated May 29, 1997.

     8.11. Sale and Leaseback. The Borrower shall not, and shall not permit the
Parent or any Subsidiary of the Borrower to, enter into any arrangement whereby
it sells or transfers any of its assets, and thereafter rents or leases such
assets.

     8.12. Sale or Discount of Receivables. The Borrower shall not, and shall
not permit the Parent or any Subsidiary of the Borrower to, directly or
indirectly sell, with or without recourse, for discount or otherwise, any notes
or accounts receivable.

     8.13. Limitation on Restrictive Agreements. Except those written agreements
entered into in connection with the 1997 Senior Notes and the 1998 Senior Notes
and in effect on the Effective Date, the Borrower shall not, and shall not
permit the Parent or any Subsidiary of the 



                                       70
<PAGE>
 
Borrower to, enter into any indenture, agreement, instrument, financing document
or other arrangement which, directly or indirectly, prohibits or restrains, or
has the effect of prohibiting or restraining, or imposes materially adverse
conditions upon: (a) the incurrence of indebtedness, (b) the granting of Liens,
(c) the making or granting of Guarantees, (d) the payment of dividends or
Distributions, (e) the purchase, redemption or retirement of any Capital Stock,
(f) the making of loans or advances, (g) transfers or sales of property or
assets (including Capital Stock) by the Parent, the Borrower or any of its
Subsidiaries, (h) the making of Investments, or (h) any change of control or
management.

     8.14. Amendment of 1997 Senior Notes and 1998 Senior Notes. The Borrower
shall not, and shall not permit the Parent or any Subsidiary of the Borrower to,
amend, waive or consent to any deviation from any term or provision of any
documentation or agreements relating to the 1997 Senior Notes or the 1998 Senior
Notes.

     8.15. The Interest Reserve Escrow Account. The Borrower shall not, and
shall not permit the Parent or any Subsidiary of the Borrower to (i) deposit any
funds into the Interest Reserve Escrow Account except proceeds from the issuance
of the 1997 Senior Notes, and interest accrued on such amounts, (ii) commingle
any amounts in the Interest Reserve Escrow Account with any other funds of the
Parent, the Borrower or any Subsidiaries of the Borrower, or (iii) use the
proceeds of the Interest Reserve Escrow Account for any purpose other than (A)
for a Distribution to the Parent to make cash interest payment that are due and
payable on the 1997 Senior Notes and (B) for certain transaction fees disclosed
to the Administrative Lender in writing and paid on or prior to the Effective
Date, provided, that the Borrower shall be permitted to remove funds from the
Interest Reserve Escrow Account which were intended to secure due and payable
cash interest payments on any 1997 Senior Notes that have been redeemed in
connection with the exercise by the Parent of its Optional Redemption Rights and
in accordance with the terms of that certain Pledge and Security Agreement,
dated June 3, 1997, and the indenture related to the 1997 Senior Notes.

     8.16. Name Changes. The Borrower shall not, and shall not permit the Parent
or any Subsidiary of the Borrower to change its name.


                          ARTICLE IX. EVENTS OF DEFAULT

     9.01. Events of Default. Any one or more of the following shall be an
"Event of Default" hereunder, if the same shall occur for any reason whatsoever,
whether voluntary or involuntary, by operation of Law, or otherwise:

          (a) The Borrower shall fail to pay any (i) principal payable under any
     Loan Paper on the date due; or (ii) any interest, fees or other amounts
     payable within three days of the date due;



                                       71
<PAGE>
 
          (b) Any representation or warranty made or deemed made by any Obligor
     (or any of its officers or representatives) under or in connection with any
     Loan Paper shall prove to have been incorrect or misleading in any material
     respect when made or deemed made;

          (c) The Borrower shall fail to perform or observe any term or covenant
     contained in Section 7.05 hereof or in Article VIII hereof;

          (d) Any Obligor shall fail to perform or observe any other term or
     covenant contained in this Agreement or any other Loan Paper, other than
     those described in Sections 9.01(a), (b) and (c) above, and such failure
     shall not be remedied within thirty days following the earlier of the
     Borrower's knowledge of such failure or notice from any Lender of the
     occurrence of such failure;

          (e) Any of the following shall occur: (i) Any Loan Paper or material
     provision thereof shall, for any reason, not be valid and binding on the
     Obligor signatory thereto, or not be in full force and effect, or shall be
     declared to be null and void; or (ii) the validity or enforceability of any
     Loan Paper shall be contested by any Obligor; or (iii) any Obligor shall
     deny in writing that it has any or further liability or obligation under
     its respective Loan Papers; or (iv) any default or breach under any
     provision of any Loan Papers shall continue after the applicable grace
     period, if any, specified in such Loan Paper;

          (f) Any of the following shall occur: (i) any Obligor shall make an
     assignment for the benefit of creditors or be unable to pay its debts
     generally as they become due; (ii) any Obligor shall petition or apply to
     any Tribunal for the appointment of a trustee, receiver, or liquidator of
     it, or of any substantial part of its assets, or shall commence any
     proceedings relating to any Obligor under any Debtor Relief Laws; (iii) any
     such petition or application shall be filed, or any such proceedings shall
     be commenced, against any Obligor, or an order, judgment or decree shall be
     entered appointing any such trustee, receiver, or liquidator, or approving
     the petition in any such proceedings, and such petition or application
     shall be consented to or uncontested by such Obligor, or if contested by
     such Obligor, shall not be dismissed within 60 days following the filing of
     such petition or application; (iv) any final order, judgment, or decree
     shall be entered in any proceedings against any Obligor decreeing its
     dissolution; or (v) any final order, judgment, or decree shall be entered
     in any proceedings against any Obligor decreeing its split-up which
     requires the divestiture of a substantial part of its assets;

          (g) Any of the following shall occur: (i) The Borrower or any other
     Obligor shall fail to pay any Debt (other than Debt under the Loan Papers)
     in an aggregate amount of $1,000,000 or more when due (whether by scheduled
     maturity, required prepayment, acceleration, demand, or otherwise), and
     such failure shall continue after the applicable grace period, if any,
     specified 



                                       72
<PAGE>
 
     in the agreement or instrument relating to such Debt; or (ii) the Borrower
     or any other Obligor shall fail to perform or observe any term or covenant
     contained in any agreement or instrument relating to any such Debt, when
     required to be performed or observed, and such failure shall continue after
     the applicable grace period, if any, specified in such agreement or
     instrument, and can result in acceleration of the maturity of such Debt; or
     (iii) any such Debt shall be declared to be due and payable, or required to
     be prepaid, mandatorily redeemed or repurchased (other than by a regularly
     scheduled required prepayment), prior to the stated maturity thereof; or
     (iv) there shall exist a breach by any Obligor under one or more material
     contracts the effect of which could reasonably be expected to cause a
     Material Adverse Change;

          (h) Any Obligor shall have any final judgment(s) outstanding against
     it, and such judgment(s) shall remain unstayed, in effect, and unpaid for
     the period of time after which the judgment holder may and may cause the
     creation of Liens against or seizure of any of its Property;

          (i) Any of the following shall have occurred: (i) Any ERISA Event
     shall have occurred with respect to a Plan of the Borrower, and the sum of
     the Insufficiency of such Plan and liabilities relating thereto is equal to
     or greater than $1,000,000 or (ii) the Parent, the Borrower or any ERISA
     Affiliate of the Borrower shall have committed a failure described in
     Section 302(f)(l) of ERISA, and the amount determined under Section
     302(f)(3) of ERISA is equal to or greater than $1,000,000;

          (j) The Parent, the Borrower or any ERISA Affiliate of the Borrower
     shall have been notified by the sponsor of a Multiemployer Plan that (A) it
     has incurred Withdrawal Liability to such Plan in an amount that exceeds
     $1,000,000 or requires payments exceeding $1,000,000 per annum, or (B) such
     Plan is in reorganization or is being terminated, within the meaning of
     Title IV of ERISA, if as a result thereof the aggregate annual
     contributions to all Multiemployer Plans in reorganization or being
     terminated is increased over the amounts contributed to such Plans for the
     preceding Plan year by an amount exceeding $1,000,000;

          (k) Any Obligor shall be required under any Environmental Law (i) to
     implement any remedial, neutralization, or stabilization process or
     program, the cost of which could cause a Material Adverse Change, or (ii)
     to pay any penalty, fine, or damages in an aggregate amount which could
     cause a Material Adverse Change;

          (l) Any of the following shall have occurred: (i) Any Property
     (whether leased or owned), or the operations conducted thereon by any
     Obligor or any current or prior owner or operator thereof (in the case of
     real Property), shall violate or have violated any applicable Environmental
     Law, if such violation could cause a Material Adverse Change; or (ii) such
     Obligor shall not obtain or maintain any License required to be obtained or
     filed under any Environmental Law in connection with the use of such
     Property and assets, including without 



                                       73
<PAGE>
 
     limitation past or present treatment, storage, disposal, or release of
     Hazardous Materials into the environment, if the failure to obtain or
     maintain the same could cause a Material Adverse Change;

          (m) Any of the following shall have occurred:

               (i) Any Loan Paper shall for any reason (other than pursuant to
          the terms thereof) cease to create a valid and perfected first
          priority Lien in the Collateral purported to be covered thereby
          (except as permitted by the terms of this Agreement or consented to by
          the Lenders) and such defect is not cured within 5 days of the date
          such defect is discovered; or

               (ii) Less than 100% of the Capital Stock of (A) the Borrower and
          (B) each of the Subsidiaries of the Borrower shall be subject to a
          first priority perfected pledge to the Administrative Lender to secure
          the Obligations; or

          (n) Any of the following shall have occurred: (i) A final
     non-appealable order is issued by any Tribunal, including, but not limited
     to, the FCC, any applicable PUC, or the United States Justice Department,
     requiring any Obligor to divest a substantial portion of its assets
     pursuant to any antitrust, restraint of trade, unfair competition, industry
     regulation, or similar Laws, or (ii) any Tribunal shall condemn, seize, or
     otherwise appropriate, or take custody or control of all or any substantial
     portion of the assets of any Obligor;

          (o) Any of the following shall have occurred if the effect thereof
     could be reasonably expected to cause a Material Adverse Change; (i) Any
     License whether presently existing or hereafter granted to or obtained by
     the Parent, the Borrower or any Subsidiary of the Borrower shall expire
     without renewal or be suspended or revoked, or (ii) the Parent, the
     Borrower or any Subsidiary of the Borrower shall become subject to any
     injunction or other order affecting or which may affect the Parent's, the
     Borrower's or a Subsidiary of the Borrower's present or proposed operations
     under any such License;

          (p) Any civil action, suit or proceeding shall be commenced against
     any Obligor under any federal or state racketeering statute (including,
     without limitation, the Racketeer Influenced and Corrupt Organization Act
     of 1970)("RICO") and such suit shall be adversely determined by a court of
     applicable jurisdiction, and which is either non-appealable or which such
     Obligor has elected not to appeal; or any criminal action or proceeding
     shall be commenced against any Obligor under any federal or state
     racketeering statute (including, without limitation, RICO);

          (q) There shall occur a change in Control of the Borrower; or any
     third party (other than pursuant to a public offering) owns greater than
     20% of the Capital Stock of the Parent 



                                       74
<PAGE>
 
     (excluding, with respect to management of the Borrower that was part of
     management on the Closing Date, Capital Stock of the Borrower owned by such
     management;

          (r) Any Litigation commenced against any Obligor is adversely
     determined by a court of applicable jurisdiction, which such Litigation is
     either non-appealable or which such Obligor has elected not to appeal, and
     in either case, is reasonably expected to cause a Material Adverse Change;

          (s) The Parent, the Borrower or any Subsidiary of the Borrower shall
     fail to comply in any respect with the Communications Act, or any rule or
     regulation promulgated by the FCC or any applicable PUC, and such failure
     could reasonably be expected to cause a Material Adverse Change; or any
     License or authorization constituting authorizations, permits or licenses
     of the Parent, the Borrower or any Subsidiary of the Borrower material to
     the operation of the business of the Parent, the Borrower and its
     Subsidiaries, has expired or shall expire without having been renewed or
     shall be canceled or impaired and such expiration, cancellation or
     impairment could reasonably be expected to cause a Material Adverse Change;

          (t) The Parent, the Borrower or any Subsidiary shall fail to operate
     its business for any period of time which, in the aggregate, could
     reasonably be expected to cause a Material Adverse Change; or

          (u) Any Substantial Portion shall not, for any reason (including,
     without limitation, loss of FCC License, fiber network or otherwise) be
     operating for a period in excess of 30 days. For purposes of this Section
     9.01(u), "Substantial Portion" means any portion of the assets or
     Properties of the Borrower and its Subsidiaries that has generated, for the
     most recently completed twelve month period, in excess of five percent of
     the Operating Cash Flow.

     9.02. Remedies upon Default. If an Event of Default described in Section
9.01(f) shall occur with respect to any Obligor, the aggregate unpaid principal
balance of and accrued interest on all Advances shall, to the extent permitted
by applicable Law, thereupon become due and payable concurrently therewith,
without any action by Administrative Lender or any Lender, and without
diligence, presentment, demand, protest, notice of protest or intent to
accelerate, or notice of any other kind, all of which are hereby expressly
waived. Subject to the foregoing sentence, if any Event of Default shall occur
and be continuing, Administrative Lender may at its election, do any one or more
of the following:

          (a) Declare the entire unpaid balance of all Obligations immediately
     due and payable, whereupon it shall be due and payable without diligence,
     presentment, demand, protest, notice of protest or intent to accelerate, or
     notice of any other kind (except notices specifically provided for under
     Section 9.01 hereof), all of which are hereby expressly waived (except to
     the extent waiver of the foregoing is not permitted by applicable Law);



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<PAGE>
 
          (b) Terminate the Commitment;

          (c) Reduce any claim of Administrative Lender and Lenders to judgment;

          (d) Demand (and the Borrower shall pay to Administrative Lender)
     immediately upon demand and in immediately available funds, the amount
     equal to the aggregate amount of the Letters of Credit then outstanding,
     irrespective of whether such Letters of Credit have been drawn upon, all as
     set forth and in accordance with the terms of provisions of Article III
     hereof. The Administrative Lender shall promptly advise the Borrower of any
     such declaration or demand but failure to do so shall not impair the effect
     of such declaration or demand; and

          (e) Exercise any Rights afforded under any Loan Papers, by Law,
     including but not limited to the UCC, at equity, or otherwise.

     9.03. Cumulative Rights. All Rights available to Administrative Lender and
Lenders under the Loan Papers shall be cumulative of and in addition to all
other Rights granted thereto at Law or in equity, whether or not amounts owing
thereunder shall be due and payable, and whether or not Administrative Lender or
any Lender shall have instituted any suit for collection or other action in
connection with the Loan Papers.

     9.04. Waivers. The acceptance by Administrative Lender or any Lender at any
time and from time to time of partial payment of any amount owing under any Loan
Papers shall not be deemed to be a waiver of any Default or Event of Default
then existing. No waiver by Administrative Lender or any Lender of any Default
or Event of Default shall be deemed to be a waiver of any Default or Event of
Default other than such Default or Event of Default. No delay or omission by
Administrative Lender or any Lender in exercising any Right under the Loan
Papers shall impair such Right or be construed as a waiver thereof or an
acquiescence therein, nor shall any single or partial exercise of any such Right
preclude other or further exercise thereof, or the exercise of any other Right
under the Loan Papers or otherwise.

     9.05. Performance by Administrative Lender or any Lender. Should any
covenant of any Obligor fail to be performed in accordance with the terms of the
Loan Papers, Administrative Lender may, at its option, perform or attempt to
perform such covenant on behalf of such Obligor. Notwithstanding the foregoing,
it is expressly understood that neither Administrative Lender nor any Lender
assumes, and shall not ever have, except by express written consent of
Administrative Lender or such Lender, any liability or responsibility for the
performance of any duties or covenants of any Obligor.

     9.06. Expenditures. The Borrower shall reimburse Administrative Lender and
each Lender for any reasonable sums spent by it in connection with the exercise
of any Right under 



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<PAGE>
 
     Section 9.05 hereof. Such sums shall bear interest at the lesser of (a) the
Base Rate (whether or not in effect), plus 2.00% per annum and (b) the Highest
Lawful Rate, from five days after the date any Lender makes demand to the
Borrower for reimbursement of such amount until the date of repayment by the
Borrower.

     9.07. Control. None of the covenants or other provisions contained in this
Agreement shall, or shall be deemed to, give Administrative Lender or any Lender
any Rights to exercise control over the affairs and/or management of any
Obligor, the power of Administrative Lender and each Lender being limited to the
Rights to exercise the remedies provided in this Article; provided, however,
that if Administrative Lender or any Lender becomes the owner of any
partnership, stock or other equity interest in any Person, whether through
foreclosure or otherwise, it shall be entitled to exercise such legal Rights as
it may have by being an owner of such stock or other equity interest in such
Person.


                      ARTICLE X. THE ADMINISTRATIVE LENDER

     10.01. Authorization and Action. Each Lender hereby appoints and authorizes
Administrative Lender to take such action as Administrative Lender on its behalf
and to exercise such powers under this Agreement and the other Loan Papers as
are delegated to the Administrative Lender by the terms of the Loan Papers,
together with such powers as are reasonably incidental thereto. As to any
matters not expressly provided for by this Agreement and the other Loan Papers
(including without limitation enforcement or collection of the Notes),
Administrative Lender shall not be required to exercise any discretion or take
any action, but shall be required to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon the instructions of
Majority Lenders (or all Lenders, if required under Section 11.01 hereof), and
such instructions shall be binding upon all Lenders; provided, however, that
Administrative Lender shall not be required to take any action which exposes
Administrative Lender to personal liability or which is contrary to any Loan
Papers or applicable Law. Administrative Lender agrees to give to each Lender
notice of each notice given to it by the Borrower pursuant to the terms of this
Agreement, and to distribute to each applicable Lender in like funds all amounts
delivered to Administrative Lender by the Borrower for the Ratable or individual
account of any Lender. Functions of the Administrative Lender are administerial
in nature and in no event shall the Administrative Lender have a fiduciary or
trustee relationship in respect of any Lender by reason of this Agreement or any
Loan Paper.

     10.02. Administrative Lender's Reliance, Etc. Neither Administrative
Lender, nor any of its directors, officers, agents, employees, or
representatives shall be liable for any action taken or omitted to be taken by
it or them under or in connection with this Agreement or any other Loan Paper,
except for its or their own gross negligence or willful misconduct. Without
limitation of the generality of the foregoing, Administrative Lender (a) may
treat the payee of



                                       77
<PAGE>
 
any Note as the holder thereof until Administrative Lender receives written
notice of the assignment or transfer thereof signed by such payee and in form
satisfactory to Administrative Lender; (b) may consult with legal counsel
(including counsel for the Borrower or any of its Subsidiaries), independent
public accountants, and other experts selected by it, and shall not be liable
for any action taken or omitted to be taken in good faith by it in accordance
with the advice of such counsel, accountants, or experts; (c) makes no warranty
or representation to any Lender and shall not be responsible to any Lender for
any statements, warranties, or representations made in or in connection with
this Agreement or any other Loan Papers; (d) shall not have any duty to
ascertain or to inquire as to the performance or observance of any of the terms,
covenants, or conditions of this Agreement or any other Loan Papers on the part
of any Obligor or its Subsidiaries or to inspect the Property (including the
books and records) of any Obligor or its Subsidiaries; (e) shall not be
responsible to any Lender for the due execution, legality, validity,
enforceability, genuineness, sufficiency, or value of this Agreement, any other
Loan Papers, or any other instrument or document furnished pursuant hereto; and
(f) shall incur no liability under or in respect of this Agreement or any other
Loan Papers by acting upon any notice, consent, certificate, or other instrument
or writing believed by it to be genuine and signed or sent by the proper party
or parties.

     10.03. NationsBank of Texas, N.A. and Affiliates. With respect to its
Commitment, its Advances, and any Loan Papers, NationsBank of Texas, N.A. has
the same Rights under this Agreement as any other Lender and may exercise the
same as though it were not Administrative Lender. NationsBank of Texas, N.A. and
its Affiliates may accept deposits from, lend money to, act as trustee under
indentures of, and generally engage in any kind of business with, any Obligor,
any Affiliate thereof, and any Person who may do business therewith, all as if
NationsBank of Texas, N.A. were not Administrative Lender and without any duty
to account therefor to any Lender.

     10.04. Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon Administrative Lender or any other
Lender, and based on the financial statements referred to in Section 5.01(j),
Section 7.01 and Section 7.02 hereof and such other documents and information as
it has deemed appropriate, made its own credit analysis and decision to enter
into this Agreement. Each Lender also acknowledges that it will, independently
and without reliance upon Administrative Lender or any other Lender and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement and the other Loan Papers.

     10.05. Indemnification by Lenders. Lenders shall indemnify Administrative
Lender, Pro Rata, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses, or disbursements
of any kind or nature whatsoever which may be imposed on, incurred by, or
asserted against Administrative Lender in any way relating to or arising out of
any Loan Papers or any action taken or omitted by Administrative Lender



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<PAGE>
 
thereunder, including any negligence of Administrative Lender; provided,
however, that no Lender shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses, or disbursements resulting from Administrative Lender's gross
negligence or willful misconduct. Without limitation of the foregoing, Lenders
shall reimburse Administrative Lender, Pro Rata, promptly upon demand for any
out-of-pocket expenses (including reasonable attorneys' fees) incurred by
Administrative Lender in connection with the preparation, execution, delivery,
administration, modification, amendment, or enforcement (whether through
negotiation, legal proceedings or otherwise) of, or legal and other advice in
respect of rights or responsibilities under, the Loan Papers. The indemnity
provided in this Section 10.05 shall survive the termination of this Agreement.

     10.06. Successor Administrative Lender. Administrative Lender may resign at
any time by giving written notice thereof to Lenders and the Borrower, and may
be removed at any time with or without cause by the action of all Lenders (other
than Administrative Lender, if it is a Lender). Upon any such resignation or
removal, Majority Lenders shall have the right to appoint a successor
Administrative Lender with the prior written consent of the Borrower (which
shall not be unreasonably withheld), provided that, if there exists an Event of
Default that is continuing, no consent of the Borrower shall be required. If no
successor Administrative Lender shall have been so appointed and shall have
accepted such appointment within thirty days after the retiring Administrative
Lender's giving of notice of resignation, then the retiring Administrative
Lender may, on behalf of Lenders, appoint a successor Administrative Lender,
which shall be a commercial bank organized under the Laws of the United States
of America or of any State thereof and having a combined capital and surplus of
at least $50,000,000. Upon the acceptance of any appointment as Administrative
Lender hereunder by a successor Administrative Lender, such successor
Administrative Lender shall thereupon succeed to and become vested with all the
Rights and duties of the retiring Administrative Lender, and the retiring
Administrative Lender shall be discharged from its duties and obligations under
the Loan Papers, provided that if the retiring or removed Administrative Lender
is unable to appoint a successor Administrative Lender, Administrative Lender
shall, after the expiration of a sixty day period from the date of notice, be
relieved of all obligations as Administrative Lender hereunder. Notwithstanding
any Administrative Lender's resignation or removal hereunder, the provisions of
this Article shall continue to inure to its benefit as to any actions taken or
omitted to be taken by it while it was Administrative Lender under this
Agreement.



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<PAGE>
 
                            ARTICLE XI. MISCELLANEOUS

     11.01. Amendments and Waivers. No amendment or waiver of any provision of
this Agreement or any other Loan Papers, nor consent to any departure by the
Borrower or any Obligor therefrom, shall be effective unless the same shall be
in writing and signed by the Borrower and the Administrative Lender with the
consent of the Majority Lenders, and then any such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided, however, that no amendment, waiver, or consent shall (and the
result of action or failure to take action shall not) unless in writing and
signed by all of Lenders and Administrative Lender, (a) increase the Commitment,
(b) reduce any principal, interest, fees, or other amounts payable hereunder, or
waive or result in the waiver of any Event of Default under Section 9.01(a)
hereof, (c) postpone any date fixed for any payment of principal, interest,
fees, or other amounts payable hereunder, (d) release any Collateral or
guaranties securing any Obligor's obligations hereunder, other than releases
contemplated hereby and by the other Loan Papers, (e) change the meaning of
"Specified Percentage" or the number of Lenders required to take any action
hereunder, change the definitions of "Commitment", "Maturity Date", "Majority
Lenders", or "Letter of Credit Commitment", or (f) amend this Section 11.01. No
amendment, waiver, or consent shall affect the Rights or duties of
Administrative Lender under any Loan Papers, unless it is in writing and signed
by Administrative Lender in addition to the requisite number of Lenders.

     11.02. Notices.

     (a) Manner of Delivery. All notices communications and other materials to
be given or delivered under the Loan Papers shall, except in those cases where
giving notice by telephone is expressly permitted, be given or delivered in
writing. All written notices, communications and materials shall be sent by
registered or certified mail, postage prepaid, return receipt requested, by
telecopier, or delivered by hand. In the event of a discrepancy between any
telephonic notice and any written confirmation thereof, such written
confirmation shall be deemed the effective notice except to the extent
Administrative Lender, any Lender or the Borrower has acted in reliance on such
telephonic notice.

     (b) Addresses. All notices, communications and materials to be given or
delivered pursuant to this Agreement shall be given or delivered at the
following respective addresses and telecopier and telephone numbers and to the
attention of the following individuals or departments:



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<PAGE>
 
          (i) If to the Borrower:

              Interstate FiberNet, Inc.
              1241 O.G. Skinner Drive
              West Point, Georgia  31833

              Telephone No.:             (706) 645-8189
              Telecopier No.:            (706) 645-8989
              Attention:                 Mr. Douglas A. Shumate
                                         Chief Financial Officer

              With copies (which shall not constitute notice) to:

              ITC_DeltaCom Legal Group
              700 Boulevard South
              Suite 101
              Huntsville, Alabama  35802

              Telephone No.:             (205) 650-3842
              Telecopier No.:            (205) 650-3936
              Attention:                 Tom Mullis, Esq.

              And

              Hogan & Hartson, L.L.P.
              555 Thirteenth Street, N.W.
              Washington, D.C.  20004

              Telephone No.:             (202) 637-5600
              Facsimile No.:             (202) 637-5910
              Attention:                 Benton R. Hammond, Esq.



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<PAGE>
 
         (ii)  If to Administrative Lender:

               NationsBank of Texas, N.A.
               NationsBank Plaza
               901 Main Street, 64th Floor
               Dallas, Texas  75202

               Telephone No.:            (214) 508-2576
               Telecopier No.:           (214) 508-9390
               Attention:                Mr. Keith M. Wilson
                                         Vice President

               With a copy to:

               Donohoe, Jameson & Carroll, P.C.
               3400 Renaissance Tower
               1201 Elm Street
               Dallas, Texas  75270

               Telephone No.:            (214) 698-3814
               Telecopier No.:           (214) 744-0231
               Attention:                Melissa Ruman Stewart

          (iii) If to any Lender, to its address shown opposite its signature
     block on the signature pages hereto, or on any Assignment and Acceptance,

or at such other address or, telecopier or telephone number or to the attention
of such other individual or department as the party to which such information
pertains may hereafter specify for the purpose in a notice to the other
specifically captioned "Notice of Change of Address".

     (d) Effectiveness. Each notice, communication and any material to be given
or delivered to any party pursuant to this Agreement shall be effective or
deemed delivered or furnished (i) if sent by mail, on the fifth day after such
notice, communication or material is deposited in the mail, addressed as above
provided, (ii) if sent by telecopier, when such notice, communication or
material is transmitted to the appropriate number, (iii) if sent by hand
delivery or overnight courier, when left at the address of the addressee
addressed as above provided, and (iv) if given by telephone, when communicated
to the individual or any member of the department specified as the individual or
department to whose attention notices, communications and materials are to be
given or delivered except that notices of a change of address, telecopier or
telephone number or individual or department to whose attention notices,
communications and materials are to be given or delivered shall not be effective
until received; provided, however, that notices to 



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<PAGE>
 
Administrative Lender pursuant to Article II shall be effective when received.
The Borrower agrees that Administrative Lender shall have no duty or obligation
to verify or otherwise confirm telephonic notices given pursuant to Article II,
and agrees to indemnify and hold harmless Administrative Lender and Lenders for
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, and expenses resulting, directly or indirectly,
from acting upon any such notice.

     11.03. Parties in Interest. All covenants and agreements contained in this
Agreement and all other Loan Papers shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto. Each Lender may from
time to time assign or transfer its interests hereunder pursuant to Section
11.04 hereof. The Borrower may not assign or transfer its Rights or obligations
hereunder without the prior written consent of Administrative Lender.

     11.04. Assignments and Participations.

     (a) Each Lender (an "Assignor") may assign its Rights and obligations as a
Lender under the Loan Papers to one or more transferees pursuant to an
Assignment and Acceptance, so long as (i) each assignment shall be of a
constant, and not a varying percentage of all Rights and obligations thereunder,
(ii) each Assignor shall obtain in each case the prior written consent of
Administrative Lender and the Borrower, in each case such consent not to be
unreasonably withheld or delayed, provided that, in the event there exists an
Event of Default that is continuing, no consent of the Borrower shall be
required to make an assignment, (iii) each Assignor shall in each case pay a
$3,500 processing fee to Administrative Lender and (iv) no such assignment is
for an amount less than $5,000,000 and in increments $1,000,000 (and, if such
assignment is a partial assignment, no Lender shall hold less than $5,000,000
immediately after giving effect to any assignment). Assignments and other
transfers (except participations) with respect to each Lender's participation in
a given Letter of Credit may only be made with the prior written consent of the
Administrative Lender. Within five Business Days after Administrative Lender
receives notice of any such assignment, the Borrower shall execute and deliver
to Administrative Lender, in exchange for the Notes issued to Assignor, new
Notes to the order of such Assignor and its assignee in amounts equal to their
respective Specified Percentages of the Commitment. Such new Notes shall be
dated the effective date of the assignment. It is specifically acknowledged and
agreed that on and after the effective date of each assignment, the assignee
shall be a party hereto and shall have the Rights and obligations of a Lender
under the Loan Papers.



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<PAGE>
 
     (b) Each Lender may sell participations to one or more Persons in all or
any of its Rights and obligations under the Loan Papers; provided, however, that
(i) such Lender's obligations under the Loan Papers shall remain unchanged, (ii)
such Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations, (iii) such Lender shall remain the holder of
its Notes for all purposes of the Loan Papers, (iv) the participant shall be
granted the Right to vote on or consent to only those matters described in
Sections 11.01(a), (b), (c) and (d) hereof, (v) Obligors, the Administrative
Lender, and other Lenders shall continue to deal solely and directly with such
Lender in connection with their respective Rights and obligations under the Loan
Papers and (vi) no such participation is for an amount less than $5,000,000.

     (c) Any Lender may, in connection with any assignment or participation, or
proposed assignment or participation, disclose to the assignee or participant,
or proposed assignee or participant, any information relating to any Obligor
furnished to such Lender by or on behalf of any Obligor.

     (d) Notwithstanding any other provision set forth in this Agreement, (i)
any Lender may at any time create a security interest in all or any portion of
its Rights under this Agreement (including, without limitation, the Advances
owing to it and the Notes held by it) in favor of any Federal Reserve Bank in
accordance with Regulation A of the Board of Governors of the Federal Reserve
System, (ii) no participant of any Lender may further assign or participate any
of its interest in the Loan Papers to any Person (except as may be required by
Law or a Tribunal having authority over such participant), and (iii) no Lender
(other than NationsBank of Texas, N.A.) may assign any of its interest in the
Loan Papers to any Person (except as may be required by Law or a Tribunal having
authority over NationsBank of Texas, N.A.).

     11.05. Sharing of Payments. If any Lender shall obtain any payment (whether
voluntary, involuntary, through the exercise of any Right of set-off, or
otherwise) on account of its Advances in excess of its Pro Rata share of
payments made by the Borrower, such Lender shall forthwith purchase
participations in Advances made by the other Lenders as shall be necessary to
share the excess payment Pro Rata with each of them; provided, however, that if
any of such excess payment is thereafter recovered from the purchasing Lender,
its purchase from each Lender shall be rescinded and each Lender shall repay the
purchase price to the extent of such recovery together with a Pro Rata share of
any interest or other amount paid or payable by the purchasing Lender in respect
of the total amount so recovered. The Borrower agrees that any Lender so
purchasing a participation from another Lender pursuant to this Section 11.05
may, to the fullest extent permitted by Law, exercise all its Rights of payment
(including the Right of set-off) with respect to such participation as fully as
if such Lender were the direct creditor of the Borrower in the amount of such
participation.



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<PAGE>
 
     11.06. Right of Set-off. Upon the occurrence and during the continuance of
any Event of Default, each Lender is hereby authorized at any time and from time
to time, to the fullest extent permitted by Law, to set-off and apply any and
all deposits (general or special, time or demand, provisional or final) at any
time held and other indebtedness at any time owing by such Lender to or for the
credit or the account of the Borrower against any and all of the obligations of
the Borrower now or hereafter existing under this Agreement and the other Loan
Papers, whether or not Administrative Lender or any Lender shall have made any
demand under this Agreement or the other Loan Papers, and even if such
obligations are unmatured. Each Lender shall promptly notify the Borrower after
any such set-off and application, provided that the failure to give such notice
shall not affect the validity of such set-off and application. The Rights of
each Lender under this Section 11.06 are in addition to other Rights (including,
without limitation, other Rights of set-off) which such Lender may have.

     11.07. Costs, Expenses, and Taxes.

     (a) Notwithstanding anything to the contrary in the Loan Papers, the
Borrower agrees to pay on demand (i) all costs and expenses of Administrative
Lender in connection with the preparation and negotiation of all Loan Papers,
including without limitation the reasonable fees and out-of-pocket expenses of
Special Counsel, (ii) all costs and expenses (including reasonable attorneys'
fees and expenses) of Administrative Lender in connection with any
interpretation, grant and perfection of any Lien, modification, amendment,
waiver, release of any Loan Papers, restructuring or work-out and (iii) all
costs and expenses (including reasonable attorneys' fees and expenses) of
Administrative Lender and each Lender in connection with any collection of any
portion of the Obligations or the enforcement of any Loan Papers during the
continuance of an Event of Default.

     (b) In addition, notwithstanding anything to the contrary in the Loan
Papers, the Borrower shall pay any and all stamp, debt, and other Taxes payable
or determined to be payable in connection with any payment hereunder (other than
Taxes on the overall net income of Administrative Lender or any Lender or
franchise Taxes or Taxes on capital or capital receipts of Administrative Lender
or any Lender), or the execution, delivery, or recordation of any Loan Papers,
and agrees to save Administrative Lender and each Lender harmless from and
against any and all liabilities with respect to, or resulting from any delay in
paying or omission to pay any Taxes in accordance with this Section 11.07,
including any penalty, interest, and expenses relating thereto. All payments by
the Borrower or any Subsidiary of the Borrower under any Loan Papers shall be
made free and clear of and without deduction for any present or future Taxes
(other than Taxes on the overall net income of Administrative Lender or any
Lender of any nature now or hereafter existing, levied, or withheld, or
franchise Taxes or Taxes on capital or capital receipts of Administrative Lender
or any Lender), including all interest, penalties, or similar liabilities
relating thereto. If the Borrower shall be required by Law to deduct or to
withhold any Taxes from or in respect of any amount payable hereunder (i) the
amount so 



                                       85
<PAGE>
 
payable shall be increased to the extent necessary so that, after making all
required deductions and withholdings (including Taxes on amounts payable to
Administrative Lender or any Lender pursuant to this sentence), Administrative
Lender or any Lender receives an amount equal to the sum it would have received
had no such deductions or withholdings been made, (ii) the Borrower shall make
such deductions or withholdings, and (iii) the Borrower shall pay the full
amount deducted or withheld to the relevant taxing authority in accordance with
applicable Law. Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this Section 11.07 shall survive the execution of this Agreement, termination of
the Commitment, repayment of the Obligations, satisfaction of each agreement
securing or assuring the Obligations and termination of this Agreement and each
other Loan Paper.

     11.08. Rate Provision. It is not the intention of any party to any Loan
Papers to make an agreement violative of the Laws of any applicable jurisdiction
relating to usury. In no event shall any Obligor or any other Person be
obligated to pay any amount in excess of the Maximum Amount. If Administrative
Lender or any Lender ever receives, collects or applies, as interest, any such
excess, such amount which would be excessive interest shall be deemed a partial
repayment of principal and treated hereunder as such; and if principal is paid
in full, any remaining excess shall be paid to the Borrower or the other Person
entitled thereto. In determining whether or not the interest paid or payable,
under any specific contingency, exceeds the Maximum Amount, each Obligor,
Administrative Lender and each Lender shall, to the maximum extent permitted
under Applicable Laws, (a) characterize any nonprincipal payment as an expense,
fee or premium rather than as interest, (b) exclude voluntary prepayments and
the effect thereof, and (c) amortize, prorate, allocate and spread in equal
parts, the total amount of interest throughout the entire contemplated term of
the Obligations so that the interest rate is uniform throughout the entire term
of the Obligations; provided that if the Obligations are paid and performed in
full prior to the end of the full contemplated term thereof, and if the interest
received for the actual period of existence thereof exceeds the Maximum Amount,
Administrative Lender or Lenders, as appropriate, shall refund to the Borrower
the amount of such excess or credit the amount of such excess against the total
principal amount owing, and, in such event, neither Administrative Lender nor
any Lender shall be subject to any penalties provided by any Laws for
contracting for, charging or receiving interest in excess of the Maximum Amount.
This Section 11.08 shall control every other provision of all agreements among
the parties to the Loan Papers pertaining to the transactions contemplated by or
contained in the Loan Papers.

     11.09. Severability. If any provision of any Loan Papers is held to be
illegal, invalid, or unenforceable under present or future Laws during the term
thereof, such provision shall be fully severable, the appropriate Loan Paper
shall be construed and enforced as if such illegal, invalid, or 



                                       86
<PAGE>
 
unenforceable provision had never comprised a part thereof, and the remaining
provisions thereof shall remain in full force and effect and shall not be
affected by the illegal, invalid, or unenforceable provision or by its severance
therefrom. Furthermore, in lieu of such illegal, invalid, or unenforceable
provision there shall be added automatically as a part of such Loan Paper a
legal, valid, and enforceable provision as similar in terms to the illegal,
invalid, or unenforceable provision as may be possible.

     11.10. Exceptions to Covenants. No Obligor shall be deemed to be permitted
to take any action or to fail to take any action that is permitted as an
exception to any covenant in any Loan Papers, or that is within the permissible
limits of any covenant, if such action or omission would result in a violation
of any other covenant in any Loan Papers.

     11.11. Counterparts. This Agreement and the other Loan Papers may be
executed in any number of counterparts, all of which taken together shall
constitute one and the same instrument. In making proof of any such agreement,
it shall not be necessary to produce or account for any counterpart other than
one signed by the party against which enforcement is sought.

     11.12. GOVERNING LAW; WAIVER OF JURY TRIAL.

     (a) THIS AGREEMENT AND ALL OTHER LOAN PAPERS SHALL BE DEEMED TO BE
CONTRACTS MADE IN DALLAS, TEXAS, AND SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (WITHOUT GIVING EFFECT TO
CONFLICTS OF LAWS) AND THE UNITED STATES OF AMERICA. WITHOUT EXCLUDING ANY OTHER
JURISDICTION, THE BORROWER AGREES THAT THE FEDERAL COURTS OF TEXAS LOCATED IN
DALLAS, TEXAS, WILL HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION HEREWITH.
TO THE MAXIMUM EXTENT PERMITTED BY LAW, THE BORROWER HEREBY WAIVES ANY RIGHT
THAT IT MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE (WHETHER A CLAIM IN TORT,
CONTRACT, EQUITY, OR OTHERWISE) ARISING UNDER OR RELATING TO THIS AGREEMENT, THE
OTHER LOAN PAPERS, OR ANY RELATED MATTERS, AND AGREES THAT ANY SUCH DISPUTE
SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY.

     (b) THE BORROWER HEREBY WAIVES PERSONAL SERVICE OF ANY LEGAL PROCESS UPON
IT. THE BORROWER AGREES THAT SERVICE OF PROCESS MAY BE MADE UPON IT BY
REGISTERED MAIL (RETURN RECEIPT REQUESTED) DIRECTED TO THE BORROWER AT ITS
ADDRESS DESIGNATED FOR NOTICE UNDER THIS AGREEMENT AND SERVICE SO MADE SHALL BE
DEEMED TO BE COMPLETED FIVE DAYS AFTER DEPOSIT IN THE UNITED STATES MAIL.
NOTHING IN THIS SECTION 11.12 SHALL AFFECT THE RIGHT OF ADMINISTRATIVE LENDER OR
ANY LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.



                                       87
<PAGE>
 
     11.13. ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER LOAN PAPERS REPRESENT
THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENT OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

     11.14. Amendment, Restatement, Extension and Renewal. This Agreement is a
renewal, extension, amendment and restatement of the Original Credit Agreement,
and, as such, except for the "Obligations" as defined in the Original Credit
Agreement (which shall survive, be renewed, extended and restated by the terms
of this Agreement), all other terms and provisions supersede in their entirety
the Original Credit Agreement. All subordination agreements, security
agreements, pledge agreements, mortgages, deeds of trust and other documents and
instruments granting any security interest or assigning any interest in any
assets of the Borrower or any Subsidiary of the Borrower or the Parent to secure
the Obligations executed and delivered in connection with the Original Agreement
(the "Original Security Documents") shall remain valid, binding and enforceable
Liens against the Borrower, the Subsidiaries of the Borrower, the Parent and
each of the other Persons granting any such Liens and/or executing any such
agreements.


===============================================================================
             THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
===============================================================================



                                       88
<PAGE>
 
     IN WITNESS WHEREOF, this First Amended and Restated Credit Agreement is
executed as of the date first set forth above.

THE BORROWER:
                                   INTERSTATE FIBERNET, INC.

                                    /s/ Douglas A. Shumate    
                                   ---------------------------------------
                                   By:   Douglas A. Shumate
                                   Its:  Senior Vice President -- Chief 
                                         Financial Officer



ADMINISTRATIVE LENDER:

                                   NATIONSBANK OF TEXAS, N.A., as 
                                   Administrative Lender


                                    /s/ Keith M. Wilson
                                   ---------------------------------------
                                   By:   Keith M. Wilson
                                   Its:  Vice President



LENDERS:


Specified Percentage:  100%        NATIONSBANK OF TEXAS, N.A., 
                                   individually as a Lender
Address:
901 Main Street
64th Floor
Dallas, Texas  75202
                                    /s/ Keith M. Wilson
                                   ---------------------------------------
                                   By:   Keith M. Wilson
Attn.:  Keith M. Wilson            Its:  Vice President
Telephone:      (214) 508-2576
Telecopy:       (214) 508-9390




                                       89

<PAGE>
 

***PORTIONS OF THIS EXHIBIT MARKED BY BRACKETS ("[     ]") OR OTHERWISE 
IDENTIFIED HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. 
THE OMITTED PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.***

                                                                 Exhibit 10.87.1

                 FIRST AMENDMENT TO THE MCI CARRIER AGREEMENT

This First Amendment is between MCI TELECOMMUNICATIONS CORPORATION ("MCI") and
ASSOCIATED COMMUNICATIONS COMPANIES OF AMERICA (ACCA) ("Customer") and

WHEREAS, MCI and Customer are parties to an Carrier Agreement signed by MCI on
October 9, 1997 (the "Agreement"); and

WHEREAS, the parties desire to enter into this First Amendment to amend the
Agreement,

NOW, THEREFORE, the parties agree as follows:

1.        For the countries listed below, the Prism I International rates in
          Exhibit E shall be removed and replaced with the following:

                    Country                      Rate Per Minute
                    -------                      ---------------     
                    INDIA                        [______]
                    BRAZIL                       [______]
                    BAHAMAS                      [______]
                    GRENADA                      [______]
                    BOLIVIA                      [______]
                    COSTA RICA                   [______]
                    DOMINICA                     [______]
                    BERMUDA                      [______]
                    TURKEY                       [______]
                    GUINEA                       [______]

2.        The following shall be added as new paragraph 4(c)3), Additional
          Credits:

          3) Customer shall also receive a one time credit equal to the
              difference between Customer's International Prism I Service
              terminating to Brazil during October 1997 rated at [____] per
              minute and Customer's usage of International Prism I Service
              terminating in Brazil during October 1997 rated at [____] per
              minute. Such credit will be applied to Customer's domestic
              interstate usage and international usage.

3.        This First Amendment will begin on November 1, 1997 provided this
          Amendment is executed and delivered to MCI by ACCA on or before
          November 14, 1997.  Otherwise, this Amendment will begin on the first
          day of the first full month following execution of this Agreement by
          MCI and ACCA.


                                       1
<PAGE>
 
4.        This First Amendment is only valid if signed by Customer by November
          21, 1997 and subsequently accepted by MCI.  This First Amendment shall
          be effective with respect to each Member after execution hereof by
          such member, as described in Paragraph 8(a) of the Agreement.

Except as herein modified or amended, all of the terms, conditions and
provisions contained in the Agreement shall remain unchanged and in full force
and effect.  This First Amendment together with the Agreement is the complete
agreement of the parties and supersedes all other prior agreements and
representations concerning its subject matter.

IN WITNESS WHEREOF, the parties hereto each acting with proper authority have
executed this First Amendment on the date indicated below.  Associated
Communications Companies of America has executed this Agreement for itself and
on behalf of its members.


MCI TELECOMMUNICATIONS                 ASSOCIATED COMMUNICATIONS
CORPORATION                            COMPANIES OF AMERICA


By: /s/ Reginald Chesson               By: /s/ Mike Newkirk
    --------------------                ----------------

Print: Reginald Chesson                Print: Mike Newkirk
       ----------------                    ------------

Title: Director - Revenue Reporting    Title: V.P. - ACCA
       ----------------------------           -----------

Date: 11/21/97                          Date: 11/10/97
      --------                                --------


                                       2

<PAGE>
 
                                                                    Exhibit 12.1

                    Statement Regarding Computation of Ratios

<TABLE>
<CAPTION>
                                                                  Years Ended December 31,
                                                  -----------------------------------------------------------
                                                       1994           1995            1996            1997
                                                       ----           ----            ----            ----
<S>                                               <C>            <C>             <C>             <C>         
Fixed charges:
     Interest expense on debt                     $    273,759   $    297,228    $  6,172,421    $ 21,367,351
     Interest element of rent expense                   21,084         24,845         424,130       2,053,526
     Fixed charges of unconsolidated subsidiary             --        782,054       1,564,200              --
                                                  ------------   ------------    ------------    ------------
                                                  $    294,793   $  1,104,127    $  8,160,751    $ 23,420,877
                                                  ============   ============    ============    ============

Earnings:
     Consolidated net income (loss)               $    136,997   $   (504,373)   $ (3,909,749)   $(10,772,874)
     Extraordinary loss                                     --             --              --         507,515
     Preacquisition earnings (losses)                  236,300             --              --         (74,132)
     Provision (benefit) for income taxes              113,248       (302,567)     (1,233,318)     (3,324,466)
     Fixed charges                                     294,793      1,104,127       8,160,751      23,420,877
                                                  ------------   ------------    ------------    ------------
                                                  $    781,388   $    297,187    $  3,017,684    $  9,756,920
                                                  ============   ============    ============    ============

Ratio of Earnings to Fixed Charges                        2.65           0.27            0.37            0.42
                                                  ============   ============    ============    ============

Coverage Deficiency                                        N/A   $    806,940    $  5,143,067    $ 13,663,957
</TABLE>

<PAGE>
 
                                                                    Exhibit 21.1


                    Subsidiaries of ITC/\DeltaCom, Inc.


Interstate FiberNet, Inc., a Delaware corporation.

ITC/\DeltaCom Communications, Inc. (formerly known as DeltaCom, Inc.), an
Alabama corporation.



<PAGE>
 
                                                                    EXHIBIT 23.1


                    CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation by
reference of our reports included in this Form 10-K, into the
Company's previously filed Form S-8 Registration Statement No. 333-42785.

ARTHUR ANDERSEN LLP


Atlanta, Georgia
March 27, 1998

<TABLE> <S> <C>

<PAGE>
 
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE BALANCE SHEETS OF ITC/\DELCOM, INC. AS OF DECEMBER 31, 1997 AND THE
RELATED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31,
1997. THIS INFORMATION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
       
<S>                              <C>
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                           DEC-31-1997
<PERIOD-START>                              JAN-01-1997
<PERIOD-END>                                DEC-31-1997
<CASH>                                       94,373,610
<SECURITIES>                                          0
<RECEIVABLES>                                24,512,029
<ALLOWANCES>                                  1,060,842
<INVENTORY>                                   1,018,212
<CURRENT-ASSETS>                            144,416,014
<PP&E>                                      167,360,073
<DEPRECIATION>                               25,825,447
<TOTAL-ASSETS>                              386,104,477
<CURRENT-LIABILITIES>                        27,970,499
<BONDS>                                     202,977,499
                                 0
                                      14,808
<COMMON>                                        248,176
<OTHER-SE>                                  148,002,543
<TOTAL-LIABILITY-AND-EQUITY>                386,104,477
<SALES>                                     114,589,998
<TOTAL-REVENUES>                            114,589,998
<CGS>                                        54,550,348
<TOTAL-COSTS>                               111,137,692
<OTHER-EXPENSES>                                      0
<LOSS-PROVISION>                                801,339
<INTEREST-EXPENSE>                           21,367,351
<INCOME-PRETAX>                             (13,663,957)
<INCOME-TAX>                                 (3,324,466)
<INCOME-CONTINUING>                         (10,265,359)
<DISCONTINUED>                                        0
<EXTRAORDINARY>                               (507,515)
<CHANGES>                                             0
<NET-INCOME>                                (10,772,874)
<EPS-PRIMARY>                                     (0.54)
<EPS-DILUTED>                                     (0.54)
        

</TABLE>


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