<PAGE>
As filed with the Securities and Exchange Commission on October 1, 1999
Registration No. 333-84661
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
ITC/\DeltaCom, Inc.
(Exact name of registrant as specified in its charter)
Delaware 4813 58-2301135
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification Number)
incorporation or
organization)
1791 O.G. Skinner Drive
West Point, Georgia 31833
(706) 385-8000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
Andrew M. Walker Copies to:
Chief Executive Officer
ITC/\DeltaCom, Inc. Nancy J. Kellner, Esq.
1791 O.G. Skinner Drive HOGAN & HARTSON L.L.P.
West Point, Georgia 31833 555 Thirteenth Street,
(706) 385-8000 N.W. Washington, D.C. 20004
(Name, address, including zip code, and (202) 637-5600
telephone
number, including area code, of agent
for service)
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Title of each Class of Proposed Proposed Amount of
Securities to be Amount to Maximum Price Maximum Aggregate Registration
Registered be Registered per Security Offering Price(1) Fee
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<S> <C> <C> <C> <C>
4 1/2% Convertible
Subordinated Notes due
2006.................. $100,000,000 100% $100,000,000 $27,800(3)
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Common Stock, par value
$.01 per share(2)..... 3,749,531 Shares -- -- --
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</TABLE>
(1) Equals the aggregate principal amount of the securities being registered.
(2) Such number represents the maximum number of shares of common stock that
are currently issuable upon conversion of the notes. Pursuant to Rule 416
under the Securities Act, the registrant is also registering such
indeterminate number of shares of common stock as may be issued from time
to time upon conversion of the notes as a result of the antidilution
protection or other adjustment provisions of the notes. Pursuant to Rule
457(i), no registration fee is required for these shares.
(3) Previously paid.
---------------
The registrant hereby undertakes to amend this Registration Statement on
such date or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the SEC, acting pursuant to said Section
8(a), may determine.
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<PAGE>
PROSPECTUS
$100,000,000
ITC/\DeltaCom
4 1/2% Convertible Subordinated Notes Due 2006
Holders of our 4 1/2% Convertible Subordinated Notes due 2006 may offer the
notes and the shares of our common stock into which the notes are convertible
for sale at various times at fixed prices, at market prices prevailing at the
time of sale or at privately-negotiated prices. The selling holders may sell
the notes or the common stock directly to purchasers or to or through
underwriters, broker-dealers and agents, who may receive compensation in the
form of discounts, concessions or commissions.
. Interest on the notes is payable in arrears on May 15 and November 15 of
each year, beginning on November 15, 1999.
. The notes will mature on May 15, 2006, unless earlier converted or
redeemed.
. The notes are unsecured and rank below our existing and future
indebtedness.
. Holders of the notes may convert any portion of a note, in multiples of
$1,000, into our common stock, at a conversion price of $26.67 per
share, subject to adjustment in specified circumstances.
. Our common stock is quoted on the Nasdaq National Market under the
symbol "ITCD." On September 30, 1999, the reported last sale price of
the common stock on the Nasdaq National Market was $27.50 per share.
. We may redeem any portion of the notes at any time prior to May 17,
2002, at a redemption price equal to $1,000 per note to be redeemed plus
accrued and unpaid interest, if any, to the date of redemption, or we
may make the notes nonconvertible after 30 days' notice at any time
before May 17, 2002 under specified circumstances. If we redeem the
notes or make the notes nonconvertible, we will make an additional
"make-whole" payment equal to $212.60 per $1,000 note, minus the amount
of any interest we actually paid on the note prior to the notice date
with respect to the redeemed notes or, if we make notes nonconvertible,
all notes, including notes converted after the notice date.
. We do not intend to apply to list the notes on any securities exchange
or for quotation through any automated quotation system.
. We will not receive any proceeds from the sale by the selling holders of
the notes or the common stock into which the notes are convertible. We
will pay all expenses, excluding selling commissions and fees and stock
transfer taxes, of the registration and sale of the notes and the common
stock.
. Our headquarters are located at 1791 O.G. Skinner Drive, West Point,
Georgia 31833 and our telephone number at this address is (706) 385-
8000.
Investing in the notes or the common stock into which the notes are
convertible involves a high degree of risk. See "Risk Factors" beginning on
page 1.
----------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the securities offered by this
prospectus or determined if this prospectus is truthful or complete. It is
illegal for any person to tell you otherwise.
----------------
October 1, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Risk Factors............................................................... 1
Cautionary Note Regarding Forward-Looking Statements....................... 16
Where You Can Find More Information........................................ 17
About ITC/\DeltaCom......................................................... 18
ERISA Matters.............................................................. 19
Ratio of Earnings to Fixed Charges......................................... 19
Use of Proceeds............................................................ 19
Description of the Notes................................................... 20
Description of Capital Stock............................................... 32
Important United States Federal Tax Consequences........................... 35
Selling Holders............................................................ 40
Plan of Distribution....................................................... 43
Legal Matters.............................................................. 44
Experts.................................................................... 44
</TABLE>
The indenture relating to the notes requires ITC/\DeltaCom to distribute to
the holders of the notes annual reports containing our financial statements
audited by our independent auditors and quarterly reports containing unaudited
condensed financial statements for the first three quarters of each fiscal
year. As used in this prospectus, "ITC/\DeltaCom," "we," "our," "ours" and "us"
refer to ITC/\DeltaCom, Inc. and its subsidiaries, except where the context
otherwise requires.
If it is against the law in any state to make an offer to sell the
securities, or to solicit an offer from someone to buy the securities, then
this prospectus does not apply to any person in that state, and no offer or
solicitation is made by this prospectus to any such person.
You should rely only on the information contained or incorporated by
reference in this prospectus. ITC/\DeltaCom has not authorized anyone to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. You should assume that the
information appearing in this prospectus is accurate only as of the date on the
front cover.
<PAGE>
RISK FACTORS
ITC/\DeltaCom is a full service provider of integrated voice and data
telecommunications services on a retail basis to mid-sized and major regional
businesses in the southern United States. We refer to this business segment as
our Retail Services segment. We are also a leading regional provider of
wholesale long-haul services to other telecommunications companies. We call
this business segment our Carriers' Carrier Services segment. In connection
with these businesses, we own, operate and manage an extensive fiber optic
network in the southern United States. A more detailed description of our
business may be found under the caption "About ITC/\DeltaCom" and in our Annual
Report on Form 10-K for the year ended December 31, 1998, filed with the SEC on
March 25, 1999. See "Where You Can Find More Information" for instructions on
how to obtain a copy of our Annual Report and other important documents that we
have filed with the SEC.
In addition to the other information contained and incorporated by reference
in this prospectus, you should carefully consider the following risk factors
relating to ITC/\DeltaCom, the notes and the common stock before purchasing the
notes or the common stock offered by this prospectus.
We expect to continue to have operating losses and negative cash flow after
capital expenditures, which may result in our failure to meet our working
capital and debt service requirements, including our obligations under the
notes.
As we have implemented our business strategy to expand our
telecommunications service offerings, expand our fiber optic network and enter
new markets, we have experienced operating losses and negative cash flow after
capital expenditures. We expect this will continue during the next several
years as we continue to expand our business and make substantial capital
expenditures. In addition, we cannot assure you that we will achieve or sustain
profitability or positive net cash flow at any time after that period. If we
cannot achieve or sustain operating profitability and positive net cash flow,
we may not be able to obtain the funds necessary to continue our operations or
to repay amounts due on our outstanding indebtedness, including the notes.
We may not have, or be able to obtain, the significant amounts of capital
that we need to expand our network, operations and services as currently
planned.
We need significant capital to expand our network, operations and services
according to our business plans. Our current business plans require us to
continue to make significant capital expenditures in connection with the
accelerated expansion of our fiber optic network and Retail Services segment.
During 1998, we made capital expenditures of approximately $148 million and we
currently estimate that our capital expenditures will total approximately $250
to $300 million through the year 2000. In addition, we may make substantial
capital expenditures after 2000, which expenditures may be even more
significant than those in previous periods. If we do not have access to the
capital that we require or if our estimates are inaccurate, we will need to
change our business plans. This could have a material adverse effect on our
business, financial condition and results of operations, and on our ability to
repay the notes.
Our planned capital expenditures primarily will be for:
. continued development and construction of our fiber optic network,
including transmission equipment;
. continued addition of facilities-based local telephone service to our
bundle of integrated telecommunications services, including acquisition
and installation of switches and related equipment;
. the addition of switching capacity, electrical equipment and additional
collocation space in connection with the expansion of our provision of
local telecommunications services to ISPs;
. market expansion; and
. infrastructure enhancements, principally for information systems.
1
<PAGE>
Although we cannot assure you that our capital resources will permit us to
fund the planned expansion of our network, operations and services, we expect
to have sufficient funds to enable us to expand our business as currently
planned. We believe that these funds will be provided by:
. cash on hand;
. cash flow from operations;
. borrowings expected to be available under our $50.0 million
revolving credit facility; and
. the proceeds from our May 1999 sale of the notes and our May 1999
common stock offering.
Our estimates of our future capital needs may not be accurate, which would
require us to seek additional financing.
If our estimates of our capital needs are not accurate for any reason, we
may need to seek additional funds from, for example, public or private sales of
equity or debt securities:
. to fund capital expenditures;
. for working capital;
. to fund new business activities related to our current and planned
businesses; and
. to acquire, or enter into joint ventures and strategic alliances
with, other businesses.
We cannot assure you that we will be able to obtain these funds on favorable
terms or at all. Our inability to obtain such funds, if necessary, could have a
material adverse effect on our business, financial condition and results of
operations.
Our estimate of future capital requirements is a "forward-looking statement"
within the meaning of the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. The actual amount and timing of our future
capital requirements may differ substantially from our estimate due to factors
such as:
. regulatory, technological, or competitive developments;
. unforeseen delays;
. cost overruns;
. changes in demand for our services; and
. new market developments and opportunities.
We have significant debt and we may be unable to service that debt.
We have significant debt. Set forth below are some of our recent historical
results on a consolidated basis, adjusted to reflect our May 1999 issuance of
the notes as if it had occurred on January 1, 1999.
<TABLE>
<CAPTION>
At June 30, 1999 Six months ended June 30, 1999
---------------- ------------------------------
<C> <S>
Indebtedness of $517.5 million Earnings insufficient to cover fixed
charges by $27.5 million
Stockholders' equity of $213.3 million EBITDA, as adjusted, less capital
expenditures and interest expense of
negative $71.8 million
</TABLE>
EBITDA, as adjusted, represents earnings before extraordinary item, other
income (expense), net interest, income taxes, depreciation and amortization. We
have included EBITDA, as adjusted, data because it is a measure of performance
commonly used in the industry. EBITDA, as adjusted, is not a measure 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 flows as a measure of liquidity.
2
<PAGE>
We cannot assure you that we will be able to improve our earnings before
fixed charges or that we will be able to meet our debt service obligations,
including our obligations to repay the notes. We will be in default under the
terms of our debt obligations if:
. we are unable to generate sufficient cash flow or otherwise obtain funds
necessary to make required payments or
. we otherwise fail to comply with the various covenants in our debt
obligations.
A default would permit the holders of the indebtedness to accelerate its
maturity. This, in turn, could cause defaults under our other indebtedness and
would have a material adverse effect on our business, financial condition and
results of operations, and on our ability to repay the notes.
Even if we are able to meet our debt service obligations, the amount of debt
we have could adversely affect us in a number of ways, including by:
. limiting our ability to obtain any necessary financing in the future for
working capital, capital expenditures, debt service requirements or
other purposes;
. limiting our flexibility in planning for, or reacting to, changes in our
business;
. placing us at a competitive disadvantage relative to our competitors who
have lower levels of debt;
. making us more vulnerable to a downturn in our business or the economy
generally; and
. requiring us to use a substantial portion of our cash flow from
operations to pay principal and interest on our debt, instead of
contributing those funds to other purposes, such as working capital and
capital expenditures.
To be able to meet our debt service requirements we must successfully
implement our business strategy. Therefore, we will need to:
. expand our network;
. obtain and retain a significant number of customers; and
. experience significant and sustained growth in our cash flow.
We cannot assure you that we will successfully implement our business
strategy or that we will be able to generate sufficient cash flow from
operating activities to meet our debt service obligations and working capital
requirements. Our ability to meet our obligations will be dependent upon our
future performance, which will be subject to prevailing economic conditions and
to financial, business and other factors.
If the implementation of our business strategy is delayed or unsuccessful,
or if we do not generate sufficient cash flow to meet our debt service and
working capital requirements, we may need to seek additional financing. If we
are unable to obtain such financing on terms that are acceptable to us, we
could be forced to dispose of assets to make up for any shortfall in the
payments due on our indebtedness under circumstances that might not be
favorable to realizing the highest price for those assets. A substantial
portion of our assets consist of intangible assets, the value of which will
depend upon a variety of factors, including without limitation, the success of
our business. As a result, we cannot assure you that our assets could be sold
quickly enough, or for amounts sufficient, to meet our obligations, including
our obligations under the notes.
Our current indebtedness contains restrictive covenants that place limits on
our business activities.
We are subject to restrictions under:
. the indenture pursuant to which our 93/4% Senior Notes were issued;
. the indenture pursuant to which our 87/8% Senior Notes were issued;
. the indenture pursuant to which our 11% Senior Notes were issued; and
. our $50.0 million revolving credit facility.
3
<PAGE>
These restrictions affect and, in certain cases, significantly limit or
prohibit, among other things, our ability and the ability of our subsidiaries
to:
. incur additional indebtedness;
. create liens;
. make investments;
. issue stock; and
. sell assets.
Our Senior Note indentures restrict our ability to incur indebtedness, other
than indebtedness to finance the acquisition of equipment, inventory or network
assets and other specified indebtedness, by requiring compliance with specified
leverage ratios. In addition, if and when we borrow funds under our credit
facility, our credit facility will require us to maintain specified financial
ratios. We cannot assure you that we will be able to maintain the required
ratios following such borrowing. In addition, these restrictive covenants may
adversely affect our ability to finance our future operations or capital needs,
or to engage in other business activities that may be in our interest. See "--
We have significant debt and we may be unable to service that debt."
We may not be able to manage our growth successfully.
The expansion and development of our business will depend upon, among other
things, our ability to:
. successfully implement our sales and marketing strategy;
. evaluate markets;
. design fiber routes;
. secure financing;
. install facilities;
. acquire rights of way;
. obtain any required government authorizations;
. interconnect to, and collocate with, facilities owned by incumbent local
exchange carriers; and
. obtain appropriately priced unbundled network elements and wholesale
services from the incumbent local exchange carriers.
These all must be accomplished in a timely manner, at reasonable cost and on
satisfactory terms and conditions. Our rapid growth, particularly in the
provision of Retail Services, has placed, and the growth we anticipate in our
other services may in the future also place, a significant strain on our
administrative, operational and financial resources. Our ability to continue to
manage our growth successfully will require us to:
. enhance our operational, management, financial and information systems
and controls; and
. hire and retain qualified sales, marketing, administrative, operating
and technical personnel.
We cannot assure you that we will be able to do so. In addition, as we
increase our service offerings and expand our targeted markets, there will be
additional demands on customer support, sales and marketing, administrative
resources and network infrastructure. These demands will be intensified if we
continue to accelerate our expansion plans. Our inability to manage our growth
effectively could have a material adverse effect on our business, results of
operations and financial condition, and on our ability to repay the notes.
4
<PAGE>
Development and expansion of our business, including through acquisitions, is
subject to regulatory and market risks.
The successful implementation of our business strategy to provide an
integrated bundle of telecommunications services and expand our 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 and maintain interconnection and collocation
arrangements with incumbent local exchange carriers in our target
markets; and
. the potential difficulties of offering local exchange services.
In addition, the expansion of our business may involve acquisitions of other
telecommunications businesses and assets that, if made, could divert our
resources and management time and could require integration with our existing
operations. We cannot assure you that any acquisitions could be successfully
integrated into our operations or that any acquired business will perform as
expected. Our failure to implement our expansion and growth strategy
successfully would have a material adverse effect on our business, results of
operations and financial condition, and on our ability to repay the notes.
Our business is subject to significant competitive pressures.
Our industry is highly competitive and the level of competition,
particularly with respect to pricing, is increasing. For example, prices for
long distance services and for data transmission services have declined
substantially in recent years. These prices are expected to continue to
decline, which will adversely affect our gross margins as a percentage of
revenues. In addition, many of our existing and potential competitors have
financial, technical and other resources and customer bases and name
recognition far greater than our own. We cannot assure you that we will be able
to achieve or maintain adequate market share or revenues, or compete
effectively in any of our markets.
. We face intense competition from incumbent local exchange carriers,
especially BellSouth
Local telephone and intraLATA long distance services substantially similar
to those that we offer are also offered by the incumbent local exchange
carriers serving the markets that we serve or plan to serve. BellSouth is
the incumbent local exchange carrier and a particularly strong competitor
in most of these markets. BellSouth and other incumbent local exchange
carriers already have relationships with every customer. These carriers may
be able to subsidize services of the type we offer from service revenues
not subject to effective competition, which could result in even more
intense price competition. In addition, successful implementation of our
business plan for provision of local telephone services is dependent on our
ability to obtain the local loop and other services and facilities from
BellSouth. We expect that competition from BellSouth in the provision of
local telephone services will continue to be intense. By impeding,
hindering or delaying provision of services and facilities to us, BellSouth
could inhibit or prevent us from providing local telephone service to our
customers, which would place us at a substantial competitive disadvantage.
. Other competitors and technologies in our industries may further increase
competition
Providers of long distance services and Carriers' Carrier Services. We
compete with long distance carriers in the provision of interLATA long
distance services and Carriers' Carrier Services. The interLATA long
distance market consists of three major competitors, AT&T, MCI WorldCom and
Sprint. Other companies operate or are building networks in the southern
United States and other geographic areas. Our other competitors in the long
distance services and Carriers' Carrier Services markets include or
5
<PAGE>
are likely to include Regional Bell Operating Companies, or RBOCs,
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. We also compete with direct marketers, equipment
vendors and installers, and telecommunications management companies with
respect to certain portions of our business.
Wireless providers. In the future, providers of wireless services may offer
products that increasingly become a substitute for, rather than only a
supplement to, a customer's wireline communications services. Competition
with providers of wireless telecommunications services may be intense. Many
of our potential wireless competitors have substantially greater financial,
technical, marketing, sales, manufacturing and distribution resources than
our own. In recent years, the FCC has made additional spectrum available
through public auction for use in wireless communications, including
broadband local loops.
New transmission technologies. We also may increasingly face competition
from companies offering long distance data and voice services over the
Internet. Such companies could enjoy a significant cost advantage because
at present they do not pay carrier access charges or universal service
fees. Other competitors are also deploying new transmission technologies in
their networks to upgrade capacity and reduce costs. For example, in June
1998, Sprint announced its intention to offer voice, data and video
services over its nationwide ATM network, which Sprint anticipates will
significantly reduce its cost to provide such services. Sprint plans to
bill its customers based upon the amount of traffic carried, without regard
to the time required to send the traffic or the traffic's destination.
Other advanced networks are being deployed by other carriers.
Competitive local exchange carriers. We will face competition in the
markets in which we operate from one or more competitive local exchange
carriers operating fiber optic networks, in some cases in conjunction with
the local cable television operator. AT&T, MCI WorldCom, 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 opportunities
created by the federal Telecommunications Act of 1996 develop. BellSouth
has announced plans to provide local service in areas of its region where
it is not the incumbent local exchange carrier and to establish its own
less regulated "competitive local exchange carrier" subsidiaries. In
connection with those plans, BellSouth has proceeded to file tariffs with
some state regulatory authorities.
. Business combinations and strategic alliances may increase competition
A continuing trend toward business combinations and strategic alliances
in the telecommunications industry may further increase competition. For
example, the national long distance carrier WorldCom has merged with MCI.
MCI WorldCom also acquired competitive local exchange carriers, including
MFS Communications Company, Inc. and Brooks Fiber Properties, Inc., and
related businesses such as SkyTel, Inc., AT&T has acquired another
competitive local exchange carrier, Teleport Communications Group Inc., as
well as Tele-Communications, Inc., a major cable television operator, and
has announced plans to provide services in conjunction with Time Warner
Inc. AT&T has also announced plans to enter into a joint venture with
British Telecommunications plc to combine the international assets and
operations of each company, including their existing international
networks. SBC Communications and Ameritech propose to merge which, if
approved, would mean that the seven original RBOCs have been reduced to
four. Other proposed or completed acquisitions include:
. Qwest Communication's acquisition of LCI International, Inc. in June
1998 which created the nation's fourth-largest long distance carrier
. Bell Atlantic's proposed acquisition of GTE announced in July 1998
. SBC's strategic alliance with Williams Communications
. BellSouth's recent equity investment in and marketing agreement with
Qwest
. AT&T's proposed acquisition of Media One
. Global Crossing Ltd.'s proposed merger with Frontier Corp.
. Qwest's proposed merger with US West Inc.
6
<PAGE>
These types of strategic alliances and business combinations could put us at
a significant competitive disadvantage.
. Recent legislation and regulation may also increase competition
Long distance services. The Telecommunications Act of 1996 creates the
foundation for increased competition in the long distance market from the
incumbent local exchange carriers. Such competition could affect the
successful implementation of our business plans. For example, certain
provisions of the Telecommunications Act eliminate previous prohibitions on
the provision of both retail and carriers' carrier interLATA long distance
services by the RBOCs, subject to compliance by such companies with
requirements set forth in the Telecommunications Act and implemented by the
FCC. The FCC has rejected RBOC applications to provide interLATA services,
including applications from BellSouth covering the states of South Carolina
and Louisiana. However, the FCC, various states and other parties are
actively considering actions that could expedite approval of interLATA
service. BellSouth is actively pursuing favorable state-level approval in
Georgia with the goal of obtaining FCC approval in early 2000 to provide
interLATA service in that state. BellSouth also is at various stages of the
approval process in other states in its region, and it is possible that
interLATA entry could be approved in one or more of those states next year.
In addition, legislation is pending in Congress that, if enacted, would
relax the interLATA restriction in some respects. We could be adversely
affected if the RBOCs, and particularly BellSouth, are allowed to provide
wireline interLATA long distance services within their own regions before
local competition is established.
Broadband local services. The FCC has proposed new rules that would give
the major incumbent local exchange carriers more freedom if they offer
broadband local services through separate subsidiaries. Specifically,
incumbent local exchange carriers would be allowed to offer advanced data
services through such subsidiaries without dominant carrier regulation and
without the obligation to make network facilities and services of that
affiliate available to competitors. We are evaluating how such actions
would impact our ability to compete with BellSouth and other incumbent
local exchange carriers. In a related development, cable operators are
beginning to offer customers broadband access to the Internet, and AT&T has
made arrangements to acquire the use of such cable network for
telecommunications services on an exclusive basis. We could be adversely
affected if in the future we are not able to offer broadband services to
certain customers due to limitations on our ability to reach such customers
over broadband local network facilities.
Additional flexibility for incumbent local exchange carriers. The FCC has
recently adopted new policies and rules that 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 pricing flexibility or other
significant deregulation of the incumbent local exchange carriers could
have a material adverse effect on our business. To the extent the incumbent
local exchange carriers are permitted to engage in increased volume and
discount pricing practices prior to full competition in local services, or
given other regulatory freedom, our results of operations and financial
condition could be adversely affected.
Access charges; universal service. We also could be adversely affected by
FCC or state regulatory decisions affecting access charges and universal
service. Such decisions could increase our costs of providing service or
limit our ability to recover those costs from rates charged to customers.
The effect on us would be particularly adverse to the extent that we bear a
disproportionate share of these costs compared to our competitors. These
matters are the subject of ongoing regulation, and important issues
regarding the future of access and universal service charges remain to be
resolved.
We face significant challenges in offering local telephone services, including
the need to make significant investments and compete with established
providers.
We will have to continue to make significant operating and capital
investments, and address numerous operating complexities, to implement our
local telephone services strategy. Because of these and possible other
7
<PAGE>
unknown factors, we cannot assure you that we will be successful in
implementing our local services strategy. Our inability to implement this
strategy could have a material adverse affect on our business, results of
operations and financial condition, and on our ability to repay the notes. To
implement our local services strategy, we are required to:
. develop new products, services and systems;
. develop new marketing initiatives;
. train our sales force in connection with selling these services; and
. implement the necessary billing and collecting systems for these
services.
In addition, we expect to continue to face significant pricing and product
competition from the RBOCs, whose core business is providing local dial tone
service and who are currently the dominant providers of services in their
markets. We also will face significant competitive product and pricing
pressures from other incumbent local exchange carriers and from other companies
like us which attempt to compete in the local services market.
We also expect that the addition of local services to our bundle of
telecommunications services will continue to have a negative impact on our
gross margin as a percentage of revenues. This is because the gross margin on
the resale of local services through incumbent local exchange carrier
facilities is lower than the gross margin on our other lines of business. Gross
margin means gross revenues less cost of services.
The long distance transmission industry is subject to pricing pressures and
risks of industry over-capacity.
Since shortly after the AT&T divestiture in 1984, the long distance
transmission industry generally has experienced over-capacity and declining
prices. These trends have exerted downward pressure affecting our Carriers'
Carrier Services and we anticipate that prices for our Carriers' Carrier
Services will continue to decline over the next several years. Dramatic and
substantial price reductions in the long distance industry could force us to
reduce our prices significantly, which could have a material adverse effect on
our business, financial condition and results of operations, and on our ability
to repay the notes.
We expect these price declines will occur because:
. some long distance carriers are expanding their capacity generally;
. other existing long distance carriers and potential new carriers are
constructing new fiber optic and other long distance transmission
networks in the southern United States, and BellSouth is likely to
receive authority to use its excess capacity to market in-region
interLATA services;
. expansion and new construction of transmission networks is likely to
create substantial excess capacity relative to demand in the short or
medium term. Persons building such lines are likely to install fiber
optic cable that provides substantially more transmission capacity than
will be needed because the cost of the fiber cable itself is a
relatively small portion of the overall cost of constructing new lines;
. recent technological advances may also greatly expand the capacity of
existing and new fiber optic cable; and
. the marginal cost of carrying an additional call over existing fiber
optic cable is extremely low.
An increase in the capacity of our competitors could adversely affect our
business, even if we are also able to increase our capacity. If industry
capacity expands so much that available capacity exceeds overall demand along
any of our routes, severe additional pricing pressure could develop. This also
could have a material adverse effect on our business, financial condition and
results of operations, and on our ability to repay the notes. See "--Our
business is subject to significant competitive pressures" for more information
on the competitive pressures in our industry.
8
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The local and long distance industries are subject to significant government
regulation, and the regulations may change.
We are required to obtain authorizations from the FCC and state public
utility commissions to offer some of our telecommunications services. We are
also required to file tariffs for many of our services and to comply with local
license or permit requirements relating to installation and operation of our
network. Any of the following could have a material adverse effect on our
business, results of operations and financial condition, and on our ability to
repay the notes:
. failure to maintain proper federal and state tariffs;
. failure to maintain proper state certifications;
. failure to comply with federal, state or local laws and regulations;
. failure to obtain and maintain required licenses and permits;
. burdensome license or permit requirements to operate in public rights-
of-way; and
. burdensome or adverse regulatory requirements or developments.
In addition, we recently entered the newly-created competitive local
telecommunications services industry. The local telephone services market was
opened to competition through the passage of the Telecommunications Act in
1996. Because the FCC and the states are still implementing many of the rules
and policies necessary for local telephone competition, and addressing other
related issues, it is still uncertain how successful the Telecommunications Act
will be in creating local competition. If we are required to change or delay
our offering of local services as a result of changes in regulatory
requirements, we may experience adverse effects on our business, results of
operations and financial condition, and on our ability to repay the notes.
We depend on access service from incumbent local exchange carriers to provide
long distance and interexchange private line services, and we could be
adversely affected if we do not benefit from reduced access charges at least as
much as our competitors.
We depend on incumbent local exchange carriers to provide access service for
the origination and termination of our 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. In 1998, the FCC implemented changes to its interstate access rules
that, among other things, have reduced per-minute access charges and
substituted 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. Additional
access charge reductions were implemented in July 1999, and others are expected
in the future. The impact of these changes on us or our competitors is not yet
clear. We could be adversely affected if we do not experience access cost
reductions proportionally equivalent to those of our competitors. New Internet-
based competitors generally are exempt from these charges, which could give
them a significant cost advantage in this area.
If we are unable to interconnect with BellSouth and incumbent local exchange
carriers on acceptable terms, our ability to offer local telephone services
will be adversely affected.
In August 1996, the FCC adopted rules and policies (1) implementing the
local competition provisions of the Telecommunications Act and (2) imposing
obligations on the incumbent local exchange carriers, including the RBOCs, to
enter into interconnection agreements with new competitive entrants like
ITC/\DeltaCom. We depend on our interconnection agreements with incumbent local
exchange carriers such as BellSouth, GTE, SBC and Sprint to:
. provide local telephone service through access to local loops,
termination service and, in some markets, central office switches of
such carriers;
. resell local telephone services that we obtain from the incumbent local
exchange carriers on a wholesale basis; and
. obtain operational support to ensure timely delivery to us of network
elements and wholesale services from the incumbent local exchange
carriers.
9
<PAGE>
In January 1999, the U.S. Supreme Court upheld the FCC's authority to adopt
and implement these rules, but required the FCC to reconsider the list of
network elements that incumbent local exchange carriers must make available to
competitors. In September 1999 the FCC largely reaffirmed its existing
requirements.
Incumbent local exchange carriers meet their obligations under the
Telecommunications Act through the use of interconnection agreements negotiated
with competitive local exchange carriers under regulatory supervision. Such
agreements have been the subject of ongoing disputes, and key issues remain
open. Our ability to successfully negotiate interconnection agreements on a
timely basis and on favorable terms is critical to our ability to provide local
services on a competitive and profitable basis. We cannot assure you that we
will be able to enter into or renew interconnection agreements that permit us
to offer local services at rates that are both profitable and competitive. Any
successful effort by the incumbent local exchange carriers to deny or
substantially limit our access to their network elements or wholesale services
would have a material adverse effect on our ability to provide local telephone
services. This would have a material adverse effect on our business, results of
operations, and financial condition, and on our ability to repay the notes.
Our interconnection agreement with BellSouth is our most significant
interconnection agreement, enabling us to provide local services in all nine
markets in which BellSouth operates. That agreement currently allows us 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
having to buy or build our own facilities. The terms of that interconnection
agreement, including interim pricing terms to which we and BellSouth have
agreed, have been approved by state regulatory authorities in all states in
which BellSouth operates. These interim pricing terms remain subject to review
and modification by such authorities. In addition, the BellSouth
interconnection agreement does not resolve all operational issues. We and
BellSouth are continuing to negotiate to resolve those issues.
The BellSouth interconnection agreement expired on July 1, 1999. We are in
negotiations with BellSouth to renew the terms of the interconnection
agreement. In addition, we have filed for arbitration of certain unresolved
issues with the relevant state regulatory authorities in all BellSouth states
except for Kentucky. The agreement provides that the parties will continue to
exchange traffic under the current agreement after July 1, 1999 until such time
as renewal terms, conditions and prices are ordered by a state commission or
negotiated by the parties. The new terms, conditions and prices would then be
effective retroactive to July 1, 1999. We cannot assure you that we will be
able to renew the interconnection agreement with BellSouth on favorable terms,
or at all.
Under the Telecommunications Act, the RBOCs will not be permitted to provide
in-region interLATA long distance services until there is adequate competition
in the local services industry. This provides some incentive to the RBOCs to
provide access to their facilities to competitive new entrants such as
ITC/\DeltaCom. We cannot assure you, however, that once BellSouth or other RBOCs
are permitted to offer long distance service, they will continue to be willing
to enter into interconnection agreements with us that will enable us to provide
local services on competitive and profitable terms.
We are dependent upon rights of way and other third party agreements to expand
and maintain our fiber optic network.
To construct and maintain our fiber optic network, we have obtained
easements, rights of way, franchises and licenses from various private parties,
including actual and potential competitors and local governments. We cannot
assure you that we will continue to have access to existing rights of way and
franchises after the expiration of our current agreements, or that we will
obtain additional rights necessary to extend our network on reasonable terms.
In addition, third parties may challenge our use of rights of way obtained by
others. If a franchise, license or lease agreement were terminated and we were
forced to remove or abandon a significant portion of our network, such
termination could have a material adverse effect on our business, results of
operations, and financial condition. Similarly, our business plans could be
adversely affected if our network expansion is hindered through delays or
denials of rights of way, easements or related licenses on competitive terms.
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Our inability to maintain our network infrastructure, portions of which we do
not own, could adversely affect our business, results of operations and
financial condition, and on our ability to repay the notes.
Network agreements may be terminated. We have effectively extended our
network with minimal capital expenditures by entering into marketing and
management agreements with three public utility companies to sell long-haul
private line services on the fiber optic networks owned by these companies.
Under these agreements, which have remaining terms ranging from three to six
years, we generally earn a commission based upon a percentage of the gross
revenues generated by the sale of capacity on the utility's networks. We also
have an agreement to buy and sell capacity with Carolinas Fibernet, which
manages fiber optic facilities in North Carolina and South Carolina.
Cancellation or non-renewal of any of these agreements could materially
adversely affect our business, results of operations and financial condition,
and on our ability to repay the notes.
Some of our agreements are non-exclusive. In addition, two of our three
agreements with the public utility companies are nonexclusive, and we 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 us could
adversely affect us. To the extent that we are unable to establish similar
arrangements in new markets, we may be required to make additional capital
expenditures to extend our fiber optic network.
We may experience network equipment failures or cable cuts. Our business
also could be materially adversely affected by a cable cut or equipment failure
in our fiber optic network. A substantial portion of our owned and managed
fiber optic network is not protected by electronic redundancy in the event of a
total cable cut. Electronic redundancy enables us to reroute traffic to another
fiber in the same fiber sheath in the event of a partial fiber cut or
electronics failure.
We are dependent on some large customers for a significant percentage of our
revenues and we cannot assure you that we will be able to retain those
customers.
The table below sets forth, for the years ended December 31, 1997 and 1998
and for the six months ended June 30, 1999, the percentage of our consolidated
revenues accounted for by our two largest Carriers' Carrier customers and our
five largest Retail Services customers.
<TABLE>
<CAPTION>
Year Ended Year Ended Six Months Ended
December 31, 1997 December 31, 1998 June 30, 1999
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Two largest Carriers' Approximately 12.5% Approximately 13.1%
Carrier customers... of consolidated of consolidated Approximately 11.4%
revenues revenues consolidated revenues
Five largest Retail Approximately 10.0% Approximately 12.2%
Services customers... of consolidated Approximately 8.5% of of consolidated
revenues consolidated revenues revenues
</TABLE>
We cannot assure you that we will be able to retain our customers. The loss
of, or a significant decrease of business from, any of our largest customers
would have a material adverse effect on our business, results of operations and
financial condition, and on our ability to repay the notes.
For both Carriers' Carrier Services and Retail Services, our customers
generally have concurrent arrangements with more than one service provider.
This enables our customers to reduce their use of our services and switch to
other providers without incurring significant expense. Our agreements with our
customers generally provide that the customer may terminate service without an
"early discontinuance charge" in the event of specified types of outages in
service and for other defined causes. As of June 30, 1999, our Carriers'
Carrier business had remaining future long-term contract commitments totaling
approximately $124.6 million. Some of those contractual commitments provide
that, if the customer is offered lower pricing with respect to any circuit by
another carrier, the customer's commitment to us will be reduced to the extent
we do not match the price for such circuit and the customer purchases such
circuit from the other carrier.
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<PAGE>
We are dependent on sophisticated billing, customer service and information
systems.
We depend on sophisticated information and processing systems to grow,
monitor costs, bill customers, provision customer orders and achieve operating
efficiencies. As we increase our provision of dial tone and switched local
access services, the need for enhanced billing and information systems will
also increase. Our inability to identify adequately all of our information and
processing needs, or to upgrade systems as necessary, could have a material
adverse effect on our ability to reach our objectives, on our financial
condition and on our results of operations, and on our ability to repay the
notes.
Failure to obtain Year 2000 compliance may have adverse effects on us.
The Year 2000 issue is the result of computer programs using two digits,
rather than four, to define the applicable year. Because of this programming
convention, software, hardware or firmware may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in system failures,
miscalculations or errors causing disruptions of operations or other business
problems, including, among others, an inability to process transactions, send
invoices, or engage in similar normal business activities. Our Year 2000
readiness program is described below. However, we cannot know the actual
effects of the Year 2000 issue on our business and operations until the Year
2000. If we and/or our major vendors, third party network service providers,
and other material service providers and customers fail to adequately address
our respective Year 2000 issues in a timely manner, this could have a material
adverse effect on our business, results of operations, and financial condition,
and on our ability to repay the notes.
We have undertaken a comprehensive program to address the Year 2000 issue
with respect to the following:
. our information technology and operating systems, including our network
switching, customer service, call detail and billing systems;
. our non-information technology systems, such as buildings, plant,
equipment and other infrastructure systems that may contain embedded
microcontroller technology;
. the systems of our major vendors, third party network service providers
and other material service providers, insofar as they relate to our
business; and
. our major Carriers' Carrier and Retail Services customers.
Our Year 2000 program involves:
. a wide-ranging assessment of the Year 2000 problems that may affect us;
. the development of remedies to address the problems discovered in the
assessment phase;
. testing and implementation of the remedies; and
. the preparation of contingency plans to deal with worst case scenarios.
As part of the assessment phase of this program, we have identified
substantially all of the major components of the systems described above. To
determine the extent to which those systems are vulnerable to the Year 2000
issue, we:
. evaluated our internally developed software applications; and
. made inquiries of substantially all of our significant hardware,
software and other equipment vendors, third party network service
providers, other material service providers and material customers
requesting detailed, written information related to Year 2000
compliance.
To date, we have received and analyzed responses from a substantial majority
of our major vendors and service providers and from our significant Carriers'
Carrier and Retail Services customers. We are investigating, and intend to
closely monitor, the Year 2000 readiness of the three public utilities that own
and operate approximately 3,700 miles of our approximately 8,100-mile fiber
optic network. All of those utilities have
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<PAGE>
indicated that they are Year 2000 compliant. In addition, we continue to follow
up with respect to those entities that have not yet responded to our Year 2000
inquiries.
Based upon results of our assessment efforts, we began conducting
remediation and testing of at-risk systems identified by the assessment. During
the first quarter of 1999, we completed the remediation and testing of
internally developed code and the systems that operate and are operated by such
software, and we placed the remediated systems and software into production.
After we completed the testing of remediated systems, we arranged to conduct
laboratory-simulated integrated systems testing. During the second quarter of
1999, we completed the laboratory-simulated testing process. We continue to
develop contingency plans to handle our most reasonably likely worst case Year
2000 scenarios, which have not yet been identified fully. We expect to complete
the preparation of our contingency plans by the end of the third quarter of
1999. These contingency plans will continue to be refined and updated through
the end of 1999, based upon, among other factors, responses from third party
inquiries.
Through June 30, 1999, we incurred approximately $1.7 million in costs for
our Year 2000 program. We currently estimate that, in the remainder of 1999, we
will incur additional expenses which are not expected to exceed approximately
$450,000 to complete our Year 2000 compliance work. These costs, which may vary
from the estimates, have been, and will continue to be, expensed as incurred.
We are subject to risks associated with rapid changes in technology.
The telecommunications industry is subject to rapid and significant changes
in technology. In addition, we may be required to select in advance one
emerging technology over another, but it will be impossible to predict with any
certainty, at the time we are required to make our investment, which technology
will prove to be the most economic, efficient or capable of attracting customer
usage. Unexpected developments, or our failure to adapt to them, could have a
material adverse effect on our business, results of operations and financial
condition, and on our ability to repay the notes.
Our success depends on our ability to attract and retain key personnel.
Our business is currently managed by a small number of key management and
operating personnel. We do not have any employment agreements with, nor do we
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 our
business, results of operations and financial condition, and on our ability to
repay the notes.
Our operating results could vary significantly from period to period.
Our revenues and operating results could vary significantly from period to
period for many reasons, including:
. significant expenses associated with the construction and expansion
of our network and services;
. competition and regulatory developments;
. changes in market growth rates for our products and services;
. availability or announcement of alternative technologies; and
. general economic conditions.
These factors and any resulting fluctuations in our operating results will
make period to period comparisons of our financial condition less meaningful
and could have a material adverse effect on our business, results of operations
and financial condition, and on our ability to repay the notes.
We have several large stockholders who may influence our affairs.
As of June 30, 1999, Campbell B. Lanier, III beneficially owned
approximately 12% of ITC/\DeltaCom's outstanding common stock. To the extent
that Mr. Lanier exercises his voting and investment rights in concert
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<PAGE>
with other stockholders, Mr. Lanier and such other stockholders may be able to
exercise control over our business by virtue of their voting power with respect
to the election of directors and other actions requiring stockholder approval.
We do not pay dividends on our capital stock.
We have never declared or paid any cash dividends on our capital stock and
we do not anticipate paying cash dividends in the foreseeable future.
Additionally, our Senior Note indentures and our revolving credit facility
restrict our ability to pay dividends.
Several provisions in our certificate of incorporation and bylaws could have
effects that conflict with the interests of our stockholders.
Our certificate of incorporation and bylaws and the General Corporation Law
of the State of Delaware contain provisions that could make it more difficult
for a third party to acquire control of us, even if such change in control
would be beneficial to our stockholders. In particular, the classification of
our board of directors may delay or impede the removal of incumbent directors
and therefore could have the effect of delaying a change in control. In
addition, our certificate of incorporation authorizes the board of directors to
issue shares of our preferred stock, in one or more series, without further
stockholder approval and upon such terms and conditions, and having such
rights, privileges and preferences, as the board of directors may determine.
Any such issuances of preferred stock could make it more difficult for a third
party to acquire control of us.
The market price of our common stock has fluctuated significantly, and could
fluctuate significantly in the future, as a result of our operating performance
and conditions in our industry.
The market price of our common stock has fluctuated over a wide range since
it began trading publicly after our initial public offering in October 1997.
The market price may continue to fluctuate in the future.
The market price of our 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 for our common stock;
. quarterly variations in actual or anticipated operating results and
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 in recent years has experienced significant
price and volume fluctuations that have often been unrelated to the operating
performance of companies. These fluctuations have particularly affected the
market prices of the stocks of telecommunications companies.
Any of these events would likely result in a material adverse effect on the
market price of our common stock.
The notes rank below our existing and future senior indebtedness and we may be
unable to repay our obligations under the notes.
The notes are unsecured and subordinated in right of payment to all of our,
and our subsidiaries', existing and future "senior indebtedness," as that term
is defined in the indenture under which the notes were issued.
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<PAGE>
Senior indebtedness includes all borrowings under our secured credit facility,
and the 11% Senior Notes, the 8 7/8% Senior Notes and the 9 3/4% Senior Notes.
Because the notes are subordinate to our senior indebtedness, (1) in the event
of our bankruptcy, liquidation, or reorganization, (2) upon the acceleration of
the notes due to an event of default and (3) in certain other events, we will
make payments on the notes only after we have satisfied all of our senior debt
obligations. Therefore, we may not have sufficient assets remaining to pay
amounts on any or all of the notes. In addition, the notes are effectively
subordinated to all liabilities, including trade payables, of our subsidiaries.
Consequently, our right to receive assets of our subsidiaries upon their
liquidation or reorganization, and the rights of the holders of the notes to
share in those assets, would be subordinate to the claims of the subsidiaries'
creditors.
The notes are the exclusive obligations of ITC/\DeltaCom. The notes indenture
does not limit our ability, or the ability of our subsidiaries, to incur senior
indebtedness, other debt and other liabilities. We may have difficulty paying
our obligations under the notes if we or our subsidiaries incur additional debt
or liabilities. As of June 30, 1999, ITC/\DeltaCom had approximately $417.5
million of indebtedness outstanding on a consolidated basis, excluding the
notes. Substantially all of this indebtedness would be considered senior
indebtedness under the indenture.
Our Senior Note indentures permit us and our subsidiaries to incur an
unlimited amount of debt to finance the acquisition of equipment, inventory and
network assets and to secure such debt. Our Senior Note indentures permit us
and our subsidiaries to incur additional debt--up to $100 million under the 11%
Senior Note indenture, and up to $150 million under the 8 7/8% Senior Note
indenture and the 9 3/4% Senior Note indenture, which may be increased to $250
million under conditions specified in the Senior Note indentures. Under our
credit facility, we have available borrowings of $50.0 million, subject to
compliance with the credit agreement. Our credit facility is secured by
substantially all of the assets of our subsidiaries.
We expect that from time to time we will incur additional debt, including
senior indebtedness, and that we and our subsidiaries may, from time to time,
incur other additional indebtedness and liabilities. See "Description of the
Notes--Subordination of Notes."
We may be unable to pay the redemption price for the notes.
Upon a "fundamental change," as that term is defined in the notes indenture,
each holder of notes will have the right to require ITC/\DeltaCom to redeem all
or a portion of such holder's notes. If a fundamental change were to occur, we
cannot assure you that ITC/\DeltaCom would have sufficient funds to pay the
redemption price for all notes tendered by the holders thereof. Under the
current terms of our credit facility, we would be prohibited from redeeming the
notes in the event of a fundamental change. In addition, the Senior Notes and
other indebtedness that we may incur from time to time may prohibit us from
redeeming the notes. If a fundamental change occurs at a time when we are
prohibited from purchasing or redeeming notes, we could seek the consent of our
lenders to the purchase of notes or could attempt to refinance the borrowings
that contain such prohibition. If we do not obtain such a consent to repay such
borrowings, we would remain prohibited from purchasing or redeeming notes. In
such case, our failure to redeem tendered notes would constitute an event of
default under the notes indenture, which might constitute a default under the
terms of other indebtedness that we may enter into from time to time. In such
circumstances, the subordination provisions in the notes indenture would likely
restrict payments to the holders of the notes. The term "fundamental change" is
limited to certain specified transactions and may not include other events that
might adversely affect our financial condition, nor would the requirement that
we offer to repurchase the notes upon occurrence of a fundamental change
necessarily afford holders of the notes protection in the event we undertake a
transaction, reorganization, merger or similar transaction in which we incur
substantial additional debt. See "Description of the Notes--Redemption at Your
Option."
There is no public market for the notes.
The initial purchasers of the notes, though they have advised us that they
intend to make a market in the notes, are not obligated to do so and may
discontinue market-making at any time without notice. Their
15
<PAGE>
market-making activity will be subject to the limits imposed by the securities
laws. We cannot guarantee that the market for the notes will be maintained. The
trading price of the notes may decline if there ceases to be an active trading
market for them. We do not intend to apply for listing of the notes on any
securities exchange. Accordingly, we cannot assure as to the development or
liquidity of any trading market for the notes.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the information incorporated by reference in it include
"forward-looking statements" within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. We intend the forward-
looking statements to be covered by the safe harbor provisions for forward-
looking statements in these sections. All statements regarding our expected
financial position and operating results, our business strategy and our
financing plans are forward-looking statements. These statements can sometimes
be identified by our use of forward-looking words such as "may," "will,"
"anticipate," "estimate," "expect," or "intend." We cannot promise you that our
expectations in such forward-looking statements will turn out to be correct.
Our actual results could be materially different from and worse than our
expectations. Important factors that could cause our actual results to be
materially different from our expectations include those discussed in this
prospectus under the caption "Risk Factors" beginning on page 1. We undertake
no obligation to update or publicly revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
16
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy materials that we have filed
with the SEC, including the registration statement, at the following SEC
public reference rooms:
450 Fifth Street,N.W. 7 World Trade Center 500 West Madison
Room 1024 Suite 1300 Street
Washington, D.C. New York, New York Suite 1400
20549 10048 Chicago, Illinois
60661
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms.
Our common stock is quoted on The Nasdaq National Market under the symbol
"ITCD," and our SEC filings can also be read at the following Nasdaq address:
Nasdaq Operations
1735 K Street, N.W.
Washington, D.C. 20006
Our SEC filings are also available to the public on the SEC's Web Site at
http://www.sec.gov.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, including any filings after the date of initial filing
and prior to the effectiveness of the registration statement of which this
prospectus is a part, until we have sold all of the securities to which this
prospectus relates or the offering is otherwise terminated.
. Our Annual Report on Form 10-K for our fiscal year ended December 31,
1998, filed with the SEC on March 25, 1999, as amended by our Form 10-
K/A, filed with the SEC on April 30, 1999.
. Our Quarterly Reports on Form 10-Q for our quarterly periods ended
March 31, 1999, filed with the SEC on May 17, 1999, and June 30, 1999,
filed with the SEC on August 13, 1999.
. Our Current Reports on Form 8-K, filed with the SEC on April 30, 1999
and May 6, 1999.
. The Description of our common stock included in a registration
statement on Form 8-A, filed with the SEC on October 22, 1997,
including any amendments or reports filed for the purpose of updating
that description.
You may request a copy of these filings, at no cost, by writing to us at
the following address or telephoning us at (706) 385-8000 between the hours of
9:00 a.m. and 4:00 p.m., West Point, Georgia local time:
ITC/\DeltaCom, Inc.
Attention: Investor Relations
1791 O.G. Skinner Drive
West Point, Georgia 31833
17
<PAGE>
ABOUT ITC/\DELTACOM
We are a full service provider of integrated voice and data
telecommunications services on a retail basis to mid-sized and major regional
businesses in the southern United States. We are also a leading regional
provider of wholesale long-haul services to other telecommunications companies.
In connection with these businesses, we own, operate and manage an extensive
fiber optic network in the southern United States.
Our Retail Services Segment
We are a full service provider of integrated retail telecommunications
services to mid-sized and major regional businesses in a bundled package
tailored to the business customer's specific needs. These Retail Services
include:
. local exchange telephone services;
. long distance services;
. calling card and operator services;
. Asynchronous Transfer Mode, or ATM, frame relay, high capacity broadband
private line services;
. Internet, Intranet, web page hosting and development services;
. primary rate interface connectivity and collocation services to Internet
service providers;
. customer premise equipment sales, installation and repair; and
. enhanced services, including conference calling, fax broadcasting and
pre-paid calling cards.
In connection with offering local exchange services, we have entered into
interconnection agreements with the following incumbent local exchange
carriers:
. BellSouth Telecommunications, Inc., for all of its markets;
. GTE Corporation, for its Alabama market;
. Sprint Corporation, for its Florida markets; and
. SBC Communications, for its Arkansas markets.
The interconnection agreements allow us to resell the local exchange
services of the incumbent carrier and to interconnect our network with their
networks. This allows us to offer local exchange services to our current
customer base and to enter new markets with minimal capital expenditures. We
intend to complete interconnection agreements with GTE, SBC and Sprint for
certain other markets that we serve or intend to serve.
Our Carriers' Carrier Services Segment
We also provide wholesale long-haul services, which we call our "Carriers'
Carrier Services," to other telecommunications carriers. This means we sell
capacity on our network to, and switch and transport telecommunications traffic
for, such carriers. Our Carriers' Carrier customers include, among others, AT&T
Corp., MCI WorldCom, Inc., Qwest Communications International, Inc., Sprint
Corporation, Cable & Wireless Communications, Inc., Allnet Communications
Services, Inc. d/b/a Frontier Communications Services and IXC Communications,
Inc.
Our Principal Executive Offices, Telephone Number And Internet Address
Our headquarters are located at 1791 O.G. Skinner Drive, West Point, Georgia
31833, our telephone number at this address is (706) 385-8000 and our Internet
site is located at http://www.itcdeltacom.com. Information contained on our Web
site is not, and should not be deemed to be, a part of this prospectus.
18
<PAGE>
ERISA MATTERS
ITC/\DeltaCom and its subsidiaries may each be considered a "party in
interest," within the meaning of the Employee Retirement Income Security Act,
or a "disqualified person," within the meaning of Section 4975 of the Internal
Revenue Code, with respect to many employee benefit plans that are subject to
ERISA. The purchase of offered securities by an ERISA plan, including an
individual retirement plan, that is subject to the fiduciary responsibility
provisions of ERISA or the prohibited transaction provisions of the Internal
Revenue Code and with respect to which ITC/\DeltaCom or any of its affiliates is
a service provider, or otherwise is a party in interest or a disqualified
person, may constitute or result in a prohibited transaction under ERISA or the
Internal Revenue Code, unless such offered securities are acquired pursuant to
and in accordance with an applicable federal statutory exemption, or
administrative exemption issued on a class-wide basis by the United States
Department of Labor. Any pension or other employee benefit plan proposing to
acquire any offered securities should consult with its counsel.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth ITC/\DeltaCom's ratio of earnings to fixed
charges on a historical basis for the periods indicated. The ratio of earnings
to fixed charges is computed by dividing income from continuing operations
before income taxes and fixed charges by total fixed charges. Earnings consist
of income before income tax expense (benefit), preacquisition earnings (loss)
and extraordinary loss, plus fixed charges. Fixed charges represent interest
expense (including capitalized interest), the amortization of debt issuance
costs, and the portion of rental expense under operating leases representing
interest (estimated to be one-third of such expense).
<TABLE>
<CAPTION>
Six Months
Fiscal Year Ended
-------------------------------- June 30,
1994 1995 1996 1997 1998 1999
---- ---- ------ ------- ------- ----------
(in thousands, except ratio data)
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed
charges......................... 2.65 -- -- -- -- --
Deficiency of earnings to fixed
charges......................... N/A $807 $5,143 $13,664 $32,360 $25,854(a)
</TABLE>
- --------
(a) For the six months ended June 30, 1999, as adjusted to reflect our May 1999
issuance of the notes as if it had occurred on January 1, 1999, earnings
would have been insufficient to cover fixed charges by $27.5 million.
USE OF PROCEEDS
The selling holders will receive all of the net proceeds from the sale of
their notes and the common stock into which the notes are convertible.
Accordingly, ITC/\DeltaCom will not receive any proceeds from the sale by the
selling holders of the notes and the common stock into which the notes are
convertible.
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<PAGE>
DESCRIPTION OF THE NOTES
We issued the notes under an indenture dated as of May 12, 1999 between
ITC/\DeltaCom, Inc. and U.S. Trust Company of Texas, N.A., as trustee. The notes
are covered by a registration rights agreement dated as of May 12, 1999 between
ITC/\DeltaCom, Inc. and the placement agents listed in that agreement. You may
request a copy of the indenture and the registration rights agreement from the
trustee.
We have summarized portions of the indenture and the registration rights
agreement below. We urge you to read the indenture and the registration rights
agreement because they define your rights as a holder of the notes. In this
section, "ITC/\DeltaCom," "our," "we" and "us" each refers only to
ITC/\DeltaCom, Inc. and not to any of its subsidiaries.
General
We issued $100,000,000 aggregate principal amount of notes. The notes are
unsecured general obligations of ITC/\DeltaCom subordinate in right of payment
to certain other obligations of ITC/\DeltaCom and convertible into common stock
as described below. The notes are issued only in denominations of $1,000 and
multiples of $1,000 and will mature on May 15, 2006, unless earlier converted
or redeemed by ITC/\DeltaCom or redeemed at the option of the holder upon a
"Fundamental Change," as defined below.
The indenture does not contain any financial covenants or restrict us from
paying dividends, incurring indebtedness, including "Senior Indebtedness" as
defined below under "--Subordination of Notes," or issuing or repurchasing our
other securities. The indenture also does not contain covenants or other
provisions to protect holders of the notes in the event of a highly leveraged
transaction or a change in control, except to the extent described under "--
Redemption at Option of the Holder."
The notes bear interest at the annual rate of 4 1/2% from May 12, 1999 or
from the most recent date to which interest has been paid. We will pay interest
in arrears on May 15 and November 15 of each year, commencing on November 15,
1999, to holders of record at the close of business on the preceding May 1 and
November 1, except:
. that the interest payable upon redemption, unless the date of redemption
is an interest payment date, will be payable to the person to whom
principal is payable; and
. as set forth in the next succeeding sentence.
In the case of any note, or portion of any note, which is converted into
common stock of ITC/\DeltaCom during the period from, but excluding, a record
date for any interest payment date to, but excluding, the interest payment
date, then either:
. if the note, or portion of the note, has been called for redemption on a
redemption date which occurs during that period, or is to be redeemed in
connection with a Fundamental Change on a Repurchase Date, as defined
below, which occurs during such period, ITC/\DeltaCom shall not be
required to pay interest on such interest payment date in respect of
any, or any portion of, that note; or
. if otherwise, any note, or portion of any note, submitted for conversion
during that period is accompanied by funds equal to the interest payable
on such interest payment date on the principal amount so converted.
See "--Conversion of Notes." Interest may, at our option, be paid either:
. by check mailed to the address of the person entitled to receive it as
it appears in the note register, provided that a holder of notes with an
aggregate principal amount in excess of $10.0 million shall, at the
written election of the holder, be paid by wire transfer in immediately
available funds, or
. by transfer to an account maintained by such person located in the
United States; provided, however, that payment to DTC will be made by
wire transfer of immediately available funds to the account of DTC or
its nominee. DTC means The Depository Trust Company, New York, New York.
20
<PAGE>
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
Form, Denomination and Registration
We issued the notes in fully registered form, without coupons, in
denominations of $1,000 principal amount and multiples of $1,000.
Global Note, Book-Entry Form. Notes that were sold to "qualified
institutional buyers," as defined in Rule 144A under the Securities Act
("QIBs"), were represented by global notes, which were deposited with, or on
behalf of, DTC and registered in the name of Cede & Co. as DTC's nominee.
Except as described below, the global note may be transferred, in whole or in
part, only to another nominee of DTC or to a successor of DTC or its nominee.
You may hold your interests in the global note directly through DTC if you
are a participant in DTC, or indirectly through organizations which are
participants in DTC (the "Participants"). Transfers between Participants will
be effected in the ordinary way according to DTC rules and will be settled in
same day funds. The laws of some states require that specified persons take
physical delivery of securities in definitive form. Consequently, the ability
to transfer beneficial interests in the global note to those persons may be
limited.
If you are not a Participant, you may beneficially own interests in the
global note held by DTC only through Participants, or selected banks, brokers,
dealers, trust companies and other parties that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
("Indirect Participants"). So long as Cede & Co., as the nominee of DTC, is the
registered owner of the global note, Cede & Co. for all purposes will be
considered the sole holder of the global note. Except as provided below, owners
of beneficial interests in the global note will not be entitled to have
certificates registered in their names, will not receive physical delivery of
certificates in definitive registered form, and will not be considered the
holders of the global note.
We will pay interest on and the redemption price of the global note to Cede
& Co. by wire transfer of immediately available funds on each interest payment
date or the redemption or repurchase date, as the case may be. Neither
ITC/\DeltaCom, the trustee nor any paying agent will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the global note or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
We have been informed by DTC that, with respect to any payment of interest
on, or the redemption price of, the global note, DTC's practice is to credit
Participants' accounts on the payment date with payments in amounts
proportionate to their respective beneficial interests in the principal amount
represented by the global note as shown on the records of DTC, unless DTC has
reason to believe that it will not receive payment on such payment date.
Payments by Participants to owners of beneficial interests in the principal
amount represented by the global note held through such Participants will be
the responsibility of such Participants, as is now the case with securities
held for the accounts of customers registered in "street name."
Because you cannot hold a physical certificate representing your interest in
the global note and because DTC can only act on behalf of Participants, your
ability to pledge your interest to persons or entities that do not participate
in the DTC system, or otherwise take actions in respect of your interest, may
be affected by the absence of a physical certificate representing your interest
in the global note.
Neither ITC/\DeltaCom, the trustee nor any registrar, paying agent or
conversion agent under the indenture will have any responsibility for the
performance by DTC or its Participants or Indirect Participants of their
respective obligations under the rules and procedures governing their
operations. DTC has advised ITC/\DeltaCom that it will take any action permitted
to be taken by a holder of notes, including, without limitation, the
presentation of notes for exchange as described below, only at the direction of
one or more
21
<PAGE>
Participants to whose account with DTC interests in the global note are
credited, and only in respect of the principal amount of the notes represented
by the global note as to which such Participant or Participants has or have
given such direction.
DTC has advised us that it is a limited purpose trust company organized
under the laws of the State of New York, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a "clearing agency" registered pursuant to the provisions of Section
17A of the Securities Exchange Act of 1934. DTC was created to hold securities
for its Participants and to facilitate the clearance and settlement of
securities transactions between Participants through electronic book-entry
changes to the accounts of its Participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and may include other
organizations such as the placement agents. Some of these Participants or their
representatives, together with other entities, own DTC. Indirect access to the
DTC system is available to others such as banks, brokers, dealers and trust
companies that clear through, or maintain a custodial relationship with, a
Participant, either directly or indirectly.
Although DTC has agreed to the procedures described above in order to
facilitate transfers of interests in the global note among Participants, DTC is
under no obligation to perform or continue to perform those procedures, and the
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed
within 90 days, we will cause notes to be issued in definitive registered form
in exchange for the global note.
Certificated Notes. Certificated notes may be issued in exchange for notes
represented by the global note if no successor depositary is appointed by
ITC/\DeltaCom as set forth above under "--Global Note, Book-Entry Form."
Conversion of Notes
You may convert your notes into common stock at any time after August 10,
1999, which is 90 days after May 12, 1999, the date of original issuance of the
notes, through the close of business on May 15, 2006, the final maturity date
of the notes, subject to prior redemption and our ability to make the notes
nonconvertible under certain circumstances as described under "Provisional
Redemption or Nonconversion Election by ITC/\DeltaCom." You may convert any
notes or portions thereof in denominations of $1,000 or multiples of $1,000 at
the conversion price set forth on the cover page of this prospectus, subject to
adjustment as described below. Except as described below, no payment or other
adjustment will be made on conversion of any notes for interest accrued or for
dividends on any common stock issued upon conversion. If any notes not called
for redemption are converted between a record date and the next interest
payment date, the notes must be accompanied by funds equal to the interest
payable on the next interest payment date on the principal amount so converted.
We are not required to issue fractional shares of common stock upon conversion
of notes and, instead, may pay a cash adjustment based upon the market price of
common stock on the last business day prior to the date of conversion. In the
case of notes called for redemption, conversion rights will expire at the close
of business on the business day preceding the day fixed for redemption unless
we default in the payment of the redemption price. You may convert a note which
you have elected to be redeemed upon a Fundamental Change only if you withdraw
your election to redeem according to the terms of the indenture.
The initial conversion price of $26.67 per share of common stock is subject
to adjustment upon specified events, including:
(1) the issuance of common stock as a dividend or distribution on the
common stock;
(2) specified subdivisions and combinations of the common stock;
(3) the issuance to all holders of common stock of rights or warrants to
purchase common stock entitling them to purchase or subscribe for
common stock at less than the Current Market Price (as defined);
22
<PAGE>
(4) the distribution to all holders of shares of common stock of capital
stock (other than common stock) or evidences of indebtedness of
ITC/\DeltaCom or of assets, including securities, but excluding those
rights, warrants, dividends and distributions referred to above or paid
in cash;
(5) distributions consisting of cash, excluding any quarterly cash dividend
on the common stock to the extent that the aggregate cash dividend per
share of common stock in any quarter does not exceed the greater of:
(x) the amount per share of common stock of the next preceding
quarterly cash dividend on the common stock to the extent that such
proceeding quarterly dividend did not require any adjustment of the
conversion price pursuant to this clause (5), as adjusted to
reflect subdivisions or combinations of the common stock, and
(y) 3.75% of the average of the last reported sales price of the common
stock during the ten trading days immediately prior to the date of
declaration of such dividend,
and excluding any dividend or distribution in connection with the
liquidation, dissolution or winding up of ITC/\DeltaCom. If an
adjustment is required to be made as set forth in this clause (5) as a
result of a distribution that is a quarterly dividend, such adjustment
would be based upon the amount by which such distribution exceeds the
amount of the quarterly cash dividend permitted to be excluded pursuant
to this clause (5). If an adjustment is required to be made as set
forth in this clause (5) as a result of the distribution that is not a
quarterly divided, such adjustment would be based upon the full amount
of the distribution;
(6) payment in respect of a tender offer or exchange offer by ITC/\DeltaCom
or any subsidiary of ITC/\DeltaCom for all or any portion of the common
stock to the extent that the cash and value of any other consideration
included in such payment per share of common stock exceeds the Current
Market Price per share of common stock on the trading day next
succeeding the last date on which tenders or exchanges may be made
pursuant to such tender or exchange offer; and
(7) payment in respect of a tender offer or exchange offer by a person
other than ITC/\DeltaCom or any subsidiary of ITC/\DeltaCom in which, as
of the closing date of the offer, the board of directors is not
recommending rejection of the offer. The adjustment referred to in this
clause (7) will only be made if the tender offer or exchange offer is
for an amount that increases the offeror's ownership of common stock to
more than 25% of the total shares of common stock outstanding, and if
the cash and value of any other consideration included in such payment
per share of common stock exceeds the Current Market Price per share of
common stock on the business day next succeeding the last date on which
tenders or exchanges may be made pursuant to such tender or exchange
offer. The adjustment referred to in this clause (7) will generally not
be made, however, if, as of the closing of the offer, the offering
documents with respect to such offer disclose a plan or an intention to
cause ITC/\DeltaCom to consolidate or merge or sell all or substantially
all of our assets.
In the case of:
. any reclassification of the common stock or
. a consolidation, merger or combination involving ITC/\DeltaCom or a sale
or conveyance to another person of all or substantially all of the
property or assets of ITC/\DeltaCom, in each case, as a result of which
holders of common stock shall be entitled to receive stock, other
securities, other property or assets, including cash, with respect to or
in exchange for the common stock,
the holders of the notes then outstanding will generally be entitled after the
reclassification, consolidation, merger, combination, sale or conveyance to
convert the notes into the kind and amount of shares of stock, other securities
or other property or assets, including cash, which they would have owned or
been entitled to receive upon the reclassification, consolidation, merger,
combination, sale or conveyance had the notes been converted into common stock
immediately prior to the reclassification, consolidation, merger, combination,
sale or conveyance assuming that a holder of notes would not have exercised any
rights of election as to the stock, other securities or other property or
assets, including cash, receivable in connection with such transaction.
23
<PAGE>
If we make a taxable distribution to holders of common stock or in some
other circumstances requiring an adjustment to the conversion price, the
holders of notes may, in specified circumstances, be deemed to have received a
distribution subject to United States income tax as a dividend; in other
circumstances, the absence of such an adjustment may result in a taxable
dividend to the holders of common stock. See "Important United States Federal
Income Tax Consequences" below for more information concerning some possible
tax consequences of investing in the notes.
We may from time to time and to the extent permitted by law, reduce the
conversion price by any amount for any period of at least 20 days, in which
case we shall give at least 15 days' notice of such reduction, if the board of
directors of ITC/\DeltaCom has made a determination that the reduction would be
in our best interests, which determination shall be conclusive. We may, at our
option, make reductions in the conversion price, in addition to those described
above, as the board of directors deems advisable to avoid or diminish any
income tax to holders of common stock resulting from any dividend or
distribution of stock, or rights to acquire stock, or from any event treated as
such for income tax purposes. For more information concerning some possible tax
implications of investing in the notes, see "Important United States Federal
Income Tax Consequences."
No adjustment in the conversion price will be required unless it would
require a change of at least 1% in the conversion price then in effect;
provided that any adjustment that would otherwise be required to be made shall
be carried forward and taken into account in any subsequent adjustment. Except
as stated above, the conversion price will not be adjusted for the issuance of
common stock or any securities convertible into or exchangeable for common
stock or carrying the right to purchase any of the foregoing.
Provisional Redemption or Nonconversion Election by ITC/\ DeltaCom
ITC/\DeltaCom may redeem the notes, in whole or in part, at any time prior to
May 17, 2002, at a redemption price equal to $1,000 per note to be redeemed
plus accrued and unpaid interest, if any, to the date of redemption (the
"Provisional Redemption Date"), or ITC/\DeltaCom may make the notes
nonconvertible (the "Nonconversion Election") after 30 days' notice at any time
before May 17, 2002, if:
1. the closing price of the common stock shall have exceeded 150% of the
conversion price then in effect for at least 20 trading days in any
consecutive 30-trading day period ending on the trading day prior to the
date of mailing of the notice of provisional redemption or Nonconversion
Election (the "Notice Date," which such date shall be no more than 60
nor less than 30 days prior to the Provisional Redemption Date or the
date the Nonconversion Election will take effect) and
2. the shelf registration statement covering resales of the notes and the
common stock issuable upon conversion of the notes is effective and
available for use and is expected to remain effective and available for
use for the 30 days following the Notice Date.
Upon any Provisional Redemption or Nonconversion Election, ITC/\DeltaCom will
make an additional payment in cash (the "Make-Whole Payment") with respect to
the notes called for redemption (or all notes in the case of a Nonconversion
Election) to holders on the Notice Date in an amount equal to $212.60 per
$1,000 note, less the amount of any interest actually paid on such note prior
to the Notice Date. ITC/\DeltaCom will be obligated to make the Make-Whole
Payment on all notes called for Provisional Redemption (or all notes in the
case of a Nonconversion Election), including any notes converted after the
Notice Date and prior to the Provisional Redemption Date or the date the
Nonconversion Election takes effect.
Optional Redemption by ITC/\DeltaCom
The notes are not entitled to any sinking fund. At any time on or after May
17, 2002, ITC/\DeltaCom may redeem the notes on at least 30 days' notice as a
whole or, from time to time, in part at the following prices,
24
<PAGE>
expressed as a percentage of the principal amount, together with accrued
interest to, but excluding, the date fixed for redemption:
1. if redeemed during the period beginning May 17, 2002 and ending May 14,
2003 at a redemption price of 102.571%; and
2. if redeemed during the 12-month period beginning May 15:
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
2003........................................................... 101.929%
2004........................................................... 101.286
2005........................................................... 100.643
</TABLE>
and 100% at May 15, 2006; provided that if the redemption date is after an
interest payment record date and on or before an interest payment date, then
the interest payable on the redemption date shall be payable to the holder of
record of the notes on the relevant record date.
If less than all of the outstanding notes are to be redeemed, the trustee
shall select the notes to be redeemed in principal amounts of $1,000 or
multiples of $1,000 by lot, or by another method the trustee considers fair and
appropriate. If a portion of a holder's notes is selected for partial
redemption and such holder converts a portion of such notes, such converted
portion shall be deemed to be of the portion selected for redemption.
We may not give notice of any redemption of notes if a default in payment of
interest on the notes has occurred and is continuing.
Redemption at Your Option
If a Fundamental Change (as defined below) occurs at any time prior to
maturity of the notes, each holder of notes shall have the right, at the
holder's option, to require ITC/\DeltaCom to redeem any or all of that holder's
notes on the date (the "Repurchase Date") that is 30 days after the date of our
notice of such Fundamental Change. The notes will be redeemable in multiples of
$1,000 principal amount.
We shall redeem the notes at a price equal to 100% of the principal amount
to be redeemed plus accrued interest to, but excluding, the Repurchase Date;
provided that, if the Repurchase Date is after an interest record date and on
or before an interest payment date, then the interest payable on the Repurchase
Date shall be paid to the holder of record of the notes on the relevant record
date.
We will mail to all holders of record of the notes a notice of the
occurrence of a Fundamental Change and of the redemption right arising as a
result of the Fundamental Change on or before the 30th day after the occurrence
of the Fundamental Change. We are also required to deliver to the trustee a
copy of such notice. To exercise the redemption right, a holder of notes must
deliver, on or before the 30th day after the date of our notice of a
Fundamental Change (the "Fundamental Change Expiration Time"), written notice
of the holder's exercise of such right, together with the notes to be redeemed,
duly endorsed for transfer, to us or an agent designated by us for such
purpose. Payment for notes surrendered for redemption, and not withdrawn, prior
to the Fundamental Change Expiration Time will be made promptly following the
Repurchase Date.
The term "Fundamental Change" means the occurrence of any transaction or
event in connection with which all or substantially all of the common stock
shall be exchanged for, converted into, acquired for or constitute solely the
right to receive, consideration (whether by means of an exchange offer,
liquidation, tender offer, consolidation, merger, combination,
reclassification, recapitalization or otherwise) which is not all or
substantially all common stock listed, (or, upon consummation of or immediately
following such transaction or event which will be listed), on a United States
national securities exchange or approved for quotation on the Nasdaq National
Market or any similar United States system of automated dissemination of
quotations of securities prices.
25
<PAGE>
We will comply with the provisions of Rule 13e-4 and any other tender offer
rules under the Exchange Act to the extent then applicable in connection with
the redemption rights of the holders of notes in the event of a Fundamental
Change.
The redemption rights of the holders of notes could discourage a potential
acquiror of ITC/\DeltaCom. The Fundamental Change redemption feature, however,
is not the result of management's knowledge of any specific effort to obtain
control of ITC/\DeltaCom by means of a merger, tender offer, solicitation or
otherwise, or part of a plan of management to adopt a series of anti-takeover
provisions. The term "Fundamental Change" is limited to specified transactions
and may not include other events that might adversely affect our financial
condition, nor would the requirement that we offer to repurchase the notes upon
a Fundamental Change necessarily afford the holder of the notes protection in
the event of a highly leveraged transaction, reorganization, merger or similar
transaction involving ITC/\DeltaCom.
If a Fundamental Change were to occur, we cannot assure you that
ITC/\DeltaCom will have sufficient funds to pay the redemption price for all the
notes tendered by the holders. The terms of our credit facility would, and the
terms of our Senior Notes and other senior debt may, prohibit the payment of
the redemption price. In the event a Fundamental Change occurs at a time when
we are prohibited from purchasing or redeeming the notes, we could seek the
consent of our then-existing lenders to the purchase of the notes or could
attempt to refinance the borrowings that contain such prohibition. If we do not
obtain such a consent or repay such borrowings, we would remain prohibited from
purchasing or redeeming the notes. In such case, our failure to redeem tendered
notes would constitute an Event of Default under the indenture, and may
constitute a default under the terms of other indebtedness that we may enter
into from time to time. In such circumstances, the subordination provisions in
the indenture would likely restrict payments to holders of notes.
Subordination of Notes
The Indebtedness evidenced by the notes is subordinated to the extent
provided in the indenture to the prior payment in full of all Senior
Indebtedness of ITC/\DeltaCom. The notes also would be effectively subordinated
to all indebtedness and other liabilities, including trade payables and lease
obligations, if any, of our subsidiaries.
Upon any distribution of assets of ITC/\DeltaCom upon any dissolution,
winding up, liquidation or reorganization, the holders of Senior Indebtedness
will be entitled to receive payment in full, in cash or other payment
satisfactory to the holders of Senior Indebtedness, before the holders of the
notes will be entitled to receive any payment of the principal of, or premium,
if any, and interest, including Liquidated Damages (as defined), if any, on the
notes. In the event of any acceleration of the notes because of an Event of
Default (as defined), the holders of any Senior Indebtedness then outstanding
would be entitled to payment in full in cash or other payment satisfactory to
the holders of Senior Indebtedness of all obligations in respect of such Senior
Indebtedness before the holders of the notes are entitled to receive any
payment or distribution in respect thereof. The indenture will require that we
or the trustee promptly notify holders of Designated Senior Indebtedness if
payment of the notes is accelerated because of an Event of Default.
We also may not make any payment upon or in respect of the notes, including
upon redemption at the option of the holder of any note or at our option, if:
. a default in the payment of the principal, premium, if any, interest,
rent or other payment obligations in respect of Designated Senior
Indebtedness (as defined) occurs and is continuing (a "Payment Default")
or
. any other default occurs and is continuing with respect to Designated
Senior Indebtedness that permits a holder of the Designated Senior
Indebtedness as to which such default relates to accelerate its maturity
and the trustee receives a written notice of such default (a "Payment
Blockage Notice") from us or other person permitted to give such notice
under the indenture (a "Non-Payment Default").
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<PAGE>
Payments on the notes may and shall be resumed:
a. in case of a Payment Default, upon the date on which such default is
cured or waived or ceases to exist and,
b. in case of a Non-Payment Default, the earlier of the date on which such
Non-Payment Default is cured or waived or ceases to exist or 179 days
after the date on which the applicable Payment Blockage Notice is
received by the trustee if the maturity of such Designated Senior
Indebtedness has not been accelerated and no Payment Default with
respect to any Designated Senior Indebtedness has occurred which has not
been cured or waived (in which case clause (a) shall instead be
applicable).
No new period of payment blockage may be commenced pursuant to a Payment
Blockage Notice unless and until:
. 365 days have elapsed since the initial effectiveness of the immediately
prior Payment Blockage Notice and
. all scheduled payments of principal, premium, if any, and interest
(including Liquidated Damages, if any) on the notes that have come due
have been paid in full in cash.
No Non-Payment Default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the trustee shall be, or shall be
made, the basis for a subsequent Payment Blockage Notice, unless such Non-
Payment Default is based upon facts or events arising after the date of
delivery of such Payment Blockage Notice.
Notwithstanding the foregoing, if the trustee or any holder of the notes
receives any payment or distribution of assets of ITC/\DeltaCom of any kind in
contravention of any of the subordination provisions of the indenture, whether
in cash, property or securities, including, without limitation, by way of set-
off or otherwise, in respect of the notes before all Senior Indebtedness is
paid in full, then such payment or distribution will be held by the recipient
in trust for the benefit of holders of Senior Indebtedness or their
representatives to the extent necessary to make payment in full of all Senior
Indebtedness remaining unpaid, after giving effect to any concurrent payment or
distribution, or provision therefor, to or for the benefit of the holders of
Senior Indebtedness.
By reason of the subordination provisions described above, in the event of
our bankruptcy, dissolution or reorganization, holders of Senior Indebtedness
may receive, more, ratably, and holders of the notes may receive less, ratably,
than the other creditors of ITC/\DeltaCom. Such subordination will not prevent
the occurrence of any Event of Default under the indenture.
The term "Senior Indebtedness" means the principal of, premium, if any,
interest, including all interest accruing subsequent to the commencement of any
bankruptcy or similar proceeding, whether or not a claim for post petition
interest is allowable as a claim in any such proceeding, and rent payable on or
in connection with, and all fees, costs, expenses and other amounts accrued or
due on or in connection with, Indebtedness (as defined) of ITC/\DeltaCom,
whether outstanding on the date of the indenture or thereafter created,
incurred, assumed, guaranteed or in effect guaranteed by us, including all
deferrals, renewals, extensions or refundings of, or amendments, modifications
or supplements in the foregoing, unless in the case of any particular
Indebtedness the instrument creating or evidencing the same or the assumption
or guarantee thereof expressly provides that such Indebtedness shall not be
senior in right of payment to the notes or expressly provides that such
Indebtedness is pari passu with or junior to the notes. Notwithstanding the
foregoing, the term Senior Indebtedness shall not include any Indebtedness of
ITC/\DeltaCom to any of its subsidiaries, a majority of the voting stock of
which is owned, directly or indirectly, by ITC/\DeltaCom.
The term "Indebtedness" means, with respect to any Person (as defined) and
without duplication:
(a) all indebtedness, obligations and other liabilities, contingent or
otherwise, of such Person for borrowed money, including obligations in
respect of overdrafts, foreign exchange contracts, currency
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exchange agreements, interest rate protection agreements, and any loans
or advances from banks, whether or not evidenced by notes or similar
instruments, and all commitment, standby and other fees due and payable
to financial institutions with respect to credit facilities available
to such Person, or evidenced by bonds, debentures, notes or similar
instruments, whether or not the recourse of the lender is to the whole
of the assets of such Person or to only a portion thereof, and all
obligations of such Person issued or assumed as the deferred purchase
price of property or services, other than any account payable or other
accrued current liability or obligation incurred in the ordinary course
of business in connection with the obtaining of materials or services;
(b) all reimbursement obligations and other liabilities, contingent or
otherwise, of such Person with respect to letters of credit, bank
guarantees or bankers' acceptances;
(c) all obligations and liabilities, contingent or otherwise, in respect
of leases of real or personal property or other assets of such Person
required, in conformity with generally accepted accounting principles,
to be accounted for as capitalized lease obligations on the balance
sheet of such Person and all obligations and other liabilities,
contingent or otherwise, under any lease or related document,
including a purchase agreement, in connection with the lease of real
property which provides that such Person is contractually obligated to
purchase or cause a third party to purchase the leased property and
thereby guarantee a minimum residual value of the leased property to
the lessor and the obligations of such Person under such lease or
related documents to purchase or to cause a third party to purchase
such leased property;
(d) all obligations of such Person, contingent or otherwise, with respect
to an interest rate or other swap, cap or collar agreement or other
similar instrument or agreement or foreign currency hedge, exchange,
purchase or similar instrument or agreement;
(e) all direct or indirect guaranties or similar agreements by such Person
in respect of, and obligations or liabilities, contingent or
otherwise, of such Person to purchase or otherwise acquire or
otherwise assure a creditor against loss in respect of, indebtedness,
obligations or liabilities of another Person of the kind described in
clauses (a) through (d);
(f) any indebtedness or other obligations described in clauses (a) through
(e) secured by any mortgage, pledge, lien or other encumbrance
existing on property which is owned or held by such Person, regardless
of whether the indebtedness or other obligation secured thereby shall
have been assumed by such Person; and
(g) any and all deferrals, renewals, extensions and refundings of, or
amendments, modifications or supplements to, any indebtedness,
obligation or liability of the kind described in clauses (a) through
(f).
The term "Designated Senior Indebtedness" means the credit facility, the
11% Senior Notes, the 9 3/4% Senior Notes, the 8 7/8% Senior Notes and any
Senior Indebtedness in which the instrument creating or evidencing the same or
the assumption or guarantee thereof (or related agreements or documents in
which ITC/\DeltaCom is a party) expressly provides that such Senior
Indebtedness shall be "Designated Senior Indebtedness" for purposes of the
indenture; provided that such instrument, agreement or other document may
place limitations and conditions on the right of such Senior Indebtedness to
exercise the rights of Designated Senior Indebtedness.
As of June 30, 1999, excluding the notes, we had approximately $414.9
million of indebtedness outstanding on an unconsolidated basis which would
have constituted Senior Indebtedness, and our subsidiaries had approximately
$58.9 million of liabilities, including $2.6 million of indebtedness, all of
which would have been effectively senior to the notes. The indenture will not
limit the amount of additional indebtedness, including Senior Indebtedness,
which we can create, incur, assume or guarantee, nor will the indenture limit
the amount of indebtedness or other liabilities that any subsidiary can
create, incur, assume or guarantee.
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We are obligated to pay reasonable compensation to the trustee and to
indemnify the trustee against certain losses, liabilities or expenses incurred
by it in connection with its duties relating to the notes. The trustee's claims
for such payment will generally be senior to those of the holders of the notes
in respect of all funds collected or held by the trustee.
Events of Default; Notice and Waiver
An Event of Default is defined in the indenture as being:
. default in payment of the principal of or premium, if any (upon
redemption or otherwise), on the notes, whether or not such payment is
permitted to be made under the subordination provisions described above;
. default for 30 days in payment of any installment of interest, including
Liquidated Damages, if any, on the notes, whether or not such payment is
permitted to be made under the subordination provisions described above;
. default by ITC/\DeltaCom for 60 days after notice in the observance or
performance of any other covenants in the notes or the indenture; or
. certain events involving bankruptcy, insolvency or reorganization of
ITC/\DeltaCom or any of its Significant Subsidiaries.
The indenture provides that the trustee may withhold notice to the holders
of the notes of any default, except of principal or premium, if any, or
interest (including Liquidated Damages, if any) with respect to the notes, if
the trustee considers it in the interest of the holders of the notes to do so.
The indenture provides that if an Event of Default shall have occurred and
be continuing, the trustee or the holders of not less than 25% in principal
amount of the notes then outstanding may declare the principal of, premium, if
any, and accrued interest (including Liquidated Damages, if any) on the notes
to be due and payable immediately. In the case of certain events of bankruptcy
or insolvency of ITC/\DeltaCom, the principal of, premium, if any, and accrued
interest (including Liquidated Damages, if any) on the notes shall
automatically become and be immediately due and payable. However, if
ITC/\DeltaCom shall cure all defaults, except the nonpayment of principal of,
premium, if any, and interest (including Liquidated Damages, if any) on any of
the notes which shall have become due by acceleration, and certain other
conditions are met, with certain exceptions, such declaration may be canceled
and past defaults may be waived by the holders of a majority of the principal
amount of the notes then outstanding.
The indenture provides that any payment of principal, premium, if any, or
interest (including Liquidated Damages, if any) that is not made when due,
whether or not such payment is permitted to be made under the subordination
provisions described above, will accrue interest, to the extent legally
permissible, at the annual rate set forth on the cover page hereof from the
date on which such payment was required under the terms of the indenture until
the date of payment.
The holders of a majority in principal amount of the notes then outstanding
shall have the right to direct in writing the time, method and place of
conducting any proceedings for any remedy available to the trustee, subject to
certain limitations specified in the indenture.
The indenture provides that no holder of the notes may pursue any remedy
under the indenture, except for a default in the payment of principal, premium,
if any, or interest (including Liquidated Damages, if any) on the notes, unless
such holder shall have previously given to the trustee written notice of a
continuing Event of Default, and the holders of at least 25% in principal
amount of the outstanding notes shall have made a written request, and offered
reasonable indemnity, to the trustee to pursue the remedy, and the trustee
shall not have received from the holders of a majority in principal amount of
the outstanding notes a direction inconsistent with such request and shall have
failed to comply with such request within 60 days after receipt of such
request.
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Modification of the Indenture
The indenture contains provisions permitting ITC/\DeltaCom and the trustee,
with the consent of the holders of a majority in principal amount of the notes
at the time outstanding, to modify the indenture or any supplemental indenture
or the rights of the holders of the notes, except that no such modification
shall:
. extend the fixed maturity of any note;
. reduce the rate or extend the time for payment of interest on the notes;
. reduce the principal amount of the notes or premium, if any, of the
notes;
. reduce any amount payable upon redemption thereof;
. change the obligation of ITC/\DeltaCom to redeem any note upon the
happening of any Fundamental Change in a manner adverse to the holders
of the notes;
. impair the right of a holder to institute suit for the payment thereof;
. change the currency in which the notes are payable;
. impair the right to convert the notes into common stock subject to the
terms set forth in the indenture; or
. modify the provisions of the indenture with respect to the subordination
of the notes in a manner adverse to the holders of the notes in any
material respect;
without the consent of each holder of a note so affected; or reduce the
percentage of notes whose holders are required to consent to any such
modification of the indenture or any such supplemental indenture, without the
consent of the holders of all of the notes then outstanding. The indenture also
provides for certain modifications of its terms without the consent of the
holders of the notes.
Registration Rights of the Noteholders
Under a registration rights agreement with the placement agents, we are
required at our expense, for the benefit of the holders, to keep the shelf
registration statement of which this prospectus is a part effective until the
earlier of:
1. the sale pursuant to the shelf registration statement of all the
securities registered thereunder; or
2. the expiration of the holding period applicable to such securities
held by persons that are not affiliates of ITC/\DeltaCom under Rule
144(k) under the Securities Act, or any successor provision, subject
to permitted exceptions.
We will be permitted to suspend the use of the prospectus that is a part of
the shelf registration statement under circumstances relating to pending
corporate developments, public filings with the SEC and similar events for a
period not to exceed 60 days in any three-month period or not to exceed an
aggregate of 90 days in any 12-month period. We must pay predetermined
liquidated damages ("Liquidated Damages"):
1. in respect of the notes, at a rate per annum equal to .5% of the
principal amount of the notes and
2. in respect of any shares of common stock issued upon conversion of
the notes, at a rate per annum equal to .5% of the then applicable
conversion price,
to holders of restricted notes and holders of restricted common stock issued
upon conversion of the notes if the prospectus is unavailable for periods in
excess of those permitted above.
A holder who sells notes or common stock issued upon conversion of the notes
pursuant to the shelf registration statement generally will be required to be
named as a selling stockholder in the related prospectus, deliver a prospectus
to purchasers and be bound by certain provisions of the registration rights
agreement that are applicable to such holder, including certain indemnification
provisions. We will pay all expenses of the shelf registration statement,
provide to each registered holder copies of the prospectus and take certain
other
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actions as are required to permit, subject to the foregoing, unrestricted
resale of the notes and the common stock issued upon conversion of the notes.
You may request a copy of the registration rights agreement from
ITC/\DeltaCom, the placement agents or the trustee.
Information Concerning the Trustee
We have appointed U.S. Trust Company of Texas, N.A., as trustee under the
indenture and paying agent, conversion agent, registrar and custodian with
regard to the notes. United States Trust Company of New York, an affiliate of
the trustee, acts as trustee for the other outstanding notes issued by
ITC/\DeltaCom, including our 11% Senior Notes, 8 7/8% Senior Notes and 9 3/4%
Senior Notes.
Rating of the Notes
Standard & Poor's Ratings Services has assigned a rating of CCC+ to the
notes and Moody's Investors Service has assigned a rating of B3 to the notes.
The market price of the notes and the common stock could be materially
adversely affected if rating agencies assign the notes a rating lower than that
expected by investors.
Notices
Notices concerning any optional redemption, Provisional Redemption,
Nonconversion Election or Fundamental Change shall be given by publication in a
leading daily newspaper of general circulation in New York City and in London
and by mail sent to each holder. Publication of notices is expected to be made
in The Wall Street Journal (Eastern Edition) and the Financial Times.
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DESCRIPTION OF CAPITAL STOCK
The following description sets forth the general terms of ITC/\DeltaCom's
capital stock. This description does not purport to be complete and is subject
to and qualified in its entirety by reference to our certificate of
incorporation and our bylaws and the applicable provisions of the Delaware
General Corporation Law. For information on how to obtain copies of
ITC/\DeltaCom's certificate of incorporation and bylaws, see "Where You Can
Find More Information."
Authorized and Outstanding Capital Stock
Our certificate of incorporation provides that we have authority to issue
90,000,000 shares of our common stock, par value $.01 per share. At September
15, 1999, there were 59,390,426 shares of our common stock issued and
outstanding.
Our certificate of incorporation authorizes our board of directors from time
to time and without further stockholder action to provide for the issuance of
up to 5,000,000 shares of preferred stock in one or more series, of which
1,750,000 shares have been designated as Series A Convertible Preferred Stock,
and to fix the relative rights and preferences of the shares, including voting
powers, dividend rights, liquidation preferences, redemption rights and
conversion privileges. As of the date of this prospectus, our board of
directors has not provided for the issuance of any series of preferred stock
other than the Series A Preferred Stock, and there are no agreements or
understandings for the issuance of any other series of preferred stock. See "--
Series A Preferred Stock." At September 15, 1999, there were 1,480,771 shares
of our Series A Preferred Stock issued and outstanding.
Because of its broad discretion with respect to the creation and issuance of
preferred stock without stockholder approval, our board of directors could
adversely affect the voting power of the holders of our common stock and, by
issuing shares of preferred stock with certain voting, conversion and/or
redemption rights, could discourage any attempt to obtain control of
ITC/\DeltaCom.
Common Stock
Voting Rights. Each holder of shares of our common stock is entitled to
attend all special and annual meetings of our stockholders. In addition, each
holder is entitled, together with the holders of all other classes of stock
entitled to attend the special and annual meetings of our stockholders, to cast
one vote for each outstanding share of common stock held upon any matter or
thing, including, without limitation, the election of one or more directors,
properly considered and acted upon by the stockholders.
Liquidation Rights. The holders of our common stock and the holders of any
class or series of stock entitled to participate with the holders of our common
stock as to the distribution of assets in the event of any dissolution,
liquidation, or winding up of ITC/\DeltaCom, whether voluntary or involuntary,
will become entitled to participate in the distribution of any assets of
ITC/\DeltaCom remaining after ITC/\DeltaCom has paid, or provided for the
payment of, all of its debts and liabilities and after ITC/\DeltaCom has paid,
or set aside for payment, to the holders of any class of stock having
preference over the common stock in the event of dissolution, liquidation or
winding up, the full preferential amounts, if any, to which they are entitled.
Dividends. Dividends may be paid on the common stock and on any class or
series of stock entitled to participate with the common stock as to dividends
on an equal per-share basis, but only when and as declared by our board of
directors. ITC/\DeltaCom has never paid cash dividends, and the terms of the
Senior Note indentures and our revolving credit facility restrict the payment
of dividends in the future.
No holder of our common stock has any preemptive right to subscribe for any
of our securities, nor does any holder of our common stock have conversion
rights. The rights, privileges, preferences and priorities of holders of our
common stock are subject to, and may be adversely affected by, the rights of
the holders of our Series A Preferred Stock and shares of any series of
preferred stock which we may designate and issue in the future. See "--Series A
Preferred Stock."
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Some Important Charter and Statutory Provisions
Our certificate of incorporation provides for the division of our board of
directors into three classes of directors, each serving staggered, three-year
terms. The certificate further provides that any alteration, amendment or
repeal of certain sections of the certificate relating to the election and
classification of the board of directors, indemnification and the vote
requirements for such amendments to the certificate requires the approval of
the holders of at least two-thirds of the shares entitled to vote thereon.
These provisions may have the effect of deterring hostile takeovers or delaying
changes in control or management of ITC/\DeltaCom.
ITC/\DeltaCom is subject to the provisions of Section 203 of the Delaware
General Corporation Law. In general, the statute prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless:
. prior to that date, the board of directors approved either the business
combination or the transaction that resulted in the stockholder becoming
an interested stockholder;
. upon consummation of the transaction that resulted in that person
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding, for purposes of determining the
number of shares outstanding, shares owned by certain directors or
certain employee stock plans; or
. on or after the date the stockholder became an interested stockholder,
the business combination is approved by the board of directors and
authorized by the affirmative vote, and not by the written consent, of
at least two-thirds of the outstanding voting stock, excluding the stock
owned by the interested stockholder.
A "business combination" includes a merger, asset sale, or other transaction
resulting in a financial benefit to the interested stockholder. An "interested
stockholder" is a person who, other than the corporation and any direct or
indirect majority-owned subsidiary of the corporation, together with affiliates
and associates, owns or, as an affiliate or associate, within three years
prior, did own, 15% or more of the corporation's outstanding voting stock.
The certificate of incorporation empowers our board of directors to redeem
any of ITC/\DeltaCom's outstanding capital stock, at a price determined by the
board, which price shall be at least equal to the lesser of:
. the fair market value as determined in accordance with the certificate
of incorporation; or
. in the case of a "Disqualified Holder," the lesser of fair market value
or such holder's purchase price (if the stock was purchased within one
year of such redemption) to the extent necessary to prevent the loss or
secure the reinstatement of any license, operating authority or
franchise from any governmental agency.
A "Disqualified Holder" is any holder of shares of stock of ITC/\DeltaCom
whose holding of that stock may result in the loss of, or the failure to secure
the reinstatement of, any license or franchise from any governmental agency
held by ITC/\DeltaCom or any of its subsidiaries to conduct any portion of the
business of ITC/\DeltaCom or any of its subsidiaries. Under the
Telecommunications Act of 1996, non-U.S. citizens or their representatives,
foreign governments or their representatives, or corporations organized under
the laws of a foreign country may not own, in the aggregate, more than 20% of a
common carrier licensee or more than 25% of the parent of a common carrier
licensee if the FCC determines that the public interest would be served by
prohibiting such ownership. To implement the United States' World Trade
Organization ("WTO") market access commitments, the FCC adopted an "open entry"
policy that presumptively favors entry for carriers from WTO Member nations,
although the Commission reserves the right to condition or deny licenses to
protect competition. Similarly, the FCC may also condition an investment by a
foreign telecommunications carrier of greater than 25 percent in a U.S.
international carrier.
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Transfer Agent and Registrar
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company.
Listing
Our common stock is quoted on the Nasdaq National Market under the symbol
"ITCD."
Series A Preferred Stock
Conversion rights. Holders of Series A Preferred Stock have the right, at
any time after March 14, 2002, to convert each share of Series A Preferred
Stock into one share of our common stock, subject to adjustment for stock
splits, stock dividends, recapitalizations and other specified events.
Liquidation rights. In the event of any dissolution, liquidation or winding
up of ITC/\DeltaCom, whether voluntary or involuntary, holders of Series A
Preferred Stock will be entitled to receive a distribution of $7.40 per share,
plus any dividends declared and unpaid, prior to any payment or distribution
of assets to holders of our common stock. Holders of our common stock will
then be entitled to any equivalent distribution of $7.40 per share, plus any
dividends declared and unpaid, prior to any payment or distribution of assets
to holders of our common stock. Holders of Series A Preferred Stock and our
common stock will be entitled to share ratably in the distribution of any
remaining assets of ITC/\DeltaCom, with holders of Series A Preferred Stock
entitled to receive an amount equal to the distribution made in respect of the
number of shares of common stock into which the Series A Preferred Stock is
then convertible.
Dividend rights. The holders of Series A Preferred Stock are entitled to
receive, when, as and if declared by our board of directors out of funds
legally available therefor, dividends in an amount per share of Series A
Preferred Stock equal to the dividends payable on the number of shares of
common stock into which one share of Series A Preferred Stock is then
convertible. So long as any shares of Series A Preferred Stock are
outstanding, no dividends may be declared or paid on the common stock or on
any class or series of capital stock ranking on a parity with the Series A
Preferred Stock as to dividends, unless dividends are also paid on the Series
A Preferred Stock in an amount per share equal to the dividends payable on the
number of shares of ITC/\DeltaCom common stock into which one share of Series A
Preferred Stock is convertible.
No redemption rights. The Series A Preferred Stock is not subject to
mandatory or optional redemption.
Voting rights. Except as set forth in the following sentence, holders of
Series A Preferred have no voting rights. The affirmative vote of holders of
at least two-thirds of the shares of Series A Preferred Stock outstanding is
necessary for:
. the authorization or issuance of any class of stock ranking prior to the
Series A Preferred Stock as to dividends or the distribution of assets
upon dissolution, liquidation or winding up of ITC/\DeltaCom;
. an increase in the authorized or issued amount of Series A Preferred
Stock; or
. the amendment, alteration or repeal, whether by merger, consolidation or
otherwise, of any provision of the certificate of incorporation that
would affect any right, preference or voting power of the Series A
Preferred Stock.
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IMPORTANT UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material United States federal income tax
consequences relating to the purchase, ownership, and disposition of the notes
and of common stock into which notes may be converted. For purposes of this
summary, the Internal Revenue Service is referred to as the "IRS."
This summary:
. does not purport to be a complete analysis of all the potential tax
consequences that may be material to an investor based on his or her
particular tax situation;
. is based on (1) the provisions of the Internal Revenue Code of 1986, as
amended, which is referred to in this summary as the "Code," (2) the
applicable Treasury Regulations promulgated or proposed under the Code,
which are referred to in this summary as the "Treasury Regulations," and
(3) judicial authority and current administrative rulings and practice,
all of which are subject to change, possibly on a retroactive basis;
. deals only with the beneficial owner, or "holder," of a note that will
hold notes and common stock into which notes may be converted as
"capital assets" (within the meaning of Section 1221 of the Code);
. does not address tax consequences applicable to holders that may be
subject to special tax rules, such as banks, tax-exempt organizations,
pension funds, insurance companies, dealers in securities or foreign
currencies, persons that will hold notes as a position in a hedging
transaction, "straddle" or "conversion transaction" for tax purposes, or
persons that have a "functional currency" other than the U.S. dollar;
and
. does not address the tax consequences to persons other than U.S.
holders.
ITC/\DeltaCom has not sought any ruling from the IRS with respect to the
statements made and the conclusions reached in the following summary, and we
cannot assure you that the IRS will agree with those statements and
conclusions. In addition, the IRS is not precluded from successfully adopting a
contrary position. This summary does not consider the effect of any applicable
foreign, state, local or other tax laws.
Investors considering the purchase of notes should consult their own tax
advisors with respect to the application of the United States federal income
and estate tax laws to their particular situations as well as any tax
consequences arising under the laws of any state, local or foreign taxing
jurisdiction or under any applicable tax treaty.
As used herein, the term "U.S. holder" means a beneficial owner of a note or
of common stock that is, for United States federal income tax purposes,
. a citizen or resident, as defined in Section 7701(b) of the Code, of the
United States,
. a corporation, partnership or other entity created or organized under
the laws of the United States or political subdivision thereof,
. an estate the income of which is subject to federal income taxation
regardless of its source, or
. in general, a trust subject to the primary supervision of a United
States court and the control of one or more United States persons.
Payment of Interest
Interest on a note generally will be includable in the income of a holder as
ordinary income at the time the interest is received or accrued according to
the holder's method of accounting for United States federal income tax
purposes. ITC/\DeltaCom is obligated to pay Liquidated Damages to holders of the
notes in circumstances described under "Description of the Notes--Registration
Rights of the Noteholders." According to Treasury Regulations, the possibility
of an additional payment on the notes will not affect the amount of interest
income
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recognized by a holder (or the timing of such recognition) if the likelihood of
the additional payment, as of the date the debt obligations are issued, is
remote. ITC/\DeltaCom believes that the likelihood of the payment of Liquidated
Damages is remote and does not intend to treat this possibility as affecting
the yield to maturity of any note. Notwithstanding the above, if Liquidated
Damages are paid, the payments will be treated as interest income when
received. Although not free from doubt, ITC/\DeltaCom intends to take the
position that the likelihood of payment of the Make-Whole Payment is remote
under the Treasury Regulations, and likewise does not intend to treat the
possibility of such payment as affecting the yield to maturity of any note.
Notwithstanding the above, if a Make-Whole Payment is made in connection with a
Nonconversion Election, the payment should be treated as income to the holder.
Similarly, ITC/\DeltaCom intends to take the position that the likelihood of a
redemption or a repurchase upon a "Fundamental Change" is remote under the
Treasury Regulations, and likewise does not intend to treat the possibility of
such a redemption or repurchase as affecting the yield to maturity of any note.
Treasury Regulations relating to original issue discount provide special
rules for the treatment of "contingent payment debt instruments" (the
"contingent debt regulations"). In general, the holder of a contingent payment
debt instrument, including a holder using the cash method of accounting, must
accrue interest on the debt instrument as original issue discount over its term
based upon a projected payment schedule (subject to subsequent adjustments)
determined by the issuer and any gain or (subject to certain limitations) loss
recognized by the holder on the sale of the debt instrument will be ordinary
rather than capital. Since a contingency that is remote will not cause a debt
instrument to be considered a contingent payment debt instrument, ITC/\DeltaCom
intends to take the position that the contingent debt regulations do not apply
to the notes.
Market Discount
If a holder purchases a note at a price that is lower than the principal
amount of the note, the holder may be affected by the "market discount"
provisions of the Code. The market discount on any note will generally equal:
. the principal amount of the note; minus
. the price at which the holder purchased the note.
Subject to a de minimis exception, the market discount provisions generally
require the holder to treat as ordinary income any gain recognized on a
subsequent disposition or redemption of the note to the extent of the "accrued
market discount" at the time of the subsequent disposition. If any note with
accrued market discount is converted into common stock, the amount of such
accrued market discount generally will be taxable as ordinary income upon
disposition of the common stock. Market discount on the note will be treated as
accruing on a straight line basis over the term of such note, unless the holder
elects to accrue market discount using a constant interest method. In addition,
if a holder of a note with market discount incurs or maintains indebtedness to
purchase or carry the note, any interest deduction attributable to such
indebtedness may be disallowed until the note matures or is disposed of in a
taxable transaction.
A holder may elect to include market discount in income for United States
federal income tax purposes as it accrues, using either a ratable or constant
interest method. If a holder makes this election, the rule described above
requiring the deferral of deductions for interest expense will not apply. If
made, the election will apply to all market discount obligations that the
holder acquires on or after the first day of the first taxable year to which
the election applies, and the election may not be revoked without the consent
of the IRS.
Amortizable Premium
If a holder purchases a note at a premium over its stated principal amount,
plus accrued interest, the holder generally may elect to amortize such premium
("amortizable bond premium") from the purchase date to the
36
<PAGE>
note's maturity date under a constant yield method. Amortizable bond premium,
however, will not include any premium attributable to a note's conversion
feature. The premium attributable to the conversion feature equals:
. the purchase price of the note; minus
. what the note's fair market value would be if there were no conversion
feature.
Also, because the notes may be redeemed at the option of ITC/\DeltaCom at a
price in excess of their principal amount, a holder may be required to amortize
any bond premium based on the earlier call date and the call price payable at
that time. Amortizable bond premium is treated as an offset to interest income
on the note and not as a separate deduction, and the holder's tax basis in the
note will be reduced by the allowable bond premium amortization.
An election by a holder to amortize bond premium will apply to all debt
obligations owned by the holder on the first day of the first taxable year to
which the election relates and to all debt obligations acquired by the holder
after that day. The election may not be revoked without the consent of the IRS.
Sale, Exchange or Redemption of the Notes
Except as described below under "Conversion of the Notes," upon the sale,
exchange or redemption of a note, a holder generally will recognize capital
gain or loss equal to the difference between:
. the amount of cash proceeds and the fair market value of any property
received on the sale, exchange or redemption, except to the extent the
amount is attributable to accrued interest not previously included in
income which is taxable as ordinary income, and
. the holder's adjusted tax basis in the note.
A holder's adjusted tax basis in a note generally will equal the cost of the
note to the holder, less any principal payments on the note previously received
by the holder. The capital gain or loss will be long-term if the holder's
holding period is more than one year and will be short-term if the holding
period is equal to or less than one year. In the case of certain noncorporate
taxpayers, including individuals, long-term capital gains are taxed at a
maximum rate of 20% and short-term capital gains are taxed at a maximum rate of
39.6%. Corporate taxpayers are subject to a maximum regular tax rate of 35% on
all capital gains and ordinary income.
Constructive Dividends on Notes
Under certain circumstances, adjustments to the conversion ratio of the
notes pursuant to the antidilution provision or otherwise may result in taxable
dividends to holders of notes under Section 305 of the Code.
For example, if at any time:
. ITC/\DeltaCom makes a distribution of cash or property to its
stockholders or purchases common stock and such distribution or purchase
would be taxable to such stockholders as a dividend for United States
federal income tax purposes (e.g., distributions of evidences of
indebtedness or assets of ITC/\DeltaCom, but generally not stock
dividends or rights to subscribe for common stock) and, pursuant to the
anti-dilution provisions, the conversion rate of the notes is increased,
or
. the conversion rate of the notes is increased at the discretion of
ITC/\DeltaCom,
such increase in conversion rate may be deemed to be the payment of a taxable
dividend, to the extent of ITC/\DeltaCom's current or accumulated earnings and
profits, to holders of notes, pursuant to Section 305 of the Code. Such holders
of notes could therefore have taxable income as a result of an event pursuant
to which they received no cash or property. While ITC/\DeltaCom believes it
presently does not have any current or accumulated earnings and profits, the
actual amount of earnings and profits at any time will depend upon the actions
and financial performance of ITC/\DeltaCom.
37
<PAGE>
Conversion of the Notes
A holder generally will not recognize any income, gain or loss upon
conversion of a note into common stock, except to the extent the common stock
is considered attributable to accrued interest not previously included in
income, which is taxable as ordinary income, or with respect to cash received
in lieu of a fractional share of common stock. The holder's tax basis in the
common stock received on conversion of a note will be the same as the holder's
adjusted tax basis in the note at the time of conversion, reduced by any basis
allocable to a fractional share interest, and the holding period for the common
stock received on conversion will generally include the holding period of the
note converted. However, a holder's tax basis in shares of common stock
considered attributable to accrued interest as described above generally will
equal the amount of such accrued interest included in income, and the holding
period for such shares will begin as of the date of conversion of the notes.
Cash received in lieu of a fractional share of common stock upon conversion
will be treated as a payment in exchange for the fractional share of common
stock. Accordingly, the receipt of cash in lieu of a fractional share of common
stock generally will result in capital gain or loss, measured by the difference
between the cash received for the fractional share and the holder's adjusted
tax basis in the fractional share.
If upon conversion following a Provisional Redemption or Nonconversion
Election a holder receives additional consideration in the form of a Make-Whole
Payment, such additional consideration may be taxable to such holder as
additional gain or as ordinary income, or if ITC/\DeltaCom has no current or
accumulated earnings and profits, perhaps as a return of capital.
Dividends on Common Stock
Generally, distributions will be treated as a dividend, subject to tax as
ordinary income, so long as and to the extent that ITC/\DeltaCom has current or
accumulated earnings and profits, then as a tax-free return of capital to the
extent of the holder's tax basis in the common stock and thereafter as gain
from the sale or exchange of such stock. The portion of any distribution
treated as a non-taxable return of capital will reduce the holder's tax basis
on the common stock.
In general, a distribution on common stock that qualifies as a dividend
because ITC/\DeltaCom has earnings and profits to a corporate holder may qualify
for the 70% dividends received deduction if the holder owns less than 20% of
the voting power and value of ITC/\DeltaCom's stock, other than any non-voting,
non-convertible, non-participating preferred stock and certain other
requirements are satisfied. A corporate holder that owns 20% or more of the
voting power and value of ITC/\DeltaCom's stock, other than any non-voting, non-
convertible, non-participating preferred stock, generally may qualify for an
80% dividends received deduction.
Sale of Common Stock
Upon the sale or exchange of common stock, a holder generally will recognize
capital gain or loss equal to the difference between:
. the amount of cash and the fair market value of any property received
upon the sale or exchange and
. such United States holder's adjusted tax basis in the common stock.
Such capital gain or loss will be long-term if the holder's holding period
is more than one year and will be short-term if the holding period is equal to
or less than one year. In the case of certain noncorporate taxpayers, including
individuals, long-term capital gains are taxed at a maximum rate of 20% and
short-term capital gains are taxed at a maximum rate of 39.6%. A holder's basis
and holding period in common stock received upon conversion of a note are
determined as discussed above under "Conversion of the Notes." Corporate
taxpayers are subject to a maximum regular tax rate of 35% on all capital gains
and ordinary income. The deductibility of capital losses is subject to certain
limitations.
38
<PAGE>
Information Reporting and Backup Withholding Tax
In general, information reporting requirements will apply to payments of
principal, premium, if any, and interest on a note, payments of dividends on
common stock, payments of the proceeds of the sale of a note and payments of
the proceeds of the sale of common stock to certain holders, unless an
exception applies. Further, the payer will be required to withhold backup
withholding tax at the rate of 31% if:
(a) the payee fails to furnish a taxpayer identification number, or
"TIN," to the payer or establish an exemption from backup
withholding,
(b) the IRS notifies the payer that the TIN furnished by the payee is
incorrect,
(c) there has been a notified payee under-reporting with respect to
interest, dividends or original issue discount described in Section
3406(c) of the Code or
(d) there has been a failure of the payee to certify under the penalty
of perjury that the payee is not subject to backup withholding
under the Code.
Some holders, including corporations, will be exempt from such backup
withholding. Any amounts withheld under the backup withholding rules from a
payment to a holder will be allowed as a credit against the holder's United
States federal income tax and may entitle the holder to a refund, provided that
the required information is furnished to the IRS.
Treasury regulations that are generally effective with respect to payments
made after December 31, 2000 modify the currently effective information
reporting and backup withholding procedures and requirements, and provide
presumptions regarding the status of holders when payments to the holders
cannot be reliably associated with appropriate documentation provided to the
payer. With respect to payments made after December 31, 2000, these "Final
Withholding Regulations" will require holders to provide certifications, if
applicable, that conform to the requirements of the Final Withholding
Regulations. Because the application of the Final Withholding Regulations will
vary depending on the holder's particular circumstances, holders are urged to
consult their tax advisors regarding the application of the Final Withholding
Regulations.
39
<PAGE>
SELLING HOLDERS
The notes were originally issued by ITC/\DeltaCom and sold by the initial
purchasers in a transaction exempt from the registration requirements of the
Securities Act. Selling holders, which term includes their transferees,
pledgees or donees or their successors, may from time to time offer and sell
pursuant to this prospectus any or all of the notes and common stock into which
the notes are convertible.
The following table sets forth the name of each selling holder, any material
relationship of such holder with ITC/\DeltaCom and the following information as
of September 30, 1999:
. the amount of notes owned by each selling holder;
. the maximum amount of notes which may be offered for the account of such
selling holder under this prospectus;
. the amount of common stock owned by each selling holder; and
. the maximum amount of common stock which may be offered for the account
of such selling holder under this prospectus.
This information with respect to each selling holder is based upon
information provided by or on behalf of such selling holder. The selling
holders may offer all, some or none of the notes or common stock into which the
notes are convertible. Because the selling holders may offer all or some
portion of the notes or the common stock, we cannot estimate the amount of
notes or common stock that will be held by the selling holders upon termination
of sales pursuant to this prospectus. In addition, the selling holders
identified below may have sold, transferred or otherwise disposed of all or a
portion of their notes since the date on which they provided the information
regarding their notes in transactions exempt from the registration requirements
of the Securities Act.
<TABLE>
<CAPTION>
Principal Principal
Amount of Notes Amount of Common
Beneficially Notes Stock Owned Common
Owned Prior Offered Prior to the Stock Offered
Name to the Offering Hereby Offering(1) Hereby(2)
---- --------------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
Bear Stearns & Co........ $1,375,000 $1,375,000 51,556 51,556
White River Securities
LLC..................... $1,375,000 $1,375,000 51,556 51,556
JMG Convertible
Investments, L.P........ $1,250,000 $1,250,000 46,869 46,869
Triton Capital
Investments, Ltd........ $5,250,000 $5,250,000 196,850 196,850
Greyhound Lines.......... $ 100,000 $ 100,000 3,749 3,749
LDG Limited.............. $ 150,000 $ 150,000 5,624 5,624
TQA Leverage Fund,
L.P. ................... $ 500,000 $ 500,000 18,747 18,747
TQA Vantage Fund, Ltd. .. $1,000,000 $1,000,000 37,495 37,495
TQA Vantage Plus Fund,
Ltd. ................... $ 350,000 $ 350,000 13,123 13,123
BankAmerica Pension
Plan.................... $1,000,000 $1,000,000 37,495 37,495
Duckbill & Co............ $1,500,000 $1,500,000 56,242 56,242
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Employee Benefit
Convertible Securities
Fund.................... $ 225,000 $ 225,000 8,436 8,436
Nations Capital Income
Fund.................... $3,550,000 $3,550,000 133,108 133,108
Pacific Innovations Trust
Capital Income Fund..... $ 225,000 $ 225,000 8,436 8,436
Forest Global Convertible
Fund Series A-5......... $6,850,000 $6,850,000 256,842 256,842
Sylvan IMA Ltd. c/o
Forest Investment
Management LLC.......... $ 750,000 $ 750,000 28,121 28,121
Forest Performance Fund.. $ 135,000 $ 135,000 5,061 5,061
Forest Alternative
Strategies Fund II LP
Series A 5 M............ $ 100,000 $ 100,000 3,749 3,749
Forest Alternative
Strategies Fund II LP
Series A 5 I............ $ 260,000 $ 260,000 9,748 9,748
Forest Fulcrum Fund LP... $3,720,000 $3,720,000 139,482 139,482
Morgan Stanley Dean
Witter(3)............... $7,250,000 $7,250,000 271,841 271,841
Bankers Trust, Trustee
for Chrysler Corp. Emp
#1 Pension Plan dated
4/1/89.................. $2,820,000 $2,820,000 105,736 105,736
Chase Manhattan N.A.,
Trustee for IBM
Retirement Plan dated
12/18/45................ $3,845,000 $3,845,000 144,169 144,169
State Street Bank,
Custodian for GE Pension
Trust................... $1,494,000 $1,494,000 56,017 56,017
Franklin & Marshall
College................. $ 217,000 $ 217,000 8,136 8,136
Penn Treaty Network
America Insurance
Company................. $ 189,000 $ 189,000 7,086 7,086
Value Line Convertible
Fund, Inc............... $ 500,000 $ 500,000 18,747 18,747
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
Principal Principal
Amount of Notes Amount of Common
Beneficially Notes Stock Owned Common
Owned Prior Offered Prior to the Stock Offered
Name to the Offering Hereby Offering(1) Hereby(2)
---- --------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Alexandra Global
Investment Fund I
Ltd. .................. $ 3,000,000 $ 3,000,000 112,485 112,485
Partner Reinsurance
Company, Ltd........... $ 350,000 $ 350,000 13,123 13,123
LLT Limited............. $ 180,000 $ 180,000 6,749 6,749
Conseco Senior Health
Insurance Company--
Convertible............ $ 625,000 $ 625,000 23,434 23,434
Conseco Health Insurance
Company--Convertible... $ 625,000 $ 625,000 23,434 23,434
Conseco Funds Group--
Convertible............ $ 1,000,000 $ 1,000,000 37,495 37,495
RS Midcap Opportunities
Fund................... $ 1,000,000 $ 1,000,000 37,495 37,495
BNP Arbitrage SNC....... $ 3,000,000 $ 3,000,000 112,485 112,485
Highbridge International
LLC.................... $ 6,255,000 $ 6,255,000 234,533 234,533
AFTRA Health Fund....... $ 250,000 $ 250,000 9,373 9,373
Mainstay Convertible
Fund................... $ 3,000,000 $ 3,000,000 112,485 112,485
Coditec International
Ltd. E (VBL)........... $ 50,000 $ 50,000 1,874 1,874
Faria Fund Ltd.......... $ 50,000 $ 50,000 1,874 1,874
Federated Utility Fund,
Inc.................... $ 7,700,000 $ 7,700,000 288,713 288,713
Federated Insurance
Series, on behalf of
its Federated Utility
Fund II................ $ 850,000 $ 850,000 31,871 31,871
SunAmerica Series Trust,
on behalf of its
Federated Utility
Portfolio.............. $ 470,000 $ 470,000 17,622 17,622
California Public
Employees Retirement
System................. $ 2,000,000 $ 2,000,000 74,990 74,990
New York Life Insurance
& Annuity Corporation.. $ 1,750,000 $ 1,750,000 65,616 65,616
New York Life Insurance
Company................ $ 5,250,000 $ 5,250,000 196,850 196,850
First Mercury Insurance
Company--Total Return.. $ 20,000 $ 20,000 749 749
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Century National
Insurance Company...... $ 300,000 $ 300,000 11,248 11,248
Nalco Chemical Company.. $ 250,000 $ 250,000 9,373 9,373
State of Oregon Equity.. $ 5,325,000 $ 5,325,000 199,662 199,662
Delaware PERS........... $ 1,400,000 $ 1,400,000 52,493 52,493
ICI American Holdings
Trust.................. $ 600,000 $ 600,000 22,497 22,497
Zeneca Holdings Trust... $ 600,000 $ 600,000 22,497 22,497
Pacific Life Insurance
Company................ $ 1,000,000 $ 1,000,000 37,495 37,495
Pitney Bowes Retirement
Fund................... $ 2,000,000 $ 2,000,000 74,990 74,990
Sage Capital............ $ 1,300,000 $ 1,300,000 48,743 48,743
------------ ------------ --------- ---------
Subtotal............... $ 96,180,000 $ 96,180,000 3,606,299 3,606,299
Any other holder of
notes or future
transferee from any
such holder(4)......... $ 3,820,000 $ 3,820,000 143,232(5) 143,232(5)
------------ ------------ --------- ---------
Total.................. $100,000,000 $100,000,000 3,749,531 3,749,531
============ ============ ========= =========
</TABLE>
- --------
(1) Comprises the shares of common stock owned by each selling holder prior to
the offering, including the shares of common stock into which the notes
held by the selling holder are convertible at the initial conversion rate
of $26.67 per share, excluding fractional shares. Fractional shares will
not be issued upon conversion of the notes; rather, cash will be paid in
lieu of fractional shares, if any. The conversion price and the number of
shares of common stock issuable upon conversion of the notes are subject to
adjustment under specified circumstances, which are described in more
detail under "Description of Notes--Conversion of Notes." Accordingly, the
number of shares of common stock issuable upon conversion of the notes may
increase or decrease from time to time.
(2) Assumes conversion into common stock of the full amount of notes held by
the selling holder at the initial conversion rate of $26.67 per share and
the offering of those shares by the selling holder pursuant to this
prospectus. The conversion price and the number of shares of common stock
issuable upon conversion of the notes are subject to adjustment under
specified circumstances which are described in more detail under
"Description of Notes--Conversion of Notes." Accordingly, the number of
shares of common stock issuable upon conversion of the notes may increase
or decrease from time to time. Fractional shares will not be issued upon
conversion of the notes; rather, cash will be paid in lieu of fractional
shares, if any. The selling holders may offer and sell pursuant to the
prospectus, their notes, the shares of common stock into which the notes
are convertible, or both.
(3) Morgan Stanley & Co. Incorporated acted as a placement agent in connection
with the offer and sale of the notes in May 1999 and as lead underwriter in
the May 1999 public offering and sale of 5.25 million shares of
ITC/\DeltaCom's common stock. In addition, Morgan Stanley & Co. Incorporated
acted as a placement agent in connection with the offer and sale of our 11%
Senior Notes in November 1997, our 8 7/8% Senior Notes in March 1998 and
our 9 3/4% Senior Notes in November 1998.
41
<PAGE>
(4) Information concerning other selling holders of notes will be set forth in
prospectus supplements from time to time, as required. No holder may offer
notes pursuant to this prospectus until such holder is included as a
selling holder in a supplement to this prospectus in accordance with the
registration rights agreement.
(5) Assumes that any other holders of notes or any future transferee from any
such holder does not beneficially own any common stock other than common
stock into which the notes are convertible at the conversion price of
$26.67 per share.
Other than as noted above, none of the selling holders has had any material
relationship with us or our affiliates within the past three years. The selling
holders purchased all of the notes from us in a private transaction on May 12,
1999. All of the notes were "restricted securities" under the Securities Act
prior to this registration.
We agreed with the selling holders to file the registration statement to
register the resale of the notes and shares of common stock into which the
notes are convertible. We agreed to prepare and file all necessary amendments
and supplements to the registration statement to keep it effective until the
earlier of:
. May 12, 2001 and
. the date on which the notes and the common stock into which the notes
are convertible no longer qualify as "registrable securities" under the
registration rights agreement.
Information concerning the selling holders may change from time to time and
any such changed information will be set forth in supplements to this
prospectus if and when necessary. In addition, the per share conversion price,
and therefore the number of shares of common stock issuable upon conversion of
the notes, is subject to adjustment under certain circumstances. Accordingly,
the aggregate principal amount of notes and the number of shares of common
stock into which the notes are convertible may increase or decrease.
ITC/\DeltaCom will pay the expenses of registering the notes and common stock
being offered by this prospectus.
42
<PAGE>
PLAN OF DISTRIBUTION
The selling holders and their successors, which term includes their
transferees, pledgees or donees or their successors, may sell the notes and the
common stock into which the notes are convertible directly to purchasers or
through underwriters, broker-dealers or agents, who may receive compensation in
the form of discounts, concessions or commissions from the selling holders or
the purchasers, which discounts, concessions or commissions as to any
particular underwriter, broker-dealer or agent may be in excess of those
customary in the types of transactions involved. We will not receive any of the
proceeds from this offering.
The notes and the common stock into which the notes are convertible may be
sold in one or more transactions at fixed prices, at prevailing market prices
at the time of sale, at prices related to such prevailing market prices, at
varying prices determined at the time of sale, or at negotiated prices. Such
sales may be effected in transactions, which may involve crosses or block
transactions:
. on any national securities exchange or quotation service on which the
notes or the common stock may be listed or quoted at the time of sale,
. in the over-the-counter market,
. in transactions otherwise than on such exchanges or services or in the
over-the-counter market,
. through the writing of options, whether such options are listed on an
options exchange or otherwise, or
. through the settlement of short sales.
In connection with the sale of the notes and the common stock into which the
notes are convertible or otherwise, the selling holders may enter into hedging
transactions with broker-dealers or other financial institutions which may in
turn engage in short sales of the notes or the common stock into with the notes
are convertible and deliver these securities to close out such short positions,
or loan or pledge the notes or the common stock into which the notes are
convertible to broker-dealers that in turn may sell these securities.
Our outstanding common stock is listed for trading on the Nasdaq National
Market. We do not intend to list the notes for trading on any national
securities exchange or on the Nasdaq National Market and can give no assurance
about the development of any trading market for the notes.
In order to comply with the securities laws of some states, if applicable,
the notes and common stock into which the notes are convertible may be sold in
such jurisdictions only through registered or licensed brokers or dealers. In
addition, in some states the notes and common stock into which the notes are
convertible may not be sold unless they have been registered or qualified for
sale or an exemption from registration or qualification requirements is
available and is complied with.
The selling holders and any underwriters, broker-dealers or agents that
participate in the sale of the notes and common stock into which the notes are
convertible may be "underwriters" within the meaning of Section 2(11) of the
Securities Act. Any discounts, commissions, concessions or profit they earn on
any resale of the shares may be underwriting discounts and commissions under
the Securities Act. Selling holders who are "underwriters" within the meaning
of Section 2(11) of the Securities Act will be subject to the prospectus
delivery requirements of the Securities Act. The selling holders have
acknowledged that they understand their obligations to comply with the
provisions of the Exchange Act and the rules thereunder relating to stock
manipulation, particularly Regulation M, and have agreed that they will not
engage in any transaction in violation of such provisions.
In addition, any securities covered by this prospectus which qualify for
sale pursuant to Rule 144 or Rule 144A of the Securities Act may be sold under
Rule 144 or Rule 144A rather than pursuant to this prospectus. A selling holder
may not sell any notes or common stock described herein and may not transfer,
devise or gift such securities by other means not described in this prospectus.
43
<PAGE>
To the extent required, the specific notes or common stock to be sold, the
names of the selling holders, the respective purchase prices and public
offering prices, the names of any agent, dealer or underwriter, and any
applicable commissions or discounts with respect to a particular offer will be
set forth in an accompanying prospectus supplement or, if appropriate, a post-
effective amendment to the registration statement of which this prospectus is a
part.
We entered into a registration rights agreement for the benefit of holders
of the notes to register their notes and common stock under applicable federal
and state securities laws under particular circumstances and at specified
times. The registration rights agreement provides for cross-indemnification of
the selling holders and ITC/\DeltaCom and their respective directors, officers
and controlling persons against certain liabilities in connection with the
offer and sale of the notes and the common stock, including liabilities under
the Securities Act. We will pay all of our expenses and substantially all of
the expenses incurred by the selling holders incident to the offering and sale
of the notes and the common stock, provided that each selling holder will be
responsible for payment of commissions, concessions and discounts of
underwriters, broker-dealers or agents.
LEGAL MATTERS
The validity of the notes and the common stock will be passed upon for
ITC/\DeltaCom by its special counsel, Hogan & Hartson L.L.P., Washington,
D.C. Hogan & Hartson L.L.P. also provides legal services to affiliated
companies of ITC/\DeltaCom and Campbell B. Lanier, III. Anthony S. Harrington, a
partner of the firm, beneficially owns approximately 124,000 shares of the
common stock.
EXPERTS
The consolidated balance sheets of ITC/\DeltaCom, Inc. and subsidiaries as of
December 31, 1998 and 1997, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1998 and the related schedule incorporated by
reference in this Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto and are incorporated by reference herein in reliance upon the authority
of said firm as experts in giving said reports.
44
<PAGE>
$100,000,000
ITC/\DeltaCom
4 1/2% Convertible Subordinated Notes Due 2006
Prospectus
Dated October 1, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses in connection with the
registration of the notes and common stock offered hereby. ITC/\DeltaCom will
bear all of these expenses, including those of the selling securityholders
(other than any underwriting discounts or commissions or any agent
commissions). All amounts are estimated except for the Securities and Exchange
Commission registration fee and Nasdaq National Market Listing fee:
<TABLE>
<S> <C>
SEC Registration Fee............................................... $ 27,800
Nasdaq National Market Listing Fee................................. 17,500
Printing and Duplicating Expenses.................................. 20,000
Legal Fees and Expenses............................................ 60,000
Accounting Fees and Expenses....................................... 7,500
Miscellaneous...................................................... 25,200
--------
Total............................................................ $158,000
========
</TABLE>
Item 15. Indemnification of Directors and Officers
Under Section 145 of the Delaware General Corporation Law ("DGCL"), a
corporation may indemnify its directors, officers, employees and agents and its
former directors, officers, employees and agents and those who serve, at the
corporation's request, in such capacities with another enterprise, against
expenses (including attorneys' fees), as well as judgments, fines and
settlements in nonderivative lawsuits, actually and reasonably incurred in
connection with the defense of any action, suit or proceeding in which they or
any of them were or are made parties or are threatened to be made parties by
reason of their serving or having served in such capacity. The DGCL provides,
however, that such person must have acted in good faith and in a manner such
person reasonably believed to be in (or not opposed to) the best interests of
the corporation and, in the case of a criminal action, such person must have
had no reasonable cause to believe his or her conduct was unlawful. In
addition, the DGCL does not permit indemnification in an action or suit by or
in the right of the corporation, where such person has been adjudged liable to
the corporation, unless, and only to the extent that, a court determines that
such person fairly and reasonably is entitled to indemnity for costs the court
deems proper in light of liability adjudication. Indemnity is mandatory to the
extent a claim, issue or matter has been successfully defended.
ITC/\DeltaCom's Restated Certificate of Incorporation contains provisions
that provide that no director of ITC/\DeltaCom shall be liable for breach of
fiduciary duty as a director except for (1) any breach of the directors' duty
of loyalty to ITC/\DeltaCom or its stockholders; (2) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
the law; (3) liability under Section 174 of the DGCL; or (4) any transaction
from which the director derived an improper personal benefit. Under the Amended
and Restated Bylaws of ITC/\DeltaCom, ITC/\DeltaCom is required to advance
expenses incurred by an officer or director in defending any such action if the
director or officer undertakes to repay such amount if it is determined that
the director or officer is not entitled to indemnification. In addition,
ITC/\DeltaCom has entered into indemnity agreements with each of its directors
pursuant to which ITC/\DeltaCom has agreed to indemnify the directors as
permitted by the DGCL. ITC/\DeltaCom has obtained directors and officers
liability insurance against certain liabilities, including liabilities under
the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, ITC/\DeltaCom has been informed
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
II-1
<PAGE>
Item 16. Exhibits
<TABLE>
<C> <S>
3.1 Restated Certificate of Incorporation of ITC/\DeltaCom, Inc. Filed as
Exhibit 3.1 to ITC/\DeltaCom's Registration Statement on Form S-4 (File
No. 333-71735) and incorporated herein by reference.
3.2 Amended and Restated Bylaws of ITC/\DeltaCom. Filed as Exhibit 3.2 to
ITC/\DeltaCom's Registration Statement on Form S-1 (File No. 36683) and
incorporated herein by reference.
4.1 Registration Rights Agreement, dated as of May 12, 1999, by and among
ITC/\DeltaCom, Inc. and Morgan Stanley & Co. Incorporated, Credit Suisse
First Boston Corporation, First Union Capital Markets Corp. and
Nationsbanc Montgomery Securities LLC. Filed as Exhibit 4.1 to
ITC/\DeltaCom's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1999 (File No. 0-23252) and incorporated herein by
reference.
4.3 Form of 4 1/2% Convertible Subordinated Note due 2006. Contained in the
Indenture filed as Exhibit 4.2 to ITC/\DeltaCom's Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 1999 (File No. 0-
23252) and incorporated herein by reference.
4.4 Form of Common Stock Certificate of the Company. Filed as Exhibit 4.1 to
ITC/\DeltaCom's Registration Statement on Form S-1 (File No. 333-36683)
and incorporated herein by reference.
+4.5 Form of Registered 4 1/2% Convertible Subordinated Note due 2006.
+5.1 Opinion of Hogan & Hartson L.L.P. regarding the legality of the notes
and the common stock into which the notes are convertible.
*12.1 Statement Regarding Computation of Ratios.
+23.1 Consent of Hogan & Hartson L.L.P. (included as part of Exhibit 5.1).
+23.2 Consent of Arthur Andersen LLP, independent public accountants.
*24.1 Power of Attorney.
*25.1 Form T-1 Statement of Eligibility of U.S. Trust Company of Texas, N.A.,
to act as trustee under the indenture.
</TABLE>
- --------
+ Filed herewith.
* Previously filed.
Item 17. Undertakings
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
II-2
<PAGE>
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in this registration
statement.
Provided, however, that subparagraphs (a)(1)(i) and (a)(1)(ii) above shall
not apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in the periodic reports filed
with or furnished to the Commission by the Registrant pursuant to Section
13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the Offered Securities
offered herein, and the offering of such Offered Securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the Securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby further undertakes that, for the
purposes of determining any liability under the Securities Act of 1933, each
filing of the Registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 that is incorporated by reference
in this registration statement shall be deemed to be a new registration
statement relating to the Offered Securities offered herein, and the offering
of such Offered Securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to existing provisions or arrangements whereby the
Registrant may indemnify a director, officer or controlling person of the
Registrant against liabilities arising under the Securities Act of 1933, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of West Point, State of Georgia, on this 1st day of
October, 1999.
ITC/\Deltacom, Inc.
/s/ Douglas A. Shumate
By: _________________________________
Douglas A. Shumate Senior Vice
President and Chief Financial
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Campbell B. Lanier, III Chairman, Director October 1, 1999
______________________________________
Campbell B. Lanier, III
/s/ Andrew M. Walker Chief Executive Officer, October 1, 1999
______________________________________ Vice Chairman and
Andrew M. Walker Director (Principal
executive officer)
/s/ Douglas A. Shumate Senior Vice President and October 1, 1999
______________________________________ Chief Financial Officer
Douglas A. Shumate (Principal financial
officer and principal
accounting officer)
/s/ Donald W. Burton* Director October 1, 1999
______________________________________
Donald W. Burton
/s/ Malcom C. Davenport* Director October 1, 1999
______________________________________
Malcom C. Davenport
/s/ Robert A. Dolson* Director October 1, 1999
______________________________________
Robert A. Dolson
/s/ O. Gene Gabbard* Director October 1, 1999
______________________________________
O. Gene Gabbard
/s/ William T. Parr* Director October 1, 1999
______________________________________
William T. Parr
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ William H. Scott, III Director October 1, 1999
______________________________________
William H. Scott, III
/s/ William B. Timmerman* Director October 1, 1999
______________________________________
William B. Timmerman*
/s/ James H. Black, Jr. Director October 1, 1999
______________________________________
James H. Black, Jr.
</TABLE>
/s/ Douglas A. Shumate
*By: _______________________
Douglas A. Shumate (Attorney-in-
Fact)
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<C> <S>
3.1 Restated Certificate of Incorporation of ITC/\DeltaCom, Inc. Filed as
Exhibit 3.1 to ITC/\DeltaCom's Registration Statement on Form S-4 (File
No. 333-71735) and incorporated herein by reference.
3.2 Amended and Restated Bylaws of ITC/\DeltaCom. Filed as Exhibit 3.2 to
ITC/\DeltaCom's Registration Statement on Form S-1 (File No. 36683) and
incorporated herein by reference.
4.1 Registration Rights Agreement, dated as of May 12, 1999, by and among
ITC/\DeltaCom, Inc. and Morgan Stanley & Co. Incorporated, Credit Suisse
First Boston Corporation, First Union Capital Markets Corp. and
Nationsbanc Montgomery Securities LLC. Filed as Exhibit 4.1 to
ITC/\DeltaCom's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1999 (File No. 0-23252) and incorporated herein by
reference.
4.2 Indenture, dated as of May 12, 1999, between ITC/\DeltaCom, Inc. and U.S.
Trust Company of Texas, N.A., as Trustee. Filed as Exhibit 4.2 to
ITC/\DeltaCom's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1999 (File No. 0-23252) and incorporated herein by
reference.
4.3 Form of 4 1/2% Convertible Subordinated Note due 2006. Contained in the
Indenture filed as Exhibit 4.2 to ITC/\DeltaCom's Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 1999 (File No. 0-
23252) and incorporated herein byreference.
4.4 Form of Common Stock Certificate of the Company. Filed as Exhibit 4.1 to
ITC/\DeltaCom's Registration Statement on Form S-1 (File No. 333-36683)
and incorporated herein by reference.
+4.5 Form of Registered 4 1/2% Convertible Subordinated Notes due 2006.
+5.1 Opinion of Hogan & Hartson L.L.P. regarding the legality of the notes
and the common stock into which the notes are convertible.
*12.1 Statement Regarding Computation of Ratios.
+23.1 Consent of Hogan & Hartson L.L.P. (included as part of Exhibit 5.1).
+23.2 Consent of Arthur Andersen LLP, independent public accountants.
*24.1 Power of Attorney.
*25.1 Form T-1 Statement of Eligibility of U.S. Trust Company of Texas, N.A.,
to act as trustee under the indenture.
</TABLE>
- --------
+ Filed herewith.
* Previously filed.
<PAGE>
EXHIBIT 4.5
FORM OF REGISTERED 4 1/2% CONVERTIBLE SUBORDINATED
NOTE DUE 2006
[FOR GLOBAL NOTE ONLY: UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW
YORK) (THE "DEPOSITARY," WHICH TERM INCLUDES ANY SUCCESSOR DEPOSITARY FOR THE
CERTIFICATES) 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 IN SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DEPOSITARY
AND ANY PAYMENT HEREIN IS MADE TO CEDE & CO. (OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY), ANY TRANSFER,
PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL INSOFAR AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.]
<PAGE>
ITC/\DELTACOM, INC.
4 1/2% CONVERTIBLE SUBORDINATED NOTE DUE 2006
NO.: CUSIP: 45031TAK0
ITC/\DeltaCom, Inc., a corporation duly organized and validly existing under
the laws of the State of Delaware (herein called the "Company", which term
includes any successor corporation under the Indenture referred to on the
reverse hereof), for value received hereby promises to pay to , or its
registered assigns, the principal sum as shall be set forth on Schedule A hereto
up to but not exceeding ($ ) on May 15, 2006, at the office or agency of the
Company maintained for that purpose in accordance with the terms of the
Indenture, or, at the option of the holder of this Note, at the Corporate Trust
Office, in such coin or currency of the United States of America as at the time
of payment shall be legal tender for the payment of public and private debts,
and to pay interest, semi-annually on May 15 and November 15 of each year,
commencing November 15, 1999, on said principal sum at said office or agency, in
like coin or currency, at the rate per annum of 4 1/2%, from May 15 or November
15, as the case may be, next preceding the date of this Note to which interest
has been paid or duly provided for, unless the date hereof is a date to which
interest has been paid or duly provided for, in which case from the date of this
Note, or unless no interest has been paid or duly provided for on the Notes, in
which case from May 12, 1999, until payment of said principal sum has been made
or duly provided for. Notwithstanding the foregoing, if the date hereof is after
any May 1 or November 1, as the case may be, and before the following May 15 or
November 15, this Note shall bear interest from such May 15 or November 15;
provided, however, that if the Company shall default in the payment of interest
due on such May 15 or November 15, then this Note shall bear interest from the
next preceding May 15 or November 15, to which interest has been paid or duly
provided for or, if no interest has been paid or duly provided for on such Note,
from May 12, 1999. The interest payable on the Note pursuant to the Indenture on
any May 15 or November 15 will be paid to the Person entitled thereto as it
appears in the Note register at the close of business on the record date, which
shall be the May 1 or November 1 (whether or not a Business Day) next preceding
such May 15 or November 15, as provided in the Indenture; provided that any such
interest not punctually paid or duly provided for shall be payable as provided
in the Indenture. Interest may, at the option of the Company, be paid either (i)
by check mailed to the registered address of such Person (provided that the
holder of Notes with an aggregate principal amount in excess of $10,000,000
shall, at the written election of such holder, be paid by wire transfer of
immediately available funds) or (ii) by transfer to an account maintained by
such Person located in the United States; provided, however, that payments to
the Depositary will be made by wire transfer of immediately available funds to
the account of the Depositary or its nominee.
Reference is made to the further provisions of this Note set forth on the
reverse hereof, including, without limitation, provisions subordinating the
payment of principal of and premium, if any, and interest on the Notes to the
prior payment in full of all Senior Indebtedness, as defined in the Indenture,
and provisions giving the holder of this Note the right to convert this Note
into Common Stock of the Company on the terms and subject to the limitations
referred to on the reverse hereof and as more fully specified in the Indenture.
Such further provisions shall for all purposes have the same effect as though
fully set forth at this place.
<PAGE>
This Note shall be deemed to be a contract made under the laws of the State
of New York, and for all purposes shall be construed in accordance with and
governed by the laws of said State.
This Note shall not be valid or become obligatory for any purpose until the
certificate of authentication hereon shall have been manually signed by the
Trustee or a duly authorized authenticating agent under the Indenture.
2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed and
delivered.
ITC/\DELTACOM, INC.
By:
------------------------------------------
Name:
Title:
Attest:
--------------------------------------
Name:
Title:
Dated:
- --------------------------------------------------------------------------------
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 4 1/2% Convertible Subordinated Notes due 2006 described in
the within-named Indenture.
U.S. TRUST COMPANY OF TEXAS, N.A., as Trustee
By:
------------------------------------------
Authorized Signatory
By:
------------------------------------------
As Authenticating Agent
(if different from Trustee)
[Reverse of Note Begins on Next Page]
3
<PAGE>
[FORM OF REVERSE OF NOTE]
ITC/\DELTACOM, INC.
4 1/2% CONVERTIBLE SUBORDINATED NOTE DUE 2006
This Note is one of a duly authorized issue of Notes of the Company,
designated as its 4 1/2% Convertible Subordinated Notes due 2006 (herein called
the "Notes"), limited to the aggregate principal amount of $100,000,000, all
issued or to be issued under and pursuant to an indenture dated as of May 12,
1999 (herein called the "Indenture"), between the Company and U.S. Trust Company
of Texas, N.A., as trustee (herein called the "Trustee"), to which Indenture and
all indentures supplemental thereto reference is hereby made for a description
of the rights, limitations of rights, obligations, duties and immunities
thereunder of the Trustee, the Company and the holders of the Notes.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of, premium, if any, and accrued
interest (including Liquidated Damages Amount (as defined in the Indenture), if
any) on all Notes may be declared, and upon said declaration shall become, due
and payable, in the manner, with the effect and subject to the conditions
provided in the Indenture.
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the holders of not less than a majority in aggregate
principal amount of the Notes at the time outstanding, evidenced as in the
Indenture provided, to execute supplemental indentures adding any provisions to
or changing in any manner or eliminating any of the provisions of the Indenture
or of any supplemental indenture or modifying in any manner the rights of the
holders of the Notes; provided, however, that no such supplemental indenture
shall (i) extend the fixed maturity of any Note, or reduce the rate or extend
the time of payment of interest thereon, or reduce the principal amount thereof
or premium, if any, thereon, or reduce any amount payable on redemption thereof,
or impair the right of any Noteholder to institute suit for the payment thereof,
or make the principal thereof or interest or premium, if any, thereon payable in
any coin or currency other than that provided in the Note, or modify the
provisions of the Indenture with respect to the subordination of the Notes in a
manner adverse to the Noteholders in any material respect, or change the
obligation of the Company to make redemption of any Note upon the happening of a
Fundamental Change (as defined in the Indenture) in a manner adverse to the
holder of the Notes, or impair the right to convert the Notes into Common Stock
subject to the terms set forth in the Indenture, including Section 15.6 thereof,
without the consent of the holder of each Note so affected or (ii) reduce the
aforesaid percentage of Notes, the holders of which are required to consent to
any such supplemental indenture, without the consent of the holders of all Notes
then outstanding. Subject to the provisions of the Indenture, the holders of a
majority in aggregate principal amount of the Notes at the time outstanding may
on behalf of the holders of all of the Notes waive any past default or Event of
Default under the Indenture and its consequences except a default in the payment
of interest (including Liquidated Damages Amount, if any) or any premium on or
the principal of any of the Notes, a default in the payment of redemption price
pursuant to Article III or a failure by the Company to convert any Notes into
Common Stock of the Company or a default in respect of a covenant or provisions
hereof which under Article XI cannot be modified without the consent of the
holders of each or all Notes then outstanding or affected thereby. Any such
consent or waiver by the holder of this Note (unless revoked as provided in the
Indenture) shall be conclusive and binding upon such holder and upon all future
holders and owners of this Note and any Notes which may be issued in exchange or
substitute hereof, irrespective of whether or not any notation thereof is made
upon this Note or such other Notes.
The indebtedness evidenced by the Notes is, to the extent and in the manner
provided in the Indenture, expressly subordinate and subject in right of payment
to the
4
<PAGE>
prior payment in full of all Senior Indebtedness of the Company, as defined in
the Indenture, whether outstanding at the date of the Indenture or thereafter
incurred, and this Note is issued subject to the provisions of the Indenture
with respect to such subordination. Each holder of this Note, by accepting the
same, agrees to and shall be bound by such provisions and authorizes the Trustee
on its behalf to take such action as may be necessary or appropriate to
effectuate the subordination so provided and appoints the Trustee his
attorney-in-fact for such purpose.
No reference herein to the Indenture and no provision of this Note or of the
Indenture shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of and any premium and interest
(including Liquidated Damages Amount, if any) on this Note at the place, at the
respective times, at the rate and in the coin or currency herein prescribed.
Interest on the Notes shall be computed on the basis of a 360-day year of
twelve 30-day months.
The Notes are issuable in fully registered form without coupons in
denominations of $1,000 and any integral multiple of $1,000. At the office or
agency of the Company referred to on the face hereof, and in the manner and
subject to the limitations provided in the Indenture, without payment of any
service charge but with payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any registration or
exchange of Notes, Notes may be exchanged for a like aggregate principal amount
of Notes of other authorized denominations.
The Company may redeem the Notes (a "Provisional Redemption"), in whole or
in part, at any time prior to May 17, 2002, upon notice as set forth in the
Indenture, at a redemption price equal to $1,000 per Note to be redeemed plus
accrued and unpaid interest, if any (including Liquidated Damages Amount, if
any), to the date of redemption (the "Provisional Redemption Date") or the
Company may terminate the convertibility of the Notes (a "Nonconversion
Election") after 30 days' notice at any time prior to May 17, 2002, in either
case, if (i) the closing price of the Common Stock shall have exceeded 150% of
the Conversion Price then in effect for at least 20 Trading Days in any
consecutive 30-Trading Day period ending on the Trading Day prior to the date of
mailing of the notice of redemption or Nonconversion Election (the "Notice
Date") and (ii) the shelf registration statement covering resales of the Notes
and the Common Stock issuable upon conversion of the Notes is effective and
available for use and is expected to remain effective and available for use for
the 30 days immediately following the Notice Date.
Upon any such Provisional Redemption or Nonconversion Election, the Company
shall make an additional payment in cash (the "Make-Whole Payment") with respect
to the Notes called for redemption (or all Notes, in the case of a Nonconversion
Election) to holders on the Notice Date in an amount equal to $212.60 per $1,000
Note, less the amount of any interest actually paid on such Note prior to the
Notice Date. The Company shall make the Make-Whole Payment on all Notes called
for Provisional Redemption (or all Notes, in the case of a Nonconversion
Election), including any Notes converted into Common Stock pursuant to the terms
hereof after the Notice Date and prior to the Provisional Redemption Date or the
Nonconversion Election Date.
At any time on or after May 17, 2002, and prior to maturity, the Notes may
be redeemed at the option of the Company, in whole or in part, upon notice as
set forth in the Indenture, at the following optional redemption prices
(expressed as percentages of the principal amount), together in each case with
accrued and unpaid interest, if any (including Liquidated Damages Amount, if
any) to, but excluding, the date fixed for redemption.
If redeemed during the period beginning May 17, 2002 and ending on May 14,
2003, at a redemption price of 102.571% and if redeemed during the 12-month
period beginning May 15:
5
<PAGE>
Year Redemption Price
2003 101.929%
2004 101.286%
2005 100.643%
and 100% at May 15, 2006; provided that if the date fixed for redemption is
after an interest payment record date and on or before May 15 or November 15,
then the interest payable on such date shall be paid to the holder of record on
the preceding May 1 or November 1, respectively.
The Company shall not give notice of any redemption if a default in the
payment of interest on the Notes has occurred and is continuing.
The Notes are not subject to redemption through the operation of any sinking
fund.
If a Fundamental Change occurs at any time prior to maturity of the Notes,
the Notes will be redeemable on the 30th day after notice thereof at the option
of the holder at a redemption price equal to 100% of the principal amount
thereof, together with accrued interest to (but excluding) the date of
redemption; provided that, if such Repurchase Date is May 15 or November 15, the
interest payable on such date shall be paid to the holder of record of the Notes
on the preceding May 1 or November 1, respectively. The Notes will be redeemable
in multiples of $1,000 principal amount. The Company shall mail to all holders
of record of the Notes a notice of the occurrence of a Fundamental Change and of
the redemption right arising as a result thereof on or before the 30th day after
the occurrence of such Fundamental Change. For a Note to be so repaid at the
option of the holder, the Company must receive at the office or agency of the
Company maintained for that purpose in accordance with the terms of the
Indenture, such Note with the form entitled "Option to Elect Repayment Upon a
Fundamental Change" on the reverse thereof duly completed, together with such
Notes duly endorsed for transfer, on or before the 30th day after the date of
such notice (or if such 30th day is not a Business Day, the immediately
preceding Business Day).
Subject to the provisions of the Indenture, the holder hereof has the right,
at its option, at any time after 90 days following the original issuance of any
Notes through the close of business on the final maturity date of the Notes, or,
as to all or any portion hereof called for redemption, prior to the close of
business on the Business Day immediately preceding the date fixed for redemption
(unless the Company shall default in payment due upon redemption thereof) to
convert the principal hereof or any portion of such principal which is $1,000 or
an integral multiple thereof into that number of shares of the Company's Common
Stock, as said shares shall be constituted at the date of conversion, obtained
by dividing the principal amount of this Note or portion thereof to be converted
by the Conversion Price of $26.670 or such Conversion Price as adjusted from
time to time as provided in the Indenture, upon surrender of this Note, together
with a conversion notice as provided in the Indenture, to the Company at the
office or agency of the Company maintained for that purpose in accordance with
the terms of the Indenture, or at the option of such holder, the Corporate Trust
Office, and, unless the shares issuable on conversion are to be issued in the
same name as this Note, duly endorsed by, or accompanied by instruments of
transfer in form satisfactory to the Company duly executed by, the holder or by
his duly authorized attorney. Notwithstanding the foregoing, the holder's right
to convert this Note shall terminate on the Nonconversion Election Date (unless
the Company shall default in payment of the Make Whole Payment) if the Company
makes a Nonconversion Election in accordance with the Indenture. No adjustment
in respect of interest or dividends will be made upon any conversion; provided,
however, that if this Note shall be surrendered for conversion during the period
from the close of business on any record date for the payment of interest to the
close of business on the Business Day preceding the interest payment date, this
Note (unless it or the portion being converted shall have been called for
redemption during the period from
6
<PAGE>
the close of business on any record date for the payment of interest to the
close of business on the Business Day preceding the interest payment date) must
be accompanied by an amount, in same day funds or other funds acceptable to the
Company, equal to the interest payable on such interest payment date on the
principal amount being converted. No fractional shares will be issued upon any
conversion, but an adjustment in cash will be made, as provided in the
Indenture, in respect of any fraction of a share which would otherwise be
issuable upon the surrender of any Note or Notes for conversion. A Note in
respect of which a holder is exercising its right to require redemption upon a
Fundamental Change may be converted only if such holder withdraws its election
to exercise such right in accordance with the terms of the Indenture.
Upon due presentment for registration of transfer of this Note at the office
or agency of the Company maintained for that purpose in accordance with the
terms of the Indenture, or at the option of the holder of this Note, at the
Corporate Trust Office, a new Note or Notes of authorized denominations for an
equal aggregate principal amount will be issued to the transferee in exchange
thereof; subject to the limitations provided in the Indenture, without charge
except for any tax or other governmental charge imposed in connection therewith.
The Company, the Trustee, any authenticating agent, any paying agent, any
conversion agent and any Note registrar may deem and treat the registered holder
hereof as the absolute owner of this Note (whether or not this note shall be
overdue and notwithstanding any notation of ownership or other writing hereon
made by anyone other than the Company or any Note registrar), for the purpose of
receiving payment hereof, or on account hereof, for the conversion hereof and
for all other purposes, and neither the Company nor the Trustee nor any other
authenticating agent nor any paying agent nor other conversion agent nor any
Note registrar shall be affected by any notice to the contrary. All payments
made to or upon the order of such registered holder shall, to the extent of the
sum or sums paid, satisfy and discharge liability for monies payable on this
Note.
No recourse for the payment of the principal of or any premium or interest
on this Note, or for any claim based hereon or otherwise in respect hereof; and
no recourse under or upon any obligation, covenant or agreement of the Company
in the Indenture or any indenture supplemental thereto or in any Note, or
because of the creation of any indebtedness represented thereby, shall be had
against any incorporator, stockholder, employee, agent, officer or director or
subsidiary, as such, past, present or future, 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, all such liability being, by acceptance
hereof and as part of the consideration for the issue hereof, expressly waived
and released.
This Note shall be deemed to be a contract made under the laws of New York,
and for all purposes shall be construed in accordance with the laws of New York,
without regard to principles of conflicts of laws.
Terms used in this Note and defined in the Indenture are used herein as
therein defined.
7
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription of the face of
this Note, shall be construed as though they were written out in full according
to applicable laws or regulations.
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT Custodian
---------- -----------
TEN ENT - as tenant by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right under Uniform Gifts to Minors Act
of survivorship and not as
tenants in common
-----------------------------------------------
(State)
</TABLE>
Additional abbreviations may also be used
though not in the above list.
8
<PAGE>
CONVERSION NOTICE
TO: ITC/\DELTACOM, INC.
The undersigned registered owner of this Note hereby irrevocable exercises
the option to convert this Note, or the portion thereof (which is $1,000 or an
integral multiple thereof) below designated, into shares of Common Stock of
ITC/\DeltaCom, Inc. in accordance with the terms of the Indenture referred to in
this Note, and directs that the shares issuable and deliverable upon such
conversion, together with any check in payment for fractional shares and any
Notes representing any unconverted principal amount hereof, be issued and
delivered to the registered holder hereof unless a different name has been
indicated below. If shares or any portion of this Note not converted are to be
issued in the name of a person other than the undersigned, the undersigned will
provide the appropriate information below and pay all transfer taxes payable
with respect thereto. Any amount required to be paid to the undersigned on
account of interest accompanies this Note.
Dated:
------------------------------
----------------------------------------
----------------------------------------
Signature(s)
Signature(s) must be guaranteed by an
"eligible guarantor institution" meeting
the requirements of the Note registrar,
which requirements include membership or
participation in the Security Transfer
Agent Medallion Program ("STAMP") or
such other "signature guarantee program"
as may be determined by the Note
registrar in addition to, or in
substitution for, STAMP, all in
accordance with the Securities Exchange
Act of 1934, as amended.
----------------------------------------
Signature Guarantee
9
<PAGE>
Fill in the registration of shares of Common Stock if to be issued, and Notes if
to be delivered, other than to and in the name of the registered holder:
- -----------------------------------
(Name)
- -----------------------------------
(Street Address)
- -----------------------------------
(City, State and Zip Code)
Please print name and address
Principal amount to be converted
(if less than all): $
-----------------------
Social Security or Other Taxpayer
Identification Number:
---------------------
10
<PAGE>
OPTION TO ELECT REPAYMENT
UPON A FUNDAMENTAL CHANGE
TO: ITC/\DELTACOM, INC.
The undersigned registered owner of this Note hereby irrevocably
acknowledges receipt of a notice from ITC/\DeltaCom, Inc. (the "Company") as to
the occurrence of a Fundamental Change with respect to the Company and requests
and instructs the Company to repay the entire principal amount of this Note, or
the portion thereof (which is $1,000 or an integral multiple thereof) below
designated, in accordance with the terms of the Indenture referred to in this
Note at the redemption price, together with accrued interest to, but excluding,
such date, to the registered holder hereof.
Date:
-------------------------------- -----------------------------------
----------------------------------------
Signature(s)
NOTICE: The above signatures of the
holder(s) hereof must correspond with
the name as written upon the face of the
Note in every particular without
alteration or enlargement or any change
whatever.
Principal amount to be repaid (if less
than all):
$
----------------
----------------------------------------
Social Security or Other Taxpayer
Identification Number
11
<PAGE>
ASSIGNMENT
For value received hereby sell(s), assign(s) and
-------------------------
transfer(s) unto (Please insert social security or
-------------------------
other Taxpayer Identification Number of assignee) the within Note, and hereby
irrevocably constitutes and appoints attorney to
-------------------------
transfer the said Note on the books of the Company, with full power of
substitution in the premises.
Dated:
------------------------- ----------------------------------------
----------------------------------------
Signature(s)
Signature(s) must be guaranteed by an
"eligible guarantor institution" meeting
the requirements of the Note registrar,
which requirements include membership or
participation in the Security Transfer
Agent Medallion Program ("STAMP") or
such other "signature guarantee program"
as may be determined by the Note
registrar in addition to, or in
substitution for, STAMP, all in
accordance with the Securities Exchange
Act of 1934, as amended.
----------------------------------------
Signature Guarantee
NOTICE: The signature of the conversion notice, the option to elect repayment
upon a Fundamental Change or the assignment must correspond with the name as
written upon the face of the Note in every particular without alteration or
enlargement or any change whatever.
12
<PAGE>
SCHEDULE A
- --------------------------------------------------------------------------------
DATE | PRINCIPAL AMOUNT
- --------------------------------------------------------------------------------
|
- --------------------------------------------------------------------------------
|
- --------------------------------------------------------------------------------
|
- --------------------------------------------------------------------------------
|
- --------------------------------------------------------------------------------
|
- --------------------------------------------------------------------------------
|
- --------------------------------------------------------------------------------
|
- --------------------------------------------------------------------------------
|
- --------------------------------------------------------------------------------
|
- --------------------------------------------------------------------------------
|
- --------------------------------------------------------------------------------
|
- --------------------------------------------------------------------------------
|
- --------------------------------------------------------------------------------
|
- --------------------------------------------------------------------------------
|
- --------------------------------------------------------------------------------
13
<PAGE>
EXHIBIT 5.1
[HOGAN & HARTSON L.L.P. LETTERHEAD]
October 1, 1999
Board of Directors
ITC/\DeltaCom, Inc.
1791 O.G. Skinner Drive
West Point, Georgia 31833
Gentlemen:
This firm has acted as counsel to ITC/\DeltaCom, Inc., a Delaware
corporation (the "Company"), in connection with its registration statement on
Form S-3, as amended (the "Registration Statement"), as filed with the
Securities and Exchange Commission on the date hereof, relating to resales of up
to $100,000,000 aggregate principal amount of the Company's 4 1/2% Convertible
Subordinated Notes due 2006 (the "Notes"), and such indeterminable number of
shares of common stock, $.01 par value per share (the "Common Stock"), of the
Company as may be issuable upon conversion of the Notes (the "Conversion
Shares") in accordance with the Indenture (as defined below). The Notes and the
Conversion Shares are to be offered and sold by certain security holders of the
Company. This Opinion Letter is furnished to you at your request to enable you
to fulfill the requirements of Item 601(b)(5) of Regulation S-K, 17 C.F.R.
(S)229.601(b)(5), in connection with such registration.
For purposes of this Opinion Letter, we have examined copies of the
following documents:
1. An executed copy of the Registration Statement, as filed with the
Securities and Exchange Commission on the date hereof.
2. An executed copy of the Indenture (the "Indenture"), dated as of May 12,
1999, between ITC/\DeltaCom, Inc. and U.S. Trust Company of Texas, N.A.,
as Trustee (the "Trustee").
3. An executed copy of the Notes, dated as of May 12, 1999.
4. The Restated Certificate of Incorporation of the Company, as certified
by the Secretary of State of the State of Delaware on April 29, 1999 and
as certified by the Secretary of the Company on the date hereof as then
being complete, accurate and in effect.
5. The Amended and Restated By-laws of the Company, as certified by the
Secretary of the Company on the date hereof as then being complete,
accurate and in effect.
6. Resolutions of the Board of Directors of the Company adopted at meetings
held on April 27, 1999, and resolutions of the Pricing Committee of the
Board of Directors of the Company adopted at a meeting held on May 6,
1999, as certified by the Secretary of the Company on the date hereof as
being complete, accurate and in effect.
7. A certificate of the Trustee dated May 12, 1999 as to the authentication
of the Notes in accordance with the terms of the Indenture.
8. A certificate of the Secretary of the Company with respect to certain
matters relating to the subject matter of this Opinion Letter.
In our examination of the foregoing documents, we have assumed the
genuineness of all signatures, the legal capacity of natural persons, the
authenticity, accuracy and completeness of all documents submitted to us as
originals, and the conformity with the
1
<PAGE>
original documents of all documents submitted to us as certified, telecopied,
photostatic, or reproduced copies. This Opinion Letter is given, and all
statements herein are made, in the context of the foregoing.
For purposes of this Opinion Letter, we have assumed that (i) the
Registration Statement has become effective, (ii) the Trustee has all requisite
power and authority under all applicable laws, regulations and governing
documents to execute, deliver and perform its obligations under the Indenture,
(iii) the Trustee has duly authorized, executed and delivered the Indenture and
is validly existing and in good standing in all necessary jurisdictions and (iv)
the Indenture constitutes a valid and binding obligation of the Trustee,
enforceable against the Trustee in accordance with its terms. We also have
assumed the receipt by the Company of the consideration for the Notes as
contemplated by the resolutions of the Company's Board of Directors authorizing
the issuance thereof.
This Opinion Letter is based as to matters of law solely on (i) Delaware
corporate law and (ii) New York contract law (but not including any statutes,
ordinances, administrative decisions, rules or regulations of any political
subdivisions of the State of New York), and we express no opinion herein as to
any other laws, statutes, ordinances, rules or regulations.
Based upon, subject to and limited by the foregoing, we are of the opinion
that:
(a) The Notes constitute valid and legally binding obligations of the
Company, enforceable against the Company in accordance with their terms, except
as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights (including,
without limitation, the effect of statutory and other laws regarding fraudulent
conveyances, fraudulent transfers and preferential transfers) and as may be
limited by the exercise of judicial discretion and the application of principles
of equity, including, without limitation, requirements of good faith, fair
dealing, conscionability and materiality (regardless of whether the security is
considered in a proceeding at law or inequity) and except that a waiver of
rights under any usury law may be unenforceable.
(b) The Conversion Shares, when issued in accordance with the terms of the
Notes and the Indenture, will be validly issued, fully paid and non-assessable.
The opinion expressed in Paragraph (a) above shall be understood to mean
only that if there is a default in performance of an obligation, (i) if a
failure to pay or other damage can be shown and (ii) if the defaulting party can
be brought into a court which will hear the case and apply the governing law,
then, subject to the availability of defenses, and to the exceptions set forth
in Paragraph (a) above, the court will provide a money damage (or perhaps
injunctive or specific performance) remedy.
This Opinion Letter has been prepared for your use in connection with the
Registration Statement and speaks as of the date hereof. We assume no obligation
to advise you of any changes in the foregoing subsequent to the delivery of this
Opinion Letter.
We hereby consent to the filing of this Opinion Letter as Exhibit 5.1 to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the prospectus constituting a part of the Registration
Statement. In giving this consent, we do not thereby admit that we are an
"expert" within the meaning of the Securities Act of 1933, as amended.
Very truly yours,
/s/ HOGAN & HARTSON L.L.P.
HOGAN & HARTSON L.L.P.
2
<PAGE>
EXHIBIT 23.2
------------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our reports dated February 12, 1999
included in ITC/\DeltaCom, Inc.'s Form 10-K for the year ended December 31, 1998
and to all references to our Firm included in this registration statement.
/s/ Arthur Andersen LLP
Atlanta, Georgia
September 27, 1999
